SEC Company Response from CROWN HOLDINGS, INC. (CCK) (CIK 0001219601) (CCK) — Jun 8, 2011
CROWN HOLDINGS, INC. (CCK) (CIK 0001219601)
Date: June 8, 2011 · CIK: 0001219601 · Accession: 0001219601-11-000022
AI Filing Summary & Sentiment
Reasoning
Referenced dates: April 18, 2008, May 24, 2011
Letter
VIA EDGAR Securities and Exchange Commission Division of Corporation Finance Definitive Proxy Statement on Schedule 14A Filed March 21, 2011 Form 10-Q for the Fiscal Quarter Ended March 31, 2011 File No. 0-50189
Dear Mr. Decker:
Crown Holdings, Inc. (“we,” “Crown” or the “Company”) is responding to the comments raised in your letter dated May 24, 2011 regarding Crown’s Form 10-K for the fiscal year ended December 31, 2010, Definitive Proxy Statement on Schedule 14A and Form 10-Q for the fiscal quarter ended March 31, 2011. For your convenience, the comments are included in this letter in bold face type and are followed by the applicable response.
Form 10-K for the year ended December 31, 2010
General
1.
In future filings, please disclose the equivalent U.S. dollar amount for all foreign currency amounts disclosed, since the U.S. dollar is your presentation currency and will allow an investor to better understand how the amount relates to your consolidated financial statements.
In response to your comment, we will disclose the equivalent U.S. dollar amount for all foreign currency amounts in future quarterly and annual filings.
Confidential Treatment Requested by Crown Holdings, Inc.
Pursuant to 17 C.F.R.§200.83
Page 2
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities, page 27
2.
We note your discussion under the caption "Common Stock and Other Equity" on page 42 that your credit and loan facilities and outstanding notes "contain provisions that limit...the payment of dividends subject to certain payments...and exceptions." In future filings, please briefly describe the restrictions and exceptions under your debt arrangements that limit your ability to pay dividends. See Item 201(c)(1) of Regulation S-K.
In response to your comment, we will include disclosure similar to the following in future quarterly and annual filings:
The amount of restricted payments permitted to be made, including dividends and repurchases of the Company’s common stock, is generally limited to the cumulative excess of $200 million plus 50% of adjusted net income plus proceeds from the exercise of employee stock options over the aggregate of restricted payments made since July 2004 . Adjustments to net income may include, but are not limited to, items such as asset impairments, gains and losses from asset sales and early extinguishments of debt.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, page 30
Results of Operations, page 30
3.
In future filings, please expand the discussion of your results of operations on a consolidated basis and at the reportable segment level for each period presented in your annual and quarterly periodic filings. Specifically, please provide a more comprehensive analysis of the factors that impacted net sales, cost of products sold, segment income, etc., ensuring that you sufficiently explain why each factor has occurred and is impacting the specific line item in the specific manner. In addition you should discuss known or anticipated trends that have and/or may continue to have a positive or negative impact on your results of operations. To provide investors with a sufficient understanding of the factors impacting your operations, you may need to discuss the businesses and/or geographic areas that underlying each of your reportable segments. Your discussion and analysis is to provide investors with sufficient information to understand the historical trends and the expectations for the future as seen through the eyes of management. A more detailed analysis will also aid investors in better understanding the risks associated with goodwill impairment, restructuring activities and deferred tax assets. Examples include the following:
● For your discussion and analysis of net sales on a consolidated basis and at the reportable segment level, you attribute the changes to (a) unit volume changes; (b) changes in pass-through raw material costs; and (c) foreign currency translation. Please expand upon these factors to include an explanation for each of the changes. For example, the changes in volume may be due to an expansion project, a restructuring project, a change in capacity utilization (including a lower planned production), an increase in market share, pre-buying by customers, a change in customer direction, etc. In terms of the corresponding analysis of segment income, please also provide an expanded analysis of the material factors impacting this performance measure. For example, if there has been a shift in product mix, please explain that shift and how that shift has specifically impacted your operating results. Another example would be a lag in the passing along of material increases in the cost of raw materials.
Confidential Treatment Requested by Crown Holdings, Inc.
Pursuant to 17 C.F.R.§200.83
Page 3
●
We note that you have been focusing on your expansion program with a primary focus on emerging markets. In this regard, we note from 2007 to 2010 you had approximately $830 million in capital spending, which was primarily focused on capacity expansion and emerging markets. However, there is very little discussion of these capacity expansion projects within MD&A and their corresponding impact on your net sales and segment income and whether the impact is in line with management expectations when the capital programs began. We further note that you anticipate increasing your capacity by approximately 10 billion units by mid-2012 from the capacity levels as of December 31, 2010. However, we did not note an analysis of this expectation and the expected impact to your net sales and operating results.
●
We note that you recognized inventory pricing gains during fiscal year 2009 that did not reoccur in fiscal year 2010 from your fiscal year 2010 analyst conference call. However, we did not note a corresponding discussion, including quantification, of the inventory pricing gain recognized during fiscal year 2009 in MD&A.
●
We note that your effective tax rate was positively impacted by the release of valuation allowances associated with your U.S. and French operations. Please provide investors with a more detailed explanation as to the material factors that you considered when releasing the valuation allowances.
Please note that this is not meant to represent an all-inclusive list of where your MD&A could be improved. There are many areas that we are not specifically identifying that should have further analysis. Refer to Item 303 of Regulation S-K, Section 501 of the Financial Reporting Codification, and SEC Interpretive Release No. 33-8350 dated December 19, 2003 for additional guidance. Please also refer to your response to comment 1 in your letter dated April 18, 2008.
We will include appropriate additional disclosure responsive to your comments in future quarterly and annual filings.
Confidential Treatment Requested by Crown Holdings, Inc.
Pursuant to 17 C.F.R.§200.83
Page 4
4.
In future filings, please include a discussion and analysis with quantification of the business reasons for significant changes between periods of net sales and segment income for your non-reportable segments for each period presented. In this regard, we note that the non-reportable segments' external sales is 14.9% of fiscal year 2010 net sales and segment income is 33.6% of fiscal year 2010 income before income taxes and equity earnings. Please also include a discussion and analysis with quantification business reasons for significant changes between periods for corporate and unallocated items. Please refer to Items 303(a) and 303(a)(3)(i) of Regulation S-K and Section 501.12.b of the Financial Reporting Codification for guidance. Please provide us with the disclosures you intend to include in future filings for fiscal year 2010 as compared to fiscal year 2009.
In response to your comment, in future quarterly and annual filings, we will include discussion and analysis of significant changes between periods of net sales and segment income for non-reportable segments as well as significant changes between periods for corporate and unallocated items. Our proposed disclosure for fiscal year 2010 as compared to fiscal year 2009 is as follows:
Non-reportable segments
Net sales in non-reportable segments increased from $1,174 million in 2009 to $1,187 million in 2010 primarily due to $19 million from the impact of foreign currency translation, and $49 million from increased beverage can sales unit volumes in Cambodia, China, Malaysia and Vietnam, partially offset by $23 million from the April 2010 sale of the Company’s plastic closures business in Brazil and the pass-through of lower steel costs to customers in the Company’s aerosol can businesses. Growth in sales unit volumes were the result of increased regional demand.
Segment income in non-reportable segments increased from $180 million in 2009 to $206 million in 2010 primarily due to increased market demand for beverage cans.
Corporate and unallocated items
Corporate and unallocated costs decreased from $233 million in 2009 to $201 million in 2010 primarily due to a benefit of $20 million in 2010 from the settlement of a legal dispute unrelated to the Company’s ongoing operations and $18 million of lower pension costs, partially offset by an increase of $6 million related to miscellaneous other corporate costs.
Liquidity and Capital Resources, page 35
5.
We note that approximately 72% of your net sales were generated by your international operations. In future filings, please expand your disclosure to provide additional clarity regarding the amounts of cash and cash equivalents which are available for your use for ongoing cash needs. In this regard, please disclose the amount of cash and cash equivalents held outside the U.S., as well as the amounts that are restricted by laws to be used in other countries. Please also disclose that if cash and cash equivalents held outside the U.S. are needed for your operations in the U.S., you would be required to accrue and pay U.S. taxes to repatriate these funds; however, your intent is to permanently reinvest these foreign amounts outside the U.S. and your current plans do not demonstrate a need to repatriate the foreign amounts to fund your U.S. operations, if true.
Confidential Treatment Requested by Crown Holdings, Inc.
Pursuant to 17 C.F.R.§200.83
Page 5
In response to your comment, we will include disclosure similar to the following in future annual filings:
As of December 31, 2010, approximately $379 million of the Company’s $423 million of cash and cash equivalents was located outside the U.S. The Company is not aware of any legal restrictions under foreign law that materially impact its access to cash held outside the U.S.
The Company funds it cash needs in the U.S. through a combination of cash flows generated in the U.S. and dividends from certain foreign subsidiaries. The Company records current and/or deferred U.S. taxes for the earnings of these foreign subsidiaries. For certain other foreign subsidiaries, the Company has asserted that earnings will be indefinitely reinvested and therefore, has not recorded any U.S. taxes. If such earnings were repatriated to the U.S., the Company would be required to record current and/or deferred U.S. taxes on the repatriated funds.
Capital Expenditures, page 41
6.
In future filings, please indicate the general purpose of your capital commitments and the anticipated source of funds needed to fulfill such commitments. See Item 303(a)(2) of Regulation S-K.
In response to your comment, in future annual filings, or quarterly filings if there has been a material change since year-end, we will disclose the general purpose of our capital commitments and the anticipated source of funds needed to fulfill such commitments.
Critical Accounting Policies, page 43
7.
If you use the term EBITDA in future filings as part of your explanation for estimating the fair value of your reporting units for purposes of testing goodwill for impairment, please ensure that it represents EBITDA as is commonly defined. If you make any adjustments to EBITDA as is commonly defined, please instead use a description such as Adjusted EBITDA to refer to your measure. Further, please revise your description of this measure to begin with net income rather than revenues to allow investors to better understand the adjustments you are making.
In response to your comment, in future filings as part of our explanation for estimating the fair value of our reporting units for purposes of testing goodwill for impairment, we will refer to our measure of EBITDA as Adjusted EBITDA and describe the adjustments from net income.
8.
Please expand upon your discussion of the U.S. deferred tax assets in future filings to bridge the gap between the release of $58 million of valuation allowance and the continued recognition of $177 million of valuation allowance.
Confidential Treatment Requested by Crown Holdings, Inc.
Pursuant to 17 C.F.R.§200.83
Page 6
In response to your comment, in future annual filings, we will provide disclosure similar to the following to expand upon the discussion of U.S. deferred tax assets to more clearly bridge the gap between the $58 million of valuation allowance released in 2009 and the $177 million of valuation allowance maintained as of December 31, 2010.
During the fourth quarter of 2009, the Company released $58 million of its U.S. deferred tax asset valuation allowances because management determined that it was more likely than not that the related deferred tax benefits would be realized based on projections of future taxable income. The valuation allowance release included $54 million for foreign tax credits and $4 million for research credits. At December 31, 2010, the Company continued to maintain a valuation allowance of $177 million including $151 million for state tax loss carryforwards and $25 million for U.S. federal capital loss carryforwards. The Company does not believe that it is more likely than not that these deferred tax assets will be utilized prior to their expiration. The Company’s ability to utilize state tax loss carryforwards is impacted by several factors including expiration dates, limitations imposed by certain states on the amount of loss carryforwards that can be used in a given year to offset taxable income and whether the state permits the Company to file a combined return. The Company’s ability to utilize capital loss carryforwards is dependent upon the availability of future capital gain income which the Company does not currently project.
9.
Please provide a sensitivity analysis for your material assumptions on your pension obligations in addition to your pension expense in future filings.
In response to your comment, in future annual filings we will provide a sensitivity analysis for material assumptions related to our pension obligations.
Consolidated Statement of Operations, page 54
10.
We note that you have included asset impairment charges in the provision for restructuring line item in addition to the asset impairments and sales line item. In future filings, please consider including all asset impairment charges in one line item. This will allow investors to more easily identify the total amount of asset impairment charges.
We believe that it is more meaningful for an investor to include asset impairment charges in the p
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filename1.htm
Unassociated Document
Confidential Treatment Requested by Crown Holdings, Inc.
Pursuant to 17 C.F.R.§200.83
Page 1
June 8, 2011
VIA EDGAR
Mr. Rufus Decker
Accounting Branch Chief
Securities and Exchange Commission
Division of Corporation Finance
100 F. Street, N.E.
Washington, DC 20549-4631
Re: Crown Holdings, Inc.
Form 10-K for the Fiscal Year Ended December 31, 2010
Filed February 28, 2011
Definitive Proxy Statement on Schedule 14A
Filed March 21, 2011
Form 10-Q for the Fiscal Quarter Ended March 31, 2011
File No. 0-50189
Dear Mr. Decker:
Crown Holdings, Inc. (“we,” “Crown” or the “Company”) is responding to the comments raised in your letter dated May 24, 2011 regarding Crown’s Form 10-K for the fiscal year ended December 31, 2010, Definitive Proxy Statement on Schedule 14A and Form 10-Q for the fiscal quarter ended March 31, 2011. For your convenience, the comments are included in this letter in bold face type and are followed by the applicable response.
Form 10-K for the year ended December 31, 2010
General
1.
In future filings, please disclose the equivalent U.S. dollar amount for all foreign currency amounts disclosed, since the U.S. dollar is your presentation currency and will allow an investor to better understand how the amount relates to your consolidated financial statements.
In response to your comment, we will disclose the equivalent U.S. dollar amount for all foreign currency amounts in future quarterly and annual filings.
Confidential Treatment Requested by Crown Holdings, Inc.
Pursuant to 17 C.F.R.§200.83
Page 2
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities, page 27
2.
We note your discussion under the caption "Common Stock and Other Equity" on page 42 that your credit and loan facilities and outstanding notes "contain provisions that limit...the payment of dividends subject to certain payments...and exceptions." In future filings, please briefly describe the restrictions and exceptions under your debt arrangements that limit your ability to pay dividends. See Item 201(c)(1) of Regulation S-K.
In response to your comment, we will include disclosure similar to the following in future quarterly and annual filings:
The amount of restricted payments permitted to be made, including dividends and repurchases of the Company’s common stock, is generally limited to the cumulative excess of $200 million plus 50% of adjusted net income plus proceeds from the exercise of employee stock options over the aggregate of restricted payments made since July 2004 . Adjustments to net income may include, but are not limited to, items such as asset impairments, gains and losses from asset sales and early extinguishments of debt.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, page 30
Results of Operations, page 30
3.
In future filings, please expand the discussion of your results of operations on a consolidated basis and at the reportable segment level for each period presented in your annual and quarterly periodic filings. Specifically, please provide a more comprehensive analysis of the factors that impacted net sales, cost of products sold, segment income, etc., ensuring that you sufficiently explain why each factor has occurred and is impacting the specific line item in the specific manner. In addition you should discuss known or anticipated trends that have and/or may continue to have a positive or negative impact on your results of operations. To provide investors with a sufficient understanding of the factors impacting your operations, you may need to discuss the businesses and/or geographic areas that underlying each of your reportable segments. Your discussion and analysis is to provide investors with sufficient information to understand the historical trends and the expectations for the future as seen through the eyes of management. A more detailed analysis will also aid investors in better understanding the risks associated with goodwill impairment, restructuring activities and deferred tax assets. Examples include the following:
●
For your discussion and analysis of net sales on a consolidated basis and at the reportable segment level, you attribute the changes to (a) unit volume changes; (b) changes in pass-through raw material costs; and (c) foreign currency translation. Please expand upon these factors to include an explanation for each of the changes. For example, the changes in volume may be due to an expansion project, a restructuring project, a change in capacity utilization (including a lower planned production), an increase in market share, pre-buying by customers, a change in customer direction, etc. In terms of the corresponding analysis of segment income, please also provide an expanded analysis of the material factors impacting this performance measure. For example, if there has been a shift in product mix, please explain that shift and how that shift has specifically impacted your operating results. Another example would be a lag in the passing along of material increases in the cost of raw materials.
Confidential Treatment Requested by Crown Holdings, Inc.
Pursuant to 17 C.F.R.§200.83
Page 3
●
We note that you have been focusing on your expansion program with a primary focus on emerging markets. In this regard, we note from 2007 to 2010 you had approximately $830 million in capital spending, which was primarily focused on capacity expansion and emerging markets. However, there is very little discussion of these capacity expansion projects within MD&A and their corresponding impact on your net sales and segment income and whether the impact is in line with management expectations when the capital programs began. We further note that you anticipate increasing your capacity by approximately 10 billion units by mid-2012 from the capacity levels as of December 31, 2010. However, we did not note an analysis of this expectation and the expected impact to your net sales and operating results.
●
We note that you recognized inventory pricing gains during fiscal year 2009 that did not reoccur in fiscal year 2010 from your fiscal year 2010 analyst conference call. However, we did not note a corresponding discussion, including quantification, of the inventory pricing gain recognized during fiscal year 2009 in MD&A.
●
We note that your effective tax rate was positively impacted by the release of valuation allowances associated with your U.S. and French operations. Please provide investors with a more detailed explanation as to the material factors that you considered when releasing the valuation allowances.
Please note that this is not meant to represent an all-inclusive list of where your MD&A could be improved. There are many areas that we are not specifically identifying that should have further analysis. Refer to Item 303 of Regulation S-K, Section 501 of the Financial Reporting Codification, and SEC Interpretive Release No. 33-8350 dated December 19, 2003 for additional guidance. Please also refer to your response to comment 1 in your letter dated April 18, 2008.
We will include appropriate additional disclosure responsive to your comments in future quarterly and annual filings.
Confidential Treatment Requested by Crown Holdings, Inc.
Pursuant to 17 C.F.R.§200.83
Page 4
4.
In future filings, please include a discussion and analysis with quantification of the business reasons for significant changes between periods of net sales and segment income for your non-reportable segments for each period presented. In this regard, we note that the non-reportable segments' external sales is 14.9% of fiscal year 2010 net sales and segment income is 33.6% of fiscal year 2010 income before income taxes and equity earnings. Please also include a discussion and analysis with quantification business reasons for significant changes between periods for corporate and unallocated items. Please refer to Items 303(a) and 303(a)(3)(i) of Regulation S-K and Section 501.12.b of the Financial Reporting Codification for guidance. Please provide us with the disclosures you intend to include in future filings for fiscal year 2010 as compared to fiscal year 2009.
In response to your comment, in future quarterly and annual filings, we will include discussion and analysis of significant changes between periods of net sales and segment income for non-reportable segments as well as significant changes between periods for corporate and unallocated items. Our proposed disclosure for fiscal year 2010 as compared to fiscal year 2009 is as follows:
Non-reportable segments
Net sales in non-reportable segments increased from $1,174 million in 2009 to $1,187 million in 2010 primarily due to $19 million from the impact of foreign currency translation, and $49 million from increased beverage can sales unit volumes in Cambodia, China, Malaysia and Vietnam, partially offset by $23 million from the April 2010 sale of the Company’s plastic closures business in Brazil and the pass-through of lower steel costs to customers in the Company’s aerosol can businesses. Growth in sales unit volumes were the result of increased regional demand.
Segment income in non-reportable segments increased from $180 million in 2009 to $206 million in 2010 primarily due to increased market demand for beverage cans.
Corporate and unallocated items
Corporate and unallocated costs decreased from $233 million in 2009 to $201 million in 2010 primarily due to a benefit of $20 million in 2010 from the settlement of a legal dispute unrelated to the Company’s ongoing operations and $18 million of lower pension costs, partially offset by an increase of $6 million related to miscellaneous other corporate costs.
Liquidity and Capital Resources, page 35
5.
We note that approximately 72% of your net sales were generated by your international operations. In future filings, please expand your disclosure to provide additional clarity regarding the amounts of cash and cash equivalents which are available for your use for ongoing cash needs. In this regard, please disclose the amount of cash and cash equivalents held outside the U.S., as well as the amounts that are restricted by laws to be used in other countries. Please also disclose that if cash and cash equivalents held outside the U.S. are needed for your operations in the U.S., you would be required to accrue and pay U.S. taxes to repatriate these funds; however, your intent is to permanently reinvest these foreign amounts outside the U.S. and your current plans do not demonstrate a need to repatriate the foreign amounts to fund your U.S. operations, if true.
Confidential Treatment Requested by Crown Holdings, Inc.
Pursuant to 17 C.F.R.§200.83
Page 5
In response to your comment, we will include disclosure similar to the following in future annual filings:
As of December 31, 2010, approximately $379 million of the Company’s $423 million of cash and cash equivalents was located outside the U.S. The Company is not aware of any legal restrictions under foreign law that materially impact its access to cash held outside the U.S.
The Company funds it cash needs in the U.S. through a combination of cash flows generated in the U.S. and dividends from certain foreign subsidiaries. The Company records current and/or deferred U.S. taxes for the earnings of these foreign subsidiaries. For certain other foreign subsidiaries, the Company has asserted that earnings will be indefinitely reinvested and therefore, has not recorded any U.S. taxes. If such earnings were repatriated to the U.S., the Company would be required to record current and/or deferred U.S. taxes on the repatriated funds.
Capital Expenditures, page 41
6.
In future filings, please indicate the general purpose of your capital commitments and the anticipated source of funds needed to fulfill such commitments. See Item 303(a)(2) of Regulation S-K.
In response to your comment, in future annual filings, or quarterly filings if there has been a material change since year-end, we will disclose the general purpose of our capital commitments and the anticipated source of funds needed to fulfill such commitments.
Critical Accounting Policies, page 43
7.
If you use the term EBITDA in future filings as part of your explanation for estimating the fair value of your reporting units for purposes of testing goodwill for impairment, please ensure that it represents EBITDA as is commonly defined. If you make any adjustments to EBITDA as is commonly defined, please instead use a description such as Adjusted EBITDA to refer to your measure. Further, please revise your description of this measure to begin with net income rather than revenues to allow investors to better understand the adjustments you are making.
In response to your comment, in future filings as part of our explanation for estimating the fair value of our reporting units for purposes of testing goodwill for impairment, we will refer to our measure of EBITDA as Adjusted EBITDA and describe the adjustments from net income.
8.
Please expand upon your discussion of the U.S. deferred tax assets in future filings to bridge the gap between the release of $58 million of valuation allowance and the continued recognition of $177 million of valuation allowance.
Confidential Treatment Requested by Crown Holdings, Inc.
Pursuant to 17 C.F.R.§200.83
Page 6
In response to your comment, in future annual filings, we will provide disclosure similar to the following to expand upon the discussion of U.S. deferred tax assets to more clearly bridge the gap between the $58 million of valuation allowance released in 2009 and the $177 million of valuation allowance maintained as of December 31, 2010.
During the fourth quarter of 2009, the Company released $58 million of its U.S. deferred tax asset valuation allowances because management determined that it was more likely than not that the related deferred tax benefits would be realized based on projections of future taxable income. The valuation allowance release included $54 million for foreign tax credits and $4 million for research credits. At December 31, 2010, the Company continued to maintain a valuation allowance of $177 million including $151 million for state tax loss carryforwards and $25 million for U.S. federal capital loss carryforwards. The Company does not believe that it is more likely than not that these deferred tax assets will be utilized prior to their expiration. The Company’s ability to utilize state tax loss carryforwards is impacted by several factors including expiration dates, limitations imposed by certain states on the amount of loss carryforwards that can be used in a given year to offset taxable income and whether the state permits the Company to file a combined return. The Company’s ability to utilize capital loss carryforwards is dependent upon the availability of future capital gain income which the Company does not currently project.
9.
Please provide a sensitivity analysis for your material assumptions on your pension obligations in addition to your pension expense in future filings.
In response to your comment, in future annual filings we will provide a sensitivity analysis for material assumptions related to our pension obligations.
Consolidated Statement of Operations, page 54
10.
We note that you have included asset impairment charges in the provision for restructuring line item in addition to the asset impairments and sales line item. In future filings, please consider including all asset impairment charges in one line item. This will allow investors to more easily identify the total amount of asset impairment charges.
We believe that it is more meaningful for an investor to include asset impairment charges in the p