ANNUAL~1.QXD 4/2/03 2:42 PM Page 1
Annual Report
2002
2002
ANNUAL~1.QXD 4/2/03 2:42 PM Page 2
ANNUAL~1.QXD 4/2/03 2:42 PM Page 1
Jenne K. Britell (b)
Chairman and Chief Executive
Officer of Structured Ventures Inc;
former Executive Officer of several
General Electric financial services
companies; also a Director of Lincoln
National Corporation, Aames Financial
Corporation, and U.S.-Russia Investment
Fund
John W. Conway (a)
Chairman of the Board, President and
Chief Executive Officer; also a Director
of Constar International, West
Pharmaceutical Services and PPL
Corporation
Arnold W. Donald (c)
Chairman and Chief Executive Officer
of Merisant Company; former Senior
Vice President of Monsanto Company;
also a Director of Oil-Dri Corporation
of America, Belden, Carnival
Corporation, The Scotts Company and
The Laclede Group
Board of Directors
Marie L. Garibaldi (b)
Former Associate Justice of the
Supreme Court of New Jersey
Hans J. Löliger (c, d)
Vice Chairman of Winter Group;
former Chief Executive Officer of SPICA
Group; also a Director of AMTICO
International, Fritz Meyer Holding,
Cronat Holding and List Holding
John B. Neff (b,d)
Former Portfolio Manager of Wellington
Management Company; also a Director
of Greenwich Associates and Amkor
Technology; also on the Executive Board
of Invemed Catalyst Fund
Thomas A. Ralph
Partner – Dechert LLP
Hugues du Rouret
Chairman of Beaulieu Patrimoine;
former Chairman and Chief Executive
Officer of Shell France; also a Director
of Gras Savoye and Banque Saint-Olive
Alan W. Rutherford (a)
Vice Chairman of the Board,
Executive Vice President and
Chief Financial Officer; also a Director
of Constar International
Harold A. Sorgenti (a, c, d)
Managing Partner of Sorgenti
Investment Partners; Chairman
and CEO of SpecChem International
Holdings; former Chief Executive Officer
of Arco Chemical and former Chairman of
Freedom Chemical
a – Executive
b – Audit
c – Executive Compensation
d – Nominating
Committees
John W. Conway
Chairman of the Board, President
and Chief Executive Officer
Alan W. Rutherford
Vice Chairman of the Board,
Executive Vice President and
Chief Financial Officer
Daniel A. Abramowicz
Executive Vice President –
Corporate Technologies
and Regulatory Affairs
Reda H. Amiry
Senior Vice President –
Corporate Tax
Corporate Officers
Timothy J. Donahue
Senior Vice President – Finance
William T. Gallagher
Senior Vice President, Secretary
and General Counsel
Michael B. Burns
Vice President and Treasurer
Michael F. Dunleavy
Vice President – Corporate Affairs
and Public Relations
William J. Freeman
Vice President – Strategic Marketing
and Planning
Thomas A. Kelly
Vice President and
Corporate Controller
Torsten J. Kreider
Vice President – Planning
and Development
Michael J. Rowley
Assistant Secretary
and Assistant General Counsel
Rosemary M. Haselroth
Assistant Secretary
1
ANNUAL~1.QXD 4/2/03 2:42 PM Page 2
Robert J. Truitt
President –
Beverage Packaging Division
John E. Roycroft
President –
Aerosol Packaging Division
Division Officers
Americas Division
Frank J. Mechura
President – Americas Division
Joseph R. Pierce
President – Closures Americas
William Filotas
President – Caribbean and
Central America
Patrick D. Szmyt
Senior Vice President
and Chief Financial Officer
Edward C. Vesey
Senior Vice President –
Procurement
John M. Gahan
Vice President – Logistics
Eduardo Cruz
President – Chile and Argentina
John Foster
President – Argentina
E. C. Norris Roberts
Executive Vice President –
Information Systems, Planning
and World Class Performance
Raymond L. McGowan
President –
Food Packaging Division
Alfred J. Wareing
President – Canada
Stephen Pearlman
President – Risdon – AMS
Gary L. Burgess
Senior Vice President –
Human Resources
Asia-Pacific Division
William H. Voss
President – Asia-Pacific Division
Jozef Salaerts
Vice President – South East Asia
& Zeller Plastik
Goh Hock Huat
Vice President and Chief Financial Officer
Andy Carlton
Vice President – Manufacturing and Purchasing
Ray Fazackerley
Vice President – Thailand
Terry Cartwright
Vice President – China & Hong Kong
European Division
William R. Apted
President — European Division
François de Wendel
Executive Vice President – Food
Peter Calder
Senior Vice President –
Human Resources and
Communications
Howard Lomax
Senior Vice President
and Chief Financial Officer
George Nicol
Senior Vice President –
Beverage
Peter Nuttall
Senior Vice President –Sourcing
John Clinton
Vice President –
Sales & Marketing, Bevcan Europe
Peter Collier
Vice President – Metal Closures
Inigo d’Ornellas
Vice President and Controller
Dave Francis
Vice President – Operations,
Bevcan Europe
Nick Mullen
Vice President – Speciality
Packaging
David Pollen
Vice President – Aerosols
Roland Dachs
Vice President – Logistics
& Planning
John Davidson
Vice President –
Legal & General Counsel
Terry Dobb
Vice President and Chief
Information Officer
Chris Harrison
Vice President – Speciality Plastics
Chris Homfray
Vice President – Food NorthWest
Ashok Kapoor
Chairman – Hellas Can S.A.
and Vice President – Business
Development, Bevcan Europe
David Powell
Vice President – Beverage Plastics
Guglielmo Prati
Vice President – Food Italy
Corporate Technologies
Daniel A. Abramowicz
President – Corporate Technologies
Philip J. Habberley
Vice President –
Engineering Development
Peter J. Heyes
Vice President –
Plastics Development
William C. Hoyle
Vice President –
Materials Development
Leonard Jenkins
Vice President –
Technology Development
2
ANNUAL~1.QXD 4/2/03 2:42 PM Page 3
Annual Meeting
We cordially invite you to attend the Annual Meeting
of Shareholders of Common Stock to be held at 9:30 a.m. on
Thursday, April 24, 2003 at the Company’s Coporate
Headquarters, One Crown Way, Philadelphia,
Pennsylvania. A formal notice of this Meeting, together
with the Proxy Statement and Proxy Card, will be mailed to
each Shareholder of Common Stock of record as of the close
of business on March 11, 2003, and only holders of record
on said date will be entitled to vote. The Board of Directors
of the Company requests the Shareholders of Common
Stock to sign Proxies and return them in advance of the
Meeting.
Table of Contents
Financial Highlights . . . . . . . . . . . . . . . . .
Letter to Shareholders . . . . . . . . . . . . . . . .
Consolidated Statements of Operations . . . . . . . . .
Consolidated Balance Sheets . . . . . . . . . . . . .
Consolidated Statements of Cash Flows . . . . . . . . .
Consolidated Statements of Shareholders’ Equity . . . . .
Notes to Consolidated Financial Statements . . . . . . .
Management’s Report to Shareholders
. . . . . . . . .
Report of Independent Accountants . . . . . . . . . . .
Quarterly Data . . . . . . . . . . . . . . . . . . .
Five Year Summary of Selected Financial Data . . . . . .
Management’s Discussion and Analysis . . . . . . . . .
Investor Information . . . . . . . . . . . . . . . . .
4
5
7
8
9
10
11
29
29
30
31
32
44
3
ANNUAL~1.QXD 4/2/03 2:42 PM Page 4
Financial Highlights
(in millions, except share, per share, employee, shareholder and statistical data)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss before cumulative effect of a change in accounting (1) . . . . . . .
Net loss (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Per common share:
Loss before cumulative effect of a change in accounting . . . . . . . .
Net loss
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Market price (closing) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholders’ equity/(deficit) . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt (net of cash and cash equivalents)
. . . . . . . . . . . . . . . . . . .
Net interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flow from operations . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . .
2002
$ 6,792
(
191)
( 1,205)
($ 1.33)
($ 8.38)
7.95
$ 7,505
( 87)
3,691
331
415
375
2001
% Change
$ 7,187
( 976)
972)
(
($ 7.77)
($ 7.74)
2.54
$ 9,620
804
4,864
437
310
499
( 5.5)
80.4
( 24.0)
82.9
( 8.3)
213.0
( 22.0)
(110.8)
( 24.1)
( 24.3)
33.9
( 24.8)
Number of employees
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of shareholders on record . . . . . . . . . . . . . . . . . . . . . .
Shares outstanding at December 31 (2) . . . . . . . . . . . . . . . . . . . .
Average shares outstanding - diluted . . . . . . . . . . . . . . . . . . . . .
28,319
5,579
159,430,075
143,807,452
33,046
5,552
125,702,056
125,648,083
( 14.3)
.5
26.8
14.5
(1) Includes after-tax (i) restructuring charges of $15 or $.10 per share in 2002 and $46 or $.37 per share in 2001; (ii) asset impairments and loss/gain on sale of assets of $258 or
$1.79 per share in 2002 and $208 or $1.66 per share in 2001; (iii) provisions for asbestos of $30 or $.21 per share in 2002 and $51 or $.41 per share in 2001 and (iv) a gain of
$28 or $.19 per share in 2002 from the early extinguishment of debt. In addition, net losses included (i) a U.S. tax charge of $452 or $3.60 per share in 2001 and (ii) an after-
tax charge of $1,014 or $7.05 per share for the transition adjustment from the adoption of FAS 142 in 2002 and an after-tax gain of $4 or $.03 per share for the transition
adjustment from the adoption of FAS 133 in 2001.
(2) The increase in shares is primarily due to shares issued in noncash debt-for-equity exchanges as discussed in Note N to the consolidated financial statements.
2002 NET SALES
By Segment
By Geographic Area
Americas
47%
Asia-Pacific
5%
United
States
37%
United
Kingdom
12%
France
10%
Other Metal
Packaging
16%
Plastic
Packaging*
20%
Other
Products
1%
Europe
48%
2002
By Product
Metal Beverage
Cans & Ends
34%
Metal Food
Cans & Ends
29%
2002
PRODUCTS
Other
26%
Canada
6%
Germany
4%
2002
Italy
5%
*Excluding Constar International, divested in November 2002, plastic packaging as a percentage of adjusted net sales would have been 12%.
4
ANNUAL~1.QXD 4/2/03 2:42 PM Page 5
CROWN HOLDINGS, INC.
Dear Fellow Shareholders:
Since our last letter to you in early 2002, we have continued to take significant strides to improve
the performance and profitability of your Company. This is the first letter to you under the new
Crown Holdings, Inc. name. The new name and the newly formed holding company were part of
the legal structure adopted to facilitate the major debt refinancing completed in February of this
year.
At the depth of our difficulties in early 2001, we laid out a plan to restore the Company’s
profitability, a plan that would take 24 to 30 months to achieve. Early last year, we updated you on
the progress that had been made. Now, we are very pleased to report that to date, we have
achieved all of the objectives of that plan while adhering to our basic strategy.
First, 2002 operating performance was significantly improved over 2001, with operating income
increasing 53% to $481 million. Net income from continuing operations was $0.49 per share
compared to a loss of $0.74 per share in 2001, and free cash flow increased to $300 million from
$142 million.
The Americas Division had a very successful year, with operating income more than doubling over
the prior year. The majority of the improvement came in North America (United States and
Canada) and reflected the success of pricing initiatives that we led in many of our markets. Our
Central and South American businesses continued to perform well. However, the impact of
political and economic turmoil in certain countries resulted in currency weakness and,
consequently, income reduction.
Our European and Asian businesses did particularly well in 2002. The European Division
improved performance by virtually every measure in 2002 versus 2001. We believe that
performance in this division has turned around and is headed in the right direction. Furthermore,
the strengthening of the euro and pound sterling will benefit the division’s results in 2003. Our
Asia-Pacific Division experienced another year of improved performance compared to the prior
year. Our companies in China and Southeast Asia continue to be regional leaders in beverage can
packaging. Our Asian businesses are well positioned for continued growth. In summary, Crown’s
global reach and capability were important sources of strength for the Company in 2002.
The Company continued to benefit from its superior research and development capabilities,
reflected in the positive customer response to our innovative packaging products. SuperEnd™
continues to draw significant customer interest in the beverage can sector and provides the
Company with an important competitive advantage. Various closure technologies, such as our
Ideal™ closure (a composite of plastic and metal), continue to gain volume and market share. We
remain convinced that our technical capability is a strategic strength which we will continue to
improve to maintain our competitive edge.
5
ANNUAL~1.QXD 4/2/03 2:42 PM Page 6
CROWN HOLDINGS, INC.
Over the course of 2002, we were able to complete a series of significant non-core asset sales.
These included the sale of our Constar PET business, our fragrance pump and pharmaceutical
packaging businesses, and our packaging interests in Central and Eastern Africa and South
Africa. We used the net proceeds from these sales together with free cash flow from operations
to pay down Crown’s debt. Additionally, we exchanged shares of common stock for certain
outstanding note obligations further reducing our debt. We began 2002 with net debt of $4.9
billion, but were able to end the year with net debt of $3.7 billion. This was an important
milestone toward our goal to delever the Company and strengthen the balance sheet.
In February of this year, we borrowed in excess of $3 billion in new funds and thereby
successfully refinanced and restructured the Company’s debt. Crown now has a stable capital
structure with no significant near term maturities. This is an achievement of which we are very
proud, and is a demonstration of the confidence that the capital markets have in our plans as
well as our ability to execute those plans in a timely manner.
As we look forward to 2003, we believe that we are in a strong position to continue improving
the Company’s performance and profitability. In that regard, we will be focused on serving our
customers, reducing our costs, improving the productivity of our operations and investing wisely
and carefully. We are committed to increasing free cash flow and delevering the Company. Our
commitment to debt reduction will further strengthen the Company and, in our view, create
shareholder value.
Before closing, we share with you a sad, recent event. In January of this year, our dear friend
and very able director of four years, James L. Pate, passed away. We will miss Jim’s unfailing
optimism, determination and wise counsel.
At the end of a new beginning, we note that the response from our employees to the challenges
the Company has faced has been exceptional, and we have every reason to believe the
Company’s future holds great promise.
Sincerely,
John W. Conway
Chairman of the Board, President
and Chief Executive Officer
March 19, 2003
6
ANNUAL~1.QXD 4/2/03 2:42 PM Page 7
Crown Holdings, Inc. and Subsidiaries
Consolidated Statements of Operations
(in millions, except per share amounts)
Net sales
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$6,792
$7,187
2002
2001
Cost of products sold (excluding depreciation and amortization)
Depreciation and amortization
. . . . .
. . . . . . . . . . . . . . . . . . . . . . .
Gross Profit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling and administrative expense . . . . . . . . . . . . . . . . . . . . .
Provision for asbestos. . Note K . . . . . . . . . . . . . . . . . . . . . . . .
Provision for restructuring . . Note L . . . . . . . . . . . . . . . . . . . . .
Provision for asset impairments and loss/gain on sale of assets . . Note M .
Gain from early extinguishment of debt . . Note N . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Translation and exchange adjustments . . . . . . . . . . . . . . . . . . .
Loss before income taxes, minority interests and cumulative effect
of a change in accounting . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . .
Provision/(benefit) for income taxes . . Note U
Minority interests, net of equity earnings . . . . . . . . . . . . . . . . . .
Loss before cumulative effect of a change in accounting . . . . . . . . . . .
Cumulative effect of a change in accounting, net of tax. . Notes A and B . . .
Net loss
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock dividends
Net loss available to common shareholders . . . . . . . . . . . . . . . . . .
Per common share data:
Loss . . Note S
Basic and diluted – before cumulative effect of a change in accounting . .
Basic and diluted – after cumulative effect of a change in accounting . . .
Dividends
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The accompanying notes are an integral part of these financial statements.
5,619
375
————
798
————
317
30
19
247
28)
342
11)
27
(
(
(
145)
30
(
16)
————
(
191)
( 1,014)
————
( 1,205)
————
($1,205)
————
————
($ 1.33)
————
————
($ 8.38)
————
————
6,063
386
————
738
————
113
310
51
48
213
2000
$7,289
5,982
379
————
928
————
116
314
255
52
27
393
20)
8
(
455
18)
10
(
(
444)
528
(
4)
————
(
976)
4
————
(
972)
————
($ 972)
————
————
($ 7.77)
————
————
($ 7.74)
————
————
————
————
217)
(
58)
(
(
15)
————
(
174)
————
(
174)
2
————
($ 176)
————
————
($ 1.40)
————
————
($ 1.40)
————
————
$ 1.00
————
————
7
ANNUAL~1.QXD 4/2/03 2:42 PM Page 8
Consolidated Balance Sheets
(in millions, except share data)
December 31
Assets
Current assets
Crown Holdings, Inc. and Subsidiaries
2002
2001
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receivables . . Note D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . Note E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . .
Total current assets
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term notes and receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . Note B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net . . Note F . . . . . . . . . . . . . . . . . . . . . .
Other non-current assets . . Note G . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities & Shareholders’ Equity/(Deficit)
Current liabilities
Short-term debt . . Note P . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current maturities of long-term debt . . Note P . . . . . . . . . . . . . . . . . . . .
Accounts payable and accrued liabilities . . Note H . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt, excluding current maturities . . Note P . . . . . . . . . . . . . . . .
Other non-current liabilities . . Note I
. . . . . . . . . . . . . . . . . . . . . . . . . .
Postretirement and pension liabilities . . Note T . . . . . . . . . . . . . . . . . . . . . .
Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingent liabilities . . Notes J and K
Shareholders’ equity/(deficit)
Preferred stock, 4.5% cumulative convertible,
par value: $41.8875; none outstanding, none authorized . . Note N . . . . . . . .
Additional preferred stock, authorized: 30,000,000;
none issued . . Note N . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock, par value: $5.00; authorized: 500,000,000 . . Note N
2002 - issued 180,364,643 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2001 - issued 155,968,854 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
Retained earnings/(accumulated deficit)
. . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . Note C
Treasury stock (2002 - 20,934,568 shares; 2001 - 30,266,798 shares) . . . . . . .
Total shareholders’ equity/(deficit)
. . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The accompanying notes are an integral part of these financial statements.
$ 363
782
779
100
————
2,024
————
24
111
2,269
2,212
865
————
$7,505
————
————
$
54
612
1,541
63
————
2,270
————
3,388
756
982
196
902
1,684
( 1,183)
( 1,386)
(
104)
————
(
87)
————
$7,505
————
————
8
$ 456
996
862
108
————
2,422
————
18
99
3,625
2,618
838
————
$9,620
————
————
$ 464
381
1,593
268
————
2,506
————
4,475
760
874
201
780
1,600
22
( 1,447)
151)
(
————
804
————
$9,620
————
————
ANNUAL~1.QXD 4/2/03 2:42 PM Page 9
Consolidated Statements of Cash Flows
(in millions)
Cash flows from operating activities
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . .
Cumulative effect of a change in accounting
Provision for asbestos . . . . . . . . . . . . . . . . . . . . . . . . . .
Asbestos-related payments . . . . . . . . . . . . . . . . . . . . . . .
Provision for restructuring . . . . . . . . . . . . . . . . . . . . . . .
Provision for asset impairments and loss/gain on sale of assets . . .
Gain from early extinguishment of debt
. . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes
Changes in assets and liabilities, net of businesses acquired:
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories
Accounts payable and accrued liabilities
. . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities
. . . . . . . . . . . . .
Cash flows from investing activities
Capital expenditures
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of businesses . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of property, plant and equipment . . . . . . . . . . .
Acquisition of businesses, net of cash acquired
. . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net
Net cash provided by/(used for) investing activities . . . . . . . .
Cash flows from financing activities
Proceeds from long-term debt . . . . . . . . . . . . . . . . . . . . . . . .
Payments of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . .
Net change in short-term debt
. . . . . . . . . . . . . . . . . . . . . . .
New term loan borrowing . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock repurchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock issued . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of shareholder notes . . . . . . . . . . . . . . . . . . . . . .
Acquisition of minority interests . . . . . . . . . . . . . . . . . . . . . .
Minority contributions, net of dividends paid . . . . . . . . . . . . . . .
Net cash provided by/(used for) financing activities . . . . . . . .
Effect of exchange rate changes on cash and cash equivalents . . . . . . .
(
(
(
(
(
(
(
(
375
1,014
30
114)
19
247
28)
31)
161
20
12)
61)
————
415
————
115)
661
45
————
591
————
87
264)
924)
3
(
30)
————
( 1,128)
————
29
————
Net change in cash and cash equivalents . . . . . . . . . . . . . . . . . .
(
93)
Cash and cash equivalents at January 1 . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at December 31 . . . . . . . . . . . . . . . . .
456
————
$363
————
————
The accompanying notes are an integral part of these financial statements.
Crown Holdings, Inc. and Subsidiaries
2002
2001
2000
($1,205)
($972)$
($174)
(
499
4)
51
( 118)
48
213
480
110
377
( 221)
( 153)
———
310
———
( 168)
28
( 23)
———
( 163)
———
2
( 77)
( 397)
400
4
5
———
( 63)
———
( 10)
———
74
382
———
$456
———
———
495
255
( 94)
52
27
( 96)
( 110)
( 26)
( 33)
( 26)
———
270270
———
( 262)
28
( 11)
3)
(
———
( 248)
———
4
( 216)
601
( 49)
( 127)
2
( 81)
7)
(
———
((
127
———
( 34)
———
115
267
———
$382
———
———
9
ANNUAL~1.QXD 4/2/03 2:42 PM Page 10
Consolidated Statements of Shareholders’ Equity/(Deficit)
(in millions, except share data)
Crown Holdings, Inc. and Subsidiaries
Comprehensive Preferred
Income/(Loss)
Stock
Common Paid-In (Accumulated Comprehensive Treasury
Stock
Capital
Deficit)
Income/(Loss)
Stock
Total
Retained
Earnings/
Accumulated
Other
Balance December 31, 1999
$349
$779
$1,317
$1,295
($ 676)
($173)
$2,891
Net loss - 2000 . . . . . . . . . .
Translation adjustments . . . . .
Minimum pension liability
adjustment, net of $115 tax . .
Comprehensive loss . . . . . . . .
Stock repurchased
3,165,528 common shares . . .
Dividends declared:
Common . . . . . . . . . . . .
. . . . . . . . . . .
Preferred
Preferred stock conversions . . .
7,591,802 common shares
Stock issued: 114,221 shares . .
Balance December 31, 2000
Net loss - 2001 . . . . . . . . . .
Derivatives qualifying
as hedges . . . . . . . . . . . .
Translation adjustments . . . . .
Translation adjustments –
disposition of
foreign investments . . . . . .
Minimum pension liability
adjustment, net of $1 tax . . .
Comprehensive loss . . . . . . . .
Stock repurchased:
20,695 common shares . . . . .
Stock issued: 101,103 shares . .
Repayment of shareholder notes . .
Balance December 31, 2001
Net loss – 2002 . . . . . . . . . .
Derivatives qualifying
as hedges . . . . . . . . . . . .
Translation adjustments . . . . .
Translation adjustments –
disposition of . . . . . . . . . . . . . . .
foreign investments . . . . . .
Minimum pension liability
adjustment, net of $4 tax . . . . .
Comprehensive loss . . . . . . . . . . . .
Stock issued in debt-for-equity
exchanges: 33,386,880 shares . .
Stock issued – benefit plans:
347,221 common shares . . . . .
Stock repurchased:
6,082 common shares . . . . . . . .
Balance December 31, 2002
($ 174)
221)
(
(
213)
————
($ 608)————————
(
174)
(
(
221)
213)
186.5
1,375.9
( 73.6)
(
33)
(
(
125)
2)
( 349)
1
311
(
(
(
(
(
(
174)
221)
213)
49)
125)
2)
(
16)
37
———
——— ————— —————
994
1,596
780
—————
( 1,110)
1
1
2
——— —————
2,109
( 151)
($ 972)
(
(
4)
131)
71
273)
(
————
($1,309)————————
($1,205)
6
211
( 8)
( 148)
————
($1,144)————————
———
(
972)
(
(
(
4)
131)
71
273)
(
(
(
972)
4)
131)
71
(
273)
4
——— ————— —————
1,600
—————
22 7( 1,447)
780
( 1,205)
6
211
(
8)
(
148)
122
83
1
4
——— —————
$ 804
( 151)
( 1,205)
6
211
( 8)
(
148)
45
2
250
3
———
———
———
——— ————— —————
($1,183)
$902
$1,684
——— ————— —————
——— ————— —————
—————
($1,386)
—————
—————
——— —————
($104)
——— —————
——— —————
($ 87)
The accompanying notes are an integral part of these financial statements.
10
ANNUAL~1.QXD 4/2/03 2:42 PM Page 11
Notes to Consolidated Financial Statements
(in millions, except per share, employee, shareholder and statistical data; per share earnings are quoted as diluted)
A. Summary of Significant Accounting Policies
Business and Principles of Consolidation. In connection with
its refinancing and reorganization in 2003, as discussed in
Notes N and Q, Crown Cork & Seal Company, Inc. formed a
new public holding company, named Crown Holdings, Inc.
Crown Cork & Seal Company, Inc. is now a wholly-owned
subsidiary of Crown Holdings, Inc. The consolidated
financial statements include the accounts of Crown
Holdings, Inc. and its wholly-owned and majority-owned
subsidiary companies (the “Company”).
The Company manufactures and sells metal containers,
metal and plastic closures, crowns and canmaking
equipment. These products are manufactured in the
Company’s plants both within and outside the United States
and are sold through the Company’s sales organization to
the soft drink, food, citrus, brewing, household products,
personal care and various other industries. The financial
statements have been prepared in conformity with U.S.
generally accepted accounting principles and reflect
management’s estimates and assumptions. Actual results
could differ from those estimates, impacting reported results
of operations and financial position. All significant
intercompany accounts and transactions are eliminated in
consolidation. Investments in joint ventures and other
companies in which the Company does not have control, but
has the ability to exercise significant influence over
operating and financial policies, are accounted for by the
equity method. Other investments are carried at cost.
Foreign Currency Translation. For non-U.S. subsidiaries
which operate in a local currency environment, assets and
liabilities are translated into U.S. dollars at year-end
exchange rates. Income and expense items are translated at
average exchange rates prevailing during the year.
Translation adjustments for these subsidiaries are
accumulated as a separate component of accumulated other
comprehensive income/(loss) in shareholders’ equity. For
non-U.S. subsidiaries which operate in U.S. dollars
(functional currency), local currency inventories and plant
and other property are translated into U.S. dollars at
approximate rates prevailing when acquired; all other assets
and liabilities are translated at year-end exchange rates.
Inventories charged to cost of sales and depreciation are
remeasured at historical rates; all other income and expense
items are translated at average exchange rates prevailing
during the year. Gains and losses which result from
remeasurement are included in earnings.
Revenue Recognition. The Company recognizes revenue
from product sales when the goods are shipped and the title
and risk of loss pass to the customer. Provisions for discounts
and rebates to customers, returns, and other adjustments
are provided in the same period that the related sales are
recorded.
Shipping and Handling. Shipping and handling costs are
included in cost of products sold in the Consolidated
Statements of Operations.
Stock-Based Compensation. Compensation cost for stock
options is measured as the excess, if any, of the quoted
market price of the Company’s stock at the date of grant
above the amount an employee must pay to acquire the stock
granted under the option. The following table illustrates the
effect on net loss and loss per share if the Company had
applied the fair value recognition provisions of Statement of
Financial Accounting Standards No. 123 (“FAS 123”)
“Accounting for Stock-Based Compensation,” to stock
options:
Net loss available to
common shareholders,
as reported
Deduct: Total stock-based employee
compensation expense determined
under fair value based method,
net of related tax effects
Pro forma net loss
Loss per share:
2002
2001
2000
($1,205)
($ 972)
($176)
(
11)
14)
(
( 13)
———— ——— ———
($1,216)
($189)
———— ——— ———
———— ——— ———
($ 986)
Basic and diluted – as reported
($8.38)
($7.74) ($1.40)
Basic and diluted – pro forma
($8.46)
($7.85) ($1.50)
Cash and Cash Equivalents. Cash equivalents represent
investments with maturities of three months or less from
the time of purchase and are carried at cost which
approximates fair value because of the short maturity of
those instruments. Outstanding checks in excess of funds on
deposit are included in accounts payable.
Inventory Valuation. Inventories are stated at the lower of
cost or market, with cost for U.S. inventories principally
determined under the last-in, first-out (“LIFO”) method.
Non-U.S. inventories are principally determined under the
average cost method.
Property, Plant and Equipment. Property, plant and
equipment (“PP&E”) is carried at cost less accumulated
depreciation and includes expenditures for new facilities and
equipment and those costs which substantially increase the
useful lives of existing PP&E. Cost of constructed assets
includes capitalized interest incurred during the
construction and development period. Maintenance, repairs
and minor renewals are expensed as incurred. When PP&E
is retired or otherwise disposed, the net carrying amount is
eliminated with any gain or loss on disposition recognized in
earnings at that time.
Depreciation and amortization are provided on a straight-
line basis for financial reporting purposes and an accelerated
basis for tax purposes over the estimated useful lives of the
assets. The range of estimated economic lives in years
assigned to each significant fixed asset category is as follows:
Land Improvements-25; Buildings and Building
Improvements-25 to 40; Machinery and Equipment-3 to 14.
11
ANNUAL~1.QXD 4/2/03 2:42 PM Page 12
Intangibles. Goodwill, representing the excess of the cost
over the net tangible and identifiable intangible assets of
acquired businesses, and other intangible assets are stated
at cost.
Goodwill and intangible assets with indefinite lives are no
longer amortized, but instead are tested for impairment, at
least annually. Potential impairment is identified by
comparing the fair value of a reporting unit to its carrying
value, including goodwill. If the carrying value of the
reporting unit exceeds its fair value, any impairment loss is
measured by comparing the carrying value of the reporting
unit’s goodwill to its implied fair value, using quoted market
prices, a discounted cash flow model, or a combination
of both.
Impairment or Disposal of Long-Lived Assets. In the
event that facts and circumstances indicate that the carrying
value of long-lived assets, primarily PP&E and certain
identifiable intangible assets with defined lives, may be
impaired, the Company performs a recoverability evaluation.
If the evaluation indicates that the carrying amount of the
asset is not recoverable from its undiscounted cash flows,
then an impairment loss is measured by comparing the
carrying amount of the asset to its fair value. Long-lived
assets classified as held for sale are presented separately in
the balance sheet at the lower of their carrying value or fair
value less cost to sell.
Derivatives and Hedging. The Company recognizes all
outstanding derivative financial instruments in the balance
sheet at their fair values. The impact on earnings from
recognizing the fair values of these instruments depends on
their intended use, their hedge designation and their
effectiveness in offsetting changes in the fair values of the
exposures that they are hedging. The effectiveness of these
instruments to reduce risk associated with the exposures
hedged is assessed and measured using a dollar-offset
method, at inception and on an ongoing basis. Any amounts
excluded from the assessment of hedge effectiveness, as well
as any ineffective portion of designated hedges, are reported
currently in earnings. Time value, a component of an
instrument’s fair value, is excluded in assessing effectiveness
for fair value hedges and included for cash flow hedges. If a
derivative instrument ceases to be highly effective as a
hedge, the Company discontinues hedge accounting
immediately with changes in fair value reported currently in
earnings. For derivative instruments that do not qualify for
hedge accounting treatment, changes in fair value are
reported currently in earnings.
The accounting treatment of these instruments is
dependent upon their intended use. For instruments used to
reduce or eliminate adverse fluctuations in the fair values of
recognized assets and liabilities and unrecognized firm
commitments, changes in their fair values are reported
currently in earnings along with the changes in fair values of
the hedged assets, liabilities or firm commitments. For
instruments used to reduce or eliminate adverse fluctuations
in cash flows of anticipated or forecasted transactions,
changes in their fair values are reported in shareholders’
equity as a component of other comprehensive income.
12
Adjustments accumulated in other comprehensive income
are released to earnings when the related hedged items
impact earnings or the anticipated transaction is no longer
probable.
Upon adoption of SFAS No. 133 (“FAS 133”), “Accounting
for Derivative Instruments and Hedging Activities,” as of
January 1, 2002, the Company recorded a transition credit of
$4, net of $1 tax, to earnings and a charge of $18, net of $10
tax, to accumulated other comprehensive income in
shareholders’ equity. See Note R for details of the Company’s
use of these instruments in 2002 along with disclosure of the
fair values of those instruments outstanding at December
31, 2002 and 2001.
Treasury Stock. Treasury stock is reported at par value.
The excess of fair value over par value is first charged to
paid in capital, if any, and then to retained earnings.
Research and Development. Net research, development
and engineering expenditures which amounted to $43, $40
and $41 in 2002, 2001 and 2000, respectively, are expensed
as incurred and reported in selling and administrative
expense in the Consolidated Statements of Operations.
Substantially all engineering and development costs are
related to developing new products or designing significant
improvements to existing products.
Reclassifications. Certain reclassifications of prior years’
data have been made to improve comparability.
Other Recently Adopted Accounting Standards. In April
2002, the Financial Accounting Standards Board (“FASB”)
issued SFAS No. 145 (“FAS 145”), “Recission of FASB
Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13, and Technical Corrections.” In the fourth
quarter of 2002, effective January 1, 2002, the Company
early-adopted FAS 145. Among other provisions, the new
standard no longer permits gains or losses from the
extinguishment of debt to be reported as an extraordinary
item unless the extinguishment qualifies as extraordinary
under the criteria of Accounting Principles Board Opinion
No. 30 (“APB 30”). The standard requires that prior gains or
losses which were reported as extraordinary items and do
not qualify as extraordinary under APB 30 be reclassified
within income/(loss) from continuing operations.
Extraordinary gains, from the early extinguishment of debt,
reported in the second and third quarters of 2002, are now
classified in income/(loss) from continuing operations. See
Note N for further details about the early extinguishment
of debt.
In November 2002, the FASB issued FASB Interpretation
No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure
Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others.” FIN 45 requires a
guarantor to recognize, at the inception of a qualified
guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. The guarantee
disclosure requirements of FIN 45 became effective in the
fourth quarter of 2002. The initial recognition and
measurement requirements are effective on a prospective
basis for qualified guarantees issued or modified after
December 31, 2002.
ANNUAL~1.QXD 4/2/03 2:42 PM Page 13
B. Goodwill
Effective January 1, 2002, the Company adopted Statement
of Financial Accounting Standards No. 142 (“FAS 142”),
“Goodwill and Other Intangible Assets.” During the second
quarter of 2002, the Company completed its transitional
impairment review and recognized a noncash, non-tax
deductible impairment charge of $1,014 reported as the
cumulative effect of a change in accounting, effective
January 1, 2002. In evaluating and measuring the
impairment charge, estimated fair values were calculated for
each reporting unit within each reportable segment using a
combination of market values for comparable businesses and
discounted cash flow projections.
The changes in the carrying amount of goodwill by
reportable segment for the years ended December 31, 2002
and 2001 were as follows:
Americas Europe Asia-Pacific Total
Balance at
January 1, 2001
Amortization
Impairment
Additions
Foreign currency
$1,200
38)
(
$2,715
75)
(
69)
(
$5
1
$3,920
113)
(
69)
(
1
translation and other
(
6)
(
108)
(
114)
Balance at
December 31, 2001
$1,156
$2,463
6
$3,625
Transitional impairment
charge
Divestitures
Foreign currency
(
(
120)
407)
(
(
888)
95)
( 6)
( 1,014)
502)
(
translation and other
10
150
160
Balance at
December 31, 2002
$ 639
$1,630
$2,269
The following is a reconciliation of previously reported
financial information to adjusted amounts excluding
goodwill amortization for the years ended December 31,
2002, 2001 and 2000, respectively:
2002
2001
2000
Loss before cumulative
effect of a change in accounting
Add back: goodwill amortization
Adjusted loss before cumulative
($ 191)
($976) ($ 174)
116
———— ——— ———
113
effect of a change in accounting
( 191)
( 863) ( 58)
Cumulative effect of a change
in accounting, net of tax
Adjusted net loss
( 1,014)
———— ——— ———
($859) ($ 58)
($1,205)
4
Basic and diluted loss per share:
Loss before cumulative effect
of a change in accounting
Add back: goodwill amortization
Adjusted loss before cumulative
2002
2001
2000
( $1.33)
($7.77) ($1.40)
.92
———— ——— ———
.90
effect of a change in accounting
( 1.33)
( 6.87) ( .48)
Cumulative effect of a change
in accounting, net of tax
Adjusted net loss
( 7.05)
———— ——— ———
($6.84) ($ .48)
( $8.38)
.03
Identifiable intangible assets other than goodwill are
recorded in other noncurrent assets in the Consolidated
Balance Sheets and, excluding minimum pension assets, are
not material.
C. Accumulated Other Comprehensive Loss
As of December 31, accumulated other comprehensive loss
consists of the following:
Minimum pension liability adjustments
Cumulative translation adjustments
Derivatives qualifying as hedges
D. Receivables
Accounts and notes receivable
Less: allowance for doubtful accounts
Net trade receivables
Miscellaneous receivables
2002
2001
($ 675)
713)
(
2
($ 527)
916)
(
4)
(
($1,386)
($1,447)
2002
2001
$ 718
54)
(
———
664
118
(
$ 938
95)
———
843
153
$ 782
$ 996
The Company utilizes receivable securitization facilities in
the normal course of business as part of its management of
cash flow activities. Facilities were outstanding during 2002
and 2001 in North America and Europe providing for the
accelerated receipt of cash from a qualified pool of
receivables. The Company’s current facility entered into
during 2001, provides for the accelerated receipt of cash up
to $350 on the available pool of North American receivables.
Under this facility the Company sells, on a revolving and
non-recourse basis, accounts receivables to a wholly-owned,
bankruptcy-remote subsidiary. This subsidiary was formed
for the sole purpose of buying and selling receivables
generated by the Company and, in turn, sells eligible
accounts from the pool of purchased receivables to an
unconsolidated entity of a leading financial institution. New
receivables are added to the pool of receivables as collections
reduce previously sold amounts. The Company continues to
service these receivables for a fee but does not retain any
13
ANNUAL~1.QXD 4/2/03 2:42 PM Page 14
interest in the receivables sold. The securitization facilities
are accounted for as sales because the Company has
relinquished control of the receivables. Accordingly, accounts
receivable sold under securitization facilities are reflected as
a reduction in receivables within the Consolidated Balance
Sheets. At December 31, 2002 and 2001 receivables
securitized were $100 and $110, respectively. During 2002
and 2001, the Company recorded expenses related to the
outstanding securitization facilities of $10 and $18,
respectively, as interest expense.
E. Inventories
Finished goods
Work in process
Raw materials and supplies
2002
$ 314
89
376
$ 779
2001
$ 314
112
436
$ 862
Approximately 23% and 24% of worldwide productive
inventories at December 31, 2002 and 2001, respectively,
were stated on the LIFO method of inventory valuation. Had
average cost (which approximates replacement cost) been
applied to such inventories at December 31, 2002 and 2001,
total inventories would have been $32 higher in both years.
Cost of products sold in 2001 included a charge of $10 for the
liquidation of LIFO inventory layers carried at higher costs
that prevailed in prior years.
F. Property, Plant and Equipment
2002
2001
Buildings and improvements
Machinery and equipment
Less: accumulated depreciation
and amortization
Land and improvements
Construction in progress
G. Non-Current Assets
Pension assets
Deferred tax assets
Fair value of derivatives
Pension intangibles
Other
14
$ 781
3,760
$ 856
4,168
——— ———
5,024
4,541
( 2,561)
( 2,652)
——— ———
2,372
157
89
1,980
172
60
$2,212
$2,618
2002
$ 672
112
22
28
31
$ 865
2001
$ 565
105
76
30
62
$ 838
H. Accounts Payable and Accrued Liabilities
Trade accounts payable
Salaries, wages and other employee benefits
Accrued taxes, other than on income
Asbestos
Deferred taxes
Interest
Restructuring
Fair value of derivatives
Other
I. Other Non-Current Liabilities
Deferred taxes
Asbestos
Postemployment benefits
Environmental
Fair value of derivatives
Other
2002
$ 820
312
89
70
55
27
14
4
150
2001
$ 836
305
88
110
50
50
22
132
$1,541
$1,593
2002
$ 370
193
43
12
21
117
$ 756
2001
$ 352
237
43
15
113
$ 760
J. Lease Commitments
The Company leases manufacturing, warehouse and office
facilities and certain equipment. Certain non-cancelable
leases are classified as capital leases, and the leased assets
are included in PP&E. Other long-term non-cancelable leases
are classified as operating leases and are not capitalized. The
amount of capital leases reported as capital assets, net of
accumulated amortization, was $40 at both December 31,
2002 and 2001.
Under long-term operating leases, minimum annual
rentals are $22 in 2003, $16 in 2004, $14 in 2005, $12 in
2006, $10 in 2007, and $40 thereafter. Such rental
commitments have been reduced by minimum sublease
rentals of $20 due under non-cancelable subleases. Under
long-term capital leases, minimum annual rentals are $5 in
2003, $6 in 2004, $2 in 2005, $1 in 2006, $1 in 2007, and $3
thereafter. The present value of future minimum payments
on capital leases is $17 with a current obligation of $5. Rental
expense (net of sublease rental income of $3 in 2002, $4 in
2001 and $4 in 2000) was $33 in 2002, $34 in 2001 and $36 in
2000.
K. Commitments and Contingent 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
ANNUAL~1.QXD 4/2/03 2:42 PM Page 15
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 operations and was later
merged into Crown Cork.
Prior to 1998, the amounts paid to asbestos claimants
were covered by a fund of $80 made available to Crown Cork
under a 1985 settlement with carriers insuring Crown Cork
through 1976, when Crown Cork became self-insured. Until
1998, the Company considered that the fund was adequate
and that the likelihood of exposure in excess of the amount of
the fund was remote. This view was based on the Company’s
analysis of its potential exposure, the balance available
under the 1985 settlement, historical trends and actual
settlement ranges. However, an unexpected increase in
claims activity, along with several larger group settlements,
caused the Company to reevaluate its position.
Each quarter, the Company reviews and analyzes its
claim experience, settlement trends, changes in the litigation
environment and other factors to determine the adequacy of
its asbestos accruals. In each of the years 2000 to 2002, the
Company has engaged an expert in the field of medical
demographics to perform an independent evaluation of the
Company’s potential asbestos liability. Adjustments to the
asbestos accrual are made based on changes to the above-
mentioned factors after consultation with the Company’s
expert and legal counsel.
During 2002, 2001 and 2000, respectively, Crown Cork
(i) received 36,000, 53,000 and 44,000 new claims, (ii) settled
or dismissed 43,000, 31,000 and 40,000 claims, and (iii) has
59,000, 66,000 and 44,000 claims outstanding at the end of
the respective years. The outstanding claims at December
31, 2002 exclude 33,000 pending claims involving plaintiffs
who allege that they are, or were, maritime workers subject
to exposure to asbestos, but whose claims the Company
believes, based on counsel’s advice, will not, in the aggregate,
involve any material liability. During 2001, one jurisdiction
accounted for 25,000 claims received, 17,000 of which were
settled for $4 in 2001.
During 2002, 2001 and 2000, respectively, the Company
(i) recorded pre-tax charges of $30, $51 and $255 to increase
its accrual, (ii) made asbestos-related payments of $114,
$118 and $94, (iii) settled claims totaling $77, $66 and $100,
including amounts committed to be paid in future periods
and (iv) had outstanding accruals of $263, $347 and $420 at
the end of the year. The 2001 charge of $51 included an
allowance of $6 for an insurance receivable.
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. The Company has already
paid significantly more for asbestos claims than the acquired
company’s asset value. On June 12, 2002, Crown Cork
received a favorable ruling from the Philadelphia Court of
Common Pleas on its motion for summary judgment
regarding the 376 asbestos-related cases pending against it
in that court (in re Asbestos Litigation, October Term 1986,
Number 001). The plaintiffs claimed that the legislation was
procedurally inapplicable and that, if applicable, it violated
due process and other clauses of the United States and
Pennsylvania constitutions. The plaintiffs’ appeal of that
ruling was heard by the Supreme Court of Pennsylvania on
October 22, 2002, and a decision could come at any time. An
unfavorable decision may require the Company to increase
its accrual for pending and future asbestos-related claims.
Based on the updated report of the independent expert,
the Company’s own review, and the view of counsel
concerning the possible effects of the new legislation
described above, the Company estimates that its probable
and estimable asbestos liability for pending and future
asbestos claims will range between $263 and $502. The
accrual balance of $263 at the end of 2002 includes $146 for
unasserted claims and $50 for committed settlements that
will be paid over time, including $41 in 2003. Historically
(1977-2002), Crown Cork estimates that approximately one-
quarter of all asbestos claims made against it have been
asserted by claimants who claim first exposure to asbestos
after 1964. However, because of Crown Cork’s settlement
experience to date and the increased difficulty of establishing
identification of the subsidiary’s insulation products as the
cause of injury by persons alleging first exposure to asbestos
after 1964, the Company has not included in its accrual and
range of potential liability any amounts for settlements by
persons alleging first exposure to asbestos after 1964.
Assumptions underlying the accrual and the range of
potential liability include that claims for exposure to
asbestos that occurred after the sale of the U.S. company’s
insulation business in 1964 would not be entitled to
settlement payouts and that the Pennsylvania asbestos
legislation described above is expected to have a highly
favorable impact on Crown Cork’s ability to settle or defend
against asbestos-related claims. The Company’s accrual
includes estimates for probable costs for claims through the
year 2012. The upper end of the Company’s estimated range
of possible asbestos costs of $502 includes claims beyond
that date.
While it is not possible to predict the ultimate outcome of
the asbestos-related claims and settlements, the Company
believes, after consultation with counsel, that resolution of
these matters is not expected to have a material adverse
effect on the Company’s financial position. The Company
cautions, however that these estimates for asbestos cases
and settlements are difficult to predict and may be
influenced by many factors. Accordingly, these matters, if
resolved in a manner different from the estimate, could have
a material effect on the Company’s financial position and
cash flow.
15
ANNUAL~1.QXD 4/2/03 2:42 PM Page 16
The Company has been identified by the EPA as a
potentially responsible party (along with others, in most
cases) at a number of sites. Actual expenditures for
remediation were $2, $4 and $2 in 2002, 2001, and 2000,
respectively. The Company’s balance sheet reflects estimated
gross remediation liabilities of $14 and $18 at December 31,
2002 and 2001, respectively, and probable recoveries related
to indemnification from the sellers of acquired companies
and the Company’s insurance carriers of $2 at December 31,
2001.
On March 19, 2003, the European Commission informed
the Company that it is in the process of issuing a Statement
of Objections alleging that certain of the Company’s
European subsidiaries engaged in commercial practices that
violated European competition law. The Statement of
Objections, which is understood to arise from an
investigation of a complaint made by a competitor, alleges
that certain food can contracts primarily in the United
Kingdom and Ireland infringed Article 82 of the EC Treaty
(abuse of dominant position). The issuance of a Statement of
Objections by the Commission is the initial step in formal
proceedings. It does not constitute a decision on the merits.
Under applicable procedures, the Company will have an
opportunity to reply to the Statement of Objections and to
contest its allegations at a formal hearing. The Commission
will issue its formal decision sometime after the hearing and
if it finds that the subsidiaries violated European
competition law, the Commission has the authority to
require the Company to modify its commercial practices and
to levy fines. The Commission’s decision may be appealed to
the European Court of First Instance. The Company believes
that the allegations against it are without merit and intends
to defend its position vigorously. However, because the
matter is in its preliminary stages, the Company is unable to
predict the ultimate outcome or its impact on the Company.
The Company is also subject to various other lawsuits and
claims with respect to matters such as governmental and
environmental regulations and other actions arising out of
the normal course of business. While the impact on future
financial results is not subject to reasonable estimation
because considerable uncertainty exists, management
believes, after consulting with counsel, that the ultimate
liabilities resulting from such lawsuits and claims will not
materially affect the consolidated results, liquidity or
financial position of the Company.
The Company has various commitments to purchase
materials and supplies as part of the ordinary conduct of
business. The Company’s basic raw materials for its
products are tinplate, aluminum and resins, all of which are
purchased from multiple sources. The Company is subject to
material fluctuations in the cost of these raw materials and
has periodically adjusted its selling prices to reflect these
movements. There can be no assurances, however, that the
Company will be able to fully recover any increases or
fluctuations in raw material costs from its customers. The
16
Company also has commitments for standby letters of credit
and for purchases of capital assets.
At December 31, 2002 the Company has guaranteed
future rent payments for properties leased by Constar
International. The guarantees represent an accommodation
to landlords due to Constar’s divestiture from the Company.
The maximum potential liability for these lease payments is
$12. The lease agreements expire over the next five years
with lease commitments of $4 in 2003, $4 in 2004, $2 in
2005, $1 in 2006 and $1 in 2007.
At December 31, 2002 the Company has certain
indemnification agreements covering environmental
remediation and other potential costs associated with
properties sold or business divested. For agreements with
defined liability limits the maximum potential amount of
future liability is $57. Several agreements outstanding at
December 31, 2002 do not provide liability limits. At
December 31, 2002, the Company has recorded liabilities of
approximately $3 covering these indemnification agreements.
The Company accrues for costs associated with such
indemnifications and potential costs when it is probable that
a liability has been incurred and the amount can be
reasonably estimated.
The Company also has guarantees aggregating to $19
with various governmental agencies within Europe to cover
imports and other tax matters.
L. Restructuring
During 2002, the Company provided a net charge of $19
($15 after tax) for costs associated with (i) the closure of two
European food can plants, (ii) the closure of a crown plant
and elimination of a crown operation within Europe, (iii) the
elimination of a European metal closures operation, (iv) the
downsizing of a European specialty plastics operation and (v)
the elimination of a plastic bottle operation in China;
partially offset by a credit for the reversal of other exit costs
recognized in 2001 due to the favorable resolution of a lease
termination in a U.S. food can plant. The related severance
charges for these actions were associated with the
termination of approximately 500 employees, 400 of whom
were directly involved in manufacturing operations.
During 2001, the Company provided a net charge of $48
($46 after tax) for costs associated with (i) the closure of six
U.S. food can plants, two European crown operations, a
European food can plant and a European PET bottle plant
and (ii) severance related to downsizing three plants in
Africa; partially offset by a credit for the reversal of
severance charges recognized in 2000 for certain
restructuring plans which the Company decided not to
pursue. The severance charge was associated with the
termination of approximately 700 employees, 600 of whom
were directly involved in manufacturing operations.
During 2000, the Company provided $52 ($37 after-tax)
for costs associated with overhead structure modifications in
Europe, the closure of three plants in the Americas division,
and the loss on sale of a South American operation to local
ANNUAL~1.QXD 4/2/03 2:42 PM Page 17
management. This provision included (i) $42 for severance
costs for approximately 1,000 employees, (ii) $5 for lease
termination and other exit costs, (iii) $1 for the write-down of
assets and (iv) $4 for the loss on sale.
The write-downs of assets were made under announced
restructuring plans, as the carrying values exceeded the
Company’s estimated proceeds from abandonment or
disposal. The sale of plant sites may require more than one
year to complete due to preparations for sale, such as site
cleanup and buyer identification, as well as market
conditions and the location of the properties.
Balances remaining in the reserves included provisions
for current year actions as well as for contracts or
agreements for which payments from prior restructuring
actions are extended over time. This includes employee-
related agreements with unions and governmental agencies
as well as lease arrangements with landlords. The balance of
the restructuring reserves (excluding asset write-downs that
were recorded as a reduction to the related asset accounts)
were included in accounts payable and accrued liabilities.
The components of the restructuring reserve and movements
within these components during 2001 and 2002 were as
follows:
Termination
Benefits
Other
Exit
Costs
Asset
Write-
downs
Balance at
January 1, 2001
Provisions – 2001
Payments – 2001
Transfer against assets
Other movements*
Balance at
December 31, 2001
Provisions – 2002
Payments – 2002
Transfer against assets
Other movements*
Balance at
$24
14
( 28)
$ 8
14
( 5)
( 2)
( 3)
8
13
( 11)
14
( 2)
( 4)
( 1)
( 3)
December 31, 2002
* Includes translation adjustments
$ 9
$ 5
$20
( 20)
8
( 8)
Total
$32
48
( 33)
( 20)
( 5)
22
19
( 15)
( 8)
( 4)
$14
During 2002, severance payments were made related to
the termination of approximately 500 employees, 400 of
whom were involved in direct manufacturing operations. The
remaining termination benefits of $9 are expected to be paid
in 2003.
M. Asset Impairments and Loss/Gain on Sale of Assets
During 2002, the Company recorded pre-tax charges of $247
($258 after tax) for losses from divestitures of businesses, the
sale of assets, and asset impairments outside of
restructuring programs. During the fourth quarter of 2002,
Constar International, Inc. (“Constar”), the Company’s
wholly-owned subsidiary, completed its initial public
offering. The Company retained a 10.5% interest in Constar
with a carrying value of $30, received net proceeds of $460,
and recorded a loss of $213 on the portion sold. The
Company also completed the sales of its U.S. fragrance
pumps business, its European pharmaceutical packaging
business, its 15% shareholding in Crown Nampak (Pty) Ltd.,
and certain businesses in Central and East Africa. The
Company received total proceeds of $201 and recorded total
pre-tax losses of $26 on these divestitures. In addition to the
business divestitures, the Company sold various other
assets, primarily real estate, for total proceeds of $45 and a
pre-tax gain of $11. The Company also recorded asset
impairment charges of (i) $10 to write-off certain surplus
assets in the U.S. due to the Company’s assessment that
their carrying value will not be recovered based on current
operating plans, (ii) $4 to write-down the assets of a U.S.
operation the Company is considering for sale or closure, (iii)
$3 to write-down the value of surplus U.S. real estate the
Company has for sale, and (iv) $2 to write-off the carrying
value of other assets.
During 2001, the Company recorded a net charge of $213
($208 after-tax) for noncash asset impairment charges and
gains from asset sales. Of the total impairment charge, $204
arose from the Company’s planned divestitures of certain
interests in Africa, including $71 for the reclassification of
cumulative translation adjustments to earnings. The
remaining impairment charge of $11 was due to the write-
down of surplus equipment. The sale of surplus properties
generated proceeds of $28 and a net gain of $2.
A charge of $27 ($20 after-tax) was recorded in 2000 for
the noncash write-off of a minority interest in a machinery
company and an investment in Moldova and for losses on the
sale of various assets. The investment write-offs were due to
uncertainty regarding the ultimate recovery of these
investments. The asset sales provided proceeds of $28.
N. Capital Stock
In connection with its refinancing and reorganization, as
discussed in Note Q, Crown Cork & Seal Company, Inc.
formed a new public holding company, Crown Holdings, Inc.
in February 2003. Crown Cork & Seal Company, Inc. is now
a wholly-owned subsidiary of Crown Holdings, Inc.
Shareholders of Crown Cork & Seal Company, Inc. became
shareholders of Crown Holdings, Inc. and have the same
number of shares and percentage of ownership and the same
rights, privileges and interests with respect to Crown
Holdings, Inc. that they held in Crown Cork & Seal
Company, Inc. immediately prior to the reorganization. The
conversion of shares of Crown Cork & Seal Company, Inc.
into shares of Crown Holdings, Inc. occurred without the
physical exchange of certificates, and certificates formerly
representing shares of Crown Cork & Seal Company, Inc.
are deemed to represent shares of Crown Holdings, Inc. The
common stock of Crown Holdings, Inc. will continue to be
publicly traded under the symbol “CCK” on the New York
Stock Exchange.
During 2002, the Company entered into privately
17
ANNUAL~1.QXD 4/2/03 2:42 PM Page 18
negotiated debt-for-equity exchanges with holders of its
outstanding notes and debentures. The Company exchanged
33,386,880 shares of its common stock with a market value
of $250 for debt with a face value of $271 and accrued
interest of $7 and recognized a gain of $28.
During January 2003, the Company exchanged an
additional 5,386,809 shares of its common stock for debt and
related accrued interest, totaling $43.
During 2001, loans made in prior years to certain
executive officers to purchase shares of the Company’s
common stock were partially repaid. Upon repayment, $4
was recognized as a credit to paid in capital.
Also during 2001, the Company’s Board of Directors
terminated the restricted stock plan for non-employee
directors. The plan was replaced by a compensation plan in
which the non-employee directors receive a majority of their
compensation in the form of company stock. During 2002
and 2001, 68,076 and 101,103 shares, respectively, were
issued to the non-employee directors under this new plan.
During 2000, approximately 8.3 million shares of the
Company’s 4.5% cumulative convertible preferred stock
(“acquisition preferred”) were converted into approximately
7.6 million shares of its common stock. No additional shares
of acquisition preferred stock were outstanding at December
31, 2002 and 2001.
Also during 2000, the Company repurchased
approximately 3.2 million shares of its common stock for an
aggregate cost of $49 under a stock repurchase program
approved by the Board of Directors in 1998. The repurchase
program has been suspended as the Company’s credit
agreement, amended and restated on March 2, 2001,
prohibits the repurchase of common stock except to meet the
requirements for its stock-based compensation and savings
plans.
The Company’s credit facility prohibits the payment of
dividends.
The Board of Directors has the authority to issue, at any
time or from time to time, up to 30 million shares of
additional preferred stock in one or more classes or series of
classes. Such shares of additional preferred stock would not
be entitled to more than one vote per share when voting as a
class with holders of the Company’s common stock. The
voting rights and such designations, preferences, limitations
and special rights are subject to the terms of the Company’s
Articles of Incorporation, determined by the Board of
Directors.
O. Stock Options
As of December 31, 2002, the Company had four stock-based
incentive compensation plans, 1990, 1994, 1997 and 2001.
Stock-based compensation plans provide for the granting of
awards in the form of stock options, deferred stock, restricted
stock or stock appreciation rights (“SARs”) and may be
subject to the achievement of certain performance goals as
determined by the Plan Committee so designated by the
Company’s Board of Directors. There have been no issuances
of deferred stock or SARs under any of the plans. During
2000, the Company issued 60,000 shares of restricted stock
from the 1997 plan. As of December 31, 2002, no further
option grants are available under the 1990, 1994 and 1997
plans. Option grants under the 2001 plan are available
through February 2006. Options outstanding at December
31, 2002 include grants from all four plans discussed above.
Stock options granted during 2002 generally have a
maximum term of ten years and vest over two years. The
maximum number of shares of the Company’s common stock
authorized for issuance was 6,000,000 under the 2001 plan.
18
ANNUAL~1.QXD 4/2/03 2:42 PM Page 19
A summary of stock option activity is as follows:
2002
——————————————————
2001
——————————————————
2000
——————————————————
Shares
——————————
12,617,139
1,820,000
(279,750)
( 1,269,582)
——————
12,887,807
——————
——————
Weighted
Average
Exercise Price
——————————
$22.11
5.33
4.39
30.48
$19.30
Shares
——————————
7,503,437
5,907,469
( 793,767)
—————
12,617,139
— ——— —
— ——— —
Weighted
Average
Exercise Price
——————————
$36.70
5.17
34.01
$22.11
Weighted
Average
Exercise Price
——————————
$38.33
22.14
35.98
$36.70
Shares
——————————
7,433,760
873,738
( 804,061)
—————
7,503,437
—————
—————
8,629,800
$25.43
7,251,160
$31.15
4,222,630
$40.84
Options outstanding
at January 1
Granted
Exercised
Canceled
Options outstanding
at December 31
Options exercisable
at December 31
Options available for
grant at December 31
1,361,375
2,994,725
2,540,819
The following table summarizes information concerning currently outstanding and exercisable options:
Options Outstanding
————————————————————————————————
Options Exercisable
—————————————
Weighted
Average
Remaining
Contractual
Life
Weighted
Average
Exercise
Price
Range of
Exercise
Prices
————————————————————————————————
$ 4.25
$ 2.00 to $ 4.25
5.30
$ 4.31 to $ 5.30
7.43
$ 5.49 to $ 7.44
21.02
$16.00 to $22.25
33.10
$23.94 to $43.13
47.03
$44.13 to $54.38
8.3
9.1
7.3
7.0
4.5
3.8
6.7
$19.30
Number
Outstanding
3,584,875
1,782,394
1,647,000
1,682,638
1,484,825
2,706,075
——————
12,887,807
——————
——————
Weighted
Average
Exercise
Price
Number
Exercisable
—————————————
$ 4.25
1,748,875
5.30
440,250
7.44
940,500
21.20
1,472,400
33.47
1,321,700
2,706,075
47.03
—————
8,629,800
—————
—————
$25.43
The fair value of each stock option has been estimated on the date of the grant using the Black-Scholes option pricing model
with the following weighted average assumptions:
Risk-free interest rate
Expected life of option (years)
Expected stock price volatility
Expected dividend yield
2002
2.4%
4.0
74.5%
0.0%
2001
4.5%
5.9
58.0%
0.0%
2000
5.0%
5.4
36.8%
0.0%
The weighted average grant-date fair values for options granted during 2002, 2001 and 2000 were $2.98, $3.36, and $13.07,
respectively.
19
ANNUAL~1.QXD 4/2/03 2:42 PM Page 20
P. Debt
Short-term debt (1)
U.S. dollar bank loans/overdrafts
Other currency bank loans/overdrafts
Total short-term debt
Long-term debt
U.S. Dollars:
Credit facility borrowings (2)
Private placements:
7.54% due 2005
Senior notes and debentures:
7.13% due 2002
6.75% due 2003 (3)
6.75% due 2003
8.38% due 2005
7.00% due 2006 (3)
8.00% due 2023
7.38% due 2026
7.50% due 2096
Other indebtedness:
2002
2001
$
$
16
38
54
$ 416
48
$ 464
$1,576
$1,402
76
105
393
195
208
300
200
350
150
350
400
200
300
300
200
350
150
average rates in 2002 ranging from 1.82%
to 8.10%, due 2003 through 2015
Other currencies :
Credit facility borrowings (2)
6.00% Euro Bond due 2004
27
60
3,475
3,817
100
314
741
266
Other indebtedness in various currencies
(average rates in 2002 ranging from 3.25% to
15.9%), due 2003 through 2007
Capital lease obligations in
various currencies
94
17
13
19
Total long-term debt
Less: current maturities
4,000
612)
(
4,856
381)
(
Long-term debt, less current maturities
$3,388
$4,475
(1) The weighted average interest rates for bank loans and overdrafts outstanding during
2002, 2001 and 2000 were 4.8%, 5.7% and 7.0%, respectively.
(2) A committed $2,266 and $2,500 multicurrency revolving credit facility was in place at
December 31, 2002 and December 31, 2001, respectively. At December 31, 2002, $479
was available under the credit facility. At December 31, 2002, the credit facility was
reported as long-term, reflecting the Company’s intent and ability to refinance these
borrowings. See Note Q for details of the Company’s 2003 debt refinancing. The
weighted average interest rate for the credit facility outstanding during 2002 and 2001
was 4.8% and 6.5%, respectively.
(3) On December 12, 1996, two wholly-owned finance subsidiaries located in the United
Kingdom and France sold public debt securities that were fully and unconditionally
guaranteed by the Company on a joint and several basis. The face value of the notes
bear interest ranging from 6.75% to 7.0%. The offerings by the subsidiaries, amounting
to $700, were simultaneously converted into fixed rate, 8.28% Sterling and 5.75% Euro
obligations through cross-currency swaps with various counterparties. In May, 2000,
the cross-currency swap on the Euro obligation was converted to a floating rate instru-
ment with a coupon rate of EURIBOR less .89%. At December 31, 2002, the equiva-
lent rate was 2.05%.
Based on long-term debt outstanding at December 31,
2002, aggregate maturities for the five years subsequent to
2002 are $2,357, $350, $305, $321 and $20, respectively. See
20
Note Q for the impact on debt maturities from the Company’s
2003 debt refinancing. Cash payments for interest during
2002, 2001 and 2000 were $333, $469 and $385, respectively,
(including amounts capitalized of $1 for 2001 and 2000).
The estimated fair value of the Company's long-term
borrowings, based on quoted market prices for the same or
similar issues, was $3,614 at December 31, 2002.
During 2002, the Company entered into privately
negotiated debt-for-equity exchanges with holders of its
outstanding notes and debentures as discussed in Note N.
In 2001, the Company amended and restated its $2,500
multicurrency revolving credit facility and obtained a new
$400 term loan. The amended and restated credit facility
bears interest at LIBOR plus 2.5% and the maturity date was
extended from February 4, 2002 to December 8, 2003. The
term loan was repaid during 2002. In accordance with the
terms of the credit facility, the commitment was reduced to
$2,266 as of December 31, 2002, using proceeds of $234 from
certain asset sales. At December 31, 2002, there were
outstanding letters of credit of $133 including $111 which
reduced the borrowings available under the credit facility.
Q. Debt Refinancing
On February 26, 2003, the Company completed a refinancing
and formed Crown Holdings, Inc. (“Crown” or “the Company”)
as a new public holding company. The formation of Crown
Holdings, Inc is more fully described in Note N.
The proceeds from the refinancing consisted of the sale of
$1,085 of 9.5% second priority senior secured notes due in
2011, C= 285 ($306 equivalent) of 10.25% second priority
senior secured notes due in 2011, $725 of 10.875% third
priority senior secured notes due in 2013, a $504 first
priority term loan due in 2008 and a new $550 first priority
revolving credit facility due in 2006.
The proceeds of $2,620 from the senior secured notes and
the term loan, and $198 of borrowings under the new $550
credit facility, were used to repay the existing credit facility, to
repurchase $568 of the Company’s outstanding unsecured
notes, and to pay fees and expenses associated with the
refinancing. The remaining proceeds of $344 were placed in
accounts as collateral for the senior secured notes, the term
loan and the revolving credit facility, and may only be used to
repurchase or retire existing unsecured notes.
Immediately after the refinancing and debt-for-equity
exchanges, discussed in Note N, and excluding the credit
facility, which matures in 2006, aggregate maturities for
long-term debt for the five years subsequent to 2002 are
$319, $175, $233, $339 and $45, respectively.
The secured notes are senior obligations of Crown
European Holdings SA (“CEH”), an indirect wholly-owned
subsidiary, and are guaranteed on a senior basis by Crown,
Crown Cork & Seal Company., Inc. (“Crown Cork”),
substantially all other U.S. subsidiaries, and certain
subsidiaries in the U.K., Canada, France, Germany, Mexico,
Switzerland and Belgium. The holders of the notes have
ANNUAL~1.QXD 4/2/03 2:42 PM Page 21
second and third priority liens on assets of certain of the
guarantor subsidiaries and the stock of Crown Cork. CEH
may redeem all or some of the second priority secured notes
at any time prior to March 2007 and the third priority
secured notes at any time prior to March 2008 by paying a
make-whole premium. Thereafter, CEH may redeem some or
all of the secured notes at redemption prices initially
representing a premium to principal equal to one-half of the
applicable interest rate on the notes, declining annually
thereafter. At any time prior to March 2006, CEH may
redeem up to 35% of each of the secured notes with the net
cash proceeds of certain equity offerings of capital stock of
Crown that are used to capitalize CEH. CEH is also required
to make an offer to purchase the secured notes upon the
occurrence of certain change of control transactions or asset
sales. The note indentures contain covenants that limit the
ability of the Company and its subsidiaries to, among other
things, incur additional debt, pay dividends or repurchase
capital stock, create liens, and engage in sale and leaseback
transactions.
CEH and the guarantors of the secured notes entered into
an agreement to file a registration statement for a registered
exchange of the secured notes. If CEH and the guarantors do
not comply with their obligations under the registration
rights agreement, they may be obligated to pay additional
interest on the secured notes until the default is cured.
The $504 first priority term loan facility is payable in
annual installments equal to 5.0% of the original principal
amounts, beginning January 15, 2004, with a final payment
due in 2008. The maturity is accelerated to September 2006
in the event that Crown’s unsecured public debt that matures
in 2006 is not repaid, or funds are not set aside in a
designated account to repay such debt, by September 15,
2006. The term loans include $450 of borrowings in U.S.
dollars by Crown Cork & Seal Americas, Inc. (“Crown
Americas”), and $54 equivalent of C= 50 in borrowings by CEH
and bear interest at LIBOR plus 4.25%. The U.S. dollar
loans are guaranteed by Crown, Crown Cork, and
substantially all other U.S. subsidiaries, and are
collateralized by substantially all assets of the U.S. guarantor
subsidiaries. The euro loans are guaranteed by Crown,
Crown Cork and substantially all other U.S. subsidiaries and
by certain subsidiaries in the U.K., Canada, France,
Germany, Mexico, Switzerland and Belgium. The euro loans
are collateralized by substantially all assets of the U.S.
guarantor subsidiaries and assets of certain of the non-U.S.
guarantor subsidiaries. The revolving credit facility contains
the same guarantee and collateral provisions as the term
loan facility and bears interest at LIBOR plus 4.0%. All
guarantees are full and unconditional on a joint and several
basis.
The term loan and revolving credit facilities contain
financial covenants including an interest coverage ratio, a
fixed charge coverage ratio, a net leverage ratio, a first lien
net leverage ratio, and a cash-inflows to cash-outflows ratio of
each of Crown Americas and CEH. The facilities are
mandatorily prepayable with the proceeds from certain asset
sales, certain insurance recoveries on asset losses, debt
issuances, equity issuances and excess cash flows.
R. Derivative Financial Instruments
In the normal course of business the Company is subject to
risk from adverse fluctuations in foreign exchange and
interest rates and commodity prices. The Company manages
these risks through a program that includes the use of
derivative financial instruments. These instruments involve
little complexity and are not used for trading or speculative
purposes. The extent to which the Company uses such
instruments is dependent upon its access to them in the
financial markets and its ability to utilize other methods,
such as exposure netting for foreign exchange risk, to
effectively achieve its goal of risk reduction. The Company
enters into only those contracts that it considers appropriate
for the conduct of its business. To limit its exposure to credit
risk from counterparties, the Company diversifies the
counterparties used and monitors the concentration of risk.
Counterparties to these contracts are major financial
institutions.
The derivative financial instruments used are primarily
swaps and forwards. The Company enters into foreign
exchange contracts to reduce the effects of fluctuations in
foreign currency exchange rates on its assets, liabilities, firm
commitments and anticipated transactions. The Company
has not in the past hedged its exposure to foreign currency
translation adjustments on its non-U.S. net assets because
local cash flows are generally reinvested within the
operations that generate them and, where possible,
borrowings are obtained in the local currency. The Company
enters into interest rate and cross-currency swaps to reduce
interest rate risk and to modify the characteristics of its
outstanding debt. The Company, to a lesser extent, enters
into commodity forwards that are used in combination with
commercial supply agreements to minimize exposure to
significant price fluctuations in the basic raw materials for its
products.
The Company formally documents all relationships
between its hedging instruments and hedged items, as well
as its risk management objective and strategy for
establishing various hedge relationships. The Company
formally assesses, both at the inception of the hedge and on
an ongoing basis, whether each derivative instrument is
highly effective in offsetting changes in the fair values or cash
flows of the hedged item.
Cash Flow Hedges. The Company designates certain
derivative instruments as cash flow hedges of anticipated
purchases or sales, including certain foreign currency
denominated intercompany transactions. The objective of
these hedges is to protect functional currency cash flows from
the effects of volatility in interest and foreign exchange rates
and commodity prices. For hedges of anticipated cash flows
outstanding during the year, the ineffective portion of these
hedges was not material and no components of the hedge
21
ANNUAL~1.QXD 4/2/03 2:42 PM Page 22
instruments were excluded from the measurement of hedge
effectiveness.
The Company has designated two cross-currency swaps to
hedge long-term U.S. dollar debt in the U.K. The combined
notional value of the swaps of $500 corresponds to the
combined notional value of the hedged debt. The swaps
convert fixed rate U.S. dollar debt into fixed rate sterling
debt. The swaps have been highly effective in reducing the
related risk. The fair value of these swaps at December 31,
2002 and 2001 were $22 and $58 and were reported in
noncurrent assets within the Consolidated Balance Sheets.
The Company has also designated foreign exchange swaps
and forwards and commodity forwards as cash flow hedges of
anticipated foreign exchange and commodity transactions.
Contracts outstanding at December 31, 2002 mature between
one and thirty-six months. The fair value of these contracts at
December 31, 2002 and 2001 were credits of $4 and $3 and
were reported in current liabilities and current assets within
the Consolidated Balance Sheets.
Fair values for outstanding derivative instruments that
are designated as cash flow hedges are accumulated in other
comprehensive income in shareholders’ equity. The fair
values are released to earnings when the related hedged
items impact earnings. The changes in accumulated other
comprehensive income associated with derivative hedging
activities during the twelve months ended December 31, 2002
and 2001 were as follows:
2002
2001
Balance at January 1
Transition adjustment upon adoption of
($ 4)
FAS 133, net of tax
Current period changes in fair value,
net of tax
Reclassifications to earnings, net of tax
Balance at December 31
($18)
21
( 7)
($ 4)
( 30)
36
$ 2
The current period changes in fair value accumulated in
other comprehensive income primarily reflect the impact of a
weaker U.S. dollar and declining market interest rates. The
reclassification to earnings includes the transfer of foreign
exchange adjustments on the remeasurement of U.S. dollar
debt into sterling at rates in effect at December 31, 2002 and
2001, respectively; interest, paid or to be paid, appropriately
discounted at current market rates; and, to a lesser extent,
net losses from maturing commodity contracts. During the
next twelve months ending December 31, 2003, a net charge
of approximately $6 (net of tax) is expected to be reclassified
to earnings. This net charge includes the fair values of
maturing commodity contracts and the payment and accrual
of interest related to the cross-currency swaps. The actual
amount that will be reclassified to earnings over the next
twelve months may vary from this amount due to changing
22
market conditions or the impact of the debt refinancing
discussed in Note Q. No amounts were reclassified to
earnings during 2002 in connection with forecasted
transactions that were no longer considered probable.
Fair Value Hedges. The Company designates certain
derivative financial instruments as fair value hedges of
recognized assets, liabilities, and unrecognized firm
commitments. The objective of these hedges is to protect the
functional currency values of the recognized assets, liabilities
and unrecognized firm commitments from the effects of
volatility in interest rates and foreign exchange rates that
might occur prior to their conversion into the functional
currency. In the measurement of hedge effectiveness for fair
value hedges, the Company excludes the time value
component of the instrument for recognized assets and
liabilities, but includes it for firm commitments. Amounts
excluded from the assessment and measurement of hedge
effectiveness were reported in earnings and amounted to less
than $1 before income taxes.
The Company has designated a cross-currency swap to
hedge long-term U.S. dollar debt in France. The swap
converted fixed rate U.S. dollar debt into variable rate euro
debt indexed to EURIBOR. At December 31, 2002, the
notional value of the swap was $200 and the notional value of
the debt was $193. The decline in the debt notional value was
the result of debt-for-equity exchanges as discussed in Note
N. The hedge ineffectiveness resulting from this difference in
notional value was not material and was reported as interest
expense within the Consolidated Statements of Operations.
The fair value of the swap at December 31, 2002 was a credit
of $22 compared to a charge of $18 at December 31, 2001. The
fair values at December 31, 2002 and 2001 were reported in
noncurrent liabilities and noncurrent assets, respectively, in
the Consolidated Balance Sheets. Changes in the fair value of
the swap during 2002 were reported in earnings along with
changes in the fair value of the debt, including the foreign
exchange adjustments from the remeasurement of the debt.
The impact on earnings from the swap during 2002 was a
charge of $2 and was reported as interest expense in the
Consolidated Statements of Operations.
The Company designates certain foreign currency forward
exchange contracts as fair value hedges of recognized foreign-
denominated assets and liabilities, generally trade accounts
receivable and payable and intercompany debt, and
unrecognized foreign-denominated firm commitments. At
December 31, 2002 the fair values of these contracts were not
material and were reported in current assets or current
liabilities consistent with the classification of the hedged
items. There was no impact on earnings in 2002 from a
hedged firm commitment that no longer qualified as a fair
value hedge.
ANNUAL~1.QXD 4/2/03 2:42 PM Page 23
S. Earnings Per Share (“EPS”)
The following table summarizes the basic and diluted
earnings per share computations for 2002, 2001 and 2000:
2002
2001
2000
Loss before cumulative
effect of a change in accounting
($ 191)
($976)
($174)
Cumulative effect of a change in
accounting
Preferred stock dividends
Net loss available to
( 1,014)
4
(
2)
common shareholders
($1,205)
($972)
($176)
Weighted average shares outstanding:
Basic
Dilutive effect of employee stock
143.8
125.6
125.7
options *
Diluted
Basic and diluted loss per share:
Before cumulative effect of a
change in accounting
Cumulative effect of a change
143.8
125.6
125.7
($1.33)
($7.77) ($1.40)
in accounting
( 7.05)
.03
Net loss
($8.38)
($7.74) ($1.40)
* Potentially dilutive common stock equivalents resulting from the assumed exercise of
dilutive stock options, amounting to 1.2 million in 2002, and the assumed conversion
of weighted average outstanding preferred stock, amounting to 1.3 million in 2000,
were excluded because they would have been anti-dilutive.
Basic EPS excludes all potentially dilutive securities and is
computed by dividing loss available to common shareholders
by the weighted average number of common shares
outstanding during the period. Diluted EPS includes the
assumed exercise and conversion of potentially dilutive
securities, including stock options and convertible preferred
stock, in periods when they are not anti-dilutive; otherwise, it
is the same as basic EPS.
Common shares contingently issuable upon the exercise of
outstanding stock options, amounting to 8.0 million in 2002,
11.9 million in 2001 and 7.7 million in 2000, were excluded
from the computation of diluted earnings per share because
the exercise prices of the then outstanding options were
above the average market price for the related periods.
As discussed in Note N, the acquisition preferred stock
was mandatorily converted into common shares during 2000.
T. Pensions and Other Retirement Benefits
Pensions. The Company sponsors various pension plans,
covering substantially all U.S. and Canadian and some non-
U.S. and non-Canadian employees, and participates in
certain multi-employer pension plans. The benefits under
these plans are based primarily on years of service and the
employees’ remuneration near retirement. Contributions to
multi-employer plans in which the Company and its
subsidiaries participate are determined in accordance with
the provisions of negotiated labor contracts or applicable local
regulations. The Company’s objective in funding its pension
plans is to accumulate funds sufficient to provide for all
accrued benefits. In certain countries the funding of pension
plans is not a common practice, so the Company has some
plans which are not funded.
Plan assets of Company-sponsored plans of $2,832 consist
principally of common stocks, fixed income securities and
other investments, including $49 of the Company’s common
stock.
The 2002, 2001 and 2000 components of pension
expense/(income) were as follows:
U.S.
2002
2001
2000
Service cost
Interest cost
Expected return on plan assets
Recognized actuarial loss/(gain)
Recognized prior service cost
$ 9
85
( 76)
37
2
$ 9
88
( 98)
18
2
$ 8
91
( 127)
( 2)
2
Total pension expense/(income)
$ 57
$ 19
($ 28)
Non-U.S.
Service cost
Interest cost
Expected return on plan assets
Recognized actuarial loss
Recognized prior service cost
Cost attributable to plant closings
$ 25
125
( 192)
19
( 7)
$ 27
132
( 227)
3
$ 28
136
( 227)
2
3
Total pension income
($ 30)
($ 65)
($ 58)
Additional pension expense of $4, $4 and $5 was recognized
in 2002, 2001 and 2000, respectively, for non-Company
sponsored plans.
The projected benefit obligation, accumulated benefit
obligation and fair value of plan assets for U.S. pension plans
with accumulated benefit obligations in excess of plan assets
were $1,212, $1,190 and $736, respectively, as of December
31, 2002, and $1,229, $1,203 and $844, respectively, as of
December 31, 2001.
The projected benefit obligation, accumulated benefit
obligation and fair value of plan assets for non-U.S. pension
plans with accumulated benefit obligations in excess of plan
assets were $234, $212 and $98, respectively, as of December
31, 2002 and $199, $181 and $94, respectively, as of
December 31, 2001.
23
ANNUAL~1.QXD 4/2/03 2:42 PM Page 24
Changes in the benefit obligations and plan assets for 2002
and 2001 were as follows:
Change in Benefit Obligation
2002
2001
U.S.
Benefit obligation at January 1
Service cost
Interest cost
Plan participants’ contributions
Amendments
Settlements
Special termination benefits
Actuarial loss
Benefits paid
$1,229
9
85
1
(
(
52)
61
121)
$1,198
9
88
1
1
9)
5
60
124)
(
(
Benefit obligation at December 31
$1,212
$1,229
Additional minimum pension liabilities of $772 and $637
have been recognized at December 31, 2002 and 2001,
respectively. The U.S. settlement in 2002 relates to the
Constar offering as discussed in Note M. An obligation for
special termination benefits was recorded in 2001 related to
the closure of a U.S. food can plant. Settlements in 2001
occurred in the Company’s supplemental executive
retirement plan.
Change in Plan Assets
2002
2001
Non-U.S.
Fair value of plan assets at January 1
Actual return on plan assets
Employer contributions
Plan participants’ contributions
Benefits paid
Foreign currency exchange rate changes
$1,979
6)
(
19
8
103)
199
(
$2,284
(
161)
20
7
104)
67)
(
(
2002
2001
Fair value of plan assets at December 31
$2,096
$1,979
Non-U.S.
Benefit obligation at January 1
Service cost
Interest cost
Plan participants’ contributions
Amendments
Settlements
Actuarial (gain)/loss
Benefits paid
Foreign currency exchange rate changes
$1,955
25
125
8
( 65)
( 1)
( 86)
103)
(
202
$1,942
27
132
7
10
104)
59)
(
(
Benefit obligation at December 31
$2,060
$1,955
Change in Plan Assets
2002
2001
U.S.
Fair value of plan assets at January 1
Actual return on plan assets
Employer contributions
Plan participants’ contributions
Settlements
Benefits paid
$ 844
68)
(
125
1
45)
121)
(
(
$1,009
( 131)
98
1
9)
124)
(
(
Fair value of plan assets at December 31
$ 736
$ 844
Plan assets less than benefit obligation
Net transition obligation
Unrecognized actuarial loss
Unrecognized prior service cost
Net amount recognized
($ 476)
6
774
12
($ 385)
6
639
16
$ 316
$ 276
Amounts recognized in the balance sheet consist of:
Accrued benefit liability
Intangible asset
Accumulated other comprehensive income
($ 456)
19
753
($ 361)
23
614
Net amount recognized
$ 316
$ 276
24
Plan assets in excess of benefit
obligation
Unrecognized actuarial loss
Unrecognized prior service cost
Net amount recognized
$
36
617
( 53)
$
24
473
9
$ 600
$ 506
Amounts recognized in the balance sheet consist of:
Prepaid benefit cost
Accrued benefit liability
Intangible asset
Accumulated other comprehensive income
$ 672
143)
(
9
62
$ 565
117)
(
7
51
Net amount recognized
$ 600
$ 506
Additional minimum pension liabilities of $71 and $58 have
been recognized at December 31, 2002 and 2001, respectively.
The weighted average actuarial assumptions for the
Company’s pension plans were as follows:
U.S.
2002
2001
2000
Discount rate
Compensation increase
Long-term rate of return
Non-U.S.
Discount rate
Compensation increase
Long-term rate of return
7.3% 7.8%
6.8%
3.5% 3.5%
3.0%
9.5% 10.0% 10.5%
6.9%
4.4%
9.2%
6.5% 7.2%
4.4% 5.2%
10.5% 10.5%
For 2003 the Company is lowering its expected rate of return
on plan assets to 9.0% in the U.S. and Canada from 9.5% in
2002, and to 8.5% in the U.K. from 9.25% in 2002.
Other Postretirement Benefit Plans. The Company sponsors
unfunded plans to provide health care and life insurance
benefits to pensioners and survivors. Generally, the medical
ANNUAL~1.QXD 4/2/03 2:42 PM Page 25
plans pay a stated percentage of medical expenses reduced
by deductibles and other coverages. Life insurance benefits
are generally provided by insurance contracts. The Company
reserves the right, subject to existing agreements, to change,
modify or discontinue the plans.
The components of the net postretirement benefit cost
were as follows:
Service cost
Interest cost
Recognized prior service cost
Recognized actuarial loss
Loss attributable to plant closings
2002
2001
2000
$ 3
47
( 1)
4
$ 5
47
( 1)
$ 4
45
( 2)
2
Net periodic benefit cost
$53
$53
$47
The following provides the components of the changes in
the benefit obligation, and reconciles the obligation to the
amount recognized:
Benefit obligations at January 1
Service cost
Interest cost
Amendments
Special termination benefits
Settlements
Actuarial loss
Benefits paid
Foreign currency exchange rate changes
Benefit obligation at December 31
Unrecognized actuarial loss
Unrecognized prior service cost
Net amount recognized
2002
2001
$677
3
47
( 8)
( 10)
76
( 65)
2
$633
5
47
3
48
( 58)
1)
(
722
( 176)
12
677
( 109)
5
$558
$573
The U.S. settlement in 2002 relates to the initial public
offering of Constar as discussed in Note M. Special
termination benefits were incurred in 2001 for the closing of
a U.S. food can plant.
The health care accumulated postretirement benefit
obligation was determined at December 31, 2002 and 2001
using health care trend rates of 10.2% and 8.5%,
respectively, decreasing to 5.0% and 4.9% over seven years.
The assumed long-term rate of compensation increase used
for life insurance was 3.5% at both December 31, 2002 and
2001. The discount rate was 6.8% and 7.2% at December 31,
2002 and 2001, respectively. Changing the assumed health
care cost trend rate by one percentage point in each year
would change the accumulated postretirement benefit
obligation by approximately $47 and the total of service and
interest cost by $5.
Employee Savings Plan. The Company sponsors
a Savings Investment Plan which covers substantially
all domestic salaried employees who are 21 years of age. The
Company matches up to 1.5% of a participant’s
compensation and the total Company contributions were $2
in each of the last three years.
Employee Stock Purchase Plan. The Company sponsors
an Employee Stock Purchase Plan which covers all domestic
employees with one or more years of service who are non-
officers and non-highly compensated as defined by the
Internal Revenue Code. Eligible participants contribute 85%
of the quarter-ending market price towards the purchase of
each common share. The Company’s contribution is
equivalent to 15% of the quarter-ending market price. Total
shares purchased under the plan in 2002 and 2001 were
132,905 and 606,657, respectively, and the Company’s
contributions were less than $1 in both years.
U. Income Taxes
Pre-tax income/(loss) for the years ended December 31 was
taxed under the following jurisdictions:
U.S.
Foreign
2002
2001
2000
($324)
179
($372)
( 72)
($398)
181
($145)
($444)
($217)
The provision/(benefit) for income taxes consists of the
following:
Current tax provision/(benefit):
U.S. federal
State and foreign
Deferred tax provision/(benefit):
U.S. federal
State and foreign
Total
($ 10)
71
$ 48
$ 1
37
61
48
38
( 26)
( 5)
452
28
( 128)
32
( 31)
480
( 96)
$ 30
$528
($ 58)
During 2002, the Company created U.S. tax losses that
will be used to recover $13 of U.S. federal taxes paid in prior
years. Also during 2002, the Company used prior year tax
losses to recover $24 of U.S. federal taxes paid in prior years.
As of December 31, 2002, there are no additional recoveries
available for U.S. federal taxes paid in prior years. During
2001, the Company established a valuation allowance of
$659 to fully reserve its net U.S. deferred tax assets as of
December 31, 2001. This allowance included a charge of
$452 as shown in the table above for pre-2001 deferred tax
assets, $114 for benefits not recognized on current-year
losses, and $93 for the deferred tax on the 2001 addition to
the minimum pension liability. The federal provision of $452
included a charge of $122 for deferred tax assets that were
set up for prior years’ additional minimum pension liability.
In the event that the minimum pension liability is
substantially eliminated in future periods, the Company will
recognize an income tax benefit of $122.
25
ANNUAL~1.QXD 4/2/03 2:42 PM Page 26
The provision/(benefit) 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 differences:
The components of deferred tax assets and liabilities at
December 31, were:
2002
2001
Asset Liability Asset Liability
$243
$303
2002
2001
2000
Depreciation
Tax loss and
($51)
($155)
($76)
credit carryforwards
$366
Postretirement and
postemployment benefits
208
( 11)
( 30)
( 14)
39
588
( 23)
40
71
Pensions
Asbestos
Inventories
Accruals and other
119
3
$30
(
1)
1
Valuation allowance
$528
($58)
92
63
729
( 695)
$ 34
35
16
36
330
$330
$428
203
121
126
878
( 766)
$112
23
14
57
397
$397
U.S. statutory rate at 35%
Non-U.S. operations at
different rates
Amortization of goodwill
Valuation allowance
Impairment loss on
African subsidiaries
Sale of businesses
Other items, net
Income tax provision/(benefit)
During 2002, the Company incurred pre-tax losses of $247
on the sale of various assets and businesses, primarily the
sale of 89.5% of its interest in Constar and the sale of its
European pharmaceutical packaging business. Due to the
difference in the book and tax basis of these businesses,
primarily due to goodwill, the Company incurred tax charges
on these sales. The effect of these charges is included in the
sale of businesses caption.
The valuation allowance caption in 2002 includes $24 for
the recovery of U.S. federal taxes paid in prior years as
discussed above, and other adjustments of $6. The caption
also includes a credit of $20 for tax contingencies resolved in
the U.S. and a charge of $20 for a tax contingency which
arose in Europe. The valuation allowance caption for 2001
includes $566 for the current and prior year U.S. deferred
tax assets and $22 for other adjustments, and for 2000
includes a benefit for the reduction of reserves for tax
contingencies, offset by a net charge for valuation allowance
adjustments, totaling less than $1. The impairment loss on
African subsidiaries caption includes the non-deductible
write-off of goodwill and accumulated foreign currency
translation adjustments. Further information on this
impairment loss is included in Note M.
The Company paid taxes, net of refunds, of $22, $54 and
$43 in 2002, 2001 and 2000, respectively.
Prepaid expenses and other current assets included $17 and
$12 of deferred tax assets at December 31, 2002 and 2001,
respectively.
Carryforwards of $6 expire over the next five years; $227
expire in years six through twenty; and $133 can be utilized
over an indefinite period.
The valuation allowance of $695 included $53 which, if
reversed in future periods, will reduce goodwill.
The cumulative amount of the Company’s share of
undistributed earnings of non-U.S. subsidiaries for which no
deferred taxes have been provided was $719 and $816 as of
December 31, 2002 and 2001, respectively. Management has
no plans to distribute such earnings in the foreseeable
future.
V. Segment Information
The Company is organized on the basis of geographic regions
with three reportable operating segments: Americas, Europe
and Asia-Pacific. The Americas includes the United States,
Canada and South and Central America. Europe includes
Europe, Africa and the Middle East. Although the economic
environments within each of these reportable segments are
quite diverse, they are similar in the nature of their
products, the production processes, the types or classes of
customers for products and the methods used to distribute
products. Asia-Pacific, although below reportable segment
thresholds, has been designated as a reportable segment
because considerable review is made of this region for the
allocation of resources. Each segment is an operating
division within the Company with a President who reports
directly to the Chief Executive Officer of the Company.
“Corporate” includes Corporate Technology and headquarters
costs.
26
ANNUAL~1.QXD 4/2/03 2:42 PM Page 27
The Company evaluates performance and allocates resources based on segment income. Segment income is defined by the
Company as net sales less cost of products sold, depreciation and amortization, selling and administrative expense and
provision for restructuring. The accounting policies for each reportable segment are the same as those described in Note A.
The tables below present information about operating segments for the years ended December 31, 2002, 2001 and 2000:
External sales
Depreciation & amortization
Provision for restructuring
Segment income/(loss)
Capital expenditures
Equity investments
Deferred tax assets
Segment assets
External sales
Depreciation & amortization
Provision for restructuring
Segment income/(loss)
Capital expenditures
Equity investments
Deferred tax assets
Segment assets
External sales
Depreciation & amortization
Provision for restructuring
Segment income/(loss)
Capital expenditures
Equity investments
Deferred tax assets
Segment assets
Americas
Europe
Asia-Pacific
Corporate
Total
December 31, 2002
$3,227
165
(1)
220
46
40
5
2,144
$3,235
182
13
301
66
41
115
4,832
$330
20
7
30
2
8
321
$ 8
( 89)
1
30
208
$ 6,792
375
19
462
115
111
128
7,505
December 31, 2001
Americas
Europe
Asia-Pacific
Corporate
Total
$3,666
212
36
71
75
34
5
3,364
$3,200
259
12
254
82
65
100
5,644
$321
21
27
6
11
388
$ 7
( 85)
5
1
224
$ 7,187
499
48
267
168
99
117
9,620
December 31, 2000
Americas
Europe
Asia-Pacific
Corporate
Total
$3,742
209
15
199
119
24
306
4,358
$3,239
255
34
308
132
115
113
6,066
$308
24
22
6
12
424
$ 7
3
( 83)
5
3
147
311
$ 7,289
495
52
446
262
142
578
11,159
27
ANNUAL~1.QXD 4/2/03 2:42 PM Page 28
A reconciliation of segment income to consolidated loss before income taxes, minority interests and cumulative effect of a
change in accounting for the years ended December 31, 2002, 2001 and 2000 follows:
INCOME
Segment income
Interest expense
Interest income
Provision for asset impairments
and gain/loss on sale of assets
Provision for asbestos
Gain from early extinguishment of debt
Translation and exchange adjustments
Loss before income taxes, minority interests and
cumulative effect of a change in accounting
2002
———
$462
342
11)
247
30
28)
27
———
(
(
($145)
———
———
2001
———
$267
455
( 18)
213
51
10
———
($444)
———
———
2000
———
$446
393
( 20)
27
255
8
———
($217)
———
———
For the years ended December 31, 2002, 2001 and 2000, no one customer accounted for more than 10% of the Company’s
consolidated net sales.
Sales by major product were:
PRODUCTS
Metal beverage cans and ends
Metal food cans and ends
Other metal packaging
Plastic packaging
Other products
Consolidated net sales
2002
———
$2,309
1,944
1,113
1,367
59
———
$6,792
———
———
2001
———
$2,349
2,057
1,171
1,550
60
———
$7,187
———
———
2000
———
$2,339
2,135
1,243
1,495
77
———
$7,289
———
———
Sales and long-lived assets for the major countries in which the Company operates were:
GEOGRAPHIC
United States
United Kingdom
France
Other
Consolidated total
2002
————
$2,528
842
652
2,770
————
$6,792
————
————
Net Sales
2001
————
$2,898
834
657
2,798
————
$7,187
————
————
2000
————
$2,981
876
690
2,742
————
$7,289
————
————
Long-lived Assets
2001
————
2000
————
2002
————
$ 657
340
204
1,011
————
$2,212
————
————
$ 985
389
205
1,039
————
$2,618
————
————
$1,103
446
242
1,178
————
$2,969
————
————
28
ANNUAL~1.QXD 4/2/03 2:42 PM Page 29
Management’s Report to Shareholders
Report of Independent Accountants
The accompanying financial statements of Crown
Holdings, Inc. and its consolidated subsidiaries were
prepared by management, which is responsible for
their integrity and objectivity. The statements were
prepared in accordance with accounting principles gen-
erally accepted in the United States of America and
include amounts that are based on management’s best
judgments and estimates. The other financial informa-
tion included in this Annual Report is consistent with
that in the financial statements.
The Company maintains accounting and reporting sys-
tems supported by an internal accounting control sys-
tem, which management believes are adequate to
provide reasonable assurance that assets are safe-
guarded against loss from unauthorized use or disposi-
tion and that financial records are reliable for
preparing financial statements.
financial statements are audited by
Our
PricewaterhouseCoopers LLP, independent accoun-
tants, recommended by the Audit Committee of the
Board of Directors and selected by the Board of
Directors.
The Audit Committee of the Board of Directors, com-
posed solely of outside directors, also maintains an
ongoing appraisal, on behalf of shareholders, of the
activities and independence of the Company’s indepen-
dent accountants, the activities of its audit staff, the
adequacy of internal controls and accounting princi-
ples employed in financial reporting and compliance
with key company policies. The Audit Committee
meets periodically with the independent accountants,
management and internal auditors to review their
work and to confirm that they are properly discharging
their responsibilities.
To the Board of Directors and Shareholders
of Crown Holdings, Inc.:
In our opinion, the accompanying consolidated balance
sheets and the related consolidated statements of oper-
ations, of shareholders’ equity and of cash flows pre-
sent fairly, in all material respects, the financial
position of Crown Holdings, Inc. and its subsidiaries at
December 31, 2002 and 2001, and the results of their
operations and cash flows for each of the three years in
the period ended December 31, 2002 in conformity
with accounting principles generally accepted in the
United States of America. These financial statements
are the responsibility of the Company’s management;
our responsibility is to express an opinion on these
financial statements based on our audits. We con-
ducted our audits of these statements in accordance
with auditing standards generally accepted in the
United States of America, which require that we plan
and perform the audit to obtain reasonable assurance
about whether the financial statements are free of
material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates
made by management, and evaluating the overall
financial statement presentation. We believe our
audits provide a reasonable basis for our opinion.
As discussed in Note B the Company adopted a
new financial accounting standard for goodwill
during 2002.
J.W. Conway
Chairman of the Board,
President and Chief
Executive Officer
A. W. Rutherford
Vice Chairman of the Board,
Executive Vice President and
Chief Financial Officer
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
March 19, 2003
29
ANNUAL~1.QXD 4/2/03 2:42 PM Page 30
Quarterly Data (unaudited)
(in millions)
2002
2001
First
Second
Third
Fourth
First
Second
Third
Fourth
Net sales . . . . . . . . . . . . .
Gross profit* . . . . . . . . . .
Income/(loss) before
cumulative effect of
a change in accounting . .
Cumulative effect of a change
in accounting . . . . . . . . .
Net income/(loss) . . . . . . . .
Earnings/(loss) per average
common share:†
Basic - income/(loss) before
cumulative effect of
a change in accounting . .
Cumulative effect of a change
in accounting . . . . . . . .
Net income/(loss) . . . . . .
Diluted - income/(loss) before
cumulative effect of
a change in accounting . .
Cumulative effect of a change
in accounting . . . . . . . .
$1,567
171
$ 1,789
240
$1,892
246
$1,544
141
$1,658
168
$1,878
239
$ 1,985
219
$1,666
112
(
54)
64
71
(
272)
( 50)
5
( 13)
( 1,014)
( 1,068)(1) (2)
64(3)
71(4)(5) (
272) (6)(7)
4
( 46)(8)(9)
5(10)(11)( 13)
(
(
918)
918)(12)(13)
($ .43)
$
.49
$ .45
($ 1.71)
($
.40)
$ .04
($
.10)
($ 7.30)
($ 8.07)
($ 8.50)
$
.49
$ .45
($ 1.71)
$
($
.03
.37)
$ .04
($
.10)
($ 7.30)
($ .43)
$
.48
$ .45
($ 1.71)
($
.40)
$ .04
($ .10)
($ 7.30)
($ 8.07)
$
.03
Net income/(loss) . . . . . .
($ 8.50)(1)(2) $
.48(3)
$ .45(4) (5) ($ 1.71)(6)(7)
($
.37)(8)(9) $ .04(10) (11) ($ .10)
($ 7.30) (12)(13)
Average common shares
outstanding: **
Basic . . . . . . . . . . . . .
Diluted . . . . . . . . . . . .
125.7
125.7
131.1
133.2
158.4
159.1
159.4
159.4
125.6
125.6
125.6
125.6
125.6
125.6
125.7
125.7
Common stock price range.***
High . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . .
Close . . . . . . . . . . . . . .
$ 9.14
2.55
8.95
$12.65
6.30
6.85
$ 7.50
3.20
5.25
$ 9.21
4.01
7.95
$ 9.75
3.35
4.05
$ 5.90
2.51
3.75
$ 5.04
2.00
2.29
$ 3.04
.83
2.54
† Diluted earnings per share for 2002 and 2001 are the same as basic, except for the second quarter of 2002, because common shares contingently issuable upon the exercise of
stock options were either not material, inclusion in the calculations would have been anti-dilutive or the grant prices of the then outstanding options were above the average
market price for the related periods.
* The Company defines gross profit as net sales less cost of products sold and depreciation and amortization (excluding goodwill amortization).
** Average shares for the second, third and fourth quarters of 2002 were impacted by the issuance of shares, 33.4 million, in the second and third quarters, from the exchange of
debt and accrued interest for equity.
*** Source: New York Stock Exchange — Composite Transactions
(1)
(2)
Includes net after-tax restructuring charges of $2 ($.02 per share). See Note L for additional details.
Includes a loss on the sale of businesses of $24 ($32 after taxes or $.25 per share) and a charge of $1,014 for the cumulative effect of a change in accounting from the adoption of
FAS 142. See Notes B and M for additional details.
Includes a gain from the early extinguishment of debt of $25 ($25 after taxes or $.19 per share). See Note N for additional details.
Includes net after-tax restructuring charges of $1 ($.01 per share). See Note L for additional details.
Includes a loss on the sale of businesses of $3 ($3 after taxes or $.02 per share), a gain from the early extinguishment of debt of $3 ($3 after taxes or $.02 per share), fees related to
the Constar offering of $3 ($3 after taxes or $.02 per share) and tax credits from the carryback of U.S. losses of $24 ($.15 per share). See Notes M, N and U for additional details.
Includes net after-tax restructuring charges of $12 ($.08 per share). See Note L for additional details.
Includes an after-tax loss on the sales of Constar and other assets of $221 or $1.39 per share and a provision for asbestos of $30 or $.19 per share. See Notes K and M for
additional details.
Includes net after-tax restructuring charges of $1 ($.01 per share). See Note L for additional details.
Includes an after-tax credit of $4 for the cumulative effect of a change in accounting. See Note A for additional details.
Includes a net after-tax restructuring credit of $1. See Note L for additional details.
Includes after-tax impairment charges and gain/loss on sale of assets of $2 ($.02 per share).
Includes after-tax restructuring charges of $44 ($.35 per share). See Note L for additional details.
Includes an after-tax net charge of $206 or $1.64 per share for asset impairments and loss/gain on sale of assets, a provision for asbestos of $51 or $.41 per share and tax charges
of $510 or $4.06 per share to increase the valuation allowance associated with net U.S. deferred tax assets. See Notes K, M and U for additional details.
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
30
ANNUAL~1.QXD 4/2/03 2:42 PM Page 31
Five Year Summary Of Selected Financial Data
(in millions, except per share, ratios, employees and shareholders)
2002
2001
2000
1999
1998
Summary of Operations
Net sales
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of products sold (excluding depreciation and amortization)
Depreciation and amortization
Selling and administrative expense
% to net sales
Provision for asbestos
Provision for restructuring
Provision for asset impairments and loss/(gain) on sale of assets
Gain from early extinguishment of debt
Interest expense, net of interest income
Translation and exchange adjustments
. . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . .
. . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . .
Income/(loss) before income taxes, minority interests
% to net sales
and cumulative effect of a change in accounting . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
Provision/(benefit) for income taxes
Minority interests, net of equity earnings
Income/(loss) before cumulative effect of a change in accounting . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cumulative effect of a change in accounting (1) . . . . . . . . . . . . . . . . . . .
% to net sales
Net income/(loss) (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income/(loss) available to common
shareholders (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7,289
$ 7,187
$ 7,998
$ 6,792
——————————————————————————————————————————
5,982
495
314
4.3%
255
52
27
6,063
499
310
4.3%
51
48
213
5,619
375
317
4.7%
30
19
247
6,795
533
379
4.4%
125
179
6,326
522
348
4.4%
163
(
( 18)
$ 8,568
7)
(
28)
331
27
437
10
373
8
——————————————————————————————————————————
(
(
145)
( 2.1)% (
30
16)
(
444)
6.2)%
528
4)
( 217)
( 3.0)%
( 58)
15)
(
(
——————————————————————————————————————————
(
(
191)
( 2.8)% (
( 1,014)
——————————————————————————————————————————
(
( 174)
( 2.4)%
976)
13.6)%
4
105
1.2%
181
2.3%
1,205)
972)
(
(
(
( 174)
2
181
15
105
17
——————————————————————————————————————————
($ 1,205)
——————————————————————————————————————————
——————————————————————————————————————————
( $ 972)
($ 176)
166
88
$
$
342
13
309
3.9%
105
23)
363
14
180
2.1%
74
1)
Financial Position at December 31
Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets
Total debt (net of cash and cash equivalents)
. . . . . . . . . . . . . . . . . . . . .
Total debt to total capitalization* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority interests
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholders’ equity/(deficit)
($
246)
7,505
3,691
97.1%
196
( 87)
($
84)
9,620
4,864
82.9%
201
804
$
652
11,159
4,967
68.3%
195
2,109
($ 573)
11,545
4,837
60.3%
295
2,891
($ 1,542)
12,469
5,370
62.3%
280
2,975
Common Share Data (dollars per share)
Earnings/(loss) per average common share
Basic and diluted
— before cumulative effect of a change in accounting . . . . . . . .
— after cumulative effect of a change in accounting . . . . . . . . .
Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Market price on December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Book value (based on year-end outstanding shares
plus assumed conversion of preference shares)
. . . . . . . . . . . . . . . . . .
Number of shares outstanding at year-end . . . . . . . . . . . . . . . . . . . . . . .
Average shares outstanding
Basic
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . .
Shareholders on record at December 31
($ 1.33)
8.38)
(
($ 7.77)
7.74)
(
(
7.95
.55)
159.4
143.8
143.8
5,579
2.54
6.40
125.7
125.6
125.6
5,552
1.40)
($
( 1.40)
1.00
7.44
16.79
125.6
125.7
126.8
5,528
Other
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures
Number of employees
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actual preferred shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
115
28,319
$
168
33,046
$
262
34,618
$ 1.36
1.36
1.00
22.38
22.46
121.1
122.2
129.8
5,254
$
280
35,959
8.3
$
.71
.71
1.00
30.81
22.89
122.3
124.4
132.9
5,644
$ 487
38,459
8.4
Notes:
* Total capitalization includes total debt (net of cash and cash equivalents), minority interests and shareholders’ equity.
(1) Transition adjustments from the adoption by the Company of FAS 142 in 2002 and FAS 133 in 2001.
(2) Amounts for 2002, 2001, 2000, 1999 and 1998 included after-tax adjustments for restructuring actions, $15 or $.10 per share; $46 or $.37 per share; $37 or $.29 per share;
($5) or ($.04) per share and $127 or $1.02 per basic share and $.96 per diluted share, respectively. Also included in reported net income/(loss) were (i) a tax charge in 2001 of
$452 or $3.60 per share, (ii) after-tax adjustments for provision for asset impairments and loss/(gain) on sale of assets of $258 or $1.79 per share in 2002; $208 or $1.66 per
share in 2001; $18 or $.14 per share in 2000 and ($10) or ($.08) per share in 1999, (iii) after-tax charges for asbestos, $30 or $.21 per share in 2002; $51 or $.41 per share in
2001; $166 or $1.32 per share in 2000; $106 or $.87 per basic share and $.82 per diluted share in 1999 and $78 or $.63 per basic share and $.59 per diluted share in 1998, (iv)
an after-tax charge for a bad debt provision of $36 or $.28 per share in 2000, (v) an after-tax gain of $28 or $.19 per share in 2002 from the early extinguishment of debt and
(vi) a transition charge of $1,014 or $7.05 per share in 2002 and a transition credit of $4 or $.03 per share in 2001.
31
ANNUAL~1.QXD 4/2/03 2:42 PM Page 32
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(in millions, except per share, employee, shareholder and statistical data; per share earnings are quoted as diluted)
Introduction
This discussion summarizes the significant factors affecting
the results of operations and financial condition of Crown
Holdings, Inc. (the “Company”) during the three-year period
ended December 31, 2002. This discussion should be read in
conjunction with the consolidated financial statements
included in this annual report.
Financial results (operating income, net income and loss
per share) for 2002, 2001, and 2000 were impacted by
charges for asbestos, restructuring, asset impairments and
loss/gain on sale of assets, a gain from the early
extinguishment of debt, various tax adjustments and the
cumulative effect of changes in accounting.
Upon adoption of FAS 142 in 2002 and FAS 133 in 2001,
the Company recorded transition adjustments for the
cumulative effect of a change in accounting of $1,014 ($7.05
per share) in 2002 and a credit of $4 ($.03 per share) in 2001.
Further information concerning these adjustments is
provided in Notes A and B to the consolidated financial
statements.
Results of Operations
The Company is organized on the basis of geographic regions
with three reportable operating segments: Americas, Europe
and Asia-Pacific. The Americas includes the United States,
Canada and South and Central America. Europe includes
Europe, Africa and the Middle East. Although the economic
environments within each operating segment are quite
diverse, they are similar in the nature of their products, the
production processes, the types and classes of customers for
products and the methods used to distribute products. Asia-
Pacific, although below reportable segment thresholds, has
been designated as a reportable segment because
considerable review is made of this region for the allocation
of resources. Each segment is an operating division within
the Company with a President who reports directly to the
Chief Executive Officer of the Company. “Corporate”
includes Corporate Technology and headquarters costs.
The Company evaluates performance and allocates
resources based on segment income as defined in Note V to
the consolidated financial statements. The accounting
policies for each reportable segment are the same as those
described in Note A to the consolidated financial statements.
Net Sales
Net sales during 2002 were $6,792, a decrease of $395 or
5.5% versus 2001 net sales of $7,187. Sales for 2001
decreased $102 or 1.4% from net sales of $7,289 in 2000.
Excluding the favorable impact of foreign currency
translation of $108 and the unfavorable impact of divested
operations of $221, net sales would have decreased by $282
or 3.9% compared to the prior year. Sales for 2001 were
unfavorably impacted by foreign currency translation of
32
$147 compared to 2000. Sales from U.S. operations
decreased by 12.8% and 2.8% in 2002 and 2001, respectively.
Sales from non-U.S. operations decreased by .6% and .4% in
2002 and 2001, respectively. As a percentage of net sales,
net sales in the U.S. accounted for 37.2% of consolidated net
sales in 2002, 40.3% in 2001 and 40.9% in 2000. Sales of
beverage cans and ends accounted for 34.0% of net sales in
2002 compared to 32.7% in 2001 and 32.1% in 2000. Sales of
food cans and ends accounted for 28.6% of net sales in 2002
and 2001 and 29.3% in 2000.
Division
2002
Net Sales
2001
Americas $3,227 $3,666
3,200
Europe
Asia-Pacific
321
Corporate
3,235
330
2000
$3,742
3,239
308
——————————————
$6,792 $7,187 $7,289
% Increase/
(Decrease)
2002/2001 2001/2000
(12.0)
1.1
2.8
(2.0)
(1.2)
4.2
(5.5)
(1.4)
Excluding unfavorable currency translation of $41 and
divested operations of $122, net sales in the Americas
division decreased in 2002 by $276 or 7.5% compared to the
prior year. This decrease in net sales was primarily due to (i)
lower sales unit volumes across most product lines, (ii) the
pass-through of lower raw material costs and (iii) lower sales
in Argentina and Brazil due to the economic turmoil in those
countries; partially offset by increased selling prices
primarily for North American beverage, food and aerosol
cans. U.S. net sales accounted for 77.8% of division net sales
in 2002, 78.6% in 2001 and 79.7% in 2000.
Excluding unfavorable currency translation of $21,
Americas division net sales in 2001 decreased by $55 or 1.5%
compared to the same period in 2000. The decrease was
primarily due to (i) lower selling prices for beverage cans and
(ii) a 4.0% decrease in food can volumes in North America
due to generally lower market demand for food cans and the
bankruptcy of a large food can customer in 2000; partially
offset by (i) a 2.6% increase in beverage can unit volumes
and (ii) increased sales unit volumes of PET beverage
bottles, custom PET bottles and plastic beverage and
specialty closures.
Excluding favorable currency translation of $146 and
divested operations of $99, net sales in the European
division decreased by $12 in 2002 or .4% compared to a year
earlier. The marginal decline in sales was primarily due to
sales unit volume decreases of crowns from the elimination
of production in Belgium and the pass-through of lower raw
material costs in the plastic businesses partially offset by
increased selling prices across many product lines.
Excluding the unfavorable impact of foreign currency
translation of $112, European division net sales increased
$73 or 2.3% in 2001 over 2000. The increase was primarily
due to sales unit volume increases of (i) beverage cans in
ANNUAL~1.QXD 4/2/03 2:42 PM Page 33
Spain, (ii) food cans in Greece, Central and Eastern Europe
and Africa, (iii) PET preforms and bottles in the U.K. and
(iv) health and beauty care packaging and plastic closures
throughout the division. These volume gains were partially
offset by lower sales unit volumes of (i) food cans in France
and (ii) beverage cans in the Middle East. Selling prices for
beverage and food cans in the U.K. decreased due in part to
the strength of the sterling versus the euro.
The increase in net sales for the Asia-Pacific division in
2002 over 2001 was primarily due to increased sales unit
volumes for beverage cans in Southeast Asia and plastic
closures across most operations and favorable foreign
currency translation of $3; partially offset by lower selling
prices across most product lines.
The increase in Asia-Pacific division net sales in 2001 over
2000 was due to increased beverage can unit volume in
Southeast Asia and food can and plastic beverage closure
volumes throughout the division; partially offset by $14 of
unfavorable currency translation.
Cost of Products Sold (Excluding Depreciation and
Amortization)
Cost of products sold, excluding depreciation and
amortization, was $5,619, a decrease of 7.3% from $6,063 in
2001 which was 1.4% higher than 2000. The decrease in
2002 was primarily due to lower sales unit volumes across
many product lines, lower raw material costs, divested
businesses and improved operating performance; partially
offset by the impact of currency translation. Included in cost
of products sold for 2002 was a provision of $13 to provide for
uncertainty regarding the ultimate collectibility of
receivables from a European customer. The increase in 2001
was primarily due to increased sales unit volumes across
many product lines and unfavorable production variances as
the Company reduced inventories as part of its working
capital reduction initiative. As a percentage of net sales, cost
of products sold was 82.7% in 2002 as compared to 84.4% in
2001 and 82.1% in 2000. The decrease as a percentage of net
sales in 2002 was primarily due to increased selling prices in
the North American operations, improved operating
performance, continued cost reduction efforts and lower raw
material costs; partially offset by increased pension costs and
the pass-through of lower raw material costs to customers,
primarily in the plastics businesses. Pension expense
included in cost of sales was $27 in 2002 compared to income
of $46 in 2001. The increased percentage in 2001 was due to
reduced selling prices across most product lines and
unfavorable production variances as the Company reduced
working capital levels.
Selling and Administrative Expense
Selling and administrative expense for 2002 was $317, an
increase of 2.3% above the 2001 expense of $310, following a
decrease of 1.3% from expense of $314 in 2000. The increase
in 2002 was due to costs related to the Constar offering and
the Company’s debt refinancing activities. The decrease in
2001 was due to lower headcount and the impact of currency
translation.
Segment Income
The Company views segment income as the principal
measure of performance. Segment income was $462, $267
and $446 in 2002, 2001 and 2000, respectively. As a
percentage of net sales, segment income was 6.8% in 2002,
3.7% in 2001 and 6.1% in 2000.
An analysis of segment income by division follows:
Division
Segment Income
2001
2000
2002
Americas
Europe
Asia-Pacific
Corporate
$199
$ 71
$220
308
254
301
22
27
30
( 83)
( 85)
( 89)
——————————————
$446
$267
$462
% Increase/
(Decrease)
2002/2001 2001/2000
209.9
18.5
11.1
( 4.7)
(64.3)
(17.5)
22.7
( 2.4)
73.0
(40.1)
Segment income in the Americas division was 6.8% of net
sales in 2002 versus 1.9% in 2001 and 5.3% in 2000. The
increase in 2002 segment income was primarily due to (i)
increased selling prices, primarily for North American
beverage, food and aerosol cans, (ii) reduced provision for
restructuring, (iii) cost reductions, (iv) improved plant
efficiencies and (iv) the adoption of FAS 142 on January 1,
2002 which eliminated the amortization of goodwill.
Goodwill amortization in the Americas division was $38 in
both 2001 and 2000. The improved segment income was
reduced, in part, by lower sales unit volumes across most
product lines, and an increase of $39 in pension expense. The
decrease in 2001 segment income was due to (i) lower selling
prices in the North American beverage can market, (ii)
reduced U.S. food can sales unit volumes, (iii) increased
provision for restructuring, (iv) increased pension expense
and (v) unfavorable production variances related to lower
production levels created by the Company’s working capital
reduction initiative. The decreases were partially offset by
division-wide increased sales volumes of beverage cans, PET
bottles and plastic beverage and specialty closures. Americas
pension expense of $61 in 2002 is expected to increase by
approximately $20 in 2003, primarily due to the lower value
of pension plan assets at December 31, 2002 versus the end
of 2001, and lower discount rates in 2003, and includes the
amortization of unrecognized losses.
European division segment income was 9.3% of net sales
in 2002 versus 7.9% in 2001 and 9.5% in 2000. Excluding
favorable currency translation of $11, the improvement in
segment income was primarily due to (i) the adoption of FAS
142 on January 1, 2002 and the cessation of goodwill
amortization, (ii) cost reductions, (iii) improved pricing for
33
ANNUAL~1.QXD 4/2/03 2:42 PM Page 34
most operations and (iv) increased volumes in Spain, Turkey
and Africa. Goodwill amortization was $75 in 2001 and $78
in 2000. The improvement in segment income in 2002 was
offset, in part, by a decrease of $33 in noncash pension
income. Pension income of $34 in 2002 is expected to
decrease by approximately $45 in 2003 due to reduced plan
assets and amortization of unrecognized losses. The decrease
in segment income for 2001 was primarily due to cost/price
pressures across most operations and lower food can sales
unit volumes in France; partially offset by lower provision
for restructuring and strong volume demand for beverage
cans in Spain, health and beauty care packaging throughout
the region and, to a lesser extent, PET preforms and bottles
in the U. K.
Segment income in the Asia-Pacific division was 9.1% of
net sales in 2002 versus 8.4% in 2001 and 7.1% in 2000. The
improvement in 2002 was primarily due to increased
beverage can volumes in China and throughout Southeast
Asia and lower raw material costs; partially offset by lower
selling prices and a provision for restructuring. The increase
in 2001 was due to beverage can sales unit volume growth,
particularly in Southeast Asia, and higher sales unit
volumes of food cans and plastic beverage closures
throughout the division.
Provision For Asbestos
Crown Cork & Seal Company, Inc. (“Crown Cork”) is one of
many defendants in a substantial number of lawsuits filed
throughout the United States by persons alleging bodily
injury as a result of exposure to asbestos. These claims arose
from the insulation operations of a U.S. company, the
majority of whose stock Crown Cork purchased in 1963.
Approximately ninety days after the stock purchase, this
U.S. company sold its insulation operations and was later
merged into Crown Cork.
Prior to 1998, the amounts paid to asbestos claimants
were covered by a fund of $80 made available to Crown Cork
under a 1985 settlement with carriers insuring Crown Cork
through 1976, when Crown Cork became self-insured. Until
1998, the Company considered that the fund was adequate
and that the likelihood of exposure in excess of the amount of
the fund was remote. This view was based on the Company’s
analysis of its potential exposure, the balance available
under the 1985 settlement, historical trends and actual
settlement ranges. However, an unexpected increase in
claims activity, along with several larger group settlements,
caused the Company to reevaluate its position.
Each quarter, the Company reviews, and analyzes, its
claim experience, settlement trends, changes in the litigation
environment and other factors to determine the adequacy of
its asbestos accruals. In each of the years 2000 to 2002, the
Company has engaged an expert in the field of medical
demographics to perform an independent evaluation of the
Company’s potential asbestos liability. Adjustments to the
asbestos accrual are made based on changes to the above-
34
mentioned factors after consultation with the Company’s
expert and legal counsel.
During 2002, 2001 and 2000, respectively, Crown Cork
(i) received 36,000, 53,000 and 44,000 new claims, (ii) settled
or dismissed 43,000, 31,000 and 40,000 claims, and (iii) has
59,000, 66,000 and 44,000 claims outstanding at the end of
the respective years. The outstanding claims at December
31, 2002 exclude 33,000 pending claims involving plaintiffs
who allege that they are, or were, maritime workers subject
to exposure to asbestos, but whose claims the Company
believes, based on counsel’s advice, will not, in the aggregate,
involve any material liability. During 2001, one jurisdiction
accounted for 25,000 claims received, 17,000 of which were
settled for $4 in 2001.
During 2002, 2001 and 2000, respectively, the Company
(i) recorded pre-tax charges of $30, $51 and $255 to increase
its accrual, (ii) made asbestos-related payments of $114,
$118 and $94, (iii) settled claims totaling $77, $66 and $100,
including amounts committed to be paid in future periods
and (iv) had outstanding accruals of $263, $347 and $420 at
the end of the year. The 2001 charge of $51 included an
allowance of $6 for an insurance receivable.
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. The Company has already
paid significantly more for asbestos claims than the acquired
company’s asset value. On June 12, 2002, Crown Cork
received a favorable ruling from the Philadelphia Court of
Common Pleas on the its motion for summary judgment
regarding the 376 asbestos-related cases pending against it
in that court (in re Asbestos Litigation, October Term 1986,
Number 001). The plaintiffs claimed that the legislation was
procedurally inapplicable and that, if applicable, it violated
due process and other clauses of the United States and
Pennsylvania constitutions. The plaintiffs’ appeal of that
ruling was heard by the Supreme Court of Pennsylvania on
October 22, 2002, and a decision could come at any time. An
unfavorable decision may require the company to increase
its accrual for pending and future asbestos-related claims.
Based on the updated report of the independent expert,
the Company’s own review, and the view of counsel
concerning the possible effects of the new legislation
described above, the Company estimates that its probable
and estimable asbestos liability for pending and future
asbestos claims will range between $263 and $502. The
accrual balance of $263 at the end of 2002 includes $146 for
unasserted claims and $50 for committed settlements that
will be paid over time, including $41 in 2003. The Company
expects total cash payments for asbestos to be approximately
$70 in 2003, including $41 under the committed settlements.
Historically (1977-2002), Crown Cork estimates that
approximately one-quarter of all asbestos claims made
against it have been asserted by claimants who claim first
ANNUAL~1.QXD 4/2/03 2:42 PM Page 35
exposure to asbestos after 1964. However, because of Crown
Cork’s settlement experience to date and the increased
difficulty of establishing identification of the subsidiary’s
insulation products as the cause of injury by persons alleging
first exposure to asbestos after 1964, the Company has not
included in its accrual and range of potential liability any
amounts for settlements by persons alleging first exposure to
asbestos after 1964. Assumptions underlying the accrual and
the range of potential liability include that claims for
exposure to asbestos that occurred after the sale of the U.S.
company’s insulation business in 1964 would not be entitled
to settlement payouts and that the Pennsylvania asbestos
legislation described above is expected to have a highly
favorable impact on Crown Cork’s ability to settle or defend
against asbestos-related claims. The Company’s accrual
includes estimates for probable costs for claims through the
year 2012. The upper end of the Company’s estimated range
of possible asbestos costs of $502 includes claims beyond that
date.
While it is not possible to predict the ultimate outcome of
the asbestos-related claims and settlements, the Company
believes, after consultation with counsel, that resolution of
these matters is not expected to have a material adverse
effect on the Company’s financial position. The Company
cautions, however, that these estimates for asbestos cases
and settlements are difficult to predict and may be
influenced by many factors. Accordingly, these matters, if
resolved in a manner different from the estimate, could have
a material effect on the Company’s financial position and
cash flow.
Provision For Restructuring
During 2002, the Company provided a net charge of $19 ($15
after-tax or $.10 per share) for costs associated with (i) the
closure of two European food can plants, (ii) the closure of a
crown plant and elimination of a crown operation within
Europe, (iii) the elimination of a European metal closures
operation, (iv) the downsizing of a European specialty
plastics operation and (v) the elimination of a plastic bottle
operation in China; partially offset by a credit for the
reversal of other exit costs recognized in 2001 due to the
favorable resolution of a lease termination in a U.S. food can
plant. Included in the net provision was (i) $13 for
termination benefits covering approximately 500 employees,
400 of whom were directly involved in manufacturing
operations (ii) $8 for asset write-downs and (iii) a credit of $2
for lease termination and other exit costs due to the
favorable resolution of the lease termination noted above.
The Company anticipates that the restructuring actions will
save approximately $10 before tax on an annual basis when
fully implemented.
During 2001, the Company provided $48 ($46 after-tax or
$.37 per share) for costs associated with (i) the closure of six
U.S. food can plants, two European crown operations, a
European food can plant and a European PET bottle plant
and (ii) severance related to downsizing three plants in
Africa; partially offset by a credit for the reversal of
severance charges recognized in 2000 for certain
restructuring plans which the Company decided not to
pursue. Included in the net provision for 2001 was (i) $20 for
termination benefits for 700 employees, 600 of whom were
directly involved in manufacturing operations (ii) $20 for
asset write-downs, (iii) $14 for lease termination and other
exit costs, and (iv) a credit of $6 for the reversal of severance.
During 2000, the Company provided $52 ($37 after-tax or
$.29 per share) for costs associated with overhead structure
modifications in Europe, the closure of three plants in the
Americas division, and the loss on sale of a South American
operation to local management. This provision included (i)
$42 for severance costs for approximately 1,000 employees,
(ii) $5 for lease termination and other exit costs, (iii) $1 for
the write-down of assets and (iv) $4 for the loss on sale.
The write-downs of assets were made under announced
restructuring plans, as the carrying values exceeded the
Company’s estimated proceeds from abandonment or
disposal. The sale of plant sites may require more than one
year to complete due to preparations for sale, such as site
cleanup and buyer identification, as well as market
conditions and the location of the properties.
Provision for Asset Impairments and Loss/Gain On Sale
of Assets
During 2002, the Company recorded pre-tax charges of $247
($258 after tax or $1.79 per share) for losses from
divestitures of businesses, the sale of assets, and asset
impairments outside of restructuring programs. During the
fourth quarter of 2002, Constar International, Inc., the
Company’s wholly-owned subsidiary, completed its initial
public offering. The Company retained a 10.5% interest in
Constar with a carrying value of $30, received net proceeds
of $460, and recorded a loss of $213 on the portion sold. The
Company also completed the sales of its U.S. fragrance
pumps business, its European pharmaceutical packaging
business, its 15% shareholding in Crown Nampak (Pty) Ltd.,
and certain businesses in Central and East Africa. The
Company received total proceeds of $201 and recorded total
pre-tax losses of $26 on these divestitures. In addition to the
business divestitures, the Company sold various other
assets, primarily real estate, for total proceeds of $45 and a
pre-tax gain of $11. The Company also recorded noncash
asset impairment charges of (i) $10 to write-off certain
surplus assets in the U.S. due to the Company’s assessment
that their carrying value will not be recovered based on
current operating plans, (ii) $4 to write-down the assets of a
U.S. operation the Company is considering for sale or
closure, (iii) $3 to write-down the value of surplus U.S. real
estate the Company has for sale, and (iv) $2 to write-off the
carrying value of other assets.
During 2001, the Company recorded a net charge of $213
($208 after-tax or $1.66 per share) for noncash asset
35
ANNUAL~1.QXD 4/2/03 2:42 PM Page 36
impairment charges and gains from asset sales. Of the total
impairment charge, $204 arose from the Company’s planned
divestitures of certain interests in Africa, including $71 for
the reclassification of cumulative translation adjustments to
earnings. The remaining impairment charge of $11 was due
to the write-down of surplus equipment. The sale surplus of
properties generated proceeds of $28 and a net gain of $2.
A charge of $27 ($20 after-tax or $.16 per share) was
recorded in 2000 for noncash asset impairment charges for
the write-off a minority interest in a machinery company
and an investment in Moldova and for losses on the sale of
various assets. The investment write-offs were due to
uncertainty regarding the ultimate recovery of these
investments. The asset sales provided proceeds of $28 and a
net loss of $1.
Gain From Early Extinguishment of Debt
During 2002 the Company entered into privately negotiated
debt-for-equity exchanges with holders of its outstanding
notes and debentures. The Company exchanged 33,386,880
shares of its common stock with a market value of $250 for
debt with an aggregate face value of $271 and accrued
interest of $7 and recognized a gain of $28 ($28 after tax or
$.19 per share).
During January 2003, the Company exchanged an
additional 5,386,809 shares of its common stock for debt and
accrued interest, totaling $43.
Net Interest Expense
Interest expense, net of interest income, was $331 in 2002, a
decrease of $106 or 24.3% compared to 2001 net interest
expense of $437. Net interest expense in 2000 was $373. The
decrease in 2002 net interest expense was primarily due to
lower average debt outstanding and lower average
borrowing rates. The lower average debt outstanding reflects
a reduction in working capital, proceeds from sales of assets
and businesses and, to a lesser extent, the early
extinguishment of debt through debt-for-equity exchanges.
The increase in 2001 was primarily due to higher interest
rates and fees incurred in connection with the extension of
the Company’s $2,500 credit facility and new borrowings
under a $400 term loan. The tightening bank credit
environment and concern over the Company’s asbestos
exposure and operating results contributed to downgrades in
the Company’s credit ratings during 2001 and 2000 by the
major rating agencies. Due to these downgrades, the
Company lost access to several sources of lower cost
financing, including the commercial paper market. Further
information about the credit facility and term loan along
with details of recent refinancing activities are summarized
in the Liquidity and Capital Resources section of this
discussion and in Notes P and Q to the consolidated financial
statements.
36
Translation and Exchange Adjustments
Unfavorable foreign exchange adjustments of $27, $10 and
$8 were recorded in 2002, 2001 and 2000, respectively,
primarily from the remeasurement of the Company’s non-
U.S. subsidiaries with a U.S. dollar functional currency,
including those in Argentina, Brazil, Colombia and Turkey.
in
included
Taxes on Income
Taxes on income for 2002, 2001 and 2000 were provisions of
$30 and $528 and a benefit of $58, respectively, against pre-
tax losses of $145, $444 and $217, respectively. Significant
the 2002 provision were
items
(i) a credit of $24 for the recovery of U.S. federal taxes paid
in prior years, (ii) a charge of $11 on pre-tax losses of $247
from asset impairments and asset sales due to the
differences in the book and tax basis, primarily due to
goodwill, (iii) a credit of $20 for tax contingencies resolved in
the U.S. and (iv) a charge of $20 for a tax contingency which
arose in Europe. The provision for 2001 included
adjustments of $452 and $114 to the valuation allowance for
pre-2001 U.S. deferred tax assets and tax benefits not
recognized on 2001 U.S. losses. Further information about
income taxes is presented in Note U to the consolidated
financial statements.
Minority Interests, Net of Equity Earnings
Minority interests’ share of net income/(loss) was $24, $10
and $18 in 2002, 2001 and 2000, respectively. The increase
in 2002 was primarily due to (i) increased profits in the
Company’s joint venture beverage can operations in
Colombia, Greece, the Middle East, China and Vietnam, and
(ii) improved profitability in the food can operations in
Morocco; partially offset by lower profits in Brazil due to the
economic turmoil in the region. The decrease in 2001 was
due to (i) losses in the Company’s beverage can operations in
Vietnam and PET operations in Hungary and Turkey, (ii)
the purchase of the minority shares in CarnaudMetalbox
Asia Limited during the second quarter of 2000 and (iii)
lower profits in Morocco; partially offset by improved results
in Brazil.
Equity in earnings of affiliates was $8, $6 and $3 in
2002, 2001 and 2000, respectively. The increases in 2002
and 2001 were due to continued improvement in the
Company’s joint venture operations in the Middle East.
Net Income and Earnings Per Share
Net loss of $1,205 for the year ended December 31, 2002, was
an increase of $233 from the loss of $972 for the same period
in 2001. Loss per share was $8.38 for the year ended
December 31, 2002, an increase of $.64 from a per share loss
of $7.74 for 2001. The increased losses were primarily due to
a charge of $1,014 for the cumulative effect of a change in
accounting from the adoption in 2002 of FAS 142; partially
offset by (i) higher operating income, including the
elimination of goodwill amortization in 2002, (ii) lower net
ANNUAL~1.QXD 4/2/03 2:42 PM Page 37
interest expense, and (iii) additions of $452 and $114 to the
tax valuation allowance in 2001 for pre-2001 U.S. deferred
tax assets and tax benefits not recognized on 2001 U.S.
losses.
The net loss of $972 in 2001 was an increase of $796 from
the loss of $176 for the same period in 2000. Net loss per
share of $7.74 was an increase of $6.34 from the loss per
share of $1.40 in 2000. The increased losses were primarily
due to (i) an increase in the tax valuation allowance to fully
reserve for net U.S. deferred tax assets recognized in prior
periods, (ii) lower operating income in the Americas and
Europe, (iii) tax benefits not taken on 2001 U.S. operating
losses, (iv) provisions for asset impairments related to the
sale of certain African subsidiaries, and (v) higher net
interest expense; partially offset by a lower provision for
asbestos.
Financial Position
Liquidity and Capital Resources
Cash and cash equivalents were $363 at December 31, 2002
compared to $456 and $382 at December 31, 2001 and 2000,
respectively. The Company’s primary source of cash for 2002
consisted of funds provided from operations of $415 and
from investing activities, primarily from sales of businesses,
of $591. The increase in funds provided from operations in
2002 versus $310 in 2001 was primarily due to improved
operating income and a decrease in interest payments from
$469 in 2001 to $333 in 2002, partially offset by lower
working capital reductions in 2002. Payments for asbestos
were $114 in 2002 and $118 in 2001 and the Company
expects to pay approximately $70 in 2003 due to reduced
payments on prior year settlements. The Company
contributed $144 to its pension plans in 2002 and expects to
contribute $125 in 2003.
On February 26, 2003, the Company completed a
refinancing and formed Crown Holdings, Inc. (“Crown” or
“the Company”), a new public holding company. The
formation of Crown Holdings, Inc is more fully described in
Note N to the consolidated financial statements.
The proceeds from the refinancing consisted of the sale of
$1,085 of 9.5% second priority senior secured notes due in
2011, C= 285 ($306 equivalent) of 10.25% second priority
senior secured notes due in 2011, $725 of 10.875% third
priority senior secured notes due in 2013, a $504 first
priority term loan due in 2008 and a new $550 first priority
revolving credit facility due in 2006.
The proceeds of $2,620 from the senior secured notes and
the term loan, and $198 of borrowing under the new $550
credit facility, were used to repay the existing credit facility,
to repurchase $568 of the Company’s outstanding unsecured
notes, and to pay fees and expenses associated with the
refinancing. The remaining proceeds of $344 were placed in
accounts as collateral for the senior secured notes, the term
loan and the revolving credit facility, and may only be used to
repurchase or retire existing unsecured notes.
The secured notes are senior obligations of Crown
European Holdings SA (“CEH”), an indirect wholly-owned
subsidiary, and are guaranteed on a senior basis by Crown,
Crown Cork & Seal Company, Inc. (“Crown Cork”),
substantially all other U.S. subsidiaries, and certain
subsidiaries in the U.K., Canada, France, Germany, Mexico,
Switzerland and Belgium. The holders of the notes have
second and third priority liens on assets of certain of the
guarantor subsidiaries and the stock of Crown Cork. CEH
may redeem all or some of the second priority secured notes
at any time prior to March 2007 and the third priority
secured notes at any time prior to March 2008 by paying a
make-whole premium. Thereafter, CEH may redeem some
or all of the secured notes at redemption prices initially
representing a premium to principal equal to one-half of the
applicable interest rate on the notes, declining annually
thereafter. At any time prior to March 2006, CEH may
redeem up to 35% of each of the secured notes with the net
cash proceeds of certain equity offerings of capital stock of
Crown that are used to capitalize CEH. CEH is also required
to make an offer to purchase the secured notes upon the
occurrence of certain change of control transactions or asset
sales. The note indentures contain covenants that limit the
ability of the Company and its subsidiaries to, among other
things, incur additional debt, pay dividends or repurchase
capital stock, create liens, and engage in sale and leaseback
transactions.
CEH and the guarantors of the secured notes entered into
an agreement to file a registration statement for a registered
exchange of the secured notes. If CEH and the guarantors do
not comply with their obligations under the registration
rights agreement, they may be obligated to pay additional
interest on the secured notes until the default is cured.
The $504 first priority term loan facility is payable in
annual installments equal to 5.0% of the original principal
amounts, beginning January 15, 2004, with a final payment
due in 2008. The maturity is accelerated to September 2006
in the event that Crown’s unsecured public debt that
matures in 2006 is not repaid, or funds are not set aside in a
designated account to repay such debt, by September 15,
2006. The term loans include $450 of borrowings in U.S.
dollars by Crown Cork & Seal Americas, Inc. (“Crown
Americas”) and $54 equivalent of C=50 in borrowings by CEH
and bear interest at LIBOR plus 4.25%. The U.S. dollar
loans are guaranteed by Crown, Crown Cork, and
substantially all other U.S. subsidiaries, and are
collateralized by substantially all assets of the U.S.
guarantor subsidiaries. The euro loans are guaranteed by
Crown, Crown Cork and substantially all other U.S.
subsidiaries and by certain subsidiaries in the U.K., Canada,
France, Germany, Mexico, Switzerland and Belgium. The
euro loans are collateralized by substantially all assets of the
U.S. guarantor subsidiaries and assets of certain of the non-
U.S. guarantor subsidiaries. The revolving credit facility
contains the same guarantee and collateral provisions as the
term loan facility and bears interest at LIBOR plus 4.0%. All
guarantees are full and unconditional on a joint and several
basis.
37
ANNUAL~1.QXD 4/2/03 2:42 PM Page 38
The term loan and revolving credit facilities contain
financial covenants including an interest coverage ratio, a
fixed charge coverage ratio, a net leverage ratio, a first lien
net leverage ratio, and a cash-inflows to cash-outflows ratio
of each of Crown Americas and CEH. The facilities are
mandatorily prepayable with the proceeds from certain asset
sales, certain insurance recoveries on asset losses, debt
issuances, equity issuances and excess cash flows.
The Company is highly leveraged. The ratio of total debt
(net of cash and cash equivalents) to total capitalization was
97.1%, 82.9% and 68.3% at December 31, 2002, 2001 and
2000, respectively. Total capitalization is defined by the
Company as total debt (net of cash and cash equivalents),
minority interests and shareholders’ equity. The increase in
the ratio of total debt to total capitalization is due to the
reduction in shareholders’ equity caused primarily by the net
loss and the minimum pension liability adjustment.
Contractual obligations as of December 31, 2002 updated for
the refinancing in 2003 are summarized in the table below.
Payments Due by Period
2003
2004
2005
2006
2007
2008 & after Total
Short-term debt
Long-term debt
$ 54
319
$175
$233
$339
$ 45
$3,220
4,331
$
54
Operating leases
22
16
14
12
10
40
114
Total contractual
cash obligations
$395
$191
$247
$351
$55
$3,260
$4,499
In 2003 the Company expects that a significant portion of
its cash flow will be dedicated to interest payments on its
outstanding indebtedness, contributions to its pension plans
and to asbestos-related payments.
In order to further reduce leverage and future cash
interest payments, the Company may from time to time
exchange shares of its common stock for the Company’s
outstanding notes and debentures. The Company will
evaluate any such transactions in light of then existing
market conditions and may determine not to pursue such
transactions.
volume of foreign currency commitments and transactions
and significant foreign currency net asset and liability
exposures. The Company manages foreign currency
exposures at the operating unit level. Exposures that cannot
be naturally offset within an operating unit are hedged with
derivative financial instruments, where possible. Foreign
exchange contracts which hedge defined exposures generally
mature within twelve months. The Company does not
generally hedge its exposure to translation gains or losses on
its non-U.S. net assets because cash flows are often
reinvested within the operations which generate them and,
where possible, borrowings are obtained in the local
functional currency. The Company has also entered into
cross-currency swaps to hedge the related foreign currency
exchange risk related to subsidiary debt which is
denominated in currencies other than the functional
currency of the related subsidiary. The swaps outstanding at
December 31, 2002 effectively convert U.S. dollar-
denominated debt into local currency debt for both interest
and principal.
The table below provides information in U.S. dollars as of
December 31, 2002 about the Company’s forward currency
exchange contracts. The majority of the contracts expire in
2003.
Buy/Sell
Sterling/Euro
Euro/Sterling
U.S. dollars/Sterling
Sterling/U.S. dollars
Euro/Polish Zloty
Euro/Swiss Francs
U.S. dollars/Euro
Singapore dollars/U.S. dollars
U.S. dollars/Canadian dollars
U.S. dollars/Thai Baht
Contract
Amount
Average
Contractual
Exchange Rate
$122
70
44
33
31
26
21
15
13
12
$387
.64
.65
1.56
1.54
4.00
1.46
1.02
1.76
1.58
43.11
Market Risk
In the normal course of business, the Company is exposed to
fluctuations in currency values, interest rates, commodity
prices and other market risks. The Company manages these
risks through a program that includes the use of derivative
financial instruments, primarily swaps and forwards, which
involve little complexity and are not used for trading or
speculative purposes. The Company’s objective in managing
its exposure to market risk is to limit the impact on earnings
and cash flow.
International operations, principally European, constitute
a significant portion of the Company’s consolidated revenues
and identifiable assets. These operations result in a large
The Company has an additional $15 in a number of
smaller contracts to purchase or sell various other
currencies, principally Asian, as of December 31, 2002.
The aggregate notional value of foreign exchange
contracts outstanding at December 31, 2002 was $402. This
aggregate value was $151 or 60.2% higher than at the end of
2001. The increase was primarily due to increased hedging
of exposures between sterling and the euro. During 2002 the
Company initiated numerous contracts to hedge the
exposure of U.K. selling prices on products to be shipped to
the European continent due to the continued strength of
sterling against the euro.
The Company’s refinancing, as described above, included
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ANNUAL~1.QXD 4/2/03 2:42 PM Page 39
$1,810 of U.S. dollar notes issued by Crown European
Holdings (CEH). If CEH is unable to obtain contracts to
hedge its exposure to these U.S. dollar obligations, exchange
rate movements could have a significant impact on the
Company’s results of operations in 2003 and beyond.
The Company manages its interest rate risk, primarily
from fluctuations in U.S. prime and LIBOR interest rates, in
order to balance its exposure between fixed and variable
rates while attempting to minimize its interest costs. At
December 31, 2002, three cross-currency swaps were
outstanding with a U.S. dollar-equivalent notional amount of
$700. These swaps effectively convert fixed rate U.S. dollar-
denominated debt into fixed rate sterling-denominated debt
(£302) and floating rate euro-denominated debt ( C=223). Due
to the Company’s refinancing and repurchase of certain
notes and debentures, the remaining U.S. dollar-
denominated debt will not match the notional amounts of
the swaps and the Company could be subject to the affect of
changing interest and foreign exchange rates.
For debt obligations, the table below presents principal
cash flows and related interest rates by year of maturity
after consideration of the impact of the Company’s 2003
refinancing. Variable interest rates disclosed represent the
weighted average rates at December 31, 2002. Debt
converted to fixed or variable rate debt by cross-currency
swaps has been included within the appropriate debt
classification.
Year of Maturity
Debt
Fixed rate
Average interest rate
Variable rate
Average interest rate
2003
$171
7.2%
$202
2.7%
2004
$118
6.0%
$57
5.2%
2005
$188
8.3%
$45
4.9%
2006
$295
8.4%
$44
5.0%
2007
$19
4.4%
$26
5.6%
Thereafter
$2,794
9.5%
$426
5.6%
At December 31, 2001, debt outstanding included fixed rate
debt of $2,510 with an average interest rate of 7.5%, and
variable rate debt of $2,810 with an average interest rate
of 4.8%.
The Company’s basic raw materials, primarily aluminum,
tinplate and resins, are subject to significant price
fluctuations which may be hedged by the Company through
forward commodity contracts. Any gains or losses realized
from the use of these contracts are included in inventory to
the extent that they are designated and effective as hedges
of the anticipated purchases. The maturities of the
commodity contracts closely correlate to the anticipated
purchases of those commodities. These contracts are used in
combination with commercial supply contracts with
customers and suppliers to manage exposure to price
volatility.
The Company’s use of financial instruments in managing
market risk exposures described above is consistent with the
prior year. Further information on Company financing is
presented in Notes P, Q and R to the consolidated financial
statements.
Capital Expenditures
Consolidated capital expenditures were $115 in 2002
compared to $168 in 2001.
Expenditures in the Americas Division were $46 in 2002,
including spending for additional SuperEnd™ beverage can
end capacity.
Spending in the European Division of $66 included
expenditures for the construction of a new beverage can
plant in Spain, equipment modernization and can
lightweighting.
The Company expects its capital expenditures in 2003 to
be approximately $125, which the Company believes is
sufficient to maintain its operations at their current levels of
capacity and efficiency. At December 31, 2002, the Company
had $5 of capital commitments.
Environmental Matters
Compliance with the Company’s Environmental Protection
Policy is a primary management objective and the
responsibility of each employee of the Company. The
Company is committed to the protection of human health
and the environment and is operating within the
increasingly complex laws and regulations of national, state,
and local environmental agencies or is taking action aimed
at assuring compliance with such laws and regulations.
Environmental considerations are among the criteria by
which the Company evaluates projects, products, processes
and purchases, and, accordingly, does not expect compliance
with these laws and regulations to have a material effect on
the Company’s competitive position, financial condition,
results of operations or capital expenditures.
The Company is dedicated to a long-term environmental
protection program and has initiated and implemented
many pollution prevention programs with an emphasis on
source reduction. The Company continues to reduce the
amount of metal and plastic used in the manufacture of
steel, aluminum and plastic containers through
“lightweighting” programs. The Company recycles nearly
100% of scrap aluminum, steel, plastic and copper used in its
manufacturing processes. Many of the Company’s programs
for pollution prevention reduce operating costs and improve
operating efficiencies.
The Company has been identified by the EPA as a
potentially responsible party (along with others, in most
cases) at a number of sites. Estimated remedial expenses for
active projects are recognized in accordance with generally
accepted accounting principles governing probability and the
ability to reasonably estimate future costs. Actual
expenditures for remediation were $2, $4 and $2 in 2002,
2001 and 2000, respectively. The Company’s balance sheet
reflects estimated gross remediation liabilities of $14 and
$18 at December 31, 2002 and 2001, respectively.
Environmental exposures are difficult to assess for
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ANNUAL~1.QXD 4/2/03 2:42 PM Page 40
numerous reasons, including the identification of new sites,
advances in technology, changes in environmental laws and
regulations and their application, the scarcity of reliable
data pertaining to identified sites, the difficulty in assessing
the involvement of and the financial capability of other
potentially responsible parties and the time periods or the
sometimes lengthy time periods over which site remediation
occurs. It is possible that some of these matters, the outcome
of which are subject to various uncertainties, may be decided
unfavorably against the Company. It is, however, the
opinion of Company management, after consulting with
counsel, that any unfavorable decision will not have a
material adverse effect on the Company’s financial position,
cash flows or results of operations.
Common Stock and Other Shareholders’ Equity
Details of a corporate reorganization consummated in
connection with the Company’s 2003 refinancing and
activities in its common stock for the past three years are
provided in Note N to the consolidated financial statements.
Shareholders’ equity/(deficit) was ($87) at December 31,
2002 compared to $804 and $2,109 at December 31, 2001
and 2000, respectively. The decrease in 2002 equity was
primarily due to the net loss for the year of $1,205 and a
charge of $148 for the adjustment to the minimum pension
liability; partially offset by net currency translation gains of
$203, and the issuance of shares with an aggregate market
value of $250 in debt-for-equity exchanges. The decrease in
2001 equity was primarily due to the net loss for the year of
$972, currency translation losses of $60, and a $273
minimum pension liability adjustment.
The Company’s 1998 share repurchase program allows for
the repurchase of up to ten million shares of outstanding
common and preferred stock. The Company’s new credit
agreement entered into in 2003, however, prohibits the
repurchase of common stock. The Company acquired 6,082
shares, 20,695 shares and 3,165,528 shares of common stock
for less than $1 in 2002 and 2001 and $49 in 2000,
respectively.
The Company declared cash dividends on common stock
of $125 in 2000. The Company paid no dividends in 2001 and
2002. The Company’s credit facility prohibits the payment of
dividends.
At December 31, 2002, common shareholders of record
numbered 5,579 compared with 5,552 at the end of 2001.
Total common shares outstanding were 159,430,075 at
December 31, 2002 compared to 125,702,056 at December
31, 2001. The increase in shares outstanding was primarily
due to the exchanges of debt for equity during 2002. During
2000, all outstanding shares of acquisition preferred stock
were converted into approximately 7.6 million shares of
common stock.
The Board of Directors adopted a Shareholder Rights Plan
in 1995, as amended in 2000, and declared a dividend of one
right for each outstanding share of common stock. Such
rights only become exercisable, or transferable apart from
the common stock, after a person or group acquires
beneficial ownership of, or commences a tender or exchange
offer for, 15% or more of the Company’s common stock. Each
right then may be exercised to acquire one share of common
stock at an exercise price of $200, subject to adjustment.
Alternatively, under certain circumstances involving the
acquisition by a person or group of 15% or more of the
Company’s common stock, each right will entitle its holder to
purchase a number of shares of the Company’s common
stock having a market value of two times the exercise price
of the right. In the event the Company is acquired in a
merger or other business combination transaction after a
person or group has acquired 15% or more of the Company’s
common stock, each right will entitle its holder to purchase a
number of the acquiring company’s common shares having a
market value of two times the exercise price of the right. The
rights may be redeemed by the Company at $.01 per right at
any time until the tenth day following public announcement
that a 15% position has been acquired. The rights will expire
on August 10, 2005.
On February 21, 2003 in connection with the formation of
Crown Holdings, Inc., as discussed in Note N to the
consolidated financial statements, the existing Shareholders’
Rights Plan was terminated. At the same time a new Rights
Agreement was entered into by Crown Holdings, Inc. with
terms substantially identical to the terminated plan.
Inflation
Inflation has not had a significant impact on the Company
over the past three years and the Company does not expect it
to have a significant impact on the results of operations or
financial condition in the foreseeable future.
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 those estimates and
assumptions, impacting the reported results of operations
and financial position of the Company. The Company’s
significant accounting policies are more fully described in
Note A to the consolidated financial statements. Certain
accounting policies, however, are considered to be critical in
that (i) they are most important to the depiction of the
Company’s financial condition and results of operations and
(ii) their application requires management’s most subjective
judgment in making estimates about the effect of matters
40
ANNUAL~1.QXD 4/2/03 2:42 PM Page 41
that are inherently uncertain.
The Company’s potential liability for asbestos cases is
highly uncertain due to the difficulty of forecasting many
factors, including the level of future claims, the rate of
receipt of claims, the jurisdiction in which claims are filed,
the terms of settlements of other defendants with asbestos-
related liabilities, the bankruptcy filings of other defendants
(which may result in additional claims and higher
settlement demands for non-bankrupt defendants), and the
effect of the new Pennsylvania asbestos legislation (including
its validity and applicability to non-Pennsylvania
jurisdictions, where the substantial majority of the
Company’s asbestos cases are filed). As additional experience
is gained regarding claims or other new information becomes
available regarding the potential liability, the Company will
reassess the potential liability and revise its estimates as
appropriate.
If facts and circumstances indicate goodwill may be
impaired, the Company performs an impairment review by
comparing the fair value of a reporting unit, including
goodwill, to its carrying value. The impairment review
involves a number of assumptions and judgments including
the identification of the appropriate reporting units and the
calculation of fair value. The Company uses a combination of
market values for comparable businesses and discounted
cash flow projections to calculate fair value. The Company’s
estimates of future cash flows includes assumptions
concerning future operating performance, economic
conditions, and technological changes and may differ from
actual future cash flows.
The Company records a valuation allowance to reduce its
deferred tax assets to the amount that is more likely than
not to be realized in the future. The estimate of the amount
that is more likely than not to be realized requires the use of
assumptions concerning the Company’s future income.
Actual results may differ from those estimates. Should the
Company change its estimate of the amount of its deferred
tax assets that it would be able to realize, an adjustment to
the valuation allowance would result in an increase or
decrease in net income in the period such a change in
estimate was made.
Accounting for pensions and postretirement benefit plans
requires the use of estimates and assumptions regarding
numerous factors, including discount rate, rate of return on
plan assets, compensation increases, health care cost
increases, mortality and employee turnover. Actual results
may differ from the Company’s actuarial assumptions, which
may have an impact on the amount of reported expense or
liability for pensions or postretirement benefits. The rate of
return assumption is reviewed at each measurement date
based on the pension plans’ investment policies and an
analysis of the historical returns of the capital markets,
adjusted for current interest rates as appropriate. For 2003
the Company is lowering its expected rate of return on plan
assets to 9.0% in the U.S. and Canada from 9.5% in 2002,
and to 8.5% in the U.K. from 9.25% in 2002. The discount
rate is developed at each measurement date by reference to
published indices of high-quality bond yields. A .25% change
in the expected rate of return would change 2003 pension
expense by approximately $7. A .25% change in the discount
rates would change 2003 pension expense by approximately
$12.
The Company accounts for stock-based compensation
expense using the intrinsic value method. The effect on net
income and earnings per share if the Company had applied
the fair value provisions of FAS 123 is disclosed in Note A to
the consolidated financial statements.
Recent Accounting Pronouncements
In June 2001, the FASB issued SFAS No. 143 (“FAS 143”),
“Accounting for Asset Retirement Obligations.” This
standard, effective for the Company on January 1, 2003,
establishes accounting guidelines for the recognition and
measurement of obligations for the retirement of tangible
long-lived assets. The obligation is to be recorded at fair
value in the period in which it is incurred. Adoption of this
standard is not expected to have a material impact on the
Company’s results of operations or financial position.
During July 2002, the FASB issued SFAS No. 146 (“FAS
146”), “Accounting for Costs Associated with Exit or Disposal
Activities.” FAS 146 establishes accounting and reporting
guidelines for the recognition and measurement of a liability
at its fair value for the cost associated with an exit, including
restructuring, or disposal activity in the period in which the
liability is incurred, rather than at the date of a commitment
to an exit or disposal plan. The standard supercedes
Emerging Issues Task Force No. 94-3, “Liability Recognition
for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a
Restructuring).” The standard, effective for exit or disposal
activities initiated on or after January 1, 2003, does not
impact recognition of costs under the Company’s outstanding
programs. Adoption by the Company of this standard may
impact the timing of the recognition of costs associated with
future exit or disposal activities, dependent upon the nature
of the actions initiated.
In November 2002, the FASB issued FASB Interpretation
No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure
Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others.” FIN 45 requires a
guarantor to recognize, at the inception of a qualified
guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. The guarantee
disclosure requirements of FIN 45 became effective in the
fourth quarter of 2002. The initial recognition and
measurement requirements are effective on a prospective
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ANNUAL~1.QXD 4/2/03 2:42 PM Page 42
basis for qualified guarantees issued or modified after
December 31, 2002.
In January 2003, the FASB issued FIN 46, “Consolidation
of Variable Interest Entities.” FIN 46 sets forth the criteria
used in determining whether an investment in a variable
interest entity (“VIE”) should be consolidated and is based on
the general premise that companies that control another
entity through interests other than voting interests should
consolidate the controlled entity. FIN 46 would require the
consolidation of specified VIEs created before February 1,
2003 commencing in the third quarter of 2003. For specified
VIEs created after January 31, 2003, the interpretation
would require immediate consolidation if circumstances
warrant such consolidation. The Company does not expect
the implementation of this interpretation to have a material
impact on its consolidated financial statements.
Forward Looking Statements
Statements in this annual report, including those in
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” and in the discussions
of the provision for asbestos and other contingencies in Note
K to the consolidated financial statements included in this
Annual Report, which are not historical facts (including any
statements concerning plans and objectives of management
for future operations or economic performance, or
assumptions related thereto), are “forward-looking
statements,” within the meaning of the federal securities
laws. In addition, the Company and its representatives may
from time to time make other oral or written statements
which are also “forward-looking statements.” Forward-
looking statements can be identified by words, such as
“believes,” “estimates,” “anticipates,” “expects” and other
words of similar meaning in connection with a discussion of
future operating or financial performance. These may
include, among others, statements relating to: (i) the
Company’s plans or objectives for future operations, products
or financial performance, (ii) the Company’s indebtedness,
(iii) the impact of an economic downturn or growth in
particular regions, (iv) anticipated uses of cash, (v) cost
reduction efforts and expected savings and (vi) the expected
outcome of contingencies, including with respect to asbestos-
related litigation and pension liabilities.
These forward-looking statements are made based upon
management’s expectations and beliefs concerning future
events impacting the Company and therefore involve a
number of risks and uncertainties. Management cautions
that forward-looking statements are not guarantees and that
actual results could differ materially from those expressed or
implied in the forward-looking statements.
Important factors that could cause the actual results of
operations or financial condition of the Company to differ
include, but are not necessarily limited to, the ability of the
Company to repay, refinance or restructure its short and
long-term indebtedness on adequate terms and to comply
with the terms of its agreements relating to debt; loss of
customers, including the loss of any significant customer, the
Company’s ability to obtain and maintain adequate pricing
for its products, including the impact on the Company’s
revenue, margins and market share and the ongoing impact
of recent price increases; the impact of the Company’s recent
initiative to generate additional cash, including the
reduction of working capital levels and capital spending; the
ability of the Company to realize cost savings from its
restructuring programs; changes in the availability and
pricing of raw materials (including aluminum can sheet,
steel tinplate, plastic resin, inks and coatings) and the
Company’s ability to pass raw material price increases
through to its customers or to otherwise manage these
commodity pricing risks; the financial condition of the
Company’s vendors and customers; the Company’s ability to
generate significant cash to meet its obligations and invest
in its business and to maintain appropriate debt levels; the
Company’s ability to maintain adequate sources of capital
and liquidity; the Company’s ability to realize efficient
capacity utilization and inventory levels and to innovate new
designs and technologies for its products in a cost-effective
manner; changes in consumer preferences for different
packaging products; competitive pressures, including new
product developments, industry overcapacity, or changes in
competitors’ pricing for products; the Company’s ability to
generate sufficient production capacity; changes in
governmental regulations or enforcement practices,
including with respect to environmental, health and safety
matters and restrictions as to foreign investment or
operation; weather conditions including its effect on demand
for beverages and on crop yields for fruits and vegetables
stored in food containers; changes or differences in U.S. or
international economic or political conditions, such as
inflation or fluctuations in interest or foreign exchange rates
and tax rates; war or acts of terrorism that may disrupt the
Company’s production or the supply or pricing of raw
materials, impact the financial condition of customers or
adversely affect the Company’s ability to refinance or
restructure its remaining indebtedness; energy and natural
resource costs; the costs and other effects of legal and
administrative cases and proceedings, settlements and
investigations; the outcome of asbestos-related litigation
(including the number and size of future claims and the
terms of settlements, and the impact of bankruptcy filings by
other companies with asbestos-related liabilities, any of
which could increase Crown Cork’s asbestos-related costs
42
ANNUAL~1.QXD 4/2/03 2:42 PM Page 43
over time, the adequacy of reserves established for asbestos-
related liabilities, Crown Cork’s ability to obtain resolution
without payment of asbestos-related claims by persons
alleging first exposure to asbestos after 1964; and the impact
of the recent Pennsylvania corporate legislation dealing with
asbestos liabilities, litigation challenging that legislation and
any future legislation dealing with asbestos liabilities), labor
relations and workforce and social costs, including the
Company’s pension obligations and other employee or retiree
costs; investment performance of the Company’s pension
plans, costs and difficulties related to the integration of
acquired businesses; and the impact of any potential
dispositions or other strategic realignments.
Some of the factors noted above are discussed elsewhere
in this Annual Report and prior Company filings with the
Securities and Exchange Commission (“SEC”). In addition,
other factors have been or may be discussed from time to
time in the Company’s SEC filings.
While the Company periodically reassesses material
trends and uncertainties affecting the Company’s results of
operations and financial condition in connection with the
preparation of Management’s Discussion and Analysis of
Financial Condition and Results of Operations and certain
other sections contained in the Company’s quarterly, annual
or other reports filed with the SEC, the Company does not
intend to review or revise any particular forward-looking
statement in light of future events.
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ANNUAL~1.QXD 4/2/03 2:42 PM Page 44
Investor Information
Company Profile
Crown Holdings, Inc. is a leading manufacturer of packaging products for consumer marketing companies
around the world. We make a wide range of metal packaging for food, beverage, personal care, household and
industrial products; dispensing systems and closures; plastic and metal closures; and canmaking equipment. As
of December 31, 2002, the Company operated 191 plants located in 44 countries, employing approximately
28,300 people.
STOCK TRADING INFORMATION
Stock Symbol: CCK (Common)
Stock Exchange Listing: New York Stock Exchange
Corporate Headquarters
One Crown Way
Philadelphia, PA 19154-4599
Main phone: (215) 698-5100
Shareholder Services
Registered shareholders needing information about stock
holdings, transfer requirements, registration changes, account
consolidations, lost certificates or address changes should
contact the Company’s stock transfer agent and registrar:
Mailing Address:
EquiServe Trust Company, N.A.
Shareholder Services Group
P.O. Box 43069
Providence, RI 02940-3069
Telephone Response Center:
1-800-317-4445
Outside U.S. & Canada
(201) 240-8800
Private Courier Delivery Address:
EquiServe Trust Company, N.A.
150 Royall Street
Canton, MA 02021
Internet website: http://www.equiserve.com
E-Mail address: equiserve@equiserve.com
Telecommunications Device for the
Hearing Impaired (TDD) : 1-800-952-9245
Owners of shares held in street name (shares held by any bank
or broker in the name of the bank or brokerage house) should
direct communications or administrative matters to their bank
or stockbroker.
44
Independent Accountants
PricewaterhouseCoopers LLP
Two Commerce Square
Suite 1700
2001 Market Street
Philadelphia, PA 19103
Forms 10-K and 10-Q
The Company will provide without charge to its shareholders
a printed copy of its 2002 Annual Report on Form 10-K,
excluding exhibits, as filed with the Securities and Exchange
Commission. To request a copy of the Company’s annual report,
call 804-327-3400 or toll free 888-400-7789. Canadian callers
should dial 888-757-5989. Copies in electronic format of the
Company’s annual report and filings with the SEC are available
at its website at www.crowncork.com under Annual Report and
SEC filings.
Internet
Visit our website on the Internet at http://www.crowncork.com
for more information about the Company, including news
releases and investor information.
INCORPORATED — COMMONWEALTH OF
PENNSYLVANIA
This report is printed on recycled paper.
ANNUAL~1.QXD 4/2/03 2:42 PM Page 45
ANNUAL~1.QXD 4/2/03 2:42 PM Page 46
Crown Holdings, Inc.
Corporate Headquarters
One Crown Way
Philadelphia, PA 19154-4599