UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
[ X ] ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For
the fiscal year ended December 31, 2008
[ ] TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the transition period from __________ to ___________
Commission
file number
0-50189
Crown
Holdings, Inc.
(Exact
name of registrant as specified in its charter)
Pennsylvania
75-3099507
(State
or other jurisdiction of incorporation or
organization) (Employer
Identification No.)
One
Crown Way, Philadelphia,
PA 19154
(Address
of principal executive
offices) (Zip
Code)
Registrant’s
telephone number, including area code: 215-698-5100
_______________
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each
class
Name of each exchange on
which registered
Common Stock $5.00 Par
Value
New York Stock Exchange
Common Stock Purchase
Rights
New York Stock Exchange
7
3/8
% Debentures Due
2026
New York Stock Exchange
7 ½% Debentures Due
2096
New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO
SECTION 12(g) OF THE ACT:
NONE
(Title of
Class)
_______________
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes [ X
] No [ ]
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act. Yes
[ ] No [ X ]
Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filings requirements for
the past 90 days. Yes [ X
] No [ ]
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large
accelerated filer [ X
] Accelerated
filer [ ]
Non-accelerated
filer [ ] (Do not check if a smaller reporting
company)
Smaller reporting company [ ]
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes [ ] No [
X
]
As of
June 30, 2008, 160,868,424 shares of the Registrant’s Common Stock, excluding
shares held in Treasury, were issued and outstanding, and the aggregate market
value of such shares held by non-affiliates of the Registrant on such date was
$4,180,970,340 based on the New York Stock Exchange closing price for such
shares on that date.
As of
February 23, 2009, 159,738,031 shares of the Registrant’s Common Stock were
issued and outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Document
Parts Into Which
Incorporated
Proxy
Statement for the Annual Meeting of Shareholders to be held April 23,
2009
Part III to the extent described therein
2008 FORM
10-K ANNUAL REPORT
TABLE OF
CONTENTS
| PART I | |||
|
Business
|
1
|
||
|
Risk
Factors
|
8
|
||
|
Unresolved
Staff Comments
|
19
|
||
|
Properties
|
19
|
||
|
Legal
Proceedings
|
21
|
||
|
Submission
of Matters to a Vote of Security Holders
|
21
|
||
|
PART
II
|
|||
|
Market
for Registrant’s Common Stock, Related Stockholder Matters and Issuer
Purchases of Equity Securities
|
22
|
||
|
Selected
Financial
Data
|
24
|
||
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
26
|
||
|
Quantitative
and Qualitative Disclosures About Market Risk
|
44
|
||
|
Financial
Statements and Supplementary Data
|
45
|
||
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure.
|
105
|
||
|
Controls
and
Procedures
|
105
|
||
|
Other
Information
|
106
|
||
|
PART
III
|
|||
|
Directors,
Executive Officers and Corporate Governance
|
106
|
||
|
Executive
Compensation
|
106
|
||
| Item 12 | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
106
|
|
|
Certain
Relationships and Related Transactions, and Director
Independence
|
107
|
||
|
Principal
Accountant Fees and Services
|
107
|
||
|
PART
IV
|
|||
|
Exhibits
and Financial Statement Schedules
|
108
|
||
|
117
|
PART
I
|
ITEM 1
.
|
BUSINESS
|
Crown
Holdings, Inc. (the “Company” or the “Registrant”) (where the context requires,
the “Company” shall include reference to the Company and its consolidated
subsidiary companies) is a Pennsylvania corporation.
The
Company is a worldwide leader in the design, manufacture and sale of packaging
products for consumer goods. The Company’s primary products include steel and
aluminum cans for food, beverage, household and other consumer products and
metal vacuum closures and caps. These products are manufactured in
the Company’s plants both within and outside the United States and are sold
through the Company’s sales organization to the soft drink, food, citrus,
brewing, household products, personal care and various other
industries. At December 31, 2008, the Company operated 139 plants
along with sales and service facilities throughout 41 countries and had
approximately 21,300 employees. Consolidated net sales for the Company in 2008
were $8.3 billion with 74% of 2008 net sales derived from operations outside the
United States, of which 74% of these non-U.S. revenues were derived from
operations in the Company’s European Division.
During
2005 and 2006, the Company sold its plastic closure business, its remaining
European plastics businesses and its Americas health and beauty care
business. The sales and segment income amounts presented herein
exclude those of the divested businesses. Further information about
the results of operations of the divested businesses is contained under
Note B
to the consolidated financial
statements.
DIVISIONS AND OPERATING
SEGMENTS
The
Company’s business is organized geographically within three divisions, Americas,
European and Asia-Pacific. Within the Americas and European Divisions the
Company is generally organized along product lines. The Company’s reportable
segments within the Americas Division are Americas Beverage and North America
Food. The Company’s reportable segments within the European Division are
European Beverage, European Food and European Specialty Packaging. Americas
Beverage includes beverage can operations in the U.S., Canada, Mexico and South
America. North America Food includes food can and metal vacuum
closure operations in the U.S. and Canada. European Beverage includes
beverage can operations in Europe, the Middle East and North
Africa. European Food includes food can and metal vacuum closure
operations in Europe and Africa. European Specialty Packaging
includes specialty packaging operations in Europe. No operating
segments within the Asia-Pacific Division are included as reportable
segments.
Financial
information concerning the Company’s operating segments, and within selected
geographic areas, is set forth within ”Management’s Discussion and Analysis of
Financial Condition and Results of Operations” of this Report and under
Note X
to the consolidated financial
statements.
AMERICAS
DIVISION
The
Americas Division includes operations in the United States, Canada, Mexico,
South America and the Caribbean. These operations manufacture beverage, food and
aerosol cans and ends, specialty packaging and metal vacuum closures and
caps. At December 31, 2008, the division operated 51 plants in 8
countries and had approximately 6,200 employees. In 2008, the
Americas Division had net sales of $3.1 billion. Approximately 70% of
the division’s 2008 net sales were derived from within the
United States. Within the Americas Division the Company
has determined that there are two reportable segments:
Americas Beverage and North America Food.
Other operating segments consist of North America Aerosol, and plastic packaging
and food can operations in Mexico, South America and the
Caribbean.
Americas
Beverage
The
Americas Beverage segment manufactures aluminum beverage cans and ends and steel
crowns, commonly referred to as “bottle caps.” Americas Beverage had
net sales in 2008 of $1.9 billion (22.5% of consolidated net sales) and segment
income (as defined under
Note X
to the
consolidated financial statements) of $191 million.
North
America Food
The
North America Food segment manufactures steel and aluminum food cans and ends
and metal vacuum closures. North America Food had net sales in 2008
of $905 million (10.9% of consolidated net sales) and segment income (as defined
under
Note X
to the consolidated financial
statements) of $91 million.
EUROPEAN
DIVISION
The
European Division includes operations in Europe, the Middle East and
Africa. These operations manufacture beverage, food and
aerosol cans and ends, specialty packaging, metal vacuum closures and caps, and
canmaking equipment. At December 31, 2008 the division operated 75 plants in 27
countries and had approximately 12,700 employees. Net sales in 2008 were $4.5
billion. Net sales in the United Kingdom of $817 million and in France of $733
million represented 18% and 16% of division net sales in 2008.
Within
the European Division the Company has determined that there are three reportable
segments: European Beverage, European Food and European Specialty
Packaging. European Aerosol does not meet the criteria of a
reportable segment.
European
Beverage
The
European Beverage segment manufactures steel and aluminum beverage cans and ends
and steel crowns. European Beverage had net sales in 2008 of $1.6 billion (19.3%
of consolidated net sales) and segment income (as defined under
Note X
to the consolidated financial statements) of
$249 million.
European
Food
The
European Food segment manufactures steel and aluminum food cans and ends, and
metal vacuum closures. European Food had net sales in 2008 of $2.2 billion
(26.3% of consolidated net sales) and segment income (as defined under
Note X
to the consolidated financial statements) of
$232 million.
European
Specialty Packaging
The
European Specialty Packaging segment manufactures a wide variety of specialty
containers, with numerous lid and closure variations. In the consumer
market, the Company manufactures a wide variety of steel containers for cookies
and cakes, tea and coffee, confectionery, giftware, personal care, tobacco, wine
and spirits, as well as non-processed food products. In the industrial market,
the Company manufactures steel containers for paints, inks, chemical, automotive
and household products.
European
Specialty Packaging had net sales in 2008 of $445 million (5.4% of consolidated
net sales) and segment income (as defined under
Note
X
to the consolidated financial statements) of $18
million.
ASIA-PACIFIC
DIVISION
The
Asia-Pacific Division manufactures aluminum beverage cans and ends, steel food
and aerosol cans and ends, and metal caps. At December 31, 2008, the division
operated 13 plants in 6 countries and had approximately 2,100 employees. Net
sales in 2008 were $638 million (7.7% of consolidated net sales) and beverage
can and end sales were approximately 83% of division sales. No operating
segments within the Asia-Pacific division are included as reportable
segments.
PRODUCTS
Beverage
Cans
The
Company supplies beverage cans and ends and other packaging products to
a variety of beverage and beer companies, including Anheuser-Busch
InBev, Coca-Cola, Cott Beverages, Dr. Pepper Snapple Group, DAMM,
Heineken, National Beverage, Pepsi-Cola and SABMiller, among others. The
Company’s beverage can business is built around local, regional and global
markets, which has served to develop the Company’s understanding of global
consumer expectations.
The
beverage market is dynamic and highly competitive, with each packaging
manufacturer striving to satisfy consumers’ ever-changing needs. The Company
competes by offering its customers broad market knowledge, resources at all
levels of its worldwide organization and extensive research and development
capabilities that have enabled the Company to provide its customers with
innovative products. The Company meets its customers’ beverage packaging needs
with an array of two-piece beverage cans and ends and metal bottle caps.
Innovations include the SuperEnd™ beverage can end and shaped beverage
cans. The Company expects to continue to add capacity in many of the
growth markets around the world.
Beverage
can manufacturing is capital intensive, requiring significant investment in
tools and machinery. The Company seeks to effectively manage its invested
capital and is continuing its efforts to reduce can and end diameter, lighten
its cans, reduce non-metal costs and restructure production
processes.
Food Cans and Closures
The
Company manufactures a variety of food cans and ends, including two-and
three-piece cans in numerous shapes and sizes, and sells food cans to food
marketers such as Bonduelle, ConAgra, Continentale, H.J. Heinz, Mars, Menu
Foods, Nestlé, Premier Foods and Stockmeyer, among others. The
Company offers a wide variety of metal vacuum closures and sealing equipment
solutions to leading marketers such as Danone, H. J. Heinz, Kraft, Nestlé,
Premier Foods and Unilever, among others, from a network of metal vacuum closure
plants around the world. The Company supplies total packaging
solutions, including metal and composite closures, capping systems and services
while working closely with customers, retailers and glass and plastic container
manufacturers to develop innovative closure solutions and meet customer
requirements.
Technologies
used to produce food cans include three-piece welded, two-piece drawn and
wall-ironed and two-piece drawn and redrawn. The Company also offers its
LIFTOFF™ series of food ends, including its Easylift
™
full aperture
steel food can ends, and PeelSeam™, a flexible aluminum foil laminated end. The
Company offers expertise in closure design and decoration, ranging from quality
printing of the closure in up to nine colors, to inside-the-cap printing, which
offers customers new promotional possibilities, to better product protection
through Ideal Closures™ and Superplus™. The Company’s
commitment to innovation has led to developments in packaging materials, surface
finishes, can shaping, lithography, filling, retorting, sealing and opening
techniques and environmental performance.
The
Company manufactures easy open, vacuum and conventional ends for a variety of
heat-processed and dry food products including fruits and vegetables, meat and
seafood, soups, ready-made meals, infant formula, coffee and pet
food.
Aerosol Cans
The
Company’s customers for aerosol cans and ends include manufacturers of personal
care, food, household and industrial products, including Colep CCL, Procter
& Gamble (Gillette), SC Johnson and Unilever, among others. The
aerosol can business, while highly competitive, is marked by its high
value-added service to customers. Such value-added services include,
among others, the ability to manufacture multiple sizes and design customer
labels, multiple color schemes and shaped packaging.
Specialty
Packaging
The
Company’s specialty packaging business is located primarily in Europe and serves
many major European and multinational companies. The Company produces a wide
variety of specialty containers with numerous lid and closure variations. The
Company’s specialty packaging customers include Abbott Laboratories, Akzo Nobel,
Cadbury plc, Danone (Sigma), Nestlé, Teisseire, Tikkurila Oy, Mars
(Wrigley) and United Biscuits, among others.
SALES AND
DISTRIBUTION
Global
marketers continue to demand the consolidation of their supplier base under
long-term arrangements and qualify those suppliers on the basis of their ability
to provide global service, innovative designs and technologies in a
cost-effective manner.
With its
global reach, the Company markets and sells products to customers through its
own sales and marketing staff located within each operating segment. Regional
sales personnel support the segments’ staffs. In some instances, contracts
with customers will be centrally negotiated, but products are ordered through
and distributed directly by the Company’s manufacturing facilities. The
Company’s facilities are generally located in proximity to their respective
major customers. The Company works closely with customers in order to develop
new business and to extend the terms of its existing contracts.
Many
customers provide the Company with quarterly or annual estimates of product
requirements along with related quantities pursuant to which periodic
commitments are given. Such estimates assist the Company in managing production
and controlling use of working capital. The Company schedules its production to
meet customer requirements. Because the production time for the Company’s
products is short, any backlog of customer orders in relation to overall sales
is not significant.
SEASONALITY
The food
packaging business is somewhat seasonal with the first quarter tending to be the
slowest period as the autumn packing period in the Northern Hemisphere has ended
and new crops are not yet planted. The industry enters its busiest period in the
third quarter when the majority of fruits and vegetables are harvested. Weather
represents a substantial uncertainty in the yield of food products and is a
major factor in determining the demand for food cans in any given
year.
The
Company’s beverage packaging business is predominately located in the Northern
Hemisphere. Generally, beverage products are consumed in greater amounts during
the warmer months of the year and sales and earnings have generally been higher
in the second and third quarters of the calendar year.
The
Company’s other businesses primarily include aerosol and specialty packaging and
canmaking equipment, which tend not to be significantly affected by seasonal
variations.
COMPETITION
Most of
the Company’s products are sold in highly competitive markets, primarily based
on price, quality, service and performance. The Company competes with other
packaging manufacturers as well as with fillers, food processors and packers,
some of whom manufacture containers for their own use and for sale to others.
The
Company’s competitors include, but are not limited to,
Ball Corporation, BWAY Corporation, Impress Holdings B.V., Metal Container
Corporation, Rexam PLC and Silgan Holdings Inc.
CUSTOMERS
The
Company’s largest customers consist of many of the leading manufacturers and
marketers of packaged products in the world. Consolidation trends among beverage
and food marketers has led to a concentrated customer base. The Company’s top
ten global customers represented in the aggregate approximately 32% of its 2008
net sales. In each of the years in
the period 2006 through 2008, no one
customer
of the Company accounted for more than ten percent of the Company’s net sales.
Each operating segment of the Company has major customers and the loss of one or
more of these major customers could have a material adverse effect on an
individual segment or the Company as a whole. Major customers include those
listed above under the Products discussion. In addition to sales to Coca-Cola
and Pepsi-Cola, the Company also supplies independent licensees of Coca-Cola and
Pepsi-Cola.
RESEARCH AND
DEVELOPMENT
The
Company’s principal Research, Development & Engineering (RD&E) centers
are located in Alsip, Illinois and Wantage, England. The Company depends on its
centralized RD&E capabilities to (1) promote development of value-added
metal packaging systems, (2) design cost-efficient manufacturing processes,
systems and materials that promote the sustainability credentials of metal
packaging, providing continuous quality and/or production efficiency
improvements, (3) support technical needs in customer and vendor relationships,
and (4) provide engineering services for the Company’s worldwide packaging
activities. These capabilities allow the Company to identify new
and/or expanded market opportunities by working directly with customers to
develop new products or enhance existing products through the application of new
technologies that better differentiate products in the retail environment (for
example, the creation of new packaging shapes or novel decoration methods)
and/or the incorporation of consumer-valued features (for example, improved
openability or greater resealability).
Recent
innovations include:
|
·
|
Enhancements
to Crown’s proprietary SuperEnd® beverage can end, which requires less
metal than existing ends without any reduction in strength. The
SuperEnd® beverage end also offers improved pourability, drinkability,
ease-of-opening and appearance over traditional ends. This
technology is now commercially available through the Company’s efforts and
through its licensees to beverage customers on six continents – North and
South America, Europe, Africa, Asia, and Australia. To date,
Crown and its licensees have produced more than 200 billion SuperEnd®
beverage ends, saving more than 49,000 metric tons of aluminum, over 800
metric tons of coatings, and more than 400,000 metric tons of greenhouse
gases (equivalent to the annual emissions from 73,000 automobiles)
compared to conventional beverage can ends
.
|
|
·
|
Patented
Easylift™ full aperture steel food can ends, launched initially with
Nestlé Purina Petcare for pet food in Europe. This
revolutionary new end provides improved tab access and openability even
compared to the Company’s EOLE™ full aperture easy-open
ends. Certain consumer tests indicate strong preference for
this end over those of Crown's competitors, and further rollout across
Europe and a North American launch are expected in
2009.
|
|
·
|
An
expanding family of PeelSeam™ flexible lidding for cans that provides
exceptional ease of opening and high quality graphics, and can still be
applied by Crown’s customers with traditional metal can seaming
equipment. In 2008, Crown installed new high speed PeelSeam™
manufacturing equipment and expanded the product range to include new
sizes and shapes.
|
|
·
|
Patented
composite (metal and plastic) closures including the Company’s Ideal™
product line. These closures offer excellent barrier
performance and improved tamper resistance while requiring less strength
to open than standard metal vacuum closures. The Company
supplies composite closures to a growing list of customers including
Abbott Nutrition, Tree Top, J.M. Smucker, Planters, Mead Johnson
Nutritionals, LiDestri Foods, Carriage House Companies, and Kerry
Americas. Other composite closure applications include Crown’s
Preson™ closure for Kraft, Pinnacle Foods, and Constellation
Wines.
|
|
·
|
Value-added
shaped metal cans for beverage, food and aerosol applications, such as
Heineken’s keg can, Nescafé Classic for Nestlé Russia, shaped aerosol
containers for WD-40, SC Johnson’s Air Infusions line, Sara Lee’s new
Endust Free product, and Wera’s Kraftform Fluid. This technology has the
capability of reinforcing brand image, providing enhanced differentiation
on the retail shelf, and reducing
counterfeiting.
|
|
·
|
New
specialty metal containers, such as for Fortnum & Mason coffee,
PMI Snus, Cadbury Easter Eggs, Pokemon Card Collector tins, and
award winning sustainability solutions for Nestlé in confectionery.
In addition, an evolution in paint can handles for improved cost
efficiency and merchandising on
shelf.
|
|
·
|
Crown’s
Integra
TM
Double-Seam Monitor as part of its customer services program that enables
Crown’s food and beverage customers to maintain world-class closing
standards and reduce seamer downtime during their high speed filling and
seaming operations.
|
The Toyo
Seikan Company joined Showa Aluminum Can Company as a Crown SuperEnd®
licensee in Japan in 2008. The Company also has SuperEnd® beverage end
technology, Bi-Can™ aerosol technology, and can shaping licensees in other
regions around the world.
The
Company spent $47 million in 2008, $48 million in 2007 and $42 million in 2006
on its centralized RD&E activities. Certain of these activities are expected
to improve and expand the Company’s product lines in the future.
These
expenditures include methods developed within Crown’s Corporate RD&E
facilities to improve manufacturing efficiencies, reduce unit costs, and develop
new and/or value-added packaging systems, but do not include product and/or
process developments occurring within the Company’s decentralized business
units.
MATERIALS AND
SUPPLIERS
The
Company in its manufacturing operations uses various raw materials, primarily
aluminum and steel, for packaging. In general, these raw materials
are purchased in highly competitive, price-sensitive markets which have
historically exhibited price and demand cyclicality. These and other
materials used in the manufacturing process have historically
been available in adequate supply from multiple sources. Generally,
the Company’s principal raw materials are obtained from the major suppliers in
the countries in which it operates plants. Some plants in less developed
countries, which do not have local mills, obtain raw materials from nearby, more
developed countries. The Company has agreements for what it considers
adequate supplies of raw materials. However, sufficient quantities may not be
available in the future due to, among other things, shortages due to excessive
demand, weather or other factors, including disruptions in supply caused by raw
material transportation or production delays. From time to
time, some of the raw materials have been in short supply, but to date, these
shortages have not had a significant impact on the Company’s
operations.
In 2008,
consumption of steel and aluminum represented approximately 26% and 33%,
respectively, of consolidated cost of products sold, excluding depreciation and
amortization. Due to the significance of these raw materials to overall cost of
products sold, raw material efficiency is a critical cost component of the
products manufactured. Supplier consolidations, changes in ownership, government
regulations, political unrest and increased demand for raw materials in the
packaging and other industries, among other risk factors, provide uncertainty as
to the level of prices at which the Company might be able to source such raw
materials in the future. Moreover, the prices of aluminum and steel have at
times been subject to volatility, especially during 2008.
During
2008, the weighted average market price for steel used in the Company’s global
packaging operations increased approximately 5%. Suppliers indicate
that recent shortages in raw materials combined with rising operating costs and
reduced demand for their product may require steel price increases for their
customers.
The
average price of aluminum ingot on the London Metal Exchange (“LME”) decreased
approximately 2% in 2008. The Company generally attempts to mitigate its
aluminum ingot risk by matching its purchase obligations with its sales
agreements; however, there can be no assurance that the Company will be able to
fully mitigate that risk.
The
Company, in agreement with customers in many cases, also uses commodity and
foreign currency forwards in an attempt to manage its exposure to aluminum price
volatility.
There can
be no assurance that the Company will be able to fully recover from its
customers the impact of aluminum and steel price increases or that the use of
derivative instruments will effectively manage the Company’s exposure to price
volatility. In addition, if the Company is unable to purchase steel
and aluminum for a significant period of time, its metal-consuming operations
would be disrupted and if the Company is unable to fully recover the higher cost
of steel and aluminum, its financial results may be adversely
affected. The Company continues to monitor this situation and the
effect on its operations.
In
response to the volatility of raw material prices, ongoing productivity and cost
reduction efforts in recent years have focused on improving raw material cost
management.
The
Company’s manufacturing facilities are dependent, in varying degrees, upon the
availability of water and processed energy, such as natural gas and electricity.
Certain of these sources may become difficult or impossible to obtain on
acceptable terms due to external factors which could increase the Company’s
costs or interrupt its business.
Aluminum
and steel, by their very nature, can be recycled at high effectiveness and can
be repeatedly reused to form new consumer packaging with minimal or no
degradation in performance, quality or safety. By recycling
these metals, large amounts of energy can be saved.
SUSTAINABILITY AND
ENVIRONMENTAL MATTERS
The
Company’s operations are subject to numerous laws and regulations governing the
protection of the environment, disposal of waste, discharges into water,
emissions into the atmosphere and the protection of employee health and safety.
Future regulations may impose stricter environmental requirements on the
packaging industry and may require additional capital
investment. Anticipated future restrictions in some jurisdictions on
the use of certain coatings may require the Company to employ additional control
equipment or process modifications. The Company has a Corporate Sustainability
Policy and a Corporate Environmental Protection Policy. Environmental
awareness is a key component of sustainability. Environmental
considerations are among the criteria by which the Company evaluates projects,
products, processes and purchases. The Company is committed to continuous
improvement in product design and manufacturing practices to provide the best
outcome for the human and natural environment, both now and in the
future. By reducing the per-unit amount of raw materials used in
manufacturing its products, the Company can significantly reduce the amount of
energy, water and other resources and associated emissions necessary to
manufacture metal containers. The Company aims to continue that
process of improvement in its manufacturing process to assure that consumers and
the environment are best served through the use of metal
packaging. There can be no assurance that current or future
environmental laws or remediation liabilities will not have a material effect on
the Company’s financial condition, liquidity or results of operations.
Discussion of the Company’s environmental matters is contained within
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” of this Report under the caption “
Environmental Matters
,” and under
Note M
to the consolidated financial
statements.
WORKING
CAPITAL
The
Company generally uses cash during the first nine months of the year to finance
seasonal working capital needs. The Company’s working capital requirements are
funded by cash on hand, its revolving credit facility, its receivables
securitization and factoring programs, and from operations.
Further
information relating to the Company’s liquidity and capital resources is set
forth within “Management’s Discussion and Analysis of Financial Condition and
Results of Operations,” of this Report under the captions “
Liquidity
" and "
Debt Refinancings
” and under
Note R
to the consolidated financial
statements.
Collection
and payment periods tend to be longer for the Company’s operations located
outside the U.S. due to local business practices.
EMPLOYEES
At
December 31, 2008, the Company had approximately 21,300 employees. Collective
bargaining agreements with varying terms and expiration dates cover
approximately 14,700 employees. The Company does not expect that renegotiations
of the agreements expiring in 2009 will have a material adverse effect on its
results of operations, financial position or cash flow.
AVAILABLE
INFORMATION
The
Company’s internet website address is
www.crowncork.com
. Information
on the Company’s website is not incorporated by reference in this Annual Report
on Form 10-K. The Company’s Annual Report on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those
reports filed by the Company with the U.S. Securities and Exchange Commission
pursuant to sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as
amended, are accessible free of charge through the Company’s website as soon as
reasonably practicable after the documents are filed with, or otherwise
furnished to, the U. S. Securities and Exchange Commission.
The
Company’s Code of Business Conduct and Ethics, its Corporate Governance
Guidelines, and the charters of its Audit, Compensation and Nominating and
Corporate Governance committees are available on the Company’s website. These
documents are also available in print to any shareholder who requests
them. The Company intends to disclose amendments to and waivers of
the Code of Business Conduct and Ethics on the Company’s website.
ITEM
1A
.
RISK
FACTORS
In
addition to factors discussed elsewhere in this report and in “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,” the
following are some of the important factors that could materially and adversely
affect the Company’s business, financial condition and results of
operations.
The
substantial indebtedness of the Company could prevent it from fulfilling its
obligations.
The
Company is highly leveraged. As a result of its substantial indebtedness, a
significant portion of the Company’s cash flow will be required to pay interest
and principal on its outstanding indebtedness and the Company may not generate
sufficient cash flow from operations, or have future borrowings available under
its credit facilities, to enable it to pay its indebtedness or to fund other
liquidity needs. As of December 31, 2008, the Company had approximately $3.3
billion of total indebtedness and shareholders’ deficit of $317 million. The
Company’s ratio of earnings to fixed charges was 2.4 times for 2008 as discussed
in Exhibit 12 to this Annual Report. The Company’s €460 million of first
priority senior secured notes mature on September 1, 2011 and its $758
million senior secured revolving credit facilities mature on May 15, 2011.
The Company’s $354 million and €278 million senior secured term loan facilities
mature on November 15, 2012. The Company's $500 million of
senior notes mature on November 15, 2013 and its $600 million of senior notes
mature on November 15, 2015. In addition, at December 31, 2008, the Company had
$115 million and €85 million outstanding under its committed $225 million North
American and €120 million European securitization facilities which mature in
March 2010 and June 2010, respectively.
The
substantial indebtedness of the Company could:
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make
it more difficult for the Company to satisfy its
obligations;
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increase
the Company’s vulnerability to general adverse economic and industry
conditions, including rising interest
rates;
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restrict
the Company from making strategic acquisitions or exploiting business
opportunities;
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limit,
along with the financial and other restrictive covenants under the
Company’s indebtedness, the Company’s ability to obtain additional
financing, dispose of assets or pay cash
dividends;
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require
the Company to dedicate a substantial portion of its cash flow from
operations to service its indebtedness, thereby reducing the availability
of its cash flow to fund future working capital, capital expenditures and
other general corporate
requirements;
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require
the Company to sell assets used in its
business;
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limit
the Company’s flexibility in planning for, or reacting to, changes in its
business and the industry in which it operates;
and
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place
the Company at a competitive disadvantage compared to its competitors that
have less debt.
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If its
financial condition, operating results and liquidity deteriorate, the Company’s
creditors may restrict its ability to obtain future financing and its suppliers
could require prepayment or cash on delivery rather than extend credit to it. If
the Company’s creditors restrict advances, the Company’s ability to generate
cash flows from operations sufficient to service its short and long-term debt
obligations will be further diminished. In addition, the Company’s
ability to make payments on and refinance its debt and to fund its operations
will depend on the Company’s ability to generate cash in the
future.
Some
of the Company’s indebtedness is subject to floating interest rates, which would
result in its interest expense increasing if interest rates rise.
As of
December 31, 2008, approximately $0.8 billion of the Company’s $3.3 billion of
total indebtedness was subject to floating interest rates. Changes in
economic conditions could result in higher interest rates, thereby increasing
the Company’s interest expense and reducing funds available for operations or
other purposes. The Company’s annual interest expense was $302 million, $318
million and $286 million for 2008, 2007 and 2006, respectively. Based
on the amount of variable rate debt outstanding as of December 31, 2008, a 1%
increase in variable interest rates would increase its annual interest expense
by $8 million. Accordingly, the Company may experience economic losses and a
negative impact on earnings as a result of interest rate
fluctuations. The actual effect of a 1% increase could be more than
$8 million as the Company’s borrowings on its variable rate debt are higher
during the year than at the end of the year. In addition, the cost of
the Company’s securitization facilities would also increase with an increase in
floating interest rates. Although the Company may use interest rate
protection agreements from time to time to reduce its exposure to interest rate
fluctuations in some cases, it may not elect or have the ability to implement
hedges or, if it does implement them, they may not achieve the desired effect.
See “Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Financial Position—
Market Risk
” in
this report.
Notwithstanding
the Company’s current indebtedness levels and restrictive covenants, the Company
may still be able to incur substantial additional debt or make certain
restricted payments, which could exacerbate the risks described
above.
The
Company may be able to incur additional debt in the future, including in
connection with acquisitions or joint ventures. Although the Company’s credit
facilities and the indentures governing its outstanding notes contain
restrictions on the Company’s ability to incur indebtedness, those restrictions
are subject to a number of exceptions. In addition, the Company may consider
investments in joint ventures or acquisitions, which may increase the Company’s
indebtedness. Moreover, although the Company’s credit facilities and
the indentures governing its outstanding notes contain restrictions on the
Company’s ability to make restricted payments, including the declaration and
payment of dividends and the repurchase of the Company’s common stock, the
Company is able to make such restricted payments under certain
circumstances. Adding new debt to current debt levels or
making restricted payments could intensify the related risks that the
Company and its subsidiaries now face.
Restrictive
covenants in its debt agreements could restrict the Company’s operating
flexibility.
The
Company’s credit facilities and the indentures governing its secured and
unsecured notes contain affirmative and negative covenants that limit the
ability of the Company and its subsidiaries to take certain actions. These
restrictions may limit the Company’s ability to operate its businesses and may
prohibit or limit its ability to enhance its operations or take advantage of
potential business opportunities as they arise. The credit facilities require
the Company to maintain specified financial ratios and satisfy other financial
conditions.
The credit facilities and
the agreements or indentures governing
the Company’s
secured
and unsecured notes restrict, among other things and subject to certain
exceptions, the ability of the Company to:
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incur
additional debt;
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pay
dividends or make other distributions, repurchase capital stock,
repurchase subordinated debt and make certain investments or
loans;
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create
liens and engage in sale and leaseback
transactions;
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create
restrictions on the payment of dividends and other amounts to the Company
from subsidiaries;
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change
accounting treatment and reporting
practices;
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enter
into agreements restricting the ability of a subsidiary to pay dividends
to, make or repay loans to, transfer property to, or guarantee
indebtedness of, the Company or any of its other
subsidiaries;
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sell
or acquire assets and merge or consolidate with or into other companies;
and
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engage
in transactions with affiliates.
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In
addition, the indentures and agreements governing the Company’s outstanding
unsecured notes limit, among other things, the ability of the Company to enter
into certain transactions, such as mergers, consolidations, joint ventures,
asset sales, sale and leaseback transactions and the pledging of
assets. Furthermore, if the Company or certain of its subsidiaries
experience specific kinds of changes of control, the Company’s credit facilities
are due and payable and the Company must offer to repurchase outstanding
notes.
The
breach of any of these covenants by the Company or the failure by the Company to
meet any of these ratios or conditions could result in a default under any or
all of such indebtedness. If a default occurs under any such indebtedness, all
of the outstanding obligations thereunder could become immediately due and
payable, which could result in a default under the Company’s other outstanding
debt and could lead to an acceleration of obligations related to other
outstanding debt. The ability of the Company to comply with the provisions of
the credit facilities, the agreements
or indentures governing other indebtedness it
may incur
in the future and its outstanding
secured and unsecured notes can be affected by events beyond its control and,
therefore, it may be unable to meet those ratios and conditions.
The
Company is subject to the effects of fluctuations in foreign exchange rates,
which may reduce its net sales and cash flow.
The
Company is exposed to fluctuations in foreign currencies as a significant
portion of its consolidated net sales, its costs, assets and liabilities, are
denominated in currencies other than the U.S. dollar. For the fiscal years ended
December 31, 2008, 2007 and 2006, the Company derived approximately 74%,
73% and 72%, respectively, of its consolidated net sales from sales in foreign
currencies. In its consolidated financial statements, the Company translates
local currency financial results into U.S. dollars based on average exchange
rates prevailing during a reporting period. During times
of a strengthening U.S. dollar, its reported international revenue and earnings
will be reduced because the local currency will translate into fewer U.S.
dollars. Conversely, a weakening U.S. dollar will effectively increase the
dollar-equivalent of the Company’s expenses and liabilities denominated in
foreign currencies. The Company’s translation and exchange
adjustments reduced reported income before tax by $39 million in 2008, $6
million in 2006 and $94 million in 2005, and increased reported income before
tax by $12 million in 2007, and $98 million in 2004. Although the
Company may use financial instruments such as foreign currency forwards from
time to time to reduce its exposure to currency exchange rate fluctuations in
some
cases, it
may not elect or have the ability to implement hedges or, if it does implement
them, they may not achieve the desired effect. See “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations—Financial Position—
Market
Risk
.”
The
Company’s international operations, which generated approximately 74% of its
consolidated net sales in 2008, are subject to various risks that may lead to
decreases in its financial results.
The
Company is an international company and the risks associated with operating in
foreign countries may have a negative impact on the Company’s liquidity and net
income. The Company’s international operations generated approximately 74%, 73%
and 72% of its consolidated net sales in 2008, 2007 and 2006, respectively. The
business strategy of the Company includes continued expansion of international
activities, including within developing markets and areas, such as the Middle
East, South America and Asia, that may pose greater risk of political or
economic stability. Approximately 26%, 24% and 23% of the Company’s
consolidated net sales in 2008, 2007 and 2006, respectively, were generated
outside of the developed markets in Western Europe, the United States and
Canada. The Company’s international operations are subject to various
risks associated with operating in foreign countries, including:
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restrictive
trade policies;
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inconsistent
product regulation or policy changes by foreign agencies or
governments;
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duties,
taxes or government royalties, including the imposition or increase of
withholding and other taxes on remittances and other payments by non-U.S.
subsidiaries;
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customs,
import/export and other trade compliance
regulations;
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foreign
exchange rate risks;
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difficulty
in collecting international accounts receivable and potentially longer
payment cycles;
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increased
costs in maintaining international manufacturing and marketing
efforts;
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non-tariff
barriers and higher duty rates;
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difficulties
associated with expatriating cash generated or held abroad in a
tax-efficient manner and changes in tax
laws;
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difficulties
in enforcement of contractual obligations and intellectual property
rights;
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exchange
controls;
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national
and regional labor strikes;
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language
and cultural barriers;
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high
social benefit costs for labor, including costs associated with
restructurings;
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civil
unrest or political, social, legal and economic
instability;
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product
boycotts, including with respect to the products of the Company’s
multi-national customers;
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customer,
supplier, and investor concerns regarding operations in areas such as the
Middle East;
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taking
of property by nationalization or expropriation without fair
compensation;
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imposition
of limitations on conversions of foreign currencies into dollars or
payment of dividends and other payments by non-U.S.
subsidiaries;
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hyperinflation
and currency devaluation in certain foreign countries where such currency
devaluation could affect the amount of cash generated by operations in
those countries and thereby affect the Company’s ability to satisfy its
obligations; and
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war, global
or regional catastrophic events, natural disasters, widespread outbreaks
of infectious diseases and acts of
terrorism.
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There can
be no guarantee that a deterioration of economic conditions in countries in
which the Company operates would not have a material impact.
The
Company’s profits will decline if the price of raw materials or energy rises and
it cannot increase the price of its products and the Company’s financial results
could be adversely affected if the Company was not able to obtain sufficient
quantities of raw materials.
The
Company uses various raw materials, such as steel, aluminum, water, natural gas,
electricity and other processed energy, in its manufacturing operations.
Sufficient quantities of these raw materials may not be available in the future
or may be available only at increased prices. The Company's raw material supply
contracts vary as to terms and duration, with steel contracts typically one year
in duration with fixed prices and aluminum contracts typically multi-year in
duration with fluctuating prices based on aluminum ingot costs. The availability
of various raw materials and their prices depends on global and local supply and
demand forces, governmental regulations (including tariffs), level of
production, resource availability, transportation, and other
factors. In particular, in recent years the consolidation of steel
suppliers, shortage of raw materials affecting the production of steel and the
increased global demand for steel, including in China and other developing
countries, have contributed to an overall tighter supply for steel, resulting in
increased steel prices and, in some cases, special surcharges and allocated cut
backs of products by steel suppliers.
The
prices of certain raw materials used by the Company, such as steel, aluminum and
processed energy, have historically been subject to volatility. In 2008,
consumption of steel and aluminum represented approximately 26% and 33%,
respectively, of the Company’s consolidated cost of products sold, excluding
depreciation and amortization. For 2008, the weighted average market price for
steel used in packaging increased approximately 5% and the average price of
aluminum ingot on the London Metal Exchange decreased approximately
2%. As a result of raw material price increases, in 2007 and 2008 the
Company implemented price increases in most of its steel and aluminum product
categories. The Company's major steel suppliers have indicated that they expect
prices to increase significantly in 2009. As a result of continuing global
supply and demand pressures, other commodity-related costs affecting the
Company’s business may increase as well, including natural gas, electricity and
freight-related costs. The Company intends to increase prices on its products
accordingly in order to recover these costs.
While
certain, but not all, of the Company’s contracts pass through raw material costs
to customers, the Company may be unable to increase its prices to offset
increases in raw material costs without suffering reductions in unit volume,
revenue and operating income. In addition, any price increases may take effect
after related cost increases, reducing operating income in the near
term. Significant increases in raw material costs may increase the
Company’s working capital requirements, which may increase the Company’s average
outstanding indebtedness and interest expense and may exceed the amounts
available under the Company’s senior secured credit facility and other sources
of liquidity.
If the
Company is unable to purchase steel, aluminum or other raw materials for a
significant period of time, the Company’s operations would be disrupted and any
such disruption may adversely affect the Company’s financial
results. If customers believe that the Company’s competitors
have greater access to raw materials, perceived certainty of supply at the
Company’s competitors may put the Company at a competitive disadvantage
regarding pricing and product volumes.
The
Company is subject to certain restrictions that may limit its ability to make
payments out of the cash reserves shown in its consolidated financial
statements.
The
ability of the Company’s subsidiaries and joint ventures to pay dividends, make
distributions, provide loans or make other payments to the Company may be
restricted by applicable state and foreign laws, potentially adverse tax
consequences and their agreements, including agreements governing their debt. In
addition, the equity interests of the Company’s joint venture partners or other
shareholders in its non-wholly owned subsidiaries in any dividend or other
distribution made by these entities would need to be satisfied on a
proportionate basis with the Company. As a result, the Company may not be able
to access its cash flow to service its debt, pay dividends or repurchase its
common stock, and there can be no assurance that the amount of cash and cash
flow reflected on its financial statements will be fully available to the
Company. In addition, the Company has substantial indebtedness in its U.S.
operations and its non-U.S. cash flow may not be fully available to repay the
U.S. debt.
Pending
and future asbestos litigation and payments to settle asbestos-related claims
could reduce the Company’s cash flow and negatively impact its financial
condition.
Crown
Cork & Seal Company, Inc., a wholly-owned subsidiary of the Company (“Crown
Cork”), is one of many defendants in a substantial number of lawsuits filed
throughout the United States by persons alleging bodily injury as a result of
exposure to asbestos. In 1963, Crown Cork acquired a subsidiary that had two
operating businesses, one of which is alleged to have manufactured
asbestos-containing insulation products. Crown Cork believes that the business
ceased manufacturing such products in 1963.
The
Company recorded pre-tax charges of $25 million, $29 million, $10 million, $10
million and $35 million to increase its accrual for asbestos-related liabilities
in 2008, 2007, 2006, 2005 and 2004, respectively. As of December 31, 2008, Crown
Cork’s accrual for pending and future asbestos-related claims was $201 million.
Crown Cork’s accrual includes estimates for probable costs for claims through
the year 2018. Potential estimated additional claims costs of $38
million beyond 2018 have not been included in the Company’s liability, as the
Company believes cost projections beyond ten years are inherently unreliable due
to potential changes in the litigation environment and other factors whose
impact cannot be known or reasonably estimated. Assumptions
underlying the accrual include that claims for exposure to asbestos
that occurred after the sale of the subsidiary’s insulation business
in 1964 would not be entitled to settlement payouts and that the Georgia, South
Carolina, Florida, Ohio, Mississippi, Texas and Pennsylvania asbestos
legislation described under
Note L
to the consolidated
financial statements 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.
Crown
Cork made cash payments of $25 million, $26 million, $26 million, $29 million
and $41 million in 2008, 2007, 2006, 2005 and 2004, respectively, for
asbestos-related claims. These payments have reduced and any such future
payments will reduce the cash flow available to Crown Cork for its business
operations and debt payments.
Asbestos-related
payments and defense costs may be significantly higher than those estimated by
Crown Cork because the outcome of this type of litigation (and, therefore, Crown
Cork’s reserve) is subject to a number of assumptions and uncertainties, such as
the number or size of asbestos-related claims or settlements, the number of
financially viable responsible parties, the extent to which Georgia, South
Carolina, Florida, Ohio, Mississippi and Texas statutes relating to asbestos
liability are upheld and/or applied by Georgia, South Carolina, Florida, Ohio,
Mississippi and Texas courts, respectively, the extent to which a Pennsylvania
statute relating to asbestos liability is upheld and/or applied by courts in
states other than Pennsylvania, Crown Cork’s ability to obtain resolution
without payment of asbestos-related
claims by persons alleging first exposure to
asbestos after 1964, and the potential impact of any pending or future
asbestos-related legislation. Accordingly, Crown Cork may be required to make
payments for claims substantially in excess of its accrual, which could reduce
the Company’s cash flow
and impair its ability to satisfy its obligations. As
a result of the uncertainties regarding its asbestos-related
liabilities and its reduced cash flow, the ability of the Company to raise new
money in the capital markets is more difficult and more costly, and the Company
may not be able to access the capital markets in the
future.
Further
information regarding Crown Cork’s asbestos-related liabilities is presented
within “Management’s Discussion and Analysis of Financial Condition and Results
of Operations” under the headings, “
Provision
for Asbestos
” and “
Liquidity and Capital
Resources
” and under
Note L
to the consolidated
financial statements.
The
Company has significant pension plan obligations worldwide and significant
unfunded postretirement obligations, which could reduce its cash flow
and negatively impact its results of operations and its financial
condition.
The
Company sponsors various pension plans worldwide, with the largest funded plans
in the U.K., U.S. and Canada. In 2008, 2007, 2006, 2005 and 2004, the Company
contributed $71 million, $65 million, $90 million, $401 million and $171
million, respectively, to its pension plans and currently anticipates its 2009
funding to be approximately $74 million. Pension expense in 2009 is expected to
increase to approximately $133 million from $13 million in 2008, primarily due
to a decrease in the market value of plan assets during 2008. A 0.25% change in
the 2009 expected rate of return assumptions would change 2009 pension expense
by approximately $8 million. A 0.25% change in the discount rates assumptions as
of December 31, 2008 would change 2009 pension expense by approximately $5
million. The Pension Protection Act of 2006 could require the Company
to accelerate the timing of its contributions under its U.S. pension plan and
also increase the premiums paid by the Company to the Pension Benefit Guaranty
Corporation. The actual impact of the Pension Protection Act on the
Company’s U.S. pension plan funding requirements will depend upon the interest
rates required for determining the plan’s liabilities and the investment
performance of the plan’s assets. An acceleration in the timing of pension plan
contributions and an increase in required premiums could decrease the Company’s
cash available to pay its outstanding obligations and its net
income.
As of
December 31, 2008, the Company has a credit balance of $157 million for its U.S.
funded plan, arising from past contributions, that can be used to offset future
contributions that would otherwise be required. Based on current assumptions,
the Company has no minimum U.S. pension funding requirement in calendar year
2009 for its funded plan, and expects to make payments of approximately $17
million related to its supplemental executive retirement plan.
The
difference between pension plan obligations and assets, or the funded status of
the plans, significantly affects the net periodic benefit costs of the Company’s
pension plans and the ongoing funding requirements of those
plans. Among other factors, significant volatility in the equity
markets and in the value of illiquid alternative investments, changes in
interest rates, investment returns and the market value of plan assets can
substantially increase the Company’s future pension plan funding
requirements. A significant increase in the Company’s funding
requirements could have a negative impact on the Company’s results of operations
and profitability.
See
Note V
to the
consolidated financial statements for further detail.
The
Company’s U.S. pension plan was underfunded on a termination basis by
approximately $275 million as of December 31, 2008. While its U.S. pension plan
continues in effect, the Company continues to incur additional pension
obligations. The Company’s pension plan assets consist primarily of common
stocks and fixed income securities and also include alternative investments such
as interests in private equity or hedge funds. If the performance of investments
in the plan does not meet the Company’s assumptions, the underfunding of the
pension plan may increase, the Company may have to contribute additional funds
to the pension plan, and its pension expense may increase. In addition, its
retiree medical plans are unfunded.
The
Company’s U.S. pension plan is subject to the Employee Retirement Income
Security Act of 1974, or ERISA. Under ERISA, the Pension Benefit Guaranty
Corporation, or PBGC, has the authority to terminate an underfunded plan under
certain circumstances. In the event its U.S. pension plan is terminated for any
reason while the plan is underfunded, the Company will incur a liability to the
PBGC that may be equal to the entire amount of the underfunding. In addition, as
of December 31, 2008, the unfunded accumulated postretirement benefit
obligation, as calculated in accordance with U.S. generally accepted accounting
principles, for retiree medical benefits was approximately $458 million, based
on assumptions set forth under
Note V
to the
consolidated financial statements.
The Company’s
principal markets may be subject to overcapacity and intense competition, which
could reduce the
Company’s net
sales and net income.
Food and
beverage cans are standardized products, allowing for relatively little
differentiation among competitors. This could lead to overcapacity and price
competition among food and beverage can producers, if capacity growth outpaced
the growth in demand for food and beverage cans and overall manufacturing
capacity exceeded demand. These market conditions could reduce product prices
and contribute to declining revenue and net income and increasing debt
balances. As a result of industry overcapacity and price competition,
the Company may not be able to increase prices sufficiently to offset higher
costs or to generate sufficient cash flow. The North American food and beverage
can market, in particular, is considered to be a mature market, characterized by
slow growth and a sophisticated distribution system.
Competitive
pricing pressures, overcapacity, the failure to develop new product designs and
technologies for products, as well as other factors could cause the Company to
lose existing business or opportunities to generate new business and could
result in decreased cash flow and net income.
The
Company is subject to competition from substitute products, which could result
in lower profits and reduced cash flows.
The
Company is subject to substantial competition from producers of alternative
packaging made from glass, cardboard, and plastic, particularly from producers
of plastic food and beverage containers, whose market has grown over the past
several years. The Company’s sales depend heavily on the volumes of sales by the
Company’s customers in the food and beverage markets. Changes in preferences for
products and packaging by consumers of prepackaged food and beverage cans can
significantly influence the Company’s sales. Changes in packaging by the
Company’s customers may require the Company to re-tool manufacturing operations,
which could require material expenditures. In addition, a decrease in the costs
of, or a further increase in consumer demand for, alternative packaging could
result in lower profits and reduced cash flows for the Company. For
example, increases in the price of aluminum and steel and decreases in the price
of plastic resin, which is a petrochemical product and may fluctuate with prices
in the oil and gas market, may increase substitution of plastic food and
beverage containers for metal containers.
The
loss of a major customer and/or customer consolidation could reduce the
Company’s net sales and profitability.
Many of
the Company's largest customers have acquired companies with similar or
complementary product lines. This consolidation has increased the
concentration of the Company's business with its
largest
customers. In many cases, such consolidation has been accompanied by pressure
from customers for lower prices, reflecting the increase in the total volume of
product purchased or the elimination of a price differential between the
acquiring customer and the company acquired. Increased pricing pressures from
the Company’s customers may reduce the Company’s net sales and net income. The
majority of the Company’s sales are to companies that have leading market
positions in the sale of packaged food, beverages and aerosol products to
consumers. Although no one customer accounted for more than 10% of its net sales
in 2008, 2007 or 2006, the loss of any of its major customers, a reduction in
the purchasing levels of these customers or an adverse change in the terms of
supply agreements with these customers could reduce the Company’s net sales and
net income. A continued consolidation of the Company’s customers could
exacerbate any such loss.
The
Company’s business is seasonal and weather conditions could reduce the Company’s
net sales.
The
Company manufactures packaging primarily for the food and beverage can market.
Its sales can be affected by weather conditions. Due principally to the
seasonal nature of the soft drink, brewing, iced tea and other beverage
industries, in which demand is stronger during the summer months, sales of the
Company’s products have varied and are expected to vary by quarter. Shipments in
the U.S. and Europe are typically greater in the second and third quarters of
the year. Unseasonably cool weather can reduce
consumer
demand for certain beverages packaged in its containers. In addition, poor
weather conditions that reduce crop yields of packaged foods can decrease
customer demand for its food containers.
The
Company
is subject to costs and liabilities related to stringent environmental and
health and safety standards.
Laws and
regulations relating to environmental protection and health and safety may
increase the Company’s costs of operating and reduce its profitability. The
Company’s operations are subject to numerous U.S. federal and state and non-U.S.
laws and regulations governing the protection of the environment, including
those relating to treatment, storage and disposal of waste, discharges into
water, emissions into the atmosphere, remediation of soil and groundwater
contamination and protection of employee health and safety. Future regulations
may impose stricter environmental requirements affecting the Company’s
operations or may impose additional requirements regarding consumer health and
safety, such as potential restrictions on the use of bisphenol-A, which is used
in the lining of food and beverage cans. Also, for example, future
restrictions in some jurisdictions on air emissions of volatile organic
compounds and the use of certain paint and lacquering ingredients may require
the Company to employ additional control equipment or process modifications. The
Company’s operations and properties, both in the U.S. and abroad, must comply
with these laws and regulations. In addition, a number of
governmental authorities in the U.S. and abroad have introduced or are
contemplating enacting legal requirements, including emissions limitations, cap
and trade systems or mandated changes in energy consumption, in response to the
potential impacts of climate change. Given the wide range of
potential future climate change regulations in the jurisdictions in which the
Company operates, the potential impact to the Company’s operations is uncertain.
Climate change can also result in potential, although highly uncertain, physical
impacts to the Company’s operations.
A number
of governmental authorities both in the U.S. and abroad also have enacted, or
are considering, legal requirements relating to product stewardship, including
mandating recycling, the use of recycled materials and/or limitations on certain
kinds of packaging materials such as plastics. In addition, some companies with
packaging needs have responded to such developments, and/or to perceived
environmental concerns of consumers, by using containers made in whole or in
part of recycled materials. Such developments may reduce the demand for some of
the Company’s products, and/or increase its costs. See “Management’s Discussion
and Analysis of Financial Condition and Results of Operations—Financial
Position—
Environmental Matters
.”
The
Company has had net losses in the past and may not generate profits in the
future.
Operating
losses could limit the Company’s ability to service its debt and fund its
operations. For the fiscal year ended December 31, 2005, the Company had
consolidated losses from continuing operations of $312 million. The
Company had income from continuing operations of $226 million, $528 million,
$342 million and $36 million for the fiscal years ended December 31, 2008,
2007, 2006 and 2004, respectively. However, the Company may not
generate net income in the future.
The
Company has written down a significant amount of goodwill, and a further write
down of goodwill would result in lower reported net income and a reduction of
its net worth.
During
2007, the Company recorded a charge of $103 million to write down the value of
goodwill in its European metal vacuum closures business due to a decrease in
projected operating results. Further impairment of the Company’s goodwill would
require additional write down of goodwill, which would reduce the Company’s net
income in the period of any such write down. At December 31, 2008, the carrying
value of the Company’s goodwill was approximately $2.0 billion. Under Statement
of Financial Accounting Standards No. 142, “Goodwill and Other Intangible
Assets,” the Company is required to evaluate goodwill reflected on its balance
sheet at least annually, or when circumstances indicate a potential impairment.
If it determines that the goodwill is impaired, the Company would be required to
write off a portion or all of the goodwill.
If the
Company
fails to retain key management and personnel the Company may be unable to
implement its business plan.
Members
of the Company’s senior management have extensive industry experience, and it
would be difficult to find new personnel with comparable experience. Because the
Company’s business is highly specialized, we believe that it would also be
difficult to replace the Company’s key technical personnel. The Company believes
that its future success depends, in large part, on its experienced senior
management team. Losing the services of key members of its management team could
limit the Company’s ability to implement its business plan.
A significant
portion of the
Company’s
workforce is unionized and labor disruptions could increase the
Company’s costs
and prevent the
Company from
supplying its customers.
A
significant portion of the Company’s workforce is unionized and a prolonged work
stoppage or strike at any facility with unionized employees could increase its
costs and prevent the Company from supplying its customers. In addition, upon
the expiration of existing collective bargaining agreements, the Company may not
reach new agreements without union action and any such new agreements may not be
on terms satisfactory to the Company. Moreover, additional groups of
currently non-unionized employees may seek union representation in the future.
If the Company is unable to negotiate acceptable collective bargaining
agreements, the Company may become subject to union-initiated work stoppages,
including strikes. Additionally, it is expected that the Employee Free Choice
Act, which was passed in the U.S. House of Representatives in 2007, will be
reintroduced in the new Congress. If reintroduced and enacted in its most recent
form, the Employee Free Choice Act could make it significantly easier for union
organizing drives to be successful. The Employee Free Choice Act could also give
third-party arbitrators the ability to impose terms, which may be harmful to the
Company, of collective bargaining agreements upon the Company and a labor union
if the Company and such union are unable to agree to the terms of a collective
bargaining agreement and could increase the penalties the Company may incur if
it engages in labor practices in violation of the National Labor Relations
Act.
Failure
by the Company's joint venture partners to observe their obligations could
adversely affect the business and operations of the joint ventures and, in turn,
the business and operations of the Company.
A portion
of the Company’s operations, including certain beverage can operations in South
America, the Middle East and Asia, is conducted through joint ventures. The
Company participates in these ventures with third parties. In the
event that the Company’s joint venture partners do not observe their
obligations, it is possible that the affected joint venture would not be able to
operate in accordance with its business plans or that the Company would have to
increase its level of commitment to the joint venture.
If the
Company
fails to maintain an effective system of internal control, the Company may not
be able to accurately report financial results or prevent
fraud.
Effective
internal controls are necessary to provide reliable financial reports and to
assist in the effective prevention of fraud. Any inability to provide reliable
financial reports or prevent fraud could harm the Company’s business. The
Company must annually evaluate its internal procedures to satisfy the
requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which requires
management and auditors to assess the effectiveness of internal controls. If the
Company fails to remedy or maintain the adequacy of its internal controls, as
such standards are modified, supplemented or amended from time to time, the
Company could be subject to regulatory scrutiny, civil or criminal penalties or
shareholder litigation.
In
addition, failure to maintain adequate internal controls could result in
financial statements that do not accurately reflect the Company’s financial
condition. There can be no assurance that the Company will be able to complete
the work necessary to fully comply with the requirements of the Sarbanes-Oxley
Act or that the Company’s management and external auditors will continue to
conclude that the Company’s internal controls are effective.
The
Company is subject to litigation risks which could negatively impact its
operations and net income.
The
Company is subject to various lawsuits and claims with respect to matters such
as governmental, environmental and employee benefits laws and regulations,
securities, labor, and actions arising out of the normal course of business, in
addition to asbestos-related litigation described in “Pending and future
asbestos litigation and payments to settle asbestos-related claims could reduce
the Company’s cash flow and negatively impact its financial
condition.” The Company is currently unable to determine the total
expense or possible loss, if any, that may ultimately be incurred in the
resolution of such legal proceedings. Regardless of the ultimate outcome of such
legal proceedings, they could result in significant diversion of time by the
Company’s management. The results of the Company’s pending legal proceedings,
including any potential settlements, are uncertain and the outcome of these
disputes may decrease its cash available for operations and investment, restrict
its operations or otherwise negatively impact its business, operating results,
financial condition and cash flow.
The
recent global credit and financial crisis could have adverse effects on the
Company.
The
current global credit and financial crisis could have significant adverse
effects on the Company’s operations, including as a result of any the
following:
|
·
|
downturns
in the business or financial condition of any of the Company’s key
customers or suppliers;
|
|
·
|
a
fall in the fair value of the Company’s pension assets, potentially
requiring the Company to make significant additional contributions to its
pension plans to meet prescribed funding
levels;
|
|
·
|
the
deterioration of any of the lending parties under the Company’s revolving
credit facility or the creditworthiness of the counterparties to the
Company’s derivative transactions, which could result in such parties
failure to satisfy their obligations under their arrangements with the
Company;
|
|
·
|
noncompliance
with the covenants under the Company’s indebtedness as a result of a
weakening of the Company’s financial position or results of operations;
and
|
|
·
|
the
lack of currently available funding sources, which could have a negative
impact upon the liquidity of the Company as well as that of its customers
and suppliers.
|
Changes in
accounting standards and taxation requirements could negatively affect the
Company’s financial results.
New
accounting standards or pronouncements that may become applicable to the Company
from time to time, or changes in the interpretation of existing standards and
pronouncements, could have a significant effect on the Company’s reported
results for the affected periods. The Company is also subject to income tax in
the numerous jurisdictions in which the Company operates. Increases in income
tax rates or other changes to tax laws could reduce the Company’s after-tax
income from affected jurisdictions or otherwise affect the Company’s tax
liability. In addition, the Company’s products are subject to import
and excise duties and/or sales or value-added taxes in many jurisdictions in
which it operates. Increases in indirect taxes could affect the Company’s
products’ affordability and therefore reduce demand for its
products. Future changes in U.S. tax law regarding the taxation of
unrepatriated non-U.S. earnings could have a negative impact on the Company’s
after-tax income and cash flow.
The loss of the Company’s intellectual property rights would negatively impact its ability to compete.
If the
Company is unable to maintain the proprietary nature of its technologies, its
competitors may use the Company’s technologies to compete with
it. The Company has a number of patents covering various aspects of
its products, including its SuperEnd® beverage can end, Easylift™ full aperture
steel food can ends, PeelSeem™ flexible lidding and Ideal™ product line. The
Company’s patents may not withstand challenge in litigation, and patents do not
ensure that competitors will not develop competing products or infringe upon the
Company’s patents. Moreover, the costs of litigation to defend the
Company’s patents could be substantial and may outweigh the benefits
of enforcing its rights under its patents. The Company markets its products
internationally and the patent laws of foreign countries may offer less
protection than the patent laws of the United States. Not all of the Company’s
domestic patents have been registered in other countries. The Company
also relies on trade secrets, know-how and other unpatented proprietary
technology, and others may independently develop the same or similar technology
or otherwise obtain access to the Company’s unpatented technology. In
addition, the Company has from time to time received letters from third parties
suggesting that it may be infringing on their intellectual property rights, and
third parties may bring infringement suits against the Company, which could
result in the Company needing to seek licenses from these third parties or
refraining altogether from use of the claimed technology.
ITEM
1B
.
UNRESOLVED STAFF
COMMENTS
There are
no unresolved written comments that were received from the SEC staff 180 days or
more before the end of the Company’s fiscal year relating to its periodic or
current reports under the Securities Exchange Act of 1934.
ITEM 2 . PROPERTIES
As of
December 31, 2008, the Company operated 139 manufacturing facilities of which 25
were leased. The Company has three divisions, defined geographically, within
which it manufactures and markets its products. The Americas Division has 51
operating facilities of which 11 are leased. Within the Americas Division, 33
facilities operate in the United States of which 8 are leased. The European
Division has 75 operating facilities of which 11 are leased and the Asia-Pacific
Division has 13 operating facilities of which 3 are leased. Some leases provide
renewal options as well as various purchase options. The principal
manufacturing facilities at December 31, 2008 are listed below and are grouped
by product and by division.
Excluded
from the list below are operating facilities in unconsolidated subsidiaries as
well as service or support facilities. The service or support
facilities include machine shop operations, plant operations dedicated to
printing for cans and closures, coil shearing, coil coating and RD&E
operations. Some operating facilities produce more than one product
but have been presented below under the product with the largest contribution to
sales.
|
Americas
|
Europe
|
Asia-Pacific
|
|||||
|
Metal
|
Lawrence,
MA
|
Olympia,
WA
|
Custines,
France
|
Sevilla,
Spain
|
Phnom
Penh, Cambodia
|
||
|
Packaging
|
Kankakee,
IL
|
La
Crosse, WI
|
Korinthos,
Greece
|
El
Agba, Tunisia
|
Beijing,
China
|
||
|
Beverage
|
Crawfordsville,
IN
|
Worland,
WY
|
Patras,
Greece
|
Izmit,
Turkey
|
Foshan,
China
|
||
|
and
|
Mankato,
MN
|
Cabreuva,
Brazil
|
Amman,
Jordan
|
Dubai,
UAE
|
Huizhou,
China
|
||
|
Closures
|
Batesville,
MS
|
Manaus,
Brazil
|
Dammam,
Saudi Arabia
|
Botcherby,
UK
|
Shanghai,
China
|
||
|
Dayton,
OH
|
Calgary,
Canada
|
Jeddah,
Saudi Arabia
|
Braunstone,
UK
|
Selangor,
Malaysia
|
|||
|
Cheraw,
SC
|
Weston,
Canada
|
Agoncillo,
Spain
|
Singapore
|
||||
|
Conroe,
TX
|
Santafe
de Bogota, Colombia
|
Bangkadi,
Thailand
|
|||||
|
Fort
Bend, TX
|
Guadalajara,
Mexico
|
Hanoi,
Vietnam
|
|||||
|
Winchester,
VA
|
Carolina,
Puerto Rico
|
Saigon,
Vietnam
|
|||||
|
|
|||||||
|
Food
|
Winter
Garden, FL
|
Seattle,
WA
|
Brive,
France
|
Abidjan,
Ivory Coast
|
Bangpoo,
Thailand
|
||
|
and
|
Pulaski
Park, MD
|
Oshkosh,
WI
|
Carpentras,
France
|
Toamasina,
Madagascar
|
Haadyai,
Thailand
|
||
|
Closures
|
Owatonna,
MN
|
Bolton,
Canada
|
Concarneau,
France (2)
|
Agadir,
Morocco
|
Samrong,
Thailand
|
||
|
Omaha,
NE
|
Chatham,
Canada
|
Laon,
France
|
Casablanca,
Morocco
|
||||
|
Lancaster,
OH
|
Concord,
Canada
|
Nantes,
France
|
Goleniow,
Poland
|
||||
|
Massillon,
OH
|
Winnipeg,
Canada
|
Outreau,
France
|
Pruszcz,
Poland
|
||||
|
Mill
Park, OH
|
Kingston,
Jamaica
|
Perigueux,
France
|
Alcochete,
Portugal
|
||||
|
Portland,
OR
|
La
Villa, Mexico
|
Lubeck,
Germany
|
Timashevsk,
Russia
|
||||
|
Connellsville,
PA
|
Barbados,
West Indies
|
Mühldorf,
Germany
|
Dakar,
Senegal
|
||||
|
Hanover,
PA
|
Trinidad,
West Indies
|
Seesen,
Germany (2)
|
Dunajska,
Slovakia
|
||||
|
Suffolk,
VA
|
|
Tema,
Ghana
|
Bellville,
South Africa
|
||||
|
Thessaloniki,
Greece
|
Agoncillo,
Spain
|
||||||
|
Nagykoros,
Hungary
|
Molina
de Segura, Spain
|
||||||
|
Athy,
Ireland
|
Sevilla,
Spain
|
||||||
|
Aprilia,
Italy (2)
|
Vigo,
Spain
|
||||||
|
Battipaglia,
Italy
|
Neath,
UK
|
||||||
|
Calerno
S. Ilario d’Enza, Italy
|
Poole,
UK
|
||||||
|
Nocera
Superiore, Italy
|
Wisbech,
UK
|
||||||
|
Parma,
Italy
|
Worcester, UK | ||||||
|
Aerosol
|
Alsip,
IL
|
Spartanburg,
SC
|
Deurne,
Belgium
|
Mijdrecht,
Netherlands
|
|||
|
Decatur,
IL
|
Toronto,
Canada
|
Spilamberto,
Italy
|
Sutton,
UK
|
||||
|
Faribault,
MN
|
|||||||
|
Specialty
|
Belcamp,
MD
|
Hoboken,
Belgium
|
Hoorn,
Netherlands
|
||||
|
Packaging
|
St.
Laurent, Canada
|
Helsinki,
Finland
|
Miravalles,
Spain
|
||||
|
Chatillon-sur-Seine,
France
|
Montmelo,
Spain
|
||||||
|
Rouen,
France
|
Aesch,
Switzerland
|
||||||
|
Vourles,
France
|
Aintree,
UK
|
||||||
|
Hilden,
Germany
|
Carlisle,
UK
|
||||||
|
Mechernich,
Germany
|
Mansfield,
UK
|
||||||
|
Chignolo
Po, Italy
|
Newcastle,
UK
|
||||||
|
Plastic
Packaging
|
Manaus,
Brazil
|
Venancio Aires, Brazil | |||||
|
|
|||||||
|
Canmaking
|
Norwalk,
CT
|
Shipley,
UK
|
|||||
|
and
Spares
|
|||||||
The
Company’s manufacturing and support facilities are designed according to the
requirements of the products to be manufactured. Therefore, the type of
construction varies from plant to plant. Warehouse and delivery facilities are
generally provided at each of the manufacturing locations, although the Company
does lease outside warehouses.
Ongoing
productivity improvements and cost reduction efforts in recent years have
focused on upgrading and modernizing facilities to reduce costs, improve
efficiency and productivity and phase out uncompetitive facilities. The
Company has also opened new facilties to meet increases in market demand for its
products. These actions reflect the Company's continued commitment to
realign manufacturing facilties to maintain its competitive position in
its
markets. The Company continually reviews its operations and evaluates strategic
opportunities. Further discussion of the Company’s recent restructuring actions
and divestitures is contained within “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” under the captions “
Provision for Restructuring
,” and “
Provision for Asset Impairments and Loss/Gain on
Sale of Assets
,” and under
Note B
,
Note N
and
Note O
to the
consolidated financial statements.
Utilization
of any particular facility varies based upon demand for the product. While it is
not possible to measure with any degree of certainty or uniformity the
productive capacity of these facilities, management
believes
that, if necessary, production can be increased at several existing facilities
through the addition of personnel, capital equipment and, in some facilities,
square footage available for production. In addition, the Company may from time
to time acquire additional facilities and/or dispose of existing
facilities.
The
Company’s Americas and Corporate headquarters are in Philadelphia, Pennsylvania,
its European headquarters is in Paris, France and its Asia-Pacific headquarters
is in Singapore. The Company maintains research facilities in Alsip, Illinois
and in Wantage, England. The Company’s North American and European
facilities, with certain exceptions, are subject to liens in favor of the
lenders under its senior secured credit facility and under the Company’s first
priority senior secured notes.
ITEM 3
.
LEGAL
PROCEEDINGS
Crown
Cork & Seal Company, Inc., a wholly-owned subsidiary of the Company (“Crown
Cork”), is one of many defendants in a substantial number of lawsuits filed
throughout the United States by persons alleging bodily injury as a result of
exposure to asbestos. These claims arose from the insulation operations of a
U.S. company, the majority of whose stock Crown Cork purchased in 1963.
Approximately ninety days after the stock purchase, this U.S. company sold its
insulation assets and was later merged into Crown Cork. At December
31, 2008, the accrual for pending and future asbestos claims that are probable
and estimable was $201 million.
The
Company has been identified by the Environmental Protection Agency as a
potentially responsible party (along with others, in most cases) at a number of
sites.
Further
information on these matters and other legal proceedings is presented within
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” under the captions “
Provision for
Asbestos
” and “
Environmental Matters
” and
under
Note L
and
Note M
to
the consolidated financial statements.
ITEM 4
.
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE
OFFICERS OF THE REGISTRANT
Information
concerning the principal executive officers of the Company, including their ages
and positions, is set forth in “Directors, Executive Officers and Corporate
Governance” of this Report.
PART
II
ITEM
5
.
MARKET FOR REGISTRANT’S
COMMON STOCK AND RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES
OF EQUITY
SECURITIES
The
Registrant’s common stock is listed on the New York Stock Exchange. On February
23, 2009, there were 5,480 registered shareholders of the Registrant’s common
stock, including 1,572 participants in the Company’s Employee Stock Purchase
Plan. The market price of the Registrant’s common stock at December 31, 2008 is
set forth in Part II of this Report under Quarterly Data (unaudited). The
foregoing information regarding the number of registered shareholders of common
stock does not include persons holding stock through clearinghouse
systems. Details regarding the Company’s policy as to payment of cash
dividends and repurchase of shares are set forth within Part II, Item 7,
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” under the caption “
Common
Stock and Other Shareholders’ Equity/(Deficit)
” and under
Note P
to the consolidated financial
statements. Information with respect to shares of common stock that
may be issued under the Company’s equity compensation plans is set forth in Part
III,
Item 12
, “Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters,” of this
Report.
Issuer Purchases of Equity
Securities
The
following table provides information about the Company’s purchase of equity
securities during the year ended December 31, 2008.
|
Total
Number of
Shares
Purchased
|
Average
Price
Per
Share
|
Total
Number of Shares
Purchased
as Part of
Publicly
Announced Programs
|
Approximate
Dollar Value of
Shares
that May Yet Be
Purchased
under the Programs
as
of the end of the Period
(millions)
|
|
|
2008
|
||||
|
November
|
1,000,000
|
$14.76
|
1,000,000
|
$485
|
|
December
|
1,000,000
|
17.85
|
1,000,000
|
467
|
|
Total
|
2,000,000
|
$16.31
|
2,000,000
|
$467
|
On
February 28, 2008, the Company’s Board of Directors authorized the repurchase of
up to $500 million of the Company’s outstanding stock from time to time through
December 31, 2010, in the open market or through privately negotiated
transactions, subject to the terms of the Company’s debt agreements, market
conditions, the Company’s ability to generate operating cash flow, alternative
uses of operating cash flow (including the reduction of indebtedness), and other
factors. This authorization replaces and supersedes all previous
outstanding authorizations to repurchase shares. The Company is not
obligated to acquire any shares of common stock and the share repurchase plan
may be suspended or terminated at any time at the Company’s
discretion. The repurchased shares are expected to be used for the
Company’s stock-based benefit plans, as required, and for other general
corporate purposes.
COMPARATIVE
STOCK PERFORMANCE
Comparison
of Five-Year Cumulative Total Return (a)
Crown
Holdings, Inc., S&P 500 Index, Dow Jones “U.S. Containers & Packaging”
Index (b)
|
(a)
|
Assumes
that the value of the investment in Crown Holdings, Inc. common stock
and each index was $100 on December 31, 2003 and that all dividends were
reinvested.
|
|
(b)
|
Industry
index is weighted by market capitalization and is comprised of Crown
Holdings, Inc., AptarGroup, Ball, Bemis, Greif, MeadWestvaco,
Owens-Illinois, Packaging Corp. of America, Pactiv, RockTenn, Sealed Air,
Silgan, Smurfit-Stone Container, Sonoco
and Temple-Inland.
|
|
(in
millions, except per share, ratios
and
other statistics)
|
2008
|
2007
|
2006
|
2005
|
2004
|
|||||||||||||||
|
Summary of Operations
(1)
|
||||||||||||||||||||
|
Net
sales
|
$ | 8,305 | $ | 7,727 | $ | 6,982 | $ | 6,675 | $ | 6,285 | ||||||||||
|
Cost
of products sold, excluding depreciation
and
amortization
|
6,867 | 6,471 | 5,863 | 5,527 | 5,235 | |||||||||||||||
|
Depreciation
and amortization
|
216 | 229 | 227 | 237 | 247 | |||||||||||||||
|
Selling
and administrative expense
|
396 | 385 | 316 | 339 | 307 | |||||||||||||||
|
Provision
for asbestos
|
25 | 29 | 10 | 10 | 35 | |||||||||||||||
|
Provision
for restructuring
|
21 | 20 | 15 | 13 | 6 | |||||||||||||||
|
Provision
for asset impairments and loss/gain
on sale of assets
|
6
|
100 | (64) | (18) | 31 | |||||||||||||||
|
Loss
from early extinguishments of debt
|
2 | 383 | 39 | |||||||||||||||||
|
Interest
expense, net of interest income
|
291 | 304 | 274 | 352 | 353 | |||||||||||||||
|
Translation
and exchange adjustments
|
39 | (12) | 6 | 94 | (98) | |||||||||||||||
|
Income/(loss) from continuing operations
before
income taxes, minority interests
and
equity earnings
|
442 | 201 | 335 | (262) | 130 | |||||||||||||||
|
Provision
for/(benefit from) income taxes
|
112 | (400) | (62) | 11 | 67 | |||||||||||||||
|
Minority
interests and equity earnings
|
(104) | (73) | (55) | (39) | (27) | |||||||||||||||
|
Income/(loss)
from continuing operations
|
$ | 226 | $ | 528 | $ | 342 | $ | (312) | $ | 36 | ||||||||||
|
Financial
Position at December 31
|
||||||||||||||||||||
|
Working
capital/(deficit)
|
$ | 385 | $ | 151 | $ | 157 | $ | (47) | $ | 306 | ||||||||||
| Total assets | 6,774 | 6,979 | 6,409 | 6,596 | 8,168 | |||||||||||||||
|
Total
cash and cash equivalents
|
596 | 457 | 407 | 294 | 471 | |||||||||||||||
|
Total
debt
|
3,337 | 3,437 | 3,541 | 3,403 | 3,872 | |||||||||||||||
|
Total
debt, less cash and cash equivalents,
to total capitalization
(2)
|
98.7
|
%
|
89.8 | % | 107.4 | % | 98.1 | % | 86.7 | % | ||||||||||
|
Minority
interests
|
353 | 323 | 279 | 246 | 201 | |||||||||||||||
|
Shareholders’
equity/(deficit)
|
(317) | 15 | (494) | (185) | 320 | |||||||||||||||
|
Common
Share Data (dollars per share)
|
||||||||||||||||||||
|
Earnings/(loss)
from continuing operations:
|
||||||||||||||||||||
|
Basic
|
$ | 1.42 | $ | 3.27 | $ | 2.07 | $ | (1.88) | $ | 0.22 | ||||||||||
|
Diluted
|
1.39 | 3.19 | 2.01 | (1.88) | 0.21 | |||||||||||||||
|
Market
price on December 31
|
19.20 | 25.65 | 20.92 | 19.53 | 13.74 | |||||||||||||||
|
Book
value based on year-end outstanding shares
|
(1.99) | 0.09 | (3.04) | (1.11) | 1.93 | |||||||||||||||
|
Number
of shares outstanding at year-end
|
159.2 | 159.8 | 162.7 | 166.7 | 165.6 | |||||||||||||||
|
Average
shares outstanding
|
||||||||||||||||||||
|
Basic
|
159.6 | 161.3 | 165.5 | 165.9 | 165.3 | |||||||||||||||
|
Diluted
|
162.9 | 165.5 | 169.8 | 165.9 | 168.8 | |||||||||||||||
|
Other
|
||||||||||||||||||||
|
Capital
expenditures
|
174 | $ | 156 | $ | 191 | $ | 192 | $ | 138 | |||||||||||
|
Number
of employees
|
21,268 | 21,819 | 21,749 | 24,055 | 27,645 | |||||||||||||||
SELECTED
FINANCIAL DATA
(Continued)
Notes:
|
(1)
|
The
summary of operations data excludes businesses that were
divested in 2005 and 2006, and reflects a change in method of
accounting for U.S. inventories in
2007.
|
|
|
The
Company began consolidating its Middle East beverage can operations as of
September 1, 2005. The summary of operations data, therefore,
includes a full year of consolidated results for these operations
in 2008, 2007 and 2006, and a partial year for
2005.
|
|
(2)
|
Total
capitalization consists of total debt, minority interests and
shareholders’ equity/(deficit), less cash and cash
equivalents.
|
|
ITEM 7
.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
|
|
(in
millions, except per share, employee, shareholder and statistical data;
per share earnings are quoted as
diluted)
|
|
|
INTRODUCTION
This
discussion summarizes the significant factors affecting the results of
operations and financial condition of Crown Holdings, Inc. (the “Company”) as of
and during the three-year period ended December 31, 2008. This
discussion should be read in conjunction with the consolidated financial
statements included in this annual report.
As
discussed under
Note B
to the consolidated financial
statements, the Company sold its European plastics and Americas health and
beauty care businesses in 2006. The results of operations for prior
periods used in the following discussion reports these businesses as
discontinued operations.
EXECUTIVE
OVERVIEW
The
Company’s principal areas of focus include improving segment income and cash
flow from operations, and reducing debt. Segment income is defined by
the Company as gross profit less selling and administrative expenses.
See
Note X
to the consolidated financial
statements for a reconciliation of segment income from reportable segments to
income/(loss) from continuing operations before income taxes and minority
interests.
Improving
segment income is primarily dependent on the Company’s ability to increase
revenues and manage costs. Key strategies for expanding sales include targeting
geographic markets with strong growth potential, such as the Middle East, Asia,
South America and southern and central Europe, improving selling prices in
certain product lines and developing innovative packaging products using
proprietary technology. The Company’s cost control efforts focus on
improving operating efficiencies and managing material and labor costs,
including pension and other benefit costs.
The
reduction of debt remains a principal strategic goal of the Company and is
primarily dependent upon the Company’s ability to generate cash flow from
operations. In addition, the Company may consider divestitures from time to
time, the proceeds of which may be used to reduce debt. The Company’s total debt
decreased by $100 to $3,337 at December 31, 2008 from $3,437 at December 31,
2007, including $48 of decrease due to the currency translation effect of debt
denominated in foreign currencies. Cash balances increased by $139 to
$596 at December 31, 2008 from $457 at December 31, 2007. The
increase of $139 was net of $20 of decrease due to currency
translation.
The
Company considers possible transactions such as acquisitions (which,
if effected, may increase the Company’s indebtedness or involve the
issuance of Company securities), dispositions, refinancings or the repurchase of
Company common stock pursuant to Board approved repurchase authorizations (under
which $467 was available at December 31, 2008). Such transactions
would be subject to compliance with the Company’s debt agreements.
The cost
of aluminum and steel, the primary raw materials used to manufacture the
Company’s products, has increased significantly in recent years. The
Company attempts to pass-through these increased costs to its customers through
provisions that adjust the selling prices to certain customers based on changes
in the market price of the applicable raw material, or through surcharges where
no such provision exists. However, there can be no assurance that the
Company will be able to fully recover from its customers the impact of the
increased aluminum and steel costs.
The
foreign currency translation impacts referred to below are primarily due to
changes in the euro and pound sterling in the European Division operating
segments and the Canadian dollar in the Americas Division operating
segments.
NET
SALES
Net sales
during 2008 were $8,305, an increase of $578 or 7.5% versus 2007 net sales of
$7,727. The increase in net sales during 2008 reflects higher sales unit
volumes, the pass-through of material cost increases to customers and $182 from
the favorable impact of foreign currency translation.
Net sales
from U.S. operations accounted for 26.3% of consolidated net sales in 2008,
27.2% in 2007 and 28.3% in 2006. Sales of beverage cans and ends accounted for
47.4% of net sales in 2008 compared to 46.5% of net sales in 2007 and 44.5% of
net sales in 2006. Sales of food cans and ends accounted for 33.8% of
net sales in 2008, 33.5% in 2007 and 35.0% in 2006.
Net sales
in the Americas Beverage segment increased 6.5% from $1,751 in 2007 to $1,865 in
2008, primarily due to the pass-through of increased aluminum costs to customers
in the form of higher selling prices. Net sales during 2007 increased
9.4% from $1,600 in 2006, primarily due to $123 from the pass-through of higher
aluminum costs to customers and $28 of increased sales unit
volumes.
Net sales
in the North America Food segment increased 3.7% from $873 in 2007 to $905 in
2008, and net sales during 2007 increased 4.3% from $837 in 2006. The
increase in 2008 was primarily due to $55 from the pass-through of increased
steel costs to customers in the form of higher selling prices, partially offset
by decreases of $22 due to lower sales unit volumes and $1 due to foreign
currency translation. The increase in 2007 was also primarily due to
the pass-through of higher material costs to customers.
Net sales
in the European Beverage segment increased 11.9% from $1,436 in 2007 to $1,607
in 2008, primarily due to $110 of increased sales unit volumes, the pass-through
of higher material costs to customers, and $19 of foreign currency
translation. Net sales in 2007 increased 22.3% from $1,174 in 2006,
primarily due to $125 of increased sales unit volumes, $69 of foreign currency
translation, and the pass-through of higher material costs to
customers.
Net sales
in the European Food segment increased 9.9% from $1,991 in 2007 to $2,188 in
2008, primarily due to $115 from the favorable impact of foreign currency
translation, and increased sales unit volumes primarily due to improved weather
conditions and the resulting improved harvest compared to the prior
year. Net sales in 2007 increased 5.6% from $1,885 in 2006, primarily
due to $176 from the favorable impact of foreign currency translation, partially
offset by a decline in sales unit volumes due to a poor harvest caused by
weather conditions.
Net sales
in the European Specialty Packaging segment decreased 3.3% from $460 in 2007 to
$445 in 2008, primarily due to decreased sales unit
volumes. Net sales in 2007 increased 7.7% from $427 in 2006,
primarily due to the favorable impact of foreign currency
translation.
COST OF PRODUCTS SOLD
(EXCLUDING DEPRECIATION AND AMORTIZATION
)
Cost of
products sold, excluding depreciation and amortization, was $6,867 in 2008, an
increase of 6.1% from $6,471 in 2007. The increase in 2008 was
primarily due to the impact of currency translation of $151 and higher material
costs, primarily aluminum and steel. Cost of products sold, excluding
depreciation and amortization, of $6,471 in 2007 increased 10.4% from $5,863 in
2006. The increase in 2007 was primarily due to the impact of foreign currency
translation of $316 and higher material costs. As a percentage of net
sales, cost of products sold, excluding depreciation and amortization, was 82.7%
in 2008 compared to 83.7% in 2007 and 84.0% in 2006.
As a
result of steel and aluminum price increases, the Company has implemented
price increases to many of its customers. However, there can be no
assurance that the Company will be able to fully recover from its customers the
impact of price increases. In addition, if the Company is unable to
purchase steel or aluminum for a significant period of time, its operations
would be disrupted.
DEPRECIATION AND
AMORTIZATION
Depreciation
and amortization during 2008 was $216, a decrease of $13 from $229 in 2007,
after an increase of $2 from expense of $227 in
2006. The decrease in 2008 was primarily due to
lower capital
spending
in recent years, partially offset by $4 of increase due to foreign currency
translation. The increase in 2007 was primarily due to $11 of foreign currency
translation, offset by $9 of decrease due to lower spending.
SELLING AND
ADMINISTRATIVE EXPENSE
Selling
and administrative expense for 2008 was $396, an increase of 2.9% from 2007
expense of $385, following an increase of 21.8% from $316 in
2006. The increase in 2008 was primarily due to increased
compensation costs and $6 of foreign currency translation. The
increase in 2007 was primarily due to higher incentive compensation costs and
$16 from the impact of foreign currency translation.
SEGMENT
INCOME
As
discussed under
Note X
to the consolidated
financial statements, the Company defines segment income as gross profit less
selling and administrative expenses.
Segment
income in the Americas Beverage segment increased $9 or 4.9% from $182 in 2007
to $191 in 2008, primarily due to cost reductions, including plant operating
efficiencies. Segment income in 2007 increased $22 or 13.8% from $160 in 2006,
primarily due to higher sales unit volumes.
Segment
income in the North America Food segment increased $15 or 19.7% from $76 in 2007
to $91 in 2008, primarily due to cost reductions. Segment income in
2007 increased $6 or 8.6% from $70 in 2006, also primarily due to cost
reductions, including from prior year capital spending.
Segment
income in the European Beverage segment increased $64 or 34.6% from $185 in 2007
to $249 in 2008. Segment income in 2007 increased $63 or 51.6% from
$122 in 2006. The increases in both years were primarily due to
increased sales unit volumes.
Segment
income in the European Food segment increased $59 or 34.1% from $173 in 2007 to
$232 in 2008, primarily due to increased sales unit volumes and $16 of foreign
currency translation. Segment income in 2007 decreased $1 or 0.6% from $174 in
2006, primarily due to lower sales unit volumes offset by $16 of favorable
foreign currency translation.
Segment
income in the European Specialty Packaging segment increased $4 or 28.6% from
$14 in 2007 to $18 in 2008, primarily due to plant operating efficiencies and
cost reductions. Segment income in 2007 decreased $9 or 39.1% from
$23 in 2006, primarily due to lower sales unit volumes.
Crown
Cork & Seal Company, Inc. is one of many defendants in a substantial number
of lawsuits filed throughout the United States by persons alleging bodily injury
as a result of exposure to asbestos. During 2008, 2007 and 2006 the Company
recorded charges of $25, $29 and $10, respectively, to increase its accrual for
asbestos-related costs. See
Note L
to the consolidated
financial statements for additional information regarding the provision for
asbestos-related costs.
During
2008, the Company provided a pre-tax charge of $21 for restructuring costs,
including $13 to close a food can plant and a beverage can and crown plant in
Canada. The charge of $13 included $4 to write down the value of
property and equipment, $6 for pension plan curtailment charges, and $3 for
severance costs. Charges of $6 are expected to be incurred in the
future as expenses are incurred to maintain and prepare property for
sale. An additional charge of approximately $17 related to pension
plan settlement costs is expected to be recorded in 2009 or 2010 when the
Company receives regulatory approval to settle these obligations. In
addition to the charge of $13 for the Canadian plants, the Company also provided
pre-
tax charges of $6 to reduce headcount and $2 for other
exit costs, primarily in the European Food segment. The actions are
expected to save $15 pre-tax on an annual basis when fully
implemented
.
During
2007, the Company provided a pre-tax charge of $20 for restructuring costs,
including $7 for severance and other exit costs in the European Food segment, $6
for the reclassification of cumulative translation adjustments to earnings from
the closure of its operations in Indonesia, $3 of corporate costs for the
settlement of a labor dispute related to prior restructurings, and $4 for other
severance and exit costs.
During
2006, the Company provided a net pre-tax charge of $15 for restructuring costs,
including $6 for severance costs in the European Food segment to close a plant,
$4 of corporate charges for the estimated settlement costs of a labor dispute
related to prior restructurings, $3 for severance costs in the European
Specialty Packaging segment to reduce headcount, and $4 for other severance and
exit costs, partially offset by a reversal of $2 of severance costs provided
during 2005.
See
Note N
to the consolidated financial statements for
additional information on these charges.
During
2008, the Company recorded net pre-tax charges of $6 for asset sales and
impairments, including an asset impairment charge of $5 to write off its
remaining investment in an available for sale security due to a declining share
price and eventual Chapter 11 reorganization petition filed by the
investee.
During
2007, the Company recorded net pre-tax charges of $100 for asset sales and asset
impairments, primarily including a non-cash goodwill impairment charge of $103
in the European metal vacuum closures business, partially offset by $3 of other
net gains from asset sales and impairment charges. The Company had
net pre-tax gains of $64 in 2006. See
Note
O
to the consolidated financial statements for additional
information.
During
the first quarter of 2008, the Company redeemed the remaining $12 of its U.S.
dollar 9.50% and 10.875% Senior Notes due 2011 and 2013 and the remaining €18 of
its euro 10.25% Senior Notes due 2011, and recorded a charge of $2 for premiums
paid and the write off of deferred financing fees.
INTEREST
EXPENSE
Interest
expense of $302 in 2008 decreased $16 or 5.0% from 2007 interest expense of
$318 due to $14 from lower average short-term borrowing rates and $6 from
lower average debt outstanding, partially offset by an increase of $4 due to
foreign currency translation.
Interest
expense of $318 in 2007 increased $32 or 11.2% from 2006 interest expense of
$286 due to $12 from higher average short term borrowing rates, $7 from
increased borrowings, and $13 due to foreign currency translation.
TRANSLATION AND EXCHANGE
ADJUSTMENTS
During
2008, 2007 and 2006, the Company recorded pre-tax foreign exchange losses of
$39, gains of $12 and losses of $6, respectively, primarily for certain
subsidiaries that had unhedged currency exposure arising from intercompany debt
obligations and for other subsidiaries whose functional currency is not their
local currency. The gains and losses are included in translation and
exchange adjustments in the Consolidated Statements of Operations.
The loss
of $39 in 2008 included $15 in Canada primarily from the revaluation of U.S.
dollar intercompany balances owed to the U.S. The weakening of the
Canadian dollar against the U.S. dollar created a local currency loss for the
Canadian operations. As of December 31, 2008, the balance owed to the
U.S. was approximately $118, and the Company had approximately $41 of foreign
currency forward exchange contracts to partially mitigate the exposure of
the Canadian operations to changes
in the exchange rate.
Any
further weakening of the Canadian dollar against the U.S. dollar will create
additional foreign exchange losses on the remaining net exposure of $77 at
December 31, 2008. In addition to the Canadian losses of $15,
the Company had other foreign exchange losses
of $24, including $10 of translation losses in subsidiaries whose functional
currency is not the local currency, primarily in Brazil and
Colombia.
TAXES ON
INCOME
Taxes on
income for 2008, 2007 and 2006 were provisions of $112 and benefits of $400 and
$62, respectively, against pre-tax income of $442 in 2008, $201 in 2007 and $335
in 2006.
The
primary item causing the 2008 effective rate to differ from the 35.0% U.S.
statutory rate was a benefit of $59 due to foreign income taxed at lower
rates.
The
primary items causing the 2007 effective rate to differ from the 35.0% U.S.
statutory rate were benefits of $485 for valuation allowance adjustments and $35
due to foreign income taxed at lower rates, and a cost of $36 for the effect of
a non-deductible goodwill impairment charge.
The
primary items causing the 2006 effective rate to differ from the 35.0% U.S.
statutory rate were benefits of $121 related to a minimum pension
liability adjustment, $30 due to foreign income taxed at lower rates and $13 for
a reinvestment tax credit.
See
Note W
to the consolidated financial statements for
additional information regarding income taxes, including information regarding
the Company’s release of a portion of its U.S. deferred tax valuation allowances
in the fourth quarter of 2007.
MINORITY
INTERESTS
Minority
interests’ share of net income was $104, $73 and $55 in 2008, 2007 and 2006,
respectively. The increases in 2008 and 2007 were due to higher
profits in the Company’s joint venture beverage can operations in the Middle
East, South America and Asia.
DISCONTINUED
OPERATIONS
During
2006, the Company sold its remaining European plastics businesses and its
Americas health and beauty care business for total proceeds of $6, and
recognized a loss of $27 on these transactions. See
Note B
to the consolidated financial statements for
further information on these divestitures.
STATEMENTS OF CASH
FLOWS
Cash and
cash equivalents were $596 at December 31, 2008 compared to $457 and $407 at
December 31, 2007 and 2006, respectively. Cash provided by operating activities
was $422 in 2008 compared to $509 in 2007 and $355 in 2006.
The
decrease in cash from operations in 2008 compared to 2007 included $46 of
increased incentive compensation payments in 2008 due to higher accruals at the
end of 2007 compared to 2006, $31 of decreased receivables securitization in
2008, and $147 of increased accounts receivable, primarily due to increased
fourth quarter sales. These decreases were partially offset by
improved operating results.
The
increase in cash from operations in 2007 compared to 2006 included improved
operating results and an increase of $118 from working capital reductions,
partially offset by decreases of $37 and $19 for higher interest and tax
payments, respectively.
Payments
for asbestos were $25 in 2008, $26 in 2007 and $26 in 2006, and the Company
expects to pay approximately $25 in 2009. The Company contributed $71 to its
pension plans in 2008 and expects to contribute approximately $74 in
2009.
Cash flow
used for investing activities in 2008 was $186 and included $174 of capital
expenditures. Other investing activities included $13 to purchase a
portion of the outstanding shares from minority shareholders in the
Company’s operations in Greece, increasing the Company’s ownership to
80.5%.
Cash flow
used for investing activities in 2007 was $94 and included $156 of capital
expenditures offset by $66 of proceeds from sales of property, plant and
equipment. Capital expenditures were lower than the previous
year due to the completion in 2006 of an expansion of the Middle East
operations. The proceeds of $66 in 2007 included $16 from the sale of a
property in Spain, and $39 from the collection of a note from the 2006 sale of a
separate property in Spain.
Cash flow
used for financing activities in 2008 decreased from $396 in 2007 to $77 in
2008. Repayments of debt, net of borrowings, decreased from $224 in
2007 to $52 in 2008 and common share repurchases decreased from $118 to
$35. These decreases were primarily due to lower net cash provided by
operating and investing activities and the Company’s decision to maintain a
higher cash balance and limit prepayment of its debt obligations and repurchases
of additional common shares in 2008. Other financing activities of
$65 in 2008 and ($30) in 2007 represent payments received or made related to the
settlement of foreign currency derivative contracts used to hedge intercompany
debt obligations.
Cash flow
used for financing activities in 2007 increased from $158 in 2006 to $396 in
2007 as increased cash from operating activities was used to repay
debt.
Cash flow
from financing activities included dividends paid to minority interests of $65,
$38 and $29 in 2008, 2007 and 2006, respectively. These dividends
were paid to the Company’s joint venture partners or other shareholders
primarily in the Company’s consolidated non-wholly owned subsidiaries in the
Middle East, South America and Asia.
The
Company is highly leveraged. The ratio of total debt, less cash and cash
equivalents, to total capitalization was 98.7%, 89.8% and 107.4% at December 31,
2008, 2007 and 2006, respectively. Total capitalization is defined by the
Company as total debt, minority interests and shareholders’ equity/(deficit),
less cash and cash equivalents.
The
Company funds its operations, debt service and other obligations primarily with
cash flow from operations (including the accelerated receipt of cash under its
receivables securitization and factoring facilities) and borrowings under its
revolving credit facility. The Company may also consider divestitures from time
to time, the proceeds of which may be used to reduce debt. The Company had no
outstanding borrowings under its $758 revolving credit facility at December 31,
2008 and had $234 of securitized receivables. The Company also had
$84 of outstanding letters of credit under its revolving credit facility as of
December 31, 2008, which reduced the amount of borrowings otherwise available
under the facility to $674.
The
Company’s debt agreements contain covenants that provide limits on the ability
of the Company and its subsidiaries to, among other things, incur additional
debt, pay dividends or repurchase capital stock, make certain other restricted
payments, create liens, and engage in sale and leaseback
transactions. These restrictions are subject to a number of
exceptions, however, allowing the Company to incur additional debt or make
otherwise restricted payments.
The
Company’s revolving credit facility and first priority term loans also contain
various financial covenants. The interest coverage ratio is calculated as
earnings before interest, taxes, depreciation and amortization (EBITDA) divided
by interest expense. EBITDA is defined in the credit agreements as
the sum of net income, minority interests, interest expense, depreciation and
amortization, and certain non-cash charges. The Company’s interest
coverage ratio of 3.48 to 1.0 at December 31, 2008 was in compliance with the
covenant requiring a ratio of at least 2.65 to 1.0. The requirement
increases to at least 2.85 to 1.0 beginning December 31, 2009. The total net
leverage ratio is calculated as total net debt divided by EBITDA as defined
above. Total net debt is defined in the credit agreements as
total debt less cash and cash equivalents. The Company’s total net leverage
ratio of 2.60 to 1.0 at December 31, 2008 was in compliance with the covenant
requiring a ratio no greater than 4.25 to 1.0. The requirement
changes to no greater than 3.90 to 1.0
beginning
December 31, 2009 and no greater than 3.50 to 1.0 beginning December 31,
2010.
The
senior secured net leverage ratio is calculated as total senior secured
indebtedness divided by EBITDA as defined above. Total senior secured
indebtedness is defined in the credit agreements as the sum of the outstanding
balances on the Company’s senior secured notes, first priority term loans,
revolving credit facility including letters of credit, securitization
facilities, and other secured debt such as capital leases. The
Company’s senior secured net leverage ratio of 1.12 to 1.0 at December 31, 2008
was in compliance with the covenant requiring a ratio no greater than 2.50 to
1.0. The requirement changes to no greater than 2.25 to 1.0 beginning
December 31, 2009. The ratios are calculated at the end of each quarter using
debt and cash balances as of the end of the quarter and EBITDA and interest
expense for the most recent twelve months. Failure to meet the financial
covenants could result in the acceleration of any outstanding amounts due under
the Company’s revolving credit facility, term loan agreements, senior secured
notes due 2011, and senior notes due 2013 and 2015. In addition to
the financial covenants above, the interest rate on the revolving credit
facility can vary from EURIBOR or LIBOR plus a margin of 0.875% up to 2.00%
based on the total leverage ratio. The margin is 0.875% at a ratio of
less than 2.50 to 1.0 and 2.00% at a ratio of 4.75 to 1.0 or higher, and varies
between 1.00% and 1.75% at intervals in between.
The
Company’s current sources of liquidity and borrowings expire or mature as
follows – its $225 North American securitization facility in March 2010; its
€120 European securitization facility in June 2010; its $758 revolving credit
facility in May 2011; its €460 first priority senior secured notes in September
2011; its $742 first priority term loans in November 2012; its $500 7.625%
senior notes in November 2013; and its $600 7.75% senior notes in November
2015.
The
Company had $674 of availability under its credit facility and cash balances of
$596 at December 31, 2008, has $31 of current debt maturities in 2009, and is
not required to refinance or renegotiate any of its current sources of liquidity
until its securitization facilities expire in 2010.
Recent
distress in the financial markets has reduced liquidity, credit availability,
and the ability of many companies to refinance at terms consistent with those in
current agreements and outstanding debt obligations. In addition,
volatility in the global equity markets has reduced the value of assets in the
pension plans of many companies. Reduced liquidity in the market did
not have a significant impact on the Company in 2008 and the Company does not
expect a significant impact in 2009 because it believes it has sufficient
sources of liquidity under its current agreements to fund its operating needs in
2009. The decline in the global equity markets, however, had a
significant impact on the funded status of the Company’s defined benefit pension
plans. As disclosed in
Note V
to the
consolidated financial statements, the aggregate funded status of the Company’s
pension plans changed from an overfunding of $192 at December 31, 2007 to an
underfunding of $272 at December 31, 2008. The Company recorded
pension expense of $13 in 2008 and currently projects its 2009 pension expense
to increase to approximately $133 using foreign currency exchange rates in
effect at December 31, 2008. The projected increase in 2009 pension
expense is primarily due to a decrease in asset values in the Company’s plans.
The Company’s assumed rate of return on plan assets will be applied to a lower
asset base in 2009 and there will be increased amortization of unrecognized net
losses arising from the shortfall between assumed and actual asset returns in
2008. The Company contributed $71 to fund its pension plans in 2008
and, based on its current projections, expects to fund $74, $90, $137, $142 and
$126 in 2009 through 2013, respectively.
The
Company has thus far not been significantly affected by any impact the financial
crisis may or may not have had on its suppliers, customers and other
counterparties, but is monitoring them for their continued ability to meet
the terms of their agreements with the Company.
In August
2006, the Company entered into an amendment to its first priority credit
facility providing for an additional $200 first priority term loan facility due
2012. In December 2006, the Company paid $15 to the holders of its first
priority senior secured notes to amend the indenture to conform certain
provisions to comparable provisions in the senior secured facility. Among other
things, the amendments allow the Company to incur an additional $200 of
indebtedness collateralized by the same liens as the notes and to make $100 of
additional restricted payments of any type, including restricted payments for
the repurchase or other acquisition or retirement for value of shares of Company
common stock.
See
Note R
to the consolidated financial statements for
further information relating to the Company’s refinancings and liquidity and
capital resources.
Contractual
obligations as of December 31, 2008 are summarized in the table
below.
|
Payments
Due by period
|
||||||||||||||||||||
|
2014
&
|
||||||||||||||||||||
|
2009
|
2010
|
2011
|
2012
|
2013
|
after
|
Total
|
||||||||||||||
|
Long-term
debt
|
$
|
31
|
$
|
38
|
$
|
675
|
$
|
727
|
$
|
502
|
$
|
1,309
|
$
|
3,282
|
||||||
|
Interest
on long-term debt
|
230
|
224
|
222
|
180
|
139
|
100
|
1,095
|
|||||||||||||
|
Operating
leases
|
56
|
43
|
34
|
30
|
28
|
39
|
230
|
|||||||||||||
|
Projected
pension contributions
|
74
|
90
|
137
|
142
|
126
|
569
|
||||||||||||||
|
Postretirement
obligations
|
35
|
36
|
37
|
37
|
38
|
188
|
371
|
|||||||||||||
|
Purchase
obligations
|
2,717
|
667
|
76
|
3
|
1
|
|
3,464
|
|||||||||||||
|
Total
contractual cash obligations
|
$
|
3,143
|
$
|
1,098
|
$
|
1,181
|
$
|
1,119
|
$
|
834
|
$
|
1,636
|
$
|
9,011
|
||||||
All
amounts due in foreign currencies are translated at exchange rates as of
December 31, 2008.
Interest
on long-term debt is presented through 2014 only, represents the interest that
will accrue by year, and is calculated based on interest rates in effect as of
December 31, 2008. Interest on the credit facility is excluded
because there were no outstanding balances as of December 31, 2008.
The
projected pension contributions caption includes the minimum required
contributions the Company expects to make in 2009 to 2013 to fund its
plans. The postretirement obligations caption includes the expected
payments through 2018 to retirees for medical and life insurance coverage. The
pension and postretirement projections require the use of numerous estimates and
assumptions such as discount rates, rates of return on plan assets, compensation
increases, health care cost increases, mortality and employee
turnover. Therefore, these amounts have been provided for five years
only in the case of pensions and through 2018 in the case of postretirement
costs.
Purchase
obligations include commitments for raw materials and utilities at December 31,
2008. These commitments specify significant terms, including fixed or minimum
quantities to be purchased; fixed, minimum or variable pricing provisions; and
the approximate timing of transactions.
The
obligations above exclude $38 of unrecognized tax benefits for which the Company
has recorded liabilities in accordance with FIN 48. These amounts
have been excluded because the Company is unable to estimate when these amounts
may be paid, if at all. See
Note W
to the
consolidated financial statements for additional information on the Company’s
unrecognized tax benefits.
In order
to further reduce leverage and future cash interest payments, the Company may
from time to time repurchase outstanding notes and debentures with cash,
exchange shares of its common stock for the Company’s outstanding notes and
debentures, or seek to refinance its existing credit facilities or other
indebtedness. The Company will evaluate any such transactions in light of then
existing market conditions and may determine not to pursue such
transactions.
In the
normal course of business the Company is subject to risk from adverse
fluctuations in foreign exchange and interest rates and commodity
prices. The Company manages these risks through a program that
includes the use of derivative financial instruments, primarily swaps and
forwards. Counterparties to these contracts are major financial
institutions. These instruments are not used
for trading or speculative
purposes. The
extent to which the Company uses such instruments is dependent upon its access
to them in the financial markets and its use of other methods, such as netting
exposures for foreign exchange risk and establishing sales arrangements that
permit the pass-through to customers of changes in commodity prices and foreign
exchange rates, to effectively achieve its goal of risk
reduction. The Company’s objective in managing its exposure to market
risk is to limit the impact on earnings and cash flow.
The
Company manages foreign currency exposures at the operating unit
level. Exposures that cannot be naturally offset within an operating
unit are hedged with derivative financial instruments where possible and cost
effective in the Company’s judgment. Foreign exchange contracts which
hedge defined exposures generally mature within twelve months. The
Company, from time to time, enters into cross-currency swaps to hedge foreign
currency exchange and interest rate risk for subsidiary debt which is
denominated in currencies other than the functional currency of the
subsidiary.
The table
below provides information in U.S. dollars as of December 31, 2008 about the
Company’s forward currency exchange contracts. The majority of the
contracts expire in 2009 and primarily hedge anticipated transactions,
unrecognized firm commitments and intercompany debt and are recorded at fair
value. The contracts with no amounts in the fair value column have a
fair value of less than $1.
|
Contract
|
Contract
fair
value
|
Average
contractual
|
||||||||||
|
Buy/Sell
|
amount
|
gain/(loss)
|
exchange
rate
|
|||||||||
|
U.S.
dollars/Euro
|
$ | 198 | $ | 8 |
1.46
|
|||||||
|
Sterling/Euro
|
57 | (2) |
0.88
|
|||||||||
|
Euro/Sterling
|
249 | 33 |
0.82
|
|||||||||
|
Euro/U.S.
dollars
|
46 | (1) |
1.45
|
|||||||||
|
U.S.
dollars/Canadian dollars
|
41 | 4 |
1.08
|
|||||||||
|
U.S.
dollars/Thai Baht
|
53 | 2 |
33.50
|
|||||||||
|
U.S.
dollars/Sterling
|
41 | 4 |
1.71
|
|||||||||
| Sterling /U.S. dollars | 41 | (4) |
1.73
|
|||||||||
|
Polish
Zloty/Euro
|
41 | — |
3.67
|
|||||||||
| Euro/Polish Zloty | 44 | (3) |
3.91
|
|||||||||
|
Singapore
dollars/U.S. dollars
|
36 | — |
1.44
|
|||||||||
|
U.S.
dollars/Singapore dollars
|
18 | — |
1.46
|
|||||||||
| Euro/Swiss Francs | 17 | — |
1.51
|
|||||||||
| $ | 882 | $ | 41 | |||||||||
At
December 31, 2008, the Company had additional contracts with notional values of
$19 to purchase or sell other currencies, principally Asian. The
aggregate fair value of these contracts was not material.
As of
December 31, 2008, Crown European Holdings (“CEH”), a euro functional currency
subsidiary, had U.S. dollar exposure on intercompany debt of $505 owed to a U.S.
subsidiary of the Company. As discussed under
Note T
to the consolidated financial statements, CEH
has entered into cross-currency swaps as a hedge against $460 of that exposure.
The remaining exposure of $45 is hedged by a forward currency exchange contract
that is included in the table above.
The
Company, from time to time, may manage its interest rate risk, primarily from
fluctuations in variable interest rates, through interest rate swaps in order to
balance its exposure between fixed and variable rates while attempting to
minimize its interest costs. Interest rate swaps and other methods of mitigating
interest rate risk may increase overall interest expense.
The table
below presents principal cash flows and related interest rates by year of
maturity for the Company’s debt obligations. Variable interest rates disclosed
represent the weighted average rates at December 31, 2008.
|
Year
of Maturity
|
||||||||||||||||||||||||
|
Debt
|
2009
|
2010
|
2011
|
2012
|
2013
|
Thereafter
|
||||||||||||||||||
|
Fixed
rate
|
$ | 15 | $ | 12 | $ | 653 | $ | 3 | $ | 502 | $ | 1,309 | ||||||||||||
|
Average
interest rate
|
6.6 | % | 5.7 | % | 6.3 | % | 7.2 | % |
7.6
|
% |
7.7
|
%
|
||||||||||||
|
Variable rate
|
$ | 75 | $ | 26 | $ | 22 | $ | 724 | ||||||||||||||||
|
Average
interest rate
|
5.9 | % | 5.4 | % | 5.7 | % | 5.7 | % |
|
|||||||||||||||
Total
future payments of $3,341 at December 31, 2008 include $2,206 of U.S.
dollar-denominated debt, $1,059 of euro-denominated debt and $76 of debt
denominated in other currencies.
The
Company uses various raw materials, such as steel and aluminum in its
manufacturing operations, which exposes it to risk from adverse fluctuations in
commodity prices. In 2008, consumption of steel and aluminum
represented approximately 26% and 33%, respectively, of the Company’s
consolidated cost of products sold, excluding depreciation and amortization. The
weighted average market price for steel used in packaging increased
approximately 5% and the average price of aluminum ingot on the London Metal
Exchange decreased approximately 2% during 2008. The Company primarily manages
its risk to adverse commodity price fluctuations and surcharges through
contracts that pass through raw material costs to customers. The Company may,
however, be unable to increase its prices to offset unexpected increases in raw
material costs without suffering reductions in unit volume, revenue and
operating income, and any price increases may take effect after related cost
increases, reducing operating income in the near term.
In
addition, the manufacturing facilities of the Company are dependent, in varying
degrees, upon the availability of water and processed energy, such as natural
gas and electricity.
Aluminum,
a basic raw material of the Company, is subject to significant price
fluctuations the risk of which may be hedged by the Company through forward
commodity contracts. Current contracts involve aluminum forwards with a notional
value of $214 and a fair value loss of $91. The maturities of the
commodity contracts closely correlate to the anticipated purchases of those
commodities. These contracts are used in combination with commercial supply
contracts with customers to manage exposure to price volatility.
CAPITAL
EXPENDITURES
Consolidated
capital expenditures were $174 in 2008 compared to $156 in 2007.
Expenditures
in the Americas Division were $86 in 2008 and included spending of $71 in
Americas Beverage and $7 in North America Food. The spending in
Americas Beverage included $44 for a new beverage can plant in
Brazil.
Expenditures
in the European Division were $74 and included spending of $41 in European
Beverage, $21 in European Food and $8 in European Specialty
Packaging. The spending in European Beverage included $32 for a new
beverage can line in Spain.
At
December 31, 2008, the Company had approximately $17 of capital
commitments.
OFF-BALANCE SHEET
ARRANGEMENTS
The
Company has certain guarantees and indemnification agreements that could require
the payment of cash upon the occurrence of certain events. The guarantees and
agreements are further discussed under
Note M
to the
consolidated financial statements.
Compliance
with the Company’s Environmental Protection Policy is mandatory and the
responsibility of each employee of the Company. The Company is committed to the
protection of human health and the environment and is operating within the
increasingly complex laws and regulations of national, state, and
local environmental agencies or is taking action to achieve compliance with such
laws and regulations. Environmental considerations are among the criteria by
which the Company evaluates projects, products, processes and
purchases.
The
Company is dedicated to a long-term environmental protection program and has
initiated and implemented many pollution prevention programs with an emphasis on
source reduction. The Company continues to reduce the amount of metal used in
the manufacture of steel and aluminum containers through “lightweighting”
programs. The Company recycles nearly 100% of scrap aluminum, steel and copper
used in its manufacturing processes. Many of the Company’s programs for
pollution prevention reduce operating costs and improve operating
efficiencies.
The
Company has been identified by the EPA as a potentially responsible party (along
with others, in most cases) at a number of sites. The Company also has
environmental issues at certain of its plants in the Americas and
Europe. Actual expenditures for remediation were $5, $1 and $1 in
2008, 2007 and 2006, respectively. The Company’s balance sheet reflects
estimated discounted remediation liabilities of $18 at December 31, 2008,
including $1 as a current liability. The Company records an environmental
liability
when it is probable that a liability has been incurred and the amount of the liability is
reasonably estimable. Reserves at December 31, 2008 are primarily for asserted
claims and are based on internal and external environmental
studies. The Company expects that the liabilities will be paid out over the
period of remediation for
the applicable sites, which
in some cases may exceed ten years.
Although
the Company believes its reserves are adequate, there can be no assurance that
the ultimate payments will not exceed the amount of the Company’s reserves and
will not have a material effect on the Company’s consolidated results of
operations, financial position and cash flow. Any possible loss or range of
potential loss that may be incurred in excess of the recorded reserves cannot be
estimated.
COMMON STOCK
AND OTHER SHAREHOLDERS’
EQUITY/(DEFICIT)
Shareholders’
equity/(deficit) was ($317) at December 31, 2008 compared to $15 and ($494) at
December 31, 2007 and 2006, respectively. The decrease of $332 in
2008 was primarily due to $398 of currency translation adjustments, $101 of
adjustments relating to the Company’s pension and postretirement benefit plans
and $51 related to accounting for derivatives, partially offset by net income
for the year of $226. Additional information related to the pension
and postretirement benefit plan adjustments is available under the
Critical Accounting Policies
section
of this Management’s Discussion and Analysis and under
Note V
to the consolidated financial
statements. The increase in 2007 was primarily due to net income of
$528, partially offset by $118 of common share repurchases.
The
Company’s first priority revolving credit and term loan facilities, first
priority senior secured notes and senior unsecured notes contain provisions that
limit the repurchase of common stock and the payment of dividends subject to
certain permitted payments or repurchases and exceptions. The Company
acquired 2,119,697 shares, 4,974,892 shares and 7,046,378 shares of its common
stock in 2008, 2007 and 2006, respectively.
Total
common shares outstanding were 159,191,238 at December 31, 2008 and 159,777,628
at December 31, 2007.
On
February 28, 2008, the Company’s Board of Directors authorized the repurchase of
up to $500 of the Company’s outstanding common stock from time to time through
December 31, 2010, in the open market or through privately negotiated
transactions, subject to the terms of the Company’s debt agreements, market
conditions, the Company’s ability to generate operating cash flow, alternative
uses of operating cash flow (including the reduction of indebtedness) and other
factors. This authorization replaces and supersedes all
previous
outstanding authorizations to repurchase shares. The Company is not
obligated to acquire any shares of common stock and the share repurchase plan
may be suspended or terminated at any time at the Company’s
discretion. During 2008, the Company repurchased $33 of common stock
under this authorization to reduce the remaining authorized purchases to $467 as
of December 31, 2008.
The
repurchased shares, if any, are expected to be used for the Company’s
stock-based benefit plans and to offset dilution resulting from the issuance of
shares thereunder, and for other general corporate purposes.
The Board
of Directors adopted a Shareholders’ Rights Plan in 1995 and declared a dividend
of one right for each outstanding share of common stock. In connection with the
formation of Crown Holdings, Inc., the existing Shareholders’ Rights Plan was
terminated and a new Rights Agreement was entered into with terms substantially
identical to the terminated plan, as amended in 2004. See
Note P
to the consolidated financial statements for a
description of the Shareholders’ Rights Plan.
INFLATION
Inflation
has not had a significant impact on the Company over the past three years and
the Company does not expect it to have a significant impact on the results of
operations or financial condition in the foreseeable future.
The
accompanying consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
which require that management make numerous estimates and assumptions. Actual
results could differ from those estimates and assumptions, impacting the
reported results of operations and financial position of the
Company. The Company’s significant accounting policies are more fully
described in
Note A
to the consolidated financial
statements. Certain accounting policies, however, are considered to
be critical in that (i) they are most important to the
depiction
of the Company’s financial condition and results of operations and (ii) their
application requires management’s most subjective judgment in making estimates
about the effect of matters that are inherently uncertain.
The
Company’s potential liability for asbestos cases is highly uncertain due to the
difficulty of forecasting many factors, including the level of future claims,
the rate of receipt of claims, the jurisdiction in which claims are filed, the
terms of settlements of other defendants with asbestos-related liabilities, the
bankruptcy filings of other defendants (which may result in additional claims
and higher settlement demands for non-bankrupt defendants), the effect of the
Georgia, South Carolina, Florida, Ohio, Mississippi, Texas and Pennsylvania
asbestos legislation (including the validity and applicability of the
Pennsylvania legislation to non-Pennsylvania jurisdictions, where the
substantial majority of the Company’s asbestos cases are
filed).
At the
end of each quarter, the Company considers whether there have been any material
developments that would cause it to update its asbestos liability accrual
calculations. Absent any significant developments in the asbestos litigation
environment in general or with respect to the Company specifically, the Company
updates its accrual calculations in the fourth quarter of each
year. The Company’s asbestos liability accrual is calculated in the
fourth quarter of each year as the sum of its outstanding and expected future
claims, multiplied by the expected average settlement cost of those claims, plus
estimated legal fees. Claims in these states where the Company’s
liability is limited by statute are included in the number of outstanding
claims, but are assumed to have no value. The expected number of claims, and the
expected average settlement cost per claim are calculated using projections
based on the actual data for the most recent five years. Because
claims are not submitted or settled evenly throughout the year, it is difficult
to predict at any time during the year whether the number of claims or average
settlement cost over the five year period ending December 31 of such year will
increase compared to the prior five year period. At the end of both
2008 and 2007, the five year average settlement cost per claim was higher than
at the end of the preceding year. The effect of these increases in
the expected average settlement cost per claim was partially mitigated by a
decrease in each year in the
expected number of future claims. The combination of the
projected
increase in cost per claim, the projected decrease in the number of future
claims, and including an additional year in the ten-year projection each year,
resulted in a charge of $25 in 2008 compared to $29 in 2007. The
charges of $25 in 2008 and $29 in 2007 were higher than the charge
of $10
in 2006
because the increase in the projected average cost per claim in 2008 and 2007
was higher than in 2006. A 10% change in either the number of
projected claims or the average cost per claim would
increase
or decrease the estimated liability at December 31, 2008 by $20. A
10% increase or decrease in these two factors at the same time would increase or
decrease the estimated liability at December 31, 2008 by $42 and $38,
respectively.
The
Company performs a goodwill impairment review in the fourth quarter of each year
or when facts and circumstances indicate goodwill may be impaired. The
impairment review involves a number of assumptions and judgments, including the
calculation of fair value for the Company’s identified reporting units. The
Company determines the estimated fair value for each reporting unit based on the
average of the estimated fair values calculated using market values for
comparable businesses and discounted cash flow projections. The
Company uses an average of the two methods in estimating fair value because it
believes they provide an equal probability of yielding an appropriate fair value
for the reporting unit. The Company’s estimates of future cash flows
include assumptions concerning future operating performance, economic
conditions, and technological changes and may differ from actual future cash
flows. Under the first method of calculating estimated fair value,
the Company obtains publicly available trading multiples based on the enterprise
value of companies in the packaging industry whose shares are publicly traded.
The Company also reviews available information regarding the multiples used in
recent transactions, if any, involving transfers of controlling interests in the
packaging industry. The appropriate multiple is applied to the
forecasted EBITDA (a non-GAAP item
defined by the Company as
net customer sales, less cost of products sold excluding depreciation
and amortization, less selling and administrative expenses) of the reporting
unit to obtain an estimated fair value. Under the second method, fair
value is calculated as the sum of the projected discounted cash flows of the
reporting unit over the next five years and the terminal value at the end of
those five years. The projected cash flows generally include no growth
assumption unless there has recently been a material change in the business or a
material change is forecasted. The discount rate is based on the average
weighted-average cost of capital of companies in the packaging industry, which
information is available through various sources. The terminal value at
the end of the five years is the product of the projected EBITDA at the end of
the five year period and the trading multiple.
The
discussion below provides information on the Company’s assumptions and
conclusions regarding its review of the North America Closures reporting unit in
2008 and the European Closures reporting unit in 2007. These
reporting units manufacture and sell metal vacuum food closures and are part of
the North America Food and European Food segments, respectively. Additional
discussion of these reporting units is provided because the fair value of the
North America Closures reporting unit did not materially exceed its carrying
value at the end of 2008, and because the Company recorded an impairment charge
of $103 in the European Closures reporting unit in 2007. The EBITDA multiple and
discount rate assumptions set forth below for 2008 and 2007 were also used by
the Company in reviewing its remaining reporting units for impairment at the end
of 2008 and 2007.
As of
December 31, 2008, the estimated fair value of the North America Closures
reporting unit was $18 higher than its carrying value, and the reporting unit
had $66 of goodwill. The fair value of the North America Closures reporting unit
was estimated based on the average of the fair values calculated using market
values for comparable businesses and discounted cash flow projections, as
described above. The maximum potential effect of weighting the
two methods other than equally would have been to increase or decrease the
estimated fair value at December 31, 2008 by $2 as the two methods provided
values that were within $4 of each other. The Company assumed an
EBITDA multiple of 6.5 times for the market value method. The assumed EBITDA
multiple was reduced from 8.0 times in 2007 to 6.5 times in 2008 due to the
decrease in trading multiples of companies in the packaging industry whose
shares are publicly traded. For its discounted cash flow projections
the Company assumed a five-year projection of revenue and operating margins
consistent with current results, a discount rate of 9.20%, and a terminal value
of 6.5 times EBITDA at the end of the five years. The discount
rate was increased from 8.75% in 2007 to 9.20% in 2008 due to an increase in the
weighted average cost of capital of companies in the packaging industry in
2008. Assuming all other factors remain the same, a $1 change in
projected annual EBITDA changes the excess of estimated fair value over carrying
value by $7; a change of 0.5 in the assumed EBITDA multiple changes the excess
of estimated fair value over carrying varying value by $9; and a change in the
discount rate to 8.20% or 10.20% changes the excess of estimated fair value over
carrying value by $3. It is possible that an impairment charge of up
to $66 could be recorded for the North America Closures reporting unit if its
estimated fair value were to fall below its carrying value.
During
the fourth quarter of 2007, the Company recorded a goodwill impairment charge of
$103 in its European Closures reporting unit due to a decrease in projected
operating results. The segment income of the business was $6, $14 and
$17 for the years ended December 31, 2007, 2006 and 2005, respectively, and as
of the end of 2006, the Company was projecting 2007 segment income of $16.
The
decrease in 2007 segment income, compared to 2006 results and the Company’s 2007
projections, was primarily due to lower sales unit volumes, an inability to
recover cost increases through increased selling prices, and, to a lesser
extent, increased costs due to a temporary disruption from the relocation of
certain operations during the first half of 2007. The relocation of
operations is complete and the related excess costs incurred in 2007 are not
expected to recur in future years.
In its
projections for the European Closures reporting unit for 2007, the Company
expected to see some pressure on selling prices based on preliminary discussions
with its customers, but believed it could compensate for these losses through
increased sales unit volumes that could be obtained from existing or new
customers throughout the year. However, due to aggressive pricing by
certain of the Company’s competitors (an effort to maintain or increase their
sales unit volumes), the Company was unable to increase volumes for 2007 as
allocations were finalized during the first two quarters. In addition to its
effect on the Company’s sales unit volumes, the competitive situation also
depressed selling prices throughout the year beyond the Company’s
expectations. The aggressive pricing policies evident in 2007 were
unexpected in a business that had consistent segment income and relatively
stable selling prices in recent years. As of October 31, 2007, it was
management’s judgment that the adverse competitive situation was temporary based
on its understanding of the competitive market at that
time.
However, at the conclusion of
the 2008 budget process, which occurred at the end of 2007 only after initial
discussions with existing and potential customers related to 2008 pricing and
volumes, management concluded that the depressed selling prices and competition
for sales volume would likely continue, and that 2008 segment income was
unlikely to improve. Due to this second consecutive year of reduced
segment income, and absent any evidence to the contrary, the Company determined
that it was appropriate to assume similar results for its projections used to
calculate the estimated fair value of the reporting unit at the end of
2007.
The
Company believes segment income in the European Closures reporting unit will
improve only when, and if, selling prices in the market increase or the Company
is able to significantly increase its current sales unit volumes. The Company is
attempting to reduce costs in the business through manufacturing efficiencies
and manpower reductions, while also seeking to improve sales price and volume by
supplying a quality product and technical support in a competitive market
environment. The Company is unable to predict at this time whether
these initiatives will be successful or whether and to what extent such
initiatives will reduce costs and improve sales volumes and
pricing.
Estimated
fair value for the European Closures reporting unit was calculated in the fourth
quarters of 2007 and 2006 using the methodology outlined
above. Weighting the two methods in any other proportion would not
have had any effect on the 2006 impairment review as any combination would have
resulted in an estimated fair value in excess of carrying value. For
the 2007 impairment review, the maximum potential effect of weighting the two
methods other than equally would have been to increase or decrease the
impairment charge by $5. The primary assumptions used included EBITDA multiples
of 8.0 times and 7.5 times, and discount rates of 8.75% and 7.0%, in 2007 and
2006, respectively. The increases in the EBITDA multiple and discount
rate used in 2007 compared to 2006 were due to increases in the market values
and weighted average cost of capital of companies in the packaging industry from
2006 to 2007. The primary cause of the impairment charge in 2007 was
a decrease in projected operating results as described above, as the net effect
of the assumed multiple and discount rate changes was not
significant. As of December 31, 2008, the European Closures
reporting unit had $65 of remaining carrying value including $18 of goodwill,
and its estimated fair value was $37 higher than its carrying
value.
Long-lived Assets
Impairment
The
Company performs an impairment review of its long-lived assets, primarily
property, plant and equipment, when facts and circumstances indicate the
carrying value may not be recoverable from its undiscounted cash flows. Any
impairment loss is measured by comparing the carrying amount of the asset to its
fair value. The Company’s estimates of future cash flows involve assumptions
concerning future operating performance, economic conditions and technological
changes that may affect the future useful lives of the assets. These estimates
may differ from actual cash flows or useful lives.
Tax Valuation
Allowance
The
Company records a valuation allowance to reduce its deferred tax assets when it
is more likely than not that a portion of the tax assets will not be
realized. The estimate of the amount that will not be realized
requires the use of assumptions concerning the Company’s future taxable
income. These estimates are projected through the life of the related
deferred tax assets based on assumptions that management believes are
reasonable. The Company considers all sources of taxable income in
estimating its valuation allowances, including taxable income in any available
carry back period; the reversal of taxable temporary differences; tax-planning
strategies; and taxable income expected to be generated in the future other than
reversing temporary differences. Should the Company change its
estimate of the amount of its deferred tax assets that it would be able to
realize, an adjustment to the valuation allowance would result in an increase or
decrease in tax expense in the period such a change in estimate was
made.
At
December 31, 2007, the Company reversed a portion of its U.S. valuation
allowances based on management’s determination that it was more likely than not
that a portion of its deferred tax benefits would be realized through future
income. In forming this conclusion, the Company considered the fact that it no
longer had cumulative losses in the U.S. over the previous three years. The
Company’s U.S. pre-tax book income/(loss) from continuing operations, as
reported under Note X to the Company’s Annual Report on
Form 10-K for the year ended December 31, 2007, was $4,
$39 and ($60) for the years ended December 31, 2007, 2006 and 2005,
respectively. However, these amounts represent the U.S. book income
only and exclude additional U.S. taxable income from foreign dividends and other
foreign source income. Dividends and foreign source income were $40 in 2007
and the Company included similar amounts in its projections of future taxable
income at that time. In addition, the loss of $60 in 2005 included charges of
$53 related to early extinguishments of debt, and the Company did not include
similar charges in its projections of future income. The Company’s
U.S. book income for 2008, as disclosed under
Note W
to the consolidated financial statements, was $31 and excluded $49 of foreign
source income.
As of
December 31, 2008, the Company had $515 of U.S. net deferred tax
assets. Future realization of these net deferred tax assets will
require approximately $1.3 billion of aggregated future U.S. taxable
income.
As of
December 31, 2008, the Company had a full valuation allowance of $163 against
its net deferred tax assets in France. The French operations are in a
three year cumulative loss position and were break even in 2008. It
is possible that the French operations will be profitable in 2009 due to
improved operating profits and reduced interest expense from a corporate
restructuring. However, due to a significant increase in the price
the operations will pay for steel in 2009 and uncertainty regarding the effect
of the price increases on the French operating profits, management believes it
does not have sufficient positive evidence as of December 31, 2008 to conclude
that it is more likely than not that some or all of its French deferred tax
assets will be realized in 2009 or beyond. The Company will continue
to monitor the results of its French operations as its supplier and customer
contracts are finalized during the first two quarters of 2009, and it is
possible that some or all of its French valuation allowance will be reversed in
2009 or thereafter.
As of
December 31, 2008, the Company had a full valuation allowance of $56 against its
net deferred tax assets in Canada. The Canadian operations are in a
three year cumulative loss position and had a significant loss in 2008 due to
high interest and plant closing costs, and foreign exchange losses on
intercompany balances owed to the U.S. It is possible that the
Canadian operations will be profitable in 2009 due to reduced interest expense
from a corporate restructuring and savings from the 2008 plant
closings. Management believes, however, that it does not have
sufficient positive evidence as of December 31, 2008, to conclude that it is
more likely than not that some or all of its Canadian
deferred tax assets will
be
realized in 2009 or beyond. The Company will continue to monitor the
results of its Canadian operations and it is possible that some or all of its
Canadian valuation allowance will be reversed in 2009 or
thereafter.
Unrecognized Tax
Positions
The
Company recognizes the impact of a tax position if, in the Company’s opinion, it
is more likely than not that the position will be sustained on audit, based on
the technical merits of that position. The tax position is measured
at the largest amount of benefit that is greater than 50% likely of being
realized upon ultimate settlement. The determination of whether the
impact should be recognized, and the measurement of the
impact,
can require significant judgment and the Company’s estimate may differ from the
actual settlement amounts. See
Note W
to the
consolidated financial statements for additional information on the Company’s
tax positions.
Pension and Postretirement
Benefits
Accounting
for pensions and postretirement benefit plans requires the use of estimates and
assumptions regarding numerous factors, including discount rates, rates of
return on plan assets, compensation increases, health care cost increases,
mortality and employee turnover. Actual results may differ from the Company’s
actuarial assumptions, which may have an impact on the amount of reported
expense or liability for pensions or postretirement benefits.
The rate
of return assumptions are reviewed at each measurement date based on the pension
plans’ investment policies, current asset alloctions and an analysis of the
historical returns of the capital markets. The U.S. plan’s
current asset allocation targets are 70% U.S.
and international
equities, 12% debt securities, 15% alternative
investments and 3% real estate. Alternative
investments include private equity and hedge funds. The actual asset allocation
percentages at December 31, 2008 were 63% equities, 18% debt securities, 16%
alternative investments and 3% real estate. The U.K. plan, which is the primary
non-U.S. plan, has a current asset allocation policy of 16% U.K. and non-U.K.
equities, 60% liability-matching debt securities, 19% alternative investments
and 5% real estate. The actual allocation percentages at December 31, 2008 were
11% equities, 62% debt securities, 23% alternative investments and 4% real
estate.
The rate
of return assumptions for 2009 of 8.75% for the U.S. plan and 6.75% for the U.K.
plan were calculated using the actual allocation percentages at December 31,
2008 and an assumed rate of return for each category in each
plan.
The Company used the actual allocation percentages because it
believes the asset mix throughout 2009 will be closer to the actual percentages
than the target percentages. A 0.25% change in the expected rates of
return would change 2009 pension expense by approximately $8.
Discount
rates were selected using a method that matches projected payouts from the plans
with zero-coupon double A bond yield curves in the respective currencies.
The yield curves were constructed from the underlying bond price and yield data
collected as of the plans' measurement date and are represented by a series of
annualized, individual discount rates with durations ranging from six months to
thirty years. Each discount rate in the curve was derived from an equal
weighting of the double A bond universe, approtioned into distinct maturity
groups.
These
individual discount rates were then converted into a single equivalent discount
rate. To assure that the resulting rates can
be achieved by the plan, only bonds with sufficient
capacity that satisfy certain criteria and are
expected to remain available through
the period of maturity of the plan benefits were used to develop the discount
rate. A 0.25% change in the discount rates from those used at
December 31, 2008 would change 2009 pension expense by approximately $5 and
postretirement expense by approximately $1. See
Note V
to the consolidated financial statements for additional information on pension
and postretirement benefit obligations and assumptions.
As of
December 31, 2008, the Company had pre-tax unrecognized net losses in other
comprehensive income of $1,677 related to its pension plans and $118 related to
its other postretirement benefit plans. Unrecognized gains and losses arise each
year primarily due to changes in discount rates, differences in actual plan
asset returns compared to expected returns, and changes in actuarial assumptions
such as mortality. For example, as disclosed in
Note V
to the consolidated financial statements, the unrecognized net loss in the
Company’s pension plans included a current year loss of $517
consisting of a loss of $1,147 due to
actual
asset losses of $800 compared to expected returns of $347, offset by gains
of $630 primarily due to higher discount rates at the end of 2008 compared to
2007. Unrecognized gains and losses are accumulated in other
comprehensive income and the portion in each plan that exceeds 10% of the
greater of that plan’s assets or projected benefit obligation is amortized to
income over future periods. The Company’s pension expense for the year ended
December 31, 2008 included charges of $64 for the amortization of unrecognized
net losses, and the Company estimates charges of $109 in 2009. Unrecognized net
losses of $1,677 in the pension plans as of December 31, 2008 include $589 in
the U.K. defined benefit plan, $962 in the U.S defined benefit plan, $148 in the
Canadian defined benefit plans, and ($22) in other plans. Amortizable
losses in the U.K. plan are being recognized over 22 years,
representing
the average expected life of inactive employees as over 90% of the plan
participants are inactive and the fund is closed to new
participants. Amortizable losses in the U.S. plan are being
recognized over the average remaining service life of active participants of 11
years. Amortizable losses in the Canadian plans are being recognized
over the average remaining service life of active participants of 11
years. An increase of 10% in the number of years used to
amortize unrecognized losses in each plan would decrease estimated
charges for 2009 by 9.1% or $10. A decrease of 10% in the number of years would
increase the estimated charge for 2009 by 11.1% or $12.
Unrecognized
net losses in the Company’s other postretirement benefit plans as of December
31, 2008, primarily included $113 in the U.S. plans, with the amortizable
portion being recognized over the average remaining service life of active
participants of 9 years. The Company’s other postretirement benefits
expense for the year ended December 31, 2008 included charges of $8 for the
amortization of unrecognized net losses, and the Company estimates charges of $8
in 2009. An increase of 10% in the number of years used to amortize the
unrecognized losses in each plan would decrease the estimated charge for 2009 by
9.1% or $1. A decrease of 10% in the number of years would increase the
estimated charge for 2009 by 11.1% or $1.
Stock-Based
Compensation
Calculation
of the estimated fair value of stock option awards requires the use of
assumptions regarding a number of complex and subjective variables, including
the expected term of the options, the annual risk-free interest rate over the
options’ expected term, the expected annual dividend yield on the underlying
stock over the options’ expected term, and the expected stock price volatility
over the options’ expected term. The Company
generally bases its assumptions
of option term and expected
price volatility on historical
data, but
also considers other factors, such as vesting or expiration provisions in new
awards that are inconsistent with past awards, that would make the historical
data unreliable as a basis for future assumptions. Estimates of the
fair value of stock options are not intended to predict actual future events or
the value ultimately realized by employees who receive stock option awards, and
subsequent events are not indicative of the reasonableness of the original
estimates of fair value made by the Company under FAS 123(R). See
Note A
and
Note Q
to the
consolidated financial statements for additional disclosure of the Company’s
assumptions related to stock-based compensation.
In
December 2007, the FASB issued 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 will be expensed as incurred;
noncontrolling (minority) interests will be valued at fair value at
the acquisition date; in-process research and
development will be recorded at fair value as an
indefinite-lived intangible asset
at the acquisition date; restructuring costs associated
with a business combination will generally be 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 the Company does not expect its adoption to have a material impact on
the Company’s financial statements at the date of adoption.
In April
2008, the FASB issued 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 FASB
Statement No. 141 (revised 2007) (“FAS 141(R)”),”Business Combinations” and
other generally accepted accounting principles. The FSP requires disclosure of
information that enables users of financial statements to assess the extent to
which the expected future cash flows associated with the asset are affected by
the company’s intent and/or ability to renew or extend the arrangement. The FSP
is effective for the Company as of January 1, 2009. The guidance for
determining the useful life of the recognized intangible asset in the FSP is to
be applied prospectively to intangible assets acquired after the effective date.
The Company is currently evaluating the FSP and does not expect its adoption to
have a material impact on the Company’s consolidated financial
statements.
In June
2008, the FASB issued 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 applies to the calculation of EPS
for share-based payment awards with rights to dividends or dividend
equivalents. Further, unvested share-based payment awards that
contain nonforfeitable rights to dividends or dividend equivalents (whether paid
or unpaid) are participating securities and shall be included in the computation
of EPS pursuant to the two-class method. The FSP is effective for the Company as
of January 1, 2009. All prior-period EPS data presented will be
adjusted retrospectively to conform to the provisions of the FSP. The Company is
currently evaluating the FSP and does not expect its adoption to have a material
impact on the Company’s calculation of earnings per share.
In
December 2008, the FASB issued 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. Assuming FAS 160 was adopted as of
December 31, 2008, and using the amounts included in the Company’s financial
statements as of that date, the adoption of FAS 160 would increase the Company’s
shareholders’ (deficit)/equity from ($317) to $36 due to the
inclusion of minority interests of $353 in shareholders’ equity. The
effect on the income statement for the year ended December 31, 2008 would be to
increase the Company’s consolidated net income from $226 to $330 with the
inclusion of $104 of net income attributable to minority interests, and the
Company would separately disclose $104 of consolidated net income attributable
to minority interests. FAS 160 also includes expanded disclosure
requirements regarding interests of the parent and noncontrolling interests, and
amends certain consolidation procedures of ARB No. 51 for consistency with the
requirements of FAS 141(R). FAS 160 is effective for the Company as of
January 1, 2009.
In March
2008, the FASB issued SFAS No. 161 (“FAS 161”), “Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No.
133.” FAS 161 amends and expands the disclosure requirements of SFAS
No. 133 (“FAS 133”), “Accounting for Derivative Instruments and Hedging
Activities” 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 an entity’s financial position, financial performance and
cash flows. The statement requires qualitative disclosures about
objectives and strategies for using derivatives, quantitative disclosures about
fair value gains and losses on derivative instruments, and disclosures about
credit-risk-related contingent features in derivative agreements. FAS 161 is
effective for the Company as of January 1, 2009 and the Company is currently
evaluating the disclosure implications of this statement.
Statements
in this Annual Report, including those in “Management’s Discussion and Analysis
of Financial Condition and Results of Operations,” in the discussions of the
provision for asbestos in
Note L
and other
contingencies in
Note M
to the consolidated financial
statements included in this Annual Report and in discussions incorporated by
reference into this Annual Report (including, but not limited to, those in
“Compensation Discussion and Analysis” in the Company’s Proxy Statement), which
are not historical facts (including any statements concerning plans and
objectives of management for future operations or economic performance, or
assumptions related thereto), are “forward-looking statements,” within the
meaning of the federal securities laws. In addition, the Company and its
representatives may from time to time make other oral or written statements
which are also forward-looking statements. Forward-looking statements can
be identified by words, such as “believes,” “estimates,” “anticipates,”
“expects” and other words of similar meaning in connection with a discussion of
future operating or financial performance. These may include, among
others, statements relating to (i) the Company's plans or objectives for future
operations,
products or financial performance, (ii) the Company’s indebtedness and other
contractual obligations, (iii) the impact of
an economic downturn or growth in particular
regions, (iv) anticipated uses of cash, (v) cost reduction efforts and expected
savings, (vi) the Company’s policies with respect to executive compensation and
(vii) the expected outcome of contingencies, including with respect to
asbestos-related litigation and pension and postretirement
liabilities.
These forward-looking statements are made based upon management’s
expectations and beliefs concerning future events impacting the Company and,
therefore, involve a number of risks and uncertainties. Management cautions that
forward-looking statements are not guarantees and that actual results could
differ materially from those expressed or implied in the forward-looking
statements.
Important factors that could cause the actual results of operations or
financial condition of the Company to differ include, but are not necessarily
limited to, the ability of the Company to repay, refinance or restructure its
short and long-term indebtedness on adequate terms and to comply with the terms
of its agreements relating to debt; loss of customers, including the loss of any
significant customers; the Company’s ability to obtain and maintain adequate
pricing for its products, including
the impact on the Company’s revenue, margins
and market share and the ongoing impact of price increases; the impact of the
Company’s initiative to generate additional cash, including
the reduction of working capital
levels and capital spending; restrictions on the
Company’s use of available cash
under its debt agreements; the ability of the Company to
realize cost savings from its restructuring programs; changes in the
availability and pricing of raw materials (including aluminum can sheet, steel
tinplate, energy, water, inks and coatings) and the Company’s ability
to pass raw material, energy and freight price increases and surcharges through
to its customers or to otherwise manage these commodity
pricing risks; the financial condition of the Company’s vendors and
customers; the Company’s ability to
generate significant cash to meet its obligations and
invest in its business and to maintain appropriate debt levels; the Company’s
ability to maintain adequate sources of capital and liquidity; the Company’s
ability to realize efficient capacity utilization and inventory levels and to
innovate new designs and technologies for its products in
a cost-effective manner; changes in consumer preferences for
different packaging products; competitive pressures, including new product
developments, industry overcapacity, or changes in competitors’ pricing for
products; the Company’s ability to maintain and develop competitive technologies
for the design and manufacture of products and to withstand
competitive and legal challenges to the proprietary nature of such
technology; the Company’s ability to generate
sufficient production capacity; the collectibility of receivables; changes in
governmental regulations or enforcement practices, including with respect to
environmental, health and safety matters and restrictions as to foreign
investment or operation; weather conditions, including their effect on demand
for beverages and on crop yields for fruits and vegetables stored in food
containers; changes or differences in U.S. or
international economic or political conditions, such as inflation or
fluctuations in interest or foreign exchange rates (and the effectiveness of any
currency or interest rate hedges) and tax rates;
the Company’s ability to realize deferred tax benefits; war or acts of
terrorism that may disrupt the Company’s production or the supply or pricing of
raw materials, including in the Company’s Middle East operations, impact the
financial condition of customers or adversely affect the Company’s ability to
refinance or restructure its remaining indebtedness; the impact of existing and
future legislation regarding refundable mandatory deposit laws in Europe for
non-refillable beverage containers and the implementation of an effective return
system; energy and natural resource costs; the cost and other effects of legal and
administrative cases and
proceedings, settlements and investigations; the outcome of asbestos-related
litigation (including the number and size of future claims and the terms
of settlements, and the impact of bankruptcy filings by other companies
with asbestos-related liabilities, any of which
could increase Crown Cork’s asbestos-related
costs over time, the adequacy of reserves established for asbestos-related
liabilities, Crown Cork’s ability to obtain resolution without payment of
asbestos-related claims by persons alleging first exposure to asbestos after
1964, and the impact of Georgia, South Carolina, Florida, Ohio, Mississippi,
Texas and Pennsylvania legislation dealing with asbestos liabilities and any
litigation challenging that legislation and any future state or federal
legislation dealing with asbestos liabilities), labor relations and workforce
and social costs, including the Company’s pension and
postretirement obligations and other employee
or retiree costs; investment performance of the Company’s
pension plans; costs and payments to certain of the Company’s executive officers
in connection with any termination of such executive officers or a change in
control of the Company; costs and difficulties related to the integration of
acquired businesses; changes in the Company’s critical or other accounting
policies or the assumptions underlying those policies; changes in the Company’s
strategic areas of focus; and the impact of any potential dispositions,
acquisitions or other strategic realignments, which may impact the Company’s
operations, financial profile or levels of
indebtedness.
Some of
the factors noted above are discussed elsewhere in this Annual Report and prior
Company filings with the Securities and Exchange Commission (“SEC”), including
within Part I, Item 1A, “
Risk Factors
” in this Annual
Report. In addition, other factors have been or may be discussed from
time to time in the Company’s SEC filings.
While the
Company periodically reassesses material trends and uncertainties affecting the
Company’s results of operations and financial condition in connection with the
preparation of “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” and certain other sections contained in the Company’s
quarterly, annual or other reports filed with the SEC, the Company does not
intend to review or revise any particular forward-looking statement in light of
future events.
ITEM 7A
.
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
The
information set forth within Part II, Item 7,” Management’s Discussion and
Analysis of Financial Condition and Results of Operations” under the caption “
Market Risk
” is incorporated herein by
reference.
|
FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
|
|
INDEX TO FINANCIAL
STATEMENTS
|
|
Financial
Statements
|
|||
|
46
|
|||
|
47
|
|||
|
48
|
|||
|
49
|
|||
|
50
|
|||
|
51
|
|||
|
52
|
|||
|
104
|
|||
|
Financial Statement
Schedule
|
|
||
|
Schedule II
– Valuation and Qualifying Accounts
and Reserves
|
105
|
||
Management’s Report
on Internal Control Over Financial
Reporting
Management
is responsible for establishing and maintaining adequate internal control over
financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange
Act of 1934, as amended). The Company’s system of internal control over
financial reporting is designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles.
Because
of the inherent limitations, a system of internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
Management
assessed the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2008. In making this assessment, management used
the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”) in
Internal
Control-Integrated Framework
. Based on its assessment, management has
concluded that, as of December 31, 2008, the Company’s internal control over
financial reporting was effective based on those criteria.
The
effectiveness of the Company’s internal control over financial reporting as of
December 31, 2008 has been audited by PricewaterhouseCoopers LLP, an independent
registered public accounting firm, as stated in their report which appears
herein.
To the
Board of Directors and Shareholders of Crown Holdings, Inc:
In our
opinion, the consolidated financial statements listed in the index appearing
under Item 15(a)(1) present fairly, in all material respects, the financial
position of Crown Holdings, Inc. and its subsidiaries at December 31, 2008 and
December 31, 2007, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2008
in conformity with
accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement
schedule listed in the index appearing under Item 15(a)(2) presents fairly, in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. Also
in our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2008, based on
criteria established in
Internal Control - Integrated
Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Company's management is responsible
for these financial statements and financial statement schedule, for maintaining
effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in the
accompanying Management's Report on Internal Control Over Financial
Reporting. Our responsibility is to express opinions on these
financial statements, on the financial statement schedule, and on the Company's
internal control over financial reporting based on our integrated
audits. We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement and whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial
statements included examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. Our audit of internal control over
financial reporting included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audits also included
performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis
for our opinions.
As
discussed in Notes V and W to the consolidated financial statements, the Company
changed the manner in which it accounts for defined benefit pension and other
postretirement plans as of December 31, 2006 and the manner in which it accounts
for uncertain tax positions as of January 1, 2007, respectively.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of
the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and
(iii) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
PricewaterhouseCoopers
LLP
Philadelphia,
PA
February
27, 2009
(in
millions, except per share amounts)
|
For
the years ended December 31
|
2008
|
2007
|
2006
|
|||||||||
|
Net
sales
|
$
|
8,305
|
$
|
7,727
|
$
|
6,982
|
||||||
|
Cost of products sold, excluding
depreciation and amortization
|
6,867
|
6,471
|
5,863
|
|||||||||
|
Depreciation and
amortization
|
216
|
229
|
227
|
|||||||||
|
Gross
profit
|
1,222
|
1,027
|
892
|
|||||||||
|
Selling and administrative
expense
|
396
|
385
|
316
|
|||||||||
|
Provision for asbestos…
Note
L
|
25
|
29
|
10
|
|||||||||
|
Provision for restructuring…
Note
N
|
21
|
20
|
15
|
|||||||||
|
Provision for asset impairments
and loss/gain on sale
of
assets…
Note O
|
6
|
100
|
|
(64)
|
|
|||||||
|
Loss from early extinguishment of
debt…
Note R
|
2
|
|||||||||||
|
Interest expense
|
302
|
318
|
286
|
|||||||||
|
Interest income
|
|
(11)
|
|
|
(14)
|
|
|
(12)
|
|
|||
|
Translation and exchange
adjustments
|
|
39
|
|
|
(12)
|
|
6
|
|||||
|
Income
from continuing operations before income taxes and
minority
interests
|
442
|
201
|
335
|
|||||||||
|
Provision for/(benefit from)
income taxes…
Note W
|
|
112
|
|
|
(400)
|
|
|
(62)
|
|
|||
|
Minority
interests
|
|
(104)
|
|
|
(73)
|
|
|
(55)
|
|
|||
|
Income
from continuing operations
|
226
|
528
|
342
|
|||||||||
|
Discontinued
operations
…
Note
B
|
||||||||||||
|
Loss before income
taxes
|
|
(34)
|
|
|||||||||
|
Benefit from income
taxes
|
|
(1)
|
|
|||||||||
|
Loss
from discontinued operations
|
|
(33)
|
|
|||||||||
|
Net
income
|
$
|
226
|
$
|
528
|
$
|
309
|
||||||
|
Per common share
data:
Note
U
|
||||||||||||
|
Earnings/(loss)
|
||||||||||||
|
Basic – Continuing
operations
|
$
|
1.42
|
$
|
3.27
|
$
|
2.07
|
||||||
|
Discontinued
operations
|
|
(0.20)
|
|
|||||||||
|
$
|
1.42
|
$
|
3.27
|
$
|
1.87
|
|||||||
|
Diluted – Continuing
operations
|
$
|
1.39
|
$
|
3.19
|
$
|
2.01
|
||||||
|
Discontinued
operations
|
|
(0.19)
|
|
|||||||||
|
$
|
1.39
|
$
|
3.19
|
$
|
1.82
|
|||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
(in
millions, except share data)
|
December
31
|
2008
|
2007
|
||||||||
|
Assets
|
||||||||||
|
Current
assets
|
||||||||||
|
Cash and cash
equivalents
|
$
|
596
|
$
|
457
|
||||||
|
Receivables, net…
Note
D
|
734
|
673
|
||||||||
|
Inventories…
Note
E
|
979
|
1,030
|
||||||||
|
Prepaid expenses and other
current assets
|
148
|
74
|
||||||||
|
Total current
assets
|
2,457
|
2,234
|
||||||||
|
Goodwill…
Note
F
|
1,956
|
2,199
|
||||||||
|
Property,
plant and equipment, net…
Note
G
|
1,473
|
1,604
|
||||||||
|
Other
non-current assets…
Note H
|
888
|
942
|
||||||||
|
Total
|
$
|
6,774
|
$
|
6,979
|
||||||
|
Liabilities
and shareholders’ equity/(deficit)
|
||||||||||
|
Current
liabilities
|
||||||||||
|
Short-term debt…
Note
R
|
$
|
59
|
$
|
45
|
||||||
|
Current maturities of long-term
debt…
Note R
|
31
|
38
|
||||||||
|
Accounts payable and accrued
liabilities…
Note I
|
1,982
|
2,000
|
||||||||
|
Total current
liabilities
|
2,072
|
2,083
|
||||||||
|
Long-term
debt, excluding current maturities…
Note
R
|
3,247
|
3,354
|
||||||||
|
Postretirement
and pension liabilities…
Note
V
|
893
|
625
|
||||||||
|
Other
non-current liabilities…
Note
J
|
526
|
579
|
||||||||
|
Minority
interests
|
353
|
323
|
||||||||
|
Shareholders’
equity/(deficit)
|
||||||||||
|
Preferred
stock, authorized: 30,000,000; none issued…
Note
P
|
||||||||||
|
Common
stock, par value: $5.00; authorized 500,000,000
shares;
issued 185,744,072 shares...
Note P
|
929
|
929
|
||||||||
|
Additional
paid-in capital
|
1,510
|
1,516
|
||||||||
|
Accumulated
deficit
|
|
(428)
|
|
|
(654)
|
|
||||
|
Accumulated
other comprehensive loss…
Note
C
|
|
(2,195)
|
|
|
(1,646)
|
|
||||
|
Treasury
stock at par value (2008 – 26,552,834 shares; 2007 – 25,966,444
shares)
|
(133)
|
(130)
|
||||||||
|
Total shareholders’
equity/(deficit)
|
(317)
|
15
|
||||||||
|
Total
|
$
|
6,774
|
$
|
6,979
|
||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
(in
millions)
|
For
the years ended December 31
|
2008
|
2007
|
2006
|
|||||||||
|
Cash
flows from operating activities
|
||||||||||||
|
Net income
|
$
|
226
|
$
|
528
|
$
|
309
|
||||||
|
Adjustments to reconcile net
income to net cash
provided
by operating activities:
|
||||||||||||
|
Depreciation and
amortization
|
216
|
229
|
230
|
|||||||||
|
Provision for asset impairments
and loss/gain on sale of assets
|
6
|
100
|
|
(64)
|
|
|||||||
|
Pension
expense
|
13
|
10
|
37
|
|||||||||
|
Pension
contributions
|
|
(71)
|
|
|
(65)
|
|
|
(90)
|
|
|||
|
Stock-based
compensation
|
16
|
14
|
11
|
|||||||||
|
Deferred income
taxes
|
|
23
|
|
|
(486)
|
|
|
(110)
|
|
|||
|
Minority
interests
|
104
|
73
|
55
|
|||||||||
|
Changes in assets and liabilities,
net of effect of divested businesses:
|
||||||||||||
|
Receivables
|
(110)
|
68
|
39
|
|||||||||
|
Inventories
|
|
(23)
|
|
|
(19)
|
|
|
(66)
|
|
|||
|
Accounts payable and accrued
liabilities
|
38
|
61
|
19
|
|||||||||
|
Asbestos
liabilities
|
3
|
|
(16)
|
|
||||||||
|
Other
|
(16)
|
(7)
|
|
1
|
|
|||||||
|
Net cash provided by operating
activities
|
422
|
509
|
355
|
|||||||||
|
Cash
flows from investing activities
|
||||||||||||
|
Capital
expenditures
|
|
(174)
|
|
|
(156)
|
|
|
(191)
|
|
|||
|
Proceeds from sale of businesses,
net of cash sold
|
7
|
7
|
||||||||||
|
Proceeds from sale of property,
plant and equipment
|
15
|
66
|
81
|
|||||||||
|
Other
|
|
(27)
|
|
|
(11)
|
|
|
(8)
|
|
|||
|
Net cash used for investing
activities
|
|
(186)
|
|
|
(94)
|
|
|
(111)
|
|
|||
|
Cash
flows from financing activities
|
||||||||||||
|
Proceeds from long-term
debt
|
27
|
48
|
232
|
|||||||||
|
Payments of long-term
debt
|
|
(94)
|
|
|
(55)
|
|
|
(143)
|
|
|||
|
Net change in revolving credit
facility and short-term debt
|
|
15
|
|
|
(217)
|
|
|
(81)
|
|
|||
|
Debt issue costs
|
|
(4)
|
|
|||||||||
|
Common stock
issued
|
10
|
14
|
18
|
|||||||||
|
Common stock
repurchased
|
|
(35)
|
|
|
(118)
|
|
|
(135)
|
|
|||
|
Dividends paid to minority
interests
|
|
(65)
|
|
|
(38)
|
|
|
(29)
|
|
|||
|
Other
|
|
65
|
|
|
(30)
|
|
|
(16)
|
|
|||
|
Net cash used for financing
activities
|
|
(77)
|
|
|
(396)
|
|
|
(158)
|
|
|||
|
Effect
of exchange rate changes on cash and cash equivalents
|
(20)
|
31
|
27
|
|||||||||
|
Net
change in cash and cash equivalents
|
139
|
50
|
113
|
|||||||||
|
Cash
and cash equivalents at January 1
|
457
|
407
|
294
|
|||||||||
|
Cash
and cash equivalents at December 31
|
$
|
596
|
$
|
457
|
$
|
407
|
||||||
The
accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’
EQUITY/(DEFICIT)
AND COMPREHENSIVE INCOME/(LOSS)
(in
millions, except share data)
|
2008
|
2007
|
2006
|
||||||||||
|
Comprehensive
income/(loss)
|
||||||||||||
|
Net income
|
$ | 226 | $ | 528 | $ | 309 | ||||||
|
Net other adjustments (see
details below)
|
(549) | 85 | 729 | |||||||||
|
Comprehensive
income/(loss)
|
$ | (323) | $ | 613 | $ | 1,038 | ||||||
|
Common
stock
|
$ | 929 | $ | 929 | $ | 929 | ||||||
|
Paid-in
capital
|
||||||||||||
|
Balance
– beginning of year
|
$ | 1,516 | $ | 1,589 | $ | 1,674 | ||||||
|
Restricted stock
awarded
|
(2) | (2) | (2) | |||||||||
|
Stock-based
compensation
|
16 | 16 | 11 | |||||||||
|
Stock issued – benefit
plans
|
4 | 6 | 5 | |||||||||
|
Stock
repurchased
|
(24) | (93) | (99) | |||||||||
|
Balance
– end of year
|
$ | 1,510 | $ | 1,516 | $ | 1,589 | ||||||
|
|
||||||||||||
|
Accumulated
deficit
|
||||||||||||
|
Balance
– beginning of year
|
$ | (654) | $ | (1,166) | $ | (1,475) | ||||||
|
Net
income
|
226 | 528 | 309 | |||||||||
|
Adoption of FIN
48
|
(16) | |||||||||||
|
Balance
– end of year
|
$ | (428) | $ | (654) | $ | (1,166) | ||||||
|
Accumulated
other comprehensive loss
|
||||||||||||
|
Balance
– beginning of year
|
$ | (1,646) | $ | (1,731) | $ | (1,219) | ||||||
|
Derivatives
qualifying as hedges, net of tax of $15, $9 and $3
|
(51) | (7) | 2 | |||||||||
|
Translation
adjustments
|
(397) | 25 | 133 | |||||||||
|
Translation
adjustments - disposition of foreign investments
|
6 | |||||||||||
|
Minimum pension liability
adjustments, net of tax of ($2)
|
710 | |||||||||||
|
Minimum pension tax adjustment
-
NoteW
|
(121) | |||||||||||
|
Amortization of net loss and prior service cost included in net
periodic
pension and postretirement cost, net of tax of
($14) and ($19)
|
38 | 47 | ||||||||||
|
Net
loss and prior service cost adjustments, net of tax of $127 and
($62)
|
(139) | 18 | ||||||||||
|
Available
for sale securities, net of tax of $2 and ($2)
|
(4) | 5 | ||||||||||
|
Net
other comprehensive earnings/(loss) adjustments
|
(549) | 85 | 729 | |||||||||
|
Adoption of FAS 158, net of
tax of $228
|
(1,241) | |||||||||||
|
Balance – end of
year
|
$ | (2,195) | $ | (1,646) | $ | (1,731) | ||||||
|
|
||||||||||||
|
Treasury
stock
|
||||||||||||
|
Balance
- beginning of year
|
$ | (130) | $ | (115) | $ | (94) | ||||||
|
Restricted stock
awarded
|
2 | 2 | 2 | |||||||||
|
Stock issued – benefit
plans
|
6 | 8 | 13 | |||||||||
|
Stock repurchased
|
(11) | (25) | (36) | |||||||||
|
Balance – end of year
|
$ | (133) | $ | (130) | $ | (115) | ||||||
|
Total
shareholders' equity/(deficit)
–
end
of year
|
$ | (317) | $ | 15 | $ | (494) | ||||||
The accompanying notes are an integral part of these consolidated financial
statements.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(in
millions, except share, per share, employee and statistical data)
|
Summary
of Significant Accounting Policies
|
Business and Principles of
Consolidation
. The consolidated financial statements include the accounts
of Crown Holdings, Inc. (the “Company”) and its consolidated subsidiary
companies (where the context requires, the “Company” shall include reference to
the Company and its consolidated subsidiary companies).
The
Company manufactures and sells metal containers, metal closures, and canmaking
equipment. These products are manufactured in the Company’s plants both within
and outside the United States and are sold through the Company’s sales
organization to the soft drink, food, citrus, brewing, household products,
personal care and various other industries. The financial statements were
prepared in conformity with accounting principles generally accepted in the
United States of America and reflect management’s estimates and assumptions.
Actual results could differ from those estimates, impacting reported results of
operations and financial position. All intercompany accounts and transactions
are eliminated in consolidation. In deciding which entities should be reported
on a consolidated basis, the Company first determines whether the entity is a
variable interest entity (“VIE”) as defined in FASB Interpretation No. 46 (“FIN
46”). If an entity meets the criteria for VIE status, the Company consolidates
that entity if the Company has the obligation to absorb more than 50% of the
entity’s expected losses or receive more than 50% of the entity’s expected
residual returns. If an entity does not meet the criteria for VIE status, the
Company consolidates those in which it has effective control, which includes
certain subsidiaries that are not majority-owned. Certain of the
Company’s joint venture agreements contain provisions in which the Company would
surrender certain decision-making rights upon a change in control of the
Company. AccordingIy, consolidation of these operations may no longer
be appropriate subsequent to a change in control of the Company, as defined in
the joint venture agreements. Investments in companies in which the Company does
not have effective control, but has the ability to exercise significant
influence over operating and financial policies, are accounted for by the equity
method. Investments in securities where the Company does not have the ability to
exercise significant influence over operating and financial policies, and whose
fair value is readily determinable such as those listed on a securities
exchange, are referred to as “available for sale securities” and reported at
their fair value with unrealized gains and losses reported in accumulated other
comprehensive income in shareholders’ equity. Other investments are carried at
cost.
Foreign Currency Translation
.
For non-U.S. subsidiaries which operate in a local currency environment, assets
and liabilities are translated into U.S. dollars at year-end exchange rates.
Income, expense and cash flow items are translated at average exchange rates
prevailing during the year. Translation adjustments for these subsidiaries are
accumulated as a separate component of accumulated other comprehensive income in
shareholders’ equity. For non-U.S. subsidiaries that use a U.S. dollar
functional currency, local currency inventories and property, plant and
equipment are translated into U.S. dollars at approximate rates prevailing when
acquired; all other assets and liabilities are translated at year-end exchange
rates. Inventories charged to cost of sales and depreciation are remeasured at
historical rates; all other income and expense items are translated at average
exchange rates prevailing during the year. Gains and losses which result from
remeasurement are included in earnings.
Revenue Recognition
. Revenue
is recognized from product sales when the goods are shipped and the title and
risk of loss pass to the customer. Provisions for discounts and rebates to
customers, returns, and other adjustments are estimated and provided for in the
period that the related sales are recorded. Taxes collected from customers and
remitted to governmental authorities are excluded from net sales. Shipping and
handling fees and costs are reported as cost of products sold.
Stock-Based Compensation
. The
Company has stock-based employee compensation plans that are currently comprised
of fixed stock options and restricted stock awards. Effective January
1, 2006, the Company adopted Statement of Financial Accounting Standards
(“SFAS”) No. 123 (revised 2004) (“FAS 123(R)”), “Share Based
Payment.” The Company is using the modified prospective transition
method of FAS 123(R) whereby compensation expense for all nonvested stock
awards, measured by the grant date
fair
value of the awards, will
be charged to earnings prospectively over the remaining vesting period
based on
the estimated number of awards that are expected to vest. Similarly,
compensation expense for all future awards will be recognized over the vesting
period based on the grant-date fair value and the estimated number of awards
that are expected to vest. Compensation expense is recognized over the vesting
period on a straight-line basis. Valuation of awards granted prior to the
adoption of the standard were calculated using the Black-Scholes option pricing
model and the Company expects to use the same model for valuing future
awards.
Stock-based
compensation expense was $16, $14 and $11 in 2008, 2007 and 2006,
respectively.
Cash and Cash Equivalents
.
Cash equivalents represent investments with maturities of three months or less
from the time of purchase and are carried at cost which approximates fair value
because of the short maturity of those instruments. Outstanding checks in excess
of funds on deposit are included in accounts payable.
Accounts Receivable and Allowance for
Doubtful Accounts
.
Trade accounts
receivable are recorded at the invoiced amount and do not bear interest. The
allowance for doubtful accounts is the best estimate of the amount of probable
credit losses in the existing accounts receivable. The allowance is determined
based on a review of individual accounts for collectibility, generally focusing
on those accounts that are past due. The current year expense to adjust the
allowance for doubtful accounts is recorded within cost of products
sold in the consolidated statements of operations. Account balances are charged
against the allowance when it is probable the receivable will not be
recovered.
Inventory Valuation
.
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.
Property, Plant and Equipment
.
Property, plant and equipment (“PP&E”) is carried at cost less accumulated
depreciation and includes expenditures for new facilities and equipment and
those costs which substantially increase the useful lives or capacity of
existing PP&E. Cost of constructed assets includes capitalized interest
incurred during the construction and development period. Maintenance
and repairs, including labor and material costs for planned major
maintenance such as annual production line overhauls, are expensed as incurred.
When PP&E is retired or otherwise disposed, the net carrying amount is
eliminated with any gain or loss on disposition recognized in earnings at that
time.
Depreciation
and amortization are provided on a straight-line basis over the estimated useful
lives of the assets. The range of estimated economic lives in years assigned to
each significant fixed asset category is as follows: Land Improvements-25;
Buildings and Building Improvements-25 to 40; Machinery and Equipment-3 to
14.
Goodwill
. Goodwill,
representing the excess of the cost over the net tangible and identifiable
intangible assets of acquired businesses, and other intangible assets are stated
at cost. Potential impairment of goodwill is identified by comparing
the fair value of a reporting unit, using a combination of market values for
comparable businesses and discounted cash flow projections, to its carrying
value including goodwill. Goodwill was allocated to the reporting units at the
time of the acquisition based on the relative fair values of the reporting
units. If the carrying value of a reporting unit exceeds its fair
value, any impairment loss is measured by comparing the carrying value of the
reporting unit’s goodwill to its implied fair value. Goodwill is tested for
impairment in the fourth quarter of each year or when facts and circumstances
indicate goodwill may be impaired.
Impairment or Disposal of Long-Lived
Assets
. In the event that facts and circumstances indicate that the
carrying value of long-lived assets, primarily PP&E and certain identifiable
intangible assets with finite lives, may be impaired, the Company performs a
recoverability evaluation. If the evaluation indicates that the carrying value
of an asset is not recoverable from its undiscounted cash flows, an impairment
loss is measured by comparing the carrying value of the asset to its fair value,
based on discounted cash flows. Long-lived assets classified as held for sale
are presented in the balance sheet at the lower of their carrying value or fair
value less cost to sell.
Taxes on
Income
. The provision for income taxes is determined using the
asset and liability approach. Deferred taxes represent the future expected tax
consequences of differences between the financial reporting and tax bases of
assets and liabilities based upon enacted tax rates and laws. Valuation
allowances are recorded to reduce deferred tax assets when it is more likely
than not that a tax benefit will not be realized.
The
with-and-without approach is used to account for utilization of windfall tax
benefits arising from the Company’s stock-based compensation plans and only the
direct impact of awards is considered when calculating the amount of windfalls
or shortfalls. Investment tax credits earned in connection with
capital expenditures are recorded as a reduction in income taxes in the year the
credit arises. Income tax-related interest is reported as interest expense and
penalties are reported as income tax expense.
Derivatives and Hedging
. All
outstanding derivative financial instruments are recognized in the balance sheet
at their fair values. The impact on earnings from recognizing the fair values of
these instruments depends on their intended use, their hedge designation and
their effectiveness in offsetting changes in the fair values of the exposures
they are hedging. Changes in the fair values of instruments designated to reduce
or eliminate adverse fluctuations in the fair values of recognized assets and
liabilities and unrecognized firm commitments are reported currently in earnings
along with changes in the fair values of the hedged items. Changes in the
effective portions of the fair values of instruments used to reduce
or eliminate adverse fluctuations in cash flows of anticipated or forecasted
transactions are reported in shareholders’ equity as a component of accumulated
other comprehensive income. Amounts in accumulated other comprehensive income
are reclassified to earnings when the related hedged items impact earnings or
the anticipated transactions are no longer probable. Changes in the fair values
of derivative instruments that are not designated as hedges or do not qualify
for hedge accounting treatment are reported currently in earnings. Amounts
reported in earnings are classified consistent with the item being
hedged.
The
effectiveness of derivative instruments in reducing risks associated with the
hedged exposures is assessed at inception and on an ongoing basis. Any amounts
excluded from the assessment of hedge effectiveness, and any ineffective portion
of designated hedges, are reported currently in earnings. Time value, a
component of an instrument’s fair value, is excluded in assessing effectiveness
for fair value hedges, except hedges of firm commitments, and included for cash
flow hedges.
Hedge
accounting is discontinued prospectively when (i) the derivative instrument is
no longer effective in offsetting changes in fair value or cash flows of the
underlying hedged item, (ii) the derivative instrument expires, is sold,
terminated or exercised, or (iii) designating the derivative instrument as a
hedge is no longer appropriate.
The
Company formally documents all relationships between its hedging instruments and
hedged items at inception, including its risk management objective and strategy
for establishing various hedge relationships. Cash flows from hedging
instruments are classified in the Consolidated Statements of Cash Flows
consistent with the items being hedged.
Treasury Stock
. Treasury stock
is reported at par value. The excess of fair value over par value is first
charged to paid-in capital, if any, and then to retained
earnings.
Research and Development
. Net
research, development and engineering costs of $47, $48 and $42 in 2008, 2007
and 2006, respectively, were expensed as incurred and reported in selling and
administrative expense in the Consolidated Statements of Operations.
Substantially all engineering and development costs are related to developing
new products or designing significant improvements to existing products or
processes. Costs primarily include employee salaries and benefits and facility
costs.
Reclassifications
. Certain
reclassifications of prior years’ data have been made to conform to the current
year presentation.
Recent Accounting and Reporting
Pronouncements
. Effective January 1, 2008, the Company adopted
SFAS No. 157 (“FAS 157”), “Fair Value Measurements” to account for its financial
assets and financial liabilities. FAS 157 defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles
and expands disclosures about fair value measurements. Expanded disclosures
include a tabular presentation of the fair value of a company’s outstanding
financial instruments according to a fair value hierarchy (i.e., levels 1, 2, 3,
as defined) as well as enhanced disclosures regarding instruments in the level 3
category including a reconciliation of the beginning and ending balances for
each major category of assets and liabilities. FAS
157 emphasizes that fair value is
a market-based measurement, not an entity-specific measurement, and states that
a fair value measurement should be determined based on assumptions that market
participants would use in pricing the asset or liability. The
adoption of FAS 157 did not have a material impact on the
Company. The provisions of FAS 157 relating to nonfinancial assets,
primarily goodwill, and nonfinancial liabilities that are recognized or
disclosed at fair value on a nonrecurring basis are effective for the Company as
of January 1, 2009. See
Note S
for
additional information regarding FAS 157.
Effective
January 1, 2008, the Company adopted SFAS No. 159 (“FAS 159”), “The Fair Value
Option for Financial Assets and Financial Liabilities – Including an Amendment
of FASB Statement No. 115.” FAS 159 permits entities to choose to
measure many financial instruments and certain other items at fair value, and
establishes presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement attributes for
similar types of assets and liabilities. The adoption of FAS 159 had no impact
on the Company’s financial statements because the Company did not elect the fair
value option.
In
December 2008, the FASB issued 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. Assuming FAS 160 was
adopted as of December 31, 2008, and using the amounts included in the Company’s
financial statements as of that date, the adoption of FAS 160 would increase the
Company’s shareholders’ equity/(deficit) from ($317) to $36 due to the inclusion
of minority interests of $353 in shareholders’ equity. The effect on
the income statement for the year ended December 31, 2008 would be to increase
the Company’s consolidated net income from $226 to $330 with the inclusion of
$104 of net income attributable to minority interests, and the Company would
separately disclose the $104 of consolidated net income attributable to minority
interests. FAS 160 also includes expanded disclosure requirements regarding
interests of the parent and noncontrolling interests, and amends certain
consolidation procedures of ARB No. 51 for consistency with the requirements of
FAS 141(R). FAS 160 is effective for the Company as of January 1,
2009.
|
B
.
|
Discontinued
Operations
|
During
the second and third quarters of 2006, the Company sold its remaining European
plastics businesses for $2, net of cash divested. These operations
primarily make plastic bottles as well as other products for cosmetics and
beauty care companies. In November 2006, the Company sold its
Americas
health and beauty care business for
$4, net of cash divested.
The
divested businesses were previously included as non-reportable segments in the
Company’s segment reporting and had combined net sales of $158 for the year
ended December 31, 2006.
The
results of operations for the divested businesses are reported within
discontinued operations in the accompanying statements of operations. The
segment results in
Note X
and the Condensed Combining
Statements of Operations in
Note Y
have also been
recast for the divested businesses. The Consolidated Statements of Cash Flows do
not separately report the cash flows of the discontinued
operations. Interest expense was not allocated to the divested
businesses and, therefore, all of the Company’s interest expense is included
within continuing operations
The
components of the loss from discontinued operations are presented
below.
|
2006
|
|||
|
Loss
before tax
|
$ | (6) | |
|
Income
tax on operations
|
|||
|
Loss
on disposal
|
(28) | ||
|
Income
tax on disposal
|
1 | ||
|
Loss
from discontinued operations
|
$ | (33) | |
|
Accumulated
Other Comprehensive Loss
|
|
2008
|
2007
|
||||||
|
Pension
and postretirement adjustments
|
$ | (1,340) | $ | (1,239) | |||
|
Cumulative
translation adjustments
|
(799) | (402) | |||||
|
Derivatives
qualifying as hedges
|
(56) | (5) | |||||
| $ | (2,195) | $ | (1,646) | ||||
|
2008
|
2007
|
||||||
|
Accounts
and notes receivable
|
$ | 615 | $ | 525 | |||
|
Less:
allowance for doubtful accounts
|
(24) | (28) | |||||
|
Net
trade receivables
|
591 | 497 | |||||
|
Miscellaneous
receivables
|
143 | 176 | |||||
| $ | 734 | $ | 673 | ||||
Following
are the changes in the allowance for doubtful accounts for the years ended
December 31, 2008, 2007 and 2006.
|
Balance
at
|
Balance
at
|
||||||||||||||||||
|
beginning of year
|
Expense
|
Write offs
|
Translation
|
end of year
|
|||||||||||||||
|
2006
|
$ |
33
|
$ |
3
|
$ |
(1)
|
$ |
3
|
$ |
38
|
|||||||||
|
2007
|
38
|
3
|
(15)
|
2
|
28
|
||||||||||||||
|
2008
|
28
|
1
|
(4)
|
(1)
|
24
|
||||||||||||||
The
Company utilizes receivable securitization facilities in the normal course of
business as part of its management of cash flow activities. Under its committed
$225 North American facility, the Company sells receivables, on a revolving
basis, to a wholly-owned, bankruptcy-remote subsidiary. The
subsidiary was formed for the sole purpose of buying and selling receivables
generated by the Company and, in turn, sells undivided percentage ownership
interests in the pool of purchased receivables to a syndicate of financial
institutions. The Company continues to service these receivables for
a fee but does not retain any interest in the receivables sold. The Company has
relinquished control of the receivables and the sales are reflected as a
reduction in receivables within the Consolidated Balance Sheets. As of December
31, 2008 and 2007, $115 and $130 of receivables, respectively, were
securitized under the North American facility.
Under the
Company’s committed €120 European securitization facility, certain subsidiaries
in the U.K. and France sell receivables to an entity formed in France for the
sole purpose of buying receivables from the selling subsidiaries. The
buying entity finances the purchase of receivables through the issuance of
senior units to a company in which the Company does not retain any
interest. The selling subsidiaries continue to service the
receivables for a fee, but do not retain any interest in the receivables sold
and the sales are reflected as a reduction in receivables within the
Consolidated Balance Sheets. As of December 31, 2008 and 2007, €85
and €97 of receivables, respectively, were securitized under the European
facility.
During
2008, 2007 and 2006, the Company recorded expenses related
to securitization facilities of $14, $17 and $15, respectively, as interest
expense, including commitment fees of 0.25% on the unused portion of the
facilities. Proceeds from the sale of receivables and all related
fees and costs are included in operating activities in the Consolidated
Statements of Cash Flows.
E.
Inventories
|
2008
|
2007
|
||||||
|
Finished
goods
|
$ | 324 | $ | 380 | |||
|
Work
in process
|
117 | 125 | |||||
|
Raw
materials and supplies
|
538 | 525 | |||||
| $ | 979 | $ | 1,030 | ||||
|
Goodwill
and Intangible Assets
|
Changes
in the carrying amount of goodwill by reportable segment for the years ended
December 31, 2008 and 2007 were as follows:
|
Americas
|
North
America
|
European
|
European
|
Non-reportable
|
||||||||||||||||||||
|
Beverage
|
Food
|
Beverage
|
Food
|
segments
|
Total
|
|||||||||||||||||||
|
Balance
at January 1, 2007
|
$ | 420 | $ | 151 | $ | 750 | $ | 703 | $ | 161 | $ | 2,185 | ||||||||||||
|
Impairment
charge
|
(103) | (103) | ||||||||||||||||||||||
|
Foreign
currency translation
|
8 | 13 | 30 | 49 | 17 | 117 | ||||||||||||||||||
|
Balance
at December 31, 2007
|
428 | 164 | 780 | 649 | 178 | 2,199 | ||||||||||||||||||
|
Foreign
currency translation
|
(10) | (16) | (120) | (62) | (35) | (243) | ||||||||||||||||||
|
Balance
at December 31, 2008
|
$ | 418 | $ | 148 | $ | 660 | $ | 587 | $ | 143 | $ | 1,956 | ||||||||||||
During
the fourth quarter of 2007, the Company recognized an impairment charge of $103
to write down the value of goodwill in its European metal vacuum closures
reporting unit due to a decrease in projected operating
results. Estimated fair value for the reporting unit was calculated
using a combination of market values for comparable businesses and discounted
cash flow projections.
Identifiable
intangible assets other than goodwill are recorded as other non-current assets
in the Consolidated Balance Sheets and are not material.
|
G
.
|
Property,
Plant and Equipment
|
|
2008
|
2007
|
||||||
|
Buildings
and improvements
|
$ | 750 | $ | 792 | |||
|
Machinery
and equipment
|
3,861 | 4,075 | |||||
| 4,611 | 4,867 | ||||||
|
Less:
accumulated depreciation and amortization
|
(3,387) | (3,494) | |||||
| 1,224 | 1,373 | ||||||
|
Land
and improvements
|
139 | 148 | |||||
|
Construction
in progress
|
110 | 83 | |||||
| $ | 1,473 | $ | 1,604 | ||||
|
H
.
|
Other
Non-Current Assets
|
|
2008
|
2007
|
||||||
|
Deferred
taxes
|
$ | 550 | $ | 419 | |||
|
Pension
assets
|
224 | 390 | |||||
|
Debt
issue costs
|
40 | 51 | |||||
|
Investments
|
22 | 34 | |||||
|
Other
|
52 | 48 | |||||
| $ | 888 | $ | 942 | ||||
The
investments caption primarily includes the Company’s investments accounted for
by the equity method and the cost method. The caption also includes balances of
$3 and $9 as of December 31, 2008 and 2007, respectively, for investments
accounted for as available-for-sale securities.
|
2008
|
2007
|
||||||
|
Trade
accounts payable
|
$ | 1,266 | $ | 1,328 | |||
|
Salaries,
wages and other employee benefits, including pension and
postretirement
|
194 | 206 | |||||
| Fair value of derivatives | 168 | 26 | |||||
|
Accrued
taxes, other than on income
|
113 | 121 | |||||
| Accrued interest | 34 | 44 | |||||
|
Asbestos
liabilities
|
25 | 26 | |||||
|
Income
taxes payable
|
18 | 30 | |||||
|
Deferred
taxes
|
10 | 26 | |||||
|
Restructuring
|
12 | 15 | |||||
|
Other
|
142 | 178 | |||||
| $ | 1,982 | $ | 2,000 | ||||
|
Other
Non-Current Liabilities
|
|
2008
|
2007
|
||||||
|
Asbestos
liabilities
|
$ | 176 | $ | 175 | |||
|
Deferred
taxes
|
98 | 81 | |||||
|
Postemployment
benefits
|
42 | 48 | |||||
|
Fair
value of
derivatives
|
42 | 100 | |||||
|
Income
taxes
payable
|
25 | 41 | |||||
|
Environmental
|
17 | 22 | |||||
|
Other
|
126 | 112 | |||||
| $ | 526 | $ | 579 | ||||
Income
taxes payable includes liabilities recorded in accordance with FIN 48 as
discussed under
Note A
and
Note
W
.
K
.
Lease
Commitments
The
Company leases manufacturing, warehouse and office facilities and certain
equipment. Certain non-cancelable leases are classified as capital leases,
and leased assets are included in property, plant and
equipment. Other long-term non-cancelable leases
are classified as operating leases and are not
capitalized.
Certain of the leases contain renewal or purchase options, but the leases do not
contain significant contingent rental payments, escalation clauses, rent
holidays, rent concessions or leasehold improvement incentives. The amount of
capital leases reported as capital assets, net of accumulated amortization, was
$5 and $7 at December 31, 2008 and 2007, respectively.
Under long-term operating leases, minimum annual rentals are $56 in 2009, $43 in 2010, $34 in 2011, $30 in 2012, $28 in 2013 and $39 thereafter. Such rental commitments have been reduced by minimum sublease rentals of $27 due under non-cancelable subleases. The present value of future minimum payments on capital leases was $5 as of December 31, 2008. Rental expense (net of sublease rental income) was $60, $69 and $57 in 2008, 2007 and 2006, respectively.
L
. Provision for Asbestos
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.
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). This
decision remains subject to appeal to the Pennsylvania Supreme
Court. 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
2008, 2007 and 2006, respectively, Crown Cork (i) received 3,000, 4,000 and
5,000 new claims, (ii) settled or dismissed 3,000, 4,000 and 5,000 claims, and
(iii) had 50,000 claims outstanding at the end of 2008. The outstanding claims
at December 31, 2008 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 at December 31, 2008 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.
During
2008, 2007 and 2006, respectively, the Company (i) recorded pre-tax charges of
$25, $29 and $10 to increase its accrual, (ii) made asbestos-related payments of
$25, $26 and $26, (iii) settled claims totaling $15, $15 and $20, including
amounts committed to be paid in future periods and (iv) had outstanding accruals
of $201, $201 and $198 at the end of the year.
The
Company estimates that its probable and estimable asbestos liability for pending
and future asbestos claims and related legal costs is $201 at the end of 2008,
including $137 for unasserted claims and $1 for committed settlements that will
be paid in 2009.
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 $201 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 liability, as the
Company believes cost projections beyond ten years are inherently
unreliable due to
potential changes in the litigation environment and other factors whose impact
cannot be known or reasonably estimated.
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.
M
. Commitments and Contingent
Liabilities
The
Company has been identified by the EPA as a potentially responsible party (along
with others, in most cases) at a number of sites. The Company also has
environmental issues at certain of its plants in the Americas and Europe. Actual
expenditures for remediation were $5, $1 and $1 in 2008, 2007 and 2006,
respectively,. The Company’s balance sheet reflects estimated discounted
remediation liabilities of $18 at December 31, 2008, including $1 as a current
liability. The Company records an environmental liability when it is probable
that a liability has been incurred and the amount of the liability is reasonably
estimable. Reserves at December 31, 2008 are primarily for asserted claims and
are based on internal and external environmental studies. The Company expects
that the liabilities will be paid out over the period of remediation for the
applicable sites, which in some cases may exceed ten years. Although the Company
believes its reserves are adequate, there can be no assurance that the
ultimate payments will not exceed
the amount of the Company’s reserves and will
not have a material effect on the Company’s consolidated results of operations,
financial position or cash flow. Any possible loss or range of potential loss
that may be incurred in excess of the recorded reserves cannot be
estimated.
The
Company and its subsidiaries are also subject to various other lawsuits and
claims with respect to labor, environmental, securities, vendor and other
matters arising out of the 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 results of operations, financial position or cash
flow.
The
Company has various commitments to purchase materials, supplies and utilities
totaling approximately $3.5 billion as of December 31, 2008 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
December 31, 2008 the Company had 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
$21. Several agreements outstanding at December 31, 2008 did not
provide liability limits. The Company also has guarantees of $29
related to the residual value of leased assets at December 31,
2008.
|
N
.
|
Restructuring
|
During
2008, the Company provided a pre-tax charge of $21 for restructuring costs,
including $13 to close a food can plant and a beverage can and crown plant in
Canada. The charge of $13 included $4 to write down the value of
property and equipment, $6 for pension plan curtailment charges, and $3 for
severance costs. Charges of $6 are expected to be incurred in the
future as expenses are incurred to maintain and prepare property for
sale. An additional charge of approximately $17 related to pension
plan settlement costs is expected to be recorded in 2009 or 2010 when the
Company receives regulatory approval to settle these obligations. In
addition to the charge of $13 for the Canadian plants, the Company also
provided pre-tax charges of $6 to reduce headcount and $2 for other
exit costs, primarily in the European Food segment.
During
2007, the Company provided a pre-tax charge of $20 for restructuring costs,
including $7 for severance and other exit costs in the European Food segment, $6
for the reclassification of cumulative translation adjustments to earnings from
the closure of its operations in Indonesia, $3 of corporate costs for the
settlement of a labor dispute related to prior restructurings, and $4 for other
severance and exit costs.
During
2006, the Company provided a net pre-tax charge of $15 for restructuring costs,
including $6 for severance costs in the European Food segment to close a plant,
$4 of corporate charges for the estimated settlement costs of a labor dispute
related to prior restructurings, $3 for severance costs in the European
Specialty Packaging segment to reduce headcount, and $4 for other severance and
exit costs, partially offset by a reversal of $2 of severance costs provided
during 2005.
Balances
remaining in the reserves at December 31, 2008 included provisions of $9 for
current year actions and $3 for prior restructuring actions. The balance of the
restructuring reserves was included in the Consolidated Balance Sheets within
accounts payable and accrued liabilities.
The
components of the restructuring reserve and movements within these components
during 2008 and 2007 were as follows:
|
Other
|
Asset
|
||||||||||
|
Termination
|
exit
|
write
|
|||||||||
|
costs
|
costs
|
downs
|
Total
|
||||||||
|
Balance
at January 1, 2007
|
$
|
7
|
$
|
4
|
$
|
11
|
|||||
|
Provisions
|
8
|
12
|
20
|
||||||||
|
Payments
made
|
(9)
|
(4)
|
(13)
|
||||||||
|
Foreign
currency translation and other
|
2
|
(5)
|
(3)
|
||||||||
|
Balance
at December 31, 2007
|
$
|
8
|
$
|
7
|
$
|
15
|
|||||
|
Provisions
|
15
|
2
|
$
|
4
|
21
|
||||||
|
Payments
made
|
(5)
|
(8)
|
(13) | ||||||||
|
Transfer
against other accounts
|
(6)
|
(4)
|
(10)
|
||||||||
| Foreign currency translation and other |
(1)
|
(1)
|
|||||||||
|
Balance
at December 31, 2008
|
$
|
11
|
$
|
1
|
$ |
-
|
$
|
12
|
|||
|
O
.
|
Asset
Impairments and Loss/Gain on Sale of
Assets
|
During
2008, the Company recorded net pre-tax charges of $6 for asset sales and
impairments including an asset impairment charge of $5 to write off its
investment in an available for sale security due to a declining share price and
eventual Chapter 11 reorganization petition filed by the investee.
During
2007, the Company recorded net pre-tax charges of $100 for asset sales and asset
impairments, including a non-cash goodwill impairment charge of $103 in the
European metal vacuum closures business, partially offset by $3 of other net
gains from asset sales and impairment charges.
During
2006, the Company recorded net pre-tax gains of $64 for asset sales and asset
impairments, including a gain of $62 from the sale of a building in the European
Food segment. The net building sale proceeds of $71 included a note
of $37. The Company also sold real estate and equipment in the U.S.
for $29, some of which it is leasing back including equipment under a capital
lease with a net present value of $4. Deferred gains of $5 on these
sales are being recognized over the lives of the leases.
P
.
Capital
Stock
As of
December 31, 2008 and 2007, there were 159,191,238 and 159,777,628 common shares
outstanding, respectively. The activity for 2008 included 2,119,697
shares repurchased; 1,018,682 shares issued upon the exercise of employee stock
options; 482,337 shares of restricted stock issued to employees; and 32,288
shares issued to non-employee directors.
The
Company’s first priority revolving credit and term loan facilities and its first
priority senior secured notes limit the payment of dividends and the repurchase
of common stock, subject to certain permitted payments or repurchases and
exceptions.
The Board
of Directors has the authority to issue, at any time or from time to time, up to
30 million shares of additional preferred stock in one or more classes or series
of classes. Such shares of additional preferred stock would not be entitled to
more than one vote per share when voting as a class with holders
of the
Company’s common stock. The voting rights and such designations, preferences,
limitations and special rights are subject to the terms of the Company’s
Articles of Incorporation, determined by the Board of Directors.
In
February 2008, the Board of Directors authorized the repurchase of up to $500 of
common stock from time to time through December 31, 2010, of which $467 was
available at December 31, 2008 after authorized repurchases of $33 during 2008.
This authorization replaces and supersedes all previous outstanding
authorizations to repurchase shares. In August 2006, the Company
entered into an amendment to its first priority credit facility providing for an
additional $200 first priority term loan facility due 2012 to be utilized to,
among other things, repurchase, redeem or otherwise acquire or retire for value
outstanding common stock of the Company, subject to certain limitations. In
December 2006, the Company paid $15 to the holders of the first priority senior
secured notes to amend the indenture to, among other things, allow the Company
to make $100 of additional restricted payments of any type, including restricted
payments for the repurchase or other acquisition or retirement for value of
shares of Company common stock.
Each
repurchase may be made in the open market, through privately negotiated
transactions, through accelerated share repurchase programs, which may be
entered into at any time, or otherwise, subject to the terms of the Company’s
debt agreements, market conditions and other factors. The Company is
not obligated to acquire any shares of common stock and the share repurchase
program may be suspended or terminated at any time at
the Company’s discretion. The repurchased
shares, if any, are expected to
be used
for the Company’s stock-based benefit plans, as required, and to offset dilution
resulting from the issuance of shares thereunder, and for other general
corporate purposes. During 2008, the Company repurchased 2,119,697 common shares
at a total cost of $35. During 2007, the Company repurchased
4,974,892 common shares at a total cost of $118. The $118 of 2007
repurchases included 4,234,077 common shares for $100 under an accelerated share
repurchase program.
In 2003,
the Board of Directors adopted a Shareholders’ Rights Plan, as amended in 2004,
and declared a dividend of one right for each outstanding share of common stock.
Such rights only become
exercisable, or transferable apart from
the common stock, after a person or group
acquires beneficial
ownership
of, or commences a tender or exchange offer for,
15% or more of the Company’s common
stock.
Each right then may be exercised to acquire one share of common stock at an
exercise price of $200, subject to adjustment. Alternatively, under certain
circumstances involving the acquisition by a
person or group
of 15% or more of
the Company’s common stock, each
right will entitle its holder to
purchase
a number of shares of the Company’s common stock having a market value of two
times the exercise price of the right. In the event the Company is acquired in a
merger or other business combination transaction after a person or group has
acquired 15% or more of the Company’s common stock, each right will entitle its
holder to purchase a number of the acquiring company’s common shares having a
market value of two times the exercise price of the right. The rights may be
redeemed by the Company at $.01 per right at any time until the tenth day
following public announcement that a 15% position has been acquired. The rights
expire on August 10, 2015.
Q
. Stock-Based
Compensation
As of
December 31, 2008, the Company had five active stock-based incentive
compensation plans - the 1990, 1997, 2001, 2004 and 2006 plans, all of
which have been approved by the Company’s shareholders. The plans
provide for the granting of awards in the form of stock options, deferred stock,
restricted stock or stock appreciation rights
(“SARs”) and may be subject to the achievement of certain
performance
goals as determined by the Plan Committee designated by the Board of Directors.
There have been no issuances of deferred stock or SARs under any of the
plans as of December 31, 2008. As of December
31, 2008, there were approximately 0.6 million and 3.2 million shares available
for awards under the 2004 and 2006 plans, and no shares were available under the
other four plans. The 2004 and 2006 plans expire in April 2009 and 2016,
respectively. Shares awarded are generally issued from the Company’s
treasury shares.
Stock
Options
A summary
of stock option activity follows:
|
2008
|
|||||||
|
Weighted
average
|
|||||||
|
Shares
|
exercise
price
|
||||||
|
Options
outstanding at January 1
|
9,859,517
|
$ |
16.70
|
||||
|
Granted
|
10,000 |
23.19
|
|||||
|
Exercised
|
(1,018,682) |
9.65
|
|||||
|
Forfeited
|
(176,000) |
23.43
|
|||||
|
Expired
|
(315,750) |
43.26
|
|||||
|
Options
outstanding at December 31
|
8,359,085 |
16.68
|
|||||
|
Options
fully vested or expected to vest at December 31
|
8,193,505 |
16.54
|
|||||
The
following table summarizes outstanding and exercisable options at December 31,
2008:
|
Options
Outstanding
|
Options
Exercisable
|
||||||||||||
|
Weighted
|
|||||||||||||
|
average
|
Weighted
|
Weighted
|
|||||||||||
|
Range
of
|
remaining
|
average
|
average
|
||||||||||
|
exercise
|
Number
|
contractual
|
exercise
|
Number
|
exercise
|
||||||||
|
prices
|
outstanding
|
life
|
price
|
exercisable
|
price
|
||||||||
|
$4.25
to $5.30
|
852,230
|
2.7
|
$ |
4.83
|
852,230
|
$ |
4.83
|
||||||
|
$5.49
to $8.38
|
409,900
|
2.3
|
7.45
|
409,900
|
7.45
|
||||||||
|
$8.60
|
1,837,055
|
5.2
|
8.60
|
1,837,055
|
8.60
|
||||||||
|
$8.75
|
578,000
|
5.1
|
8.75
|
578,000
|
8.75
|
||||||||
|
$10.05
to $23.19
|
717,400
|
1.5
|
20.68
|
699,775
|
20.70
|
||||||||
|
$23.45
|
3,397,500
|
8.1
|
23.45
|
—
|
—
|
||||||||
|
$23.88
to $32.56
|
567,000
|
0.7
|
29.75
|
527,000
|
30.11
|
||||||||
|
8,359,085
|
5.3
|
16.68
|
4,903,960
|
11.91
|
|||||||||
Outstanding
stock options have a contractual term of ten years, are fixed-price and
non-qualified, and vest either semi-annually or annually between six months and
six years from the date of grant.
Options
outstanding at December 31, 2008 had an aggregate intrinsic value (which is the
amount by which the stock price exceeded the exercise price of the options as of
December 31, 2008) of $43. The aggregate intrinsic value of options
exercised during the years ended December 31, 2008, 2007 and 2006 was $17, $26
and $33, respectively. Cash received from exercise of stock
options during 2008 was $10.
At
December 31, 2008, shares that were fully vested or expected to vest had an
aggregate intrinsic value of $43 and a weighted average remaining contractual
term of 5.3 years, and shares exercisable had an aggregate intrinsic value of
$43 and a weighted average remaining contractual term of 3.4
years. Also at December 31, 2008, there was $22 of unrecognized
compensation expense related to outstanding nonvested stock options with a
weighted average recognition period of 4.1 years.
Stock
options are valued at their grant date fair value using the Black-Scholes option
pricing model. Valuations incorporate several variables, including expected
term, expected volatility, and a risk-free interest rate. The
expected term (which is the timeframe under which an award is exercised after
grant) is
derived
from historical data about participant exercise and post-vesting employment
termination patterns. Volatility is the
expected fluctuation of the
Company’s stock price in
the market and is
derived from a combination of historical data
about the Company’s stock price and implied volatilities based on market data.
The risk-free interest rate is the U.S. Treasury yield curve rate in effect at
the date of the grant which has a contractual life similar to the
option’s expected term.
During
2008, the Company granted options to purchase 10,000 shares under its 2006
stock-based incentive compensation plan. The options have a ten-year
contractual life and vest over six years at 20% per year with the initial
vesting scheduled on the second anniversary of the grant.
The fair
values of stock option grants during 2008 and 2007 were estimated using the
following weighted average assumptions:
|
2008
|
2007
|
|||
|
Risk-free
interest rate
|
3.2
%
|
4.7 %
|
|
|
|
Expected
life of option (years)
|
6.0
|
6.0
|
||
|
Expected
stock price volatility
|
30.0
%
|
32.2 %
|
|
|
|
Expected
dividend yield
|
0.0 %
|
0.0 %
|
|
The
weighted average grant-date fair values for options granted during 2008 and 2007
were $8.65 and $9.50, respectively.
There were no options
granted during 2006.
Compensation
expense for stock options was $6 in 2008 and $5 in 2007, using an annual
forfeiture rate of approximately two percent. The forfeiture rate is
based on historical data of the forfeiture of nonvested share-based awards
through the termination of service by plan participants.
Restricted
Stock
Restricted
stock was issued during 2008 under the 2006 stock-based incentive compensation
plan to certain senior executive officers. A portion of the
restricted stock vests ratably over three years on the anniversary of the date
of grant and a portion is subject to performance-based vesting. The
2008 award included 337,059 shares that are time-vested. The time-vested awards
permit the accelerated vesting of nonvested shares upon termination of a
participant due to retirement, disability or death. The fair value of the
time-vested awards was based on the Company’s closing stock price at the grant
date. The 2008 award also included 145,278 shares that contain a
market performance feature. The market performance criterion applied to these
shares is the median Total Shareholder Return (“TSR”), which includes share
price appreciation and dividends paid, of the Company during the three-year term
of the grant measured against a peer group of companies. The level of
shares which vest is based on
the level of performance
achieved, ranges between 0% and 200% of the shares awarded and are settled in
stock. The fair value of each performance share was calculated as
$25.59 using a Monte Carlo valuation model. The variables
used in
this model included stock price volatility of 25.1%, an expected term of three
years, and a risk-free interest rate of 2.7% along with other factors associated
with the relative performance of the Company’s stock price and shareholder
returns when compared to the companies in the peer
group.
A summary
of restricted stock transactions during the year ended December 31, 2008
follows:
|
Weighted
average
|
||||
|
grant
date
|
||||
|
Shares
|
fair
value
|
|||
|
Shares
at January 1
|
858,858 |
$19.92
|
||
|
Awarded
|
482,337 |
23.56
|
||
|
Released
|
(361,388)
|
16.92
|
||
|
Shares
at December 31
|
979,807
|
22.82
|
Compensation
expense for restricted stock was $10, $9 and $6 in 2008, 2007 and 2006,
respectively. As of December 31, 2008, there was $8 of unrecognized compensation
cost related to outstanding nonvested restricted and performance stock awards.
This cost is expected to be recognized over the remaining weighted average
vesting period of 1.3 years. The aggregate fair value of shares that vested
during the years ended December 31, 2008 and 2007 was $9 and $8,
respectively.
R
. Debt
|
2008
|
2007
|
||||||
|
Short-term
debt
(
1)
|
|||||||
|
U.S.
dollar bank loans/overdrafts
|
$ | 20 | $ | 10 | |||
|
Other
currency bank
loans/overdrafts
|
39 | 35 | |||||
|
Total short-term
debt
|
$
|
59 | $ | 45 | |||
|
Long-term
debt
|
|||||||
|
Credit
facility borrowings (2)
|
|||||||
|
Senior
secured notes:
|
|||||||
|
Euro (€460) 6.25% first
priority due 2011
|
$ | 642 | $ | 672 | |||
|
First
priority term loans:
|
|||||||
|
U.S.
dollar at LIBOR plus 1.75% due 2012
|
354 | 358 | |||||
|
Euro (€278 in 2008) at EURIBOR
plus 1.75% due 2012
|
388 | 410 | |||||
|
Senior
notes and debentures:
|
|||||||
|
U.S. dollar 7.625% due
2013
|
500 | 500 | |||||
|
U.S. dollar 7.75% due
2015
|
600 | 600 | |||||
|
U.S. dollar 8.00% due
2023
|
200 | 200 | |||||
|
U.S. dollar 7.375% due
2026
|
350 | 350 | |||||
|
U.S. dollar 7.50% due
2096
|
150 | 150 | |||||
|
Other
indebtedness in various currencies:
|
|||||||
|
Fixed rate with rates in 2008
from 1.0% to 8.9% due 2009 through 2019
|
42 | 71 | |||||
|
Variable rate with average rates
in 2008 from 3.3% to 7.1% due 2009 through 2014
|
56 | 86 | |||||
|
Unamortized
discounts
|
(4) | (5) | |||||
|
Total long-term
debt
|
3,278 | 3,392 | |||||
|
Less:
current maturities
|
(31) | (38) | |||||
|
Total long-term debt, less
current maturities
|
$ | 3,247 | $ | 3,354 | |||
|
(1)
|
The
weighted average interest rates for bank loans and overdrafts outstanding
during 2008, 2007 and 2006 were 6.1%, 5.7% and 6.2%,
respectively.
|
|
(2)
|
The
$758 revolving credit facility is due 2011 and currently bears interest at
EURIBOR or LIBOR plus 1.0%. The weighted average interest rates for the
credit facility during 2008, 2007 and 2006 were 6.6%, 7.0% and 6.7%,
respectively. There were no outstanding borrowings under the
facility at the end of 2008 or
2007.
|
Aggregate
maturities of long-term debt for the five years subsequent to 2008, excluding
unamortized discounts, were $31, $38, $675, $727 and $502, respectively. Cash
payments for interest during 2008, 2007 and 2006 were $288, $293 and $256,
respectively, including amounts capitalized of $1 in 2006.
The
estimated fair value of the Company’s long-term borrowings, based on quoted
market prices for the same or similar issues, was $2,996 at December 31,
2008.
During
the first quarter of 2008, the Company redeemed the remaining $12 of its U.S.
dollar 9.50% and 10.875% senior notes due 2011 and 2013 and the remaining €18 of
its euro 10.25% senior notes due 2011, and recorded a charge of $2 for premiums
paid and the write off of deferred financing fees.
During
2008, 2007 and 2006, the Company recorded pre-tax foreign exchange losses of
$39, gains of $12 and losses of $6, respectively, primarily for certain
subsidiaries that had unhedged currency exposure arising from intercompany debt
obligations and for other subsidiaries whose functional currency is not their
local currency. The gains and losses are included in translation and exchange
adjustments in the Consolidated Statements of Operations.
In 2005,
the Company sold $500 of 7.625% senior notes due 2013 and $600 of 7.75% senior
notes due 2015, and entered into the first priority revolving credit facility
due 2011 and a first priority term loan facility due 2012 comprised of $165 and
€287 term loans. In August 2006, the Company entered into an
amendment to its first priority credit facility providing for an additional $200
first priority term loan facility due 2012. The revolving credit facility is
subject to a pricing grid and has current pricing of 1.0% above LIBOR and
EURIBOR, respectively. The revolving credit facility also includes
commitment fees of 0.375% on the unused portion of the facility. The term loans
bear interest at LIBOR or EURIBOR plus 1.75%.
The notes
due 2013 and 2015 are senior obligations of Crown Americas, LLC and Crown
Americas Capital Corporation, indirect, wholly-owned subsidiaries of the
Company, and are guaranteed by substantially all U.S.
subsidiaries. The issuer may redeem some or all of the 2013 and 2015
notes beginning in November 2009 and 2010, respectively, at redemption prices
initially representing a premium to principal equal to one-half of the
applicable interest rate on the notes, declining annually
thereafter. The revolving credit and term loan facilities contain
financial covenants including an interest coverage ratio, a total net leverage
ratio and a senior secured net leverage ratio.
The $758
revolving credit facility includes provisions for letters of credit up to $150
and €50. Outstanding letters of credit accrue interest at 1.0% as of
December 31, 2008 and reduce the amount of borrowing capacity otherwise
available. As of December 31, 2008, there were $84 of outstanding
letters of credit under the facility.
In 2004,
the Company issued €460 of 6.25% first priority senior secured notes due
2011. The €460 of 6.25% notes are senior obligations of Crown
European Holdings, Inc. ("CEH") and are guaranteed on a senior basis by Crown
Holdings, Crown Cork, substantially all other U.S. subsidiaries,
and certain subsidiaries in Belgium, Canada, France, Germany, Mexico,
the Netherlands, Switzerland, and the U.K. The holders of the first
priority senior secured notes have first priority liens on assets of certain of
the guarantor subsidiaries and the stock of Crown Cork. CEH may redeem all or
some of the first priority secured notes at any time by paying a make-whole
premium. CEH is also required to make an offer to purchase the first
priority secured notes upon the occurrence of certain change of control
transactions or asset sales. The first priority note indentures contain
covenants that limit the ability of the Company and its subsidiaries to, among
other things, incur additional debt, pay dividends or repurchase capital stock,
create liens, and engage in sale and leaseback transactions. In
December 2006, the Company amended the indenture to, a
mong
other things, allow the Company to incur an additional $200 of indebtedness
collateralized by the same liens as the notes and to make $100 of
additional restricted payments of any type, including restricted
payments for the repurchase or other acquisition or retirement for value of
shares of Company common stock.
S
. Fair Value
Measurements
As
discussed under
Note A
, FAS 157 provides a
framework for measuring fair value under GAAP and provides 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 within the FAS 157 fair value hierarchy the Company’s
financial assets and liabilities that were accounted for at fair value on a
recurring basis as of December 31, 2008:
|
December
31, 2008
|
|||||||||||||||||
|
Fair
Value Measurements Using
|
|||||||||||||||||
|
Assets/liabilities
|
|||||||||||||||||
|
at
fair value
|
Level
1
|
Level
2
|
Level
3
|
||||||||||||||
|
Assets
|
|||||||||||||||||
|
Derivative
instruments
|
$ | 78 | $ | 14 | $ | 64 | |||||||||||
|
Available
for sale securities
|
3 | 3 | |||||||||||||||
|
Total
assets
|
$ | 81 | $ | 17 | $ | 64 | |||||||||||
|
Liabilities
|
|||||||||||||||||
|
Derivative
instruments
|
$ | 210 | $ | 104 | $ | 106 | |||||||||||
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 assets and liabilities for
outstanding derivative contracts including 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.
Refer to
Note T
for further discussion of the Company’s use of
derivative instruments and their fair values at December 31, 2008.
T . 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. These
instruments are not used for trading or speculative purposes. The extent to
which the Company uses such instruments is dependent upon its access to them in
the financial markets and its use of other methods, such as netting exposures
for foreign exchange risk and establishing sales arrangements that permit the
pass-through to customers of changes in commodity prices and foreign exchange
rates, to effectively achieve its goal of risk reduction. The Company’s
objective in managing its exposure to market risk is to limit the impact on
earnings and cash flow.
Cash Flow Hedges
.
The
Company designates certain derivative instruments as cash flow hedges of
anticipated purchases or sales, including certain foreign currency denominated
intercompany transactions. The ineffective portion of these hedges was not
material and no components of the hedge instruments were excluded from the
measurement of hedge effectiveness.
During
2005, the Company entered into four cross-currency swaps with an
aggregate notional value of $700 that effectively convert fixed rate U.S.
dollar intercompany debt into fixed rate euro intercompany
debt. Since the terms of the swaps and the related debt are the same,
the Company expects the swaps to be highly effective. In November
2006, the first of the four swaps matured and the Company paid $11 at
settlement. In November 2007, the
second swap matured and the Company
paid
$30 at settlement. At December 31, 2008, the two remaining swaps with
an aggregate notional value of $460 and maturing in November 2009 and 2010, had
fair value net losses of $42 and $41, respectively, and were reported
as current and non-current liabilities.
The
Company has designated foreign exchange swaps and forwards and commodity
forwards as cash flow hedges of anticipated foreign exchange and commodity
transactions. Contracts outstanding at December 31, 2008 mature between one and
twenty-four months. At December 31, 2008 and 2007, the aggregate fair values of
the commodity contracts were net losses of $90 and $19, respectively, and were
reported as current assets and liabilities. The aggregate fair values
of the foreign exchange contracts were net gains of $1 in 2008 and net losses of
$6 in 2007, and were reported as current assets and liabilities.
Changes
in accumulated other comprehensive income/(loss) associated with cash flow
hedging activities during 2008 and 2007 were as follows:
|
2008
|
2007
|
||||
|
Balance at
January
1
|
$
|
(5)
|
$
|
2
|
|
|
Current
period changes in fair value, net of tax
|
(157)
|
(120)
|
|||
|
Reclassifications
to earnings, net of tax
|
106
|
113
|
|||
|
Balance
at December 31
|
$
|
(56)
|
$
|
(5)
|
|
During
the twelve months ending December 31, 2009, a net loss of $85 ($63, net of
tax) is expected to be reclassified to earnings. The actual
amount that will be reclassified to earnings over the next twelve months may
differ from this amount due to changing market conditions. No amounts
were reclassified to earnings during 2008 in connection with forecasted
transactions that were no longer considered probable.
Fair Value Hedges.
The Company
designates certain derivative financial instruments as fair value hedges of
recognized assets and liabilities, and unrecognized firm
commitments. Amounts excluded from the assessment and measurement of
hedge effectiveness were reported in earnings and amounted to less than $1
before income taxes in each of the last three years.
The
Company designates certain foreign currency forward exchange contracts as fair
value hedges of recognized foreign-denominated assets and liabilities, generally
trade accounts receivable and payable and intercompany debt, and unrecognized
foreign-denominated firm commitments. At December 31, 2008, the aggregate fair
value of these contracts was a net gain of $5 and was reported as current assets
and liabilities. The aggregate fair value at December 31, 2007 was a net loss of
$3. There was no impact on earnings in any of the last three years
from a hedged firm commitment that no longer qualified as a fair value
hedge.
Undesignated
Contracts.
At December 31, 2008, the Company had outstanding
foreign currency forward exchange contracts that have not been designated as
hedges. Changes in their fair value are reported currently in
earnings as translation and exchange adjustments and offset the foreign currency
gains or losses reported from the re-measurement of related intercompany
balances. The aggregate fair
values of
these contracts at December 31, 2008 and 2007 were net gains of $35 and $13 and
were reported as other current assets.
U
. Earnings Per Share (“EPS”)
The
following table summarizes the basic and diluted earnings per share
computations. Basic EPS excludes all potentially dilutive securities
and is computed by dividing net income from continuing operations by the
weighted average number of common shares outstanding during the period. Diluted
EPS includes the effect of stock options and restricted stock as calculated
under the treasury stock method.
|
2008
|
2007
|
2006
|
||||||
|
Income
from continuing operations
|
$ | 226 | $ | 528 | $ | 342 | ||
|
Weighted
average shares outstanding:
|
||||||||
|
Basic
|
159.6 | 161.3 | 165.5 | |||||
|
Dilutive
effect of stock options and restricted stock
|
3.3 | 4.2 | 4.3 | |||||
|
Diluted
|
162.9 | 165.5 | 169.8 | |||||
|
Earnings
per share from continuing operations:
|
||||||||
|
Basic
|
$ | 1.42 | $ | 3.27 | $ | 2.07 | ||
|
Diluted
|
$ | 1.39 | $ | 3.19 | $ | 2.01 | ||
Common
shares contingently issuable upon the exercise of outstanding stock options of
4.7 million in 2008, 4.1 million in 2007 and 2.4 million in 2006 were excluded
from diluted shares outstanding because they had exercise prices above the
average market price for the related periods and would have been
anti-dilutive.
For
purposes of calculating assumed proceeds under the treasury stock method when
determining the diluted weighted average shares outstanding, the Company
excludes the impact of proforma deferred tax assets arising in connection with
stock-based compensation.
V
. Pensions and Other Retirement
Benefits
Effective
December 31, 2006, the Company adopted SFAS No. 158, “Employers’ Accounting for
Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB
Statements No. 88, 106 and 132(R).”
Pensions.
The Company sponsors
various pension plans covering certain U.S. and non-U.S. employees, and
participates in certain multi-employer pension plans. The benefits under the
Company plans are based primarily on years of service and either the employees’
remuneration near retirement or a fixed dollar multiple. Contributions to
multi-employer plans in which the Company and its subsidiaries participate are
determined in accordance with the provisions of negotiated labor contracts or
applicable local regulations.
A
measurement date of December 31 was used for all plans presented
below.
The
components of pension expense were as follows:
|
U.S.
|
2008
|
2007
|
2006
|
|||||
|
Service
cost
|
$
|
7
|
$
|
8
|
$
|
9
|
||
|
Interest
cost
|
80
|
77
|
77
|
|||||
|
Expected
return on plan assets
|
(117)
|
(112)
|
(108)
|
|||||
|
Amortization
of actuarial loss
|
30
|
46
|
56
|
|||||
|
Amortization
of prior service cost
|
2
|
2
|
2
|
|||||
|
Cost
attributable to settlements and curtailments
|
7
|
3
|
||||||
|
Total
pension expense
|
$
|
9
|
$
|
24
|
$
|
36
|
||
|
Non-U.S.
|
2008
|
2007
|
2006
|
|||||
|
Service
cost
|
$
|
32
|
|
$
|
36
|
$
|
35
|
|
|
Interest
cost
|
174
|
171
|
152
|
|||||
|
Expected
return on plan assets
|
(230)
|
(245)
|
(215)
|
|||||
|
Amortization
of actuarial loss
|
34
|
29
|
33
|
|||||
|
Amortization
of prior service credit
|
(6)
|
(6)
|
(6)
|
|||||
|
Cost
attributable to settlements and curtailments
|
1
|
2
|
||||||
|
Total
pension expense/(credit)
|
$
|
4
|
$
|
(14)
|
$
|
1
|
||
Additional
pension expense of $4 was recognized in each of the last three years for
multi-employer plans.
The
projected benefit obligations, accumulated benefit obligations and fair value of
plan assets for U.S. pension plans with accumulated benefit obligations in
excess of plan assets were $1,251, $1,229 and $870, respectively, as of December
31, 2008 and $71, $70 and $0, respectively, as of December 31,
2007.
The
projected benefit obligations, accumulated benefit obligations and fair value of
plan assets for non-U.S. pension plans with accumulated benefit obligations in
excess of plan assets were $183, $164 and $67, respectively, as of December 31,
2008 and $219, $197 and $92, respectively, as of December 31, 2007.
|
U.S.
Plans
|
Non-U.S.
Plans
|
|||||||||||
|
Projected
Benefit Obligations
|
2008
|
2007
|
2008
|
2007
|
||||||||
|
Benefit
obligations at January 1
|
$
|
1,301
|
$
|
1,391
|
$
|
3,425
|
$
|
3,244
|
||||
|
Service
cost
|
7
|
8
|
32
|
36
|
||||||||
|
Interest
cost
|
80
|
77
|
174
|
171
|
||||||||
|
Plan
participants’ contributions
|
7
|
7
|
||||||||||
|
Amendments
|
1
|
2
|
||||||||||
|
Curtailments
and settlements
|
4
|
|||||||||||
|
Actuarial
(gain)/loss
|
(11)
|
(61)
|
(619)
|
60
|
||||||||
|
Benefits
paid
|
(127)
|
(116)
|
(181)
|
(185)
|
||||||||
|
Foreign
currency exchange rate changes
|
(741)
|
92
|
||||||||||
|
Benefit
obligations at December 31
|
$
|
1,251 |
$
|
1,301
|
$
|
2,101 |
$
|
3,425
|
||||
|
Accumulated
benefit obligations at December 31
|
$
|
1,229
|
$
|
1,279
|
$
|
2,018 |
$
|
3,261
|
||||
|
U.S.
Plans
|
Non-U.S.
Plans
|
|||||||||||
|
Plan
Assets
|
2008
|
2007
|
2008
|
2007
|
||||||||
|
Fair
value of plan assets at January 1
|
$
|
1,394
|
$
|
1,338
|
$
|
3,524
|
$
|
3,400
|
||||
|
Actual
return on plan assets
|
(411)
|
165
|
(389)
|
158
|
||||||||
|
Employer
contributions
|
14
|
7
|
57
|
58
|
||||||||
|
Plan
participants’ contributions
|
7
|
7
|
||||||||||
|
Benefits
paid
|
(127)
|
(116)
|
(181)
|
(185)
|
||||||||
|
Foreign
currency exchange rate changes
|
(808)
|
86
|
||||||||||
|
Fair
value of plan assets at December 31
|
$
|
870
|
$
|
1,394
|
$
|
2,210
|
$
|
3,524
|
||||
Pension
assets/(liabilities) included in the Consolidated Balance Sheets were:
|
2008
|
2007
|
||||
|
Non-current
assets
|
$
|
224
|
$
|
390
|
|
|
Current
liabilities
|
(25)
|
(21)
|
|||
|
Non-current
liabilities
|
(471)
|
(177)
|
|||
The
Company’s current liability of $25 at December 31, 2008, represents the expected
required payments to be made for unfunded plans over the next twelve months.
Estimated required 2009 employer contributions are $49 for the Company’s funded
plans.
Changes
in the net loss and prior service credit for the Company’s pension plans
were:
|
2008
|
2007
|
2006
|
|||||||||||||||
|
Net
|
Prior
service
|
Net
|
Prior
service
|
Net
|
Prior
service
|
||||||||||||
|
loss
|
credit
|
loss
|
credit
|
loss
|
credit
|
||||||||||||
|
Balance
at January 1
|
$
|
1,480
|
$
|
(8)
|
$
|
1,497
|
$
|
(16)
|
$
|
1,625
|
$
|
(15)
|
|||||
|
Reclassification
to net
periodic
benefit cost
|
(71)
|
4
|
(78)
|
5
|
(89)
|
4
|
|||||||||||
|
Current
year (gain)/loss
|
517
|
33
|
(137)
|
||||||||||||||
|
Amendments
|
2
|
||||||||||||||||
|
Foreign
currency translation
|
(249)
|
3
|
28
|
1
|
98
|
(5)
|
|||||||||||
|
Balance
at December 31
|
$
|
1,677
|
$
|
(1)
|
$
|
1,480
|
$
|
(8)
|
$
|
1,497
|
$
|
(16)
|
|||||
The
current year loss of $517 includes losses of $1,147 due to actual asset losses
of $800 compared to expected returns of $347, offset by gains of $630 primarily
due to higher discount rates at the end of 2008 compared to 2007. The
estimated portions of the net losses and net prior service credits that are
expected to be recognized as components of net periodic benefit cost/(credit) in
2009 are $109 and ($4), respectively.
Expected
future benefit payments as of December 31, 2008 were:
|
U.S.
Plans
|
Non-U.S.
Plans
|
||
|
2009
|
$129
|
$174
|
|
|
2010
|
113
|
152
|
|
|
2011
|
140
|
157
|
|
|
2012
|
109
|
161
|
|
|
2013
|
108 | 166 | |
|
2014
– 2019
|
506
|
875
|
Additional
information concerning plan assets is presented below.
|
U.S.
Plan Assets
|
Non-U.S.
Plan Assets
|
||||||||||
|
Weighted Average
|
Weighted Average
|
||||||||||
|
2009
|
December
31,
|
2009
|
December
31,
|
||||||||
|
Plan
assets
|
Target
Allocation
|
2008
|
2007
|
Target
Allocation
|
2008
|
2007
|
|||||
|
Equity
securities
|
70%
|
63%
|
71
%
|
16%
|
11%
|
21
%
|
|||||
|
Fixed
income
|
12%
|
18%
|
9
%
|
60%
|
62%
|
54
%
|
|||||
|
Real
estate
|
3%
|
3%
|
2
%
|
5%
|
4%
|
8
%
|
|||||
|
Other
|
15%
|
16%
|
18
%
|
19%
|
23%
|
17
%
|
|||||
|
100%
|
100%
|
100
%
|
100%
|
100%
|
100
%
|
||||||
Plan
assets included $65 and $138 of the Company’s common stock at December 31, 2008
and 2007, respectively.
The
non-U.S. plan asset percentages are those of the U.K. plan, which is the primary
non-U.S. plan with assets. The “other” caption of plan assets primarily includes
alternative investments such as private equity and hedge funds, but in the U.S.
also included $32 and $60 of cash as of December 31, 2008 and 2007,
respectively.
The
Company’s investment strategy in the U.S. plan is to provide the fund with an
ability to earn attractive long-term rates of return on its assets at an
acceptable level of risk. The equity portions of the program are diversified
within the U.S. and international markets based on capitalization, valuations
and other factors. Debt securities include all sectors of the bond
markets.
The Company’s investment strategy in the U.K. plan is to invest 60% of its assets in investment grade bonds that match the liability profile. The remaining assets are invested in U.K. and global equities, real estate, high-yield bonds and alternative investments. The allocation of assets is determined after considering the plan’s financial position, liability profile and funding requirements.
|
U.S.
|
2008
|
2007
|
2006
|
||
|
Discount
rate
|
6.7 %
|
6.5
%
|
5.9
%
|
||
|
Compensation
increase
|
3.0
%
|
3.0
%
|
3.0
%
|
||
|
|
|
|
|
Non-U.S.
|
2008
|
2007
|
2006
|
||
|
Discount
rate
|
6.7 %
|
5.2
%
|
5.2
%
|
||
|
Compensation
increase
|
2.9
%
|
3.5
%
|
3.5
%
|
||
|
|
|
|
The
weighted average actuarial assumptions used to calculate pension expense for
each year were:
|
U.S.
|
2008
|
2007
|
2006
|
||
|
Discount
rate
|
6.5 %
|
5.9
%
|
5.7
%
|
||
|
Compensation
increase
|
3.0
%
|
3.0
%
|
3.0
%
|
||
|
Long-term rate of return
|
8.75%
|
8.75%
|
8.75%
|
|
Non-U.S.
|
2008
|
2007
|
2006
|
||
|
Discount
rate
|
5.2 %
|
5.2
%
|
5.0
%
|
||
|
Compensation
increase
|
3.5
%
|
3.5
%
|
3.5
%
|
||
|
Long-term rate of return
|
7.1 %
|
7.1 %
|
7.1 %
|
The
expected long-term rates of return are determined at each measurement date based
on a review of the actual plan assets, the target allocation, and the historical
returns of the capital markets.
Other Postretirement Benefit Plans.
The Company sponsors unfunded plans to provide health care and life
insurance benefits to pensioners and survivors. Generally, the medical plans pay
a stated percentage of medical expenses reduced by deductibles and other
coverages. Life insurance benefits are generally provided by insurance
contracts. The Company reserves the right, subject to existing agreements, to
change, modify or discontinue the plans. A measurement date of
December 31 was used for the plans presented below.
The
components of net postretirement benefits cost were as
follows:
|
2008
|
2007
|
2006
|
||||||
|
Service
cost
|
$
|
8
|
$
|
5
|
$
|
4
|
||
|
Interest
cost
|
30
|
33
|
33
|
|||||
|
Amortization
of prior service credit
|
(23)
|
(17)
|
(16)
|
|||||
|
Amortization
of actuarial loss
|
8
|
10
|
13
|
|||||
|
Total
postretirement benefits cost
|
$
|
23
|
$
|
31
|
$
|
34
|
||
Changes
in the benefit obligations were:
|
2008
|
2007
|
|
|||||
|
Benefit
obligations at January 1
|
$
|
483
|
$
|
614
|
|
||
|
Service
cost
|
8
|
5
|
|||||
|
Interest
cost
|
30
|
33
|
|||||
| Amendments |
(102)
|
||||||
| Actuarial gain |
(1)
|
(42)
|
|||||
| Benefits paid |
(44)
|
(35)
|
|||||
|
Foreign
currency exchange rate changes
|
(18)
|
10
|
|||||
|
Benefit
obligations at December 31
|
$
|
458
|
$
|
483
|
|
||
Changes
in the net loss and p
rior
service credit for the Company’s postretirement benefit plans were:
|
2008
|
2007
|
2006
|
|||||||||||||||
|
Net
|
Prior
service
|
Net
|
Prior
service
|
Net
|
Prior
service
|
||||||||||||
|
loss
|
credit
|
loss
|
credit
|
loss
|
credit
|
||||||||||||
|
Balance
at January 1
|
$
|
131
|
$
|
(204)
|
$
|
183
|
$
|
(119)
|
$
|
219
|
$
|
(136)
|
|||||
|
Reclassification
to net
periodic
benefit cost
|
(8)
|
23
|
(10)
|
17
|
(13)
|
16
|
|||||||||||
|
Current
year gain
|
(1)
|
(42)
|
(24)
|
||||||||||||||
|
Amendments
|
(102)
|
3
|
|||||||||||||||
|
Foreign
currency translation
|
(4)
|
|
|
1
|
(2)
|
||||||||||||
|
Balance
at December 31
|
$
|
118
|
$
|
(181)
|
$
|
131
|
$
|
(204)
|
$
|
183
|
$
|
(119)
|
|||||
The
estimated portions of the net losses and prior service credits
that are expected to be recognized as components of net periodic
benefit cost/(credit) in 2009 are $8 and ($21), respectively.
The U.S.
plans were amended in 2007 to, among other things, require additional retiree
contributions for medical and prescription drug costs.
Expected
future benefit payments are $36 in 2009, $36 in 2010, $37 in 2011, $37 in 2012,
$38 in 2013 and $188 in aggregate for 2014 through 2018. These
payments are net of expected Medicare Part D subsidies of $3 in each of the
years 2009 to 2013 and $15 in aggregate for 2014 through 2018. Benefits paid of
$44 in 2008 are net of $2 of subsidies.
The
health care accumulated postretirement benefit obligations were determined at
December 31, 2008 using health care cost trend rates of 8.6% decreasing to 4.4%
over nine years. Increasing the assumed health
care cost trend rate by one percentage point in each year would increase
the accumulated postretirement benefit obligations by $42 and the total of
service and interest cost by $3. Decreasing the assumed health care cost trend
rate by one percentage point in each year would decrease the accumulated
postretirement benefit obligations by $34 and the total of service and interest
cost by $3.
Weighted
average discount rates used to calculate the benefit obligations at the end of
each year and the cost for each year are presented
below.
|
|
2008
|
2007
|
2006
|
||
|
Benefit
obligations
|
6.7%
|
6.5
%
|
5.8
%
|
||
|
Cost
|
6.5%
|
5.8
%
|
5.6
%
|
||
|
|
|
|
Employee Savings
Plan.
The Company sponsors the Savings Investment Plan which covers
substantially all domestic salaried employees who are at least 21 years of age.
The Company matches up to 3.0% of a participant’s compensation and the total
Company contributions were $2 in each of the last three
years.
Employee Stock
Purchase Plan.
The Company sponsors an Employee Stock Purchase Plan which
covers all domestic employees with one or more years of service who are
non-officers and non-highly compensated as defined by the Internal Revenue Code.
Eligible participants contribute 85% of the quarter-ending market price towards
the purchase of each common share. The Company’s contribution is
equivalent to 15% of the quarter-ending market price. Total shares
purchased under the plan in 2008 and 2007 were 40,185 and 37,091, respectively,
and the Company’s contributions were less than $1 in both
years.
W
. Income Taxes
Effective
January 1, 2007, the Company adopted FIN 48, “Accounting for Uncertainty in
Income Taxes,” and recorded a charge of $16 to its accumulated
deficit. A reconciliation of unrecognized tax benefits
follows.
|
2008
|
2007
|
||||
|
Balance
at January 1
|
$
|
73
|
$ |
46
|
|
| Adoption of FIN 48 |
14
|
||||
|
Additions
for current year tax positions
|
5
|
14
|
|||
|
Reductions
to prior period tax positions
|
(41)
|
(3)
|
|||
|
Settlements
|
(1)
|
|
|||
|
Foreign
currency translation
|
(2)
|
2
|
|||
|
Balance
at December 31
|
$
|
34
|
$ |
73
|
|
The $73
of unrecognized benefits as of December 31, 2007 included $36 related to a claim
filed by the Company in the United States Court of Federal Claims to recover
U.S. federal taxes paid in prior years. Due to an unfavorable ruling
on a similar claim filed by another company, the Company withdrew its claim in
this matter during 2008. Also during 2008, the Company recorded tax
benefits of $5 from the reversal of potential liabilities related to transfer
pricing. The benefits included the reversal of $2 of excess reserve,
of a total potential liability of $3, due to a settlement with tax authorities
in one jurisdiction, and an additional $3 due to the expiration of the statute
of limitations in other jurisdictions. The reserve of $34 as of
December 31, 2008 in the table above primarily includes potential liabilities
related to transfer pricing, foreign withholding taxes, and non-deductibility of
expenses and excludes $4 of related penalties.
Interest
and penalties are recorded in the statement of operations as interest expense
and provision for income taxes, respectively. The total interest and
penalties recorded in the statement of operations was $1 in each of the last
three years.
The
unrecognized benefits of $34 as of December 31, 2008 include $29 that, if
recognized, would affect the effective tax rate. The remaining $5
would have no effect due to valuation allowances in certain
jurisdictions. The Company’s unrecognized tax benefits are expected
to increase in the next twelve months as it continues its current transfer
pricing policies, and are expected to decrease as open tax years or claims are
settled. The Company is unable to estimate a range of reasonably
possible changes in its unrecognized tax benefits in the next twelve months as
it is unable to predict when, or if, the tax authorities will commence their
audits, the time needed for the audits, and the audit findings that will require
settlement with the applicable tax authorities, if any.
The tax
years that remained subject to examination by major tax jurisdiction as of
December 31, 2008 were 2002 and beyond for Canada; 2004 and beyond for the
United States, Germany, Spain and Italy; and 2007 and beyond for France and the
United Kingdom.
Pre-tax
income for the years ended December 31 was taxed under the following
jurisdictions:
|
2008
|
2007
|
2006
|
||||||
|
U.S.
|
$
|
31
|
$
|
4
|
$
|
39
|
||
|
Foreign
|
411
|
197
|
296
|
|||||
|
|
$
|
442
|
$
|
201
|
$
|
335
|
||
The
provision/(benefit) for income taxes consisted of the following:
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:
|
2008
|
2007
|
2006
|
||||||
|
U.S.
statutory rate at 35%
|
$
|
155
|
$
|
70
|
$
|
117
|
||
| Minimum pension liability adjustment |
|
(121)
|
||||||
| Valuation allowance |
6
|
(485)
|
(11)
|
|||||
| Impairment losses |
36
|
|||||||
| Tax on foreign income |
(59)
|
(35)
|
(30)
|
|||||
| Tax law changes |
(5)
|
(8)
|
||||||
| Foreign withholding taxes |
6
|
9
|
11
|
|||||
|
Other
items, net
|
9
|
13
|
(28)
|
|||||
|
Income
tax provision/(benefit)
|
$
|
112
|
$
|
(400)
|
$
|
(62)
|
||
The
valuation allowance caption for 2007 includes, among other items, the reversal
of the U.S. valuation allowance discussed below. The impairment
losses caption for 2007 is the effect of the non-deductible goodwill impairment
charge discussed under
Note F
. The tax law
changes caption includes the effect of European tax rate and law changes in 2007
and 2008, primarily in the U.K.
The
minimum pension liability adjustment caption for 2006 includes a credit of $121
due to the reversal of the Company’s U.S. minimum pension liability adjustment
under FAS No. 87. During 2001, the Company recorded a charge to
establish a valuation allowance against its U.S. deferred tax assets, including
$121 of deferred tax assets related to its defined benefit pension plan that
were originally recorded through other comprehensive income. Upon the
elimination of the minimum pension liability at December 31, 2006 under FAS No.
87, the Company reclassified the credit of $121 in accumulated other
comprehensive income to the statement of operations. The valuation
allowance caption for 2006 includes a credit of $25 in the U.S. operations,
partially offset by charges of $14 in non-U.S. operations, including Canada and
France.
The other
items caption for 2006 includes a benefit of $13 for a reinvestment tax credit
related to the investment of proceeds from the sale of a building in the
European Food segment. The caption also includes, among other items,
$10 for the reversal of U.S. state tax contingencies upon completion of audits
and $5 for the partial reversal of a U.K. tax contingency based on a settlement
covering the period under examination.
The Company paid taxes of $84, $90 and $71 in 2008, 2007 and 2006, respectively.
The
components of deferred taxes at December 31 are:
|
2008
|
2007
|
||||||||||
|
Assets
|
Liabilities
|
Assets
|
Liabilities
|
||||||||
|
Tax
loss and credit carryforwards
|
$
|
729
|
|
|
$
|
769
|
|||||
|
Postretirement
and postemployment benefits
|
192
|
200
|
|||||||||
|
Depreciation
|
16
|
$
|
113
|
12
|
$
|
145
5
|
|||||
|
Pensions
|
176
|
65
|
54
|
118
|
|||||||
|
Asbestos
|
78
|
78
|
|||||||||
|
Inventories
|
2
|
19
|
1
|
27
|
|||||||
|
Accruals
and other
|
82
|
100
|
77
|
63
|
|||||||
|
Valuation
allowances
|
(507)
|
(508)
|
|||||||||
|
Total
|
$
|
768
|
$
|
297
|
$
|
683
|
$
|
353
|
|||
Prepaid
expenses and other current assets includes $29 and $18 of deferred tax assets at
December 31, 2008 and 2007, respectively.
Tax loss
and credit carryforwards expire as follows: 2009 - $5; 2010 - $1; 2011 - $2;
2012 - $24; 2013 - $7; thereafter - $446; unlimited - $244. The majority of
those expiring after 2013 relate to $163 of U.S. federal tax loss carryforwards
that expire through 2025, and $196 of state tax loss carryforwards. The
unlimited carryforwards primarily include tax losses and credits in Europe. The
tax loss carryforwards presented above exclude $26 of U.S. windfall tax benefits
that will be recorded in additional paid-in capital when realized.
Realization
of any portion of the Company’s deferred tax assets is dependent upon the
availability of taxable income in the relevant jurisdictions. The
Company considers all sources of taxable income, including (i) taxable income in
any available carry back period, (ii) the reversal of taxable temporary
differences, (iii) tax-planning strategies, and (iv) taxable income expected to
be generated in the future other than from reversing temporary
differences. The Company also considers whether there have been
cumulative losses in recent years. The Company records a valuation
allowance when it is more likely than not that some portion or all of the
deferred tax assets will not be realized.
The
Company’s valuation allowances of $507 as of December 31, 2008 include $246 in
the U.S., $163 in France, $56 in Canada and $42 in other non-U.S.
operations.
In the
fourth quarter of 2007, the Company released a portion of its U.S. deferred tax
valuation allowances based on management’s determination that it was more likely
than not that the related deferred tax benefits would be
realized. Management’s determination was based on cumulative earnings
in recent years and its projections of future income. The valuation
allowance release included a tax benefit of $462 recorded in continuing
operations. The Company still maintains a valuation allowance of $246
against U.S. deferred tax assets that management believes will not be realized,
primarily U.S. federal tax credits and state loss carryforwards that are
expected to expire. Future realization of the Company’s $515 of net
U.S. deferred tax assets will require approximately $1.3 billion of aggregated
U.S. taxable income. The table above reports U.S. book income of $31,
$4 and $39 for the three most recent years of 2008, 2007 and 2006,
respectively. However, the amounts represent the U.S. book income
only
and
exclude additional U.S. taxable income from foreign dividends and other foreign
source income. In 2008 the Company had $49 of dividneds and other
foreign source income. In France, the Company has a full valuation
allowance against its net deferred tax assets of $163, consisting of $202 of
deferred tax assets and $39 of deferred tax liabilities. The deferred
tax assets of $202 include, among other items, $172 of tax loss
carryforwards. The Company determined that a full valuation allowance
was appropriate for its French net deferred tax assets as of December 31, 2008
due to recent losses and uncertainty regarding the amount
and
timing of future taxable income. The French operations remain in a
cumulative three year loss position as of December 31, 2008 and were break even
in 2008. Accordingly, the Company believes, after considering all
sources of potential future income, it does not have sufficient positive
evidence to conclude that it is more likely than not that some or all of its
French deferred tax assets will be realized in 2009 or beyond.
The
Company will continue to monitor the results of its French operations and it is
possible that some of all of its French valuation allowance will be reversed in
2009 or thereafter. In Canada, the Company has a full valuation
allowance against its net deferred tax assets of $56, consisting of $62 of
deferred tax assets and $6 of deferred tax liabilities. The deferred tax assets
include, among other items, $45 of tax loss carryforwards. The
Company determined that a full valuation allowance was appropriate for its
Canadian net deferred tax assets as of December 31, 2008 due to recent losses
and uncertainty regarding the amount and timing of future taxable
income. The Canadian operations remain in a cumulative three year
loss position as of December 31, 2008. Accordingly, the Company
believes, after considering all sources of potential future income, it does not
have sufficient positive evidence to conclude that it is more likely than not
that some or all of its Canadian deferred tax assets will be realized in 2009 or
beyond. The Company will continue to monitor the results of its
Canadian operations and it is possible that some of all of its Canadian
valuation allowance will be reversed in 2009 or
thereafter. The valuation allowances of $42 in other
non-U.S. operations includes $13 for tax loss carryforwards in an inactive
entity in Europe where there are no current tax-planning strategies to utilize
the losses, $24 in other European entities, and $5 in Asia.
Management’s
estimates of the appropriate valuation allowance in any jurisdiction involve a
number of assumptions and judgments, including the amount and timing of future
taxable income. Should future results differ from management’s
estimates, it is possible there could be future adjustments to the valuation
allowances that would result in an increase or decrease in tax expense in the
period such changes in estimates were made.
The
cumulative amount of the Company’s share of undistributed earnings of non-U.S.
subsidiaries for which no deferred taxes have been provided was $202 at December
31, 2008. Management has no plans to distribute such earnings in the foreseeable
future.
X
. Segment Information
The
Company’s business is organized geographically within three divisions, Americas,
European and Asia-Pacific. Within the Americas and European
divisions, 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 within the Americas, and European
Beverage, European Food and European Specialty Packaging within
Europe.
The
Company evaluates performance and allocates resources based on segment income.
Segment income is defined by the Company as gross profit less selling and
administrative expenses. Transactions between operating segments are not
material.
The
tables below present information about operating segments for the years ended
December 31, 2008, 2007 and 2006:
|
2008
|
External
sales
|
Segment
assets
|
Depreciation
and
amortization
|
Capital
expenditures
|
Segment
income
|
|||||||||||||||
|
Americas
Beverage
|
$ |
1,865
|
$ | 1,034 | $ | 45 | $ | 71 | $ | 191 | ||||||||||
|
North
America Food
|
905 | 492 | 19 | 7 | 91 | |||||||||||||||
|
European
Beverage
|
1,607 | 1,447 | 46 | 41 | 249 | |||||||||||||||
|
European
Food
|
2,188 | 1,669 | 48 | 21 | 232 | |||||||||||||||
|
European
Specialty Packaging
|
445 | 202 | 8 | 8 | 18 | |||||||||||||||
|
Total
reportable segments
|
7,010 | 4,844 | 166 | 148 | $ | 781 | ||||||||||||||
|
Non-reportable
segments
|
1,295 | 849 | 35 | 23 | ||||||||||||||||
|
Corporate
and unallocated items
|
1,081 | 15 | 3 | |||||||||||||||||
|
Total
|
$ | 8,305 | $ | 6,774 | $ | 216 | $ | 174 | ||||||||||||
|
2007
|
External
sales
|
Segment
assets
|
Depreciation
and
amortization
|
Capital
expenditures
|
Segment
income
|
|||||||||||||||
|
Americas
Beverage
|
$ |
1,751
|
$ | 1,082 | $ | 47 | $ | 40 | $ | 182 | ||||||||||
|
North
America Food
|
873 | 545 | 21 | 9 | 76 | |||||||||||||||
|
European
Beverage
|
1,436 | 1,542 | 46 | 13 | 185 | |||||||||||||||
|
European
Food
|
1,991 | 1,838 | 53 | 37 | 173 | |||||||||||||||
|
European
Specialty Packaging
|
460 | 224 | 10 | 9 | 14 | |||||||||||||||
|
Total
reportable segments
|
6,511 | 5,231 | 177 | 108 | $ | 630 | ||||||||||||||
|
Non-reportable
segments
|
1,216 | 895 | 37 | 42 | ||||||||||||||||
|
Corporate
and unallocated items
|
853 | 15 | 6 | |||||||||||||||||
|
Total
|
$ | 7,727 | $ | 6,979 | $ | 229 | $ | 156 | ||||||||||||
|
2006
|
External
sales
|
Segment
assets
|
Depreciation
and
amortization
|
Capital
expenditures
|
Segment
income
|
|||||||||||||||
|
Americas
Beverage
|
$ |
1,600
|
$ | 1,028 | $ | 48 | $ | 32 | $ | 160 | ||||||||||
|
North
America Food
|
837 | 529 | 22 | 13 | 70 | |||||||||||||||
|
European
Beverage
|
1,174 | 1,511 | 45 | 58 | 122 | |||||||||||||||
|
European
Food
|
1,885 | 1,831 | 51 | 24 | 174 | |||||||||||||||
|
European
Specialty Packaging
|
427 | 230 | 9 | 9 | 23 | |||||||||||||||
|
Total
reportable segments
|
5,923 | 5,129 | 175 | 136 | $ | 549 | ||||||||||||||
|
Non-reportable
segments
|
1,059 | 872 | 36 | 46 | ||||||||||||||||
|
Corporate
and unallocated items
|
408 | 16 | 9 | |||||||||||||||||
|
Total
|
$ | 6,982 | $ | 6,409 | $ | 227 | $ | 191 | ||||||||||||
“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.
A
reconciliation of segment income to consolidated income from continuing
operations before income taxes and minority interests for the years ended
December 31, 2008, 2007 and 2006 follows:
|
2008
|
2007
|
2006
|
||||||
|
Segment
income of reportable segments
|
$
|
781
|
$
|
630
|
$
|
549
|
||
|
Segment
income of non-reportable segments
|
181
|
133
|
119
|
|||||
| Corporate and unallocated items |
(136)
|
(121)
|
(92)
|
|||||
| Provision for asbestos |
(25)
|
(29)
|
(10)
|
|||||
| Provision for restructuring |
(21)
|
(20)
|
(15)
|
|||||
| Provision for asset impairments and loss/gain on sale of assets |
(6)
|
(100)
|
64
|
|||||
| Loss from early extinguishment of debt |
(2)
|
|||||||
| Interest expense |
(302)
|
(318)
|
(286)
|
|||||
|
Interest
income
|
11
|
14
|
12
|
|||||
|
Translation
and exchange adjustments
|
(39)
|
12
|
(6)
|
|||||
|
Income
from continuing operations before income taxes
and minority interests
|
$
|
442
|
$
|
201
|
$
|
335
|
||
For the
years ended December 31, 2008, 2007 and 2006, no one customer accounted for more
than 10% of the Company’s consolidated net sales.
Sales by
major product were:
|
2008
|
2007
|
2006
|
||||||
|
Metal
beverage cans and ends
|
$
|
3,938
|
$
|
3,596
|
$
|
3,104
|
||
|
Metal
food cans and ends
|
2,811 |
2,591
|
2,447
|
|||||
| Other metal packaging |
1,408
|
1,389
|
1,312
|
|||||
| Plastic packaging |
60
|
61
|
54
|
|||||
|
Other
products
|
88
|
90
|
65
|
|||||
|
Consolidated
net sales
|
$
|
8,305 |
$
|
7,727
|
$
|
6,982
|
||
Sales and
long-lived assets for the major countries in which the Company operates
were:
|
Net
Sales
|
Long-Lived
Assets
|
|||||||||||||||||
|
2008
|
2007
|
2006
|
2008
|
2007
|
2006
|
|||||||||||||
|
United
States
|
$
|
2,188
|
$
|
2,098
|
$
|
1,974
|
$
|
314
|
$
|
333
|
$
|
362
|
||||||
|
United
Kingdom
|
817
|
855
|
778
|
127
|
196
|
217
|
||||||||||||
|
France
|
733
|
679
|
629
|
95
|
112
|
114
|
||||||||||||
|
Other
|
4,567
|
4,095
|
3,601
|
937
|
963
|
915
|
||||||||||||
|
Consolidated
total
|
$
|
8,305
|
$
|
7,727
|
$
|
6,982
|
$
|
1,473
|
$
|
1,604
|
$
|
1,608
|
||||||
Y
. 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. 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), 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 years ended December 31,
2008, 2007 and 2006, and
|
|
|
|
|
·
|
balance
sheets as of December 31, 2008 and
2007
|
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 year ended December 31, 2008
(in
millions)
|
Parent
|
Issuer
|
Guarantors
|
Non-
Guarantors
|
Eliminations
|
Total
Company
|
|||||||||||||
|
Net
sales
|
$
|
4,782
|
$
|
3,523
|
$
|
8,305
|
||||||||||||
|
Cost
of products sold, excluding
depreciation
and amortization
|
$
|
(18)
|
3,945
|
2,940
|
6,867
|
|||||||||||||
|
Depreciation and
amortization
|
120
|
96
|
216
|
|||||||||||||||
|
Gross
profit
|
18
|
717
|
487
|
1,222
|
||||||||||||||
|
Selling and administrative
expense
|
(2)
|
300
|
98
|
396
|
||||||||||||||
|
Provision for
asbestos
|
25
|
25
|
||||||||||||||||
|
Provision for
restructuring
|
17
|
4
|
21
|
|||||||||||||||
|
Asset impairments and
sales
|
(6)
|
17
|
(5)
|
6
|
||||||||||||||
|
Loss
from early extinguishment of debt
|
2
|
2
|
||||||||||||||||
|
Net interest
expense
|
85
|
188
|
18
|
291
|
||||||||||||||
|
Technology
royalty
|
(38)
|
38
|
||||||||||||||||
|
Translation and exchange
adjustments
|
(3)
|
29
|
13
|
39
|
||||||||||||||
|
Income/(loss)
before income taxes,
minority
interests
and equity earnings
|
(58)
|
179
|
321
|
442
|
||||||||||||||
|
Provision for income
taxes
|
43
|
69
|
112
|
|||||||||||||||
|
Minority
interests
|
(104)
|
(104)
|
||||||||||||||||
|
Equity earnings
|
$
|
226
|
191
|
90
|
$
|
(507)
|
||||||||||||
|
Net
income
|
$
|
226
|
$
|
133
|
$
|
226
|
$
|
148
|
$
|
(507)
|
$
|
226
|
||||||
CONDENSED
COMBINING STATEMENT OF OPERATIONS
For
the year ended December 31, 2007
(in
millions)
|
Parent
|
Issuer
|
Guarantors
|
Non-
Guarantors
|
Eliminations
|
Total
Company
|
|||||||||||||
|
Net
sales
|
$
|
4,602
|
$
|
3,125
|
$
|
7,727
|
||||||||||||
|
Cost
of products sold, excluding
depreciation
and amortization
|
$
|
(23)
|
3,864
|
2,630
|
6,471
|
|||||||||||||
|
Depreciation and
amortization
|
138
|
91
|
229
|
|||||||||||||||
|
Gross
profit
|
23
|
600
|
404
|
1,027
|
||||||||||||||
|
Selling and administrative
expense
|
(1)
|
287
|
99
|
385
|
||||||||||||||
|
Provision for
asbestos
|
29
|
29
|
||||||||||||||||
|
Provision for
restructuring
|
5
|
15
|
20
|
|||||||||||||||
|
Asset impairments and
sales
|
37
|
63
|
100
|
|||||||||||||||
|
Net interest
expense
|
100
|
196
|
8
|
304
|
||||||||||||||
|
Technology
royalty
|
(37)
|
37
|
||||||||||||||||
|
Translation and exchange
adjustments
|
(1)
|
(8)
|
(3)
|
(12)
|
||||||||||||||
|
Income/(loss)
before income taxes,
minority
interests
and equity earnings
|
(75)
|
91
|
185
|
201
|
||||||||||||||
|
Provision/(benefit) for income
taxes
|
(458)
|
58
|
(400)
|
|||||||||||||||
|
Minority
interests
|
(73)
|
(73)
|
||||||||||||||||
|
Equity
earnings/(loss)
|
$
|
528
|
95
|
(21)
|
$
|
(602)
|
|
|||||||||||
|
Net
income
|
$
|
528
|
$
|
20
|
$
|
528
|
$
|
54
|
$
|
(602)
|
$
|
528
|
||||||
CONDENSED
COMBINING STATEMENT OF OPERATIONS
For
the year ended December 31, 2006
(in
millions)
|
Parent
|
Issuer
|
Guarantors
|
Non-
Guarantors
|
Eliminations
|
Total
Company
|
|||||||||||||
|
Net
sales
|
$
|
4,277
|
$
|
2,705
|
$
|
6,982
|
||||||||||||
|
Cost
of products sold, excluding
depreciation
and amortization
|
$
|
(21)
|
3,608
|
2,276
|
5,863
|
|||||||||||||
|
Depreciation and
amortization
|
143
|
84
|
227
|
|||||||||||||||
|
Gross
profit
|
21
|
526
|
345
|
892
|
||||||||||||||
|
Selling and administrative
expense
|
2
|
239
|
75
|
316
|
||||||||||||||
|
Provision for
asbestos
|
10
|
10
|
||||||||||||||||
|
Provision for
restructuring
|
6
|
9
|
15
|
|||||||||||||||
|
Asset impairments and
sales
|
(3)
|
(61)
|
(64)
|
|||||||||||||||
|
Net interest
expense
|
71
|
200
|
3
|
274
|
||||||||||||||
|
Technology
royalty
|
(29)
|
29
|
||||||||||||||||
|
Translation and exchange
adjustments
|
14
|
(10)
|
2
|
6
|
||||||||||||||
|
Income/(loss)
from continuing operations before income
taxes, minority interests
and
equity earnings
|
(66)
|
113
|
288
|
335
|
||||||||||||||
|
Provision/(benefit) for income
taxes
|
(113)
|
51
|
(62)
|
|||||||||||||||
|
Minority
interests
|
(55)
|
(55)
|
||||||||||||||||
|
Equity earnings
|
$
|
309
|
177
|
115
|
$
|
(601)
|
||||||||||||
|
Income
from continuing operations
|
309
|
111
|
341
|
182
|
(601)
|
342
|
||||||||||||
|
Discontinued
operations
|
||||||||||||||||||
|
Loss before income
taxes
|
(34)
|
(34)
|
||||||||||||||||
|
Provision/(benefit) for income
taxes
|
(2)
|
1
|
(1)
|
|||||||||||||||
|
Net
income
|
$
|
309
|
$
|
111
|
$
|
309
|
$
|
181
|
$
|
(601)
|
$
|
309
|
||||||
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 shareholders’ equity/(deficit)
|
||||||||||||||||||
|
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
|
||||||||||||||
|
Minority
interests
|
353
|
353
|
||||||||||||||||
|
Commitments
and contingent liabilities
|
||||||||||||||||||
|
Shareholders’
equity/(deficit)
|
(317)
|
701
|
(99)
|
1,350
|
(1,952)
|
(317)
|
||||||||||||
|
Total
|
$
|
(97)
|
$
|
4,349
|
$
|
5,850
|
$
|
3,071
|
$
|
(6,399)
|
$
|
6,774
|
||||||
CONDENSED
COMBINING BALANCE SHEET
As
of December 31, 2007
(in
millions)
|
Parent
|
Issuer
|
Guarantors
|
Non-
Guarantors
|
Eliminations
|
Total
Company
|
|||||||||||||
|
Assets
|
||||||||||||||||||
|
Current
assets
|
||||||||||||||||||
|
Cash and cash
equivalents
|
$
|
13
|
$
|
81
|
$
|
363
|
$
|
457
|
||||||||||
|
Receivables,
net
|
75
|
78
|
520
|
673
|
||||||||||||||
|
Intercompany
receivables
|
2
|
70
|
47
|
$
|
(119)
|
|||||||||||||
|
Inventories
|
590
|
440
|
1,030
|
|||||||||||||||
|
Prepaid expenses and other
current assets
|
$
|
2
|
15
|
52
|
5
|
74
|
||||||||||||
|
Total current
assets
|
2
|
105
|
871
|
1,375
|
(119)
|
2,234
|
||||||||||||
|
Intercompany
debt receivables
|
1,624
|
1,924
|
381
|
(3,929)
|
||||||||||||||
|
Investments
|
225
|
2,724
|
(554)
|
(2,395)
|
||||||||||||||
|
Goodwill
|
1,582
|
617
|
2,199
|
|||||||||||||||
|
Property,
plant and equipment, net
|
842
|
762
|
1,604
|
|||||||||||||||
|
Other
non-current assets
|
9
|
886
|
47
|
942
|
||||||||||||||
|
Total
|
$
|
227
|
$
|
4,462
|
$
|
5,551
|
$
|
3,182
|
$
|
(6,443)
|
$
|
6,979
|
||||||
|
Liabilities
and shareholders’ equity
|
||||||||||||||||||
|
Current
liabilities
|
||||||||||||||||||
|
Short-term debt
|
$
|
14
|
$
|
2
|
$
|
29
|
$
|
45
|
||||||||||
|
Current maturities of long-term
debt
|
4
|
5
|
29
|
38
|
||||||||||||||
|
Accounts payable and accrued
liabilities
|
$
|
23
|
22
|
1,161
|
794
|
2,000
|
||||||||||||
|
Intercompany
payables
|
1
|
46
|
72
|
$
|
(119)
|
|||||||||||||
|
Total current
liabilities
|
23
|
41
|
1,214
|
924
|
(119)
|
2,083
|
||||||||||||
|
Long-term
debt, excluding current maturities
|
1,116
|
2,157
|
81
|
3,354
|
||||||||||||||
|
Long-term
intercompany debt
|
189
|
2,480
|
1,026
|
234
|
(3,929)
|
|||||||||||||
|
Postretirement
and pension liabilities
|
606
|
19
|
625
|
|||||||||||||||
|
Other
non-current liabilities
|
100
|
323
|
156
|
579
|
||||||||||||||
|
Minority
interests
|
323
|
323
|
||||||||||||||||
|
Commitments
and contingent liabilities
|
||||||||||||||||||
|
Shareholders’
equity
|
15
|
725
|
225
|
1,445
|
(2,395)
|
15
|
||||||||||||
|
Total
|
$
|
227
|
$
|
4,462
|
$
|
5,551
|
$
|
3,182
|
$
|
(6,443)
|
$
|
6,979
|
||||||
CONDENSED
COMBINING STATEMENT OF CASH FLOWS
For
the year ended December 31, 2008
(in
millions)
|
Parent
|
Issuer
|
Guarantors
|
Non-
Guarantors
|
Eliminations
|
Total
Company
|
|||||||||||||
|
Net
cash provided by/(used for)
operating
activities
|
$
|
16
|
$
|
(71)
|
$
|
222
|
$
|
255
|
$
|
422
|
||||||||
|
Cash
flows from investing activities
|
||||||||||||||||||
|
Capital
expenditures
|
(57)
|
(117)
|
(174)
|
|||||||||||||||
|
Proceeds from sale of property,
plant
and
equipment
|
3
|
12
|
15
|
|||||||||||||||
|
Intercompany investing
activities
|
436
|
(335)
|
$
|
(101)
|
||||||||||||||
|
Other
|
(3)
|
(22)
|
(2)
|
(27)
|
||||||||||||||
|
Net cash provided by/(used for)
investing
activities
|
433
|
(411)
|
(107)
|
(101)
|
(186)
|
|||||||||||||
|
Cash
flows from financing activities
|
||||||||||||||||||
|
Proceeds from long-term
debt
|
27
|
27
|
||||||||||||||||
|
Payments of long-term
debt
|
(45)
|
(5)
|
(44)
|
(94)
|
||||||||||||||
|
Net change in revolving credit
facility
and
short-term debt
|
4
|
11
|
15
|
|||||||||||||||
|
Net change in long-term
intercompany
balances
|
9
|
(302)
|
238
|
55
|
||||||||||||||
|
Dividends paid
|
(101)
|
101
|
||||||||||||||||
|
Common stock
issued
|
10
|
10
|
||||||||||||||||
|
Common stock
repurchased
|
(35)
|
(35)
|
||||||||||||||||
|
Dividend paid to minority
interests
|
(65)
|
(65)
|
||||||||||||||||
|
Other
|
49
|
|
16
|
65
|
||||||||||||||
|
Net cash provided by/(used
for) financing
activities
|
(16)
|
(298)
|
253
|
(117)
|
101
|
(77)
|
||||||||||||
|
Effect
of exchange rate changes on cashand cash equivalents
|
(7)
|
(13)
|
(20)
|
|||||||||||||||
|
Net
change in cash and cash equivalents
|
64
|
57
|
18
|
139
|
||||||||||||||
|
Cash
and cash equivalents at January 1
|
13
|
81
|
363
|
457
|
||||||||||||||
|
Cash
and cash equivalents
at
December 31
|
$
|
0
|
$
|
77
|
$
|
138
|
$
|
381
|
$
|
0
|
$
|
596
|
||||||
CONDENSED
COMBINING STATEMENT OF CASH FLOWS
For
the year ended December 31, 2007
(in
millions)
|
Parent
|
Issuer
|
Guarantors
|
Non-
Guarantors
|
Eliminations
|
Total
Company
|
|||||||||||||
|
Net
cash provided by/(used for)
operating
activities
|
$
|
32
|
$
|
(53)
|
$
|
204
|
$
|
326
|
$
|
509
|
||||||||
|
Cash
flows from investing activities
|
||||||||||||||||||
|
Capital
expenditures
|
(66)
|
(90)
|
(156)
|
|||||||||||||||
|
Proceeds from sale of
business
|
7
|
7
|
||||||||||||||||
|
Proceeds from sale of property,
plant
and
equipment
|
5
|
61
|
66
|
|||||||||||||||
|
Intercompany investing
activities
|
92
|
83
|
41
|
$
|
(216)
|
|||||||||||||
|
Other
|
(11)
|
(11)
|
||||||||||||||||
|
Net cash provided by/(used
for)
investing
activities
|
92
|
29
|
1
|
(216)
|
(94)
|
|||||||||||||
|
Cash
flows from financing activities
|
||||||||||||||||||
|
Proceeds from long-term
debt
|
48
|
48
|
||||||||||||||||
|
Payments of long-term
debt
|
(4)
|
(5)
|
(46)
|
(55)
|
||||||||||||||
|
Net change in revolving credit
facility
and
short-term debt
|
(88)
|
(122)
|
(7)
|
(217)
|
||||||||||||||
|
Net change in long-term
intercompany
balances
|
72
|
96
|
(126)
|
(42)
|
||||||||||||||
|
Dividends paid
|
(216)
|
216
|
||||||||||||||||
|
Common stock
issued
|
14
|
14
|
||||||||||||||||
|
Common stock
repurchased
|
(118)
|
(118)
|
||||||||||||||||
|
Dividend paid to minority
interests
|
(38)
|
(38)
|
||||||||||||||||
|
Other
|
(30)
|
(30)
|
||||||||||||||||
|
Net cash used for financing
activities
|
(32)
|
(26)
|
(253)
|
(301)
|
216
|
(396)
|
||||||||||||
|
Effect
of exchange rate changes on cashand cash equivalents
|
4
|
27
|
31
|
|||||||||||||||
|
Net
change in cash and cash equivalents
|
13
|
(16)
|
53
|
|
50
|
|||||||||||||
|
Cash
and cash equivalents at January 1
|
97
|
310
|
407
|
|||||||||||||||
|
Cash
and cash equivalents a
t
December 31
|
$
|
0
|
$
|
13
|
$
|
81
|
$
|
363
|
$
|
0
|
$
|
457
|
||||||
CONDENSED
COMBINING STATEMENT OF CASH FLOWS
For
the year ended December 31, 2006
(in
millions)
|
Parent
|
Issuer
|
Guarantors
|
Non-
Guarantors
|
Eliminations
|
Total
Company
|
|||||||||||||
|
Net
cash provided by/(used for)
operating
activities
|
$
|
(3)
|
$
|
(50)
|
$
|
100
|
$
|
308
|
$
|
355
|
||||||||
|
Cash
flows from investing activities
|
||||||||||||||||||
|
Capital
expenditures
|
(76)
|
(115)
|
(191)
|
|||||||||||||||
|
Proceeds from sale of
business
|
6
|
1
|
7
|
|||||||||||||||
|
Proceeds from sale of property,
plant
and
equipment
|
39
|
42
|
81
|
|||||||||||||||
|
Intercompany investing
activities
|
(51)
|
470
|
(251)
|
$
|
(168)
|
|||||||||||||
|
Other
|
(11)
|
3
|
(8)
|
|||||||||||||||
|
Net cash provided by/(used for)
investing
activities
|
(62)
|
439
|
(320)
|
(168)
|
(111)
|
|||||||||||||
|
Cash
flows from financing activities
|
||||||||||||||||||
|
Proceeds from long-term
debt
|
200
|
32
|
232
|
|||||||||||||||
|
Payments of long-term
debt
|
(4)
|
(111)
|
(28)
|
(143)
|
||||||||||||||
|
Net change in revolving credit
facility
and
short-term debt
|
66
|
(160)
|
13
|
(81)
|
||||||||||||||
|
Net change in long-term
intercompany
balances
|
120
|
65
|
(335)
|
150
|
||||||||||||||
|
Debt issue
costs
|
(4)
|
(4)
|
||||||||||||||||
|
Dividends paid
|
(99)
|
(69)
|
168
|
|||||||||||||||
|
Common stock
issued
|
18
|
18
|
||||||||||||||||
|
Common stock
repurchased
|
(135)
|
(135)
|
||||||||||||||||
|
Dividend paid to minority
interests
|
(29)
|
(29)
|
||||||||||||||||
|
Other
|
(15)
|
(1)
|
(16)
|
|||||||||||||||
|
Net cash provided by/(used for
)
financing
activities
|
3
|
112
|
(510)
|
69
|
168
|
(158)
|
||||||||||||
|
Effect
of exchange rate changes on cashand cash equivalents
|
1
|
26
|
27
|
|||||||||||||||
|
Net
change in cash and cash equivalents
|
30
|
83
|
113
|
|||||||||||||||
|
Cash
and cash equivalents at January 1
|
67
|
227
|
294
|
|||||||||||||||
|
Cash
and cash equivalents
at
December 31
|
$
|
0
|
$
|
0
|
$
|
97
|
$
|
310
|
$
|
0
|
$
|
407
|
||||||
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 years ended December 31, 2008, 2007
and 2006, and
|
|
·
|
balance
sheets as of December 31, 2008 and
2007
|
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 year ended December 31, 2008
(in
millions)
|
Parent
|
Issuer
|
Non-
Guarantors
|
Eliminations
|
Total
Company
|
|||||||||||
|
Net
sales
|
$
|
8,305
|
$
|
8,305
|
|||||||||||
|
Cost
of products sold, excluding
depreciation
and amortization
|
|
6,867
|
6,867
|
||||||||||||
|
Depreciation and
amortization
|
216
|
216
|
|||||||||||||
|
Gross
profit
|
1,222
|
1,222
|
|||||||||||||
|
Selling and administrative
expense
|
$ |
16
|
380
|
396
|
|||||||||||
|
Provision for
asbestos
|
25
|
25
|
|||||||||||||
|
Provision for
restructuring
|
21
|
21
|
|||||||||||||
|
Asset impairments and
sales
|
5
|
1
|
6
|
||||||||||||
|
Loss
from early extinguishment of debt
|
2
|
2
|
|||||||||||||
|
Net interest
expense
|
70
|
221
|
291
|
||||||||||||
|
Translation and exchange
adjustments
|
39
|
39
|
|||||||||||||
|
Income/(loss)
before income taxes,
minority
interests
and equity earnings
|
(116)
|
558
|
442
|
||||||||||||
|
Provision/(benefit)
for income taxes
|
(45)
|
157
|
112
|
||||||||||||
|
Minority
interests and equity earnings
|
3
|
(107)
|
(104)
|
||||||||||||
|
Equity earnings
|
$
|
226
|
294
|
$
|
(520)
|
||||||||||
|
Net
income
|
$
|
226
|
$
|
226
|
$
|
294
|
$
|
(520)
|
$
|
226
|
|||||
CONDENSED
COMBINING STATEMENT OF OPERATIONS
For
the year ended December 31, 2007
(in
millions)
|
Parent
|
Issuer
|
Non-
Guarantors
|
Eliminations
|
Total
Company
|
|||||||||||
|
Net
sales
|
$
|
7,727
|
$
|
7,727
|
|||||||||||
|
Cost
of products sold, excluding
depreciation
and amortization
|
6,471
|
6,471
|
|||||||||||||
|
Depreciation and
amortization
|
229
|
229
|
|||||||||||||
|
Gross
profit
|
1,027
|
1,027
|
|||||||||||||
|
Selling and administrative
expense
|
$
|
13
|
372
|
385
|
|||||||||||
|
Provision for
asbestos
|
29
|
29
|
|||||||||||||
|
Provision for
restructuring
|
20
|
20
|
|||||||||||||
|
Asset impairments and
sales
|
100
|
100
|
|||||||||||||
|
Net interest
expense
|
68
|
236
|
304
|
||||||||||||
|
Translation and exchange
adjustments
|
(12)
|
(12)
|
|||||||||||||
|
Income/(loss)
before income taxes,
minority
interests
and equity earnings
|
(110)
|
311
|
201
|
||||||||||||
|
Provision/(benefit) for income
taxes
|
(505)
|
105
|
(400)
|
||||||||||||
|
Minority
interests
|
(73)
|
(73)
|
|||||||||||||
|
Equity earnings
|
$
|
528
|
133
|
$
|
(661)
|
||||||||||
|
Net
income
|
$
|
528
|
$
|
528
|
$
|
133
|
$
|
(661)
|
$
|
528
|
|||||
CONDENSED
COMBINING STATEMENT OF OPERATIONS
For
the year ended December 31, 2006
(in
millions)
|
Parent
|
Issuer
|
Non-
Guarantors
|
Eliminations
|
Total
Company
|
|||||||||||
|
Net
sales
|
$
|
6,982
|
$
|
6,982
|
|||||||||||
|
Cost
of products sold, excluding
depreciation
and amortization
|
5,863
|
5,863
|
|||||||||||||
|
Depreciation and
amortization
|
227
|
227
|
|||||||||||||
|
Gross
profit
|
892
|
892
|
|||||||||||||
|
Selling and administrative
expense
|
$
|
9
|
307
|
316
|
|||||||||||
|
Provision for
asbestos
|
10
|
10
|
|||||||||||||
|
Provision for
restructuring
|
15
|
15
|
|||||||||||||
|
Asset impairments and
sales
|
(64)
|
(64)
|
|||||||||||||
|
Net interest
expense
|
64
|
210
|
274
|
||||||||||||
|
Translation and exchange
adjustments
|
6
|
6
|
|||||||||||||
|
Income/(loss)
from continuing operations
before
income taxes,
minority interests
and
equity earnings
|
(83)
|
418
|
335
|
||||||||||||
|
Income tax
benefit
|
(43)
|
(19)
|
(62)
|
||||||||||||
|
Minority
interests and equity earnings
|
3
|
(58)
|
(55)
|
||||||||||||
|
Equity earnings
|
$
|
309
|
346
|
$
|
(655)
|
||||||||||
|
Income
from continuing operations
|
309
|
309
|
379
|
(655)
|
342
|
||||||||||
|
Discontinued
operations
|
|||||||||||||||
|
Loss before income
taxes
|
(34)
|
(34)
|
|||||||||||||
|
Income tax
benefit
|
(1)
|
(1)
|
|||||||||||||
|
Net
income
|
$
|
309
|
$
|
309
|
$
|
346
|
$
|
(655)
|
$
|
309
|
|||||
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 shareholders’ equity/(deficit)
|
|||||||||||||||
|
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
|
||||||||||||
|
Minority
interests
|
353
|
353
|
|||||||||||||
|
Commitments
and contingent liabilities
|
|||||||||||||||
|
Shareholders’
equity/(deficit)
|
(317)
|
(99)
|
696
|
(597)
|
(317)
|
||||||||||
|
Total
|
$
|
(97)
|
$
|
1,219
|
$
|
6,819
|
$
|
(1,167)
|
$
|
6,774
|
|||||
CONDENSED
COMBINING BALANCE SHEET
As
of December 31, 2007
(in
millions)
|
Parent
|
Issuer
|
Non-
Guarantors
|
Eliminations
|
Total
Company
|
|||||||||||
|
Assets
|
|||||||||||||||
|
Current
assets
|
|||||||||||||||
|
Cash and cash
equivalents
|
$
|
457
|
$
|
457
|
|||||||||||
|
Receivables,
net
|
673
|
673
|
|||||||||||||
|
Inventories
|
1,030
|
1,030
|
|||||||||||||
|
Prepaid
expenses and other current assets
|
$
|
2
|
72
|
74
|
|||||||||||
|
Total current
assets
|
2
|
2,232
|
2,234
|
||||||||||||
|
Intercompany
debt receivables
|
375
|
$
|
(375)
|
||||||||||||
|
Investments
|
225
|
$
|
968
|
(1,193)
|
|||||||||||
|
Goodwill
|
2,199
|
2,199
|
|||||||||||||
|
Property,
plant and equipment, net
|
1,604
|
1,604
|
|||||||||||||
|
Other
non-current assets
|
416
|
526
|
942
|
||||||||||||
|
Total
|
$
|
227
|
$
|
1,384
|
$
|
6,936
|
$
|
(1,568)
|
$
|
6,979
|
|||||
|
Liabilities
and shareholders’ equity
|
|||||||||||||||
|
Current
liabilities
|
|||||||||||||||
|
Short-term debt
|
$
|
45
|
$
|
45
|
|||||||||||
|
Current maturities of long-term
debt
|
38
|
38
|
|||||||||||||
|
Accounts payable and accrued
liabilities
|
$
|
23
|
$
|
69
|
1,908
|
2,000
|
|||||||||
|
Total current
liabilities
|
23
|
69
|
1,991
|
2,083
|
|||||||||||
|
Long-term
debt, excluding current maturities
|
698
|
2,656
|
3,354
|
||||||||||||
|
Long-term
intercompany debt
|
189
|
186
|
$
|
(375)
|
|||||||||||
|
Postretirement
and pension liabilities
|
625
|
625
|
|||||||||||||
|
Other
non-current liabilities
|
206
|
373
|
579
|
||||||||||||
|
Minority
interests
|
323
|
323
|
|||||||||||||
|
Commitments
and contingent liabilities
|
|||||||||||||||
|
Shareholders’
equity
|
15
|
225
|
968
|
(1,193)
|
15
|
||||||||||
|
Total
|
$
|
227
|
$
|
1,384
|
$
|
6,936
|
$
|
(1,568)
|
$
|
6,979
|
|||||
CONDENSED
COMBINING STATEMENT OF CASH FLOWS
For
the year ended December 31, 2008
(in
millions)
|
Parent
|
Issuer
|
Non-
Guarantors
|
Eliminations
|
Total
Company
|
|||||||||||
|
Net
cash provided by/(used for) operating activities
|
$
|
16
|
$
|
(29)
|
$
|
435
|
$
|
422
|
|||||||
|
Cash
flows from investing activities
|
|||||||||||||||
|
Capital
expenditures
|
(174)
|
(174)
|
|||||||||||||
|
Proceeds from sale of property,
plant and equipment
|
15
|
15
|
|||||||||||||
|
Intercompany investing
activities
|
35
|
$
|
(35)
|
||||||||||||
|
Other
|
(27)
|
(27)
|
|||||||||||||
|
Net cash provided by/(used for)
investing
activities
|
35
|
(186)
|
(35)
|
(186)
|
|||||||||||
|
Cash
flows from financing activities
|
|||||||||||||||
|
Proceeds from long-term
debt
|
27
|
27
|
|||||||||||||
|
Payments of long-term
debt
|
(94)
|
(94)
|
|||||||||||||
|
Net change in revolving credit
facility
and
short-term debt
|
15
|
15
|
|||||||||||||
|
Net change in long-term
intercompany balances
|
9
|
(6)
|
(3)
|
||||||||||||
|
Dividends paid
|
(35)
|
35
|
|||||||||||||
|
Common stock
issued
|
10
|
10
|
|||||||||||||
|
Common stock
repurchased
|
(35)
|
(35)
|
|||||||||||||
|
Dividend paid to minority
interests
|
(65)
|
(65)
|
|||||||||||||
|
Other
|
65
|
65
|
|||||||||||||
|
Net cash used for financing
activities
|
(16)
|
(6)
|
(90)
|
35
|
(77)
|
||||||||||
|
Effect
of exchange rate changes on cash
and
cash equivalents
|
(20)
|
(20)
|
|||||||||||||
|
Net
change in cash and cash equivalents
|
139
|
139
|
|||||||||||||
|
Cash
and cash equivalents at January 1
|
457
|
457
|
|||||||||||||
|
Cash
and cash equivalents at December 31
|
$
|
0
|
$
|
0
|
$
|
596
|
$
|
0
|
$
|
596
|
|||||
CONDENSED
COMBINING STATEMENT OF CASH FLOWS
For
the year ended December 31, 2007
(in
millions)
|
Parent
|
Issuer
|
Non-
Guarantors
|
Eliminations
|
Total
Company
|
|||||||||||
|
Net
cash provided by/(used for) operating activities
|
$
|
32
|
$
|
(65)
|
$
|
542
|
$
|
509
|
|||||||
|
Cash
flows from investing activities
|
|||||||||||||||
|
Capital
expenditures
|
(156)
|
(156)
|
|||||||||||||
|
Proceeds from sale of
business
|
7
|
7
|
|||||||||||||
|
Proceeds from sale of property,
plant and equipment
|
66
|
66
|
|||||||||||||
|
Intercompany investing
activities
|
24
|
$
|
(24)
|
||||||||||||
|
Other
|
(11)
|
(11)
|
|||||||||||||
|
Net cash provided by/(used for)
investing
activities
|
24
|
(94)
|
(24)
|
(94)
|
|||||||||||
|
Cash
flows from financing activities
|
|||||||||||||||
|
Proceeds from long-term
debt
|
48
|
48
|
|||||||||||||
|
Payments of long-term
debt
|
(55)
|
(55)
|
|||||||||||||
|
Net change in revolving credit
facility and
short-term
debt
|
(217)
|
(217)
|
|||||||||||||
|
Net change in long-term
intercompany balances
|
72
|
41
|
(113)
|
||||||||||||
|
Dividends paid
|
(24)
|
24
|
|||||||||||||
|
Common stock
issued
|
14
|
14
|
|||||||||||||
|
Common stock
repurchased
|
(118)
|
(118)
|
|||||||||||||
|
Dividend paid to minority
interests
|
(38)
|
(38)
|
|||||||||||||
|
Other
|
(30)
|
(30)
|
|||||||||||||
|
Net cash provide by/(used for)
financing
activities
|
(32)
|
41
|
(429)
|
24
|
(396)
|
||||||||||
|
Effect
of exchange rate changes on cash
and
cash equivalents
|
31
|
31
|
|||||||||||||
|
Net
change in cash and cash equivalents
|
50
|
50
|
|||||||||||||
|
Cash
and cash equivalents at January 1
|
407
|
407
|
|||||||||||||
|
Cash
and cash equivalents at December 31
|
$
|
0
|
$
|
0
|
$
|
457
|
$
|
0
|
$
|
457
|
|||||
CONDENSED
COMBINING STATEMENT OF CASH FLOWS
For
the year ended December 31, 2006
(in
millions)
|
Parent
|
Issuer
|
Non-
Guarantors
|
Eliminations
|
Total
Company
|
|||||||||||
|
Net
cash provided by/(used for) operating activities
|
$
|
(3)
|
$
|
(44)
|
$
|
402
|
$
|
355
|
|||||||
|
Cash
flows from investing activities
|
|||||||||||||||
|
Capital
expenditures
|
(191)
|
(191)
|
|||||||||||||
|
Proceeds from sale of
business
|
7
|
7
|
|||||||||||||
|
Proceeds from sale of property,
plant and equipment
|
81
|
81
|
|||||||||||||
|
Intercompany investing
activities
|
19
|
$
|
(19)
|
||||||||||||
|
Other
|
(8)
|
(8)
|
|||||||||||||
|
Net cash provided by/(used for)
investing
activities
|
19
|
(111)
|
(19)
|
(111)
|
|||||||||||
|
Cash
flows from financing activities
|
|||||||||||||||
|
Proceeds from long-term
debt
|
232
|
232
|
|||||||||||||
|
Payments of long-term
debt
|
(143)
|
(143)
|
|||||||||||||
|
Net change in revolving credit
facility
and
short-term debt
|
(81)
|
(81)
|
|||||||||||||
|
Net change in long-term
intercompany balances
|
120
|
25
|
(145)
|
||||||||||||
|
Debt issue
costs
|
(4)
|
(4)
|
|||||||||||||
|
Dividends paid
|
(19)
|
19
|
|||||||||||||
|
Common stock
issued
|
18
|
18
|
|||||||||||||
|
Common stock
repurchased
|
(135)
|
(135)
|
|||||||||||||
|
Dividend paid to minority
interests
|
(29)
|
(29)
|
|||||||||||||
|
Other
|
(16)
|
(16)
|
|||||||||||||
|
Net cash provided by/(used
for)
financing
activities
|
3
|
25
|
(205)
|
19
|
(158)
|
||||||||||
|
Effect
of exchange rate changes on cash
and
cash equivalents
|
27
|
27
|
|||||||||||||
|
Net
change in cash and cash equivalents
|
113
|
113
|
|||||||||||||
|
Cash
and cash equivalents at January 1
|
294
|
294
|
|||||||||||||
|
Cash
and cash equivalents at December 31
|
$
|
0
|
$
|
0
|
$
|
407
|
$
|
0
|
$
|
407
|
|||||
Crown
Americas, LLC and Crown Americas Capital Corp., 100% owned subsidiaries of the
Company, have outstanding senior unsecured notes that are fully and
unconditionally guaranteed by 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 years ended December 31, 2008,
2007
and
2006, and
·
balance
sheets as of December 31, 2008 and 2007
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 year ended December 31, 2008
(in
millions)
|
Parent
|
Issuer
|
Guarantors
|
Non-
Guarantors
|
Eliminations
|
Total
Company
|
|||||||||||||
|
Net
sales
|
$
|
2,189
|
$
|
6,116
|
$
|
8,305
|
||||||||||||
|
Cost
of products sold, excluding
depreciation
and amortization
|
|
1,826
|
5,041
|
6,867
|
||||||||||||||
|
Depreciation and
amortization
|
53
|
163
|
216
|
|||||||||||||||
|
Gross
profit
|
310
|
912
|
1,222
|
|||||||||||||||
|
Selling and administrative
expense
|
$ |
7
|
136
|
253
|
396
|
|||||||||||||
|
Provision for
asbestos
|
25
|
25
|
||||||||||||||||
|
Provision for
restructuring
|
1
|
20
|
21
|
|||||||||||||||
|
Asset impairments and
sales
|
3
|
5
|
(2)
|
6
|
||||||||||||||
|
Loss
from early extinguishment of debt
|
2
|
2
|
||||||||||||||||
|
Net interest
expense
|
55
|
91
|
145
|
291
|
||||||||||||||
|
Technology
royalty
|
(46)
|
46
|
||||||||||||||||
|
Translation and exchange
adjustments
|
4
|
35
|
39
|
|||||||||||||||
|
Income/(loss)
before income taxes,
minority
interests
and equity earnings
|
(69)
|
98
|
413
|
|
|
442
|
||||||||||||
|
Provision/(benefit) for income
taxes
|
(26)
|
63
|
75
|
112
|
||||||||||||||
|
Minority
interests
|
(104)
|
(104)
|
||||||||||||||||
|
Equity
earnings
|
$
|
226
|
123
|
191
|
|
$
|
(540)
|
|
||||||||||
|
Net
income
|
$
|
226
|
$
|
80
|
$
|
226
|
$
|
234
|
$
|
(540)
|
$
|
226
|
||||||
CONDENSED
COMBINING STATEMENT OF OPERATIONS
For
the year ended December 31, 2007
(in
millions)
|
Parent
|
Issuer
|
Guarantors
|
Non-
Guarantors
|
Eliminations
|
Total
Company
|
|||||||||||||
| Net sales | $ |
2,098
|
$ |
5,629
|
$ |
7,727
|
||||||||||||
|
Cost
of products sold, excluding
depreciation
and amortization
|
1,767
|
4,704
|
6,471
|
|||||||||||||||
|
Depreciation
and amortization
|
60
|
169
|
229
|
|||||||||||||||
|
Gross
profit
|
271
|
756
|
1,027
|
|||||||||||||||
|
Selling and administrative
expense
|
$
|
7
|
131
|
247
|
385
|
|||||||||||||
|
Provision
for asbestos
|
29
|
29
|
||||||||||||||||
|
Provision
for restructuring
|
3
|
17
|
20
|
|||||||||||||||
|
Asset
impairments and sales
|
5
|
5
|
90
|
100
|
||||||||||||||
|
Net
interest expense
|
60
|
77
|
167
|
304
|
||||||||||||||
|
Technology
royalty
|
(39)
|
39
|
||||||||||||||||
|
Translation
and exchange adjustments
|
(12)
|
(12)
|
||||||||||||||||
|
Income/(loss)
before income taxes,
minority
interests
and equity earnings
|
(72)
|
65
|
208
|
201
|
||||||||||||||
|
Provision/(benefit) for income
taxes
|
(27)
|
(437)
|
64
|
(400)
|
||||||||||||||
|
Minority
interests
|
(73)
|
(73)
|
||||||||||||||||
|
Equity earnings
|
$
|
528
|
116
|
26
|
$
|
(670)
|
||||||||||||
| Net income | $ |
528
|
$ |
71
|
$ |
528
|
$ |
71
|
$ |
(670)
|
$ |
528
|
||||||
CONDENSED
COMBINING STATEMENT OF OPERATIONS
For
the year ended December 31, 2006
(in
millions)
|
Parent
|
Issuer
|
Guarantors
|
Non-
Guarantors
|
Eliminations
|
Total
Company
|
|||||||||||||
|
Net
sales
|
$
|
1,907
|
$
|
5,075
|
$
|
6,982
|
||||||||||||
|
Cost
of products sold, excluding
depreciation
and amortization
|
1,613
|
4,250
|
5,863
|
|||||||||||||||
|
Depreciation and
amortization
|
64
|
163
|
227
|
|||||||||||||||
|
Gross
profit
|
230
|
662
|
892
|
|||||||||||||||
|
Selling and administrative
expense
|
$
|
8
|
101
|
207
|
316
|
|||||||||||||
|
Provision for
asbestos
|
10
|
10
|
||||||||||||||||
|
Provision for
restructuring
|
4
|
11
|
15
|
|||||||||||||||
|
Asset impairments and
sales
|
(8)
|
(56)
|
(64)
|
|||||||||||||||
|
Net interest
expense
|
57
|
73
|
144
|
274
|
||||||||||||||
|
Technology
royalty
|
(36)
|
36
|
|
|||||||||||||||
|
Translation and exchange
adjustments
|
(1)
|
7
|
6
|
|||||||||||||||
|
Income/(loss)
from continuing operations
before
income taxes, minority interests
and
equity earnings
|
(65)
|
87
|
313
|
335
|
||||||||||||||
|
Provision/(benefit) for income
taxes
|
(23)
|
(109)
|
70
|
(62)
|
||||||||||||||
|
Minority
interests
|
(3)
|
(52)
|
(55)
|
|||||||||||||||
|
Equity earnings
|
$
|
309
|
238
|
116
|
$
|
(663)
|
||||||||||||
|
Income
from continuing operations
|
309
|
193
|
312
|
191
|
(663)
|
342
|
||||||||||||
|
Discontinued
operations
|
||||||||||||||||||
|
Loss before income
taxes
|
(15)
|
(3)
|
(16)
|
(34)
|
||||||||||||||
|
Income tax
benefit
|
(1)
|
(1)
|
||||||||||||||||
|
Net
income
|
$
|
309
|
$
|
178
|
$
|
309
|
$
|
176
|
$
|
(663)
|
$
|
309
|
||||||
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
|
$
|
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 shareholders’ equity/(deficit)
|
||||||||||||||||||
|
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
|
|||||||||||||||
|
Minority
interests
|
353
|
353
|
||||||||||||||||
|
Commitments
and contingent liabilities
|
||||||||||||||||||
|
Shareholders’
equity/(deficit)
|
(317)
|
128
|
(99)
|
1,217
|
(1,246)
|
(317)
|
||||||||||||
|
Total
|
$
|
(97)
|
$
|
2,322
|
$
|
3,025
|
$
|
5,549
|
$
|
(4,025)
|
$
|
6,774
|
||||||
CONDENSED
COMBINING BALANCE SHEET
As
of December 31, 2007
(in
millions)
|
Parent
|
Issuer
|
Guarantors
|
Non-
Guarantors
|
Eliminations
|
Total
Company
|
|||||||||||||
|
Assets
|
||||||||||||||||||
|
Current
assets
|
||||||||||||||||||
|
Cash and cash
equivalents
|
$
|
42
|
$
|
5
|
$
|
410
|
$
|
457
|
||||||||||
|
Receivables,
net
|
10
|
663
|
673
|
|||||||||||||||
|
Intercompany
receivables
|
70
|
12
|
$ |
(82)
|
|
|||||||||||||
|
Inventories
|
239
|
791
|
1,030
|
|||||||||||||||
|
Prepaid expenses and other
current assets
|
$ |
2
|
1
|
4
|
67
|
74
|
||||||||||||
|
Total current
assets
|
2
|
43
|
328
|
1,943
|
(82)
|
2,234
|
||||||||||||
|
Intercompany
debt receivables
|
1,073
|
623
|
53
|
(1,749)
|
||||||||||||||
|
Investments
|
225
|
780
|
48
|
(1,053)
|
||||||||||||||
|
Goodwill
|
453
|
1,746
|
2,199
|
|||||||||||||||
|
Property,
plant and equipment, net
|
2
|
331
|
1,271
|
1,604
|
||||||||||||||
|
Other
non-current assets
|
43
|
580
|
319
|
942
|
||||||||||||||
|
Total
|
$
|
227
|
$
|
1,941
|
$
|
2,363
|
$
|
5,332
|
$
|
(2,884)
|
$
|
6,979
|
||||||
|
Liabilities
and shareholders’ equity
|
||||||||||||||||||
|
Current
liabilities
|
$ |
45
|
$ |
45
|
||||||||||||||
|
Short-term debt
|
||||||||||||||||||
|
Current maturities of long-term
debt
|
$ |
4
|
$ |
1
|
33
|
38
|
||||||||||||
|
Accounts payable and accrued
liabilities
|
$ |
23
|
21
|
337
|
1,619
|
2,000
|
||||||||||||
|
Intercompany
payables
|
12
|
70
|
$ |
(82)
|
||||||||||||||
|
Total current
liabilities
|
23
|
25
|
350
|
1,767
|
(82)
|
2,083
|
||||||||||||
|
Long-term
debt, excluding current maturities
|
1,454
|
701
|
1,199
|
3,354
|
||||||||||||||
|
Long-term
intercompany
debt
|
189
|
416
|
396
|
748
|
(1,749)
|
|
||||||||||||
|
Postretirement
and pension liabilities
|
429
|
196
|
625
|
|||||||||||||||
|
Other
non-current liabilities
|
262
|
317
|
579
|
|||||||||||||||
|
Minority
interests
|
323
|
323
|
||||||||||||||||
|
Commitments
and contingent liabilities
|
||||||||||||||||||
|
Shareholders’
equity
|
15
|
46
|
225
|
782
|
(1,053)
|
15
|
||||||||||||
|
Total
|
$
|
227
|
$
|
1,941
|
$
|
2,363
|
$
|
5,332
|
$
|
(2,884)
|
$
|
6,979
|
||||||
CONDENSED
COMBINING STATEMENT OF CASH FLOWS
For
the year ended December 31, 2008
(in
millions)
|
Parent
|
Issuer
|
Guarantors
|
Non-
Guarantors
|
Eliminations
|
Total
Company
|
|||||||||||||
|
Net
cash provided by/(used for)
operating
activities
|
$
|
16
|
$
|
(28)
|
$
|
132
|
$
|
302
|
$
|
422
|
||||||||
|
Cash
flows from investing activities
|
||||||||||||||||||
|
Capital
expenditures
|
(35)
|
(139)
|
(174)
|
|||||||||||||||
|
Proceeds from sale of property,
plant
and
equipment
|
2
|
13
|
15
|
|||||||||||||||
|
Intercompany investing
activities
|
11
|
(495)
|
528
|
$
|
(44)
|
|||||||||||||
|
Other
|
(6)
|
(21)
|
(27)
|
|||||||||||||||
|
Net cash provided by/(used for)
investing
activities
|
5
|
(528)
|
381
|
(44)
|
(186)
|
|||||||||||||
|
Cash
flows from financing activities
|
||||||||||||||||||
|
Proceeds from long-term
debt
|
27
|
27
|
||||||||||||||||
|
Payments of long-term
debt
|
(4)
|
(1)
|
(89)
|
(94)
|
||||||||||||||
|
Net change in revolving credit
facility
and
short-term debt
|
15
|
15
|
||||||||||||||||
|
Net change in long-term
intercompany
balances
|
9
|
77
|
395
|
(481)
|
||||||||||||||
|
Dividends paid
|
(44)
|
44
|
||||||||||||||||
|
Common stock
issued
|
10
|
10
|
||||||||||||||||
|
Common stock
repurchased
|
(35)
|
(35)
|
||||||||||||||||
|
Dividend paid to minority
interests
|
(65)
|
(65)
|
||||||||||||||||
|
Other
|
65
|
65
|
||||||||||||||||
|
Net cash provided by/(used
for) financing
activities
|
(16)
|
73
|
394
|
(572)
|
44
|
(77)
|
||||||||||||
|
Effect
of exchange rate changes on cashand cash equivalents
|
(20)
|
(20)
|
||||||||||||||||
|
Net
change in cash and cash equivalents
|
50
|
(2)
|
91
|
139
|
||||||||||||||
|
Cash
and cash equivalents at January 1
|
42
|
5
|
410
|
457
|
||||||||||||||
|
Cash
and cash equivalents
at
December 31
|
$
|
0
|
$
|
92
|
$
|
3
|
$
|
501
|
$
|
0
|
$
|
596
|
||||||
CONDENSED
COMBINING STATEMENT OF CASH FLOWS
For
the year ended December 31, 2007
(in
millions)
|
Parent
|
Issuer
|
Guarantors
|
Non-
Guarantors
|
Eliminations
|
Total
Company
|
|||||||||||||
|
Net
cash provided by/(used for)
operating
activities
|
$
|
32
|
$
|
(47)
|
$
|
109
|
$
|
415
|
$
|
509
|
||||||||
|
Cash
flows from investing activities
|
||||||||||||||||||
|
Capital
expenditures
|
(31)
|
(125)
|
(156)
|
|||||||||||||||
|
Proceeds from sale of
business
|
7
|
7
|
||||||||||||||||
|
Proceeds from sale of property,
plant
and
equipment
|
1
|
65
|
66
|
|||||||||||||||
|
Intercompany investing
activities
|
14
|
18
|
$
|
(32)
|
||||||||||||||
|
Other
|
(11)
|
(11)
|
||||||||||||||||
|
Net cash provided by/(used for)
investing
activities
|
21
|
(12)
|
(71)
|
(32)
|
(94)
|
|||||||||||||
|
Cash
flows from financing activities
|
||||||||||||||||||
|
Proceeds from long-term
debt
|
48
|
48
|
||||||||||||||||
|
Payments of long-term
debt
|
(4)
|
(1)
|
(50)
|
(55)
|
||||||||||||||
|
Net change in revolving credit
facility
and
short-term debt
|
(60)
|
(157)
|
(217)
|
|||||||||||||||
|
Net change in long-term
intercompany
balances
|
72
|
72
|
(95)
|
(49)
|
||||||||||||||
|
Dividends paid
|
(32)
|
32
|
||||||||||||||||
|
Common stock
issued
|
14
|
14
|
||||||||||||||||
|
Common stock
repurchased
|
(118)
|
(118)
|
||||||||||||||||
|
Dividend paid to minority
interests
|
(38)
|
(38)
|
||||||||||||||||
|
Other
|
(30)
|
(30)
|
||||||||||||||||
|
Net cash provided by/(used
for) financing
activities
|
(32)
|
8
|
(96)
|
(308)
|
32
|
(396)
|
||||||||||||
|
Effect
of exchange rate changes on cashand cash equivalents
|
31
|
31
|
||||||||||||||||
|
Net
change in cash and cash equivalents
|
(18)
|
1
|
67
|
50
|
||||||||||||||
|
Cash
and cash equivalents at January 1
|
60
|
4
|
343
|
407
|
||||||||||||||
|
Cash
and cash equivalents
at
December 31
|
$
|
0
|
$
|
42
|
$
|
5
|
$
|
410
|
$
|
0
|
$
|
457
|
||||||
CONDENSED
COMBINING STATEMENT OF CASH FLOWS
For
the year ended December 31, 2006
(in
millions)
|
Parent
|
Issuer
|
Guarantors
|
Non-
Guarantors
|
Eliminations
|
Total
Company
|
|||||||||||||
|
Net
cash provided by/(used for)
operating
activities
|
$
|
(3)
|
$
|
(40)
|
$
|
96
|
$
|
302
|
$
|
355
|
||||||||
|
Cash
flows from investing activities
|
||||||||||||||||||
|
Capital
expenditures
|
(1)
|
(36)
|
(154)
|
(191)
|
||||||||||||||
|
Proceeds from sale of
business
|
4
|
3
|
7
|
|||||||||||||||
|
Proceeds from sale of property,
plant
and
equipment
|
31
|
50
|
81
|
|||||||||||||||
|
Intercompany investing
activities
|
11
|
22
|
$
|
(33)
|
||||||||||||||
|
Other
|
(8)
|
(8)
|
||||||||||||||||
|
Net cash provided by/(used for)
investing
activities
|
14
|
|
17
|
(109)
|
(33)
|
(111)
|
||||||||||||
|
Cash
flows from financing activities
|
||||||||||||||||||
|
Proceeds from long-term
debt
|
200
|
32
|
232
|
|||||||||||||||
|
Payments of long-term
debt
|
(3)
|
(140)
|
(143)
|
|||||||||||||||
|
Net change in revolving credit
facility
and
short-term debt
|
(151)
|
70
|
(81)
|
|||||||||||||||
|
Net change in long-term
intercompany
balances
|
120
|
26
|
(110)
|
(36)
|
||||||||||||||
|
Debt issue
costs
|
(4)
|
(4)
|
||||||||||||||||
|
Dividends paid
|
(33)
|
33
|
||||||||||||||||
|
Common stock
issued
|
18
|
18
|
||||||||||||||||
|
Common stock
repurchased
|
(135)
|
(135)
|
||||||||||||||||
|
Dividend paid to minority
interests
|
(29)
|
(29)
|
||||||||||||||||
|
Other
|
(16)
|
(16)
|
||||||||||||||||
|
Net cash provided by/(used
for) financing
activities
|
3
|
68
|
(110)
|
(152)
|
33
|
|
(158)
|
|||||||||||
|
Effect
of exchange rate changes on cashand cash equivalents
|
27
|
27
|
||||||||||||||||
|
Net
change in cash and cash equivalents
|
42
|
3
|
68
|
113
|
||||||||||||||
|
Cash
and cash equivalents at January 1
|
18
|
1
|
275
|
294
|
||||||||||||||
|
Cash
and cash equivalents
at
December 31
|
$
|
0
|
$
|
60
|
$
|
4
|
$
|
343
|
$
|
0
|
$
|
407
|
||||||
Quarterly Data
(unaudited)
|
(in
millions)
|
2008
|
2007
|
||||||||||||||
|
First
|
(1) |
Second
|
(2)
|
Third
|
(3)
|
Fourth
|
(4)
|
First
|
|
Second
|
(5)
|
Third
|
(6)
|
Fourth
|
(7)
|
|
|
Net
sales
|
$1,863
|
$2,196
|
$2,369
|
$1,877
|
$1,713
|
$1,990
|
$2,153
|
$1,871
|
||||||||
|
Gross
profit
*
|
256
|
352
|
378
|
236
|
215
|
286
|
312
|
214
|
||||||||
|
Net
income/(loss)
|
27
|
99
|
114
|
(14)
|
18
|
91
|
93
|
326
|
||||||||
|
Earnings
per average
|
||||||||||||||||
|
common
share:
|
||||||||||||||||
|
Basic
|
$0.17
|
$0.62
|
$0.71
|
($0.09)
|
$0.11
|
$0.56
|
$0.58
|
$2.05
|
||||||||
|
Diluted
|
$0.17
|
$0.61
|
$0.70
|
($0.09)
|
(8) |
$0.11
|
$0.54
|
$0.56
|
$2.00
|
|||||||
|
Average
common shares
outstanding:
|
||||||||||||||||
|
Basic
|
159.2
|
159.6
|
160.0
|
159.5
|
162.3
|
162.9
|
161.2
|
158.9
|
||||||||
|
Diluted
|
162.8
|
163.3
|
163.4
|
162.2
|
166.7
|
167.2
|
165.2
|
162.7
|
||||||||
|
Common
stock price range: **
|
||||||||||||||||
|
High
|
$25.67
|
$29.24
|
$29.60
|
$23.02
|
$25.42
|
$25.98
|
$27.43
|
$27.13
|
||||||||
|
Low
|
20.46
|
24.21
|
20.34
|
13.37
|
20.83
|
23.76
|
21.31
|
22.06
|
||||||||
|
Close
|
25.16
|
25.99
|
22.21
|
19.20
|
24.46
|
24.97
|
22.76
|
25.65
|
||||||||
|
|
* The
Company defines gross profit as net sales less cost of products sold and
depreciation and amortization.
|
** Source: New York Stock Exchange –
Composite Transactions
Notes:
|
(1)
|
Includes
pre-tax charges of $2 for losses from early extinguishments of
debt.
|
|
(2)
|
Includes
pre-tax charges of $1 for restructuring actions and net pre-tax gains of
$2 for asset sales.
|
|
(3)
|
Includes
pre-tax charges of $3 for restructuring actions and net pre-tax
charges of $2 for asset impairments and asset
sales.
|
|
(4)
|
Includes
pre-tax charges of $17 for restructuring actions, pre-tax charges of $6
for asset impairments, and a pre-tax charge of $25 for asbestos
claims.
|
|
(5)
|
Includes
pre-tax charges of $5 for restructuring actions and net pre-tax gains of
$10 for asset sales.
|
|
(6)
|
Includes
net pre-tax charges of $9 for restructuring actions and net pre-tax gains
of $4 for asset sales.
|
|
(7)
|
Includes
a tax benefit of $462 from the reversal of U.S. valuation allowances, net
pre-tax charges of $114 for asset sales and
impairments,
$29
for
asbestos, and $6 for restructuring
actions.
|
|
(8)
|
Diluted
earnings per share was calculated using basic average shares outstanding
instead of diluted average shares outstanding due to the net loss in
the quarter.
|
SCHEDULE II
– VALUATION AND QUALIFYING ACCOUNTS AND
RESERVES
(In
millions)
|
COLUMN A
|
COLUMN B
|
COLUMN C
Additions
|
COLUMN D
|
COLUMN E
|
|
|
Description
|
Balance
at
beginning
of period
|
Charged
to costs
and
expense
|
Charged
to
other
accounts
|
Deductions
–
Write-offs
|
Balance
at end
of
period
|
For the Year Ended December
31, 2008
|
Allowances
deducted from assets to which they apply:
|
|||||
|
Trade
accounts receivable
|
$28
|
$1
|
$(1)
|
$4
|
$24
|
|
Deferred
tax assets
|
508
|
(6)
|
5
|
507
|
|
For the Year Ended December
31, 2007
|
Allowances
deducted from assets to which they apply:
|
|||||
|
Trade
accounts receivable
|
38
|
3
|
2
|
15
|
28
|
|
Deferred
tax assets
|
925
|
(485)
|
68
|
508
|
|
For the Year Ended December
31, 2006
|
Allowances
deducted from assets to which they apply:
|
|||||
|
Trade
accounts receivable
|
33
|
3
|
3
|
1
|
38
|
|
Deferred
tax assets
|
951
|
3
|
29
|
925
|
|
|
ITEM 9
.
|
CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
None.
|
ITEM
9A
.
|
CONTROLS AND
PROCEDURES
|
As of the
end of the period covered by this Annual Report on Form 10-K, management,
including the Company’s Chief Executive Officer and Chief Financial Officer, has
evaluated the effectiveness of the design and operation of its disclosure
controls and procedures. Based upon that evaluation and as of the end of the
quarter for which this report is made, the Company’s Chief Executive Officer and
Chief Financial Officer concluded that the disclosure controls and procedures
were effective to ensure that information to be disclosed in reports that the
Company files and submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the rules and terms
of the Securities and Exchange Commission, and to ensure that information
required to be disclosed in the reports that the Company files or submits under
the Exchange Act is accumulated and communicated to the Company’s management,
including its Chief Executive Officer and Chief Financial Officer, to allow
timely decisions regarding required disclosure.
The
Company’s report on internal control over financial reporting is included in
Item 8 of this Report on Form 10-K.
There has
been no change in internal control over financial reporting that occurred during
the quarter ended December 31, 2008 that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over
financial reporting.
PART
III
|
ITEM
10
.
|
DIRECTORS, EXECUTIVE
OFFICERS AND CORPORATE GOVERNANCE
|
The
information required by this Item is set forth in the Company’s Proxy Statement
within the sections entitled “Election of Directors,” “Section 16(a) Beneficial
Ownership Reporting Compliance” and “Corporate Governance” and is incorporated
herein by reference.
The
following table sets forth certain information concerning the principal
executive officers of the Company, including their ages and
positions.
|
Name
|
Age
|
Title
|
Year
Assumed
Present Title
|
|
John
W. Conway
|
63
|
Chairman
of the Board, President
and
Chief Executive Officer
|
2001
|
|
Alan
W. Rutherford
|
65
|
Vice
Chairman of the Board
and
Executive Vice President
|
2008
|
|
Timothy
J. Donahue
|
46
|
Executive
Vice President and
Chief
Financial Officer
|
2008
|
|
Raymond
L. McGowan, Jr.
|
57
|
President
– Americas Division
|
2008
|
|
Christopher
C. Homfray
|
51
|
President
– European Division
|
2006
|
|
Jozef
Salaerts
|
54
|
President
– Asia-Pacific Division
|
2007
|
|
Thomas
A. Kelly
|
49
|
Senior
Vice President
and
Corporate Controller
|
2008
|
|
Effective
December 11, 2008, Mr. Rutherford resigned as Chief Financial Officer and
was replaced by Mr. Donahue. Mr. Donahue was also promoted to
Executive Vice President at that time. Mr. Rutherford also
announced his planned retirement as Executive Vice President at the end of
March 2009.
|
All of
the principal executive officers have been employed by the Company for the past
five years.
|
ITEM
11
.
|
EXECUTIVE
COMPENSATION
|
The
information required by this Item is set forth in the Company’s Proxy Statement
within the sections entitled “Executive Compensation,” “Compensation Discussion
and Analysis” and “Corporate Governance” and is incorporated herein by
reference.
|
ITEM
12
.
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
|
Certain
information required by this Item is set forth in the Company’s Proxy Statement
within the sections entitled “Proxy Statement – Meeting, April 23, 2009” and
“Common Stock Ownership of Certain Beneficial Owners, Directors and Executive
Officers" and is incorporated herein by reference.
The
following table provides information as of December 31, 2008 with respect to
shares of the Company’s Common Stock that may be issued under its equity
compensation plans:
|
Equity
Compensation Plan Information
|
||||||
|
Plan
category
|
Number
of Securities to be Issued
Upon
Exercise of Outstanding
Options,
Warrants and Rights
(a)
|
Weighted
average Exercise Price of
Outstanding
Options,
Warrants
and Rights
(b)
|
Number
of Securities
Remaining
Available
For
Future Issuance
Under
Equity
Compensation
Plans
(Excluding
Securities
Reflected
In
Column (a))
(c)
|
|||
|
Equity
compensation plans
approved
by security holders
|
8,359,085 (1)
|
$16.68
|
4,234,322 (2)
|
|||
|
Equity
compensation plans not
approved
by security holders
|
0
|
N/A
|
0
|
|||
|
Total
|
8,359,085
|
$16.68
|
4,234,322
|
|||
|
(1)
|
Includes
the 1990, 1997, 2001, 2004 and 2006 Stock-Based Incentive
Compensation Plans.
|
|
(2)
|
Includes
570,220, 3,213,797, 65,949 and 384,356 shares available for issuance
at December 31, 2008 under the 2004 Stock-Based Incentive
Compensation Plan, the 2006 Stock-Based Incentive Compensation Plan, the
Company’s Stock Purchase Plan and the Stock Compensation Plan for
Non-Employee Directors,
respectively.
|
|
ITEM
13
.
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
AND DIRECTOR INDEPENDENCE
|
The
information required by this item is set forth in the Company’s Proxy Statement
within the sections entitled “Election of Directors,” “Corporate Governance” and
“Executive Compensation” and is incorporated herein by reference.
|
ITEM
14
.
|
PRINCIPAL ACCOUNTANT FEES AND
SERVICES
|
The
information required by this item is set forth in the Company’s Proxy Statement
within the sections entitled “Principal Accountant Fees and Services” and is
incorporated herein by reference.
PART
IV
|
ITEM
15
.
|
EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES
|
|
(3)
|
Exhibits
|
|
3.a
|
Articles
of Incorporation of Crown Holdings, Inc., as amended (incorporated by
reference to Exhibit 3.a of the Registrant’s Annual Report on Form 10-K
for the year ended December 31, 2004 (File No.
0-50189)).
|
|
3.b
|
By-Laws
of Crown Holdings, Inc., as amended (incorporated by reference to Exhibit
3.b of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 2004 (File No.
0-50189)).
|
|
4.a
|
Specimen
certificate of Registrant’s Common Stock (incorporated by reference to
Exhibit 4.a of the Registrant’s Annual Report on Form 10-K for the year
ended December 31, 1995 (File No.
1-2227)).
|
|
4.b
|
Form
of the Registrant’s 8% Debentures Due 2023 (incorporated by reference to
Exhibit 24 of the Registrant’s Current Report on Form 8-K dated April 12,
1993 (File No. 1-2227)).
|
|
4.c
|
Officers’
Certificate for 8% Debentures Due 2023 (incorporated by reference to
Exhibit 4.3 of the Registrant’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 1993 (File No.
1-2227)).
|
|
4.d
|
Indenture,
dated as of April 1, 1993, between Crown Cork & Seal Company, Inc. and
Chemical Bank, as Trustee (incorporated by reference to Exhibit 26 of the
Registrant’s Current Report on Form 8-K dated April 12, 1993 (File No.
1-2227)).
|
|
4.f
|
Indenture,
dated December 17, 1996, among Crown Cork & Seal Company, Inc., Crown
Cork & Seal Finance PLC, Crown Cork & Seal Finance S.A. and the
Bank of New York, as trustee (incorporated by reference to Exhibit 4.1 of
the Registrant’s Current Report on Form 8-K dated December 17, 1996 (File
No. 1-2227)).
|
|
4.g
|
Form
of the Registrant’s 7-3/8% Debentures Due 2026 (incorporated by reference
to Exhibit 99.1 of the Registrant’s Current Report on Form 8-K dated
December 17, 1996 (File No.
1-2227)).
|
|
4.h
|
Officers’
Certificate for 7-3/8% Debentures Due 2026 (incorporated by reference to
Exhibit 99.6 of the Registrant’s Current Report on Form 8-K dated December
17, 1996 (File No. 1-2227)).
|
|
4.i
|
Form
of the Registrant’s 7-1/2% Debentures Due 2096 (incorporated by reference
to Exhibit 99.2 of the Registrant’s Current Report on Form 8-K dated
December 17, 1996 (File No.
1-2227)).
|
|
4.j
|
Officers’
Certificate for 7-1/2% Debentures Due 2096 (incorporated by reference to
Exhibit 99.7 of the Registrant’s Current Report on Form 8-K dated December
17, 1996 (File No. 1-2227)).
|
|
4.k
|
Terms
Agreement, dated December 12, 1996 (incorporated by reference to Exhibit
1.1 of the Registrant’s Current Report on Form 8-K dated December 17, 1996
(File No. 1-2227)).
|
|
4.l
|
Form
of Bearer Security Depositary Agreement (incorporated by reference to
Exhibit 4.2 of the Registrant’s Registration Statement on Form S-3, dated
November 26, 1996, amended December 5 and 10, 1996 (File No.
333-16869)).
|
|
4.m
|
Form
of Underwriting Agreement (incorporated by reference to Exhibit 1.1 of the
Registrant’s Registration Statement on Form S-3, dated November 26, 1996,
amended December 5 and 10, 1996 (File No.
333-16869)).
|
|
4.n
|
Amended
and Restated Rights Agreement, dated as of December 9, 2004, between Crown
Holdings, Inc. and Wells Fargo Bank, N.A., as Rights Agent (incorporated
by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K
dated December 9, 2004 (File No.
0-50189)).
|
|
4.o
|
Supplemental
Indenture to Indenture dated April 1, 1993, dated as of February 25,
2003 between Crown Cork & Seal Company, Inc, as Issuer, Crown
Holdings, Inc., as Guarantor and Bank One Trust Company, N.A.,
as Trustee (incorporated by reference to Exhibit 4.3 of the Registrant’s
Current Report on Form 8-K dated February 26, 2003 (File No.
0-50189)).
|
|
4.p
|
Supplemental
Indenture to Indenture dated December 17, 1996, dated as of February 25,
2003, between Crown Cork & Seal Company, Inc., as Issuer and
Guarantor, Crown Cork & Seal Finance PLC, as Issuer, Crown Cork &
Seal Finance S.A., as Issuer, Crown Holdings, Inc., as Additional
Guarantor and Bank One Trust Company, N.A., as Trustee (incorporated by
reference to Exhibit 4.5 of the Registrant’s Current Report on Form 8-K
dated February 26, 2003 (File No.
0-50189)).
|
|
4.q
|
U.S.
Guarantee Agreement, dated as of September 1, 2004, among the domestic
subsidiaries referred to therein and Citicorp North America Inc., as
Administrative Agent (incorporated by reference to Exhibit 4.g of the
Registrant’s Current Report on Form 8-K dated September 1, 2004 (File No.
0-50189)).
|
|
4.r
|
Registration
Rights Agreement, dated as of September 1, 2004, by and among the Company,
Crown European Holdings S.A., Citigroup Global Markets Inc. and Lehman
Brothers Inc., as Representatives, the Initial Purchasers (as defined
therein) and the Guarantors (as defined therein) (incorporated by
reference to Exhibit 4.i of the Registrant’s Current Report on Form 8-K
dated September 1, 2004 (File No.
0-50189)).
|
|
4.s
|
Indenture,
dated as of September 1, 2004, by and among Crown European Holdings, as
Issuer, the Guarantors named therein and Wells Fargo Bank, as Trustee,
relating to the 6.25% First Priority Senior Secured Notes due 2011
(incorporated by reference to Exhibit 4.j of the Registrant’s Current
Report on Form 8-K dated September 1, 2004 (File No.
0-50189)).
|
|
4.t
|
Form
of Crown European Holdings’ 6.25% First Priority Senior Secured Notes due
2011 (incorporated by reference to Exhibit 4.a of the Registrant’s
Quarterly Report on Form 10-Q for the quarter ended September 30, 2004
(File No. 0-50189)).
|
|
4.u
|
Registration
Rights Agreement relating to the 6.25% First Priority Senior Secured Notes
due 2011, dated as of October 6, 2004, by and among the Company, Crown
European Holdings, S.A., Citigroup Global Markets Inc. and Lehman Brothers
Inc., as Representatives, the Initial Purchasers (as defined therein) and
the Guarantors (as defined therein) (incorporated by reference to Exhibit
4.a of the Registrant’s Current Report on Form 8-K dated October 6, 2004
(File No. 0-50189)).
|
|
4.v
|
Credit
Agreement, dated as of November 18, 2005, among Crown Americas LLC, as
U.S. Borrower, Crown European Holdings, S.A., as European Borrower, CROWN
Metal Packaging Canada LP, as Canadian Borrower, the Subsidiary Borrowers
named therein, the Company, Crown International Holdings, Inc. and Crown
Cork & Seal Company, Inc., as Parent Guarantors, Deutsche Bank AG New
York Branch, as Administrative Agent and U.K. Administrative Agent, The
Bank of Nova Scotia, as Canadian Administrative Agent, and various Lending
Institutions (incorporated by reference to Exhibit 4.a of the Registrant’s
Current Report on Form 8-K dated November 18, 2005 (File No.
0-50189)).
|
|
4.w
|
Euro
Bank Pledge Agreement, dated as of November 18, 2005, by Crown Cork &
Seal Company, Inc., Crown Americas LLC, Crown International Holdings,
Inc., the U.S. Subsidiaries party thereto, as Pledgors and Deutsche Bank
AG New York Branch, as Euro Collateral Agent (incorporated by reference to
Exhibit 4.b of the Registrant’s Current Report on Form 8-K dated November
18, 2005 (File
No. 0-50189)).
|
|
4.x
|
Second
Amended and Restated CEH Pledge Agreement, dated as of November 18, 2005,
by Crown European Holdings S.A., as Pledgor and Deutsche Bank AG New York
Branch, as Euro Collateral Agent (incorporated by reference to Exhibit 4.c
of the Registrant’s Current Report on Form 8-K dated November 18, 2005
(File No. 0-50189)).
|
|
4.y
|
Second
Amended and Restated Shared Pledge Agreement, dated as of November 18,
2005, by the Company, Crown Cork & Seal Company, Inc., Crown Americas
LLC, Crown International Holdings, Inc., the U.S. Subsidiaries party
thereto, as Pledgors and Deutsche Bank AG New York Branch, as Collateral
Agent (incorporated by reference to Exhibit 4.d of the Registrant’s
Current Report on Form 8-K dated November 18, 2005 (File
No. 0-50189)).
|
|
4.z
|
Bank
Pledge Agreement, dated as of November 18, 2005, by the Company, Crown
Cork & Seal Company, Inc., Crown Americas LLC, Crown International
Holdings, Inc., the U.S. Subsidiaries party thereto, as Pledgors and
Deutsche Bank AG New York Branch, as Collateral Agent (incorporated by
reference to Exhibit 4.e of the Registrant’s Current Report on Form 8-K
dated November 18, 2005 (File
No. 0-50189)).
|
|
4.aa
|
Second
Amended and Restated U.S. Security Agreement, dated as of November 18,
2005, by the Company, Crown Cork & Seal Company, Inc., Crown Americas
LLC, Crown International Holdings, Inc., the U.S. Subsidiaries party
thereto, as Grantors and Deutsche Bank AG New York Branch (incorporated by
reference to Exhibit 4.f of the Registrant’s Current Report on Form 8-K
dated November 18, 2005 (File
No. 0-50189)).
|
|
4.bb
|
U.S.
Guarantee Agreement, dated as of November 18, 2005, among each of the
subsidiaries listed therein of Crown Americas LLC and Deutsche Bank AG New
York Branch, as Administrative Agent (incorporated by reference to Exhibit
4.g of the Registrant’s Current Report on Form 8-K dated November 18, 2005
(File No. 0-50189)).
|
|
4.cc
|
Second
Amended and Restated Global Participation and Proceeds Sharing Agreement,
dated as of November 18, 2005, among Deutsche Bank AG New York Branch, as
Administrative Agent, Deutsche Bank AG New York Branch, as U.K. Agent, The
Bank of Nova Scotia, as Canadian Administrative Agent, Wells Fargo Bank,
N.A., as Second Priority Notes Trustee, Wells Fargo Bank, N.A., as Third
Priority Notes Trustee, Wells Fargo Bank, N.A., as First Priority Notes
Trustee, Deutsche Bank AG New York Branch, as U.S. Collateral Agent,
Deutsche Bank AG New York Branch, as Euro Collateral Agent, Deutsche Bank
AG New York Branch, as Sharing Agent (as defined therein) and the other
persons who may become party to the Agreement from time to time
pursuant to and in accordance with Section 9 of the Agreement
(incorporated by reference to Exhibit 4.h of the Registrant’s Current
Report on Form 8-K dated November 18, 2005 (File No.
0-50189)).
|
|
4.dd
|
Registration
Rights Agreement, dated as of November 18, 2005, by and among the Company,
Crown Americas LLC and Crown Americas Capital Corp., Citigroup Global
Markets Inc., Lehman Brothers Inc., Deutsche Bank Securities Inc., Banc of
Americas Securities LLC, as Representatives of the several Initial
Purchasers named therein and the Guarantors (as defined therein), relating
to the $500 million 7 5/8% Senior Notes due 2013 (incorporated by
reference to Exhibit 4.i of the Registrant’s Current Report on Form 8-K
dated November 18, 2005 (File No.
0-50189)).
|
|
4.ee
|
Registration
Rights Agreement, dated as of November 18, 2005, by and among the Company,
Crown Americas LLC and Crown Americas Capital Corp., Citigroup Global
Markets Inc., Lehman Brothers Inc., Deutsche Bank Securities Inc., Banc of
Americas Securities LLC, as Representatives of the several Initial
Purchasers named therein and the Guarantors (as defined therein), relating
to the $600 million 7 3/4% Senior Notes due 2015 (incorporated by
reference to Exhibit 4.j of the Registrant’s Current Report on Form 8-K
dated November 18, 2005 (File No.
0-50189)).
|
|
4.ff
|
Indenture,
dated as of November 18, 2005, by and among Crown Americas LLC and Crown
Americas Capital Corp., as Issuers, the Guarantors named therein and
Citibank, N.A., as Trustee, relating to the 7 5/8% Senior Notes due 2013
(incorporated by reference to Exhibit 4.k of the Registrant’s Current
Report on Form 8-K dated November 18, 2005 (File No.
0-50189)).
|
|
4.gg
|
Indenture,
dated as of November 18, 2005, by and among Crown Americas LLC and Crown
Americas Capital Corp., as Issuers, the Guarantors named therein and
Citibank, N.A., as Trustee, relating to the 7 3/4% Senior Notes due 2015
(incorporated by reference to Exhibit 4.l of the Registrant’s Current
Report on Form 8-K dated November 18, 2005 (File No.
0-50189)).
|
|
4.hh
|
Form
of 7 5/8% Senior Notes due 2013 (incorporated by reference to Exhibit 4.m
of the Registrant’s Current Report on Form 8-K dated November 18, 2005
(File No. 0-50189)).
|
|
4.ii
|
Form
of 7 3/4% Senior Notes due 2015 (incorporated by reference to Exhibit 4.n
of the Registrant’s Current Report on Form 8-K dated November 18, 2005
(File No. 0-50189)).
|
|
4.jj
|
Second
Amended and Restated U.S. Intercreditor and Collateral Agency Agreement,
dated as of November 18, 2005, among Deutsche Bank AG New York Branch, as
Administrative Agent, Deutsche Bank AG New York Branch, as U.K. Agent, The
Bank of Nova Scotia, as Canadian Administrative Agent, Wells Fargo Bank,
N.A., as First Priority Notes Trustee, Deutsche Bank AG New York Branch,
as U.S. Collateral Agent (as defined within), the Company, Crown Americas
LLC, Crown Cork & Seal Company, Inc., Crown International Holdings,
Inc., each of the U.S. subsidiaries of the Company listed therein, and the
other persons who may become parties to the Agreement from time to time
pursuant to and in accordance with Section 8 of the Agreement
(incorporated by reference to Exhibit 4.o of the Registrant’s Current
Report on Form 8-K dated November 18, 2005 (File No.
0-50189)).
|
|
4.kk
|
Second
Amended and Restated Euro Intercreditor and Collateral Agency Agreement,
dated as of November 18, 2005, among Deutsche Bank AG New York Branch, as
U.K. Administrative Agent, The Bank of Nova Scotia, as Canadian
Administrative Agent, Wells Fargo Bank, N.A., as First Priority
Notes Trustee, Deutsche Bank AG New York Branch, as Euro
Collateral Agent, Crown European Holdings SA, the subsidiaries
of Crown European Holdings identified
thereto and the other persons who may become parties to the Agreement from
time to time pursuant to and in accordance with Section 6 of the
Agreement, and any other obligor under any Financing Documents
(as defined therein) (incorporated by reference to Exhibit 4.p of the
Registrant’s Current Report on Form 8-K dated November 18, 2005 (File No.
0-50189)).
|
|
4.ll
|
First
Amendment to Credit Agreement, dated as of August 4, 2006, by and among
Crown Americas LLC, as U.S. Borrower, the other undersigned Credit
Parties, the undersigned financial institutions, including Deutsche Bank
AG New York Branch, as Lenders, and Deutsche Bank AG New York Branch, as
Administrative Agent and as Collateral Agent for Lenders, and with
Deutsche Bank Securities, Inc. and Lehman Commercial Paper, Inc., as Joint
Lead Arrangers for the Additional Term B Loans and as Joint Book Managers,
and Lehman Commercial Paper, Inc., as Syndication Agent (incorporated by
reference to Exhibit 4 of the Registrant’s Quarterly Report on Form 10-Q
for the quarter ended June 30, 2006 (File No.
0-50189)).
|
|
4.mm
|
Supplemental
Indenture, dated as of December 6, 2006, to Indenture, dated as of
September 1, 2004, among Crown European Holdings, as Issuer, the
Guarantors named therein and Wells Fargo Bank, N.A., as Trustee, relating
to the 6.25% First Priority Senior Secured Notes due 2011 (incorporated by
reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K
dated December 6, 2006 (File No.
0-50189)).
|
|
Other
long-term agreements of the Registrant are not filed pursuant to Item
601(b)(4)(iii)(A) of Regulation S-K, and the Registrant agrees to furnish
copies of such agreements to the Securities and Exchange Commission upon
its request.
|
|
10.a
|
First
Amendment, dated as of September 1, 2004, to Second Amended and Restated
Receivables Purchase Agreement among Crown Cork & Seal Receivables
(DE) Corporation, as Seller, CROWN Cork & Seal USA, Inc. (formerly
known as Crown Cork & Seal Company (USA), Inc.), as
Servicer, the banks and other financial institutions party thereto, as
Purchasers, and Citibank, N.A., as Agent (incorporated by reference to
Exhibit 10.a of the Registrant’s Current Report on Form 8-K dated
September 1, 2004 (File No.
0-50189)).
|
|
10.b
|
Second
Amended and Restated Receivables Purchase Agreement, dated as of December
5, 2003, among Crown Cork & Seal Receivables (DE) Corporation, as
Seller, CROWN Cork & Seal USA, Inc. (formerly known as Crown Cork
& Seal Company (USA), Inc.), as Servicer, the banks and other
financial institutions party thereto as Purchasers, and Citibank, N.A., as
Agent (incorporated by reference to Exhibit 10.a of the Registrant’s
Annual Report on Form 10-K for the year ended December 31, 2003 (File No.
0-50189)).
|
|
10.c
|
First
Amendment, dated as of September 1, 2004, to Second Amended and Restated
Receivables Contribution and Sale Agreement among CROWN Cork & Seal
USA, Inc. (formerly known as Crown Cork & Seal Company (USA), Inc.),
CROWN Risdon USA, Inc. (formerly known as Risdon-AMS (USA), Inc.), CROWN
Zeller USA, Inc. (formerly known as Zeller Plastik, Inc.), CROWN Metal
Packaging Canada LP, and Crown Cork & Seal Receivables (DE)
Corporation (incorporated by reference to Exhibit 10.b of the Registrant’s
Current Report on Form 8-K dated September 1, 2004 (File No.
0-50189)).
|
|
10.d
|
Second
Amended and Restated Receivables Contribution and Sale Agreement, dated as
of December 5, 2003, among CROWN Cork & Seal USA, Inc.
(formerly known as Crown Cork & Seal Company (USA), Inc.), CROWN
Risdon USA, Inc. (formerly known as Risdon-AMS (USA), Inc.), CROWN Zeller
USA, Inc. (formerly known as Zeller Plastik, Inc.), Crown Canadian
Holdings ULC, and CROWN Metal Packaging Canada LP, as Sellers, Crown Cork
& Seal Receivables (DE) Corporation, as Buyer, and CROWN
Cork & Seal USA, Inc., as the Buyer’s Servicer
(incorporated by reference to Exhibit 10.b of the Registrant’s Annual
Report on Form 10-K for the year ended December 31, 2003 (File No.
0-50189)).
|
|
10.e
|
Third
Amended and Restated Parent Undertaking Agreement, dated as of September
1, 2004, made by Crown Holdings, Inc., Crown Cork & Seal Company, Inc.
and Crown International Holdings, Inc, in favor of Citibank, N.A., as
Agent and the Purchasers (incorporated by reference to Exhibit 10.c of the
Registrant’s Current Report on Form 8-K dated September 1, 2004 (File No.
0-50189)).
|
|
10.f
|
Second
Amended and Restated Intercreditor Agreement dated as of September 1,
2004, among Citibank, N.A., as Agent, Crown Holdings, Inc., Crown
International Holdings, Inc., Crown Cork & Seal Company,
Inc., Crown Cork & Seal Receivables (DE) Corporation, CROWN Cork &
Seal USA, Inc. (formerly known as Crown Cork & Seal Company (USA),
Inc.), CROWN Risdon USA, Inc. (formerly known as Risdon-AMS (USA), Inc.),
CROWN Zeller USA, Inc. (formerly known as Zeller Plastik, Inc.), and
Citicorp North America, Inc., as Administrative Agent and U.S. Collateral
Agent (incorporated by reference to Exhibit 10.d of the Registrant’s
Current Report on Form 8-K dated September 1, 2004 (File No.
0-50189)).
|
|
10.g
|
Intercreditor
Agreement dated as of November 18, 2005, among Citibank, N.A., as Program
Agent, the Company, Crown International Holdings, Inc., Crown Cork&
Seal Company, Inc., Crown Cork & Seal Receivables (DE) Corporation,
Crown Cork & Seal USA, Inc., Crown Risdon USA, Inc., CROWN Metal
Packaging Canada LP and Deutsche Bank AG
New York Branch and The Bank of Nova
Scotia, as Bank Agent (incorporated by reference to Exhibit 10.a of the
Registrant’s Current Report on Form 8-K dated November 18, 2005 (File No.
0-50189)).
|
|
10.h
|
Employment
Contracts:
|
|
(1)
|
Employment
contract between Crown Holdings, Inc. and John W. Conway, dated May 3,
2007 (incorporated by reference to Exhibit 10.1(a) of the Registrant’s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2007 (File
No. 0-50189)).
|
|
(2)
|
Second
amendment to the employment contract, dated May 3, 2007, between Crown
Holdings, Inc. and Alan W. Rutherford, dated as of December 11, 2008
(incorporated by reference to Exhibit 10.1 of the Registrant’s Current
Report on Form 8-K dated December 11,
2008).
|
|
(3)
|
Employment
contract between Crown Holdings, Inc. and Alan W. Rutherford, dated May 3,
2007 (incorporated by reference to Exhibit 10.1(b) of the Registrant’s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2007 (File
No. 0-50189)).
|
|
(4)
|
Second
amendment to the employment contract, dated May 3, 2007, between Crown
Holdings, Inc. and Timothy J. Donahue, dated as of December 11, 2008
(incorporated by reference to Exhibit 10.2 of the Registrant’s Current
Report on Form 8-K dated December 11,
2008).
|
|
(5)
|
Employment
contract between Crown Holdings, Inc. and Timothy J. Donahue, dated May 3,
2007 (incorporated by reference to Exhibit 10.1(e) of the Registrant’s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2007 (File
No. 0-50189)).
|
|
(6)
|
Employment
contract between Crown Packaging UK PLC and Christopher C. Homfray, dated
July 12, 2006 (incorporated by reference to Exhibit 10.h(6) of the
Registrant’s Annual Report on Form 10-K for the year ended December 31,
2007 (File No. 0-50189)).
|
|
(7)
|
Employment
contract between Crown Holdings, Inc. and Raymond L. McGowan, Jr., dated
May 3, 2007 (incorporated by reference to Exhibit 10.h(7) of the
Registrant’s Annual Report on Form 10-K for the year ended December 31,
2007 (File No. 0-50189)).
|
|
10.i
*
|
Crown
Holdings, Inc. Economic Profit Incentive Plan, effective as of January 1,
2007.
|
|
10.j
|
Crown
Holdings, Inc. Senior Executive Retirement Plan, as amended and restated
as of January 1, 2008 (incorporated by reference to Exhibit 10.l of the
Registrant’s Annual Report on Form 10-K for the year ended December 31,
2007 (File No. 0-50189)).
|
|
10.k
|
Senior
Executive Retirement Agreements:
|
|
(1)
|
Senior
Executive Retirement Agreement between Crown Holdings, Inc. and John W.
Conway, dated May 3, 2007 (incorporated by reference to Exhibit 10.4(a) of
the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March
31, 2007 (File No. 0-50189)).
|
|
(2)
|
Senior
Executive Retirement Agreement between Crown Holdings, Inc. and Alan W.
Rutherford, dated May 3, 2007 (incorporated by reference to Exhibit
10.4(b) of the Registrant’s Quarterly Report on Form 10-Q for the quarter
ended March 31, 2007 (File No.
0-50189)).
|
|
(3)
|
Senior
Executive Retirement Agreement between Crown Holdings, Inc. and Timothy J.
Donahue, dated May 3, 2007 (incorporated by reference to Exhibit 10.4(e)
of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended
March 31, 2007 (File No. 0-50189)).
|
|
(4)
|
Senior
Executive Retirement Agreement between Crown Holdings, Inc. and
Christopher C. Homfray, effective January 1, 2008 (incorporated by
reference to Exhibit 10.m(6) of the Registrant’s Annual Report on Form
10-K for the year ended December 31, 2007 (File No.
0-50189)).
|
|
(5)
|
Senior Executive
Retirement Agreement between Crown Holdings, Inc. and Raymond L. McGowan,
Jr., dated May 3, 2007
(incorporated by reference to Exhibit
10.m(7) of the Registrant’s Annual Report on Form 10-K for the year ended
December 31, 2007 (File No. 0-50189))
.
|
|
(6)
|
Senior Executive
Retirement Agreement between Crown Holdings, Inc. and Jozef Salaerts,
effective January 1, 2008
(incorporated by reference to Exhibit
10.m(8) of the Registrant’s Annual Report on Form 10-K for the year ended
December 31, 2007 (File No. 0-50189))
.
|
|
10.l
|
Crown
Holdings, Inc. 1997 Stock-Based Incentive Compensation Plan, amended and
restated (incorporated by reference to the Registrant’s Definitive
Additional Materials on Schedule 14A, filed with the Securities and
Exchange Commission on April 13, 2000 (File No.
1-2227)).
|
|
10.m
|
Amendment
No. 3 to the Crown Holdings, Inc. 1997 Stock-Based Incentive Compensation
Plan, dated as of January 1, 2003 (incorporated by reference to Exhibit
10.q of the Registrant’s Annual Report on Form 10-K for the year ended
December 31, 2002 (File No.
0-50189)).
|
|
10.n
|
Amendment
No. 4, effective December 14, 2006, to the Crown Holdings, Inc. 1997
Stock-Based Incentive Compensation Plan (incorporated by reference to
Exhibit 10.y of the Registrant’s Annual Report on Form 10-K for the year
ended December 31, 2006 (File No.
0-50189)).
|
|
10.o
|
Crown
Holdings, Inc. 2001 Stock-Based Incentive Compensation Plan, dated as of
February 22, 2001 (incorporated by reference to the Registrant’s
Definitive Proxy Statement on Schedule 14A, filed with the Securities and
Exchange Commission on March 27, 2001 (File No.
1-2227)).
|
|
10.p
|
Amendment
No. 1 to the Crown Holdings, Inc. 2001 Stock-Based Incentive Compensation
Plan, dated as of January 1, 2003 (incorporated by reference to Exhibit
10.s of the Registrant’s Annual Report on Form 10-K for the year ended
December 31, 2002 (File No.
0-50189)).
|
|
10.q
|
Amendment
No. 2, effective December 14, 2006, to the Crown Holdings, Inc. 2001
Stock-Based Incentive Compensation Plan (incorporated by reference to
Exhibit 10.bb of the Registrant’s Annual Report on Form 10-K for the year
ended December 31, 2006 (File No.
0-50189)).
|
|
10.r
|
Form
of Agreement for Restricted Stock Awards under Crown Holdings, Inc. 2004
Stock-Based Incentive Compensation Plan (incorporated by reference to
Exhibit 10.x of the Registrant’s Annual Report on Form 10-K for the year
ended December 31, 2004 (File No.
0-50189)).
|
|
10.s
|
Form
of Agreement for Restricted Stock Awards under Crown Holdings, Inc. 2006
Stock-Based Incentive Compensation Plan (incorporated by reference to
Exhibit 10.dd of the Registrant’s Annual Report on Form 10-K for the year
ended December 31, 2006 (File No.
0-50189)).
|
|
10.t
|
Crown
Holdings, Inc. 2004 Stock-Based Incentive Compensation Plan, dated as of
April 22, 2004 (incorporated by reference to the Registrant’s Definitive
Proxy Statement on Schedule 14A, filed with the Securities and Exchange
Commission on March 19, 2004 (File No.
0-50189)).
|
|
10.u
|
Amendment
No. 1, effective December 14, 2006, to the Crown Holdings, Inc. 2004
Stock-Based Incentive Compensation Plan (incorporated by reference to
Exhibit 10.ff of the Registrant’s Annual Report on Form 10-K for the year
ended December 31, 2006 (File No.
0-50189)).
|
|
10.v
|
Form
of Agreement for Non-Qualified Stock Option Awards under Crown Holdings,
Inc. 2004 Stock-Based Incentive Compensation Plan (incorporated by
reference to Exhibit 10.6 of the Registrant’s Quarterly Report on Form
10-Q for the quarter ended September 30, 2004 (File No.
0-51089)).
|
|
10.w
*
|
Crown
Holdings, Inc. Deferred Compensation Plan for Directors, as Amended and
Restated, effective January 1,
2008.
|
|
10.x
|
Crown
Holdings, Inc. Stock Compensation Plan for Non-Employee Directors, dated
as of April 22, 2004 (incorporated by reference to the Registrant’s
Definitive Proxy Statement on Schedule 14A, filed with the Securities and
Exchange Commission on March 19, 2004 (File No.
0-50189)).
|
|
10.y
|
Crown
Cork & Seal Company, Inc. Pension Plan for Outside Directors, dated as
of October 27, 1994 (incorporated by reference to Exhibit 10.c of the
Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30,
1995 (File No. 1-2227)).
|
|
10.z
|
Amendment
No. 1, effective April 1, 2005, to the Crown Holdings, Inc. Stock
Compensation Plan for Non-Employee Directors, dated as of April 22, 2004
(incorporated by reference to Exhibit 10 to the Registrant’s Quarterly
Report on Form 10-Q for the quarter ended March 31, 2005 (File No.
0-50189)).
|
|
10.aa
|
Master
Definitions Agreement, dated June 21, 2005, between France Titrisation, as
Management Company, BNP Paribas, as Custodian Calculation Agent, FCC
Account Bank, Liquidity Facility Provider and Swap Counterparty, Eliopée
Limited, as Eliopée, GE Factofrance, as Back-up Servicer, Crown European
Holdings, as Parent Company, the Entities listed in Schedule, as Sellers
or Servicers, CROWN Emballage France SAS, as French Administrative Agent
and CROWN Packaging UK PLC, as English Administrative Agent (incorporated
by reference to Exhibit 10.a to the Registrant’s Quarterly Report on Form
10-Q for the quarter ended June 30, 2005 (File No.
0-50189)).
|
|
10.bb
|
Master
Receivables Transfer and Servicing Agreement, dated June 21, 2005, between
France Titrisation, as Management Company, BNP Paribas, as Custodian, the
Entities listed in Schedule 1 of Appendix 1, as Sellers or Servicers,
CROWN Emballage France SAS, as French Administrative Agent and CROWN
Packaging UK PLC, as English Administrative Agent (incorporated by
reference to Exhibit 10.b to the Registrant’s Quarterly Report on Form
10-Q for the quarter ended June 30, 2005 (File No.
0-50189)).
|
|
10.cc
|
Crown
Holdings, Inc. 2006 Stock-Based Incentive Compensation Plan (incorporated
by reference to the Registrant’s Definitive Proxy Statement on Schedule
14A, filed with the Securities and Exchange Commission on March 24, 2006
(File No. 0-50189)).
|
|
10.dd
|
Amendment
No. 1, effective December 14, 2006, to the Crown Holdings, Inc. 2006
Stock-Based Incentive Compensation Plan (incorporated by reference to
Exhibit 10.pp of the Registrant’s Annual Report on Form 10-K for the year
ended December 31, 2006 (File No.
0-50189)).
|
|
10.ee
|
Form
of Agreement for Non-Qualified Stock Option Awards under Crown Holdings,
Inc. 2006 Stock-Based Incentive Compensation Plan (incorporated by
reference to Exhibit 10.2 of the Registrant’s Quarterly Report on Form
10-Q for the quarter ended March 31, 2007 (File No.
0-50189)).
|
|
Exhibits
10.h through 10.ee inclusive, are management contracts or compensatory
plans or arrangements required to be filed as exhibits pursuant to Item
14(c) of this Report.
|
|
12
|
Computation
of ratio of earnings to fixed
charges.
|
|
21
|
Subsidiaries
of Registrant.
|
|
23
|
Consent
of Independent Registered Public Accounting
Firm.
|
|
31.1
|
Certification
of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the
Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
|
|
31.2
|
Certification
of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the
Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
|
|
32
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, executed by John W. Conway, Chairman of
the Board, President and Chief Executive Officer of Crown Holdings, Inc.
and Alan W. Rutherford, Vice Chairman of the Board, Executive Vice
President and Chief Financial Officer of Crown Holdings,
Inc.
|
|
99
|
Separate
financial statements of affiliates whose securities are pledged as
collateral.
|
|
c)
|
The consolidated statements and notes thereto and financial statement
schedule for Crown Cork & Seal Company, Inc., included in Exhibit 99
above, are incorporated herein by
reference.
|
* Filed
herewith.
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Crown Holdings, Inc.
Registrant
Date:
February 27,
2009
By:
/s/ Thomas A.
Kelly
_____
Thomas A.
Kelly
Senior Vice President and Corporate
Controller
POWER
OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that
each person whose signature appears below constitutes and appoints John W.
Conway, Timothy J. Donahue, Alan W. Rutherford and William T. Gallagher, and
each of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities to sign any and all amendments to the Annual Report on
Form 10-K for the Company’s 2008 fiscal year, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or either of them, or their or his substitutes, may
lawfully do or cause to be done by virtue thereof.
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the date indicated above.
|
SIGNATURE
|
TITLE
|
|
|
/s/
John W. Conway
|
||
|
John
W. Conway
|
Chairman
of the Board, President
and
Chief Executive Officer
|
|
|
|
||
|
/s/
Alan W. Rutherford
|
||
|
Alan
W. Rutherford
|
Vice
Chairman of the Board and Executive Vice President
|
|
| /s/ Timothy J. Donahue | ||
| Timothy J. Donahue | Executive Vice President and Chief Financial Officer | |
|
|
||
|
/s/
Thomas A. Kelly
|
||
|
Thomas
A. Kelly
|
Senior
Vice President and Corporate Controller
|
|
SIGNATURE
DIRECTORS
|
/s/
Jenne K. Britell
|
/s/
Thomas A. Ralph
|
|
|
Jenne
K. Britell
|
Thomas
A. Ralph
|
|
|
/s/
Arnold W. Donald
|
/s/
Hugues du Rouret
|
|
|
Arnold
W. Donald
|
Hugues
du Rouret
|
|
|
/s/
William G. Little
|
/s/
Jim L. Turner
|
|
|
William
G. Little
|
Jim
L. Turner
|
|
|
/s/
Hans J. Löliger
|
/s/
William S. Urkiel
|
|
|
Hans
J. Löliger
|
William
S. Urkiel
|
|
117
