Crown Holdings, Inc. 2011 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2011. The filing is an annual report, not a standalone fourth-quarter filing. Crown manufactures metal beverage and food cans, closures, aerosol cans, specialty packaging, and canmaking equipment. It operated 134 plants in 41 countries with approximately 20,700 employees; 73% of 2011 sales originated outside the United States.
Financial performance and position
| Metric | 2011 | 2010 | Change |
|---|---|---|---|
| Net sales | $8,644 million | $7,941 million | +8.9% |
| Gross profit | $1,348 million | $1,250 million | +7.8% |
| Gross margin | 15.6% | 15.7% | Slightly lower |
| Income before taxes | $587 million | $614 million | −4.4% |
| Net income | $396 million | $452 million | −12.4% |
| Net income attributable to Crown | $282 million | $324 million | −13.0% |
| Diluted EPS | $1.83 | $2.00 | −8.5% |
| Cash flow from operations | $379 million | $590 million | −35.8% |
| Capital expenditures | $401 million | $320 million | +25.3% |
| Cash and equivalents | $342 million | $463 million | −$121 million |
| Total debt | $3,532 million | $3,048 million | +$484 million |
Net income attributable to Crown represented approximately 3.3% of sales. Working capital was $318 million, compared with $272 million in 2010. Total equity declined from $229 million to a deficit of $239 million, primarily reflecting share repurchases, purchases of noncontrolling interests, pension and postretirement adjustments, derivative losses, and foreign currency translation effects.
Liquidity included $1,021 million of available revolving-credit capacity and $100 million of available North American securitization capacity at year-end. Current maturities of long-term debt were $67 million in 2012. The company was in compliance with its debt covenants, reporting an interest coverage ratio of 4.72x versus a 2.85x minimum and total net leverage of 2.78x versus a 4.0x maximum.
Material changes versus the prior comparable period
- Sales growth was driven by $432 million of higher raw-material pass-through, $84 million of higher global unit volumes, and $197 million of favorable foreign-currency translation.
- Higher steel and aluminum prices increased costs; packaging steel prices rose approximately 20% and aluminum ingot prices approximately 11% year over year.
- Americas Beverage sales increased to $2,273 million and segment income to $302 million, supported by Brazilian capacity additions and volume growth.
- European Beverage segment income declined to $210 million from $244 million because higher costs and lower productivity were not fully offset by pricing and volume.
- Cash flow from operations fell primarily because pension contributions increased by $325 million and interest payments increased by $40 million.
- Capital spending increased to $401 million for capacity expansion in Brazil, China, Eastern Europe, and Southeast Asia.
- The company repurchased approximately $312 million of common stock and purchased $202 million of additional noncontrolling interests.
- Debt increased following the issuance of $700 million of 6.25% senior notes due 2021 and additional 2016 term loans. Proceeds were used for refinancing, debt retirement, and pension funding.
Outlook, commentary, risks, and unusual items
- Management’s strategy emphasizes cash-flow maximization, continued expansion in Brazil, China, and Southeast Asia, productivity improvements in mature markets, and reduction of material usage. Current projects were expected to add approximately 8.5 billion units of annual can capacity when completed.
- Management expected approximately $325 million of 2012 capital expenditures, excluding rebuilding of Thailand capacity damaged by severe flooding; insurance reimbursement was expected to fund the rebuilding cost. A new Brazil plant was expected to be completed in late 2012, with additional China, Vietnam, and Turkey capacity planned through 2013.
- 2011 included $77 million of restructuring charges, $32 million of debt-extinguishment losses, $28 million of asbestos charges, and a $6 million net asset impairment and sales charge. Restructuring actions were expected to generate annual pretax savings of approximately $33 million when fully implemented in 2013, although realization was not assured.
- The Thailand flood shut down a beverage-can plant; $23 million of property and equipment was written off and offset by anticipated insurance proceeds, while the company recorded a $4 million insurance deductible loss.
- Asbestos liabilities were accrued at $249 million, including $198 million for unasserted claims. Approximately 50,000 claims were outstanding, and 2011 cash payments were $28 million. Actual future costs may exceed the accrual.
- Pension contributions were $404 million in 2011, with approximately $130 million expected in 2012. Unfunded accumulated postretirement medical obligations were approximately $337 million.
- Key risks include substantial leverage, floating-rate debt, raw-material and energy volatility, foreign-exchange exposure, European sovereign-debt conditions, customer concentration, industry overcapacity, environmental and coating regulation including bisphenol-A, labor disruptions, litigation, pension funding, and emerging-market execution.
- Italian subsidiaries faced potential value-added-tax and related income-tax assessments of approximately €40 million, or $52 million at year-end exchange rates, plus interest and penalties. The company intended to appeal and disputed liability.
Most important facts for investors to verify
- Reconcile the $703 million increase in sales with underlying volume growth versus raw-material pass-through and currency translation.
- Assess whether higher commodity costs can continue to be passed through without volume or margin deterioration.
- Review debt maturities, floating-rate exposure, covenant headroom, and the effect of planned capital spending on leverage and liquidity.
- Monitor operating cash flow after unusually large pension contributions and expected 2012 funding.
- Evaluate the completion, utilization, and returns of capacity expansions in Brazil, China, Southeast Asia, Eastern Europe, and Turkey.
- Track the Thailand insurance recovery and rebuilding timeline.
- Reassess asbestos claims, reserve sensitivity, environmental liabilities, and the unresolved Italian tax assessments.
- Consider the effect of the $312 million share repurchase program on the company’s equity deficit and financial flexibility.