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CROWN HOLDINGS INC - Quarter Report: 2015 June (Form 10-Q)

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

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

FOR THE QUARTERLY PERIOD ENDED June 30, 2015
 
¨
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 000-50189
____________________________________________________
CROWN HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
____________________________________________________
Pennsylvania
 
75-3099507
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
One Crown Way, Philadelphia, PA
 
19154-4599
(Address of principal executive offices)
 
(Zip Code)
215-698-5100
(registrant’s telephone number, including area code)
____________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one)

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

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).    Yes  ¨    No  x
There were 139,401,803 shares of Common Stock outstanding as of July 28, 2015.

Crown Holdings, Inc.


PART I – FINANCIAL INFORMATION

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

 
Three Months Ended
 
Six Months Ended
 
June 30
 
June 30
 
2015
 
2014
 
2015
 
2014
Net sales
$
2,278

 
$
2,383

 
$
4,275

 
$
4,376

Cost of products sold, excluding depreciation and amortization
1,843

 
1,960

 
3,503

 
3,621

Depreciation and amortization
62

 
47

 
113

 
82

Gross profit
373

 
376

 
659

 
673

Selling and administrative expense
99

 
103

 
197

 
207

Restructuring and other
(3
)
 
31

 
17

 
83

Loss from early extinguishments of debt
9

 
—

 
9

 
—

Interest expense
69

 
66

 
134

 
124

Interest income
(2
)
 
(1
)
 
(4
)
 
(3
)
Foreign exchange
(1
)
 
—

 
5

 
6

Income before income taxes
202

 
177

 
301

 
256

Provision for income taxes
49

 
50

 
86

 
83

Net income
153

 
127

 
215

 
173

Net income attributable to noncontrolling interests
(11
)
 
(21
)
 
(29
)
 
(43
)
Net income attributable to Crown Holdings
$
142

 
$
106

 
$
186

 
$
130

 
 
 
 
 
 
 
 
Earnings per common share attributable to Crown Holdings:
 
 
 
 
 
 
 
Basic
$
1.03

 
$
0.77

 
$
1.35

 
$
0.95

Diluted
$
1.02

 
$
0.76

 
$
1.34

 
$
0.94



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


2
Crown Holdings, Inc.



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

 
Three Months Ended
 
Six Months Ended
 
June 30
 
June 30
 
2015
 
2014
 
2015
 
2014
Net income
$
153

 
$
127

 
$
215

 
$
173

 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustments
4

 
(4
)
 
(207
)
 
(8
)
Pension and other postretirement benefits
12

 
17

 
23

 
32

Derivatives qualifying as hedges
(8
)
 
14

 
(10
)
 
21

Total other comprehensive income (loss)
8

 
27

 
(194
)
 
45

 
 
 
 
 
 
 
 
Total comprehensive income (loss)
161

 
154

 
21

 
218

Net income attributable to noncontrolling interests
(11
)
 
(21
)
 
(29
)
 
(43
)
Translation adjustments attributable to noncontrolling interests
(1
)
 
(1
)
 
1

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

 
(2
)
 
1

 
(2
)
Comprehensive income (loss) attributable to Crown Holdings
$
150

 
$
130

 
$
(6
)
 
$
172



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


3
Crown Holdings, Inc.


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

 
June 30, 2015
 
December 31,
2014
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
288

 
$
965

Receivables, net
1,098

 
1,031

Inventories
1,454

 
1,324

Prepaid expenses and other current assets
344

 
256

Assets held for sale
—

 
48

Total current assets
3,184

 
3,624

 
 
 
 
Goodwill and intangible assets, net
3,790

 
2,926

Property, plant and equipment, net
2,672

 
2,437

Other non-current assets
713

 
721

Total
$
10,359

 
$
9,708

 
 
 
 
Liabilities and equity
 
 
 
Current liabilities
 
 
 
Short-term debt
$
56

 
$
75

Current maturities of long-term debt
152

 
177

Accounts payable and accrued liabilities
2,525

 
2,651

Liabilities held for sale
—

 
23

Total current liabilities
2,733

 
2,926

 
 
 
 
Long-term debt, excluding current maturities
5,677

 
5,007

Postretirement and pension liabilities
862

 
871

Other non-current liabilities
683

 
517

Commitments and contingent liabilities (Note L)

 

Noncontrolling interests
278

 
268

Crown Holdings shareholders’ equity
126

 
119

Total equity
404

 
387

Total
$
10,359

 
$
9,708



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


4
Crown Holdings, Inc.


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

 
Six Months Ended
 
June 30
 
2015
 
2014
Cash flows from operating activities
 
 
 
Net income
$
215

 
$
173

Adjustments to reconcile net income to net cash used for operating activities:
 
 
 
Depreciation and amortization
113

 
82

Restructuring and other
17

 
83

Loss from early extinguishments of debt
9

 
—

Pension expense
22

 
31

Pension contributions
(34
)
 
(42
)
Stock-based compensation
17

 
14

Changes in assets and liabilities:
 
 
 
Receivables
(96
)
 
(130
)
Inventories
(132
)
 
(252
)
Accounts payable and accrued liabilities
(168
)
 
(88
)
Other, net
22

 
12

Net cash used for operating activities
(15
)
 
(117
)
Cash flows from investing activities
 
 
 
Capital expenditures
(111
)
 
(149
)
Purchase of business
(1,207
)
 
(733
)
Proceeds from sale of business
30

 
22

Other
(14
)
 
6

Net cash used for investing activities
(1,302
)
 
(854
)
Cash flows from financing activities
 
 
 
Proceeds from long-term debt
1,421

 
1,827

Payments of long-term debt
(752
)
 
(1,015
)
Net change in revolving credit facility and short-term debt
96

 
(130
)
Debt issue costs
(17
)
 
(33
)
Common stock issued
5

 
10

Common stock repurchased
(9
)
 
(2
)
Purchase of noncontrolling interests
—

 
(93
)
Dividends paid to noncontrolling interests
(17
)
 
(34
)
Foreign exchange derivatives related to debt
(48
)
 
(2
)
Net cash provided by financing activities
679

 
528

Effect of exchange rate changes on cash and cash equivalents
(39
)
 
(2
)
Net change in cash and cash equivalents
(677
)
 
(445
)
Cash and cash equivalents at January 1
965

 
689

Cash and cash equivalents at June 30
$
288

 
$
244



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


5
Crown Holdings, Inc.


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

 
Crown Holdings, Inc. Shareholders’ Equity
 
 
 
 
 
Common Stock
 
Paid-in Capital
 
Accumulated Earnings
 
Accumulated Other Comprehensive Loss
 
Treasury Stock
 
Total Crown Equity
 
Noncontrolling Interests
 
Total
Balance at January 1, 2014
$
929

 
$
431

 
$
1,395

 
$
(2,513
)
 
$
(238
)
 
$
4

 
$
285

 
$
289

Net income
 
 
 
 
130

 
 
 
 
 
130

 
43

 
173

Other comprehensive income
 
 
 
 
 
 
42

 
 
 
42

 
3

 
45

Dividends paid to noncontrolling interests
 
 
 
 
 
 
 
 
 
 
—

 
(19
)
 
(19
)
Restricted stock awarded
 
 
(1
)
 
 
 
 
 
1

 
—

 
 
 
—

Stock-based compensation
 
 
14

 
 
 
 
 
 
 
14

 
 
 
14

Common stock issued
 
 
7

 
 
 
 
 
3

 
10

 
 
 
10

Common stock repurchased
 
 
(2
)
 
 
 
 
 


 
(2
)
 
 
 
(2
)
Purchase of noncontrolling interests
 
 
(54
)
 
 
 


 
 
 
(54
)
 
(44
)
 
(98
)
Balance at June 30, 2014
$
929

 
$
395

 
$
1,525

 
$
(2,471
)
 
$
(234
)
 
$
144

 
$
268

 
$
412

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2015
$
929

 
$
407

 
$
1,782

 
$
(2,765
)
 
$
(234
)
 
$
119

 
$
268

 
$
387

Net income
 
 
 
 
186

 
 
 
 
 
186

 
29

 
215

Other comprehensive income
 
 
 
 
 
 
(192
)
 
 
 
(192
)
 
(2
)
 
(194
)
Dividends paid to noncontrolling interests
 
 
 
 
 
 
 
 
 
 
—

 
(17
)
 
(17
)
Restricted stock awarded
 
 
(2
)
 
 
 
 
 
2

 
—

 
 
 
—

Stock-based compensation
 
 
17

 
 
 
 
 
 
 
17

 
 
 
17

Common stock issued
 
 
4

 
 
 
 
 
1

 
5

 
 
 
5

Common stock repurchased
 
 
(8
)
 
 
 
 
 
(1
)
 
(9
)
 
 
 
(9
)
Balance at June 30, 2015
$
929

 
$
418

 
$
1,968

 
$
(2,957
)
 
$
(232
)
 
$
126

 
$
278

 
$
404



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

6
Crown Holdings, Inc.


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

A.
Statement of Information Furnished

The consolidated financial statements include the accounts of Crown Holdings, Inc. and its consolidated subsidiaries (the “Company”). The accompanying unaudited interim consolidated financial statements have been prepared in accordance with Form 10-Q instructions. In the opinion of management, these consolidated financial statements contain all adjustments of a normal and recurring nature necessary for a fair statement of the financial position of the Company as of June 30, 2015 and the results of its operations for the three and six months ended June 30, 2015 and 2014 and of its cash flows for the six months ended June 30, 2015 and 2014. The results reported in these consolidated financial statements are not necessarily indicative of the results that may be expected for the entire year. These results have been determined on the basis of accounting principles generally accepted in the United States of America (“GAAP”).

Certain information and footnote disclosures normally included in financial statements presented in accordance with GAAP have been condensed or omitted. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2014.


B.
Accounting and Reporting Developments

Recently Adopted Accounting Standards

In the first quarter of 2015, the Company adopted changes to the definition of discontinued operations to include only disposals that represent a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. The change did not impact the Company's financial statements in 2015.
 
Recently Issued Accounting Standards

In May 2014, the FASB issued new guidance related to how an entity should recognize revenue. The guidance specifies that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. In addition, the guidance expands the required disclosures related to revenue and cash flows from contracts with customers. The guidance is effective for the Company beginning in the first quarter of 2018 with early adoption permitted beginning in the first quarter of 2017. Retrospective application is permitted, but not required. The Company is currently evaluating the impact of adopting this guidance on its financial position and results of operations.

In April, the FASB issued new guidance related to the classification of debt issuance costs. The guidance requires the presentation of debt issuance costs in the balance sheet as a deduction from the carrying amount of the liability instead of a deferred charge. The guidance is effective for the Company beginning in the first quarter of 2016. Early adoption is permitted. The guidance is not expected to impact the Company's financial statements other than presentation on the balance sheet.


C.    Acquisitions

Empaque

On February 18, 2015, the Company completed its acquisition of Empaque, a leading manufacturer of beverage packaging in Mexico, from Heineken N.V., in a cash transaction valued at $1.2 billion. The addition of Empaque significantly increases the Company's presence in the growing Mexican market and substantially enhances the Company's strategic position in beverage cans, both regionally and globally.


7
Crown Holdings, Inc.


The following table summarizes the consideration transferred to acquire Empaque and the preliminary valuation of identifiable assets acquired and liabilities assumed at the acquisition date.

Fair value of consideration transferred
Cash
$
1,207

Total consideration
$
1,207

 
 
Recognized amounts of identifiable assets acquired and liabilities assumed
Receivables, net
106

Inventories
55

Prepaid expenses and other current assets
1

Intangible assets
460

Property, plant and equipment, net
294

Accounts payable and accrued liabilities
(91
)
Other non-current liabilities
(223
)
Total identifiable net assets
$
602

 
 
Goodwill
$
605


The acquired goodwill was assigned to the Company's Americas Beverage segment and is not expected to be deductible for tax purposes.
The acquired property, plant and equipment will be depreciated over the estimated remaining useful lives of the equipment in accordance with the Company's existing policies and procedures, primarily on a straight-line basis.
Intangible assets include $162 of customer relationships that will be amortized over 18 years and $298 for a long-term supply contract with Heineken affiliates that will be amortized over 15 years.
The Company has not finalized its valuation of the assets acquired and as a result has not yet finalized the determination of the fair value of assets acquired and liabilities assumed. The Company expects to finalize its purchase accounting within one year of the acquisition date.
During the three and six months ended June 30, 2015, Empaque contributed sales of approximately $173 and $248, respectively.

Mivisa

On April 23, 2014 , the Company completed its previously announced acquisition of the sole shareholder of Mivisa Envases, S.A.U. (“Mivisa”) for $733, net of $28 in cash acquired, plus $977 of debt assumed. Mivisa, based in Murcia, Spain, primarily serves the vegetable, fruit, fish and meat markets and is the largest food can producer in both the Iberian Peninsula and Morocco.

8
Crown Holdings, Inc.


The following table summarizes the final fair value of identifiable assets and liabilities assumed at the date of the acquisition.
Fair value of consideration transferred
Cash
$
733

Total consideration
$
733

 
 
Recognized amounts of identifiable assets acquired and liabilities assumed
Receivables, net
201

Inventories
195

Prepaid expenses and other current assets
11

Intangible assets
295

Property, plant and equipment, net
318

Net assets of business to be divested
9

Accounts payable and accrued liabilities
(159
)
Debt
(977
)
Other non-current liabilities
(98
)
Total identifiable net assets
$
(205
)
 
 
Goodwill
$
938



D.    Accumulated Other Comprehensive Income

The following table provides information about the changes in each component of accumulated other comprehensive income.
 
 
Defined benefit plans
 
Foreign currency translation
 
Gains and losses on cash flow hedges
 
Total
Balance at December 31, 2013
 
$
(1,828
)
 
$
(658
)
 
$
(27
)
 
$
(2,513
)
Other comprehensive loss before reclassifications
—

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

 
—

 
21

 
53

Other comprehensive income (loss)
 
32

 
(9
)
 
19

 
42

Balance at June 30, 2014
 
$
(1,796
)
 
$
(667
)
 
$
(8
)
 
$
(2,471
)
 
 
 
 
 
 
 
 
 
Balance at December 31, 2014
 
$
(1,781
)
 
$
(980
)
 
$
(4
)
 
$
(2,765
)
Other comprehensive loss before reclassifications
—

 
(206
)
 
(13
)
 
(219
)
Amounts reclassified from accumulated other comprehensive income
23

 
—

 
4

 
27

Other comprehensive income (loss)
 
23

 
(206
)
 
(9
)
 
(192
)
Balance at June 30, 2015
 
$
(1,758
)
 
$
(1,186
)
 
$
(13
)
 
$
(2,957
)


9
Crown Holdings, Inc.


The following table provides information about amounts reclassified from accumulated other comprehensive income.

 
 
Amount reclassified from accumulated other comprehensive income
 
 
 
 
Three Months Ended
 
Six Months Ended
 
 
Details about accumulated other
 
June 30
 
June 30
 
Affected line item in the
comprehensive income components
 
2015
 
2014
 
2015
 
2014
 
statement of operations
Gains and losses on cash flow hedges
 
 
 
 
 
 
 
 
 
 
    Commodities
 
$
5

 
$
7

 
$
4

 
$
26

 
Cost of products sold
 
 
5

 
7

 
4

 
26

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

 
$
6

 
$
3

 
$
19

 
Net of tax
 
 
 
 
 
 
 
 
 
 
 
    Foreign exchange
 
$
(1
)
 
$
(1
)
 
$
(1
)
 
$
—

 
Net sales
 
 
1

 
1

 
2

 
2

 
Cost of products sold
 
 
—

 
—

 
1

 
2

 
Total before tax
 
 
—

 
—

 
—

 
—

 
Provision for income taxes
 
 
$
—

 
$
—

 
$
1

 
$
2

 
Net of tax
 
 
 
 
 
 
 
 
 
 
 
Total gains and losses on cash flow hedges
$
4

 
$
6

 
$
4

 
$
21

 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization of defined benefit plan items
 
 
 
 
 
 
 
 
 
    Actuarial losses
 
$
28

 
$
34

 
$
55

 
$
64

 
(a)
    Prior service credit
 
(12
)
 
(12
)
 
(24
)
 
(24
)
 
(a)
 
 
16

 
22

 
31

 
40

 
Total before tax
 
 
(4
)
 
(5
)
 
(8
)
 
(8
)
 
Provision for income taxes
 
 
$
12

 
$
17

 
$
23

 
$
32

 
Net of tax
 
 
 
 
 
 
 
 
 
 
 
Total reclassifications for the period
$
16

 
$
23

 
$
27

 
$
53

 
 

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


E.     Stock-Based Compensation

A summary of restricted stock transactions during the six months ended June 30, 2015 follows:
 
Number of shares
Non-vested stock awards outstanding at January 1, 2015
1,960,357

Awarded:

Time-vesting shares
268,680

Performance-based shares
201,092

Released:

Time-vesting shares
(373,741
)
Performance-based shares
(155,180
)
Forfeitures:
 
        Time-vesting shares
(40,250
)
Performance-based shares
(61,008
)
Non-vested stock awards outstanding at June 30, 2015
1,799,950


10
Crown Holdings, Inc.


In January 2015, the Company awarded shares of restricted stock to certain senior executives consisting of time-vesting awards which vest ratably over three years and performance-based shares which cliff vest at the end of three years. The number of performance-based shares that will ultimately vest is based on the level of market performance achieved, ranging between 0% and 200% of the shares originally awarded, and will be settled in stock. The market performance criteria is the Company's Total Shareholder Return ("TSR"), which includes share price appreciation and dividends paid, during the three-year term of the award measured against the TSR of a peer group of companies.

In June 2015, the Company granted a general award of 175,200 shares of time-vesting restricted and deferred stock. The shares vest ratably over four years commencing in 2017.

The weighted average grant-date fair value of the 2015 time-vesting stock awards was $53.59 and the performance-based stock awards was $49.50.

The fair value of the performance-based shares awarded in 2015 was calculated using a Monte Carlo valuation model. The estimated weighted average grant-date fair value of the performance-based shares awarded in 2015 was calculated using a weighted average stock price volatility of 17.4%, an expected term of three years, and a weighted average risk-free interest rate of 1.06%.

At June 30, 2015, unrecognized compensation cost related to outstanding non-vested stock awards was $49. The weighted average period over which the expense is expected to be recognized is 2.8 years. The aggregate market value of the shares released and issued on the vesting dates was $28.


F.
Receivables
 
June 30, 2015
 
December 31, 2014
Accounts receivable
$
986

 
$
940

Less: allowance for doubtful accounts
(83
)
 
(88
)
Net trade receivables
903

 
852

Miscellaneous receivables
195

 
179

Receivables, net
$
1,098

 
$
1,031


The Company uses receivable securitization facilities in the normal course of business as part of managing its cash flows. In connection with the Company's North American receivable securitization facility, the Company recognized a deferred purchase price of $122 which was included in prepaid expenses and other current assets in the Company’s Consolidated Balance Sheet. The net change in deferred purchase price receivable was reflected in the receivables line item on the Company's Consolidated Statement of Cash Flows.



G.    Inventories
Inventories are stated at the lower of cost or market, with cost for U.S. inventories principally determined under the first-in, first-out (“FIFO”) method. Non-U.S. inventories are principally determined under the FIFO or average cost method.
 
June 30, 2015
 
December 31, 2014
Raw materials and supplies
$
668

 
$
684

Work in process
163

 
134

Finished goods
623

 
506

 
$
1,454

 
$
1,324




11
Crown Holdings, Inc.


H.    Derivative and Other Financial Instruments

Fair Value Measurements

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

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

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

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

Derivative Financial Instruments

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

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

For derivative financial instruments accounted for in hedging relationships, the Company formally designates and documents, at inception, the financial instrument as a hedge of a specific underlying exposure, the risk management objective and the manner in which effectiveness will be assessed. The Company formally assesses, both at inception and at least quarterly thereafter, whether the hedging relationships are effective in offsetting changes in fair value or cash flows of the related underlying exposures. When a hedge no longer qualifies for hedge accounting the change in fair value from the date of the last effectiveness test is recognized in earnings. Any gain or loss which has accumulated in other comprehensive income at the date of the last effectiveness test is reclassified into earnings at the same time of the underlying exposure.

Cash Flow Hedges

The Company designates certain derivative financial instruments as cash flow hedges. No components of the hedging instruments are excluded from the assessment of hedge effectiveness. Changes in fair value of outstanding derivatives accounted for as cash flow hedges, except for ineffectiveness, are recorded in other comprehensive income until earnings are impacted by the hedged transaction. Classification of the gain or loss in the Consolidated Statements of Operations upon reclassification from comprehensive income is the same as that of the underlying exposure. Contracts outstanding at June 30, 2015 mature between one and forty months.

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

12
Crown Holdings, Inc.


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

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

The following table sets forth financial information about the impact on accumulated other comprehensive income (“AOCI”) and earnings from changes in the fair value of derivative instruments.
 
 
 Amount of gain/(loss)
 
 Amount of gain/(loss)
 
 
recognized in AOCI
 
reclassified from AOCI
 
 
(effective portion)
 
into earnings
 
 
Three Months Ended
 
Six Months Ended
 
Three Months Ended
 
Six Months Ended
Derivatives in cash flow hedges
 
June 30, 2015
 
June 30, 2015
 
June 30, 2015
 
June 30, 2015
 
 
 
 
 
 
 
 
 
Foreign exchange
 
$
(3
)
 
$
(2
)
 
$
—

 
$
(1
)
Commodities
 
(9
)
 
(11
)
 
(4
)
 
(3
)
Total
 
$
(12
)
 
$
(13
)
 
$
(4
)
 
$
(4
)

 
 
 Amount of gain/(loss)
 
 Amount of gain/(loss)
 
 
recognized in AOCI
 
reclassified from AOCI
 
 
(effective portion)
 
into earnings
 
 
Three Months Ended
 
Six Months Ended
 
Three Months Ended
 
Six Months Ended
Derivatives in cash flow hedges
 
June 30, 2014
 
June 30, 2014
 
June 30, 2014
 
June 30, 2014
 
 
 
 
 
 
 
 
 
Foreign exchange
 
$
—

 
$
1

 
$
—

 
$
(2
)
Commodities
 
6

 
(3
)
 
(6
)
 
(19
)
Total
 
$
6

 
$
(2
)
 
$
(6
)
 
$
(21
)

For the six months ended June 30, 2015, the Company recognized a gain of $2 (net of tax), related to hedge ineffectiveness caused primarily by volatility in the metal premium component of aluminum prices.

For the three and six months ended June 30, 2014, the Company recognized a gain of $3 and a loss of $4 (net of tax), respectively, related to hedge ineffectiveness caused primarily by volatility in the metal premium component of aluminum prices.

During the twelve month period ending June 30, 2016, a net loss of $13 ($11, net of tax) is expected to be reclassified to earnings. No amounts were reclassified during the six months ended June 30, 2015 and 2014 in connection with anticipated transactions that were no longer considered probable.

Fair Value Hedges and Contracts Not Designated as Hedges

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

Other than for firm commitments, amounts related to time value are excluded from the assessment and measurement of hedge effectiveness and are reported in earnings. Less than $1 was reported in earnings for the three months ended June 30, 2015.

13
Crown Holdings, Inc.


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

The impact on earnings from foreign exchange contracts designated as fair value hedges was a gain of $3 and a gain of $1 for the three and six months ended June 30, 2015, respectively, and gain of $1 and a gain of less than $1 for the three and six months ended June 30, 2014, respectively . The impact on earnings from foreign exchange contracts not designated as hedges was a gain of $5 and a loss of $43 for the three and six months ended June 30, 2015, respectively, and a gain of $12 and a loss of $13 for the same periods in 2014. These adjustments were reported within foreign exchange in the Consolidated Statements of Operations and were offset by changes in the fair values of the related underlying hedged items.

During the three months ended June 30, 2015, certain commodity hedges did not meet the criteria for hedge accounting and therefore the change in their fair value during the quarter was recognized in earnings. For the three and six months ended June 30, 2015, the Company recognized a gain of $2 ($1, net of tax) related to these ineffective hedges.

Fair Values of Derivative Financial Instruments and Valuation Hierarchy

The following table sets forth the fair value hierarchy for the Company's financial assets and liabilities that were accounted for at fair value on a recurring basis as of June 30, 2015 and December 31, 2014, respectively.

 
 
Balance Sheet classification
 
Fair Value hierarchy
 
June 30, 2015
 
December 31, 2014
Derivative assets
 
 
 
 
 
 
 
 
Derivatives designated as hedges:
 
 
 
 
 
 
Foreign exchange
 
Other current assets
 
2
 
$
37

 
$
20

Commodities
 
Other current assets
 
2
 
4

 
2

Commodities
 
Other non-current assets
 
2
 
1

 
—

Derivatives not designated as hedges:
 
 
 
 
 

Foreign exchange
 
Other current assets
 
2
 
—

 
—

Commodities
 
Other current assets
 
2
 
2

 
—

Commodities
 
Other non-current assets
 
2
 
2

 
—

 
 
Total
 
 
 
$
46

 
$
22

 
 
 
 
 
 
 
 
 
Derivative liabilities
 
 
 
 
 
 
 
 
Derivatives designated as hedges:
 
 
 
 
 
 
Foreign exchange
 
Accounts payable and accrued liabilities
 
2
 
$
36

 
$
20

Commodities
 
Accounts payable and accrued liabilities
 
2
 
16

 
10

Commodities
 
Other non-current liabilities
 
2
 
2

 
—

Derivatives not designated as hedges:
 
 
 
 
 

Foreign exchange
 
Accounts payable and accrued liabilities
 
2
 
4

 
15

Commodities
 
Accounts payable and accrued liabilities
 
2
 
5

 
—

Commodities
 
Other non-current liabilities
 
2
 
1

 
—

 
 
Total
 
 
 
$
64

 
$
45






14
Crown Holdings, Inc.


Offsetting of Derivative Assets and Liabilities

Certain derivative financial instruments are subject to agreements with counterparties similar to master netting arrangements and are eligible for offset. The Company has made an accounting policy election not to offset the fair values of these instruments within the statement of financial position. In the table below, the aggregate fair values of the Company's derivative assets and liabilities are presented on both a gross and net basis, where appropriate.
 
Gross amounts recognized in the Balance Sheet
Gross amounts not offset in the Balance Sheet
Net amount
Balance at June 30, 2015
 
 
 
Derivative assets
$46
$5
$41
Derivative liabilities
64
5
59
 
 
 
 
Balance at December 31, 2014
 
 
 
Derivative assets
22
4
18
Derivative liabilities
45
4
41

Notional Values of Outstanding Derivative Instruments

The aggregate U.S. dollar-equivalent notational values of outstanding derivative instruments in the Consolidated Balance Sheets at June 30, 2015 and December 31, 2014 were:
 
June 30, 2015
 
December 31, 2014
Derivatives in cash flow hedges:
 
 
 
Foreign exchange
$
353

 
$
678

Commodities
207

 
213

Derivatives in fair value hedges:

 

Foreign exchange
78

 
85

Derivatives not designated as hedges:
 
 
 
Foreign exchange
585

 
603

Commodities
58

 
—



I.
Restructuring and Other

The Company recorded restructuring and other as follows:
 
Three Months Ended
 
Six Months Ended
 
June 30
 
June 30
 
2015
 
2014
 
2015
 
2014
Asset impairments and sales
$
(5
)
 
$
—

 
$
1

 
$
42

Restructuring
1

 
12

 
1

 
13

Transaction costs
1

 
12

 
15

 
14

Other costs
—

 
7

 
—

 
14

 
(3
)
 
31

 
$
17

 
83


Asset impairment and sales in 2014 related to the divestment of certain operations in connection with the acquisition of Mivisa. Restructuring costs in 2014 primarily related to severance costs in the Company's European Food segment. Transaction costs related to the acquisitions of Mivisa in 2014 and Empaque in 2015. Other costs in 2014 primarily related to the temporary relocation of production due to a labor dispute in the Company's Americas Beverage segment.

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



    


15
Crown Holdings, Inc.


2013 European Division Actions

Through June 30, 2015, the Company incurred costs of $31 related to an initiative to better align costs with ongoing market conditions in its European operations, primarily in its food, aerosol and specialty packaging businesses. The action is expected to result in the reduction of approximately 205 employees. The Company expects to pay the remaining liability in 2015 and does not expect to incur any additional charges related to this action.

The table below summarizes the restructuring accrual balances and utilization by cost type for this action.
 
Termination
benefits
 
Other exit
costs
 
Total
Balance at January 1, 2015
$
14

 
$
—

 
$
14

Payments
(6
)
 
—

 
(6
)
Foreign currency translation
(1
)
 
—

 
(1
)
Balance at June 30, 2015
$
7

 
$
—

 
$
7


2014 European Division Actions

Through June 30, 2015 , the Company incurred costs of $8 related to severance costs in connection with the planned closure of a manufacturing facility in its European Food segment. The action is expected to result in the reduction of approximately 100 employees when completed in 2015. The Company does not expect to incur any additional charges related to this action.

The table below summarizes the restructuring accrual balances and utilization by cost type for this action.
 
Termination
benefits
 
Other exit
costs
 
Total
Balance at January 1, 2015
$
8

 
$
—

 
$
8

Payments
(3
)
 
—

 
(3
)
Balance at June 30, 2015
$
5

 
$
—

 
$
5


Other Actions

At June 30, 2015, the Company also had a restructuring accrual of $10 related to actions taken in 2011 and 2012 to reduce manufacturing capacity and headcount in its European Aerosol and Specialty Packaging businesses. The Company expects to pay the liability through 2024 as certain employees have elected to receive payment as a fixed monthly sum over future years. The Company continues to review its supply and demand profile and long-term plans in Europe and it is possible that the Company may record additional restructuring charges in the future.



16
Crown Holdings, Inc.


J.
Debt

The Company’s outstanding debt was as follows:
 
June 30,
2015
 
December 31,
2014
Short-term debt
$
56

 
$
75

Long-term debt

 

Senior secured borrowings:

 

Revolving credit facilities
$
108

 
$
—

Term loan facilities

 

U.S. dollar at LIBOR plus 1.75% due 2018
875

 
800

Euro (€700 at June 30, 2015) at EURIBOR plus 1.75% due 2018
780

 
847

Farm credit facility at LIBOR plus 2.00% due 2019
358

 
358

Senior notes and debentures:

 

U.S. dollar 6.25% due 2021
700

 
700

Euro (€650 at June 30, 2015) 4.0% due 2022
724

 
786

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

 
1,000

U.S. dollar 7.375% due 2026
350

 
350

Euro (€600 at June 30, 2015) 3.375% due 2025
668

 
—

U.S. dollar 7.50% due 2096
64

 
64

Other indebtedness in various currencies
204

 
281

Unamortized discounts
(2
)
 
(2
)
Total long-term debt
5,829

 
5,184

Less: current maturities
(152
)
 
(177
)
Total long-term debt, less current maturities
$
5,677

 
$
5,007


The estimated fair value of the Company’s long-term borrowings, using a market approach incorporating Level 2 inputs such as quoted market prices for the same or similar issues, was $5,891 at June 30, 2015 and $5,346 at December 31, 2014.

In February 2015, to fund the acquisition of Empaque as described in Note C, the Company borrowed an additional $75 under its U.S. dollar term loan facility due in December 2018 and $675 under its U.S. dollar term loan facility due in February 2022.

In May 2015, the Company issued €600 ($668 at June 30, 2015) principal amount of 3.375% senior unsecured notes due 2025. The notes were issued at par by Crown European Holdings S.A., a subsidiary of the Company, and are unconditionally guaranteed by the Company and certain of its subsidiaries. The Company used these proceeds to repay its U.S. dollar term loan facility due in February 2022. In connection with the repayment of the term loan facility, the Company recorded a loss from early extinguishment of debt of $9 for the write off of deferred financing costs.


K.
Asbestos-Related Liabilities

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

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

17
Crown Holdings, Inc.


In recent years, the states of Alabama, Arizona, Arkansas, Florida, Georgia, Idaho, Indiana, Kansas, Michigan, Mississippi, Nebraska, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Utah, Wisconsin and Wyoming enacted legislation that limits asbestos-related liabilities under state law of companies such as Crown Cork that allegedly incurred these liabilities because they are successors by corporate merger to companies that had been involved with asbestos. The legislation, which applies to future and, with the exception of Arkansas, Georgia, South Carolina, South Dakota and Wyoming, pending claims, caps asbestos-related liabilities at the fair market value of the predecessor's total gross assets adjusted for inflation. Crown Cork has paid significantly more for asbestos-related claims than the total value of its predecessor's assets adjusted for inflation. Crown Cork has integrated the legislation into its claims defense strategy. The Company cautions, however, that the legislation may be challenged and there can be no assurance regarding the ultimate effect of the legislation on Crown Cork.

In June 2003, the state of Texas enacted legislation that limits the asbestos-related liabilities in Texas courts of companies such as Crown Cork that allegedly incurred these liabilities because they are successors by corporate merger to companies that had been involved with asbestos. The Texas legislation, which applies to future claims and pending claims, caps asbestos-related liabilities at the total gross value of the predecessor’s assets adjusted for inflation. Crown Cork has paid significantly more for asbestos-related claims than the total adjusted value of its predecessor’s assets.

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

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

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

During the six months ended June 30, 2015, the Company paid $9 to settle outstanding claims and had claims activity as follows:
Beginning claims
54,000

New claims
1,000

Settlements or dismissals
(1,000
)
Ending claims
54,000


In the fourth quarter of each year, the Company performs an analysis of outstanding claims and categorizes these claims by year of exposure and state filed. As of December 31, 2014, the Company's outstanding claims were:

Claimants alleging first exposure after 1964
16,000

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

Pennsylvania
2,000

Other states that have enacted asbestos legislation
6,000

Other states
17,000

Total claims outstanding
54,000


18
Crown Holdings, Inc.


The outstanding claims in each period exclude approximately 19,000 inactive claims. Due to the passage of time, the Company considers it unlikely that the plaintiffs in these cases will pursue further action against the Company. The exclusion of these inactive claims had no effect on the calculation of the Company’s accrual as the claims were filed in states, as described above, where the Company’s liability is limited by statute.

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

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

As of December 31, the percentage of outstanding claims related to claimants alleging serious diseases (primarily mesothelioma and other malignancies) were as follows:
 
2014

 
2013

 
2012

Total claims
22
%
 
21
%
 
19
%
Pre-1964 claims in states without asbestos legislation
41
%
 
39
%
 
36
%

Crown Cork has entered into arrangements with plaintiffs’ counsel in certain jurisdictions with respect to claims which are not yet filed, or asserted, against it. However, Crown Cork expects claims under these arrangements to be filed or asserted against Crown Cork in the future. The projected value of these claims is included in the Company’s estimated liability as of June 30, 2015.

As of June 30, 2015, the Company’s accrual for pending and future asbestos-related claims and related legal costs was $263, including $211 for unasserted claims. The Company’s accrual includes estimated probable costs for claims through the year 2024. The Company’s accrual excludes potential costs for claims beyond 2024 because the Company believes that the key assumptions underlying its accrual are subject to greater uncertainty as the projection period lengthens.

It is reasonably possible that the actual loss could be in excess of the Company’s accrual. The Company is unable to estimate the reasonably possible loss in excess of its accrual due to uncertainty in the following assumptions that underlie the Company’s accrual and the possibility of losses in excess of such accrual: the amount of damages sought by the claimant (which was not specified for approximately 88% of the claims outstanding at the end of 2014), the Company and claimant’s willingness to negotiate a settlement, the terms of settlements of other defendants with asbestos-related liabilities, the bankruptcy filings of other defendants (which may result in additional claims and higher settlements for
non-bankrupt defendants), the nature of pending and future claims (including the seriousness of alleged disease, whether claimants allege first exposure to asbestos before or during 1964 and the claimant’s ability to demonstrate the alleged link to Crown Cork), the volatility of the litigation environment, the defense strategies available to the Company, the level of future claims, the rate of receipt of claims, the jurisdiction in which claims are filed, and the effect of state asbestos legislation (including the validity and applicability of the Pennsylvania legislation to non-Pennsylvania jurisdictions, where the substantial majority of the Company’s asbestos cases are filed).


L.
Commitments and Contingent Liabilities

The Company, along with others in most cases, has been identified by the EPA or a comparable state environmental agency as a Potentially Responsible Party (“PRP”) at a number of sites and has recorded aggregate accruals of $7 for its share of estimated future remediation costs at these sites. The Company has been identified as having either directly or indirectly disposed of commercial or industrial waste at the sites subject to the accrual, and where appropriate and supported by available information, generally has agreed to be responsible for a percentage of future remediation costs based on an estimated volume of materials disposed in proportion to the total materials disposed at each site. The Company has not had monetary sanctions imposed nor has the Company been notified of any potential monetary sanctions at any of the sites.


19
Crown Holdings, Inc.


The Company has also recorded aggregate accruals of $6 for remediation activities at various worldwide locations that are owned by the Company and for which the Company is not a member of a PRP group. Although the Company believes its accruals are adequate to cover its portion of future remediation costs, there can be no assurance that the ultimate payments will not exceed the amount of the Company’s accruals and will not have a material effect on its results of operations, financial position and cash flow. Any possible loss or range of potential loss that may be incurred in excess of the recorded accruals cannot be estimated.

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

In March 2015, the Bundeskartellamt, or German Federal Cartel Office (“FCO”), conducted unannounced inspections of the premises of several metal packaging manufacturers, including a German subsidiary of the Company.  The local court order authorizing the inspection cited FCO suspicions of anti-competitive agreements in the market for the supply of metal packaging products. The FCO’s investigation is ongoing and proceedings of this nature can often continue for several years. To date, the FCO has not officially charged the Company or any of its subsidiaries with any violations of competition law. The Company has commenced an internal investigation into the matter, is cooperating with the FCO and anticipates submitting a leniency application which may lead to the reduction of any penalties that the FCO may impose as a result of the investigation. If the FCO finds that the Company or any of its subsidiaries violated competition law, the FCO has the authority to levy fines, which could be material. At this stage of the investigation the Company is unable to predict the ultimate outcome of the FCO’s investigation and any potential loss, or timing of such loss, if any, cannot be reasonably estimated. 

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

At June 30, 2015, the Company was party to certain indemnification agreements covering environmental remediation, lease payments and other potential costs associated with properties sold or businesses divested. For agreements with defined liability limits the maximum potential amount of future liability was $8. The Company accrues for costs related to these items when it is probable that a liability has been incurred and the amount can be reasonably estimated. At June 30, 2015, the Company also had guarantees of $28 related to the residual values of leased assets.


M.
Earnings Per Share

The following table summarizes the computations of basic and diluted earnings per share attributable to the Company.
 
Three Months Ended
 
Six Months Ended
 
June 30
 
June 30
 
2015
 
2014
 
2015
 
2014
Net income attributable to Crown Holdings
$
142

 
$
106

 
$
186

 
$
130

Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
137.9

 
137.2

 
137.8

 
137.0

Dilutive stock options and restricted stock
1.4

 
1.4

 
1.4

 
1.4

Diluted
139.3

 
138.6

 
139.2

 
138.4

Basic earnings per share
$
1.03

 
$
0.77

 
$
1.35

 
$
0.95

Diluted earnings per share
$
1.02

 
$
0.76

 
$
1.34

 
$
0.94


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

20
Crown Holdings, Inc.



N.
Pension and Other Postretirement Benefits

The components of net periodic pension and other postretirement benefits costs for the three and six months ended June 30, 2015 and 2014 were as follows:
 
Three Months Ended
 
Six Months Ended
 
June 30
 
June 30
Pension benefits – U.S. plans
2015
 
2014
 
2015
 
2014
Service cost
$
4

 
$
4

 
$
9

 
$
8

Interest cost
15

 
17

 
31

 
33

Expected return on plan assets
(25
)
 
(26
)
 
(50
)
 
(52
)
Recognized net loss
13

 
10

 
25

 
21

Net periodic cost
$
7

 
$
5

 
$
15

 
$
10

 
Three Months Ended
 
Six Months Ended
 
June 30
 
June 30
Pension benefits – Non-U.S. plans
2015
 
2014
 
2015
 
2014
Service cost
$
7

 
$
6

 
$
12

 
$
13

Interest cost
30

 
42

 
60

 
81

Expected return on plan assets
(43
)
 
(53
)
 
(85
)
 
(102
)
Recognized prior service credit
(4
)
 
(4
)
 
(7
)
 
(8
)
Recognized net loss
14

 
19

 
27

 
37

Net periodic cost
$
4

 
$
10

 
$
7

 
$
21


 
Three Months Ended
 
Six Months Ended
 
June 30
 
June 30
Other postretirement benefits
2015
 
2014
 
2015
 
2014
Service cost
$
—

 
$
—

 
$
—

 
$
1

Interest cost
2

 
3

 
4

 
6

Recognized prior service credit
(9
)
 
(8
)
 
(17
)
 
(17
)
Recognized net loss
2

 
2

 
3

 
4

Net periodic benefit
$
(5
)
 
$
(3
)
 
$
(10
)
 
$
(6
)

O.
Income Taxes
The provision for income taxes differs from the amount of income tax determined by applying the U.S. statutory federal income tax rate to pre-tax income as a result of the following items: 
 
Three Months Ended
 
Six Months Ended
 
June 30
 
June 30
 
2015
 
2014
 
2015
 
2014
U.S. statutory rate at 35%
$
70

 
$
62

 
$
105

 
$
90

Tax on foreign income
(27
)
 
(27
)
 
(39
)
 
(44
)
Tax contingencies
1

 
—

 
8

 
—

Valuation allowance
2

 
5

 
5

 
10

Non-deductible impairment charge
—

 
—

 
1

 
15

Other items, net
3

 
10

 
6

 
12

Income tax provision
$
49

 
$
50

 
$
86

 
$
83


During the six months ended June 30, 2015, the increase in tax contingencies is primarily due to an unfavorable Spanish tax court ruling in a case not directly involving the Company.

21
Crown Holdings, Inc.


During the six months ended June 30, 2014, non-deductible impairment charges primarily related to the divestiture of certain operations in connection with the Company's acquisition of Mivisa.


P.
Segment Information

The Company evaluates performance and allocates resources based on segment income. Segment income, which is not a defined term under GAAP, is defined by the Company as gross profit excluding the impact of fair value adjustments related to the sale of inventory acquired in an acquisition and the timing impact of hedge ineffectiveness, less selling and administrative expenses. Segment income should not be considered in isolation or as a substitute for net income data prepared in accordance with GAAP and may not be comparable to calculations of similarly titled measures by other companies.

The tables below present information about the Company's operating segments.
 
External Sales
 
External Sales
 
Three Months Ended
 
Six Months Ended
 
June 30
 
June 30
 
2015
 
2014
 
2015
 
2014
Americas Beverage
$
741

 
$
594

 
$
1,358

 
$
1,143

North America Food
170

 
213

 
330

 
392

European Beverage
422

 
496

 
746

 
884

European Food
492

 
555

 
923

 
928

Asia Pacific
310

 
316

 
620

 
614

Total reportable segments
2,135

 
2,174

 
3,977

 
3,961

Non-reportable segments
143

 
209

 
298

 
415

Total
$
2,278

 
$
2,383

 
$
4,275

 
$
4,376



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

 
Intersegment Sales
 
Intersegment Sales
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30
 
June 30
 
 
2015
 
2014
 
2015
 
2014
 
Americas Beverage
$
24

 
$
32

 
$
45

 
$
51

 
North America Food
1

 
1

 
2

 
4

 
European Beverage
—

 
1

 
—

 
1

 
European Food
24

 
25

 
51

 
47

 
Asia Pacific
—

 
—

 
—

 
—

 
Total reportable segments
49

 
59

 
98

 
103

 
Non-reportable segments
27

 
29

 
54

 
58

 
Total
$
76

 
$
88

 
$
152

 
$
161

 


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

22
Crown Holdings, Inc.



 
Segment Income
 
Segment Income
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30
 
June 30
 
 
2015
 
2014
 
2015
 
2014
 
Americas Beverage
$
99

 
$
85

 
$
184

 
$
164

 
North America Food
23

 
38

 
47

 
67

 
European Beverage
66

 
83

 
104

 
142

 
European Food
68

 
63

 
110

 
89

 
Asia Pacific
39

 
36

 
74

 
70

 
Total reportable segments
$
295

 
$
305

 
$
519

 
$
532

 
    

A reconciliation of segment income of reportable segments to income before income taxes and equity earnings is as follows:
 
Three Months Ended
 
Six Months Ended
 
 
June 30
 
June 30
 
 
2015

2014
 
2015

2014
 
Segment income of reportable segments
$
295

 
$
305

 
$
519

 
$
532

 
Segment income of non-reportable segments
20

 
22

 
37

 
46

 
Corporate and unallocated items
(41
)
 
(54
)
 
(94
)
 
(112
)
 
Restructuring and other
3

 
(31
)
 
(17
)
 
(83
)
 
Loss from early extinguishments of debt
(9
)
 
—

 
(9
)
 
—

 
Interest expense
(69
)
 
(66
)
 
(134
)
 
(124
)
 
Interest income
2

 
1

 
4

 
3

 
Foreign exchange
1

 
—

 
(5
)
 
(6
)
 
Income before income taxes
$
202


$
177

 
$
301

 
$
256

 


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


23
Crown Holdings, Inc.


Q.
Condensed Combining Financial Information

Crown Cork & Seal Company, Inc. (Issuer), a 100% owned subsidiary, has $350 principal amount of 7.375% senior notes due 2026 and $64 principal amount of 7.5% senior notes due 2096 outstanding that are fully and unconditionally guaranteed by Crown Holdings, Inc. (Parent). No other subsidiary guarantees the debt.

The following condensed combining financial statements:
•statements of comprehensive income for the three and six months ended June 30, 2015 and 2014,
•balance sheets as of June 30, 2015 and December 31, 2014, and
•statements of cash flows for the six months ended June 30, 2015 and 2014
are presented on the following pages to comply with the Company’s requirements under Rule 3-10 of Regulation S-X.


CONDENSED COMBINING STATEMENT OF COMPREHENSIVE INCOME
For the three months ended June 30, 2015
(in millions)

 
Parent
 
Issuer
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net sales

 

 
$
2,278

 

 
$
2,278

Cost of products sold, excluding depreciation and amortization

 

 
1,843

 

 
1,843

Depreciation and amortization

 

 
62

 

 
62

Gross profit
 
 


 
373

 
 
 
373

Selling and administrative expense

 
$
3

 
96

 

 
99

Restructuring and other

 


 
(3
)
 
 
 
(3
)
 Loss on early extinguishments of debt
 
 
 
 
9

 
 
 
9

Net interest expense

 
25

 
42

 

 
67

Foreign exchange

 

 
(1
)
 

 
(1
)
Income/(loss) before income taxes
 
 
(28
)
 
230

 

 
202

Provision for / (benefit from) income taxes

 
(8
)
 
57

 

 
49

Equity earnings / (loss) in affiliates
$
142

 
131

 


 
$
(273
)
 
—

Net income
142

 
111

 
173

 
(273
)
 
153

Net income attributable to noncontrolling interests

 

 
(11
)
 

 
(11
)
Net income attributable to Crown Holdings
$
142

 
$
111

 
$
162

 
$
(273
)
 
$
142

 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
150

 
$
116

 
$
181

 
$
(286
)
 
$
161

Comprehensive income attributable to noncontrolling interests


 


 
(11
)
 


 
(11
)
Comprehensive income attributable to Crown Holdings
$
150

 
$
116

 
$
170

 
$
(286
)
 
$
150



24
Crown Holdings, Inc.




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

 
Parent
 
Issuer
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net sales

 

 
$
2,383

 

 
$
2,383

Cost of products sold, excluding depreciation and amortization

 

 
1,960

 

 
1,960

Depreciation and amortization

 

 
47

 

 
47

Gross profit
 
 


 
376

 
 
 
376

Selling and administrative expense

 
$
2

 
101

 

 
103

Restructuring and other

 

 
31

 

 
31

Net interest expense

 
24

 
41

 

 
65

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

 
 
 
177

Provision for / (benefit from) income taxes

 
(4
)
 
54

 

 
50

Equity earnings / (loss) in affiliates
$
106

 
132

 

 
$
(238
)
 
—

Net income
106

 
110

 
149

 
(238
)
 
127

Net income attributable to noncontrolling interests

 

 
(21
)
 

 
(21
)
Net income attributable to Crown Holdings
$
106

 
$
110

 
$
128

 
$
(238
)
 
$
106

 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
130

 
$
134

 
$
176

 
$
(286
)
 
$
154

Comprehensive income attributable to noncontrolling interests


 


 
(24
)
 


 
(24
)
Comprehensive income attributable to Crown Holdings
$
130

 
$
134

 
$
152

 
$
(286
)
 
$
130



25
Crown Holdings, Inc.




CONDENSED COMBINING STATEMENT OF COMPREHENSIVE INCOME
For the six months ended June 30, 2015
(in millions)

 
Parent
 
Issuer
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net sales
 
 
 
 
$
4,275

 
 
 
$
4,275

Cost of products sold, excluding depreciation and amortization
 
 
 
 
3,503

 
 
 
3,503

Depreciation and amortization
 
 
 
 
113

 
 
 
113

Gross profit
 
 


 
659

 
 
 
659

Selling and administrative expense
 
 
$
5

 
192

 
 
 
197

Restructuring and other
 
 

 
17

 
 
 
17

Loss from early extinguishment of debt
 
 
 
 
9

 
 
 
9

Net interest expense
 
 
51

 
79

 
 
 
130

Foreign exchange
 
 
 
 
5

 
 
 
5

Income/(loss) before income taxes
 
 
(56
)
 
357

 
 
 
301

Provision for / (benefit from) income taxes
 
 
(9
)
 
95

 
 
 
86

Equity earnings / (loss) in affiliates
$
186

 
188

 
 
 
$
(374
)
 
—

Net income
186

 
141

 
262

 
(374
)
 
215

Net income attributable to noncontrolling interests
 
 
 
 
(29
)
 
 
 
(29
)
Net income attributable to Crown Holdings
$
186

 
$
141

 
$
233

 
$
(374
)
 
$
186

 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
(6
)
 
$
38

 
$
68

 
$
(79
)
 
$
21

Comprehensive income attributable to noncontrolling interests
 
 
 
 
(27
)
 
 
 
(27
)
Comprehensive income attributable to Crown Holdings
$
(6
)
 
$
38

 
$
41

 
$
(79
)
 
$
(6
)


26
Crown Holdings, Inc.




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

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

 
 
 
$
4,376

Cost of products sold, excluding depreciation and amortization
 
 

 
3,621

 
 
 
3,621

Depreciation and amortization
 
 
 
 
82

 
 
 
82

Gross profit
 
 

 
673

 
 
 
673

Selling and administrative expense
 
 
$
5

 
202

 
 
 
207

Restructuring and other
 
 
14

 
69

 
 
 
83

Net interest expense
 
 
47

 
74

 
 
 
121

Foreign exchange
 
 
 
 
6

 
 
 
6

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

 
 
 
256

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

 
 
 
83

Equity earnings / (loss) in affiliates
$
130

 
191

 
 
 
$
(321
)
 
—

Net income
130

 
134

 
230

 
(321
)
 
173

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

 
$
134

 
$
187

 
$
(321
)
 
$
130

 
 
 
 
 
 
 
 
 
 
Comprehensive Income
$
172

 
$
176

 
$
275

 
$
(405
)
 
$
218

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

 
$
176

 
$
229

 
$
(405
)
 
$
172




27
Crown Holdings, Inc.


CONDENSED COMBINING BALANCE SHEET
As of June 30, 2015
(in millions)
 
Parent
 
Issuer
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Assets
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents

 

 
$
288

 

 
$
288

Receivables, net

 

 
1,098

 

 
1,098

Inventories

 

 
1,454

 

 
1,454

Prepaid expenses and other current assets
$
1

 
$
68

 
275

 

 
344

Total current assets
1

 
68

 
3,115

 
 
 
3,184

 
 
 
 
 
 
 
 
 
 
Intercompany debt receivables

 

 
3,792

 
$
(3,792
)
 
—

Investments
3,055

 
2,430

 

 
(5,485
)
 
—

Goodwill and intangible assets

 

 
3,790

 

 
3,790

Property, plant and equipment, net

 

 
2,672

 

 
2,672

Other non-current assets

 
397

 
316

 

 
713

Total
$
3,056

 
$
2,895

 
$
13,685

 
$
(9,277
)
 
$
10,359

 
 
 
 
 
 
 
 
 
 
Liabilities and equity
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
Short-term debt

 

 
$
56

 

 
$
56

Current maturities of long-term debt

 

 
152

 

 
152

Accounts payable and accrued liabilities
$
13

 
$
33

 
2,479

 

 
2,525

Total current liabilities
13

 
33

 
2,687

 
 
 
2,733

 
 
 
 
 
 
 
 
 
 
Long-term debt, excluding current maturities

 
412

 
5,265

 

 
5,677

Long-term intercompany debt
2,917

 
875

 

 
$
(3,792
)
 
—

Postretirement and pension liabilities

 

 
862

 

 
862

Other non-current liabilities

 
302

 
381

 

 
683

Commitments and contingent liabilities

 

 

 

 

Noncontrolling interests

 

 
278

 

 
278

Crown Holdings shareholders’ equity/(deficit)
126

 
1,273

 
4,212

 
(5,485
)
 
126

Total equity/(deficit)
126

 
1,273

 
4,490

 
(5,485
)
 
404

Total
$
3,056

 
$
2,895

 
$
13,685

 
$
(9,277
)
 
$
10,359



28
Crown Holdings, Inc.


CONDENSED COMBINING BALANCE SHEET
As of December 31, 2014
(in millions)

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

 

 
$
965

 

 
$
965

Receivables, net

 

 
1,031

 

 
1,031

Inventories

 

 
1,324

 

 
1,324

Prepaid expenses and other current assets
$
1

 
$
69

 
186

 

 
256

Assets held for sale


 


 
48

 

 
48

Total current assets
1

 
69

 
3,554

 
 
 
3,624

 
 
 
 
 
 
 
 
 
 
Intercompany debt receivables

 

 
2,885

 
$
(2,885
)
 
—

Investments
2,199

 
2,350

 

 
(4,549
)
 
—

Goodwill and intangible assets

 

 
2,926

 

 
2,926

Property, plant and equipment, net

 

 
2,437

 

 
2,437

Other non-current assets

 
397

 
324

 

 
721

Total
$
2,200

 
$
2,816

 
$
12,126

 
$
(7,434
)
 
$
9,708

 
 
 
 
 
 
 
 
 
 
Liabilities and equity
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
Short-term debt

 

 
$
75

 

 
$
75

Current maturities of long-term debt

 

 
177

 

 
177

Accounts payable and accrued liabilities
$
20

 
$
35

 
2,596

 

 
2,651

Liabilities related to assets held for sale


 


 
23

 

 
23

Total current liabilities
20

 
35

 
2,871

 
 
 
2,926

 
 
 
 
 
 
 
 
 
 
Long-term debt, excluding current maturities

 
412

 
4,595

 

 
5,007

Long-term intercompany debt
2,061

 
824

 

 
$
(2,885
)
 
—

Postretirement and pension liabilities

 

 
871

 

 
871

Other non-current liabilities

 
310

 
207

 

 
517

Commitments and contingent liabilities

 

 

 

 
 
Noncontrolling interests

 

 
268

 

 
268

Crown Holdings shareholders’ equity/(deficit)
119

 
1,235

 
3,314

 
(4,549
)
 
119

Total equity/(deficit)
119

 
1,235

 
3,582

 
(4,549
)
 
387

Total
$
2,200

 
$
2,816

 
$
12,126

 
$
(7,434
)
 
$
9,708



29
Crown Holdings, Inc.


CONDENSED COMBINING STATEMENT OF CASH FLOWS
For the six months ended June 30, 2015
(in millions)

 
Parent
 
Issuer
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net cash provided by/(used for) operating activities
$
10

 
$
(56
)
 
$
31

 

 
$
(15
)
Cash flows from investing activities
 
 
 
 
 
 
 
 
 
Capital expenditures

 

 
(111
)
 

 
(111
)
Purchase of business

 

 
(1,207
)
 

 
(1,207
)
Proceeds from sale of business

 

 
30

 

 
30

Intercompany investing activities
(862
)
 
5

 
862

 
$
(5
)
 
—

Other

 

 
(14
)
 

 
(14
)
Net cash provided by/(used for) investing activities
(862
)
 
5

 
(440
)
 
(5
)
 
(1,302
)
Cash flows from financing activities
 
 
 
 
 
 
 
 
 
Proceeds from long-term debt

 

 
1,421

 

 
1,421

Payments of long-term debt

 

 
(752
)
 

 
(752
)
Net change in revolving credit facility and short-term debt

 

 
96

 

 
96

Net change in long-term intercompany balances
856

 
51

 
(907
)
 

 
—

Debt issue costs

 

 
(17
)
 

 
(17
)
Common stock issued
5

 

 

 

 
5

Common stock repurchased
(9
)
 

 

 

 
(9
)
Dividends paid

 

 
(5
)
 
5

 
—

Dividend paid to noncontrolling interests

 

 
(17
)
 

 
(17
)
Other

 

 
(48
)
 

 
(48
)
Net cash provided by/(used for) financing activities
852

 
51

 
(229
)
 
5

 
679

Effect of exchange rate changes on cash and cash equivalents

 

 
(39
)
 

 
(39
)
Net change in cash and cash equivalents
—

 
—

 
(677
)
 
—

 
(677
)
Cash and cash equivalents at January 1

 

 
965

 

 
965

Cash and cash equivalents at June 30
$
—

 
$
—


$
288


$
—


$
288



30
Crown Holdings, Inc.


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

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

 
$
(60
)
 
$
(64
)
 

 
$
(117
)
Cash flows from investing activities
 
 
 
 
 
 
 
 
 
Capital expenditures

 

 
(149
)
 

 
(149
)
Purchase of business
 
 
 
 
(733
)
 
 
 
(733
)
Proceeds from sale of business
 
 
 
 
22

 
 
 
22

Intercompany investing activities
(941
)
 
47

 
941

 
$
(47
)
 
—

Other

 

 
6

 

 
6

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

 
87

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

 

 
1,827

 

 
1,827

Payments of long-term debt

 

 
(1,015
)
 

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

 

 
(130
)
 

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

 
13

 
(939
)
 

 
—

Debt issue costs

 

 
(33
)
 

 
(33
)
Common stock issued
10

 

 

 

 
10

Common stock repurchased
(2
)
 

 

 

 
(2
)
Dividends paid

 

 
(47
)
 
47

 
—

Purchase of noncontrolling interests

 

 
(93
)
 

 
(93
)
Dividend paid to noncontrolling interests

 

 
(34
)
 

 
(34
)
Other

 

 
(2
)
 

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

 
13

 
(466
)
 
47

 
528

Effect of exchange rate changes on cash and cash equivalents

 

 
(2
)
 

 
(2
)
Net change in cash and cash equivalents
—

 
—

 
(445
)
 
—

 
(445
)
Cash and cash equivalents at January 1

 

 
689

 

 
689

Cash and cash equivalents at June 30
$
—

 
$
—

 
$
244

 
$
—

 
$
244



31
Crown Holdings, Inc.


Crown Americas, LLC, Crown Americas Capital Corp. II and Crown Americas Capital Corp. III (collectively, the Issuers), 100% owned subsidiaries of the Company, have outstanding $700 principal amount of 6.25% senior notes due 2021 and $1,000 principal amount of 4.5% senior notes due 2023, which are fully and unconditionally guaranteed by Crown Holdings, Inc. (Parent) and substantially all subsidiaries in the United States. The guarantors are wholly owned by the Company and the guarantees are made on a joint and several basis.

The following condensed combining financial statements:
•
statements of comprehensive income for the three and six months ended June 30, 2015 and 2014,
•
balance sheets as of June 30, 2015 and December 31, 2014, and
•
statements of cash flows for the six months ended June 30, 2015 and 2014
are presented on the following pages to comply with the Company’s requirements under Rule 3-10 of Regulation S-X.


CONDENSED COMBINING STATEMENT OF COMPREHENSIVE INCOME
For the three months ended June 30, 2015
(in millions)

 
Parent
 
Issuer
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net sales

 

 
$
542

 
$
1,736

 

 
$
2,278

Cost of products sold, excluding depreciation and amortization

 

 
433

 
1,410

 

 
1,843

Depreciation and amortization

 

 
8

 
54

 

 
62

Gross profit
 
 

 
101

 
272

 
 
 
373

Selling and administrative expense

 
$
3

 
36

 
60

 

 
99

Restructuring and other

 

 
2

 
(5
)
 

 
(3
)
Loss from early extinguishments of debt

 
9

 


 


 

 
9

Net interest expense

 
24

 
23

 
20

 

 
67

Technology royalty

 

 
(10
)
 
10

 

 
—

Foreign exchange

 
8

 

 
(1
)
 
(8
)
 
(1
)
Income/(loss) before income taxes
 
 
(44
)
 
50

 
188

 
8

 
202

Provision for / (benefit from) income taxes

 
(17
)
 
23

 
40

 
3

 
49

Equity earnings / (loss) in affiliates
$
142

 
38

 
84

 

 
$
(264
)
 
—

Net income
142

 
11

 
111

 
148

 
(259
)
 
153

Net income attributable to noncontrolling interests

 

 

 
(11
)
 

 
(11
)
Net income attributable to Crown Holdings
$
142

 
$
11

 
$
111

 
$
137

 
$
(259
)
 
$
142

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
150

 
$
13

 
$
116

 
$
162

 
$
(280
)
 
$
161

Comprehensive income attributable to noncontrolling interests


 


 


 
(11
)
 


 
(11
)
Comprehensive income attributable to Crown Holdings
$
150

 
$
13

 
$
116

 
$
151

 
$
(280
)
 
$
150



32
Crown Holdings, Inc.




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

 
Parent
 
Issuer
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net sales

 

 
$
572

 
$
1,811

 

 
$
2,383

Cost of products sold, excluding depreciation and amortization

 

 
462

 
1,498

 

 
1,960

Depreciation and amortization

 

 
8

 
39

 

 
47

Gross profit
 
 


 
102

 
274

 
 
 
376

Selling and administrative expense

 
$
2

 
34

 
67

 

 
103

Restructuring and other

 
(1
)
 
7

 
25

 

 
31

Net interest expense

 
18

 
21

 
26

 

 
65

Technology royalty

 

 
(13
)
 
13

 

 
—

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

 
143

 
 
 
177

Provision for / (benefit from) income taxes

 
(7
)
 
27

 
30

 

 
50

Equity earnings / (loss) in affiliates
$
106

 
59

 
84

 

 
$
(249
)
 
—

Net income
106

 
47

 
110

 
113

 
(249
)
 
127

Net income attributable to noncontrolling interests

 

 

 
(21
)
 

 
(21
)
Net income attributable to Crown Holdings
$
106

 
$
47

 
$
110

 
$
92

 
$
(249
)
 
$
106

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
130

 
$
51

 
$
134

 
$
136

 
$
(297
)
 
$
154

Comprehensive income attributable to noncontrolling interests


 


 


 
(24
)
 


 
(24
)
Comprehensive income attributable to Crown Holdings
$
130

 
$
51

 
$
134

 
$
112

 
$
(297
)
 
$
130



33
Crown Holdings, Inc.




CONDENSED COMBINING STATEMENT OF COMPREHENSIVE INCOME
For the six months ended June 30, 2015
(in millions)

 
Parent
 
Issuer
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net sales
 
 
 
 
$
1,028

 
$
3,247

 
 
 
$
4,275

Cost of products sold, excluding depreciation and amortization
 
 
 
 
820

 
2,683

 
 
 
3,503

Depreciation and amortization
 
 
 
 
16

 
97

 
 
 
113

Gross profit
 
 
 
 
192

 
467

 
 
 
659

Selling and administrative expense
 
 
$
5

 
78

 
114

 
 
 
197

Restructuring and other
 
 

 
2

 
15

 
 
 
17

Loss from early extinguishment of debt
 
 
9

 


 


 
 
 
9

Net interest expense
 
 
44

 
46

 
40

 
 
 
130

Technology royalty
 
 
 
 
(19
)
 
19

 
 
 
—

Foreign exchange
 
 
8

 
 
 
5

 
(8
)
 
5

Income/(loss) before income taxes
 
 
(66
)
 
85

 
274

 
8

 
301

Provision for / (benefit from) income taxes
 
 
(25
)
 
46

 
62

 
3

 
86

Equity earnings / (loss) in affiliates
$
186

 
88

 
102

 
 
 
$
(376
)
 
—

Net income
186

 
47

 
141

 
212

 
(371
)
 
215

Net income attributable to noncontrolling interests
 
 
 
 
 
 
(29
)
 
 
 
(29
)
Net income attributable to Crown Holdings
$
186

 
$
47

 
$
141

 
$
183

 
$
(371
)
 
$
186

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive Income
$
(6
)
 
$
53

 
$
38

 
$
20

 
$
(84
)
 
$
21

Comprehensive income attributable to noncontrolling interests
 
 
 
 
 
 
(27
)
 
 
 
(27
)
Comprehensive income attributable to Crown Holdings
$
(6
)
 
$
53

 
$
38

 
$
(7
)
 
$
(84
)
 
$
(6
)


34
Crown Holdings, Inc.




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

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

 
$
3,305

 
 
 
$
4,376

Cost of products sold, excluding depreciation and amortization
 
 

 
860

 
2,761

 
 
 
3,621

Depreciation and amortization
 
 
 
 
15

 
67

 
 
 
82

Gross profit
 
 


 
196

 
477

 
 
 
673

Selling and administrative expense
 
 
$
4

 
73

 
130

 
 
 
207

Restructuring and other
 
 
1

 
43

 
39

 
 
 
83

Net interest expense
 
 
27

 
43

 
51

 
 
 
121

Technology royalty
 
 
 
 
(24
)
 
24

 
 
 
—

Foreign exchange
 
 
 
 
 
 
6

 
 
 
6

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

 
227

 
 
 
256

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

 
54

 
 
 
83

Equity earnings / (loss) in affiliates
$
130

 
99

 
114

 
 
 
$
(343
)
 
—

Net income
130

 
79

 
134

 
173

 
(343
)
 
173

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

 
$
79

 
$
134

 
$
130

 
$
(343
)
 
$
130

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
172

 
$
89

 
$
176

 
$
208

 
$
(427
)
 
$
218

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

 
$
89

 
$
176

 
$
162

 
$
(427
)
 
$
172



35
Crown Holdings, Inc.




CONDENSED COMBINING BALANCE SHEET
As of June 30, 2015
(in millions)

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

 
$
57

 


 
$
231

 

 
$
288

Receivables, net

 

 
$
2

 
1,096

 

 
1,098

Intercompany receivables

 

 
34

 
11

 
$
(45
)
 
—

Inventories

 

 
299

 
1,155

 

 
1,454

Prepaid expenses and other current assets
$
1

 
1

 
78

 
264

 

 
344

Total current assets
1

 
58

 
413

 
2,757

 
(45
)
 
3,184

 
 
 
 
 
 
 
 
 
 
 
 
Intercompany debt receivables

 
3,252

 
3,643

 
699

 
(7,594
)
 
—

Investments
3,055

 
2,097

 
838

 

 
(5,990
)
 
—

Goodwill and intangible assets

 

 
472

 
3,318

 

 
3,790

Property, plant and equipment, net

 
1

 
331

 
2,340

 

 
2,672

Other non-current assets

 
48

 
412

 
253

 

 
713

Total
$
3,056

 
$
5,456

 
$
6,109

 
$
9,367

 
$
(13,629
)
 
$
10,359

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and equity
 
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
 
 
Short-term debt

 

 

 
$
56

 

 
$
56

Current maturities of long-term debt

 
$
47

 


 
105

 

 
152

Accounts payable and accrued liabilities
$
13

 
46

 
$
512

 
1,954

 

 
2,525

Intercompany payables

 

 
11

 
34

 
$
(45
)
 
—

Total current liabilities
13

 
93

 
523

 
2,149

 
(45
)
 
2,733

 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt, excluding current maturities

 
2,926

 
412

 
2,339

 

 
5,677

Long-term intercompany debt
2,917

 
1,271

 
3,160

 
246

 
(7,594
)
 
—

Postretirement and pension liabilities

 

 
439

 
423

 

 
862

Other non-current liabilities

 

 
302

 
381

 

 
683

Commitments and contingent liabilities

 

 

 

 

 

Noncontrolling interests

 

 

 
278

 

 
278

Crown Holdings shareholders’ equity/(deficit)
126

 
1,166

 
1,273

 
3,551

 
(5,990
)
 
126

Total equity/(deficit)
126

 
1,166

 
1,273

 
3,829

 
(5,990
)
 
404

Total
$
3,056

 
$
5,456

 
$
6,109

 
$
9,367

 
$
(13,629
)
 
$
10,359



36
Crown Holdings, Inc.


CONDENSED COMBINING BALANCE SHEET
As of December 31, 2014
(in millions)

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

 
$
128

 


 
$
837

 

 
$
965

Receivables, net

 

 
$
18

 
1,013

 

 
1,031

Intercompany receivables

 

 
20

 
11

 
$
(31
)
 
—

Inventories

 

 
291

 
1,033

 

 
1,324

Prepaid expenses and other current assets
$
1

 
4

 
75

 
176

 

 
256

Assets held for sale


 


 


 
48

 


 
48

Total current assets
1

 
132

 
404

 
3,118

 
(31
)
 
3,624

 
 
 
 
 
 
 
 
 
 
 
 
Intercompany debt receivables

 
2,415

 
2,640

 
27

 
(5,082
)
 
—

Investments
2,199

 
2,005

 
850

 

 
(5,054
)
 
—

Goodwill and intangible assets

 

 
473

 
2,453

 

 
2,926

Property, plant and equipment, net

 
1

 
328

 
2,108

 

 
2,437

Other non-current assets

 
51

 
413

 
257

 

 
721

Total
$
2,200

 
$
4,604

 
$
5,108

 
$
7,963

 
$
(10,167
)
 
$
9,708

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and equity
 
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
 
 
Short-term debt

 

 

 
$
75

 

 
$
75

Current maturities of long-term debt

 


 
$
44

 
133

 

 
177

Accounts payable and accrued liabilities
$
20

 
$
49

 
480

 
2,102

 

 
2,651

Intercompany payables

 

 
11

 
20

 
$
(31
)
 
—

Liabilities related to assets held for sale


 


 


 
23

 


 
23

Total current liabilities
20

 
49

 
535

 
2,353

 
(31
)
 
2,926

 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt, excluding current maturities

 
2,858

 
368

 
1,781

 

 
5,007

Long-term intercompany debt
2,061

 
584

 
2,199

 
238

 
(5,082
)
 
—

Postretirement and pension liabilities

 

 
464

 
407

 

 
871

Other non-current liabilities

 

 
307

 
210

 

 
517

Commitments and contingent liabilities

 

 

 

 

 

Noncontrolling interests

 

 

 
268

 

 
268

Crown Holdings shareholders’ equity/(deficit)
119

 
1,113

 
1,235

 
2,706

 
(5,054
)
 
119

Total equity/(deficit)
119

 
1,113

 
1,235

 
2,974

 
(5,054
)
 
387

Total
$
2,200

 
$
4,604

 
$
5,108

 
$
7,963

 
$
(10,167
)
 
$
9,708



37
Crown Holdings, Inc.


CONDENSED COMBINING STATEMENT OF CASH FLOWS
For the six months ended June 30, 2015
(in millions)

 
Parent
 
Issuer
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net provided by/(used for) operating activities
$
10

 
$
(29
)
 
$
64

 
$
(60
)
 

 
$
(15
)
Cash flows from investing activities
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures

 

 
(21
)
 
(90
)
 

 
(111
)
Purchase of business

 

 


 
(1,207
)
 

 
(1,207
)
Proceeds from sale of business

 

 


 
30

 

 
30

Intercompany investing activities
(862
)
 
2

 
9

 
862

 
$
(11
)
 
—

Other

 

 
(10
)
 
(4
)
 

 
(14
)
Net cash provided by/(used for) investing activities
(862
)
 
2

 
(22
)
 
(409
)
 
(11
)
 
(1,302
)
Cash flows from financing activities
 
 
 
 
 
 
 
 
 
 
 
Proceeds from long-term debt

 
750

 

 
671

 

 
1,421

Payments of long-term debt

 
(675
)
 


 
(77
)
 

 
(752
)
Net change in revolving credit facility and short-term debt

 
40

 

 
56

 

 
96

Net change in long-term intercompany balances
856

 
(150
)
 
(42
)
 
(664
)
 

 
—

Debt issue costs

 
(9
)
 

 
(8
)
 

 
(17
)
Common stock issued
5

 

 

 

 

 
5

Common stock repurchased
(9
)
 

 

 

 

 
(9
)
Dividends paid

 

 

 
(11
)
 
11

 
—

Dividends paid to noncontrolling interests

 

 

 
(17
)
 

 
(17
)
Other

 

 

 
(48
)
 

 
(48
)
Net cash provided by/(used for) financing activities
852

 
(44
)
 
(42
)
 
(98
)
 
11

 
679

Effect of exchange rate changes on cash and cash equivalents

 

 

 
(39
)
 

 
(39
)
Net change in cash and cash equivalents
—

 
(71
)
 
—

 
(606
)
 
—

 
(677
)
Cash and cash equivalents at January 1

 
128

 


 
837

 

 
965

Cash and cash equivalents at June 30
$
—

 
$
57

 
$
—

 
$
231

 
$
—

 
$
288



38
Crown Holdings, Inc.



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

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

 
$
(18
)
 
$
(2
)
 
$
(104
)
 

 
$
(117
)
Cash flows from investing activities
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures

 

 
(17
)
 
(132
)
 

 
(149
)
Purchase of business
 
 
 
 
 
 
(733
)
 
 
 
(733
)
Proceeds from sale of business
 
 
 
 
 
 
22

 
 
 
22

Intercompany investing activities
(941
)
 
3

 
47

 
941

 
$
(50
)
 
—

Other

 

 
4

 
2

 

 
6

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

 
34

 
100

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

 
942

 

 
885

 

 
1,827

Payments of long-term debt

 


 


 
(1,015
)
 

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

 


 

 
(130
)
 

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

 
(1,053
)
 
42

 
85

 

 
—

Debt issue costs


 
(21
)
 

 
(12
)
 

 
(33
)
Common stock issued
10

 

 

 

 

 
10

Common stock repurchased
(2
)
 

 

 

 

 
(2
)
Dividends paid

 

 

 
(50
)
 
50

 
—

Purchase of noncontrolling interests

 

 
(76
)
 
(17
)
 

 
(93
)
Dividends paid to noncontrolling interests

 

 

 
(34
)
 

 
(34
)
Other

 


 

 
(2
)
 

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

 
(132
)
 
(34
)
 
(290
)
 
50

 
528

Effect of exchange rate changes on cash and cash equivalents

 

 

 
(2
)
 

 
(2
)
Net change in cash and cash equivalents
—

 
(147
)
 
(2
)
 
(296
)
 
—

 
(445
)
Cash and cash equivalents at January 1

 
177

 
2

 
510

 

 
689

Cash and cash equivalents at June 30
$
—

 
$
30

 
$
—

 
$
214

 
$
—

 
$
244



39
Crown Holdings, Inc.



PART I - FINANCIAL INFORMATION

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

Introduction

The following discussion presents management's analysis of the results of operations for the three and six months ended June 30, 2015 compared to 2014 and changes in financial condition and liquidity from December 31, 2014. This discussion should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2014, along with the consolidated financial statements and related notes included in and referred to within this report.

Business Strategy and Trends

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

The Company identifies and evaluates growth opportunities through capacity additions in existing plants, new plants in developing markets that it already knows and understands, and potential strategic acquisitions in geographic areas and product lines in which it already operates. In response to increasing global customer demand for beverage cans in non-standard sizes, commonly called "specialty cans", the Company will continue to make investments in converting existing capacity or adding new capacity for non-standard can sizes. The Company rigorously evaluates each investment opportunity against a variety of metrics and every approved project is undertaken with an eye toward creating long-term shareholder value. Cash flows generated from the Company's operations may be reinvested in the business, used for acquisitions, used to repay debt or returned to shareholders through share repurchases or possible future dividends. Following the acquisition of Empaque as described below, the Company's primary focus in 2015 is to utilize cash flow to reduce leverage. The Company does not presently anticipate any share repurchases or dividends in 2015.

In recent years, the Company has developed its beverage can platform in emerging markets with particular focus on Asia, Brazil and Eastern Europe. Beverage can volume growth in these markets has been driven by increased per capita incomes and consumption, combined with an increased preference for cans over other forms of beverage packaging.

In April 2014, the Company completed its acquisition of Mivisa, the largest food can producer in both the Iberian Peninsula and Morocco; primarily serving the vegetable, fruit, fish and meat markets in a cash transaction valued at $1.7 billion. In February 2015, the Company completed its acquisition of Empaque, a leading manufacturer for the beverage industry in Mexico, from Heineken N.V., in a cash transaction valued at $1.2 billion. Accompanying the Empaque transaction are long-term supply agreements with Heineken affiliates which are expected to provide a stable cash flow base. In February 2015, the Company announced plans to construct a new beverage can plant in Monterrey, Mexico. The addition of Empaque and the Monterrey facility significantly increases the Company's presence in the growing Mexican market and substantially enhances the Company's strategic position in beverage cans, both regionally and globally.

Beverage can sales unit volumes in the Company's mature markets have been stable to slightly declining in North America and slightly increasing in Europe. Global food and aerosol can sales unit volumes have been stable to declining in recent years. While the opportunity for organic volume growth in the Company's mature markets is not comparable to that in targeted international growth markets, the Company continues to generate strong returns on invested capital and significant cash flow from these businesses. The Company monitors capacity across all of its businesses and, where necessary, may take action such as closing a plant or reducing headcount to better manage its costs. Any or all of these actions may result in additional restructuring charges in the future which may be material.

As part of the Company's efforts to manage cost, it attempts to pass-through increases in the cost of aluminum and steel to its customers. In the Americas Beverage segment, the Company has generally been able to pass-through increases in aluminum premium costs to its customers. In the European Beverage segment, the Company has generally been unable to pass-through increases in aluminum premium costs to its customers. There can be no assurance that the Company will be able to recover from its customers the impact of any such increased costs. Aluminum and steel prices can be subject to significant volatility and there has not been a consistent and predictable trend in pricing.

40
Crown Holdings, Inc.


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

In assessing the Company's performance, the key performance measure used is segment income, a non-GAAP measure generally defined by the Company as gross profit excluding the impact of fair value adjustments related to the sale of inventory acquired in an acquisition and the timing impact of hedge ineffectiveness, less selling and administrative expenses.

Results of Operations

The foreign currency translation impacts referred to below were primarily due to changes in the euro and pound sterling in the Company's European businesses, the Brazilian real, Canadian dollar and Mexican peso in the Company's Americas segments and the Chinese renminbi and Thai baht in the Company's Asia Pacific segment.

Net Sales and Segment Income    
 
Three Months Ended
 
Six Months Ended
 
June 30
 
June 30
 
2015
 
2014
 
2015
 
2014
Net sales
$
2,278

 
$
2,383

 
$
4,275

 
$
4,376

Beverage cans and ends as a percentage of net sales
59
%
 
55
%
 
58
%
 
56
%
Food cans and ends as a percentage of net sales
26
%
 
29
%
 
26
%
 
27
%

Three months ended June 30, 2015 compared to 2014

Net sales decreased primarily due to the impact of foreign currency translation, partially offset by the acquisitions of Empaque and Mivisa. Net sales would have been $241 higher using exchange rates in effect during the second quarter of 2014.

Six months ended June 30, 2015 compared to 2014

Net sales decreased primarily due to the impact of foreign currency translation, partially offset by the acquisitions of Empaque and Mivisa. Net sales would have been $413 higher using exchange rates in effect during the first six months of 2014.

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


Americas Beverage

The Americas Beverage segment manufactures aluminum beverage cans, ends, steel crowns, glass bottles and aluminum closures and supplies a variety of customers from its operations in the U.S., Brazil, Canada, Colombia and Mexico. The U.S. and Canadian beverage can markets are mature markets which have experienced slightly declining volumes in recent years. In Brazil, the Company's sales unit volumes have increased in recent years primarily due to market growth driven by increased per capita incomes and consumption, combined with an increased preference for cans over other forms of beverage packaging.

In February 2015, the Company completed its acquisition of Empaque, a leading manufacturer of beverage packaging in Mexico. Empaque has been integrated with the Company's existing Americas Beverage business.

Net sales and segment income in the Americas Beverage segment are as follows:
 
Three Months Ended
 
Six Months Ended
 
June 30
 
June 30
 
2015
 
2014
 
2015
 
2014
Net sales
$
741

 
$
594

 
$
1,358

 
$
1,143

Segment income
99

 
85

 
184

 
164



41
Crown Holdings, Inc.


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

Three months ended June 30, 2015 compared to 2014

Net sales increased primarily due to $173 from the acquisition of Empaque. The increase from Empaque and 3% volume growth in North America was partially offset by lower volumes in Brazil and the impact of foreign currency translation. Net sales would have been $51 higher using exchange rates in effect during the second quarter of 2014.

Segment income increased primarily due to the acquisition of Empaque, partially offset by lower volumes in Brazil and the impact of foreign currency translation. Segment income would have been $8 higher using exchange rates in effect during the second quarter of 2014.

Six months ended June 30, 2015 compared to 2014

Net sales increased $248 due to the acquisition of Empaque, partially offset by 6% lower volume in Brazil and the impact of foreign currency translation. Net sales would have been $76 higher using exchange rates in effect during the first six months of 2014.

Segment income increased $43 due to the acquisition of Empaque, partially offset by lower volume in Brazil and the impact of foreign currency translation. Segment income would have been $11 higher using exchange rates in effect during the first six months of 2014.


North America Food

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

Net sales and segment income in the North America Food segment are as follows:
 
Three Months Ended
 
Six Months Ended
 
June 30
 
June 30
 
2015
 
2014
 
2015
 
2014
Net sales
$
170

 
$
213

 
$
330

 
$
392

Segment income
23

 
38

 
47

 
67


Three months ended June 30, 2015 compared to 2014

Net sales and segment income decreased due to decreased sales unit volumes primarily attributable to the loss of certain customers and lower seasonal demand.

Six months ended June 30, 2015 compared to 2014

Net sales and segment income decreased primarily due to a 19% decrease in sales unit volumes primarily attributable to the loss of certain customers.


European Beverage

The Company's European Beverage segment manufactures steel and aluminum beverage cans and ends and supplies a variety of customers from its operations throughout Europe, the Middle East and North Africa. In recent years, the European beverage can market has been growing.

42
Crown Holdings, Inc.


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

Net sales and segment income in the European Beverage segment are as follows:
 
Three Months Ended
 
Six Months Ended
 
June 30
 
June 30
 
2015
 
2014
 
2015
 
2014
Net sales
$
422

 
$
496

 
$
746

 
$
884

Segment income
66

 
83

 
104

 
142

    

Three months ended June 30, 2015 compared to 2014

Net sales and segment income decreased primarily due to a 4% decline in sales unit volumes, primarily in the Middle East due to ongoing conflicts in the region and the impact of foreign currency translation. Net sales and segment income would have been $61 and $7 higher, respectively, using exchange rates in effect during the second quarter of 2014.

Six months ended June 30, 2015 compared to 2014

Net sales and segment income decreased primarily due to a 6% decline in sales unit volumes, primarily in the Middle East due to ongoing conflicts in the region and the impact of foreign currency translation. Net sales and segment income would have been $99 and $11 higher, respectively, using exchange rates in effect during the first six months of 2014.


European Food

The European Food segment manufactures steel and aluminum food cans, ends and metal vacuum closures, and supplies a variety of customers from its operations throughout Europe and Africa. The European food can market is a mature market which has experienced stable to slightly declining volumes in recent years. In April 2014, the Company completed its acquisition of Mivisa and in June 2014 divested certain Crown and Mivisa operations as required for regulatory approval.

Net sales and segment income in the European Food segment are as follows:
 
Three Months Ended
 
Six Months Ended
 
June 30
 
June 30
 
2015
 
2014
 
2015
 
2014
Net sales
$
492

 
$
555

 
$
923

 
$
928

Segment income
68

 
63

 
110

 
89


Three months ended June 30, 2015 compared to 2014

Net sales and segment income decreased primarily due to the impact of foreign currency translation, partially offset by a 1% increase in sales unit volumes. Net sales and segment income would have been $108 and $14 higher, respectively, using exchange rates in effect during the second quarter of 2014.

Six months ended June 30, 2015 compared to 2014

Net sales decreased primarily due to the impact of foreign currency translation, partially offset by increased sales unit volumes and $145 for an additional four months of Mivisa. Net sales would have been $193 higher using exchange rates in effect for the first six months of 2014.

Segment income increased primarily due to sales unit volume growth, including the impact of Mivisa, and improved cost performance, partially offset by foreign currency translation. Segment income would have been $24 higher using exchange rates in effect during the first six months of 2014.

43
Crown Holdings, Inc.


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

Asia Pacific

The Company's Asia Pacific segment primarily consists of beverage can operations in Cambodia, China, Malaysia, Singapore, Thailand and Vietnam and also includes the Company's non-beverage can operations, primarily food cans and specialty packaging in China, Singapore, Thailand and Vietnam. In recent years, the beverage can market in Asia has been growing.

Net sales and segment income in the Asia Pacific segment are as follows:
 
Three Months Ended
 
Six Months Ended
 
June 30
 
June 30
 
2015
 
2014
 
2015
 
2014
Net sales
$
310

 
$
316

 
$
620

 
$
614

Segment income
39

 
36

 
74

 
70


Three months ended June 30, 2015 compared to 2014

Net sales decreased due to $12 from reduced selling prices including the pass-through of lower raw material costs and the impact of foreign currency translation, partially offset by increased sales unit volumes. Net sales would have been $5 higher using exchange rates in effect during the second quarter of 2014.

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

Six months ended June 30, 2015 compared to 2014

Net sales increased due to $38 from increased sales unit volumes, partially offset by $22 from lower selling prices including the pass-through of lower raw material costs, the impact of competitive price compression and the impact of foreign currency translation. Net sales would have been $10 higher using exchange rates in effect during the first six months of 2014.

Segment income increased primarily due to increased sales unit volumes, partially offset by the impact of competitive price compression.


Non-reportable Segments

The Company's non-reportable segments include its European aerosol and specialty packaging business, its North American aerosol can business and its tooling and equipment operations in the U.S. and U.K. In recent years, the Company's aerosol and specialty packaging businesses have experienced slightly declining volumes. In the first quarter of 2015, the Company completed the sale of four of its European industrial specialty packaging plants.

Net sales and segment income in non-reportable segments are as follows:
 
Three Months Ended
 
Six Months Ended
 
June 30
 
June 30
 
2015
 
2014
 
2015
 
2014
Net sales
$
143

 
$
209

 
$
298

 
$
415

Segment income
20

 
22

 
37

 
46


Net sales and segment income for the three and six months ended June 30, 2015 compared to 2014 decreased primarily due to lower sales in the Company's European aerosol and specialty packaging businesses due to the sale of four industrial specialty packaging plants, the transfer of production from a European specialty packaging plant to the European food business and the impact of foreign currency translation. Net sales would have been $14 and $30 higher for the three and six months ended June 30, 2015, respectively, using exchange rates in effect during the same periods of 2014.


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Crown Holdings, Inc.


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

Corporate and Unallocated Expense

 
Three Months Ended
 
Six Months Ended
 
June 30
 
June 30
 
2015
 
2014
 
2015
 
2014
Corporate and unallocated expense
$
(41
)
 
$
(54
)
 
$
(94
)
 
$
(112
)


For the three months ended June 30, 2014, corporate and unallocated expense included a charge of $15 related to the impact of fair value adjustments for the sale of inventory acquired in the acquisition of Mivisa.

For the six months ended June 30, 2015, corporate and unallocated expense included a charge of $6 related to fair value adjustments for the sale of inventory acquired in the acquisition of Empaque and a benefit of $4 related to the timing of hedge ineffectiveness.

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


Cost of Products Sold (Excluding Depreciation and Amortization)

For the three and six months ended June 30, 2015 compared to 2014, cost of products sold (excluding depreciation and amortization) decreased from $1,960 to $1,843 and from $3,621 to $3,503 as the impact of foreign currency translation was partially offset by the impact of the acquisitions of Mivisa and Empaque. Cost of products sold would have been $196 and $340 higher for the three and six months ended June 30, 2015 using exchange rates in effect during the same periods of 2014.


Depreciation and Amortization

For the three and six months ended June 30, 2015 compared to 2014, depreciation and amortization expense increased from $47 to $62 and from $82 to $113 primarily due to depreciation and amortization of fixed assets and intangible assets recorded in connection with the Company's acquisitions of Mivisa and Empaque.


Selling and Administrative Expense

For the three and six months ended June 30, 2015 compared to 2014, selling and administrative expense decreased from $103 to $99 and $207 to $197 due to the impact of foreign currency translation, partially offset by higher corporate costs.


Interest Expense

For the three and six months ended June 30, 2015 compared to 2014, interest expense increased from $66 to $69 and from $124 to $134 primarily due to higher average debt outstanding due to the acquisitions of Mivisa and Empaque.



45
Crown Holdings, Inc.


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

Taxes on Income
    
The Company's effective income tax rate was as follows:
 
Three Months Ended
 
Six Months Ended
 
June 30
 
June 30
 
2015
 
2014
 
2015
 
2014
Income before income taxes
$
202

 
$
177

 
$
301

 
$
256

Provision for income taxes
49

 
50

 
86

 
83

Effective income tax rate
24
%
 
28
%
 
29
%
 
32
%

For the three months ended June 30, 2015 compared to 2014, the Company's effective income tax rate was lower primarily due to non-deductible transaction costs incurred in connection with the acquisition of Mivisa in 2014.

For the six months ended June 30, 2015, compared to 2014, the Company's effective income tax rate was lower primarily due to non-deductible impairment charges related to the divestment of certain operations in connection with the Company's acquisition of Mivisa in 2014, partially offset by a charge of $8 in 2015 related to an unfavorable Spanish tax court ruling in a case not directly involving the Company.


Net Income Attributable to Noncontrolling Interests

For the three and six months ended June 30, 2015 compared to 2014, net income attributable to noncontrolling interests decreased from $21 to $11 and from $43 to $29 primarily due to lower earnings in the Company's beverage can operations in Brazil and the Middle East.


Liquidity and Capital Resources

Cash from Operations

Cash flows from operating activities improved from a use of $117 for the six months ended June 30, 2014 to a use of $15 in 2015 primarily due to improvements in working capital. Day sales outstanding for trade receivables improved from 40 days in 2014 to 36 days in 2015 due to a decrease of 11 days related to the derecognition of receivables under the Company's securitization and factoring programs, partially offset by an increase of 3 days related to the acquisition of Empaque.


Investing Activities

Cash used for investing activities increased from $854 for the six months ended June 30, 2014 to $1,302 in 2015 primarily due to the acquisition of Empaque, partially offset by lower capital expenditures. The Company currently expects capital expenditures for 2015 to be approximately $350.


Financing Activities

Cash provided by financing activities increased from $528 for the six months ended June 30, 2014 to $679 in 2015 primarily due to higher net borrowings in 2015 to fund the acquisition of Empaque as described in Note J and from payments in 2014 to increase the Company's ownership interest in subsidiaries in Jordan and Tunisia that did not recur in 2015.



46
Crown Holdings, Inc.


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

Liquidity

As of June 30, 2015, $218 of the Company's $288 of cash and cash equivalents was located outside the U.S. The Company is not currently aware of any legal restrictions under foreign law that materially impact its access to cash held outside the U.S.

The Company funds its cash needs in the U.S. through a combination of cash flows from operations in the U.S., distributions from certain foreign subsidiaries, borrowings under its revolving credit facility and the acceleration of cash receipts under its receivable securitization facilities. The Company records current and/or deferred U.S. taxes for the earnings of certain foreign subsidiaries. For certain other foreign subsidiaries, the Company considers earnings indefinitely reinvested and has not recorded any U.S. taxes. Of the cash and cash equivalents located outside the U.S., $71 was held by subsidiaries
for which earnings are considered indefinitely reinvested. While based on current operating plans the Company does not foresee a need to repatriate these funds, if such earnings were repatriated the Company would be required to record any incremental U.S. taxes on the repatriated funds.

As of June 30, 2015, the Company had $1,053 of borrowing capacity available under its revolving credit facility, equal to the total facility of $1,200 less borrowings of $108 and $39 of outstanding standby letters of credit.


Capital Resources

As of June 30, 2015, the Company has approximately $69 of capital commitments primarily related to its operations in Europe. The Company expects to fund these commitments primarily through cash flows generated from operations and to fund any excess needs over available cash through external borrowings.


Contractual Obligations

During the first six months of 2015 there were no material changes to the Company's contractual obligations provided within Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” of the Company's Annual Report on Form 10-K for the year ended December 31, 2014, which information is incorporated herein by reference, except for the debt issuances and repayments described in Note J to the consolidated financial statements included in this Quarterly Report on Form 10-Q.


Commitments and Contingent Liabilities

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


Critical Accounting Policies

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

Actual results could differ from these estimates and assumptions, impacting the reported results of operations and financial condition of the Company. Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” and Note A to the consolidated financial statements contained in the Company's Annual Report on Form
10-K for the year ended December 31, 2014 describe the significant accounting estimates and policies used in the preparation of the consolidated financial statements. There have been no significant changes in the Company's critical accounting policies during the six months of 2015. The discussion below supplements the discussion from the Company's Annual Report on Form 10-K for the year ended December 31, 2014 with respect to goodwill.


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Crown Holdings, Inc.


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

Goodwill Impairment

As disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2014, the estimated fair value of the Company's European Aerosols and Specialty Packaging reporting unit was 47% higher than its carrying value. The Company continues to believe that the estimated fair value of the reporting unit exceeds its carrying value. If future operating results were to decline, causing the estimated fair value to fall below its carrying value, it is possible that an impairment charge of up to $108 could be recorded.


Forward Looking Statements

Statements included herein in “Management's Discussion and Analysis of Financial Condition and Results of Operations,” including, but not limited to, in the discussions of asbestos in Note K and commitments and contingencies in Note L to the consolidated financial statements included in this Quarterly Report on Form 10-Q and also in Part I, Item 1: “Business” and Item 3: “Legal Proceedings” and in Part II, Item 7: “Management's Discussion and Analysis of Financial Condition
and Results of Operations,” within the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2014, which are not historical facts (including any statements concerning plans and objectives of management for capacity additions, share repurchases, dividends, future operations or economic performance, or assumptions related thereto), are “forward-looking statements” within the meaning of the federal securities laws. In addition, the Company and its representatives may, from time to time, make oral or written statements which are also “forward-looking statements.”

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

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

A discussion of important factors that could cause the actual results of operations or financial condition of the Company to differ from expectations has been set forth in the Company's Annual Report on Form 10-K for the year ended December 31, 2014 within Part II, Item 7: “Management's Discussion and Analysis of Financial Condition and Results of Operations” under the caption “Forward Looking Statements” and is incorporated herein by reference. Some of the factors are also discussed elsewhere in this Form 10-Q and in prior Company filings with the SEC. In addition, other factors have been or may be discussed from time to time in the Company's SEC filings.


Item 3.
Quantitative and Qualitative Disclosures About Market Risk

In the normal course of business the Company is subject to risk from adverse fluctuations in foreign exchange and interest rates and commodity prices. The Company manages these risks through a program that includes the use of derivative financial instruments, primarily swaps and forwards. Counterparties to these contracts are major financial institutions. The Company is exposed to credit loss in the event of nonperformance by the counterparties. These instruments are not used for trading or speculative purposes. The extent to which the Company uses such instruments is dependent upon its access to these contracts in the financial markets and its success in using other methods, such as netting exposures in the same currencies to mitigate foreign exchange risk and using sales arrangements that permit the pass-through of commodity prices and foreign exchange rate risks to customers. The Company's objective in managing its exposure to market risk is to limit the impact on earnings and cash flow. For further discussion of the Company's use of derivative instruments and their fair values at June 30, 2015, see Note H to the consolidated financial statements included in this Quarterly Report on Form 10-Q.

As of June 30, 2015, the Company had $2.2 billion principal floating interest rate debt. A change of 0.25% in these floating interest rates would change annual interest expense by approximately $5.6 million before tax.

48
Crown Holdings, Inc.




Item 4.
Controls and Procedures

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

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

49
Crown Holdings, Inc.


PART II – OTHER INFORMATION

Item 1.    Legal Proceedings

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

Item 1A. Risk Factors

In addition to the other information set forth in this report, carefully consider the factors discussed in Item 1A to Part I in the Company's Annual Report on From 10-K for the year ended December 31, 2014 and in Item 1A to Part II in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, which could materially affect the Company's business, financial condition or future results. The risks described in the Company's Quarterly Report on Form 10-Q are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect the Company's business, financial condition and/or operating results.


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

The Company made no purchases of its equity securities as part of publicly announced programs during the first six months of 2015.

Item 3. Defaults Upon Senior Securities

There were no events required to be reported under Item 3 for the quarter ended June 30, 2015.

Item 4. Mine Safety Disclosures

Not applicable.


Item 5.    Other Information

None.



50
Crown Holdings, Inc.


Item 6.    Exhibits
10.1
Indenture, dated as of May 5, 2015, among Crown European Holdings S.A., the Guarantors (as defined therein), U.S. Bank National Association, as trustee, Elavon Financial Services Limited, UK Branch, as paying agent, and Elavon Financial Services Limited, as registrar and transfer agent.
 
 
10.2
Purchase Agreement, dated as of April 28, 2015, by and among the Issuer, the Company, BNP Paribas, as representative of the initial purchasers of the Notes named in Schedule I thereto, and the Guarantors (as defined therein)  (incorporated by reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-K dated April 30, 2015 (File No. 000-50189)).
 
 
31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
32
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by John W. Conway, Chairman of the Board, President and Chief Executive Officer of Crown Holdings, Inc. and Thomas A. Kelly, Senior Vice President and Chief Financial Officer of Crown Holdings, Inc.
 
 
101
The following financial information from the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Operations for the three and six months ended June 30, 2015 and 2014, (ii) Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2015 and 2014, (iii) Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014, (iv) Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014, (v) Consolidated Statements of Changes in Equity for the six months ended June 30, 2015 and 2014 and (vi) Notes to Consolidated Financial Statements.

51
Crown Holdings, Inc.


SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
 
 
 
Crown Holdings, Inc.
Registrant
 
 
By:
 
/s/ David A. Beaver
 
 
David A. Beaver
 
 
Vice President and Corporate Controller
 
 
(Chief Accounting Officer)

Date: July 30, 2015


52