CROWN HOLDINGS INC - FORM 10-Q - October 28, 2016

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EX-32 - EXHIBIT 32 - CROWN HOLDINGS INCcck-9302016xq3ex32.htm
EX-31.2 - EXHIBIT 31.2 - CROWN HOLDINGS INCcck-9302016xq3ex312.htm
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
____________________________________
FORM 10-Q
____________________________________

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

FOR THE QUARTERLY PERIOD ENDED September 30, 2016
 
¨
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 139,797,217 shares of Common Stock outstanding as of October 26, 2016.

Crown Holdings, Inc.


PART I – FINANCIAL INFORMATION

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

 
Three Months Ended
 
Nine Months Ended
 
September 30
 
September 30
 
2016
 
2015
 
2016
 
2015
Net sales
$
2,326

 
$
2,460

 
$
6,361

 
$
6,735

Cost of products sold, excluding depreciation and amortization
1,838

 
1,984

 
5,050

 
5,487

Depreciation and amortization
63

 
61

 
188

 
174

Selling and administrative expense
90

 
94

 
275

 
291

Restructuring and other
20

 
40

 
19

 
57

Income from operations
315


281

 
829

 
726

Loss from early extinguishments of debt
10

 
—

 
37

 
9

Interest expense
59

 
68

 
181

 
202

Interest income
(3
)
 
(4
)
 
(8
)
 
(8
)
Foreign exchange
(5
)
 
9

 
(22
)
 
14

Income before income taxes
254

 
208

 
641


509

Provision for income taxes
48

 
48

 
151

 
134

Net income
206

 
160

 
490


375

Net income attributable to noncontrolling interests
(23
)
 
(19
)
 
(59
)
 
(48
)
Net income attributable to Crown Holdings
$
183

 
$
141

 
$
431

 
$
327

 
 
 
 
 
 
 
 
Earnings per common share attributable to Crown Holdings:
 
 
 
 
 
 
 
Basic
$
1.32

 
$
1.02

 
$
3.11

 
$
2.37

Diluted
$
1.31

 
$
1.01

 
$
3.09

 
$
2.35



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
 
Nine Months Ended
 
September 30
 
September 30
 
2016
 
2015
 
2016
 
2015
Net income
$
206

 
$
160

 
$
490

 
$
375

 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustments
(45
)
 
(153
)
 
(170
)
 
(360
)
Pension and other postretirement benefits
2

 
25

 
25

 
48

Derivatives qualifying as hedges
2

 
(7
)
 
26

 
(17
)
Total other comprehensive loss
(41
)
 
(135
)
 
(119
)
 
(329
)
 
 
 
 
 
 
 
 
Total comprehensive income
165

 
25

 
371

 
46

Net income attributable to noncontrolling interests
(23
)
 
(19
)
 
(59
)
 
(48
)
Translation adjustments attributable to noncontrolling interests
—

 
2

 
—

 
3

Derivatives qualifying as hedges attributable to noncontrolling interests
1

 
1

 
(2
)
 
2

Comprehensive income attributable to Crown Holdings
$
143

 
$
9

 
$
310

 
$
3



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


3
Crown Holdings, Inc.


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

 
September 30,
2016
 
December 31,
2015
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
526

 
$
717

Receivables, net
1,047

 
912

Inventories
1,300

 
1,213

Prepaid expenses and other current assets
217

 
207

Total current assets
3,090

 
3,049

 
 
 
 
Goodwill and intangible assets, net
3,450

 
3,580

Property, plant and equipment, net
2,746

 
2,699

Other non-current assets
677

 
692

Total
$
9,963

 
$
10,020

 
 
 
 
Liabilities and equity
 
 
 
Current liabilities
 
 
 
Short-term debt
$
49

 
$
54

Current maturities of long-term debt
121

 
209

Accounts payable and accrued liabilities
2,627

 
2,645

Total current liabilities
2,797

 
2,908

 
 
 
 
Long-term debt, excluding current maturities
5,097

 
5,255

Postretirement and pension liabilities
638

 
767

Other non-current liabilities
652

 
655

Commitments and contingent liabilities (Note L)

 

Noncontrolling interests
310

 
291

Crown Holdings shareholders’ equity
469

 
144

Total equity
779

 
435

Total
$
9,963

 
$
10,020



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)
 
Nine Months Ended
 
September 30
 
2016
 
2015
Cash flows from operating activities
 
 
 
Net income
$
490

 
$
375

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
188

 
174

Restructuring and other
19

 
57

Pension expense
21

 
35

Pension contributions
(81
)
 
(54
)
Stock-based compensation
15

 
22

Changes in assets and liabilities:
 
 
 
Receivables
(131
)
 
(201
)
Inventories
(95
)
 
(10
)
Accounts payable and accrued liabilities
(42
)
 
(94
)
Other, net
(8
)
 
11

Net cash provided by operating activities
376

 
315

Cash flows from investing activities
 
 
 
Capital expenditures
(244
)
 
(176
)
Purchase of business
—

 
(1,207
)
Proceeds from sale of business
—

 
33

Net investment hedge settlements
—

 
(11
)
Other
16

 
(13
)
Net cash used for investing activities
(228
)
 
(1,374
)
Cash flows from financing activities
 
 
 
Proceeds from long-term debt
1,379

 
1,435

Payments of long-term debt
(1,810
)
 
(780
)
Net change in revolving credit facility and short-term debt
108

 
34

Debt issue costs
(16
)
 
(18
)
Common stock issued
8

 
5

Common stock repurchased
(8
)
 
(9
)
Contributions from noncontrolling interests
1

 
3

Dividends paid to noncontrolling interests
(43
)
 
(21
)
Foreign exchange derivatives related to debt
53

 
(38
)
Net cash (used for) provided by by financing activities
(328
)
 
611

Effect of exchange rate changes on cash and cash equivalents
(11
)
 
(51
)
Net change in cash and cash equivalents
(191
)
 
(499
)
Cash and cash equivalents at January 1
717

 
965

Cash and cash equivalents at September 30
$
526

 
$
466


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, 2015
$
929

 
$
407

 
$
1,782

 
$
(2,765
)
 
$
(234
)
 
$
119

 
$
268

 
$
387

Net income
 
 
 
 
327

 
 
 
 
 
327

 
48

 
375

Other comprehensive income
 
 
 
 
 
 
(324
)
 
 
 
(324
)
 
(5
)
 
(329
)
Dividends paid to noncontrolling interests
 
 
 
 
 
 
 
 
 
 
—

 
(21
)
 
(21
)
Contribution from noncontrolling interests
 
 
 
 
 
 
 
 
 
 
—

 
3

 
3

Restricted stock awarded
 
 
(2
)
 
 
 
 
 
2

 
—

 
 
 
—

Stock-based compensation
 
 
22

 
 
 
 
 
 
 
22

 
 
 
22

Common stock issued
 
 
4

 
 
 
 
 
1

 
5

 
 
 
5

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

 
$
423

 
$
2,109

 
$
(3,089
)
 
$
(232
)
 
$
140

 
$
293

 
$
433

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2016
$
929

 
$
426

 
$
2,175

 
$
(3,154
)
 
$
(232
)
 
$
144

 
$
291

 
$
435

Net income
 
 
 
 
431

 
 
 
 
 
431

 
59

 
490

Other comprehensive income
 
 
 
 
 
 
(121
)
 
 
 
(121
)
 
2

 
(119
)
Dividends paid to noncontrolling interests
 
 
 
 
 
 
 
 
 
 
—

 
(43
)
 
(43
)
Contribution from noncontrolling interests
 
 
 
 
 
 
 
 
 
 
—

 
1

 
1

Restricted stock awarded
 
 
(1
)
 
 
 
 
 
1

 
—

 
 
 
—

Stock-based compensation
 
 
15

 
 
 
 
 
 
 
15

 
 
 
15

Common stock issued
 
 
6

 
 
 
 
 
2

 
8

 
 
 
8

Common stock repurchased
 
 
(7
)
 
 
 
 
 
(1
)
 
(8
)
 
 
 
(8
)
Balance at September 30, 2016
$
929

 
$
439

 
$
2,606

 
$
(3,275
)
 
$
(230
)
 
$
469

 
$
310

 
$
779



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 September 30, 2016 and the results of its operations for the three and nine months ended September 30, 2016 and 2015 and of its cash flows for the nine months ended September 30, 2016 and 2015. 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, 2015.


B.
Accounting and Reporting Developments

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. In the first quarter of 2018, the Company will adopt this standard on a modified retrospective basis. The Company is currently evaluating the impact of adopting this guidance on its financial position and results of operations.

In July 2015, the FASB issued new guidance related to the subsequent measurement of inventory. Under existing guidance, inventory was measured at the lower of cost or market, where market was defined as replacement cost, with a ceiling of net realizable value and floor of net realizable value less a normal profit margin. The new guidance requires an entity to subsequently measure inventory at the lower of cost or net realizable value, which is defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The guidance will be effective for the Company on January 1, 2017 and is not expected to have a material impact on the Company’s consolidated financial statements.

In February 2016, the FASB issued new guidance on lease accounting. Under the new guidance lease classification criteria and income statement recognition is similar to current guidance; however, all leases with a lease term longer than one year will be recorded on the balance sheet through a right-of-use asset and a corresponding lease liability. The guidance will be effective for the Company on January 1, 2019. The Company is currently evaluating the impact of adopting this guidance on its financial position and results of operations.

In March 2016, the FASB issued new guidance on share-based payments. The new guidance includes provisions to simplify various aspects of how share-based payments are accounted for and presented in the financial statements. Under the current guidance, upon settlement tax benefits in excess of compensation costs ("windfalls") are recorded in equity and tax deficiencies ("shortfalls") are recorded in equity to the extent of previous windfalls. Under the new guidance all of the tax effects related to share-based payments at settlement will be recorded through the income statement. The guidance will be effective for the Company on January 1, 2017. The Company is currently evaluating the impact of adopting this guidance on its financial position and results of operations.

In August 2016, the FASB issued new guidance related to the classification of certain cash receipts and payments on the statement of cash flows. Under the new guidance, cash payments resulting from debt prepayment or extinguishment will be classified as cash outflows from financing activities. In addition, beneficial interests obtained in a securitization of

7
Crown Holdings, Inc.


financial assets should be disclosed as a noncash activity and cash receipts from the beneficial interests should be classified as cash inflows from investing activities. Under existing guidance, the Company classifies cash receipts from beneficial interests in securitized receivables and cash payments resulting from debt prepayment or extinguishment as cash flows from operating activities. The guidance will be effective for the Company on January 1, 2018. The Company is currently evaluating the impact of adopting this guidance, which may have a material impact on its cash flows from operating activities.


C.    Acquisitions

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.

The Company finalized its purchase accounting for the Empaque acquisition in the first quarter of 2016. There were no adjustments to the preliminary valuation of identifiable assets acquired and liabilities assumed as compared to the amounts disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2015.


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, 2014
 
$
(1,781
)
 
$
(980
)
 
$
(4
)
 
$
(2,765
)
Other comprehensive income (loss) before reclassifications
16

 
(357
)
 
(28
)
 
(369
)
Amounts reclassified from accumulated other comprehensive income
32

 


 
13

 
45

Other comprehensive income (loss)
 
48

 
(357
)
 
(15
)
 
(324
)
Balance at September 30, 2015
 
$
(1,733
)
 
$
(1,337
)
 
$
(19
)
 
$
(3,089
)
 
 
 
 
 
 
 
 
 
Balance at December 31, 2015
 
$
(1,690
)
 
$
(1,446
)
 
$
(18
)
 
$
(3,154
)
Other comprehensive income (loss) before reclassifications
(13
)
 
(170
)
 
19

 
(164
)
Amounts reclassified from accumulated other comprehensive income
38

 


 
5

 
43

Other comprehensive income (loss)
 
25

 
(170
)
 
24

 
(121
)
Balance at September 30, 2016
 
$
(1,665
)
 
$
(1,616
)
 
$
6

 
$
(3,275
)


8
Crown Holdings, Inc.


The following table provides information about amounts reclassified from accumulated other comprehensive income.
 
 
Three Months Ended
 
Nine Months Ended
 
 
Details about accumulated other
 
September 30
 
September 30
 
Affected line item in the
comprehensive income components
 
2016
 
2015
 
2016
 
2015
 
statement of operations
(Gains) losses on cash flow hedges
 
 
 
 
 
 
 
 
 
 
    Commodities
 
$
—

 
$
12

 
$
10

 
$
16

 
Cost of products sold
 
 
—

 
12

 
10

 
16

 
Income before taxes
 
 
—

 
(3
)
 
(3
)
 
(4
)
 
Provision for income taxes
 
 
$
—

 
$
9

 
$
7

 
$
12

 
Net income
 
 
 
 
 
 
 
 
 
 
 
    Foreign exchange
 
$
3

 
$
—

 
$
7

 
$
(1
)
 
Net sales
 
 
(4
)
 
—

 
(9
)
 
2

 
Cost of products sold
 
 
(1
)
 
—

 
(2
)
 
1

 
Income before taxes
 
 
—

 
—

 
—

 
—

 
Provision for income taxes
 
 
$
(1
)
 
$
—

 
$
(2
)
 
$
1

 
Net income
 
 
 
 
 
 
 
 
 
 
 
Total (gains) losses on cash flow hedges
$
(1
)
 
$
9

 
$
5

 
$
13

 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization of defined benefit plan items
 
 
 
 
 
 
 
 
 
    Actuarial losses
 
$
34

 
$
26

 
$
90

 
$
81

 
(a)
    Prior service credit
 
(14
)
 
(14
)
 
(40
)
 
(38
)
 
(a)
 
 
20

 
12

 
50

 
43

 
Income before taxes
 
 
(5
)
 
(3
)
 
(12
)
 
(11
)
 
Provision for income taxes
 
 
$
15

 
$
9

 
$
38

 
$
32

 
Net income
 
 
 
 
 
 
 
 
 
 
 
Total reclassifications for the period
$
14

 
$
18

 
$
43

 
$
45

 
 

(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 nine months ended September 30, 2016 follows:
 
Number of shares
Non-vested stock awards outstanding at January 1, 2016
1,778,275

Awarded:

Time-vesting shares
127,167

Performance-based shares
137,374

Released:

Time-vesting shares
(412,889
)
Performance-based shares
(90,003
)
Forfeitures:
 
        Time-vesting shares
(46,667
)
Performance-based shares
(161,415
)
Non-vested stock awards outstanding at September 30, 2016
1,331,842



9
Crown Holdings, Inc.


The performance-based awards 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.

The time-vesting restricted and deferred stock awards vest ratably over three to five years.

The weighted average grant-date fair value of the 2016 time-vesting stock awards was $51.04 and the performance-based stock awards was $51.18.

The fair value of the performance-based shares awarded in 2016 was calculated using a Monte Carlo valuation model, including a weighted average stock price volatility of 19.8%, an expected term of three years, and a weighted average risk-free interest rate of 1.22%.

At September 30, 2016, unrecognized compensation cost related to outstanding non-vested stock awards was $36. The weighted average period over which the expense is expected to be recognized is 2.0 years. The aggregate market value of the shares released on the vesting dates was $26 for the nine months ended September 30, 2016.


F.
Receivables

 
September 30, 2016
 
December 31, 2015
Accounts receivable
$
936

 
$
827

Less: allowance for doubtful accounts
(77
)
 
(83
)
Net trade receivables
859

 
744

Miscellaneous receivables
188

 
168

Receivables, net
$
1,047

 
$
912


The Company uses receivable securitization facilities in the normal course of business as part of managing its cash flows. In connection with certain receivable securitization facilities, the Company recognized deferred purchase price receivables of $107 and $105 at September 30, 2016 and December 31, 2015, which were included in prepaid expenses and other current assets in the Consolidated Balance Sheet. The net change in deferred purchase price receivable was reflected in the receivables line item in the 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.
 
September 30, 2016
 
December 31, 2015
Raw materials and supplies
$
636

 
$
599

Work in process
129

 
129

Finished goods
535

 
485

 
$
1,300

 
$
1,213


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 recurring items valued using Level 3 inputs other than certain pension plan assets.

10
Crown Holdings, Inc.


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 2. 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 September 30, 2016 mature between one and twenty-five months.

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

The Company uses 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, foreign currency risk is hedged together with the related commodity price risk.

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.

11
Crown Holdings, Inc.


    
 
 
 Amount of gain/(loss)
 
 Amount of gain/(loss)
 
 
recognized in AOCI
 
reclassified from AOCI
 
 
(effective portion)
 
into earnings
 
 
Three Months Ended
 
Nine Months Ended
 
Three Months Ended
 
Nine Months Ended
Derivatives in cash flow hedges
 
September 30, 2016
 
September 30, 2016
 
September 30, 2016
 
September 30, 2016
 
 
 
 
 
 
 
 
 
Foreign exchange
 
$
—

 
$
3

 
$
1

 
$
2

Commodities
 
4

 
16

 
—

 
(7
)
Total
 
$
4

 
$
19

 
$
1

 
$
(5
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Amount of gain/(loss)
 
 Amount of gain/(loss)
 
 
recognized in AOCI
 
reclassified from AOCI
 
 
(effective portion)
 
into earnings
 
 
Three Months Ended
 
Nine Months Ended
 
Three Months Ended
 
Nine Months Ended
Derivatives in cash flow hedges
 
September 30, 2015
 
September 30, 2015
 
September 30, 2015
 
September 30, 2015
 
 
 
 
 
 
 
 
 
Foreign exchange
 
$
1

 
$
(2
)
 
$
—

 
$
(1
)
Commodities
 
(15
)
 
(26
)
 
(9
)
 
(12
)
Total
 
$
(14
)
 
$
(28
)
 
$
(9
)
 
$
(13
)

For the nine months ended September 30, 2016 and 2015, the Company recognized gains of $1 ($1 net of tax) and $2 ($1 net of tax) in earnings related to hedge ineffectiveness caused by volatility in the metal premium component of aluminum prices.

For the twelve month period ending September 30, 2017, a net gain of $9 ($7 net of tax) is expected to be reclassified to earnings. No amounts were reclassified during the nine months ended September 30, 2016 and 2015 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 nine months ended September 30, 2016.

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 loss of $1 and a loss of $6 for the three and nine months ended September 30, 2016 and a loss of less than $1 and a gain of less than $1 for the three and nine months ended September 30, 2015. The impact on earnings from foreign exchange contracts not designated as hedges was a gain of $6 and a gain of $32 for the three and nine months ended September 30, 2016 and a gain of $24

12
Crown Holdings, Inc.


and a loss of $19 for the same period in 2015. 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.

For the three and nine months ended September 30, 2016, 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 nine months ended September 30, 2016, the Company recognized a gain of $1 ($1 net of tax) and a gain of $5 ($4 net of tax) in earnings related to these ineffective hedges.

Net Investment Hedges

The Company designates certain derivative and non-derivative financial instruments (debt) as hedges of its net investment in a euro-based subsidiary and recorded a loss of $13 ($8 net of tax) and a loss of $31 ($20 net of tax) in accumulated other comprehensive income during the three and nine months ended September 30, 2016.

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 September 30, 2016 and December 31, 2015, respectively.

 
 
Balance Sheet classification
 
Fair Value hierarchy
 
September 30,
2016
 
December 31,
2015
Derivative assets
 
 
 
 
 
 
 
 
Derivatives designated as hedges:
 
 
 
 
 
 
Foreign exchange
 
Other current assets
 
2
 
$
30

 
$
32

Commodities
 
Other current assets
 
2
 
11

 
5

Commodities
 
Other non-current assets
 
2
 
4

 
2

Derivatives not designated as hedges:
 
 
 
 
 

Commodities
 
Other current assets
 
2
 
3

 
3

Commodities
 
Other non-current assets
 
2
 
1

 
—

 
 
Total
 
 
 
$
49

 
$
42

 
 
 
 
 
 
 
 
 
Derivative liabilities
 
 
 
 
 
 
 
 
Derivatives designated as hedges:
 
 
 
 
 
 
Foreign exchange
 
Accounts payable and accrued liabilities
 
2
 
$
26

 
$
14

Commodities
 
Accounts payable and accrued liabilities
 
2
 
5

 
26

Commodities
 
Other non-current liabilities
 
2
 
2

 
5

Derivatives not designated as hedges:
 
 
 
 
 

Foreign exchange
 
Accounts payable and accrued liabilities
 
2
 
2

 
2

Commodities
 
Accounts payable and accrued liabilities
 
2
 
1

 
5

 
 
Total
 
 
 
$
36

 
$
52



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.

13
Crown Holdings, Inc.


 
Gross amounts recognized in the Balance Sheet
Gross amounts not offset in the Balance Sheet
Net amount
Balance at September 30, 2016
 
 
 
Derivative assets
$49
$10
$39
Derivative liabilities
36
10
26
 
 
 
 
Balance at December 31, 2015
 
 
 
Derivative assets
42
9
33
Derivative liabilities
52
9
43
    
Notional Values of Outstanding Derivative Instruments

The aggregate U.S. dollar-equivalent notational values of outstanding derivative instruments in the Consolidated Balance Sheets at September 30, 2016 and December 31, 2015 were:
 
September 30, 2016
 
December 31, 2015
Derivatives in cash flow hedges:
 
 
 
Foreign exchange
$
604

 
$
922

Commodities
180

 
324

Derivatives in fair value hedges:

 

Foreign exchange
104

 
125

Derivatives not designated as hedges:
 
 
 
Foreign exchange
551

 
674

Commodities
81

 
57



I.
Restructuring and Other

The Company recorded restructuring and other charges as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30
 
September 30
 
2016
 
2015
 
2016
 
2015
Asset impairments and sales
$
4

 
$
14

 
$
(3
)
 
$
15

Restructuring
7

 
20

 
10

 
21

Transaction costs
—

 
—

 
—

 
15

Other costs
9

 
6

 
12

 
6

 
$
20

 
$
40

 
$
19

 
$
57


For the three and nine months ended September 30, 2016, the Company recorded charges of $3 to write down the carrying value of fixed assets and $3 for termination benefits related to the announced closure of a beverage plant in the Company's Asia Pacific segment. The Company announced plans to close the plant in an effort to reduce cost by consolidating manufacturing processes in China.

For the three and nine months ended September 30, 2016, other costs primarily relate to pension settlement charges.

A summary of the outstanding accrual balances associated with current and prior restructuring actions is provided below.

2015 European Division Actions

Through September 30, 2016, the Company incurred charges of $17 related to the closure of two facilities in its European Food segment. The closures are expected to reduce cost by eliminating excess capacity and consolidating manufacturing processes.


14
Crown Holdings, Inc.


The facility closures are expected to result in the reduction of approximately 280 employees when completed in early 2017. The Company expects to incur $3 of future charges related to these actions.

The table below summarizes the restructuring accrual balances and utilization by cost type for these actions.
 
Termination
benefits
 
Other exit
costs
 
Total
Balance at January 1, 2016
$
17

 
$
—

 
$
17

Payments
(3
)
 
—

 
(3
)
Foreign currency translation
(1
)
 
—

 
(1
)
Balance at September 30, 2016
$
13


$
—


$
13


Other Actions

At September 30, 2016, the Company also had a restructuring accrual of $13 primarily related to prior actions 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 accrual also included $3 related to the announced closure of a beverage plant in the Company's Asia Pacific segment as discussed above. The Company continues to review its supply and demand profile and long-term plans in its businesses, and it is possible that the Company may record additional restructuring charges in the future.


J.
Debt

The Company's outstanding debt was as follows:
 
September 30, 2016
 
December 31, 2015
 
Principal
 
Carrying
 
Principal
 
Carrying
 
outstanding
 
amount
 
outstanding
 
amount
Short-term debt
$
49

 
$
49

 
$
54

 
$
54

 
 
 
 
 
 
 
 
Long-term debt
 
 
 
 
 
 
 
Senior secured borrowings:
 
 
 
 
 
 
 
Revolving credit facilities
$
106

 
$
106

 
$
—

 
$
—

Term loan facilities
 
 
 
 
 
 
 
U.S. dollar at LIBOR + 1.75% due 2018
731

 
725

 
831

 
821

€665 Euro at EURIBOR + 1.75% due 2018
73

 
72

 
723

 
714

Farm credit facility at LIBOR + 2.00% due 2019
355

 
351

 
355

 
350

Senior notes and debentures:
 
 
 
 
 
 
 
U.S. dollar at 6.25% due 2021
—

 
—

 
700

 
694

€650 at 4.0% due 2022
731

 
722

 
706

 
697

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

 
990

 
1,000

 
989

€600 at 2.625% due 2024
675

 
667

 
—

 
—

€600 at 3.375% due 2025
675

 
666

 
652

 
642

U.S. dollar at 4.25% due 2026
400

 
395

 
—

 
—

U.S. dollar at 7.375% due 2026
350

 
347

 
350

 
346

U.S. dollar at 7.50% due 2096
45

 
45

 
45

 
45

Other indebtedness in various currencies
132

 
132

 
166

 
166

Total long-term debt
5,273


5,218


5,528


5,464

Less current maturities
(122
)
 
(121
)
 
(211
)
 
(209
)
Total long-term debt, less current maturities
$
5,151


$
5,097


$
5,317


$
5,255



15

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 $5,445 at September 30, 2016 and $5,540 at December 31, 2015.

In February 2016, the Company amended its credit agreement to provide for an additional $300 of term loan borrowings, the proceeds of which, along with borrowings under the revolving credit facilities and cash on hand were used to redeem the Company's $700 6.25% senior notes due 2021. In connection with the redemption, the Company recorded a loss from early extinguishment of debt of $27 for premiums paid and the write-off of deferred financing fees.

In September 2016, the Company issued €600 ($675 at September 30, 2016) principal amount of 2.625% senior unsecured notes due 2024. 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 the proceeds to repay a portion of the Euro term loan facility. In connection with the repayment, the Company recorded a loss from early extinguishment of debt of $7 for the write-off of deferred financing fees.

In September 2016, the Company also issued $400 principal amount of 4.25% senior unsecured notes due 2026. The notes were issued at par by Crown Americas LLC, a subsidiary of the Company, and are unconditionally guaranteed by the Company and certain of its subsidiaries. The Company used the proceeds to repay a portion of the U.S dollar term loan facility. In connection with the repayment, the Company recorded a loss from early extinguishment of debt of $3 for the write-off of deferred financing fees.


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.

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.

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

In October 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 recent years, the states of Alabama, Arizona, Arkansas, Florida, Georgia, Idaho, Indiana, Kansas, Michigan, Mississippi, Nebraska, North Carolina, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Utah, West Virginia, Wisconsin and Wyoming enacted legislation that limits asbestos-related liabilities under state law of companies such as

Crown Holdings, Inc.


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, West Virginia 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 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 nine months ended September 30, 2016, the Company paid $12 to settle outstanding claims and had claims activity as follows:
Beginning claims
54,500

New claims
2,000

Settlements or dismissals
(1,000
)
Ending claims
55,500


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, 2015, 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
17,500

Total claims outstanding
54,500


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:
 
2015

 
2014

 
2013

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

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 September 30, 2016.


17
Crown Holdings, Inc.


As of September 30, 2016, the Company’s accrual for pending and future asbestos-related claims and related legal costs was $254, including $205 for unasserted claims. The Company’s accrual includes estimated probable costs for claims through the year 2025. The Company’s accrual excludes potential costs for claims beyond 2025 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 82% of the claims outstanding at the end of 2015), 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.

The Company has also recorded aggregate accruals of $7 for remediation activities at various worldwide locations that are owned by the Company and for which the Company is not a member of a PRP group. 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.

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. 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 and has discovered instances of inappropriate conduct by certain employees of German subsidiaries of the Company. The Company is cooperating with the FCO and submitted a leniency application which disclosed the findings of its internal investigation to date and which may lead to the reduction of penalties that the FCO may impose. If the FCO finds that the Company or any of its subsidiaries violated competition law, the FCO has wide discretion to levy fines. At this stage of the investigation the Company believes that a loss is probable. However, the Company is unable to predict the ultimate outcome of the FCO’s investigation and is unable to estimate the loss or possible range of any additional losses that could be incurred, which could be material to the Company’s operating results and cash flows for the periods in which they are resolved or become reasonably estimable.

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.


18
Crown Holdings, Inc.


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 September 30, 2016, the Company was party to certain indemnification agreements covering environmental remediation, lease payments and other potential costs associated with properties sold or businesses divested. For agreements with defined liability limits the maximum potential amount of future liability was $6. The Company accrues for costs related to these items when it is probable that a liability has been incurred and the amount can be reasonably estimated. At September 30, 2016, the Company also had guarantees of $22 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
 
Nine Months Ended
 
September 30
 
September 30
 
2016
 
2015
 
2016
 
2015
Net income attributable to Crown Holdings
$
183

 
$
141

 
$
431

 
$
327

Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
138.7

 
138.1

 
138.4

 
137.9

Dilutive stock options and restricted stock
0.8

 
1.0

 
1.0

 
1.1

Diluted
139.5

 
139.1

 
139.4

 
139.0

Basic earnings per share
$
1.32

 
$
1.02

 
$
3.11

 
$
2.37

Diluted earnings per share
$
1.31

 
$
1.01

 
$
3.09

 
$
2.35


For the three and nine months ended September 30, 2016, 0.1 million and 0.5 million contingently issuable common shares were excluded from the computation of diluted earnings per share because the effect would be anti-dilutive.


N.
Pension and Other Postretirement Benefits

The components of net periodic pension and other postretirement benefits costs for the three and nine months ended September 30, 2016 and 2015 were as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30
 
September 30
Pension benefits – U.S. plans
2016
 
2015
 
2016
 
2015
Service cost
$
5

 
$
2

 
$
12

 
$
11

Interest cost
12

 
16

 
37

 
47

Expected return on plan assets
(23
)
 
(25
)
 
(68
)
 
(75
)
Recognized net loss
12

 
13

 
37

 
38

Net periodic cost
$
6

 
$
6

 
$
18

 
$
21


19
Crown Holdings, Inc.


 
Three Months Ended
 
Nine Months Ended
 
September 30
 
September 30
Pension benefits – Non-U.S. plans
2016
 
2015
 
2016
 
2015
Service cost
$
6

 
$
6

 
$
17

 
$
19

Interest cost
25

 
31

 
78

 
94

Expected return on plan assets
(39
)
 
(43
)
 
(121
)
 
(129
)
Recognized prior service credit
(3
)
 
(3
)
 
(9
)
 
(10
)
Recognized net loss
12

 
13

 
38

 
40

Net periodic cost
$
1

 
$
4

 
$
3

 
$
14


 
Three Months Ended
 
Nine Months Ended
 
September 30
 
September 30
Other postretirement benefits
2016
 
2015
 
2016
 
2015
Service cost
$
1

 
$
1

 
$
1

 
$
1

Interest cost
1

 
2

 
3

 
6

Recognized prior service credit
(11
)
 
(10
)
 
(31
)
 
(27
)
Recognized net loss
1

 
—

 
3

 
3

Net periodic benefit
$
(8
)
 
$
(7
)
 
$
(24
)
 
$
(17
)

During the three and nine months ended September 30, 2016, the Company also recorded pension settlement charges of $9 and $12 which were included in restructuring and other in the Consolidated Statement of Operations.


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
 
Nine Months Ended
 
September 30
 
September 30
 
2016
 
2015
 
2016
 
2015
U.S. statutory rate at 35%
$
89

 
$
73

 
$
225

 
$
178

Tax on foreign income
(30
)
 
(27
)
 
(71
)
 
(66
)
Tax contingencies
8

 
—

 
9

 
8

Valuation allowance
(27
)
 
2

 
(25
)
 
7

Other items, net
8

 
—

 
13

 
7

Income tax provision
$
48

 
$
48

 
$
151

 
$
134


In the third quarter of 2016, the Company recognized a benefit of $31 to release the valuation allowance against its net deferred tax assets in Canada. The Company's operations in Canada recently returned to profitability in part due to benefits from recent restructuring actions and improved cost performance. Based on current projections, the Company believes it is more likely than not that it will realize the deferred tax assets. The Company's loss carryforwards in Canada expire at various dates beginning in 2026. If future changes impact the Company's profitability in Canada, it is possible that the Company may record an additional valuation allowance in the future.
  
In the third quarter of 2016, the Spanish tax authorities concluded their audits of Mivisa's Spanish operations for the years 2009 to 2014. In connection with the audits, the Company recognized a charge of $8 to settle certain tax contingencies.

In the third quarter of 2016, the Company recognized a charge of $5 to write off certain tax credit carryforwards that the Company will be unable to utilize as a result of an internal reorganization of the Company's operations in the U.K.



20
Crown Holdings, Inc.



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 income from operations adjusted to add back provisions for asbestos and restructuring and other, the impact of fair value adjustments related to the sale of inventory acquired in an acquisition and the timing impact of hedge ineffectiveness. 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
 
Nine Months Ended
 
September 30
 
September 30
 
2016
 
2015
 
2016
 
2015
Americas Beverage
$
719

 
$
722

 
$
2,068

 
$
2,080

North America Food
190

 
200

 
504

 
530

European Beverage
413

 
427

 
1,129

 
1,173

European Food
599

 
641

 
1,459

 
1,564

Asia Pacific
281

 
300

 
839

 
920

Total reportable segments
2,202

 
2,290

 
5,999

 
6,267

Non-reportable segments
124

 
170

 
362

 
468

Total
$
2,326

 
$
2,460

 
$
6,361

 
$
6,735


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

 
Intersegment Sales
 
Intersegment Sales
 
Three Months Ended
 
Nine Months Ended
 
September 30
 
September 30
 
2016
 
2015
 
2016
 
2015
Americas Beverage
$
11

 
$
16

 
$
44

 
$
61

North America Food
6

 
1

 
19

 
3

European Beverage
1

 
1

 
2

 
1

European Food
14

 
26

 
50

 
77

Asia Pacific
—

 
2

 
—

 
2

Total reportable segments
32

 
46

 
115

 
144

Non-reportable segments
48

 
19

 
110

 
73

Total
$
80

 
$
65

 
$
225

 
$
217



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.


21
Crown Holdings, Inc.


 
Segment Income
 
Segment Income
 
Three Months Ended
 
Nine Months Ended
 
September 30
 
September 30
 
2016
 
2015
 
2016
 
2015
Americas Beverage
$
119

 
$
116

 
$
329

 
$
300

North America Food
25

 
25

 
57

 
72

European Beverage
83

 
74

 
204

 
178

European Food
96

 
98

 
212

 
208

Asia Pacific
37

 
37

 
111

 
111

Total reportable segments
$
360

 
$
350

 
$
913

 
$
869



A reconciliation of segment income of reportable segments to income before income taxes is as follows:

 
Three Months Ended
 
Nine Months Ended
 
September 30
 
September 30
 
2016

2015
 
2016

2015
Segment income of reportable segments
$
360

 
$
350

 
$
913

 
$
869

Segment income of non-reportable segments
19

 
25

 
52

 
62

Corporate and unallocated items
(44
)
 
(54
)
 
(117
)
 
(148
)
Restructuring and other
(20
)
 
(40
)
 
(19
)
 
(57
)
Loss from early extinguishments of debt
(10
)
 
—

 
(37
)
 
(9
)
Interest expense
(59
)
 
(68
)
 
(181
)
 
(202
)
Interest income
3

 
4

 
8

 
8

Foreign exchange
5

 
(9
)
 
22

 
(14
)
Income before income taxes
$
254


$
208

 
$
641

 
$
509



For the three and nine months ended September 30, 2016, intercompany profit of $8 and $12 was eliminated within segment income of non-reportable segments.

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.





















22
Crown Holdings, Inc.


Q.
Condensed Combining Financial Information

Crown Cork & Seal Company, Inc. (Issuer), a 100% owned subsidiary of the Company, has $350 principal amount of 7.375% senior notes due 2026 and $45 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 nine months ended September 30, 2016 and 2015,
•balance sheets as of September 30, 2016 and December 31, 2015, and
•statements of cash flows for the nine months ended September 30, 2016 and 2015
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 September 30, 2016
(in millions)

 
Parent
 
Issuer
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net sales
 
 
 
 
$
2,326

 
 
 
$
2,326

Cost of products sold, excluding depreciation and amortization
 
 
 
 
1,838

 
 
 
1,838

Depreciation and amortization
 
 
 
 
63

 
 
 
63

Selling and administrative expense
 
 
$
3

 
87

 
 
 
90

Restructuring and other
 
 
9

 
11

 
 
 
20

Income from operations
 
 
(12
)
 
327

 
 
 
315

 Loss on early extinguishments of debt
 
 


 
10

 
 
 
10

Net interest expense
 
 
27

 
29

 
 
 
56

Foreign exchange
 
 

 
(5
)
 
 
 
(5
)
Income/(loss) before income taxes
 
 
(39
)
 
293

 
 
 
254

Provision for / (benefit from) income taxes
 
 
(19
)
 
67

 
 
 
48

Equity earnings / (loss) in affiliates
$
183

 
180

 
 
 
$
(363
)
 
—

Net income
183

 
160

 
226

 
(363
)
 
206

Net income attributable to noncontrolling interests
 
 
 
 
(23
)
 
 
 
(23
)
Net income attributable to Crown Holdings
$
183

 
$
160

 
$
203

 
$
(363
)
 
$
183

 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
143

 
$
113

 
$
165

 
$
(256
)
 
$
165

Comprehensive income attributable to noncontrolling interests
 
 
 
 
(22
)
 
 
 
(22
)
Comprehensive income attributable to Crown Holdings
$
143

 
$
113

 
$
143

 
$
(256
)
 
$
143



23
Crown Holdings, Inc.




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

 
Parent
 
Issuer
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net sales
 
 
 
 
$
2,460

 
 
 
$
2,460

Cost of products sold, excluding depreciation and amortization
 
 
 
 
1,984

 
 
 
1,984

Depreciation and amortization
 
 
 
 
61

 
 
 
61

Selling and administrative expense
 
 
$
3

 
91

 
 
 
94

Restructuring and other
 
 
 
 
40

 
 
 
40

Income from operations
 
 
(3
)
 
284

 
 
 
281

Net interest expense
 
 
25

 
39

 
 
 
64

Foreign exchange
 
 
 
 
9

 
 
 
9

Income/(loss) before income taxes
 
 
(28
)
 
236

 
 
 
208

Provision for / (benefit from) income taxes
 
 
(15
)
 
63

 
 
 
48

Equity earnings / (loss) in affiliates
$
141

 
110

 
 
 
$
(251
)
 
—

Net income
141

 
97

 
173

 
(251
)
 
160

Net income attributable to noncontrolling interests
 
 
 
 
(19
)
 
 
 
(19
)
Net income attributable to Crown Holdings
$
141

 
$
97

 
$
154

 
$
(251
)
 
$
141

 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
9

 
$
35

 
$
38

 
$
(57
)
 
$
25

Comprehensive income attributable to noncontrolling interests
 
 
 
 
(16
)
 
 
 
(16
)
Comprehensive income attributable to Crown Holdings
$
9

 
$
35

 
$
22

 
$
(57
)
 
$
9



24
Crown Holdings, Inc.




CONDENSED COMBINING STATEMENT OF COMPREHENSIVE INCOME
For the nine months ended September 30, 2016
(in millions)

 
Parent
 
Issuer
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net sales
 
 
 
 
$
6,361

 
 
 
$
6,361

Cost of products sold, excluding depreciation and amortization
 
 
 
 
5,050

 
 
 
5,050

Depreciation and amortization
 
 
 
 
188

 
 
 
188

Selling and administrative expense
 
 
$
8

 
267

 
 
 
275

Restructuring and other
 
 
12

 
7

 
 
 
19

Income from operations
 
 
(20
)
 
849

 
 
 
829

Loss from early extinguishment of debt
 
 
 
 
37

 
 
 
37

Net interest expense
 
 
79

 
94

 
 
 
173

Foreign exchange
 
 
 
 
(22
)
 
 
 
(22
)
Income/(loss) before income taxes
 
 
(99
)
 
740

 
 
 
641

Provision for / (benefit from) income taxes
 
 
(42
)
 
193

 
 
 
151

Equity earnings / (loss) in affiliates
$
431

 
403

 
 
 
$
(834
)
 
—

Net income
431

 
346

 
547

 
(834
)
 
490

Net income attributable to noncontrolling interests
 
 
 
 
(59
)
 
 
 
(59
)
Net income attributable to Crown Holdings
$
431

 
$
346

 
$
488

 
$
(834
)
 
$
431

 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
310

 
$
299

 
$
428

 
$
(666
)
 
$
371

Comprehensive income attributable to noncontrolling interests
 
 
 
 
(61
)
 
 
 
(61
)
Comprehensive income attributable to Crown Holdings
$
310

 
$
299

 
$
367

 
$
(666
)
 
$
310



25
Crown Holdings, Inc.




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

 
Parent
 
Issuer
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net sales
 
 
 
 
$
6,735

 
 
 
$
6,735

Cost of products sold, excluding depreciation and amortization
 
 
 
 
5,487

 
 
 
5,487

Depreciation and amortization
 
 
 
 
174

 
 
 
174

Selling and administrative expense
 
 
$
8

 
283

 
 
 
291

Restructuring and other
 
 
 
 
57

 
 
 
57

Income from operations
 
 
(8
)
 
734

 
 
 
726

Loss from early extinguishment of debt
 
 
 
 
9

 
 
 
9

Net interest expense
 
 
76

 
118

 
 
 
194

Foreign exchange
 
 
 
 
14

 
 
 
14

Income/(loss) before income taxes
 
 
(84
)
 
593

 
 
 
509

Provision for / (benefit from) income taxes
 
 
(24
)
 
158

 
 
 
134

Equity earnings / (loss) in affiliates
$
327

 
298

 
 
 
$
(625
)
 
—

Net income
327

 
238

 
435

 
(625
)
 
375

Net income attributable to noncontrolling interests
 
 
 
 
(48
)
 
 
 
(48
)
Net income attributable to Crown Holdings
$
327

 
$
238

 
$
387

 
$
(625
)
 
$
327

 
 
 
 
 
 
 
 
 
 
Comprehensive Income
$
3

 
$
73

 
$
106

 
$
(136
)
 
$
46

Comprehensive income attributable to noncontrolling interests
 
 
 
 
(43
)
 
 
 
(43
)
Comprehensive income attributable to Crown Holdings
$
3

 
$
73

 
$
63

 
$
(136
)
 
$
3




26
Crown Holdings, Inc.


CONDENSED COMBINING BALANCE SHEET
As of September 30, 2016
(in millions)
 
Parent
 
Issuer
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Assets
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
 
 
 
$
526

 
 
 
$
526

Receivables, net
 
 
 
 
1,047

 
 
 
1,047

Inventories
 
 
 
 
1,300

 
 
 
1,300

Prepaid expenses and other current assets
$
1

 


 
216

 
 
 
217

Total current assets
1

 
—

 
3,089

 
 
 
3,090

 
 
 
 
 
 
 
 
 
 
Intercompany debt receivables
 
 
 
 
3,583

 
$
(3,583
)
 
—

Investments
3,098

 
$
2,835

 
 
 
(5,933
)
 
—

Goodwill and intangible assets
 
 
 
 
3,450

 
 
 
3,450

Property, plant and equipment, net
 
 
 
 
2,746

 
 
 
2,746

Other non-current assets
 
 
427

 
250

 
 
 
677

Total
$
3,099

 
$
3,262

 
$
13,118

 
$
(9,516
)
 
$
9,963

 
 
 
 
 
 
 
 
 
 
Liabilities and equity
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
Short-term debt
 
 
 
 
$
49

 
 
 
$
49

Current maturities of long-term debt
 
 
 
 
121

 
 
 
121

Accounts payable and accrued liabilities
$
17

 
$
40

 
2,570

 
 
 
2,627

Total current liabilities
17

 
40

 
2,740

 
 
 
2,797

 
 
 
 
 
 
 
 
 
 
Long-term debt, excluding current maturities
 
 
392

 
4,705

 
 
 
5,097

Long-term intercompany debt
2,613

 
970

 
 
 
$
(3,583
)
 
—

Postretirement and pension liabilities
 
 
 
 
638

 
 
 
638

Other non-current liabilities
 
 
265

 
387

 
 
 
652

Commitments and contingent liabilities
 
 
 
 
 
 
 
 

Noncontrolling interests
 
 
 
 
310

 
 
 
310

Crown Holdings shareholders’ equity/(deficit)
469

 
1,595

 
4,338

 
(5,933
)
 
469

Total equity/(deficit)
469

 
1,595

 
4,648

 
(5,933
)
 
779

Total
$
3,099

 
$
3,262

 
$
13,118

 
$
(9,516
)
 
$
9,963



27
Crown Holdings, Inc.


CONDENSED COMBINING BALANCE SHEET
As of December 31, 2015
(in millions)

 
Parent
 
Issuer
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Assets
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
 
 
 
$
717

 
 
 
$
717

Receivables, net
 
 
 
 
912

 
 
 
912

Inventories
 
 
 
 
1,213

 
 
 
1,213

Prepaid expenses and other current assets
 
 
$
2

 
205

 
 
 
207

Total current assets
—

 
2

 
3,047

 
 
 
3,049

 
 
 
 
 
 
 
 
 
 
Intercompany debt receivables
 
 
 
 
3,654

 
$
(3,654
)
 
—

Investments
$
2,937

 
2,490

 
 
 
(5,427
)
 
—

Goodwill and intangible assets
 
 
 
 
3,580

 
 
 
3,580

Property, plant and equipment, net
 
 
 
 
2,699

 
 
 
2,699

Other non-current assets
 
 
430

 
262

 
 
 
692

Total
$
2,937

 
$
2,922

 
$
13,242

 
$
(9,081
)
 
$
10,020

 
 
 
 
 
 
 
 
 
 
Liabilities and equity
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
Short-term debt
 
 
 
 
$
54

 
 
 
$
54

Current maturities of long-term debt
 
 
 
 
209

 
 
 
209

Accounts payable and accrued liabilities
$
24

 
$
41

 
2,580

 
 
 
2,645

Total current liabilities
24

 
41

 
2,843

 
 
 
2,908

 
 
 
 
 
 
 
 
 
 
Long-term debt, excluding current maturities
 
 
391

 
4,864

 
 
 
5,255

Long-term intercompany debt
2,769

 
885

 
 
 
$
(3,654
)
 
—

Postretirement and pension liabilities
 
 
 
 
767

 
 
 
767

Other non-current liabilities
 
 
309

 
346

 
 
 
655

Commitments and contingent liabilities
 
 
 
 
 
 
 
 

Noncontrolling interests
 
 
 
 
291

 
 
 
291

Crown Holdings shareholders’ equity/(deficit)
144

 
1,296

 
4,131

 
(5,427
)
 
144

Total equity/(deficit)
144

 
1,296

 
4,422

 
(5,427
)
 
435

Total
$
2,937

 
$
2,922

 
$
13,242

 
$
(9,081
)
 
$
10,020



28
Crown Holdings, Inc.


CONDENSED COMBINING STATEMENT OF CASH FLOWS
For the nine months ended September 30, 2016
(in millions)

 
Parent
 
Issuer
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net cash provided by/(used for) operating activities
$
6

 
$
(86
)
 
$
466

 
$
(10
)
 
$
376

Cash flows from investing activities
 
 
 
 
 
 
 
 
 
Capital expenditures
 
 
 
 
(244
)
 
 
 
(244
)
Intercompany investing activities
150

 

 


 
(150
)
 
—

Other
 
 
 
 
16

 
 
 
16

Net cash provided by/(used for) investing activities
150

 
—

 
(228
)
 
(150
)
 
(228
)
Cash flows from financing activities
 
 
 
 
 
 
 
 
 
Proceeds from long-term debt
 
 
 
 
1,379

 
 
 
1,379

Payments of long-term debt
 
 
 
 
(1,810
)
 
 
 
(1,810
)
Net change in revolving credit facility and short-term debt
 
 
 
 
108

 
 
 
108

Net change in long-term intercompany balances
(156
)
 
86

 
70

 
 
 
—

Debt issue costs
 
 
 
 
(16
)
 
 
 
(16
)
Common stock issued
8

 
 
 
 
 
 
 
8

Common stock repurchased
(8
)
 
 
 
 
 
 
 
(8
)
Dividends paid
 
 
 
 
(160
)
 
160

 
—

Contributions from noncontrolling interests
 
 
 
 
1

 
 
 
1

Dividend paid to noncontrolling interests
 
 
 
 
(43
)
 
 
 
(43
)
Foreign exchange derivatives related to debt
 
 
 
 
53

 
 
 
53

Net cash provided by/(used for) financing activities
(156
)
 
86

 
(418
)
 
160

 
(328
)
Effect of exchange rate changes on cash and cash equivalents
 
 
 
 
(11
)
 
 
 
(11
)
Net change in cash and cash equivalents
—

 
—

 
(191
)
 
—

 
(191
)
Cash and cash equivalents at January 1
 
 
 
 
717

 
 
 
717

Cash and cash equivalents at September 30
$
—

 
$
—


$
526


$
—


$
526



29
Crown Holdings, Inc.


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

 
Parent
 
Issuer
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net cash provided by/(used for) operating activities
$
24

 
$
(65
)
 
$
356

 
 
 
$
315

Cash flows from investing activities
 
 
 
 
 
 
 
 
 
Capital expenditures
 
 
 
 
(176
)
 
 
 
(176
)
Purchase of business
 
 
 
 
(1,207
)
 
 
 
(1,207
)
Proceeds from sale of business
 
 
 
 
33

 
 
 
33

Intercompany investing activities
(865
)
 
9

 
865

 
$
(9
)
 
—

Net investment hedge settlements
 
 
 
 
(11
)
 
 
 
(11
)
Other
 
 
 
 
(13
)
 
 
 
(13
)
Net cash provided by/(used for) investing activities
(865
)
 
9

 
(509
)
 
(9
)
 
(1,374
)
Cash flows from financing activities
 
 
 
 
 
 
 
 
 
Proceeds from long-term debt
 
 
 
 
1,435

 
 
 
1,435

Payments of long-term debt
 
 
 
 
(780
)
 
 
 
(780
)
Net change in revolving credit facility and short-term debt
 
 
 
 
34

 
 
 
34

Net change in long-term intercompany balances
845

 
56

 
(901
)
 
 
 
—

Debt issue costs
 
 
 
 
(18
)
 
 
 
(18
)
Common stock issued
5

 
 
 
 
 
 
 
5

Common stock repurchased
(9
)
 
 
 
 
 
 
 
(9
)
Dividends paid
 
 
 
 
(9
)
 
9

 
—

Contributions from noncontrolling interests
 
 
 
 
3

 
 
 
3

Dividend paid to noncontrolling interests
 
 
 
 
(21
)
 
 
 
(21
)
Foreign exchange derivatives related to debt
 
 
 
 
(38
)
 
 
 
(38
)
Net cash provided by/(used for) financing activities
841

 
56

 
(295
)
 
9

 
611

Effect of exchange rate changes on cash and cash equivalents
 
 
 
 
(51
)
 
 
 
(51
)
Net change in cash and cash equivalents
—

 
—

 
(499
)
 
—

 
(499
)
Cash and cash equivalents at January 1
 
 
 
 
965

 
 
 
965

Cash and cash equivalents at September 30
$
—

 
$
—

 
$
466

 
$
—

 
$
466



30
Crown Holdings, Inc.


Crown Americas, LLC, Crown Americas Capital Corp. II and Crown Americas Capital Corp. III (collectively, the Issuer), 100% owned subsidiaries of the Company, have outstanding $1,000 principal amount of 4.5% senior notes due 2023 and $400 principal amount of 4.25% senior notes due 2026, which are fully and unconditionally guaranteed by Crown Holdings, Inc. (Parent) and substantially all of its subsidiaries in the United States. The guarantors are 100% owned by the Company and the guarantees are made on a joint and several basis.

The following condensed combining financial statements:
•
statements of comprehensive income for the three and nine months ended September 30, 2016 and 2015,
•
balance sheets as of September 30, 2016 and December 31, 2015, and
•
statements of cash flows for the nine months ended September 30, 2016 and 2015
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 September 30, 2016
(in millions)

 
Parent
 
Issuer
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net sales
 
 
 
 
$
513

 
$
1,813

 
 
 
$
2,326

Cost of products sold, excluding depreciation and amortization
 
 
 
 
404

 
1,434

 
 
 
1,838

Depreciation and amortization
 
 
 
 
9

 
54

 
 
 
63

Selling and administrative expense
 
 
$
2

 
34

 
54

 
 
 
90

Restructuring and other
 
 

 
10

 
10

 
 
 
20

Income from operations
 
 
(2
)
 
56

 
261

 
 
 
315

Loss from early extinguishments of debt
 
 
5

 
 
 
5

 
 
 
10

Net interest expense
 
 
15

 
22

 
19

 
 
 
56

Technology royalty
 
 
 
 
(13
)
 
13

 
 
 
—

Foreign exchange
 
 
9

 
 
 
(5
)
 
$
(9
)
 
(5
)
Income/(loss) before income taxes
 
 
(31
)
 
47

 
229

 
9

 
254

Provision for / (benefit from) income taxes
 
 
(12
)
 
13

 
44

 
3

 
48

Equity earnings / (loss) in affiliates
$
183

 
68

 
126

 
 
 
(377
)
 
—

Net income
183

 
49

 
160

 
185

 
(371
)
 
206

Net income attributable to noncontrolling interests
 
 
 
 
 
 
(23
)
 
 
 
(23
)
Net income attributable to Crown Holdings
$
183

 
$
49

 
$
160

 
$
162

 
$
(371
)
 
$
183

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
143

 
$
33

 
$
113

 
$
169

 
$
(293
)
 
$
165

Comprehensive income attributable to noncontrolling interests
 
 
 
 
 
 
(22
)
 
 
 
(22
)
Comprehensive income attributable to Crown Holdings
$
143

 
$
33

 
$
113

 
$
147

 
$
(293
)
 
$
143



31
Crown Holdings, Inc.




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

 
Parent
 
Issuer
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net sales
 
 
 
 
$
527

 
$
1,933

 
 
 
$
2,460

Cost of products sold, excluding depreciation and amortization
 
 
 
 
415

 
1,569

 
 
 
1,984

Depreciation and amortization
 
 
 
 
8

 
53

 
 
 
61

Selling and administrative expense
 
 
$
2

 
37

 
55

 
 
 
94

Restructuring and other
 
 
 
 
3

 
37

 
 
 
40

Income from operations
 
 
(2
)
 
64

 
219

 
 
 
281

Net interest expense
 
 
23

 
23

 
18

 
 
 
64

Technology royalty
 
 
 
 
(13
)
 
13

 
 
 
—

Foreign exchange
 
 
3

 
 
 
9

 
$
(3
)
 
9

Income/(loss) before income taxes
 
 
(28
)
 
54

 
179

 
3

 
208

Provision for / (benefit from) income taxes
 
 
(11
)
 
15

 
43

 
1

 
48

Equity earnings / (loss) in affiliates
$
141

 
70

 
58

 
 
 
(269
)
 
—

Net income
141

 
53

 
97

 
136

 
(267
)
 
160

Net income attributable to noncontrolling interests
 
 
 
 
 
 
(19
)
 
 
 
(19
)
Net income attributable to Crown Holdings
$
141

 
$
53

 
$
97

 
$
117

 
$
(267
)
 
$
141

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
9

 
$
48

 
$
35

 
$
(25
)
 
$
(42
)
 
$
25

Comprehensive income attributable to noncontrolling interests
 
 
 
 
 
 
(16
)
 
 
 
(16
)
Comprehensive income attributable to Crown Holdings
$
9

 
$
48

 
$
35

 
$
(41
)
 
$
(42
)
 
$
9



32
Crown Holdings, Inc.




CONDENSED COMBINING STATEMENT OF COMPREHENSIVE INCOME
For the nine months ended September 30, 2016
(in millions)

 
Parent
 
Issuer
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net sales
 
 
 
 
$
1,468

 
$
4,893

 
 
 
$
6,361

Cost of products sold, excluding depreciation and amortization
 
 
 
 
1,174

 
3,876

 
 
 
5,050

Depreciation and amortization
 
 
 
 
25

 
163

 
 
 
188

Selling and administrative expense
 
 
$
7

 
102

 
166

 
 
 
275

Restructuring and other
 
 
(5
)
 
14

 
10

 
 
 
19

Income from operations
 
 
(2
)
 
153

 
678

 
 
 
829

Loss from early extinguishment of debt
 
 
32

 
 
 
5

 
 
 
37

Net interest expense
 
 
50

 
65

 
58

 
 
 
173

Technology royalty
 
 
 
 
(32
)
 
32

 
 
 
—

Foreign exchange
 
 
24

 
 
 
(22
)
 
$
(24
)
 
(22
)
Income/(loss) before income taxes
 
 
(108
)
 
120

 
605

 
24

 
641

Provision for / (benefit from) income taxes
 
 
(41
)
 
42

 
142

 
8

 
151

Equity earnings / (loss) in affiliates
$
431

 
165

 
268

 
 
 
(864
)
 
—

Net income
431

 
98

 
346

 
463

 
(848
)
 
490

Net income attributable to noncontrolling interests
 
 
 
 
 
 
(59
)
 
 
 
(59
)
Net income attributable to Crown Holdings
$
431

 
$
98

 
$
346

 
$
404

 
$
(848
)
 
$
431

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive Income
$
310

 
$
88

 
$
299

 
$
378

 
$
(704
)
 
$
371

Comprehensive income attributable to noncontrolling interests
 
 
 
 
 
 
(61
)
 
 
 
(61
)
Comprehensive income attributable to Crown Holdings
$
310

 
$
88

 
$
299

 
$
317

 
$
(704
)
 
$
310



33
Crown Holdings, Inc.




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

 
Parent
 
Issuer
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net sales
 
 
 
 
$
1,555

 
$
5,180

 
 
 
$
6,735

Cost of products sold, excluding depreciation and amortization
 
 
 
 
1,235

 
4,252

 
 
 
5,487

Depreciation and amortization
 
 
 
 
24

 
150

 
 
 
174

Selling and administrative expense
 
 
$
7

 
115

 
169

 
 
 
291

Restructuring and other
 
 
 
 
5

 
52

 
 
 
57

Income from operations
 
 
(7
)
 
176

 
557

 
 
 
726

Loss from early extinguishment of debt
 
 
9

 
 
 


 
 
 
9

Net interest expense
 
 
67

 
69

 
58

 
 
 
194

Technology royalty
 
 
 
 
(32
)
 
32

 
 
 
—

Foreign exchange
 
 
11

 
 
 
14

 
$
(11
)
 
14

Income/(loss) before income taxes
 
 
(94
)
 
139

 
453

 
11

 
509

Provision for / (benefit from) income taxes
 
 
(36
)
 
61

 
105

 
4

 
134

Equity earnings / (loss) in affiliates
$
327

 
158

 
160

 
 
 
(645
)
 
—

Net income
327

 
100

 
238

 
348

 
(638
)
 
375

Net income attributable to noncontrolling interests
 
 
 
 
 
 
(48
)
 
 
 
(48
)
Net income attributable to Crown Holdings
$
327

 
$
100

 
$
238

 
$
300

 
$
(638
)
 
$
327

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income
$
3

 
$
101

 
$
73

 
$
(5
)
 
$
(126
)
 
$
46

Comprehensive income attributable to noncontrolling interests
 
 
 
 
 
 
(43
)
 
 
 
(43
)
Comprehensive income attirbutable to Crown Holdings
$
3

 
$
101

 
$
73

 
$
(48
)
 
$
(126
)
 
$
3



34
Crown Holdings, Inc.




CONDENSED COMBINING BALANCE SHEET
As of September 30, 2016
(in millions)

 
Parent
 
Issuer
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Assets
 
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
 
$
48

 
$
1

 
$
477

 
 
 
$
526

Receivables, net
 
 
3

 
11

 
1,033

 
 
 
1,047

Intercompany receivables
 
 
 
 
35

 
6

 
$
(41
)
 
—

Inventories
 
 
 
 
304

 
996

 
 
 
1,300

Prepaid expenses and other current assets
$
1

 
2

 
8

 
206

 
 
 
217

Total current assets
1

 
53

 
359

 
2,718

 
(41
)
 
3,090

 
 
 
 
 
 
 
 
 
 
 
 
Intercompany debt receivables
 
 
2,815

 
3,412

 
697

 
(6,924
)
 
—

Investments
3,098

 
2,335

 
883

 
 
 
(6,316
)
 
—

Goodwill and intangible assets
 
 
 
 
469

 
2,981

 
 
 
3,450

Property, plant and equipment, net
 
 
1

 
450

 
2,295

 
 
 
2,746

Other non-current assets
 
 
3

 
450

 
224

 
 
 
677

Total
$
3,099

 
$
5,207

 
$
6,023

 
$
8,915

 
$
(13,281
)
 
$
9,963

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and equity
 
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
 
 
Short-term debt
 
 
 
 
 
 
$
49

 
 
 
$
49

Current maturities of long-term debt
 
 
$
80

 
 
 
41

 
 
 
121

Accounts payable and accrued liabilities
$
17

 
19

 
$
596

 
1,995

 
 
 
2,627

Intercompany payables
 
 
 
 
6

 
35

 
$
(41
)
 
—

Total current liabilities
17

 
99

 
602

 
2,120

 
(41
)
 
2,797

 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt, excluding current maturities
 
 
2,437

 
392

 
2,268

 
 
 
5,097

Long-term intercompany debt
2,613

 
1,324

 
2,795

 
192

 
(6,924
)
 
—

Postretirement and pension liabilities
 
 
 
 
344

 
294

 
 
 
638

Other non-current liabilities
 
 
 
 
295

 
357

 
 
 
652

Commitments and contingent liabilities
 
 
 
 
 
 
 
 
 
 

Noncontrolling interests
 
 
 
 
 
 
310

 
 
 
310

Crown Holdings shareholders’ equity/(deficit)
469

 
1,347

 
1,595

 
3,374

 
(6,316
)
 
469

Total equity/(deficit)
469

 
1,347

 
1,595

 
3,684

 
(6,316
)
 
779

Total
$
3,099

 
$
5,207

 
$
6,023

 
$
8,915

 
$
(13,281
)
 
$
9,963



35
Crown Holdings, Inc.


CONDENSED COMBINING BALANCE SHEET
As of December 31, 2015
(in millions)

 
Parent
 
Issuer
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Assets
 
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
 
$
104

 
 
 
$
613

 
 
 
$
717

Receivables, net
 
 
 
 
$
23

 
889

 
 
 
912

Intercompany receivables
 
 
 
 
30

 
2

 
$
(32
)
 
—

Inventories
 
 
 
 
291

 
922

 
 
 
1,213

Prepaid expenses and other current assets
 
 
2

 
7

 
198

 
 
 
207

Total current assets


 
106

 
351

 
2,624

 
(32
)
 
3,049

 
 
 
 
 
 
 
 
 
 
 
 
Intercompany debt receivables
 
 
3,111

 
3,471

 
681

 
(7,263
)
 
—

Investments
$
2,937

 
2,199

 
804

 
 
 
(5,940
)
 
—

Goodwill and intangible assets
 
 
 
 
471

 
3,109

 
 
 
3,580

Property, plant and equipment, net
 
 
1

 
390

 
2,308

 
 
 
2,699

Other non-current assets
 
 
6

 
457

 
229

 
 
 
692

Total
$
2,937

 
$
5,423

 
$
5,944

 
$
8,951

 
$
(13,235
)
 
$
10,020

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and equity
 
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
 
 
Short-term debt
 
 
 
 
 
 
$
54

 
 
 
$
54

Current maturities of long-term debt
 
 
$
90

 
 
 
119

 
 
 
209

Accounts payable and accrued liabilities
$
24

 
47

 
$
526

 
2,048

 
 
 
2,645

Intercompany payables
 
 
 
 
2

 
30

 
$
(32
)
 
—

Total current liabilities
24

 
137

 
528

 
2,251

 
(32
)
 
2,908

 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt, excluding current maturities
 
 
2,759

 
391

 
2,105

 
 
 
5,255

Long-term intercompany debt
2,769

 
1,268

 
3,041

 
185

 
(7,263
)
 
—

Postretirement and pension liabilities
 
 
 
 
377

 
390

 
 
 
767

Other non-current liabilities
 
 
 
 
311

 
344

 
 
 
655

Commitments and contingent liabilities
 
 
 
 
 
 
 
 
 
 

Noncontrolling interests
 
 
 
 
 
 
291

 
 
 
291

Crown Holdings shareholders’ equity/(deficit)
144

 
1,259

 
1,296

 
3,385

 
(5,940
)
 
144

Total equity/(deficit)
144

 
1,259

 
1,296

 
3,676

 
(5,940
)
 
435

Total
$
2,937

 
$
5,423

 
$
5,944

 
$
8,951

 
$
(13,235
)
 
$
10,020



36
Crown Holdings, Inc.


CONDENSED COMBINING STATEMENT OF CASH FLOWS
For the nine months ended September 30, 2016
(in millions)

 
Parent
 
Issuer
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net provided by/(used for) operating activities
$
6

 
$
(61
)
 
$
108

 
$
353

 
$
(30
)
 
$
376

Cash flows from investing activities
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures
 
 
 
 
(81
)
 
(163
)
 
 
 
(244
)
Intercompany investing activities
150

 

 
150

 


 
(300
)
 
—

Other
 
 
 
 
11

 
5

 
 
 
16

Net cash provided by/(used for) investing activities
150

 
—

 
80

 
(158
)
 
(300
)
 
(228
)
Cash flows from financing activities
 
 
 
 
 
 
 
 
 
 
 
Proceeds from long-term debt
 
 
700

 
 
 
679

 
 
 
1,379

Payments of long-term debt
 
 
(1,100
)
 
 
 
(710
)
 
 
 
(1,810
)
Net change in revolving credit facility and short-term debt
 
 
60

 
 
 
48

 
 
 
108

Net change in long-term intercompany balances
(156
)
 
352

 
(187
)
 
(9
)
 
 
 
—

Debt issue costs
 
 
(7
)
 
 
 
(9
)
 
 
 
(16
)
Common stock issued
8

 
 
 
 
 
 
 
 
 
8

Common stock repurchased
(8
)
 
 
 
 
 
 
 
 
 
(8
)
Dividends paid
 
 
 
 
 
 
(330
)
 
330

 
—

Contributions from noncontrolling interests
 
 
 
 
 
 
1

 
 
 
1

Dividends paid to noncontrolling interests
 
 
 
 
 
 
(43
)
 
 
 
(43
)
Foreign exchange derivatives related to debt
 
 
 
 
 
 
53

 
 
 
53

Net cash provided by/(used for) financing activities
(156
)
 
5

 
(187
)
 
(320
)
 
330

 
(328
)
Effect of exchange rate changes on cash and cash equivalents
 
 
 
 
 
 
(11
)
 
 
 
(11
)
Net change in cash and cash equivalents
—

 
(56
)
 
1

 
(136
)
 
—

 
(191
)
Cash and cash equivalents at January 1
 
 
104

 
 
 
613

 
 
 
717

Cash and cash equivalents at September 30
$
—

 
$
48

 
$
1

 
$
477

 
$
—

 
$
526



37
Crown Holdings, Inc.



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

 
Parent
 
Issuer
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Total
Company
Net provided by/(used for) operating activities
$
24

 
$
(53
)
 
$
76

 
$
268

 
 
 
$
315

Cash flows from investing activities
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures
 
 
 
 
(30
)
 
(146
)
 
 
 
(176
)
Purchase of business
 
 
 
 
 
 
(1,207
)
 
 
 
(1,207
)
Proceeds from sale of business
 
 
 
 
 
 
33

 
 
 
33

Intercompany investing activities
(865
)
 
7

 
9

 
865

 
$
(16
)
 
—

Net investment hedge settlements
 
 
(11
)
 
 
 
 
 
 
 
(11
)
Other
 
 
 
 
(9
)
 
(4
)
 
 
 
(13
)
Net cash provided by/(used for) investing activities
(865
)
 
(4
)
 
(30
)
 
(459
)
 
(16
)
 
(1,374
)
Cash flows from financing activities
 
 
 
 
 
 
 
 
 
 
 
Proceeds from long-term debt
 
 
750

 
 
 
685

 
 
 
1,435

Payments of long-term debt
 
 
(675
)
 
 
 
(105
)
 
 
 
(780
)
Net change in revolving credit facility and short-term debt
 
 


 
 
 
34

 
 
 
34

Net change in long-term intercompany balances
845

 
(104
)
 
(46
)
 
(695
)
 
 
 
—

Debt issue costs
 
 
(10
)
 
 
 
(8
)
 
 
 
(18
)
Common stock issued
5

 
 
 
 
 
 
 
 
 
5

Common stock repurchased
(9
)
 
 
 
 
 
 
 
 
 
(9
)
Dividends paid
 
 
 
 
 
 
(16
)
 
16

 
—

Contributions from noncontrolling interests
 
 
 
 
 
 
3

 
 
 
3

Dividends paid to noncontrolling interests
 
 
 
 
 
 
(21
)
 
 
 
(21
)
Foreign exchange derivatives related to debt
 
 


 
 
 
(38
)
 
 
 
(38
)
Net cash provided by/(used for) financing activities
841

 
(39
)
 
(46
)
 
(161
)
 
16

 
611

Effect of exchange rate changes on cash and cash equivalents
 
 
 
 
 
 
(51
)
 
 
 
(51
)
Net change in cash and cash equivalents
—

 
(96
)
 
—

 
(403
)
 
—

 
(499
)
Cash and cash equivalents at January 1
 
 
128

 
 
 
837

 
 
 
965

Cash and cash equivalents at September 30
$
—

 
$
32

 
$
—

 
$
434

 
$
—

 
$
466



38
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 nine months ended September 30, 2016 compared to 2015 and changes in financial condition and liquidity from December 31, 2015. 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, 2015, 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.

In recent years, beverage can sales unit volumes in the Company's mature markets have been stable to slightly declining in the U.S. and Canada and slightly increasing in Western European markets. Beverage can volume has generally continued to grow in emerging markets driven by increased per capita incomes and consumption, combined with an increased preference for cans over other forms of beverage packaging. Global food and aerosol can sales unit volumes have been stable to declining in recent years primarily due to lower consumer spending. While the opportunity for organic volume growth in the Company's mature markets is not comparable to that in targeted international growth markets, the Company continues to generate strong returns on invested capital and significant cash flow from these businesses. The Company monitors capacity across all of its businesses and, where necessary, may take action such as closing a plant or reducing headcount to better manage its costs. Any or all of these actions may result in additional restructuring charges in the future which may be material.

As part of the Company's efforts to manage cost, it attempts to pass-through increases in the cost of aluminum and steel to its customers. Aluminum and steel prices can be subject to significant volatility and there has not been a consistent and predictable trend in pricing.

In 2016, the Company expects to utilize cash flow to reduce leverage. The Company will also continue to evaluate select growth opportunities through capacity additions in existing plants, new plants in markets that it already knows and understands, and potential strategic acquisitions in geographic areas and product lines in which it already operates or that complement its existing businesses. In response to increasing global customer demand for beverage cans in non-standard sizes, commonly called "specialty cans," the Company intends to continue to make investments in converting existing capacity or adding new capacity for non-standard can sizes. The Company currently expects to use a portion of its cash flow in 2016 to repay debt, and cash flows generated from the Company's operations may also be reinvested in the business, used for acquisitions (which may increase the Company’s leverage), or returned to shareholders through share repurchases or possible future dividends.


Results of Operations

In assessing performance, the key performance measure used by the Company is segment income, a non-GAAP measure generally defined by the Company as income from operations adjusted to add back provisions for asbestos and restructuring and other, the impact of fair value adjustments related to the sale of inventory acquired in an acquisition and the timing impact of hedge ineffectiveness.


39
Crown Holdings, Inc.


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

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. The Company calculates the impact of foreign currency translation by multiplying or dividing, as appropriate, current year U.S. dollar results by the current year average foreign exchange rates and then multiplying or dividing, as appropriate, those amounts by the applicable prior year average foreign exchange rates.


Net Sales and Segment Income    
 
Three Months Ended
 
Nine Months Ended
 
September 30
 
September 30
 
2016
 
2015
 
2016
 
2015
Net sales
$
2,326

 
$
2,460

 
$
6,361

 
$
6,735

Beverage cans and ends as a percentage of net sales
56
%
 
52
%
 
58
%
 
56
%
Food cans and ends as a percentage of net sales
30
%
 
31
%
 
27
%
 
28
%


Three months ended September 30, 2016 compared to 2015

Net sales decreased primarily due to the impact of foreign currency translation and the pass-through of lower material costs. Net sales would have been $55 higher using exchange rates in effect during 2015.

Nine months ended September 30, 2016 compared to 2015

Net sales decreased primarily due to the impact of foreign currency translation and the pass-through of lower material costs, partially offset by the impact of an additional six weeks of Empaque results, which was acquired in February 2015. Net sales would have been $200 higher using exchange rates in effect during 2015.

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 stable to slightly declining volumes in recent years. In Mexico, the Company's sales unit volumes have increased primarily due to market growth and the acquisition of Empaque in February 2015. The addition of Empaque significantly increased the Company's presence in the growing Mexican market and substantially enhances the Company's strategic position in beverage cans, both regionally and globally. In Brazil and Colombia, the Company's sales unit volumes have increased in recent years primarily due to market growth driven by increased per capita income and consumption, combined with an increased preference for cans over other forms of beverage packaging.

The Company has announced plans to construct new beverage can plants in Nichols, New York and Monterrey, Mexico. To meet customers' demand for specialty beverage cans in North America, the Nichols plant will be capable of producing multiple can sizes and is expected to be operational in the first quarter of 2017. The Monterrey plant will also be capable of producing multiple can sizes and is expected to be operational late in the fourth quarter of 2016. In addition, the Company has announced plans to expand production capacity in Colombia which is expected to be operational in the second quarter of 2017.

    





40
Crown Holdings, Inc.


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

Net sales and segment income in the Americas Beverage segment are as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30
 
September 30
 
2016
 
2015
 
2016
 
2015
Net sales
$
719

 
$
722

 
$
2,068

 
$
2,080

Segment income
119

 
116

 
329

 
300


Three months ended September 30, 2016 compared to 2015

Net sales decreased primarily due to the impact of foreign currency translation partially offset by higher sales unit volumes. Net sales would have been $22 higher using exchange rates in effect during 2015.

Segment income increased primarily due to higher sales unit volumes and a benefit of $4 from lower aluminum premium costs in Brazil, partially offset by the impact of foreign currency translation and $5 of start-up costs associated with the Company's projects in Nichols, New York and Monterrey, Mexico. Segment income would have been $4 higher using exchange rates in effect during 2015.

Nine months ended September 30, 2016 compared to 2015

Net sales decreased primarily due the impact of foreign currency translation and the pass-through of lower material costs partially offset by a 7% increase in sales unit volumes, which includes the impact of Empaque for an additional six weeks. Net sales would have been $105 higher using exchange rates in effect during 2015.

Segment income increased primarily due to $33 from higher sales unit volumes, including the impact of Empaque and improved cost performance, and a benefit of $14 from lower aluminum premium costs in Brazil, partially offset by the impact of foreign currency translation and $5 of start-up costs. Segment income would have been $16 higher using exchange rates in effect during 2015.


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., Canada and Mexico. The North American food can and closures market is a mature market which has experienced stable to slightly declining volumes in recent years. In 2015, the Company announced the closure of two North America food can plants to more appropriately align capacity with customer demand and reduce costs.

Net sales and segment income in the North America Food segment are as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30
 
September 30
 
2016
 
2015
 
2016
 
2015
Net sales
$
190

 
$
200

 
$
504

 
$
530

Segment income
25

 
25

 
57

 
72


Three months ended September 30, 2016 compared to 2015

Net sales decreased primarily due to 6% lower sales unit volumes. Segment income remained constant as the impact of lower sales unit volumes was offset by cost reduction initiatives.


Nine months ended September 30, 2016 compared to 2015

Net sales decreased primarily due to pass-through of lower tinplate costs, lower sales unit volumes and the impact of foreign currency translation. Net sales would have been $12 higher using exchange rates in effect during 2015.

41
Crown Holdings, Inc.


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

Segment income decreased primarily due to lower sales unit volume, including the loss of a customer during 2015, the impact of steel purchased in 2015 being converted and sold at lower prevailing prices in 2016 and inflation on non-steel input costs.


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.

In 2015, the Company announced plans to invest in a second line at its Osmaniye, Turkey plant in response to growing demand. The new line will be capable of producing multiple can sizes and is expected to be operational late in the fourth quarter of 2016. In addition, the Company announced plans to begin installation of a second high-speed aluminum beverage can line at its Custines, France facility. Commercial startup of the line is expected in the second quarter of 2017 and will complete that plant's conversion from steel to aluminum.

Net sales and segment income in the European Beverage segment are as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30
 
September 30
 
2016
 
2015
 
2016
 
2015
Net sales
$
413

 
$
427

 
$
1,129

 
$
1,173

Segment income
83

 
74

 
204

 
178


Three months ended September 30, 2016 compared to 2015

Net sales decreased primarily due to the impact of foreign currency translation. Net sales would have been $14 higher using exchange rates in effect during 2015.

Segment income increased primarily due to lower aluminum premiums, $4 from improved cost performance and $4 from sales unit volumes as higher volume in the Middle East offset lower volume in Europe, partially offset by the impact of foreign currency translation. Segment income would have been $2 higher using exchange rates in effect during 2015.

Nine months ended September 30, 2016 compared to 2015

Net sales decreased primarily due to the pass-through of lower aluminum costs and the impact of foreign currency translation, partially offset by a 1% increase in sales unit volumes. Net sales would have been $34 higher using exchange rates in effect during 2015.

Segment income increased primarily due to lower aluminum premium costs and increased sales unit volume, partially offset by the impact of foreign currency translation. Segment income would have been $7 higher using exchange rates in effect during 2015.


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 primarily 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 2015, the Company announced the closure of two European Food facilities in an effort to reduce cost by eliminating excess capacity and consolidating manufacturing processes.


42
Crown Holdings, Inc.


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

Net sales and segment income in the European Food segment are as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30
 
September 30
 
2016
 
2015
 
2016
 
2015
Net sales
$
599

 
$
641

 
$
1,459

 
$
1,564

Segment income
96

 
98

 
212

 
208


Three months ended September 30, 2016 compared to 2015

Net sales decreased primarily due to 2% lower sales unit volumes partly due to adverse weather conditions, $14 from the pass-through of lower tinplate costs and the impact of foreign currency translation. Net sales would have been $7 higher using exchange rates in effect during 2015.

Segment income decreased primarily due to lower sales unit volumes, partially offset by improved cost performance including the impact of recent restructuring actions.

Nine months ended September 30, 2016 compared to 2015

Net sales decreased primarily due to product and geographic mix including a 1% decline in sales unit volumes, $34 from the pass-through of lower tinplate costs and the impact of foreign currency translation. Net sales would have been $16 higher using exchange rates in effect during 2015.

Segment income increased due to improved cost performance, including the impact of recent restructuring and other actions.


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. The Company's third beverage can plant in Cambodia began commercial production in the second quarter of 2016. In China, the current industry supply of beverage cans exceeds demand, which has resulted in pricing pressure and negative impacts on the Company's profitability. In response to the current situation in China, the Company continues to evaluate its strategic alternatives which may include future restructuring actions , the cost of which could be material.

Net sales and segment income in the Asia Pacific segment are as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30
 
September 30
 
2016
 
2015
 
2016
 
2015
Net sales
$
281

 
$
300

 
$
839

 
$
920

Segment income
37

 
37

 
111

 
111



Three months ended September 30, 2016 compared to 2015

Net sales decreased primarily due to $23 from reduced selling prices including the pass-through of lower raw material costs, partially offset by higher sales unit volume. Sales unit volume increased 2% as increases in Southeast Asia offset lower volume in China.

Segment income was comparable, mainly due to the the impact of reduced selling prices in China offset by increased sales unit volumes in Southeast Asia.

43
Crown Holdings, Inc.


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

Nine months ended September 30, 2016 compared to 2015

Net sales decreased primarily due to $69 from lower selling prices including the pass-through of lower raw material costs and the impact of competitive price compression and from the impact of foreign currency translation, partially offset by higher sales unit volumes. Net sales would have been $22 higher using exchange rates in effect during 2015.

Segment income was comparable, mainly due to the impact of lower selling prices in China offset by higher sales unit volumes in Southeast Asia.


Non-reportable Segments

The Company's non-reportable segments include its European aerosol can 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 can and specialty packaging businesses have experienced slightly declining volumes. In 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
 
Nine Months Ended
 
September 30
 
September 30
 
2016
 
2015
 
2016
 
2015
Net sales
$
124

 
$
170

 
$
362

 
$
468

Segment income
19

 
25

 
52

 
62



Three months ended September 30, 2016 compared to 2015

Net sales decreased primarily due to $30 from lower sales in the Company's equipment operations and the impact of foreign currency translation. Net sales would have been $6 higher using exchange rates in effect during 2015.

Segment income decreased primarily due to lower sales in the Company's equipment operations and the impact of foreign currency translation. Segment income would have been $2 higher using exchange rates in effect during 2015.

Nine months ended September 30, 2016 compared to 2015

Net sales decreased primarily due to $41 from the divestiture of certain operations within the Company's European aerosol and specialty packaging businesses in 2015, $34 from lower equipment sales, $15 from lower selling prices in the Company's aerosol and specialty packaging businesses, including the pass-through of lower tinplate prices, and the impact of foreign currency translation. Net sales would have been $11 higher using exchange rates in effect during 2015.

Segment income decreased $2 due to the divestiture of certain operations within the Company's European aerosol and specialty packaging businesses in 2015, $6 from lower sales in the North America aerosol business and equipment business, partially offset by improved cost performance in the European aerosol and specialty packaging business.

44
Crown Holdings, Inc.


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

Corporate and Unallocated Expense
 
Three Months Ended
 
Nine Months Ended
 
September 30
 
September 30
 
2016
 
2015
 
2016
 
2015
Corporate and unallocated expense
$
(44
)
 
$
(54
)
 
$
(117
)
 
$
(148
)

The three months ended September 30, 2015 included a charge of $7 related to the timing impact of hedge ineffectiveness as compared to a benefit of $2 in the three months ended September 30, 2016.

The nine months ended September 30, 2015 included a charge of $3 related to the timing impact of hedge ineffectiveness as compared to a benefit of $6 in the three months ended September 30, 2016. Additionally, corporate and unallocated expenses decreased during the nine months ended September 30, 2016 compared to September 30, 2015 due to $14 of lower pension costs, $7 of lower stock-based compensation expense and a charge of $6 related to fair value adjustments for the sale of inventory acquired in the acquisition of Empaque in 2015.


Cost of Products Sold (Excluding Depreciation and Amortization)

For the three and nine months ended September 30, 2016 compared to 2015, cost of products sold (excluding depreciation and amortization) decreased from $1,984 to $1,838 and from $5,487 to $5,050 primarily due to the impact of foreign currency translation and lower raw material costs. For the nine months ended September 30, 2016, the impact of the Empaque acquisition partially offset the impact of foreign currency translation and lower raw material costs. Cost of products sold would have been $42 and $154 higher for the three and nine months ended September 30, 2016 using exchange rates in effect during 2015.


Depreciation and Amortization

For the three and nine months ended September 30, 2016 compared to 2015, depreciation and amortization expense increased from $61 to $63 and from $174 to $188. The increase for the nine months ended September 30, 2016 compared to 2015 is primarily due to the Company's acquisition of Empaque.


Selling and Administrative Expense

For the three months ended September 30, 2016 compared to 2015, selling and administrative expense decreased from $94 to $90 primarily due to the impact of foreign currency translation.

For the nine months ended September 30, 2016 compared to 2015, selling and administrative expense decreased from $291 to $275 primarily due to $7 from lower stock-compensation expense and $8 from the impact of foreign currency translation.


Interest Expense

For the three and nine months ended September 30, 2016 compared to 2015, interest expense decreased from $68 to $59 and from $202 to $181 primarily due to lower average debt outstanding.









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
 
Nine Months Ended
 
September 30
 
September 30
 
2016
 
2015
 
2016
 
2015
Income before income taxes
$
254

 
$
208

 
$
641

 
$
509

Provision for income taxes
48

 
48

 
151

 
134

Effective income tax rate
19
%

23
%

24
%

26
%

The low effective income tax rate in 2016 was primarily due to a benefit recognized in the third quarter of 2016 to release the valuation allowance against the Company's net deferred tax assets in Canada as further discussed in Note O to the consolidated financial statements.


Net Income Attributable to Noncontrolling Interests

For the three and nine months ended September 30, 2016 compared to 2015, net income attributable to noncontrolling interests increased from $19 to $23 and from $48 to $59 primarily due to higher earnings in the Company's beverage can operations in Brazil.


Liquidity and Capital Resources


Cash from Operations

Cash provided by operating activities increased from $315 for the nine months ended September 30, 2015 to $376 for the nine months ended September 30, 2016 primarily due to higher operating income and working capital improvements partially offset by increased pension contributions.

Days sales outstanding for trade receivables increased from 36 days at September 30, 2015 to 41 days at September 30, 2016 primarily due to longer customer payment terms and higher sales unit volumes in certain geographic locations partially offset by an 8 day decrease related to the derecognition of receivables under the Company's securitization and factoring programs.

Inventory turnover was 64 days at September 30, 2015 compared to 66 days at September 30, 2016. Inventory turnover at September 30, 2016 increased compared to 63 days at December 31, 2015 due to seasonality in the Company's food and beverage can businesses. The food can business is seasonal with the first quarter tending to be the slowest period as the autumn packaging period in the Northern Hemisphere has ended and new crops are not yet planted. The industry enters its busiest period in the the third quarter when the majority of fruits and vegetables in the Northern Hemisphere are harvested. Due to this seasonality, inventory levels increase in the first half of the year to meet peak demand in the second and third quarters. The beverage can business is also seasonal with inventory levels generally increasing in the first half of the year to meet peak demand in the summer months in the Northern Hemisphere.
Days outstanding for trade payables increased from 84 days at September 30, 2015 to 94 days at September 30, 2016 primarily due to higher levels of inventory and longer payment terms with suppliers.

Investing Activities

Cash used for investing activities decreased from $1,374 for the nine months ended September 30, 2015 to $228 in 2016 primarily due to funds paid for the acquisition of Empaque in 2015 partially offset by an increase in capital expenditures. The Company currently expects capital expenditures for 2016 to be approximately $450.

46
Crown Holdings, Inc.


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

Financing Activities

Financing activities provided cash of $611 for the nine months ended September 30, 2015 and used cash of $328 in 2016 primarily due to higher net borrowings in 2015 to fund the acquisition of Empaque, a cash inflow from the settlement of foreign currency derivatives used to hedge intercompany debt obligations in 2016 compared to an outflow in 2015, and higher dividends paid to noncontrolling interest in 2016.

    
Liquidity

As of September 30, 2016, $463 of the Company's $526 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., $413 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 September 30, 2016, the Company had $1,052 of borrowing capacity available under its revolving credit facility, equal to the total facility of $1,200 less borrowings of $106 and $42 of outstanding standby letters of credit. The Company could have borrowed this amount at September 30, 2016 and would still have been in compliance with its leverage ratio covenants.


Capital Resources

As of September 30, 2016, the Company had approximately $144 of capital commitments primarily related to its Americas and European Beverage segments. The Company expects to fund these commitments primarily through cash flows generated from operations and to fund any excess needs through external borrowings.


Contractual Obligations

During the first nine months of 2016 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, 2015, 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, and in Part II within Item 1A of this report which information is incorporated herein by reference.








47
Crown Holdings, Inc.


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

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, 2015 describe the significant accounting estimates and policies used in the preparation of the consolidated financial statements. There have been no significant changes in the Company's critical accounting policies during the first nine months of 2016. The discussion below supplements the discussion from the Company's Annual Report on Form 10-K for the year ended December 31, 2015 with respect to goodwill.

Goodwill Impairment

As of December 31, 2015, the estimated fair value of the European Aerosols and Specialty Packaging reporting unit was 23% higher than its carrying value. The reporting unit operates in a low-growth environment with multiple competitors, which could result in lower selling prices. In addition, shifts in consumer demand could result in lower volumes. While the Company believes current Adjusted EBITDA projections are reasonable, the reporting unit’s ability to maintain or grow Adjusted EBITDA could be negatively impacted by the above factors. If Adjusted EBITDA decreased by 10%, the fair value of the reporting unit would approximate carrying value. To the extent future operating results were to decline, causing the estimated fair value to fall below carrying value, it is possible that an impairment charge of up to $91 could be recorded. In addition, the Company's North America Food reporting unit has been negatively impacted by lower sales unit volume and lower customer pricing. The reporting unit operates in a low-growth environment with multiple competitors. If operations continue to decline, it is possible that an impairment charge of up to $115 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, 2015, 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, 2015 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.

48
Crown Holdings, Inc.


  
Item 3.
Quantitative and Qualitative Disclosures About Market Risk

In the normal course of business the Company is subject to risk from adverse fluctuations in foreign exchange and interest rates and commodity prices. The Company manages these risks through a program that includes the use of derivative financial instruments, primarily swaps and forwards. Counterparties to these contracts are major financial institutions. The Company is exposed to credit loss in the event of nonperformance by the counterparties. These instruments are not used for trading or speculative purposes. The extent to which the Company uses such instruments is dependent upon its access to these contracts in the financial markets and its success in using other methods, such as netting exposures in the same currencies to mitigate foreign exchange risk and using sales arrangements that permit the pass-through of commodity prices and foreign exchange rate risks to customers. The Company's objective in managing its exposure to market risk is to limit the impact on earnings and cash flow. For further discussion of the Company's use of derivative instruments and their fair values at September 30, 2016, see Note H to the consolidated financial statements included in this Quarterly Report on Form 10-Q.

As of September 30, 2016, the Company had $1.3 billion principal floating interest rate debt. A change of 0.25% in these floating interest rates would change annual interest expense by approximately $3 million before tax.

Item 4.
Controls and Procedures

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

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

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

The information set forth in this report should be read in conjunction with the risk factors set forth below and the risk factors discussed in Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2015 and in Item 1A to Part II in the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2016. 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 nine months of 2016.


Item 3. Defaults Upon Senior Securities

There were no events required to be reported under Item 3 for the nine months ended September 30, 2016.


Item 4. Mine Safety Disclosures

Not applicable.


Item 5.    Other Information

None.

50
Crown Holdings, Inc.


Item 6.    Exhibits
    
4.1
Indenture, dated as of September 15, 2016, by and among Crown European Holdings, S.A., as Issuer, the Guarantors named therein, U.S.. Bank National Association, as Trustee, and the other parties thereto, relating to the €600 million 2.625% Senior Notes due 2024 (incorporated by reference to Exhibit 4.1 of the Registrant's Current Report on Form 8-K dated September 19, 2016 (File No. 000-50189)).
 
 
4.2
Indenture, dated as of September 15, 2016, by and among Crown Americas LLC and Crown Americas Capital Corp. V, as Issuers, the Guarantors named therein and U.S. Bank National Association, as Trustee, relating to the $400 million 4.250% Senior Notes due 2026 (incorporated by reference to Exhibit 4.2 of the Registrant's Current Report on Form 8-K dated September 19, 2016 (File No. 000-50189)).
 
 
4.3
Registration Rights Agreement, dated as of September 15, 2016, by and among the Company, Crown Americas LLC and Crown Americas Capital Corp. V, Citigroup Capital Markets Inc., as representative of the initial purchasers, and the Guarantors (as defined therein), relating to the $400 million 4.250% Senior Notes due 2026 (incorporated by reference to Exhibit 4.3 of the Registrant's Current Report on Form 8-K dated September 19, 2016 (File No. 000-50189)).
 
 
4.4
Second Amendment, dated September 19, 2016, to Credit Agreement, among Crown Americas LLC, as U.S. Borrower, Crown European Holdings SA, as European Borrower, CROWN Metal Packaging Canada LP, as Canadian Borrower, the Subsidiary Borrowers named therein, the Company, Crown International Holdings, Inc. and Crown Cork & Seal Company, Inc., as Parent Guarantors, Deutsche Bank AG New York Branch, as Administrative Agent, Deutsche Bank AG London Branch, as U.K. Administrative Agent, Deutsche Bank AG Canada Branch, as Canadian Administrative Agent, and various Lending Institutions referred to therein (incorporated by reference to Exhibit 4.1 of the Registrant's Current Report on Form 8-K dated September 23, 2016 (File No. 000-50189)).
 
 
10.1
Purchase Agreement, dated as of September 8, 2016, by and among the European Issuer, the Company, Deutsche Bank AG, London Branch, as representative of the initial purchasers of the Euro Notes named in Schedule I thereto, and the other Guarantors (as defined therein) (incorporated by reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-K dated September 14, 2016 (File No. 000-50189)).
 
 
10.2
Purchase Agreement, dated as of September 8, 2016, by and among the U.S. Issuers, the Company, Citigroup Global Markets Inc., as representative of the initial purchasers of the Dollar Notes named in Schedule I thereto, and the other Guarantors (as defined therein) (incorporated by reference to Exhibit 10.2 of the Registrant's Current Report on Form 8-K dated September 14, 2016 (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 Timothy J. Donahue, 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 September 30, 2016 formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Operations for the three and nine months ended September 30, 2016 and 2015, (ii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2016 and 2015, (iii) Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015, (iv) Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015, (v) Consolidated Statements of Changes in Equity for the nine months ended September 30, 2016 and 2015 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: October 28, 2016


52

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