UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number
0-50189
Crown Holdings, Inc.
(Exact name of registrant as specified in its charter)
Pennsylvania
75-3099507
(State or other jurisdiction of incorporation or organization)
(Employer Identification No.)
One Crown Way, Philadelphia, PA
19154
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: 215-698-5100
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class
Name of each exchange on which registered
Common Stock $5.00 Par Value
New York Stock Exchange
Common Stock Purchase Rights
New York Stock Exchange
7% Notes Due 2006
New York Stock Exchange
Guarantees of 7% Notes Due 2006
New York Stock Exchange
7 3/8% Debentures Due 2026
New York Stock Exchange
7 1/2% Debentures Due 2096
New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
(Title of Class)
Indicate by check mark whether the
Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been subject to such
filings requirements for the past 90 days.
Yes
X
No
Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the Registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2). Yes [X] No [ ]
As of June 30, 2004, 165,234,044 shares
of the Registrant’s Common Stock, excluding shares held in Treasury, were issued and
outstanding, and the aggregate market value of such shares held by non-affiliates of the
Registrant on such date was $1,647,383,419 based on the New York Stock Exchange closing
price for such shares on that date.
As of March 2, 2005, 166,870,902 shares
of the Registrant’s Common Stock were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Notice of Annual Meeting and Proxy Statement dated March 25, 2005 is incorporated by Reference into
Part III hereof. Only those specific portions so incorporated are to be deemed filed as part of this Form 10-K
Annual Report.
Crown Holdings, Inc. (the “Company” or
the “Registrant”) is a worldwide leader in the design, manufacture and
sale of packaging products for consumer goods. The Company’s primary products
include steel and aluminum cans for food, beverage, household and other consumer
products and a wide variety of metal and plastic caps, closures and dispensing
systems. At December 31, 2004, the Company operated 185 plants along with sales and
service facilities throughout 43 countries and had approximately 27,600
employees. Consolidated net sales for the Company in 2004 were $7.2 billion with over 70%
of 2004 net sales derived from operations outside the United States, of which 78% of
these non-U.S. revenues were derived from operations in the European operating segment.
In connection with debt refinancing and a corporate reorganization in 2003, Crown Cork
& Seal Company, Inc. a Pennsylvania corporation founded in 1892 (“Crown Cork”),
formed the Company as a new public holding company. Crown Cork is now a wholly-owned
subsidiary of the Company. The Company is a Pennsylvania corporation.
OPERATING SEGMENTS
The Company’s business is organized
on the basis of geographic regions with three reportable segments: Americas, Europe and
Asia-Pacific. The Americas includes the United States, Canada, Mexico and Central and South
America. Europe includes Europe, Africa and the Middle East. Asia-Pacific includes China
and Southeast Asia.
Financial information concerning the
Company’s operations in its three operating segments, Americas, Europe and
Asia-Pacific, and within selected geographic areas is set forth in Part II herein under
Net Sales
and under
Segment Income
within Item 7, Management’s
Discussion and Analysis of Financial Condition and Results of Operations of this Report and within Item 8
herein under
Note W
to the consolidated financial statements, which information is
incorporated herein by reference.
AMERICAS
The Americas operating segment
manufactures beverage, food and aerosol cans, specialty packaging, metal closures
and caps, plastic closures and health and beauty care packaging. At December 31, 2004,
the Americas operated 68 plants and had approximately 8,400 employees. During
2002, the Company divested its U.S. fragrance pumps business and sold 89.5% of
its interest in Constar International Inc. in an initial public offering. These
divested operations accounted for $499 million of segment net sales in 2002. There were
additional divestitures in 2002, but sales from these operations were not material.
For 2004, the Americas had net
sales of $2.9 billion (40% of consolidated net sales) and segment income (as defined in
Note W to the consolidated financial statements, which information is incorporated
herein by reference) of $188 million. Approximately 75% of segment net sales were
derived from within the United States. Approximately 76% of segment net sales were for
beverage and food cans and ends.
EUROPE
The European operating segment, which
includes the Middle East and Africa, manufactures beverage, food and aerosol cans,
specialty packaging, metal closures and caps, high density polyethylene (“HDPE”)
containers, plastic closures, health and beauty care packaging and canmaking equipment. At
December 31, 2004, the segment operated 100 plants and had approximately 16,600 employees.
During 2002, the Company divested its European pharmaceutical packaging business, its
operations in Central and East Africa and its Constar beverage plastics business. These
divested operations accounted for $175 million of segment net sales in 2002.
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Crown Holdings, Inc.
For 2004, Europe had net sales of
$4.0 billion (55% of consolidated net sales) and segment income of $386 million. Net
sales in the United Kingdom of $916 million and France of $792 million represented
23% and 20%, respectively, of segment net sales. Sales in 2004 for food and beverage
cans and ends accounted for 62% of segment net sales.
ASIA-PACIFIC
The Asia-Pacific operating segment
manufactures beverage, food and aerosol cans, plastic closures and metal caps. At December
31, 2004, the segment operated 17 plants and had approximately 2,300 employees.
Asia-Pacific had net sales in 2004 of $379 million (5% of consolidated net sales) and
segment income of $62 million.
PRODUCTS
Beverage Cans
The Company supplies beverage
cans and other packaging products to a variety of
beverage and beer companies, including Anheuser-Busch, Cadbury Schweppes, Coca-Cola,
Cott Beverages, Heineken, InBev, Kroger, Pepsi-Cola and Scottish Courage. The Company’s
beverage business is built around local, regional and global markets which has
served to develop its understanding of global consumer expectations.
The beverage market is dynamic and
highly competitive, with each packaging manufacturer striving to satisfy consumers’ ever-changing
needs. The Company competes by offering its customers broad market knowledge,
resources at all levels of its worldwide organization and extensive research and
development capabilities that have enabled the Company to provide its customers with
innovative products. The Company meets its customers’ beverage packaging needs with
an array of two-piece beverage cans and ends, plastic closures and metal bottle caps.
Recent innovations include the SuperEnd™ beverage can end and shaped beverage cans.
Beverage can manufacturing is
capital intensive, requiring significant investment in tools and machinery. The
Company seeks to effectively manage its invested capital and is continuing its
efforts to reduce can and end diameter, lighten its
cans, reduce non-metal costs and restructure production processes.
Food Cans
The Company manufactures a variety
of food cans, including two-and three-piece cans in numerous shapes and sizes, and sells
food cans to food marketers such as Bonduelle, Campbell Soup, Continentale, H. J. Heinz, Mars, Menu
Foods, Nestlé and Premier Foods.
Technologies used to produce these
cans include three-piece welded, two-piece drawn and wall-ironed, and two-piece drawn
and redrawn. The Company has also introduced its Lift Off™ series of food ends,
including its EOLE™ (easy-open low energy) full pull-out steel food can ends and
Peel Seam,™ a flexible aluminum foil laminated end. The Company’s commitment
to innovation has led to developments in packaging materials, surface finishes, can
shaping, lithography, sealing and opening techniques and environmental performance.
The Company manufactures
conventional and easy-open ends for a variety of heat-processed and dry food products
including fruits and vegetables, meat and seafood, soups, ready-made meals, infant
formula, coffee and pet food. In addition, the Company supplies a range of coil shearing,
specialty coating, advanced printing and decoration services.
Aerosol Cans
The Company’s customers for
aerosol cans include manufacturers of personal care, food, household and industrial
products, including CCL Industries, Gillette, S.C. Johnson and Unilever. The
aerosol can business, while highly competitive, is marked by its high value-added
service to customers. Such value-added services include, among others, the ability to
manufacture multiple sizes and design customer labels and multiple color schemes.
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Crown Holdings, Inc.
Plastic Closures
The Company offers a variety of choices
in plastic closures for the beverage (including soft drinks, mineral water and wines and
spirits), food (wet and dry), health and beauty care, household and industrial markets.
The Company manufactures plastic closures for consumer products marketers such as
Coca-Cola, Colgate Palmolive, Danone, Diageo UDV, Nestlé, Pepsi-Cola, Procter &
Gamble and Unilever.
Specialty Packaging
The Company’s specialty packaging
business is located primarily in Europe and serves many major European and multinational
companies. The Company produces a wide variety of specialty containers, with numerous lid
and closure variations. The Company’s specialty packaging customers include Altria
Group (Kraft Foods), Akzo Nobel, Bristol-Meyers Squibb, Nestlé, Teisseire and United
Biscuits.
In the consumer market, the Company
manufactures a wide variety of tinplate containers for cookies and cakes, tea and coffee,
confectionery, giftware, personal care, tobacco, wines and spirits, as well as
non-processed food products. In the industrial market, the Company manufactures tinplate
containers for paints and inks, do-it-yourself products, and chemical, automotive and
household products.
Metal Closures
The Company offers a wide variety of
metal closures and sealing equipment solutions to leading marketers such as Abbott
Laboratories, Anheuser Busch, H. J. Heinz, Nestlé, Novartis and Unilever from a network of metal
closure plants around the world. The Company supplies total packaging solutions, including
closures, capping systems and services while working closely with customers, retailers and
glass manufacturers to develop innovative closure solutions and meet customer
requirements.
The Company strives to continuously
improve its metal closure design and printing technology to better support customers’
marketing programs and promotional activities. The Company offers expertise in closure
design and decoration, ranging from high quality printing of the closure in up to nine
colors, to inside-the-cap printing, which offers customers new promotional possibilities.
Health and Beauty Care
The Company produces fragrance closures
and packaging for lipsticks and eyecare products for leading cosmetics
and beauty care companies. As a global, single-source packaging partner, the Company
strives to use innovative design and engineering coupled with advanced manufacturing and
decorating capabilities to meet the high quality standards and the demanding deadlines of
its global customers. The Company’s health and beauty customers include Avon,
Estée Lauder, L’Oreal and Procter & Gamble.
SALES AND DISTRIBUTION
Global marketers continue to demand the
consolidation of their supplier base under long-term arrangements and qualify those
suppliers on the basis of their ability to provide global service to create innovative
designs and technologies in a cost-effective manner.
With its global reach, the Company
markets and sells products to customers through its own sales and marketing staff located
within each operating segment. Regional sales personnel support the segments’ sales
staffs. Contracts with global suppliers are centrally negotiated, although products are
ordered through and distributed directly by each plant. Facilities are generally located
in proximity to their respective major customers. The Company maintains contact with
customers in order to develop new business and to extend the terms of its existing
contracts.
Many customers provide the Company with
quarterly or annual estimates of product requirements along with related quantities
pursuant to which periodic commitments are given. Such estimates assist the Company in
managing production and controlling working capital levels. The Company schedules its
production to meet customer requirements. Because the production time for the
Company’s products is short, any backlog of customer orders in relation to overall
sales is immaterial.
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Crown Holdings, Inc.
COMPETITION
Most of the Company’s products are
sold in highly competitive markets, primarily based on price, quality, service, and
performance. The Company competes with other packaging manufacturers as well as with
fillers, food processors and packers who manufacture containers for their own use and for
sale to others. The Company’s multinational competitors include, but are not limited
to, Alcoa Inc., Amcor Limited, AptarGroup Inc., Ball Corporation, BWAY Corporation, Impress Holdings
B.V., Metal Container Corporation, Owens-Illinois Inc., Rexam Plc, Silgan Holdings Inc.,
and U.S. Can Corporation.
CUSTOMERS
The Company’s largest customers
consist of many of the leading manufacturers and marketers of packaged products in the
world. Consolidation trends among beverage and food marketers has led to a concentrated
customer base. The Company’s top ten global customers represented approximately 23%
of its 2004 net sales.
In each of the years in the period 2002
through 2004, no one customer of the Company accounted for more than ten percent of the
Company’s net sales. Each operating segment of the Company has major customers and
the loss of one or more of these major customers could have a material adverse effect on
an individual segment or the Company as a whole. Major customers include those listed above under the Products
discussion. In addition to sales to Coke and Pepsi, the Company also supplies independent
licensees of Coke and Pepsi.
RESEARCH AND DEVELOPMENT
The Company’s principal Research,
Development & Engineering (RD&E) centers are located in Alsip, Illinois and
Wantage, England. The Company uses its RD&E capabilities to (i) promote development of
value-added packaging systems, (ii) design cost-efficient manufacturing systems and
materials that also provide continuous quality improvement, (iii) support technical needs
in customer and vendor relationships, and (iv) provide engineering services for the
Company’s worldwide packaging activities. These capabilities allow the Company to
identify market opportunities by working directly with customers to develop new products,
such as the creation of new packaging shapes.
Recent innovations include:
•
High value-added shaped beverage,
food and aerosol cans, such as Heineken’s keg can and the WD-40 aerosol can. This
technology has the capability of reducing counterfeiting and improving product image.
•
The SuperEnd™ for beverage cans,
which requires less metal than existing ends without any reduction in strength. The
SuperEnd™ also offers improved pourability, drinkability, ease-of-opening and appearance.
•
Patented composite (metal and plastic)
closures including the Company’s “Ideal™” product line. These closures offer improved
barrier performance and tamper resistance while requiring less strength
to open than standard closures. The Company supplies composite closures to customers including
Abbott Laboratories (Ensure), PepsiCo (Tropicana), Tree Top and Unilever (Ragu).
•
Next generation “Easy-open low energy”
(“EOLE™”) full pullout steel food can ends. The end design allows the end to be removed by hand
with less strength than competing easy open food ends.
•
New foamed synthetic stoppers for spirits.
•
A family of Peel Seam™ flexible
lidding for cans that provides exceptional ease of opening, high quality graphics and can
still be applied with traditional closing technology.
The Company intends to
selectively license its proprietary technologies and has licensed SuperEnd,™
can shaping and BiCan™ technology to Amcor Limited in Australia and New Zealand and
SuperEnd™ to Nampak Ltd. in South Africa.
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Crown Holdings, Inc.
The Company spent $47 million in 2004,
$44 million in 2003 and $43 million in 2002 on RD&E activities. Certain of these
activities are expected to improve and expand the Company’s product lines in the
future. Expenditures were also made to improve manufacturing efficiencies and reduce
unit costs, principally raw material costs, by reducing the material content of
containers while improving or maintaining other physical properties, such as material
strength. The costs incurred were associated with a number of products in varying
stages of development.
MATERIALS AND SUPPLIERS
The Company in its manufacturing
operations uses various raw materials, including aluminum and steel for metals
packaging, and various types of resins, which are petrochemical derivatives, for
plastics packaging. In general, these raw materials are purchased in highly
competitive, price-sensitive markets which have historically exhibited price and
demand cyclicality. These materials and others used in the manufacturing process have
historically been available in adequate supply from multiple sources. Generally, the
Company’s principal raw materials are obtained from the major suppliers in the countries
in which it operates plants. Some plants in developing countries, which do not have
local mills, obtain raw materials from nearby, more-developed countries. The Company
has agreements for what it considers adequate supplies of raw materials. However,
sufficient quantities may not be available in the future due to, among other things,
temporary shortages due to weather or other factors, including disruptions in supply
caused by raw material transportation or production delays. From time to time, some
of the raw materials have been in short supply, but to date, these shortages have not had
a significant impact on the Company’s operations.
In 2004, consumption of steel,
aluminum and resin represented approximately 27% , 24% and 4%, respectively, of
consolidated cost of products sold, excluding depreciation and amortization. Due to the
significance of these raw materials to overall cost of products sold, raw material
efficiency is a critical cost component of the products manufactured. Supplier
consolidations, recent government regulations, political unrest and global or local
demand for raw materials in the packaging and other industries, among other risk
factors, provide uncertainty as to the level of prices at which the Company might be able to
source such raw materials in the future. Moreover, the prices of certain of these raw
materials, such as aluminum, steel and resin, have at times been subject to
volatility. Generally, the Company has sales contracts in place which allow it to
pass-through higher raw material costs. However, there can be no assurance that the
Company will be able to fully recover higher raw material costs from its customers.
The Company’s average steel
price increased 5% in 2004. Price increases in the United States were significantly
higher as the suppliers commenced assessing a price surcharge on the Company’s
purchases of steel. Suppliers have indicated that a shortage of raw materials to produce
steel and increased global demand, primarily in China, have combined to create the need
for steel price increases for their customers. Several suppliers have also indicated
that they intend to further increase steel prices, and that the current market
environment has resulted in a tighter supply of steel which could require allocation
among their steel purchasing customers. As a result of the steel price increases,
the Company in 2004 has implemented significant price increases in all of its
steel product categories. To date, the impact on the Company’s earnings has
not been material as a result of the pass-through of increased cost to customers.
However, there can be no assurance that the Company will be able to fully recover
from its customers the impact of steel surcharges
or price increases. In addition, if
the Company is unable to purchase steel for a significant period of time, its
steel-consuming operations would be disrupted and if the Company is unable to fully
recover the higher cost of steel, its financial results may be adversely affected.
The Company continues to monitor this situation and the effect on its operations.
The average price of aluminum ingot on the
London Metal Exchange (“LME”) increased approximately 15% in 2004 compared to 5% in 2003.
In an effort to reduce
the impact of volatile aluminum prices on North American operations, the Company in
North America has entered into contracts with its suppliers of aluminum can and end sheet
that, by formula, guarantee prices for a period of six months. The pricing structure
is directly tied to a rolling average of the prior six months market price of aluminum
ingot on the LME. Further, ceiling prices have been
established under these contracts that set maximum prices that the Company would pay
for aluminum. The Company’s beverage can and end sales contracts in North America
contain similar provisions that adjust selling prices to the customers based on changes
in the market price of aluminum.
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Crown Holdings, Inc.
Based on petrochemical and resin
industry data, average high density polyethylene (“HDPE”) resin prices
increased approximately 21% in 2004 compared to 29% in 2003 and average polyethylene
resin prices increased approximately 58% in 2004 compared to 21% in 2003. The
increases have been driven primarily by the significant increase in oil prices.
In response to the volatility of raw
material prices, ongoing productivity and cost reduction efforts in recent years have
focused on improving raw material cost management.
The Company’s manufacturing
facilities are dependent, in varying degrees, upon the availability of processed
energy, such as natural gas and electricity. Certain of these energy sources may become
difficult or impossible to obtain on acceptable terms due to external factors, and the
Company cannot predict the effects, if any, of such occurrences on its future operations.
SEASONALITY
Food packaging products accounted for 32% of 2004 consolidated net sales.
The food can business is somewhat seasonal with the first
quarter tending to be the slowest period as the autumn packing period in the Northern Hemisphere
ends and new crops
are not yet planted. The industry enters its busiest period in the third quarter when the
majority of fruits and vegetables are harvested. Weather represents a substantial
uncertainty in the yield of food products and is a major factor in determining the demand
for food cans in any given year.
The Company’s metal beverage
container and plastic beverage closures businesses are predominantly located in the
Northern Hemisphere. Generally, beverage products are consumed in greater amounts during
warmer months of the year and sales and earnings have generally been higher in the second
and third quarters of the calendar year.
The Company’s other businesses
include aerosol, specialty and health and beauty care packaging, canmaking equipment and
various other products which tend not to be significantly affected by seasonal variations.
ENVIRONMENTAL MATTERS
The Company’s operations are subject
to numerous laws and regulations governing the protection of the environment, disposal of
waste, discharges into water, emissions into the atmosphere and the protection of employee
health and safety. Future regulations may impose stricter environmental requirements on
the packaging industry and may require additional capital investment. Anticipated future
restrictions in some jurisdictions on the use of certain coatings may require the Company
to employ additional control equipment or process modifications. The Company has a
Corporate Environmental Protection Policy, and environmental considerations are among the
criteria by which the Company evaluates projects, products, processes and purchases. While
the Company does not believe that any of the foregoing matters are likely to have a
material effect on the financial statements, there can be no assurance that current or future environmental laws or
remediation liabilities will not have a material effect on the Company’s financial
condition, liquidity or results of operations. Discussion of the Company’s
environmental matters is contained within Part II, Item 7, Management’s Discussion
and Analysis of Financial Condition and Results of Operations of this Report under the
caption
Environmental Matters
, and within Item 8 herein under
Note L
to the
consolidated financial statements, which information is incorporated herein by reference.
WORKING CAPITAL
The Company generally uses cash
during the first nine months of the year to finance seasonal working capital needs. The Company’s
working capital requirements are funded by its receivables securitization and factoring
programs, its revolving credit facility and from operations.
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Crown Holdings, Inc.
In 2003, the Company completed a
refinancing that improved its liquidity through the
repayment of debt due in 2003 from the proceeds and the extension of maturities to 2006
and beyond. In September and October 2004, the Company completed an additional
refinancing. The funds received in the 2004 refinancing were used to refinance the credit
and term loan facilities entered into in 2003 and to pay fees and expenses associated
with the refinancing. The 2004 refinancing extended maturities on the Company’s credit facilities to
2010.
Further information relating to
the Company’s liquidity and capital resources and the refinancing is set forth within
Part II, Item 7, Management’s Discussion and Analysis of Financial Condition
and Results of Operations, of this Report under the caption
Debt Refinancing
and
within Item 8 herein under
Note Q
and
Note R
to the
consolidated financial statements, which information is incorporated herein by reference.
Collection and payment periods tend
to be longer for the Company’s operations located outside the U.S. due to local business
practices.
EMPLOYEES
At December 31, 2004, the Company
employed approximately 27,600 people. Collective bargaining agreements with
varying terms and expiration dates cover approximately 18,800 employees. The Company
does not expect that renegotiations of the agreements expiring in 2004 will have a
material adverse effect on its results of operations, financial position or cash flow.
AVAILABLE INFORMATION
The Company’s Internet web site
address is
www.crowncork.com
. The Company’s Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those
reports filed by the Company with the Securities and Exchange Commission pursuant to
sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are
accessible free of charge through the Company’s web site as soon as reasonably
practicable after the documents are filed with, or otherwise furnished to, the Securities
and Exchange Commission.
The Company’s Code of Business
Conduct and Ethics, its Corporate Governance Guidelines, and the charters of its Audit,
Compensation and Nominating and Corporate Governance committees are available on the
Company’s web site. These documents are also available in print to any shareholder
who requests them. The Company intends to disclose amendments to and waivers of the Code of
Business Conduct and Ethics on the Company’s web site.
ITEM 2
.
PROPERTIES
As of December 31, 2004, Crown Holdings,
Inc. and its consolidated subsidiaries operated 185 manufacturing facilities of which 41
were leased. The Company has three operating segments, defined geographically, within
which it manufactures and markets its products. The Americas has 68 operating facilities
of which 14 are leased. Within the Americas, 41 facilities operate in the United States of
which 9 are leased. Europe has 100 operating facilities of which 20 are leased and
Asia-Pacific has 17 operating facilities of which 7 are leased. Some leases provide
renewal options as well as various purchase options. The principal manufacturing facilities
at December 31, 2004 are listed below and are grouped by product and by segment.
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Crown Holdings, Inc.
Americas
Europe
Asia-Pacific
Metal
Lawrence, MA
La Crosse, WI
Custines, France
Beijing, China
Packaging
Kankakee, IL
Worland, WY
Korinthos, Greece
Foshan, China
Beverage
Mankato, MN
Aracaju, Brazil
Patras, Greece
Huizhou, China
Batesville, MS
Cabreuva, Brazil
Agoncillo, Spain
Shanghai, China
Dayton, OH
Calgary, Canada
Sevilla, Spain
Selangor, Malaysia
Cheraw, SC
Montreal, Canada
Izmit, Turkey
Singapore
Abilene, TX
Weston, Canada
Dubai, UAE
Bangkadi, Thailand
Conroe, TX
Santafe de Bogota, Colombia
Botcherby, UK
Hanoi, Vietnam
Fort Bend, TX
Guadalajara, Mexico
Braunstone, UK
Saigon, Vietnam
Winchester, VA
Carolina, Puerto Rico
Olympia, WA
Food
Winter Garden, FL
Villa Martelli, Argentina
Brive, France
Parma, Italy
Samrong, Thailand
Pulaski Park, MD
Bolton, Canada
Carpentras, France
Abidjan, Ivory Coast
Haadyai, Thailand
Owatonna, MN
Chatham, Canada
Concarneau, France (3)
Toamasina, Madagascar
Massillon, OH
Concord, Canada
Laon, France
Casablanca, Morocco
Portland, OR
Dorval, Canada
Nantes, France
Pruczcz, Poland
Omaha, NE
Winnipeg, Canada
Outreau, France
Alochete, Portugal
Hanover, PA
Kingston, Jamaica
Perigeux, France
Timaschevsk, Russia
Suffolk, VA
LaVilla, Mexico
Gerwisch, Germany
Dakar, Senegal
Seattle, WA
Barbados, West Indies
Luebeck, Germany
Dunajska, Slovakia
Oshkosh, WI
Trinidad, West Indies
Muehldorf, Germany
Bellville, South Africa
Seesen, Germany
Logrono, Spain
Tema, Ghana
Molina de Segura, Spain
Thessaloniki, Greece
Valencia, Spain
Nagykoros, Hungary
Vigo, Spain
Athy, Ireland
Neath, UK
Battipaglia, Italy
Wisbeck, UK
Calerno S. Ilario d’Enza, Italy
Worchester, UK
Nocera Superiore, Italy
Aerosol
Alsip, IL
Spartanburg, SC
Deurne, Belgium
Mijdrecht, Netherlands
Decatur, IL
Toronto, Canada
Spilamberto, Italy
Sutton, UK
Faribault, MN
Guatemala City, Guatemala
Specialty
Belcamp, MD
Hoboken, Belgium
Hoorn, Netherlands
Packaging
St. Laurent, Canada
Helsinki, Finland
Miravalles, Spain
Chatillon-Sur-Seine, France
Montmelo, Spain
Rouen, France
Aesch, Switzerland
Vourles, France
Aintree, UK
Hilden, Germany
Carlisle, UK
Mechernich, Germany
Mansfield, UK
Chignolo Po, Italy
Newcastle, UK
Metal
Crawfordsville, IN
Connellsville, PA
Seesen, Germany
Sevilla, Spain
Jakarta, Indonesia
Closures
Lancaster, OH
San Jose, Costa Rica
Aprilia, Italy (2)
Poole, UK
Johor Bahru, Malaysia
Mill Park, OH
Goleniow, Poland (2)
Plastics
Libertyville, IL
Manaus, Brazil
Cusset, France
Cardedeu, Spain
Jiangmen City, China
Packaging
Salt Lake City, UT
Venancio Aires, Brazil
St. Georges de Reneins,
Aesch, Switzerland
Shanghai, China
Plastic
Sandston, VA
Cuautitlan, Izcalli, Mexico
France
Reinach, Switzerland
Manila, Philippines
Closures
Pilar, Argentina
Finnentrop, Germany
Bridge of Allan, UK
Bangpoo, Thailand
Frankenthal, Germany
Eaton Socon, UK
Zell, Germany
Flitwick, UK
Voghera, Italy
Luton, UK
Orio Litta, Italy
Milton Keynes, UK
Timisoara, Romania
Norwich, UK
Moscow, Russia
Torres de la Alameda, Spain
Plastic
Langeais, France
Rastatt, Germany
Containers
Hautot sur Mer, France
Garwolin, Poland
Health &
Danbury, CT
Middletown, NY
Lailly-en-Val, France
Mozzate, Italy
Beauty Care
Watertown, CT
Barrie, Canada
Marolles, France
Laconia, NH
Reynosa, Mexico
Canmaking
Norwalk, CT
Shipley, UK
& Spares
-8-
Crown Holdings, Inc.
Excluded from the list above are
operating facilities in unconsolidated joint ventures as well as service or support
facilities. The service or support facilities include machine shop operations, plant
operations dedicated to printing for cans and closures, coil shearing, coil coating and
RD&E operations. Some operating facilities produce more than one product but have been
presented above under the product with the largest contribution to sales.
The Company’s manufacturing and
support facilities are designed according to the requirements of the products to be
manufactured. Therefore, the type of construction varies from plant to plant. Warehouse
and delivery facilities are generally provided at each of the manufacturing locations,
although the Company does lease outside warehouses.
Ongoing productivity improvements and
cost reduction efforts in recent years have focused on upgrading and modernizing
facilities to reduce costs, improve efficiency and productivity and phase out
uncompetitive facilities. The Company has also opened new facilities to meet increases in
market demand for its products. These actions reflect the Company’s continued
commitment to realign manufacturing facilities to maintain its competitive position in its
markets. The Company continually reviews its operations and evaluates strategic
opportunities. Further discussion of the Company’s recent restructuring actions and
divestitures is contained in Part II hereof within Item 7, Management’s Discussion
and Analysis of Financial Condition and Results of Operations under
Provision for
Restructuring
, and under
Provision for Asset Impairments and Loss/Gain on Sale of Assets
,
and within Item 8 herein under
Note M
and under
Note N
to the consolidated
financial statements, which information is incorporated herein by reference.
Utilization of any particular facility
varies based upon demand for the product. While it is not possible to measure with any
degree of certainty or uniformity the productive capacity of these facilities, management
believes that, if necessary, production can be increased at several existing facilities
through the addition of personnel, capital equipment and, in some facilities, square
footage available for production. In addition, the Company may from time to time acquire
additional facilities and/or dispose of existing facilities.
The Company’s U.S. headquarters and
that of the Americas is in Philadelphia, Pennsylvania, its European headquarters is in
Paris, France and its Asia-Pacific headquarters is in Singapore. The Company maintains
research facilities in Alsip, Illinois and in Wantage, England.
The Company’s North American and
European facilities, with certain exceptions, are subject to liens in favor of the lenders
under its senior secured credit facility and under the Company’s senior secured
notes.
ITEM 3
.
LEGAL PROCEEDINGS
Crown Cork & Seal Company, Inc.
(“Crown Cork”) is one of many defendants in a substantial number of lawsuits
filed throughout the United States by persons alleging bodily injury as a result of
exposure to asbestos. These claims arose from the insulation operations of a U.S. company,
the majority of whose stock Crown Cork purchased in 1963. Approximately ninety days after
the stock purchase, this U.S. company sold its insulation assets and was later merged
into Crown Cork. At December 31, 2004, the accrual for pending and future asbestos claims
that are probable and estimable was $233 million.
On March 18, 2003, the European
Commission issued a Statement of Objections alleging that certain of the Company’s
European subsidiaries engaged in commercial practices that violated European
competition law. On September 30, 2004, the European Commission formally confirmed
that it had terminated the proceedings, subject to the Commission’s right to
reinitiate in the event of factual or legal changes, without any adverse findings made or
penalties levied against the Company.
-9-
Crown Holdings, Inc.
In 2003 Crown Cork amended the
retiree medical benefits that it had been providing to approximately 10,000
retirees pursuant to a series of collective bargaining agreements between Crown Cork
and certain unions. The Amendments increased maximum coverage, required
additional retiree contributions for medical and prescription drug costs and reduced
other coverage benefits. Crown Cork is a party to litigation initiated in June 2003
in which the USWA and IAM unions
and retirees claim that the retiree medical benefits were vested and that the amendments
breached the applicable collective bargaining agreements in violation of ERISA and the
Labor Management Relations Act.
The Company has been identified by the
Environmental Protection Agency as a potentially responsible party (along with others, in
most cases) at a number of sites.
Further information on these matters and
other legal proceedings is presented in this Report in Part II, within Item 7,
Management’s Discussion and Analysis of Financial Condition and Results of Operations
under the headings
Provision for Asbestos
and
Environmental Matters
and
within Item 8 of this Report under
Note K
and under
Note L
to the
consolidated financial statements, which information is incorporated herein by reference.
ITEM 4
.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the principal
executive officers of the Company, including their ages and positions, is set forth in
Part III, Item 10, “
Directors and Executive Officers of the Registrant
” of this
Report, which information is incorporated herein by reference.
PART II
ITEM 5
.
MARKET FOR
REGISTRANT’S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Registrant’s common stock is
listed on the New York Stock Exchange. On March 2, 2005, there were 7,044 registered
shareholders of the Registrant’s common stock, including 2,038 participants in the
Company’s Employee Stock Purchase Plan. The market price of the
Registrant’s common stock at December 31, 2004 is set forth in Part II, Item 8 of
this Report under
Quarterly Data (unaudited)
, which information is incorporated herein by
reference. The foregoing information regarding the number of registered shareholders of
common stock does not include persons holding stock through clearinghouse systems. Details
regarding the Company’s policy as to payment of cash dividends and repurchase of shares are set forth in Part
II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results
of Operations under
Common Stock and Other Shareholders’ Equity
and Item 8 of
this Report under
Note O
to the consolidated financial statements entitled Capital
Stock, which information is incorporated herein by reference. Information with respect to
shares of common stock that may be issued under the Company’s equity compensation
plans is set forth in Part III, Item 12, “
Security Ownership of Certain Beneficial
Owners and Management
,” of this report, which information is incorporated
herein by reference.
-10-
Crown Holdings, Inc.
ITEM 6
.
SELECTED FINANCIAL DATA
(in millions, except per share, ratios and other statistics)
2004
2003
2002
2001
2000
Summary of Operations
Net sales
$
7,199
$
6,630
$
6,792
$
7,187
$
7,289
Cost of products sold (excluding depreciation and amortization)
5,984
5,539
5,619
6,063
5,982
Depreciation and amortization
308
326
375
499
495
Selling and administrative expense
363
337
317
310
314
Provision for asbestos
35
44
30
51
255
Provision for restructuring
7
19
19
48
52
Provision for asset impairments and loss/gain on sale of assets
47
73
247
213
27
Loss/(gain) from early extinguishments of debt
39
12
(28
)
Interest expense, net of interest income
353
368
331
437
373
Translation and exchange adjustments
(98
)
(207
)
27
10
8
Income/(loss) before income taxes, minority interests, equity
earnings and cumulative effect of a change in accounting
161
119
(145
)
(444
)
(217
)
Provision/(benefit) for income taxes
82
95
30
528
(58
)
Minority interests and equity earnings
(28
)
(56
)
(16
)
(4
)
(15
)
Income/(loss) before cumulative effect of a change in accounting
51
(32
)
(191
)
(976
)
(174
)
Cumulative effect of a change in accounting (1)
(1,014
)
4
Net income/(loss) (2)
51
(32
)
(1,205
)
(972
)
(174
)
Preferred stock dividends
2
Net income/(loss) available to common shareholders (2)
$
51
($
32
)
($
1,205
)
($
972
)
($
176
)
Financial Position at December 31
Working capital
$
263
$
86
($
246
)
($
84
)
$
652
Total assets
8,125
7,773
7,505
9,620
11,159
Total cash and cash equivalents
471
401
363
456
382
Total debt
3,872
3,939
4,054
5,320
5,349
Total debt, less cash and cash equivalents, to total capitalization (3)
87.7
%
91.3
%
97.1
%
82.9
%
68.3
%
Minority interests
201
197
196
201
195
Shareholders’ equity/(deficit)
277
140
(87
)
804
2,109
-11-
Crown Holdings, Inc.
SELECTED FINANCIAL DATA
(Continued)
(in millions, except per share, ratios and other statistics)
2004
2003
2002
2001
2000
Common Share Data (dollars per share)
Earnings/(loss) per average common share
Basic —
before cumulative effect of a change in accounting
$
.31
($
.19
)
($
1.33
)
($
7.77
)
($
1.40
)
—
after cumulative effect of a change in accounting
.31
(
.19
)
(
8.38
)
(
7.74
)
(
1.40
)
Diluted —
before cumulative effect of a change in accounting
.30
(
.19
)
(
1.33
)
(
7.77
)
(
1.40
)
—
after cumulative effect of a change in accounting
.30
(
.19
)
(
8.38
)
(
7.74
)
(
1.40
)
Cash dividends
1.00
Market price on December 31
13.74
9.06
7.95
2.54
7.44
Book value (based on year-end outstanding shares
plus assumed conversion of preference shares)
1.68
.85
(.55
)
6.40
16.79
Number of shares outstanding at year-end
165.6
165.0
159.4
125.7
125.6
Average shares outstanding
Basic
165.3
164.7
143.8
125.6
125.7
Diluted
168.8
164.7
143.8
125.6
125.7
Other
Capital expenditures
$
138
$
120
$
115
$
168
$
262
Number of employees
27,645
27,444
28,319
33,046
34,618
Notes:
Financial
information concerning the Company’s divested operations in 2002 is set
forth in Part I herein under
Operating Segments
within Item 1, Business, Part II herein
under
Provision for Asset Impairments and Loss/Gain on Sale of Assets
within Item 7,
Management’s Discussion and Analysis of Financial Condition and Results of
Operations and within Item 8 herein under
Note N
to the consolidated financial statements
entitled Asset Impairments and Loss/Gain on Sale of Assets, which information is
incorporated herein by reference.
(1)
Cumulative
adjustments from the adoption by the Company of FAS 142 in 2002 and FAS 133 in 2001.
(2)
Amounts for 2004, 2003, 2002, 2001
and 2000 included after-tax adjustments for restructuring actions of $5, $14, $15,
$46 and $37, respectively. Also included in reported net income/(loss) were
(i) after-tax adjustments for provision for asset impairments and loss/gain
on sale of assets of $41 or $.25 per share in 2004; $68 or $.41 per share in 2003; $258
or $1.79 per share in 2002; $208 or $1.66 per share in 2001 and $18 or $.14 per
share in 2000, (ii) after-tax charges for asbestos of $35 or $.21 per share in
2004; $44 or $.27 per share in 2003; $30 or $.21 per share in 2002; $51 or $.41 per
share in 2001 and $166 or $1.32 per share in 2000, (iii) an after-tax
(gain)/loss of $34 or $.20 per share in 2004; $16 or $.10 per share in 2003
and ($28) or ($.19) per share in 2002 from early extinguishments of debt, (iv)
after-tax foreign exchange gains on debt in Europe in 2004 of $67 or $.40 per
share, and in 2003 of $143 or $.86 per share, (v) a charge of $22 or $.13 per
share in 2003 for the Company’s share of a goodwill impairment charge
recorded by Constar, (vi) a tax charge to establish a valuation allowance for
U.S. deferred tax assets in 2001 of $452 or $3.60 per share,
(vii) an after-tax charge for a bad debt provision of $36 or $.28 per share in 2000
and (viii) 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.
(3)
Total
capitalization consists of total debt, minority interests and shareholders’ equity, less
cash and cash equivalents.
-12-
Crown Holdings, Inc.
ITEM 7.
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”) as of and during the three-year period ended
December 31, 2004. This discussion should be read in conjunction with the consolidated
financial statements included in this annual report.
EXECUTIVE OVERVIEW
The Company’s principal areas of
focus include improving segment income, reducing debt, and reducing asbestos-related
costs. Segment income is defined by the Company as net sales less cost of products
sold, depreciation and amortization, selling and administrative expenses and provision for restructuring.
Improving segment income is
primarily dependent on the Company’s ability to generate revenues and manage costs.
Key strategies for expanding sales include targeting geographic markets with strong
growth potential, such as Asia, Latin America and southern and central Europe,
improving selling prices in certain product lines and developing innovative packaging
products using proprietary technology. The Company’s cost control efforts focus on
improving operating efficiencies and managing material and labor costs, including
pension and benefit costs. The Company operates globally and has significant
revenues, income, cash flow and debt denominated in currencies other than the U.S.
dollar.
The reduction of debt remains a
principal strategic goal of the Company and is primarily dependent upon the Company’s
ability to generate cash flow from operations. In addition, the Company may consider
divestitures from time to time, the proceeds of which may be used to reduce debt.
The Company reduced its total debt by $67, to $3,872
at December 31, 2004 from $3,939 at December 31, 2003, and increased its cash by $70,
to $471 from $401. The reduction in debt was net of non-cash increases of $97 from the
remeasurement of non-U.S. dollar debt.
The Company seeks to reduce its
asbestos-related costs through prudent case management. Asbestos-related payments were
$114 in 2002, $68 in 2003 and $41 in 2004, and the Company expects to pay
approximately $40 in 2005. While the level of payments has declined recently, the
Company’s asbestos-related liabilities remain significant and the amount of future
payments and liabilities is inherently unpredictable.
A number of the Company’s U.S.
steel suppliers began assessing a price surcharge during 2004. To date, the
impact on earnings has not been material as a result of the pass-through of increased
costs to customers. However, the Company is continuing to monitor this situation and
the effect on its operations.
RESULTS OF OPERATIONS
The Company evaluates performance
and allocates resources within each segment based on segment income as defined in
Note W
to the consolidated financial statements. The accounting policies for each
reportable segment are described in
Note A
to the consolidated financial statements,
which information is incorporated herein by reference.
The foreign currency translation
impacts referred to below are primarily due to changes in the euro and pound sterling in the
European segment and the Canadian dollar in the Americas segment.
NET SALES
Net sales during 2004 were $7,199,
an increase of $569 or 8.6% versus 2003 net sales of $6,630. The increase in net
sales during 2004 was primarily due to the favorable impact of foreign currency
translation of $395 and the pass-through of raw material cost increases to customers.
-13-
Crown Holdings, Inc.
Net sales during 2003 were $6,630,
a decrease of $162 or 2.4% versus 2002 net sales of $6,792. The decrease in net sales
during 2003 was primarily due to the unfavorable impact of divested operations,
which had $674 of net sales in 2002, partially offset by the favorable impact of
foreign currency translation of $513.
Net sales from U.S. operations
accounted for 29.4% of consolidated net sales in 2004, 30.4% in 2003 and 37.2% in
2002. Sales of beverage cans and ends accounted for 36.6% of net sales in 2004 compared
to 36.7% of net sales in 2003 and 34.0% in 2002. Sales of food cans and ends
accounted for 32.3% of net sales in 2004, 31.8% in 2003 and 28.6% in 2002.
Net Sales
% Increase/(Decrease)
SEGMENT
2004
2003
2002
2004/2003
2003/2002
Americas
$
2,858
$
2,715
$
3,227
5.3
(15.9)
Europe
3,962
3,559
3,235
11.3
10.0
Asia-Pacific
379
356
330
6.5
7.9
$
7,199
$
6,630
$
6,792
8.6
(2.4)
Net sales in the Americas segment
during 2004 increased $143 or 5.3% versus 2003 primarily due to the favorable impact
of foreign currency translation of $35 and the pass-through of raw material cost
increases to customers. Net sales in the Americas segment
during 2003 decreased $512 or 15.9% versus 2002 net sales primarily due to the
unfavorable impact of divested operations, which had $499 of net sales in 2002.
Net sales in the European segment
during 2004 increased $403 or 11.3% versus 2003 net sales primarily due to the favorable
impact of foreign currency translation of $354 and the pass-through of raw material cost
increases to customers. Net sales in the European segment
during 2003 increased $324 or 10.0% versus 2002 net sales primarily due to the favorable
impact of foreign currency translation of $484, partially offset by the unfavorable
impact of divested operations, which had $175 of net sales in 2002.
Net sales in the Asia-Pacific
segment during 2004 increased $23 or 6.5% versus 2003 net sales primarily due to
increased beverage can volumes in China and Southeast Asia. Net sales in the Asia-Pacific
segment during 2003 increased $26 or 7.9% versus 2002 net sales primarily due to
higher beverage can volumes in China and southeast Asia.
COST OF PRODUCTS SOLD (EXCLUDING DEPRECIATION AND AMORTIZATION)
Cost of products sold, excluding
depreciation and amortization, was $5,984 in 2004, an increase of 8.0% from $5,539 in
2003. The increase in 2004 was primarily due to the impact of currency translation of
$323 and higher material costs, primarily aluminum and steel.
Cost of products sold, excluding
depreciation and amortization, was $5,539 in 2003, a decrease of 1.4% from $5,619 in
2002. The decrease in 2003 was primarily due to divested operations, which had $558
of cost of products sold, excluding depreciation and amortization, in 2002,
partially offset by increased pension expense of $74 from the remaining operations and
the impact of foreign currency translation. Included in cost of products sold, excluding
depreciation and amortization, for 2002 was a provision of $13 to provide for
uncertainty regarding the ultimate collectibility of receivables from a European
customer. As a percentage of net sales, cost of products sold, excluding depreciation
and amortization, was 83.2% in 2004 as compared to 83.5% in 2003 and 82.7% in 2002.
During 2004, several U.S. steel
suppliers began assessing a price surcharge on the Company’s purchases of steel.
Suppliers have indicated that a shortage of raw materials to produce steel and increased
global demand, primarily in China, have combined to create the need for steel price
increases for their customers. The U.S. steel price increases vary in amount,
but are generally significant. Several suppliers have also indicated that they
intend to further increase steel prices, and the current market environment has
resulted in a tighter supply of steel which could require allocation among their steel
purchasing customers.
-14-
Crown Holdings, Inc.
As a result of the steel price
increases, the Company in 2004 implemented significant price increases in all of
its steel product categories. To date, the impact on the Company’s earnings has
not been material as a result of the pass-through of increased costs to customers.
However, there can be no assurance that the Company will be able to fully recover
from its customers the impact of steel surcharges or price increases. In addition,
if the Company is unable to purchase steel for a significant period of time, its
steel-consuming operations would be disrupted, and if the Company is unable to fully
recover the higher cost of steel, its financial results may be adversely affected.
The Company is continuing to monitor this situation and the effect on its operations.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization
during 2004 was $308, a decrease of $18 or 5.5% from $326 in 2003. The decrease in 2004
was primarily due to reduced capital spending in recent years, partially offset by an
increase of $17 due to currency translation. Depreciation and amortization decreased to
$326 in 2003 from $375 in 2002 primarily due to divested operations, which had $49 of
depreciation and amortization in 2002.
SELLING AND ADMINISTRATIVE EXPENSE
Selling and administrative expense
for 2004 was $363, an increase of 7.7% from the 2003 expense of $337, following an
increase of 6.3% from $317 in 2002. The increase in 2004 was primarily due to the impact
of foreign currency translation in Europe. The increase in 2003 was primarily due to
the impact of foreign currency translation, partially offset by the impact of divested
operations, which had $22 of expenses in 2002.
SEGMENT INCOME
The Company views segment
income, as defined in
Note W
to the consolidated financial statements, as the
principal measure of performance. Segment income was $537, $409 and $462 in 2004,
2003 and 2002, respectively. As a percentage of net sales, segment income was 7.5%
in 2004, 6.2% in 2003 and 6.8% in 2002.
Segment Income
% Increase/(Decrease)
SEGMENT
2004
2003
2002
2004/2003
2003/2002
Americas
$
188
$
135
$
220
39.3
(38.6)
Europe
386
310
301
24.5
3.0
Asia-Pacific
62
53
30
17.0
76.7
Corporate
(99
)
(89
)
(89
)
(11.2)
$
537
$
409
$
462
31.3
(11.5)
Segment income in the Americas was
6.6% of segment sales in 2004 versus 5.0% in 2003 and 6.8% in 2002. The increases in
2004 segment income and margin percentage were primarily due to cost reduction efforts.
The improvement also included $9 from the impact of the prescription drug subsidy
contained in the Medicare Prescription Drug Improvement and Modernization Act of
2003, offset by an increase in pension expense from $82 to $89. Pension expense for the
Americas is expected to decrease by approximately $9 in 2005 due to higher plan assets.
The decreases in 2003 segment income and margin percentage were primarily due to
the impact of divested operations, increased pension expense, and a decline in pricing
and volumes in U.S. food can operations. Divested operations had $43 of segment income
in 2002 and pension expense increased by $21, from $61 to $82, in 2003.
European segment income was 9.7%
of net sales in 2004 versus 8.7% in 2003 and 9.3% in 2002. The increases in 2004 segment
income and margin percentage were primarily due to cost reduction efforts. Pension
expense of $11 was $4 below the 2003 expense of $15, but the Company expects the 2005
pension expense for the European segment to increase by approximately $9.
The increase in 2003 segment income
was primarily due to the impact of foreign currency translation. The decrease in
segment income as a percentage of net sales in 2003 was primarily due to an increase
of $49 in pension expense due to lower plan assets and increased amortization of
unrecognized losses.
-15-
Crown Holdings, Inc.
Segment income in Asia-Pacific
was 16.4% of net sales in 2004 versus 14.9% in 2003 and 9.1% in 2002. The increase in
segment income in 2004 was primarily due to increased beverage can volumes in China
and Southeast Asia. The increase in 2003 segment income was primarily due to
increased beverage can volumes in China.
PROVISION FOR ASBESTOS
Crown Cork & Seal Company, Inc.
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.
During 2004, 2003 and 2002 the Company recorded charges of $35, $44 and $30,
respectively, to increase its accrual for asbestos-related costs. See
Note K
to the
consolidated financial statements, which information is incorporated herein by reference.
PROVISION FOR RESTRUCTURING
During 2004, the Company provided
a pre-tax charge of $7 for restructuring costs. The charge included $6 in Europe and
$1 in the Americas, primarily for severance costs for reductions in force. The actions are
expected to save $2 pre-tax on an annual basis when fully implemented.
During 2003, the Company provided a
net pre-tax charge of $19 for restructuring costs. The charge included $14 in Europe
and $5 in the Americas, primarily for severance costs for reductions in force.
The charge in Europe was net of a reversal of $4 for costs provided in previous years.
During 2002, the Company provided
a net pre-tax charge of $19 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.
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. The
balance of the restructuring reserves were included in the Consolidated Balance Sheets
within accounts payable and accrued liabilities. The Company expects to pay $12 of the $15
of remaining liabilities in 2005 and the remainder in 2006.
PROVISION FOR ASSET IMPAIRMENTS AND LOSS/GAIN ON SALE OF ASSETS
The Company provided net pre-tax
charges of $47, $73 and $247 for asset impairments and asset sales during 2004,
2003 and 2002, respectively. See
Note N
to the consolidated financial statements, which
information is incorporated herein by reference.
LOSS / GAIN FROM EARLY EXTINGUISHMENTS OF DEBT
During 2004, the Company
repurchased certain of its senior notes prior to maturity at premiums above their principal amount
and recognized losses of $6
for the premiums paid. The Company also refinanced its credit facility and recorded a
charge of $33 to write-off unamortized fees from its previous credit facility. See
Note
R
to the consolidated financial statements, which information is incorporated herein by
reference.
During 2003, the Company
repurchased $1,013 of unsecured notes, including $819 prior to maturity. The
Company also exchanged 5,386,809 shares of its common stock for debt with a face
value of $43 in privately negotiated debt-for-equity exchanges. In connection with
the repurchases and exchanges and the write-off of unamortized financing fees and
expenses from its previous credit facility, the Company recognized a loss of $12 from the
early extinguishments of debt.
During 2002, 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.
-16-
Crown Holdings, Inc.
INTEREST EXPENSE
Interest expense
was $361 in 2004, a decrease of $18 or 4.7% compared to 2003 interest
expense of $379. The decrease in 2004 interest expense was primarily due to lower
average debt outstanding, and was partially offset by increased borrowing
rates from the 2003 refinancing and higher average variable borrowing rates.
The increase in 2003 interest
expense, to $379 from $342 in 2002, was in the European division, primarily due to higher average interest
rates from the Company’s refinancing, partially offset by lower average debt
outstanding for the Company as a whole. Information about the Company’s 2003
refinancing activities is summarized in the Liquidity and Capital Resources section of
this discussion and in
Notes Q
and
R
to the
consolidated financial statements, which information is incorporated herein by reference.
TRANSLATION AND EXCHANGE ADJUSTMENTS
Favorable foreign exchange
adjustments of $98 and $207 were recorded in 2004 and 2003, respectively, primarily
due to unrealized gains in Europe. The gains in Europe primarily arose from the
currency exposure created by the sale in 2003 of U.S. dollar senior secured notes
described under
Liquidity and Capital Resources
. Unfavorable
foreign exchange adjustments of $27 were recorded in 2002, 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.
TAXES ON INCOME
Taxes on income for 2004, 2003 and
2002 were provisions of $82, $95 and $30, respectively, against pre-tax income of $161
in 2004 and $119 in 2003, and pre-tax losses of $145 in 2002.
The primary items causing the 2004
effective tax rate of 50.9% to differ from the 35.0% U.S. statutory rate were increases
of $18 due to tax contingencies and $10 due to the non-deductible write-off of cumulative
translation adjustments. The primary items causing the 2003 effective tax rate of
79.8% to differ from the 35.0% U.S. statutory rate were (i) an increase of $40 due to the
U.S. tax charge on a gain from an intercompany sale of a subsidiary by the U.S. tax
group, (ii) an increase of $24, primarily due to losses in the U.S. and Argentina for
which the Company recorded no tax benefit, and (iii) a decrease of $21 for tax on
foreign income. Significant items included in the 2002 provision were (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. Further information about income taxes is presented in
Note
V
to the consolidated financial statements, which information is incorporated herein
by reference.
MINORITY INTERESTS AND EQUITY EARNINGS
Minority interests’ share of net
income was $41, $39 and $24 in 2004, 2003 and 2002, respectively. The increase
in 2003 was primarily due to increased profits in the Company’s joint venture
beverage can operations in Asia.
Equity in earnings/(loss) was $13,
($17) and $8 in 2004, 2003 and 2002, respectively. The increase in 2004 was primarily
because 2003 included the Constar loss noted below, and because of increased 2004
profits in the beverage can operations in the Middle East. The decrease in 2003 was
primarily due to $25 recorded for the Company’s share of losses recorded by
Constar International Inc., including $22 for the Company’s share of Constar’s
goodwill impairment charge.
-17-
Crown Holdings, Inc.
FINANCIAL POSITION
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $471
at December 31, 2004 compared to $401 and $363 at December 31, 2003 and 2002,
respectively. Cash provided by operating activities was $404 compared to $434 in 2003
and $415 in 2002. Cash from working capital reductions decreased from $113 in 2003 to
$48 in 2004; net interest payments increased from $294 in 2003 to $330 in 2004 due to
the timing of payments on the senior secured notes issued in 2003; pension plan
contributions increased from $122 in 2003 to $171 in 2004 primarily due to increased
U.S. contributions; and income tax payments increased from $50 in 2003 to $74 in 2004
due to improved income before taxes. These cash flow decreases in 2004 compared to 2003 were
partially offset by improvements in gross profit.
The improvement in 2003 was
primarily due to $46 from lower asbestos payments, $39 from lower interest payments,
and $22 from reduced pension plan contributions, including $40 less in the U.S. and $15 more in the U.K.
These improvements were partially
offset by cash from working capital reductions which were $71 less in 2003 than 2002,
but still contributed $113. The decrease in asbestos payments was primarily due to
committed settlements from prior years that were fully paid during 2002. The decrease in
interest payments was primarily due to the timing of the interest payments on the new
notes in Europe, which are payable in March and September of each year.
Payments for asbestos were $41 in 2004, $68 in 2003 and
$114 in 2002 and the Company expects to pay approximately $40 in 2005. The Company
contributed $171 to its pension plans in 2004 and expects to contribute approximately
$134 in 2005.
The Company is highly leveraged.
The ratio of total debt, less cash and cash equivalents, to total capitalization was
87.7%, 91.3% and 97.1% at December 31, 2004, 2003 and 2002, respectively. Total
capitalization is defined by the Company as total debt, minority interests and
shareholders’ equity, less cash and cash equivalents.
The Company funds its operations,
debt services and other obligations primarily with cash flow from operations
(including the accelerated receipt of cash under its receivables securitization
facility) and borrowings under its revolving credit facility. The Company may also
consider divestitures from time to time, the proceeds of which may be used to reduce debt.
The Company had no outstanding borrowings
under its $400 revolving credit facility at December 31, 2004 and had $120 of secured receivables.
The Company’s debt agreements
contain covenants that provide limits on 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.
DEBT REFINANCING
In September and October 2004, the
Company sold an aggregate of €460 of 6.25% first priority senior secured notes due in 2011 and
entered into a new senior secured credit facility. See
Note R
to the consolidated
financial statements, which information is incorporated herein by reference.
In February 2003, the Company
completed a refinancing consisting of the sale of $1,085 of 9.5% second priority
senior secured notes due in 2011, €285 of 10.25% second
priority senior secured notes due in 2011, $725 of 10.875% third priority senior secured
notes due in 2013, a first priority term loan facility due in 2008 and a new $550 first
priority revolving credit facility due in 2006. Proceeds were used to repay the
existing credit facility, repurchase and repay a portion of the Company’s
outstanding unsecured notes and pay fees and expenses associated with the refinancing.
The term loan facility and revolving credit facility were refinanced in 2004 as described above.
Further information relating to
the Company’s liquidity and capital resources is set forth under
Notes
D
,
Q
and
R
to the consolidated financial
statements, which information is incorporated herein by reference.
-18-
Crown Holdings, Inc.
CONTRACTUAL OBLIGATIONS
Contractual obligations as of December 31, 2004 are summarized in the table below.
Payments Due by Period
2005
2006
2007
2008
2009
2010 &
after
Total
Long-term debt
$24
$262
$26
$9
$5
$3,522
$3,848
Capital leases
1
1
1
3
Interest on long-term debt
325
322
306
305
305
1,563
Operating leases
60
50
35
24
19
69
257
Projected pension contributions
134
134
Postretirement obligations
53
49
50
51
51
248
502
Purchase obligations
863
592
140
6
1,601
Total contractual cash obligations
$1,460
$1,276
$558
$395
$380
$3,839
$7,908
Interest on long-term debt is presented through 2009 only, represents the interest that
will accrue by year, and was calculated based on interest rates in effect as of December 31, 2004.
Interest rate swaps were also included except
for the $400 notional value that were terminated in February 2005 as discussed under Market Risk below.
The pension obligations caption
includes the minimum required contribution the Company expects to make in 2005 to fund
its plans. The postretirement obligations caption includes the expected payments
through 2014 to retirees for medical and life insurance coverage. The pension and
postretirement projections require the use of numerous estimates and assumptions
such as discount rates, rates of return on plan assets, compensation increases,
health care cost increases, mortality and employee turnover. Accordingly, these
amounts have been provided for one year only in the case of pensions and through 2014 in
the case of postretirement costs.
Purchase obligations include
commitments for raw materials and utilities at December 31, 2004. These commitments
are enforceable and legally binding on the
Company and specify significant terms, including fixed or minimum quantities to be
purchased; fixed, minimum or variable pricing provisions; and the approximate timing of
transactions.
In order to further reduce
leverage and future cash interest payments, the Company may from time to time
repurchase outstanding notes and debentures with cash or
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.
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 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
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 and cost effective in the Company’s judgment. 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.
The Company has in the past entered into cross-currency swaps to hedge foreign
currency exchange risk for subsidiary debt which is denominated in currencies other
than the functional currency of the subsidiary.
-19-
Crown Holdings, Inc.
The table below provides
information in U.S. dollars as of December 31, 2004 about the Company’s forward
currency exchange contracts. The majority of the contracts expire in 2005 and
primarily hedge anticipated transactions, unrecognized firm commitments and
intercompany debt and are recorded at fair value.
Buy / Sell
Contract
Amount
Contract
Fair Value
Average Contractual
Exchange Rate
Sterling / Euro
$159
($2
)
$ .71
Sterling / U.S. dollars
5
0
.55
Euro / Sterling
1
0
1.41
Euro / U.S. dollars
71
1
.75
Euro / Polish Zloty
32
(2
)
.23
Euro / Swiss Francs
16
0
.66
U.S. dollars / Euro
21
0
1.34
U.S. dollars / Sterling
26
(1
)
1.80
U.S. dollars / Thai Baht
22
(1
)
.025
U.S. dollars / Singapore dollars
10
0
.60
Swiss Francs / Euro
6
0
1.54
Singapore dollars / U.S. dollars
13
0
1.64
$382
($5
)
The Company has an additional $1 in
a number of smaller contracts to purchase or sell various other currencies, principally
Asian, as of December 31, 2004.
With the Company’s 2003
refinancing, as discussed above and in
Note R
to the consolidated financial
statements, the Company’s financial instrument portfolio and its market risk
exposures changed significantly. A majority of the debt issued in 2003 was issued by
the Company’s European subsidiaries in U.S. dollars. As a result, the Company has
significant U.S. dollar exposure in Europe which may result in future material foreign
exchange adjustments to earnings. Foreign exchange adjustments from the local
remeasurement of U.S. dollar debt are offset in shareholders’ equity by related
translation adjustments. The Company believes that the cost of hedging this
exposure would be a substantial cash cost and would reduce funds available to
delever the Company. Therefore, the Company at this time does not intend to hedge
this exposure. The Company intends to review its exposure from time to time,
including reassessing the potential costs and benefits of any available hedging
arrangements. As of December 31, 2004, the Company had approximately $1.4 billion
of net U.S. dollar-denominated liability exposure in its European subsidiaries,
including approximately $1.0 billion in subsidiaries with the euro as their functional
currency and approximately $0.4 billion in subsidiaries with the pound sterling as
their functional currency. In addition, a euro functional currency subsidiary had a
Canadian dollar asset exposure of approximately $0.5 billion from an intercompany loan.
Based on these exposures at December 31, 2004, a one percent change in the U.S. dollar
exchange rate against these currencies would create an exchange gain or loss of
approximately $9 before tax.
In April 2003, the Company
terminated a sterling cross-currency swap with a notional value of $200 and a maturity
date of December 2003 and received its then fair value of $13. In September 2003, the
Company terminated a euro cross-currency swap with a notional value of $200 and a
maturity date of December 2003, and paid its fair value of $35. Also in September 2003,
the Company received $14 from the termination of a sterling cross-currency swap with
a notional value of $300 and a maturity date of December 2006, and recognized a loss
of $5 as a loss on sale of assets. There were no outstanding cross-currency swaps at
December 31, 2004 and 2003.
-20-
Crown Holdings, Inc.
The Company manages its interest
rate risk, primarily from fluctuations in LIBOR interest rates,
through interest rate swaps in order to balance its exposure between fixed and
variable rates while attempting to minimize its interest costs. Interest rate swaps
and other methods of mitigating interest rate risk may increase overall interest
expense. At December 31, 2004, four interest rate swaps that expire in 2011 were outstanding with a
combined notional value of $900. The swaps effectively convert 9.5% fixed rate debt
into variable rate debt at LIBOR plus 5.46%. The underlying hedged debt is the second
priority U.S. dollar notes due 2011. The swaps subject the Company to exposure to future
changes in interest rates. In February 2005, the Company terminated certain of these interest rate swaps
with a combined notional value of $400 and paid their then fair value of $8,
and had swaps with a combined notional value of $500 remaining after the terminations.
The table below presents principal
cash flows and related interest rates by year of maturity for the Company’s debt
obligations. Variable interest rates disclosed represent the weighted average rates at
December 31, 2004. Debt converted to variable rate debt by interest rate swaps has been
included within the variable rate debt classification.
Year of Maturity
Debt
2005
2006
2007
2008
2009
Thereaft
er
Fixed rate
$2
$236
$1
$1
$1
$2,620
Average interest rate
4.6%
7.0%
3.6%
2.2%
2.2%
9.4%
Variable rate
$74
$27
$26
$8
$4
$902
Average interest rate
3.3%
3.8%
3.7%
4.5%
4.6%
7.7%
The total future payments of $3,902
at December 31, 2004 include $2,760 of U.S. dollar-denominated debt, $1,075 of
euro-denominated debt and $67 of debt denominated in other currencies.
At December 31, 2003, debt
outstanding included fixed rate debt of $2,545 with an average interest rate of
approximately 9.1%, and variable rate debt of $1,430 with an average interest rate of
approximately 5.8%.
Aluminum, a basic raw material of
the Company, is subject to significant price fluctuations which may be hedged by
the Company through forward commodity contracts. Current contracts involve
aluminum forwards with a notional value of $96. 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 to manage exposure to price volatility.
CAPITAL EXPENDITURES
Consolidated capital expenditures
were $138 in 2004 compared to $120 in 2003.
Expenditures in the Americas segment
were $57 in 2004, including spending for additional SuperEnd™ beverage can end
capacity and cost reduction and equipment modernization projects.
Expenditures in the European segment
of $73 included spending for cost reduction and equipment modernization projects.
At December 31, 2004, the Company had approximately $21 of capital commitments.
OFF-BALANCE SHEET ARRANGEMENTS
The Company has certain guarantees
and indemnification agreements that could require the payment of cash upon the
occurrence of certain events. The guarantees and agreements are discussed in
Note L
to the consolidated financial statements, which
information is incorporated herein by reference.
The Company also utilizes
receivables securitization facilities as discussed in
Note D
to the consolidated
financial statements, which information is incorporated herein by reference.
-21-
Crown Holdings, Inc.
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 to achieve 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. Actual expenditures for remediation were $1, $2 and $2 in 2004,
2003 and 2002, respectively. The Company’s balance sheet reflects estimated gross
remediation liabilities of $25 at December 31, 2004, including $2 as a current
liability. The Company records an environmental liability when it is probable that
a liability has been incurred and the amount of the liability is reasonably
estimable. The reserve at December 31, 2004 is primarily for asserted claims and
is based on internal and external environmental studies. The Company expects that
the liability will be paid out over the period of remediation for the applicable
sites, which in some cases may exceed ten years. Although the Company believes its
reserve is adequate, there can be no assurance that the ultimate payments will not
exceed the amount of the Company’s reserve and will not have a material effect on the
Company’s consolidated results, financial position and cash flow. Any possible loss
or range of potential loss that may be incurred in excess of the recorded reserves cannot
be estimated.
COMMON STOCK AND OTHER SHAREHOLDERS’ EQUITY
In connection with its refinancing
and reorganization in 2003, Crown Cork & Seal Company, Inc. formed a new public
holding company named Crown Holdings, Inc. Details of the corporate reorganization
and activities in its common stock for the past three years are provided in
Note O
to the consolidated financial statements, which information
is incorporated herein by reference.
Shareholders’ equity/(deficit)
was $277 at December 31, 2004 compared to $140 and ($87) at December 31, 2003 and 2002,
respectively. The improvement in 2004 and 2003 was primarily due to favorable foreign
currency translation adjustments resulting primarily from the strengthening of the euro
and pound sterling against the U.S. dollar. In 2004, improved earnings were offset by
the adjustment to the minimum pension liability.
The Company’s new credit agreement
entered into in 2004 limits the repurchase of common stock and the payment of dividends subject
to certain permitted payments or repurchases and exceptions. The Company
acquired 11,221 shares, 16,411 shares and 6,082 shares of common stock for less than $1
in 2004, 2003 and 2002, respectively.
Total common shares outstanding were 165,559,558 at December 31, 2004 compared to
165,024,153 at December 31, 2003.
The Board of Directors has
authorized the repurchase of up to $50 million of the Company’s outstanding common
stock from time to time through December 31, 2006, in the open market or through
privately negotiated transactions, subject to the terms of the Company’s debt
agreements, market conditions and other factors. The Company is not obligated to
acquire any shares of common stock and the share repurchase plan may be suspended or
terminated at any time at the Company’s discretion. The repurchased shares, if
any, are expected to be used for the Company’s stock-based benefit plans, and
to offset dilution resulting from the issuance of shares thereunder, and for other
general corporate purposes.
-22-
Crown Holdings, Inc.
The Board of Directors adopted a
Shareholders’ Rights Plan in 1995 and declared a dividend of
one right for each outstanding share of common stock. In connection with the formation
of Crown Holdings, Inc., the existing Shareholders’ Rights Plan was terminated and a
new Rights Agreement was entered into with terms substantially identical to the
terminated plan, as amended in 2004. See
Note O
to the consolidated
financial statements for a description
of the Shareholders’ Rights Plan, which information is incorporated herein by reference.
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,
which information is incorporated herein by reference. 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 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), the effect of the Texas, Mississippi and Ohio asbestos legislation,
and the effect of the Pennsylvania asbestos
legislation (including the validity and applicability of the Pennsylvania legislation
to non-Pennsylvania jurisdictions, where the substantial majority of the Company’s
asbestos cases are filed). The Company
reviews the adequacy of its accrual in the fourth quarter of each year, unless new
information or circumstances indicate the review should be done prior to that time.
The Company performs a goodwill
impairment review in the fourth quarter of each year or when facts and
circumstances indicate goodwill may be impaired.
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 include assumptions concerning future operating
performance, economic conditions, and technological changes and may differ from
actual future cash flows.
The Company performs an impairment
review of its long-lived assets, primarily PP&E, when facts and circumstances
indicate the carrying value may not be recoverable from its undiscounted cash flows. Any
impairment loss is measured by comparing the carrying amount of the asset to its fair
value. The Company’s estimates of future cash flows involve assumptions
concerning future operating performance, economic conditions, and technological
changes that may affect the future useful lives of the assets. These estimates may
differ from actual cash flows or useful lives.
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.
-23-
Crown Holdings, Inc.
Accounting for pensions and
postretirement benefit plans requires the use of estimates and assumptions regarding
numerous factors, including discount rates, rates 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 plan’s investment policies and an analysis of
the historical returns of the capital markets, adjusted for current interest rates
as appropriate. The U.S. plan’s current asset allocation targets are to have
70% U.S. and international equities, 12% debt securities, 15% alternate investments
and 3% real estate. The U.K. plan, which is the primary non-U.S. plan, has a current
asset allocation policy of 25% U.K. and non-U.K. equities, 52% liability-matching debt
securities, 5% other debt securities, 10% alternate investments and 8% real estate.
The discount rate for the U.S. plan is determined by reference to Moody’s AA corporate
bond index. The discount rate for the U.K. plan
is determined by reference to U.K. bond indices. A .25% change in the expected rates
of return would change 2005 pension expense by approximately $10. A .25% change in
the discount rates from those used at December 31, 2004 would change 2005 pension
expense by approximately $14.
The Company currently 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, which information is incorporated herein by reference.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, the FASB issued
SFAS No. 123 (revised 2004) (“FAS 123(R)”), “Share-Based Payment,” which
replaces SFAS No. 123, “Accounting for Stock-Based Compensation” (“FAS
123”) and supersedes APB Opinion No. 25, “Accounting for Stock Issued to
Employees.” FAS 123(R) requires that the cost of share-based payments to employees,
including grants of employee stock options, be recognized in the financial statements
based on their grant-date fair values, beginning with the first interim or annual
period after June 15, 2005. The pro forma disclosures previously permitted under FAS
123 will no longer be a future alternative to financial statement recognition. Under
FAS 123(R) the Company must select an appropriate valuation model to
calculate the fair value of its share-based payments, and a transition method for
recognizing compensation expense under FAS 123(R). The transition methods provided in
the standard include modified prospective and retrospective options. Under the
modified prospective method, compensation expense for all unvested stock awards,
measured by the grant-date fair value of the awards, will be charged to
earnings prospectively over the remaining vesting period, based on the estimated
number of awards that are expected to vest. Under the first retrospective method,
which is a variation of the modified prospective method, prior interim reporting
periods within the year of adoption can be restated. Under the second retrospective
method, the modified retrospective method, prior reporting periods back to the date of
issuance of FAS 123 can be restated. The restatement of prior periods under the
retrospective methods will be based on the amounts previously recognized in the pro
forma disclosures required by the original provisions of FAS 123. The Company is
currently evaluating the requirements of FAS 123(R) and will adopt the new standard at
the beginning of the third quarter of 2005.
In November 2004, the FASB issued
SFAS No. 151 (“FAS 151”), “Inventory Costs — An Amendment of ARB
No. 43, Chapter 4.” FAS 151 amends the guidance in ARB No. 43 to clarify that
abnormal amounts of idle facility expense, freight, handling costs and material
spoilage should be expensed as incurred and not included in overhead. Additionally,
FAS 151 requires that the allocation of fixed production overheads to the costs of
conversion should be based on normal capacity of the production facilities. FAS 151 is
effective for inventory costs incurred during fiscal years beginning after June 15, 2005.
As required, the Company will prospectively adopt the standard at the beginning of
2006. The Company is currently evaluating the effect that the adoption of FAS 151 will
have, but does not expect that it will have a material impact on its consolidated
results of operations and financial condition.
-24-
Crown Holdings, Inc.
In December 2004, the FASB issued
SFAS No. 153 (“FAS 153”), “Exchanges of Nonmonetary Assets — An
Amendment of APB Opinion No. 29.” FAS
153 eliminates the exception from fair value measurement for nonmonetary exchanges of
similar productive assets in paragraph 21(b) of APB 29 and replaces it with an
exception for exchanges that do not have commercial substance. FAS 153 specifies that
a nonmonetary exchange has commercial substance if the future cash flows of the entity
are expected to change significantly as a result of the exchange. The provisions of
FAS 153 are effective for nonmonetary asset exchanges occurring in fiscal periods
beginning after June 15, 2005. The Company will prospectively adopt the new standard in
2006.
In December 2004, the FASB issued
FASB Staff Position No. 109-2 (“FSP 109-2”), “Accounting and Disclosure
Guidance for the Foreign Earnings Repatriation Provision within the American Jobs
Creation Act of 2004.” FSP 109-2 provides guidance under SFAS 109, “Accounting
for Income Taxes,” with respect to recording the potential impact of the
repatriation provisions of the American Jobs Creation Act of 2004 on the Company’s
income tax expense and deferred tax liability. The Company does not plan to
repatriate any foreign earnings under the new law and, as such, does not expect any
impact on its 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 in
Note K
and other contingencies in
Note
L
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 and postretirement 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 customers; 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 initiative to generate additional cash,
including the reduction of working capital levels and capital spending; restrictions
on the Company’s use of available cash under its debt agreements;
-25-
Crown Holdings, Inc.
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 and surcharges 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 maintain and develop competitive technologies for the design and
manufacture of products and to withstand competitive and legal challenges to the
proprietary nature of such technology; the Company’s ability to generate
sufficient production capacity; the collectibility of receivables; 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; the impact of existing
and future legislation regarding refundable mandatory deposit laws in Europe for
non-refillable beverage containers and the implementation of an effective return
system; energy and natural resource costs; the cost 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 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 Texas, Pennsylvania, Mississippi and Ohio
legislation dealing with asbestos liabilities and any litigation
challenging that legislation and any future state or federal legislation dealing
with asbestos liabilities), labor relations and workforce and social costs,
including the Company’s pension and postretirement 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, acquisitions 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.
ITEM 7A
.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information set forth within Item 7,
Management’s Discussion and Analysis of Financial Condition and Results of Operations
under “
Market Risk
” is incorporated herein by reference.
-26-
Crown Holdings, Inc.
ITEM 8
.
FINANCIAL STATEMENTS, SUPPLEMENTARY DATA AND FINANCIAL STATEMENT SCHEDULE
Management’s Report on Internal
Control Over Financial Reporting
Management is responsible for
establishing and maintaining adequate internal control over financial reporting (as
defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). The
Company’s system of internal control over financial reporting is designed to
provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles.
Because of the inherent
limitations, a system of internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
Management assessed the
effectiveness of the Company’s internal control over financial reporting as of
December 31,2004. In making this assessment, management used the criteria set forth
by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”)
in
Internal Control-Integrated Framework
. Based on its assessment, management
has concluded that, as of December 31, 2004, the Company’s internal control over
financial reporting was effective based on those criteria.
Management’s assessment of the
effectiveness of the Company’s internal control over financial reporting as of
December 31, 2004 has been audited by PricewaterhouseCoopers LLP, an independent
registered public accounting firm, as stated in their report which appears herein.
-28-
Crown Holdings, Inc.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders
of Crown Holdings, Inc.:
We have completed an integrated
audit of Crown Holdings, Inc.’s 2004 consolidated financial statements and of its
internal control over financial reporting as of December 31, 2004 and audits of its 2003
and 2002 consolidated financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Our opinions, based on our
audits, are presented below.
Consolidated financial statements and financial statement schedule
In our opinion, the accompanying
consolidated financial statements listed in the accompanying index appearing under Item 15(a)(1) present fairly,
in all material respects, the financial
position of Crown Holdings, Inc. and its subsidiaries at December 31, 2004 and December
31, 2003, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2004 in conformity with accounting
principles generally accepted in the United States of America. In addition, in our opinion,
the financial statement schedule listed in the accompanying index appearing under Item 15(a)(2)
presents fairly, in all material
respects, the information set forth therein when read in conjunction with the related
consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company’s management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits. We
conducted our audits of these statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit of financial
statements 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 that 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.
Internal control over financial reporting
Also, in our opinion, management’s
assessment, included in the accompanying “Report on Internal Control Over Financial
Reporting,” that the Company maintained effective internal control over financial
reporting as of December 31, 2004 based on criteria established in
Internal
Control — Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO),” is fairly stated, in all material
respects, based on those criteria. Furthermore, in our opinion, the Company
maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2004, based on the criteria established in
Internal
Control — Integrated Framework
issued by the COSO. The Company’s management is
responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting.
Our responsibility is to express opinions on management’s assessment and on the
effectiveness of the Company’s internal control over financial reporting based on our
audit. We conducted our audit of internal control over financial reporting in
accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. An audit of internal control over
financial reporting includes obtaining an understanding of internal control over
financial reporting, evaluating management’s assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such other
procedures as we consider necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinions.
-29-
Crown Holdings, Inc.
A company’s internal control over
financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets
that could have a material effect on the financial statements.
Because of its inherent
limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
March 10, 2005
-30-
Crown Holdings, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
For the years ended December 31,
2004
2003
2002
Net sales
$
7,199
$
6,630
$
6,792
Cost of products sold, excluding depreciation and amortization
Withdrawals from restricted cash accounts...
Note R
344
Proceeds from sale of businesses
661
Proceeds from sale of property, plant and equipment
39
35
45
Other, net
(8
)
(15
)
Net cash provided by/(used for) investing activities
(107
)
(100
)
591
Cash flows from financing activities
Proceeds from long-term debt
720
2,625
87
Payments of long-term debt
(873
)
(1,109
)
(264
)
Net change in short-term debt
(24
)
(1,673
)
(924
)
Debt issue costs
(31
)
(141
)
Net payment from termination of cross-currency swaps
(8
)
Common stock issued
3
2
3
Dividends paid to minority interests, net of contributions
(41
)
(24
)
(30
)
Net cash used for financing activities
(246
)
(328
)
(1,128
)
Effect of exchange rate changes on cash and cash equivalents
19
32
29
Net change in cash and cash equivalents
70
38
(93
)
Cash and cash equivalents at January 1
401
363
456
Cash and cash equivalents at December 31
$
471
$
401
$
363
The
accompanying notes
are an integral part of these consolidated financial statements.
-33-
Crown Holdings, Inc.
CONSOLIDATED STATEMENTS OF
SHAREHOLDERS’ EQUITY/(DEFICIT)
(in millions, except share data)
Comprehensive
Income/(Loss)
Common
Stock
Paid-In
Capital
Retained
Earnings /
(Accumulated
Deficit)
Accumulated
Other
Comprehensive
Loss
Treasury
Stock
Total
Balance January 1, 2002
$780
$1,600
$22
($1,447
)
($151
)
$804
Net loss
($1,205
)
(1,205
)
(1,205
)
Derivatives qualifying as hedges
6
6
6
Translation adjustments
211
211
211
Translation adjustments - disposition of foreign investments
(8
)
(8
)
(8
)
Minimum pension liability adjustments, net of tax
(148
)
(148
)
(148
)
Comprehensive loss
($1,144
)
Stock issued in debt-for-equity exchanges:
33,386,880 common shares
122
83
45
250
Stock issued - benefit plans: 347,221 common shares
1
2
3
Stock repurchased: 6,082 common shares
Balance December 31, 2002
902
1,684
(1,183
)
(1,386
)
(104
)
(87
)
Net loss
($32
)
(32
)
(32
)
Derivatives qualifying as hedges
1
1
1
Translation adjustments
203
203
203
Minimum pension liability adjustments, net of tax
10
10
10
Available for sale securities
2
2
2
Comprehensive income
$184
Stock issued in debt-for-equity exchanges:
5,386,809 common shares
27
14
41
Stock issued - benefit plans: 223,680 common shares
1
1
2
Stock repurchased: 16,411 common shares
Balance December 31, 2003
929
1,699
(1,215
)
(1,170
)
(103
)
140
Net income
$51
51
51
Derivatives qualifying as hedges
7
7
7
Translation adjustments
107
107
107
Translation adjustments - disposition of foreign investments
29
29
29
Minimum pension liability adjustments, net of tax
(63
)
(63
)
(63
)
Available for sale securities
3
3
3
Comprehensive income
$134
Stock issued - benefit plans: 546,626 common shares
3
3
Stock repurchased: 11,221 common shares
Balance December 31, 2004
$929
$1,699
($1,164
)
($1,087
)
($100
)
$277
The
accompanying notes
are an integral part of these consolidated financial statements.
-34-
Crown Holdings, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share, per share,
employee and statistical data)
A. Summary of Significant Accounting Policies
Business and Principles of Consolidation.
In connection with its refinancing and reorganization in 2003, as discussed in
Note
O
and
Note R
, 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 reorganization had no effect on the
results of operations, financial position or cash flow of 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 were 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
intercompany accounts and transactions are eliminated in consolidation. In
deciding which entities should be reported on a consolidated basis, the Company first
determines whether the entity is a variable interest entity (“VIE”) as defined
in FASB Interpretation No. 46 (“FIN 46”). If an entity meets the criteria for
VIE status, the Company consolidates that entity if the Company has the obligation to
absorb more than 50% of the entity’s expected losses or receive more than 50% of the
entity’s expected residual returns. If an entity does not meet the criteria for VIE
status, the Company consolidates those in which it has control. 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. Investments in securities where the Company does not
have the ability to exercise significant influence over operating and financial policies,
and whose fair value is readily determinable such as those listed on a securities
exchange, are referred to as “available for sale securities” and reported at
their fair value with unrealized gains and losses reported in accumulated other
comprehensive income in shareholders’ equity. 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 in shareholders’ equity. For non-U.S.
subsidiaries that use a U.S. dollar functional currency, local currency inventories and
property, plant and equipment 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 period that the related sales are recorded.
Stock-Based Compensation.
The Company has stock-based employee compensation plans that are currently comprised primarily of fixed stock options.
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 income and earnings per share if the Company had applied the fair value
recognition provisions of SFAS No. 123 (“FAS 123”), “Accounting for
Stock-Based Compensation,” to stock options.
-35-
Crown Holdings, Inc.
2004
2003
2002
Net income/(loss) as reported
$
51
($
32
)
($
1,205
)
Deduct: Total stock-based employee compensation expense
determined under fair value based method
(
9
)
(
11
)
(
11
)
Pro forma net income/(loss)
$
42
($
43
)
($
1,216
)
Earnings/(loss) per share:
Basic — as reported
$
.31
($
.19
)
($
8.38
)
Diluted — as reported
$
.30
($
.19
)
($
8.38
)
Basic — pro forma
$
.25
($
.26
)
($
8.46
)
Diluted — pro forma
$
.25
($
.26
)
($
8.46
)
In December 2004, the FASB issued
SFAS No. 123 (revised 2004) (“FAS 123(R)”), “Share-Based Payment,” which
replaces SFAS No. 123, “Accounting for Stock-Based Compensation” (“FAS
123”) and supersedes APB Opinion No. 25, “Accounting for Stock Issued to
Employees.” FAS 123(R) requires that the cost of share-based payments to employees,
including grants of employee stock options, be recognized in the financial statements
based on their grant-date fair values, beginning with the first interim or annual
period after June 15, 2005. The pro forma disclosures previously permitted under FAS
123 will no longer be a future alternative to financial statement recognition. Under
FAS 123(R) the Company must select an appropriate valuation model to
calculate the fair value of its share-based payments, and a transition method for
recognizing compensation expense under FAS 123(R). The transition methods provided in
the standard include modified prospective and retrospective options. Under the modified
prospective method, compensation expense for all unvested stock awards, measured by
the grant-date fair value of the awards, will be charged to earnings prospectively
over the remaining vesting period, based on the estimated number of awards that
are expected to vest. Under the first retrospective method, which is a variation of
the modified prospective method, prior interim reporting periods within the year of
adoption can be restated. Under the second retrospective method, the modified
retrospective method, prior reporting periods back to the date of issuance of FAS 123
can be restated. The restatement of prior periods under the retrospective methods
will be based on the amounts previously recognized in the pro forma disclosures
required by the original provisions of FAS 123. The Company is currently
evaluating the requirements of FAS 123(R) and will adopt the new standard at the
beginning of the third quarter of 2005.
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. Restricted cash of $10 at December 31, 2004 and 2003 is included with
prepaid expenses and other current assets, and other non-current assets, respectively, in the Consolidated Balance Sheets.
Accounts Receivable and Allowance
for Doubtful Accounts
. Trade accounts receivable are recorded at the invoiced amount
and do not bear interest. The allowance for doubtful accounts is the best estimate
of the amount of probable credit losses in the existing accounts receivable. The
allowance is determined based on a review of individual accounts for collectibility,
generally focusing on those accounts that are past due. The current year expense to
adjust the allowance for doubtful accounts is recorded within cost of products
sold in the consolidated statements of operations. Account balances are charged off against the allowance when it is probable the
receivable will not be recovered.
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.
-36-
Crown Holdings, Inc.
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 or capacity 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 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.
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 is tested for impairment, at least annually. Potential impairment is identified by
comparing the fair value of a reporting unit, using a combination of market values
for comparable businesses and discounted
cash flow projections, 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. Goodwill
is tested for impairment in the fourth quarter of each year or when facts and
circumstances indicate goodwill may be impaired.
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
finite lives, may be impaired, the Company performs a recoverability evaluation. If the
evaluation indicates that the carrying value of an asset is not recoverable from its
undiscounted cash flows, then an impairment loss is measured by comparing the carrying
value of the asset to its fair value, based on discounted cash flows. Long-lived assets
classified as held for sale are
presented 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 they are hedging. Changes in the
fair values of instruments designated to reduce or eliminate adverse fluctuations in the
fair values of recognized assets and liabilities and unrecognized firm commitments are
reported currently in earnings along with changes in the fair values of the hedged items.
Changes in the effective portions of the fair values of instruments used to reduce or
eliminate adverse fluctuations in cash flows of anticipated or forecasted transactions are
reported in shareholders’ equity as a component of accumulated other comprehensive
income. Amounts in accumulated other comprehensive income are reclassified to earnings when
the related hedged items impact earnings or the anticipated transactions are no longer
probable. Changes in the fair values of derivative instruments that are not designated as
hedges or do not qualify for hedge accounting treatment are reported currently in
earnings.
The effectiveness of derivative
instruments in reducing risks associated with the hedged exposures is assessed at
inception and on an ongoing basis. Any amounts excluded from the assessment of hedge
effectiveness, and 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, except hedges of firm commitments, and
included for cash flow hedges.
The Company discontinues hedge accounting
prospectively when (i) it determines that the derivative instrument is no longer effective
in offsetting changes in the fair value or cash flows of the underlying hedged item, (ii)
the derivative instrument expires, is sold, terminated or exercised, or (iii) the Company
determines that designating the derivative instrument as a hedge is no longer appropriate.
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.
Cash flows from hedging instruments are classified in the Consolidated Statements of Cash Flows
consistent with the items being hedged.
-37-
Crown Holdings, Inc.
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 of $47, $44 and $43 in 2004, 2003 and
2002, respectively, were 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 or processes. Costs primarily include employee salaries
and benefits and facility costs.
Reclassifications.
Certain reclassifications of prior years’ data have
been made to improve comparability.
Recently Adopted Accounting and Reporting Standards.
During 2004, the Company adopted the following accounting and reporting standards:
SFAS No. 132 (revised 2003), (“FAS 132(R)”),
“Employers’ Disclosures about Pensions and Other Postretirement Benefits.”
•
FASB Staff Position No. 106-2 (“FSP 106-2”),
“Accounting and Disclosure Requirements Related to the Medicare Prescription
Drug, Improvement and Modernization Act of 2003.”
In January 2003, the FASB issued FIN 46. In December 2003, the FASB issued
FIN 46(R) to address
certain implementation issues of the original interpretation. FIN 46(R) establishes criteria
for 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(R) required the immediate consolidation of specified VIEs created
after January 31, 2003, if the circumstances warranted, and was effective for the Company
at December 31, 2003. Consolidation of all other VIEs created before February 1, 2003, if
warranted, was required in the first quarter of 2004. Adoption of FIN 46(R) had no impact
on the Company’s results of operations or financial position.
In December 2003, the FASB issued FAS 132(R) which
enhances the disclosure requirements for pension and other postretirement benefit plans, but does
not change the measurement or recognition principles for those plans. The statement requires
additional annual and interim disclosures about net periodic benefit cost of defined benefit
pension plans and other defined benefit postretirement plans as well as related assets, cash flows and obligations.
At December 31, 2003, the Company provided the required annual disclosures in
its financial statements. An additional annual disclosure of estimated future benefit payments, effective for
the Company in 2004, has been included in
Note U
.
In December 2003, the Medicare Prescription Drug Improvement and Modernization Act of 2003
(“the Act”) was signed into law. The Act introduces a prescription drug benefit under Medicare
(“Medicare Part D”) and a non-taxable federal subsidy of certain prescription
drug claims to sponsors of retiree health care benefit plans. In May 2004, the FASB
issued FSP 106-2 which provides authoritative guidance on accounting for the federal subsidy as
specified in the Act. FSP 106-2 was effective for the Company in the third quarter of 2004.
The Company considers that the prescription drug benefits provided
under its postretirement health care plans are at least actuarially equivalent to the
prescription drug benefits offered under Medicare Part D and qualify for the subsidy
under the Act. Therefore, the Company has retroactively applied FSP 106-2 to January 1, 2004
and, accordingly, reduced its obligation (accumulated projected benefit
obligation) related to benefits attributed to past service by $60. For 2004 net periodic
postretirement benefit cost, reported in cost of products sold, has been reduced by $9,
including $5 for recognized actuarial losses and $4 for interest costs.
-38-
Crown Holdings, Inc.
B. Goodwill
Effective January 1, 2002, the Company
adopted SFAS No. 142, “Goodwill and Other Intangible Assets,” and recognized a
noncash, non-tax deductible impairment charge of $1,014 reported as the cumulative effect
of a change in accounting. In evaluating and measuring any impairment charge, estimated
fair values are calculated for each reporting unit within each reportable segment using a
combination of market values for comparable businesses and discounted cash flow
projections and compared to carrying values.
The changes in the carrying amount of
goodwill by reportable segment for the years ended December 31, 2004 and 2003 were as
follows:
Americas
Europe
Total
Balance at January 1, 2003
$
639
$
1,630
$
2,269
Impairment charge
(11
)
(11
)
Foreign currency translation and other
19
165
184
Balance at December 31, 2003
647
1,795
2,442
Foreign currency translation and other
9
141
150
Balance at December 31, 2004
$
656
$
1,936
$
2,592
The 2003 goodwill impairment charge was
recorded in an Americas plastics operation due to reduced profit projections.
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 consisted of the following:
2004
2003
Minimum pension liability adjustments
($
728
)
($
665
)
Cumulative translation adjustments
(374
)
(510
)
Derivatives qualifying as hedges
10
3
Available for sale securities
5
2
($
1,087
)
($
1,170
)
D. Receivables
2004
2003
Accounts and notes receivable
$
832
$
748
Less: allowance for doubtful accounts
(42
)
(56
)
Net trade receivables
790
692
Miscellaneous receivables
110
102
$
900
$
794
Following are the changes in the
allowance for doubtful accounts for the years ended December 31, 2004, 2003 and 2002.
Balance at
Expense /
Balance at
beginning of year
(income)
Write-offs
Translation
end of year
2002
$95
$20
($61)
$54
2003
54
1
$1
56
2004
56
( 3)
( 13)
2
42
-39-
Crown Holdings, Inc.
The Company utilizes receivable
securitization facilities in the normal course of business as part of its management of
cash flow activities. The facility outstanding during 2002 and most of 2003 provided for
the accelerated receipt of cash up to $350 from the available pool of North American
receivables. In December 2003, the facility expired and the Company entered into a new
$225 North American facility. Under this facility the Company sells receivables, on a
revolving basis, to a wholly-owned, bankruptcy-remote subsidiary. The subsidiary was
formed for the sole purpose of buying and selling receivables generated by the Company
and, in turn, sells undivided percentage ownership interests in the pool of purchased
receivables to a syndicate of financial institutions. The Company continues to service
these receivables for a fee but does not retain any interest in the receivables sold. The
Company has relinquished control of the receivables and the sales are reflected as a
reduction in receivables within the Consolidated Balance Sheets. At December 31, 2004 and
2003 receivables securitized were $120 and $90, respectively. During 2004, 2003 and 2002,
the Company recorded expenses related to the securitization facilities of $5, $11 and $10,
respectively, as interest expense.
E. Inventories
2004
2003
Finished goods
$
307
$
313
Work in process
111
99
Raw materials and supplies
476
403
$
894
$
815
Approximately 20% and 22% of worldwide
productive inventories at December 31, 2004 and 2003, 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, 2004 and 2003, total inventories would
have been $43 and $34 higher, respectively.
F. Property, Plant and Equipment
2004
2003
Buildings and improvements
$
861
$
813
Machinery and equipment
4,231
4,099
5,092
4,912
Less: accumulated depreciation and amortization
(3,314
)
(3,043
)
1,778
1,869
Land and improvements
166
180
Construction in progress
58
63
$
2,002
$
2,112
G. Other Non-Current Assets
2004
2003
Pension assets
$
853
$
777
Debt issue costs
126
133
Pension intangibles
24
27
Deferred taxes
30
25
Long-term notes and receivables
17
23
Other
53
29
$
1,103
$
1,014
-40-
Crown Holdings, Inc.
H. Accounts Payable and Accrued Liabilities
2004
2003
Trade accounts payable
$
1,186
$
955
Salaries, wages and other employee benefits
338
347
Accrued taxes, other than on income
115
101
Accrued interest
93
91
Asbestos liabilities
40
65
Restructuring
15
25
Deferred taxes
28
22
Other
128
138
$
1,943
$
1,744
I. Other Non-Current Liabilities
2004
2003
Deferred taxes
$
342
$
317
Asbestos liabilities
193
174
Postemployment benefits
47
45
Fair value of derivatives
25
30
Environmental
23
22
Other
122
118
$
752
$
706
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 $8 and $14 at December 31, 2004 and 2003, respectively.
Under long-term operating leases, minimum annual rentals are $60 in 2005, $50 in 2006,
$35 in 2007, $24 in 2008, $19 in 2009 and
$69 thereafter. Such rental commitments have been reduced by minimum sublease rentals of
$25 due under non-cancelable subleases. The present value of
future minimum payments on capital leases is $3 with a current obligation of $1. Rental
expense (net of sublease rental income of $5 in 2004) was $57 in 2004.
K. 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 assets and was later merged
into Crown Cork.
Prior to 1998, the amounts paid to
asbestos claimants were covered by a fund made available to Crown Cork under a 1985
settlement with carriers insuring Crown Cork through 1976, when Crown Cork became
self-insured. The fund was depleted in 1998 and the Company has no remaining coverage for
asbestos-related costs.
In January 2005 and April 2004, the States of Ohio and Mississippi,
respectively, enacted legislation that limits the asbestos-related liabilities
under state law of companies such as Crown Cork that allegedly incurred these liabilities because they
are successors by corporate merger to companies that had been involved with asbestos.
The new legislation, which applies to pending and future claims, caps asbestos-related
liabilities at the fair market value of the
predecessor’s total gross assets adjusted for inflation. Crown Cork has paid
significantly more for asbestos-related claims than the total adjusted value of its
predecessor’s assets. Crown Cork has integrated the legislation into its claims
defense strategy. The Company cautions, however, that the legislation may be challenged
and there can be no assurance regarding the ultimate effect of the legislation on Crown Cork.
-41-
Crown Holdings, Inc.
In June 2003, the State of Texas
enacted legislation that limits the asbestos-related liabilities in Texas courts of
companies such as Crown Cork that allegedly incurred these liabilities because they
are successors by corporate merger to companies that had been involved with asbestos.
The Texas legislation, which applies to future claims and pending claims, caps
asbestos–related liabilities at the total gross value of the predecessor’s
assets adjusted for inflation. Crown Cork has paid significantly more for
asbestos–related claims than the total adjusted value of its predecessor’s assets.
On October 31, 2003, Crown Cork received a favorable ruling on its motion for
summary judgment in two asbestos–related cases pending against it in the district court
of Harris County, Texas (in Re Asbestos Litigation No. 90-23333, District Court,
Harris County, Texas); this ruling has been appealed. In addition, a favorable
ruling for summary judgment in an asbestos case pending against it in the district
court of Travis County, Texas (in Re Rosemarie Satterfield as Representative of the
Estate of Jerrold Braley Deceased v. Crown Cork & Seal Company, Inc. District Court
Travis County, 98th Judicial District Cause No. GN-203572) has been
appealed. Although the Company believes that the rulings of the District Court are
correct, there can be no assurance that the legislation will be upheld by the Texas
courts on appeal or in other cases that may challenge the legislation.
In December 2001, the
Commonwealth of Pennsylvania enacted legislation that limits the
asbestos-related liabilities of Pennsylvania corporations that are successors by
corporate merger to companies involved with asbestos. The legislation limits the
successor’s liability for asbestos to the acquired company’s asset value
adjusted for inflation. Crown Cork has already paid significantly more for
asbestos-related claims than the acquired company’s adjusted asset value. On
February 20, 2004, the Supreme Court of Pennsylvania reversed the June 11, 2002 order
of the Philadelphia Court of Common Pleas, in which the Court of Common Pleas
ruled favorably on a motion by Crown Cork for summary judgment regarding 376 pending
asbestos-related cases against Crown Cork in Philadelphia and remanded the cases to
the Philadelphia Court of Common Pleas (Ieropoli v. AC&S Corporation, et. al., No.
117 EM 2002). The Court ruled that the new statute, as applied, violated the
Pennsylvania Constitution because it retroactively extinguished the plaintiffs’ pre-existing
and accrued causes of action. The Company believed that the ruling by the court was
limited only to cases which were pending at the time the legislation was enacted and
in November 2004, the Commonwealth of Pennsylvania enacted legislation amending
the 2001 successor liability statute providing that the 2001 statute applies only
to asbestos-related claims with respect to which the two-year statute of limitations
for asbestos-related claims began to run after the new statute was enacted on December
17, 2001. On December 10, 2004, the Company filed a global motion for summary judgment
in the Philadelphia Court of Common Pleas to dismiss all pending asbestos-related
cases filed in the court after December 17, 2003 (In re: Asbestos-Litigation October
term 1986, No. 001). The Company cautions, however, that the Company’s
position regarding the limitation of the Pennsylvania Supreme Court ruling may not be
upheld.
In recent years, certain other
state and federal legislators have considered legislation to reform the treatment of
asbestos-related personal injury claims. In April of 2004, the Fairness in Asbestos
Injury Resolution Act of 2004 (the “FAIR Bill”) was introduced in the United States
Senate and a motion to proceed with floor consideration of the FAIR Bill was
subsequently defeated. The FAIR Bill, which was intended to substitute for a bill
approved by the Senate Judiciary Committee in July of 2003, would create a national
trust fund in lieu of state and federal litigation to compensate people with
asbestos-related diseases. The trust fund would require contributions from companies,
such as Crown Cork, that have made past payments for asbestos-related personal injury
claims and would limit the payments made by such companies relating to asbestos-related
liabilities during the life of the fund. Currently, the FAIR Bill is subject to
ongoing negotiations and discussions among legislators, labor unions, insurance
companies, industry participants and other interested parties. There can be no
assurance that federal asbestos legislation, such as the FAIR Bill, will be passed into
law or the form that any such legislation will take, and the Company is unable to
predict the impact that any such legislation would have on Crown Cork or the Company.
Due to this uncertainty, the Company has not considered possible federal legislation in
evaluating the adequacy of the Company’s reserve for asbestos-related claims.
-42-
Crown Holdings, Inc.
During 2004, 2003 and 2002,
respectively, Crown Cork (i) received 13,000, 36,000 and 36,000 new claims, (ii)
settled or dismissed 14,000, 20,000 and 43,000 claims, and (iii) had 74,000, 75,000
and 59,000 claims outstanding at the end of the respective years. The outstanding claims
at December 31, 2004 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 will not, in the aggregate, involve any
liability material to the consolidated financial statements.
During 2004, 2003 and 2002,
respectively, the Company (i) recorded pre-tax charges of $35, $44 and $30 to increase
its accrual, (ii) made asbestos-related payments of $41, $68 and $114, (iii) settled
claims totaling $30, $37 and $77, including amounts committed to be paid in future
periods and (iv) had outstanding accruals of $233, $239 and $263 at the end of the year.
The Company estimates that its
probable and estimable asbestos liability for pending and future asbestos claims will
range between $233 and $351. The accrual balance of $233 at the end of 2004 includes
$113 for unasserted claims and $20 for committed settlements that will be paid in 2005.
Historically (1977-2004), Crown
Cork estimates that approximately one-quarter of all asbestos-related 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 Texas, Mississippi, Ohio and Pennsylvania asbestos
legislation described above are expected to have a
highly favorable impact on Crown Cork’s ability to settle or defend against
asbestos-related claims in those states, and other states where Pennsylvania law may
apply. The Company’s accrual includes estimates for probable costs for claims
through the year 2014. The upper end of the Company’s estimated range of possible
asbestos costs of $351 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 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 estimates for asbestos cases and settlements are difficult to predict and may be
influenced by many factors. In addition, there can be no assurance regarding the validity
or correctness of the Company’s assumptions or beliefs underlying its accrual and
the estimated range of potential liability. Unfavorable court decisions or other
adverse developments, may require the Company to substantially increase its accrual or
change its estimate. Accordingly, these matters, if resolved in a manner different
from the estimate, could have a material effect on the Company’s results of
operations, financial position and cash flow.
L. Commitments and Contingent Liabilities
The Company has been identified by the
EPA as a potentially responsible party (along with others, in most cases) at a number of
sites. The Company also has environmental issues at certain of its plants in the Americas
and Europe. Actual expenditures for remediation were $1, $2 and $2 in 2004, 2003 and
2002, respectively. The Company’s balance sheet reflects estimated undiscounted remediation
liabilities of $25 at December 31, 2004, including $2 as a current liability. The Company
records an environmental liability when it is probable that a liability has been incurred
and the amount of the liability is reasonably estimable. The reserves at December 31, 2004
are primarily for asserted claims and are based on internal and external environmental
studies. The Company expects that the liabilities will be paid out over the period of
remediation for the applicable sites, which in some cases may exceed ten years. Although
the Company believes its reserves are adequate, there can be no assurance that the
ultimate payments will not exceed the amount of the Company’s reserves and will not
have a material effect on the Company’s consolidated results, financial position and
cash flow. Any possible loss or range of potential loss that may be incurred in excess of
the recorded reserves cannot be estimated.
-43-
Crown Holdings, Inc.
On March 18, 2003, the European
Commission issued a Statement of Objections alleging that certain of the Company’s
European subsidiaries engaged in commercial practices that violated European
competition law. On September 30, 2004, the European Commission formally confirmed
that it had terminated the proceedings, subject to the Commission’s right to
reinitiate in the event of factual or legal changes, without any adverse findings made or
penalties levied against the Company.
In 2003, Crown Cork amended the
retiree medical benefits that it had been providing to approximately 10,000 retirees
pursuant to a series of collective bargaining agreements between Crown Cork and
certain unions. The amendments increased maximum coverage, required additional
retiree contributions for medical and prescription drug costs and reduced other coverage
benefits. Crown Cork is a party to litigation initiated in June 2003 in which the USWA
and IAM unions and retirees claim that the retiree medical benefits were vested and
that the amendments breached the applicable collective bargaining agreements in
violation of ERISA and the Labor Management Relations Act. Crown Cork and the USWA
parties have submitted their dispute to binding arbitration in Pittsburgh,
Pennsylvania and litigation involving Crown Cork and the IAM parties is pending in
federal district court in Nebraska. The Company believes that it had the right to make
such amendments and intends to contest the matter vigorously. However, the ultimate
outcome of these cases is uncertain and if they are decided adversely, the
Company could be required to restore all or a portion of the retiree medical benefits
to their pre-amendment levels which could have a material adverse impact on the
Company’s financial position, results of operations and cash flows.
The Company and its subsidiaries are also subject to
various other lawsuits and claims with respect to labor, environmental, securities, vendor
and other matters 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 that the
ultimate liabilities resulting from such lawsuits and claims will not materially affect
the results of operations, financial position or cash flow 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 steel, aluminum and resins, all of
which are purchased from multiple sources. The Company is subject to fluctuations in
the cost of these raw materials and has periodically adjusted its selling prices to
reflect these movements. There can be no assurance, however, that the Company will be
able to fully recover any increases or fluctuations in raw material costs from its
customers. The Company also has commitments for purchases of capital assets of
approximately $21.
At December 31, 2004 the Company had
certain indemnification agreements covering environmental remediation and other
potential costs associated with properties sold or businesses divested. For agreements
with defined liability limits the maximum potential amount of future liability was $53.
Several agreements outstanding at December 31, 2004 did not provide liability limits.
At December 31, 2004, the Company had recorded liabilities of $2 covering these
indemnification agreements. The Company also has guarantees of $36 related to the
residual value of leased assets at December 31, 2004, and has recorded a liability of $8
related to these guarantees.
M. Restructuring
During 2004, the Company provided a
pre-tax charge of $7 for restructuring costs. The charge included $6 in Europe and $1 in
the Americas, primarily for severance costs for reductions in force.
During 2003, the Company provided a
net pre-tax charge of $19 for restructuring costs. The charge included $14 in Europe
and $5 in the Americas, primarily for severance costs for reductions in force.
The charge in Europe was net of a reversal of $4 for costs provided in previous years.
During 2002, the Company provided
a net pre-tax charge of $19 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.
-44-
Crown Holdings, Inc.
Balances remaining in the
reserves at December 31, 2004 included provisions of $7 for current year
actions and $8 for prior restructuring actions. The balance of the restructuring
reserves were included in the Consolidated Balance Sheets within accounts payable and
accrued liabilities. The Company expects to pay $12 of the $15 of remaining liabilities
in 2005 and the remainder in 2006.
The components of the restructuring
reserve and movements within these components during 2004 and 2003 were as follows:
Termination
Benefits
Other
Exit
Costs
Total
Balance as of January 1, 2003
$
9
$
5
$
14
Provisions
20
(1
)
19
Payments made
(7
)
(3
)
(10
)
Foreign currency translation and other
1
1
2
Balance as of December 31, 2003
23
2
25
Provisions
7
7
Payments made
(17
)
(1
)
(18
)
Foreign currency translation and other
1
1
Balance as of December 31, 2004
$
14
$
1
$
15
N. Asset Impairments and Loss/Gain on Sale of Assets
During 2004, the Company recorded
net pre-tax charges of $47 for asset impairments and asset sales, including charges
of $29 to reclassify cumulative translation adjustments to earnings from the
planned sale of three businesses in the Americas, and $14 to write-down the value of
machinery and equipment in the plastics businesses in Europe due to reduced profits and projections. The remaining
net charges of $4 were for the write-down of various assets, offset by gains on sales
of surplus property.
During 2003, the Company recorded net
pre-tax charges of $73 for asset impairments and asset sales, including charges of (i) $25
to write-down assets in Argentina due to the continuing impact of the local economy on the
Company’s businesses, (ii) $11 for the impairment of goodwill in an Americas plastics
operation due to reduced profit projections, (iii) $20 to write-down certain assets in the
European specialty packaging businesses due to reduced profit projections, (iv) $7 to
write-down surplus beverage end assets in the U.S. due to the expanded use of the
Company’s SuperEnd™ technology, and (v) $11 to write-off redundant equipment in
the U.S., primarily due to the consolidation of operations. These charges were partially offset by
other pre-tax gains of $1, primarily from the sale of assets.
During 2002, the Company recorded net
pre-tax charges of $247 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, 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 would not be recovered
based on current operating plans, (ii) $4 to write-down the assets of a U.S. operation the
Company closed in 2003, (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.
-45-
Crown Holdings, Inc.
O. Capital Stock
In connection with its refinancing and
reorganization in 2003, as discussed in
Note A
and
Note R
, 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.
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. were deemed to represent shares of Crown
Holdings, Inc. The common stock of Crown Holdings, Inc. continues to be publicly traded
under the symbol “CCK” on the New York Stock Exchange.
During 2003 and 2002, respectively, the
Company exchanged 5,386,809 and 33,386,880 shares of its common stock for debt and related
accrued interest in privately negotiated debt-for-equity exchanges with holders of its
outstanding notes and debentures.
Shares of common stock issued as
compensation to non-employee directors were 46,937, 64,483 and 68,076 during 2004, 2003
and 2002, respectively.
The Company’s credit facility
limits the payment of dividends and the repurchase of common stock, subject to certain
permitted payments or repurchases and exceptions.
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.
The Board of Directors has
authorized the repurchase of up to $50 million of the Company’s outstanding common
stock from time to time through December 31, 2006, in the open market or through
privately negotiated transactions, subject to the terms of the Company’s debt
agreements, market conditions and other factors. The Company is not obligated to
acquire any shares of common stock and the share repurchase plan may be suspended or
terminated at any time at the Company’s discretion. The repurchased shares, if
any, are expected to be used for the Company’s stock-based benefit plans, and
to offset dilution resulting from the issuance of shares thereunder, and for other
general corporate purposes.
In connection with the formation of Crown Holdings, Inc. as discussed in
Note A
,
the Board of Directors adopted a
Shareholders’ Rights Plan, as amended, 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 expire on August 10, 2015.
-46-
Crown Holdings, Inc.
P. Stock-Based Compensation
As of December 31, 2004, the Company had
five stock-based incentive compensation plans, 1990, 1994, 1997, 2001 and 2004. The 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 as of December 31, 2004. As of December 31, 2004, no further option grants were
available under the 1990, 1994 and 1997 plans. Options granted under the 2001 plan are
available through February 2006 and under the 2004 plan through April 2009.
Options outstanding at December 31, 2004, included grants
from all five plans discussed above.
Stock options granted during 2004 generally have a maximum term of ten years
and vest over two years.
A summary of stock option activity is as follows:
2004
2003
2002
Shares
Weighted
Average
Exercise
Price
Shares
Weighted
Average
Exercise
Price
Shares
Weighted
Average
Exercise
Price
Options outstanding at January 1
10,858,137
$16.91
12,887,807
$19.30
12,617,139
$22.11
Granted
5,432,500
8.65
45,000
7.09
1,820,000
5.33
Exercised
(500,899
)
4.86
(161,100
)
4.58
(279,750
)
4.39
Canceled
(529,756
)
29.34
(1,913,570
)
33.79
(1,269,582
)
30.48
Options outstanding at December 31
15,259,982
$13.93
10,858,137
$16.91
12,887,807
$19.30
Options exercisable at December 31
11,190,107
$15.82
9,182,793
$19.00
8,629,800
$25.43
Options available for grant at December 31
1,672,125
1,455,875
1,361,375
The following table summarizes outstanding and exercisable options at December 31, 2004:
Options Outstanding
Options Exercisable
Range of
Exercise
Prices
Number
Outstanding
Weighted
Average
Remaining
Contractual
Life
Weighted
Average
Exercise
Price
Number
Exercisable
Weighted
Average
Exercise
Price
$4.25
2,812,689
6.3
$4.25
2,811,439
$4.25
$4.31 to $5.30
1,777,530
7.1
5.30
1,775,530
5.30
$5.49 to $8.38
1,619,500
5.4
7.47
1,554,500
7.44
$8.60
3,928,875
9.3
8.60
974,250
8.60
$8.75 to $19.81
2,135,763
7.7
12.72
1,088,763
16.46
$22.25 to $54.375
2,985,625
2.7
39.45
2,985,625
39.45
15,259,982
6.6
$13.91
11,190,107
$15.82
The fair value of each stock option on
the date of the grant was estimated using the Black-Scholes option pricing model with the
following weighted average assumptions:
2004
2003
2002
Risk-free interest rate
3.2%
3.0%
2.4%
Expected life of option (years)
4.2
4.4
4.0
Expected stock price volatility
61.8%
76.8%
74.5%
Expected dividend yield
0.0%
0.0%
0.0%
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Crown Holdings, Inc.
The weighted average grant-date fair values for options granted during 2004,
2003 and 2002 were $4.46, $4.04 and $2.98, respectively.
Q. Debt
2004
2003
Short-term debt
(1)
U.S. dollar bank loans/overdrafts
$
6
$
19
Other currency bank loans/overdrafts
45
50
Total short-term debt
$
51
$
69
Long-term debt
Credit facility borrowings: (2)
U.S. dollar
Other currencies
Senior notes and debentures:
Euro (€107) 6.00% due in 2004
$
135
U.S. dollar 8.38% due 2005
61
U.S. dollar 7.00% due 2006 (3)
$
235
269
U.S. dollar 8.00% due 2023
200
200
U.S. dollar 7.38% due 2026
350
350
U.S. dollar 7.50% due 2096
150
150
Senior secured notes:
U.S. dollar 9.50% second priority due 2011 (4)
1,085
1,085
Euro (€285) 10.25% second priority due 2011
386
358
Euro (€460) 6.25% first priority due 2011
623
U.S. dollar 10.88% third priority due 2013
725
725
First priority term loans:
U.S. dollar at LIBOR plus 3.00%
428
Euro (€48) at LIBOR plus 4.25%
60
Other indebtedness in various currencies:
Fixed rate with rates
from 1.0% to 5.0% due 2005 through 2015
6
5
Variable rate with average rates
in 2004 from 2.8% to 15.5% due 2005 through 2009
88
72
Capital lease obligations in various currencies
3
8
Unamortized discounts and fair value adjustments (4)
(30
)
(36
)
Total long-term debt
3,821
3,870
Less: current maturities
(25
)
(161
)
Total long-term debt, less current maturities
$
3,796
$
3,709
(1)
The
weighted average interest rates for bank loans and overdrafts outstanding during 2004,
2003 and 2002 were 4.3%, 3.6% and 4.8%, respectively.
(2)
The $400 revolving credit facility is due in 2010 and bears interest
at LIBOR plus 2.75%. There were no outstanding
borrowings at December 31, 2004 under the facility, or at December 31, 2003
under the previous facility. The weighted average
rates for the credit facilities were 5.0% in 2004 and 5.8% in 2003.
(3)
A wholly-owned finance subsidiary in the United Kingdom has outstanding revolving
public debt securities that are fully and unconditionally guaranteed by the Company on a joint and several basis.
(4)
The $1,085 due in 2011 excludes reductions of $25 and $30 at December 31, 2004 and 2003,
respectively, for FAS 133 fair value adjustments related to interest rate swaps as described under
“Fair Value Hedges” in
Note S
. The reductions are included
within “unamortized discounts and fair value adjustments.”
-48-
Crown Holdings, Inc.
Aggregate maturities of long-term debt
for the five years subsequent to 2004, excluding unamortized discounts and fair value adjustments,
are $25, $263, $27, $9 and $5, respectively.
Cash payments for interest during 2004, 2003 and 2002 were $330, $294 and 333,
respectively (including amounts capitalized of $1 in 2003).
The estimated fair value of the
Company’s long-term borrowings, based on quoted market prices for the same or similar
issues, was $4,193 at December 31, 2004.
During 2004 and 2003, the Company recorded pre-tax unrealized foreign exchange gains of $98 and $201,
respectively, related to currency exposure on U.S.
dollar debt issued by its European subsidiaries as described in
Note R
.
The gains are included in translation and exchange adjustments in the Consolidated Statements of
Operations.
R. Debt Refinancings and Early Extinguishments
In December 2004, the Company
purchased $33 aggregate principal of its 7.00% senior notes due December 2006 at a
premium of 5.0% to principal. Also in December 2004, the Company retired the $40
remaining aggregate principal amount of its outstanding 8.38% senior notes due
January 2005. In March 2004, the Company purchased $21 aggregate principal of its
8.38% senior notes due January 2005 at a premium of 4.5% to principal and €85
aggregate principal of its 6.00% notes due 2004 at a premium of 3.0% to principal. The
Company recognized total charges of $6 in connection with these early extinguishments of debt.
In September 2004, the Company
sold €350 of 6.25% first priority senior secured notes due in 2011 and entered into
a new $625 senior secured credit facility. The new facility included a $400 revolving
credit facility due in 2010, a $100 standby letter of credit facility due in 2010 and a $125 term
loan facility due in 2011. In October 2004, the Company completed an add-on
issuance of €110 of 6.25% first priority senior secured notes due in 2011,
bringing the total of the issue to €460. The €350 of proceeds
from the first issuance combined with the new $625 senior secured credit facility
were used to refinance the existing credit and term loan facilities entered into
in February, 2003, and to pay fees and expenses associated with the refinancing. The
€110 of proceeds from the second issuance were used to repay the $125 term loan
from September 2004 and to pay expenses associated with the issuance. Interest accrues
at LIBOR plus 2.75% on the $100 committed under the standby letter of credit facility and there were $78 of
outstanding letters of credit at December 31, 2004. In connection
with the September 2004 refinancing, the Company recorded a charge of $33, as a loss from the
early extinguishments of debt, to write-off unamortized fees from its previous credit
facility.
In February 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 O
. The proceeds from the refinancing
consisted of the sale of $1,085 of 9.5% second priority senior secured notes due in 2011,
€285 of 10.25% second priority senior secured notes due in 2011,
$725 of 10.875% third priority senior secured notes due in 2013, $504 of first priority
term loans due in 2008 and a $550 first priority revolving credit facility due in 2006.
The proceeds of $2,620 from the senior secured notes and term loans, and $198 of
borrowings under the $550 credit facility, were used to repay the existing credit
facility, to repurchase certain of the Company’s outstanding unsecured notes prior
to maturity, and to pay fees and expenses associated with the refinancing. The remaining
proceeds of $344 were initially placed in restricted cash accounts and were subsequently
used to repay other existing unsecured notes, including $149 prior to maturity. The
Company also repurchased $86 of other unsecured notes prior to maturity. In connection
with the repurchases, exchanges of debt for equity as described in
Note O
,
and the write-off of unamortized financing fees and expenses from its previous credit
facility, the Company recognized a loss of $12 from the early extinguishments of debt.
During 2002, the Company recognized a gain of $28 on the exchanges of debt for equity as
described in Note O.
The secured notes issued in 2003
and 2004 are senior obligations of Crown European Holdings (“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 first, 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 first priority secured notes at any time, 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 second and third priority secured notes at redemption
prices initially representing a premium to principal equal to one-half of the
-49-
Crown Holdings, Inc.
applicable interest rate on the notes,
declining annually thereafter. At any time prior to September 2007
for the first priority secured notes, and March 2006 for the second and third
priority notes, 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.
The credit facility entered into
in September 2004 also provides for a term loan, at the request of the Company, in an
amount to be determined based on the Company’s leverage ratio and credit rating. The
credit facility also contains financial covenants including a fixed charge coverage ratio, a
net leverage ratio, and a first lien leverage ratio.
S. 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 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 netting exposures for foreign exchange risk, to effectively achieve
its goal of risk reduction. Counterparties to these contracts are major financial
institutions.
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
ineffective portion of these hedges was not material and no components of the hedge
instruments were excluded from the measurement of hedge effectiveness.
Prior to 2003, the Company had designated
two cross-currency swaps as hedges of long-term U.S. dollar debt in the U.K. The swaps
effectively converted fixed rate U.S. dollar debt into fixed rate sterling debt. In
2003, the Company terminated one swap with a notional value of $200 and a maturity of
December 2003 and received its then fair value of $13. In September 2003, the Company
terminated the remaining swap with a notional value of $300 and a maturity of December
2006, received $14 and recognized a loss of $5 as a loss on sale of assets.
The Company has 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,
2004 mature between one and twenty-four months. At December 31, 2004 and 2003, the fair
values of these contracts were not material and were reported in current assets and
current liabilities consistent with the classification of the hedged items.
The changes in accumulated other
comprehensive loss associated with cash flow hedging activities during 2004 and 2003
were as follows:
2004
2003
Balance at January 1
$
3
$
2
Current period changes in fair value, net of tax
3
(5
)
Reclassifications to earnings, net of tax
4
6
Balance at December 31
$
10
$
3
-50-
Crown Holdings, Inc.
During the next twelve months ending
December 31, 2005, income of approximately $10 is expected to be reclassified to earnings.
The actual amount that will be reclassified to earnings over the next twelve months may
vary from this amount due to changing market conditions. No amounts were reclassified to
earnings during 2004 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. Amounts excluded from the
assessment and measurement of hedge effectiveness were reported in earnings and amounted
to less than $1 before income taxes in each of the last three years.
During 2003, the Company entered into
three interest rate swaps with a combined notional value of $800. During 2004, the
Company entered into an additional interest rate swap with a
notional value of $100. The swaps effectively
convert 9.5% fixed rate debt into variable rate debt at LIBOR plus 5.46%. The swaps are
accounted for as fair value hedges of the second priority U.S. dollar notes due in 2011.
At December 31, 2004 and 2003, the combined fair value of the swaps was $25 and $30, respectively,
and was reported within other non-current liabilities.
The offset to these liabilities was a reduction in long-term debt.
Prior to 2003, the Company had designated
a cross-currency swap as a hedge of long-term U.S. dollar debt in France. The swap
effectively converted fixed rate U.S. dollar debt with a notional value of $200 and a
maturity of December 2003 into variable rate euro debt. In September 2003, the Company
terminated the swap and paid its then fair value of $35.
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, 2004 and
2003, 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 any of the last three years from a hedged firm commitment that no longer
qualified as a fair value hedge.
T. Earnings Per Share (“EPS”)
The following table summarizes the basic
and diluted earnings per share computations for 2004, 2003 and 2002. Basic EPS excludes
all potentially dilutive securities and is computed by dividing the net loss by the
weighted average number of common shares outstanding during the period. Diluted EPS
includes the assumed exercise of stock options in periods when they are not anti-dilutive;
otherwise, it is the same as basic EPS.
2004
2003
2002
Income/(loss) before cumulative effect of a change in accounting
$
51
($
32
)
($
191
)
Cumulative effect of a change in accounting
(1,014
)
Net income/(loss)
$
51
($
32
)
($
1,205
)
Weighted average shares outstanding:
Basic
165.3
164.7
143.8
Dilutive effect of employee stock options
3.5
Diluted
168.8
164.7
143.8
Basic earnings/(loss) per share:
Before cumulative effect of a change in accounting
$
.31
($
.19
)
($
1.33
)
Cumulative effect of a change in accounting
(7.05
)
Net income/(loss)
$
.31
($
.19
)
($
8.38
)
Diluted earnings/(loss) per share:
Before cumulative effect of a change in accounting
$
.30
($
.19
)
($
1.33
)
Cumulative effect of a change in accounting
(7.05
)
Net income/(loss)
$
.30
($
.19
)
($
8.38
)
-51-
Crown Holdings, Inc.
Potentially dilutive common stock
equivalents resulting from the assumed exercise of dilutive stock options of
1.3 million in 2003 and 1.2 million in 2002, were excluded because they would have been
anti-dilutive due to the net losses. In addition, common shares contingently issuable upon
the exercise of outstanding stock options of 3.9 million in 2004, 6.2 million in 2003 and 8.0 million
in 2002, had exercise prices above the average market price for the related periods and were also excluded.
U. Pensions and Other Retirement Benefits
Pensions.
The Company sponsors various pension plans covering certain U.S. and non-U.S.
employees, and certain other employees, and participates in
certain multi-employer pension plans. The benefits under the Company plans are
based primarily on years of service and either the employees’ remuneration
near retirement, or a fixed dollar multiple. 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.
A measurement date of December 31 was used for all plans presented below.
The 2004, 2003 and 2002 components of pension expense/(income) were as follows:
U.S.
2004
2003
2002
Service cost
$
8
$
8
$
9
Interest cost
81
77
85
Expected return on plan assets
(73
)
(64
)
(76
)
Recognized actuarial loss
61
51
37
Recognized prior service cost
2
2
2
Total pension expense
$
79
$
74
$
57
Non-U.S.
2004
2003
2002
Service cost
$
31
$
26
$
25
Interest cost
163
139
125
Expected return on plan assets
(217
)
(179
)
(192
)
Recognized actuarial loss
47
40
19
Recognized prior service cost
(6
)
(6
)
(7
)
Cost attributable to settlements
3
3
Total pension expense/(income)
$
21
$
23
($
30
)
Additional pension expense of $4 was recognized in each of the last three years
for multi-employer plans.
The projected benefit obligations,
accumulated benefit obligations and fair value of plan assets for U.S. pension plans with
accumulated benefit obligations in excess of plan assets were $1,402, $1,369 and $952,
respectively, as of December 31, 2004, and $1,279, $1,248 and $830, respectively, as of
December 31, 2003.
The projected benefit obligations,
accumulated benefit obligations and fair value of plan assets for non-U.S. pension plans
with accumulated benefit obligations in excess of plan assets were $366, $333 and $164,
respectively, as of December 31, 2004 and $311, $277 and $136, respectively, as of December
31, 2003.
-52-
Crown Holdings, Inc.
U.S. Plans
Non-U.S. Plans
Projected Benefit Obligations
2004
2003
2004
2003
Benefit obligations at January 1
$
1,279
$
1,212
$
2,474
$
2,060
Service cost
8
8
31
26
Interest cost
81
77
163
139
Plan participants’ contributions
1
1
9
8
Amendments
2
Settlements
1
Actuarial (gain)/loss
151
99
76
100
Benefits paid
(118
)
(118
)
(141
)
(119
)
Foreign currency exchange rate changes
195
258
Benefit obligations at December 31
$
1,402
$
1,279
$
2,808
$
2,474
Accumulated benefit obligations at December 31
$
1,369
$
1,248
$
2,619
$
2,297
U.S. Plans
Non-U.S. Plans
Plan Assets
2004
2003
2004
2003
Fair value of plan assets at January 1
$
830
$
736
$
2,521
$
2,096
Actual return on plan assets
114
126
252
249
Employer contributions
125
85
46
37
Plan participants’ contributions
1
1
9
8
Benefits paid
(118
)
(118
)
(141
)
(119
)
Foreign currency exchange rate changes
198
250
Fair value of plan assets at December 31
$
952
$
830
$
2,885
$
2,521
Plan assets in excess of /(less than) benefit obligation
($
450
)
($
449
)
$
77
$
47
Unrecognized actuarial loss
810
761
717
676
Unrecognized prior service cost
13
15
(43
)
(48
)
Net amount recognized
$
373
$
327
$
751
$
675
Amounts recognized in the balance sheet consist of:
Prepaid benefit cost
$
853
$
777
Accrued benefit liability
($
419
)
($
420
)
(
219
)
(194
)
Intangible asset
13
16
11
11
Accumulated other comprehensive income
779
731
106
81
Net amount recognized
$
373
$
327
$
751
$
675
For U.S. plans, additional minimum pension liabilities of $792 and $747 were
recognized at December 31, 2004 and 2003, respectively. For non-U.S. plans, additional
minimum pension liabilities of $117 and $92 were recognized at December 31, 2004 and 2003, respectively.
The expected future benefit payments
as of December 31, 2004 were:
U.S.
Plans
Non-U.S.
Plans
2005
$
119
$
145
2006
115
149
2007
114
155
2008
113
161
2009
111
168
2010 - 2014
531
917
-53-
Crown Holdings, Inc.
Additional information concerning the plan assets is presented below.
U.S. Plan Assets
Non-U.S. Plan Assets
Weighted Average
Weighted Average
2005
December 31,
2005
December 31,
Plan assets
Target Allocation
2004
2003
Target Allocation
2004
2003
Equity securities
70%
69%
58%
25%
25%
27%
Debt securities
12%
10%
16%
57%
58%
56%
Real estate
3%
2%
3%
8%
9%
9%
Other
15%
19%
23%
10%
8%
8%
100%
100%
100%
100%
100%
100%
Plan assets included $84 and $55 of the
Company’s common stock at December 31, 2004 and 2003, respectively.
The non-U.S. plan asset percentages are those
of the U.K. plan, which is the primary non-U.S. plan with assets. The “other”
caption of plan assets includes alternate investments such as private equities, hedge
funds and venture capital limited partnerships.
Estimated 2005 employer contributions are $88 for the U.S. plans and $46 for the non-U.S. plans.
The Company’s investment strategy in
the U.S. plan is to provide the fund with an ability to earn attractive long-term rates of
return on its assets at an acceptable level of risk. The equity portions of the program
are diversified within the U.S. and international markets based on capitalization,
valuations and other factors. Debt securities include all sectors of the marketable bond
markets.
The Company’s investment strategy in
the U.K. plan is to invest 52% of its assets in investment grade bonds that match the
liability profile. The remaining assets are invested in U.K. and global equities, real
estate, high-yield bonds and alternate investments. The allocation of assets is determined
after considering the plan’s financial position, liability profile and funding
requirements.
The weighted average actuarial
assumptions used to calculate the benefit obligations at December 31, were:
U.S.
2004
2003
2002
Discount rate
5.8%
6.3%
6.8%
Compensation increase
3.0%
3.0%
3.0%
Non-U.S.
2004
2003
2002
Discount rate
6.3%
6.7%
6.9%
Compensation increase
4.3%
4.3%
4.4%
The weighted average actuarial assumptions
used to calculate pension expense/income for each year were:
U.S.
2004
2003
2002
Discount rate
6.3%
6.8%
7.3%
Compensation increase
3.0%
3.0%
3.5%
Long-term rate of return
9.0%
9.0%
9.5%
Non-U.S.
2004
2003
2002
Discount rate
6.7%
6.9%
6.5%
Compensation increase
4.3%
4.4%
4.4%
Long-term rate of return
8.5%
8.5%
9.2%
-54-
Crown Holdings, Inc.
The expected long-term rates of return
are determined at each measurement date based on a review of the actual plan assets, the
target allocation, and the historical returns of the capital markets, adjusted for current
interest rates as appropriate. The rates for 2005 will be the same as 2004.
Other Postretirement Benefit Plans
. The Company sponsors unfunded plans to provide health care and life insurance
benefits to pensioners and survivors. Generally, the medical 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. A measurement date of
December 31 was used for the plans presented below.
The components of the net postretirement benefits cost were as follows:
2004
2003
2002
Service cost
$
3
$
3
$
3
Interest cost
39
45
47
Recognized prior service cost
(12
)
(6
)
(1
)
Recognized actuarial loss
14
10
4
Total postretirement benefit cost
$
44
$
52
$
53
The following provides the components of the changes in the benefit obligations,
and reconciles the obligations to the amounts recognized:
2004
2003
Benefit obligations at January 1
$
653
$
722
Service cost
3
3
Interest cost
39
45
Amendments
(103
)
Actuarial loss
33
36
Benefits paid
(48
)
(59
)
Foreign currency exchange rate changes
5
9
Benefit obligations at December 31
685
653
Unrecognized actuarial loss
(224
)
(203
)
Unrecognized prior service cost
99
109
Net amount recognized
$
560
$
559
The U.S. plans were amended in 2003 to, among other things, require additional retiree
contributions for medical and prescription drug costs. As described in
Note L
,
the validity of the amendments is being litigated. The Company believes that it had the
right to make such amendments and intends to contest the matter vigorously. However, the
ultimate outcome of the litigation is uncertain and if the litigation is decided adversely,
the Company could be required to restore all
or a portion of the retiree medical benefits to their pre–amendment levels.
The expected future benefit
payments are $53 in 2005, $49 in 2006, $50 in 2007, $51 in 2008, $51 in 2009, and $248
in 2010 through 2014.
The health care accumulated
postretirement benefit obligations were determined at December 31, 2004 and 2003 using
health care trends of 9.0% and 9.1% decreasing to 5.0% over six years. Increasing the
assumed health care cost trend rate by one percentage point in each year would
increase the accumulated postretirement benefit obligations by $65 and the total of
service and interest cost by $4. Decreasing the assumed health care cost trend rate by
one percentage point in each year would decrease the accumulated postretirement benefit
obligations by $55 and the total of service and interest cost by $4.
The weighted average actuarial
assumptions used to calculate the benefit obligations and cost are the same as those used
for the pension plans as presented above.
-55-
Crown Holdings, Inc.
Employee Savings Plan
. The Company
sponsors Savings Investment Plans which cover substantially all domestic salaried
employees who are 21 years of age. The Company matches up to 3% 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 toward 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 2004 and 2003 were 87,960 and 144,625, respectively, and the Company’s
contributions were less than $1 in both years.
V. Income Taxes
Pre-tax income/(loss) for the years ended
December 31 was taxed under the following jurisdictions:
2004
2003
2002
U.S.
($
94
)
($
227
)
($
324
)
Foreign
255
346
179
$
161
$
119
($
145
)
The provision/(benefit) for income taxes consisted of the following:
Current tax:
U.S. federal
($
4
)
$
4
($
13
)
State and foreign
74
85
74
70
89
61
Deferred tax:
U.S. federal
(26
)
State and foreign
12
6
(5
)
12
6
(31
)
Total
$
82
$
95
$
30
During 2002, the Company recorded a
receivable for U.S. tax losses that were used in 2003 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, 2004, there were no
additional recoveries available to the Company for U.S. federal taxes paid in prior years.
The Company has a full valuation
allowance against its U.S. tax assets, including those related to minimum pension
liability adjustments. In the event that the U.S. minimum pension liability is
substantially eliminated in future periods, the Company will recognize an income tax
benefit of $122.
The provision for income taxes differed
from the amount of income tax determined by applying the U.S. statutory federal income tax
rate to pre-tax income as a result of the following items:
2004
2003
2002
U.S. statutory rate at 35%
$
56
$
42
($
51
)
Sale of businesses
40
119
Valuation allowance
(4
)
24
(30
)
Impairment losses
10
4
Tax on foreign income
(5
)
(21
)
(15
)
Withholding taxes
8
5
4
Other items, net
17
1
3
Income tax provision
$
82
$
95
$
30
-56-
Crown Holdings, Inc.
The impairment losses caption
for 2004 includes the tax effect of the non-deductible charge of $29 for the
write-off of cumulative translation adjustments as discussed in
Note N
. The other
items caption for 2004 primarily includes charges of $18 for tax contingencies
and a charge of $6 due to a 2004 change in the French capital gains tax rules,
partially offset by other net credits of $7, including adjustments for federal,
state and foreign refunds and credits due.
The sale of businesses caption
in 2003 includes the U.S. tax charge on a gain from an intercompany sale of
a subsidiary by the U.S. tax group. The offset to this item is included in the
valuation allowance caption as the U.S. tax loss carryforwards are covered by a full
valuation allowance. The pre-tax effect of the sale was eliminated in consolidation.
The valuation allowance caption for
2003 primarily includes losses in the U.S. and
Argentina for which the Company recorded no tax benefit. The loss in Argentina was
primarily due to the asset impairment charge described in Note N. The impairment loss
caption in 2003 includes the effect of the non-deductible goodwill impairment charge
described in
Note N
.
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 for 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 Company paid taxes, net of refunds, of $74, $50 and $22 in 2004, 2003 and 2002, respectively.
The components of deferred taxes at December 31 were:
2004
2003
Depreciation
($
209
)
($
248
)
Tax loss and credit carryforwards
364
369
Postretirement and postemployment benefits
211
201
Pensions
(88
)
(77
)
Asbestos
82
84
Inventories
(22
)
(14
)
Accruals and other
16
50
Valuation allowances
(679
)
(663
)
Net liability
($
325
)
($
298
)
Prepaid expenses and other current assets
included $15 and $16 of deferred tax assets at December 31, 2004 and 2003, respectively.
Tax loss and credit carryforwards
expire as follows: 2005 - $2; 2006 - $23; 2007 - $3; 2008 - $2; 2009 - $10;
thereafter - $221; unlimited - $103. The majority of those expiring after 2009
relate to $205 of U.S. tax loss carryforwards that expire from 2018 to 2024. The
unlimited carryforwards primarily include tax losses and credits in Europe.
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 $161 as of December 31, 2004.
Management has no plans to distribute such earnings in the foreseeable
future.
-57-
Crown Holdings, Inc.
W. 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, Mexico and South and Central
America. Europe includes Europe, Africa and the Middle East. Asia-Pacific includes China and
Southeast Asia. Although the economic
environments within each of these reportable segments are 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.
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, 2004, 2003 and 2002:
December 31, 2004
Americas
Europe
Asia-Pacific
Corporate
Total
External sales
$
2,858
$
3,962
$
379
$
7,199
Depreciation and amortization
108
177
17
$
6
308
Provision for restructuring
1
6
7
Segment income/(loss)
188
386
62
(99
)
537
Capital expenditures
57
73
5
3
138
Equity investments
30
45
10
85
Deferred tax assets
4
34
7
45
Segment assets
1,920
5,615
384
206
8,125
December 31, 2003
Americas
Europe
Asia-Pacific
Corporate
Total
External sales
$
2,715
$
3,559
$
356
$
6,630
Depreciation and amortization
115
185
19
$
7
326
Provision for restructuring
5
14
19
Segment income/(loss)
135
310
53
(89
)
409
Capital expenditures
50
60
4
6
120
Equity investments
34
42
7
83
Deferred tax assets
5
28
8
41
Segment assets
1,947
5,269
326
231
7,773
December 31, 2002
Americas
Europe
Asia-Pacific
Corporate
Total
External sales
$
3,227
$
3,235
$
330
$
6,792
Depreciation and amortization
165
182
20
$
8
375
Provision for restructuring
(1
)
13
7
19
Segment income/(loss)
220
301
30
(89
)
462
Capital expenditures
46
66
2
1
115
Equity investments
40
41
30
111
Deferred tax assets
5
116
8
129
Segment assets
2,144
4,832
321
208
7,505
-58-
Crown Holdings, Inc.
A reconciliation of segment income to
consolidated income/(loss) before income taxes, minority interests, equity earnings and
cumulative effect of a change in accounting for the years ended December 31, 2004, 2003
and 2002 follows:
2004
2003
2002
Segment income
$
537
$
409
$
462
Interest expense
361
379
342
Interest income
(8
)
(11
)
(11
)
Provision for asset impairments and loss on sale of assets
47
73
247
Provision for asbestos
35
44
30
Loss/(gain) from early extinguishments of debt
39
12
(28
)
Translation and exchange adjustments
(98
)
(207
)
27
Income/(loss) before income taxes, minority interest, equity
interests and cumulative effect of a change in accounting
$
161
$
119
($
145
)
For the years ended December 31, 2004, 2003 and 2002, no one customer accounted
for more than 10% of the Company’s consolidated net sales.
Sales by major product were:
2004
2003
2002
Metal beverage cans and ends
$
2,634
$
2,431
$
2,309
Metal food cans and ends
2,324
2,110
1,944
Other metal packaging
1,269
1,184
1,113
Plastics packaging
907
840
*
1,367
Other products
65
65
59
Consolidated net sales
$
7,199
$
6,630
$
6,792
Sales and long-lived assets for the major countries in which the Company operates were:
Net Sales
Long-lived Assets
2004
2003
2002
2004
2003
2002
United States
$
2,116
$
2,013
*
$
2,528
$
529
$
574
$
657
United Kingdom
916
839
842
311
322
340
France
792
743
652
187
213
204
Other
3,375
3,035
2,770
975
1,003
1,011
Consolidated total
$
7,199
$
6,630
$
6,792
$
2,002
$
2,112
$
2,212
*
The decline in sales for 2003 was primarily due to the initial public
offering of Constar in November 2002 and the resulting deconsolidation.
-59-
Crown Holdings, Inc.
X. Condensed Combining Financial Information
In connection with the Company’s
refinancing as discussed in
Note R
, Crown European Holdings (Issuer), a 100% owned
subsidiary of the Company, issued senior secured notes that are fully and
unconditionally guaranteed by Crown and certain subsidiaries. The guarantor information
includes substantially all subsidiaries in the United States, the United Kingdom, France,
Germany, Belgium, Canada, Mexico and Switzerland. The guarantors are 100% owned by the
Company and the guarantees are made on a joint and several basis. The following condensed
combining financial statements:
•
statements of operations and cash flows for the years ended December 31, 2004, 2003 and 2002, and
•
balance sheets as of December 31, 2004 and 2003
are presented on the following pages to comply with the Company’s
requirements under Rule 3-10 of Regulation S-X.
CONDENSED COMBINING STATEMENT OF OPERATIONS
For the year ended December 31, 2004
(in millions)
Parent
Issuer
Guarantors
Non
Guarantors
Eliminations
Total
Company
Net sales
$4,930
$2,269
$7,199
Cost of products sold, excluding depreciation and amortization
($21
)
4,178
1,827
5,984
Depreciation and amortization
214
94
308
Gross profit
21
538
348
907
Selling and administrative expense
(1
)
281
83
363
Provision for asbestos
35
35
Provision for restructuring
7
7
Provision for asset impairments and loss/gain on sale of assets
43
4
47
Loss from early extinguishments of debt
9
30
39
Net interest expense
117
235
1
353
Technology royalty
(29
)
29
Translation and exchange adjustments
(37
)
(42
)
(19
)
(98
)
Income/(loss) before income taxes, minority interests
and equity earnings
(67
)
(22
)
250
161
Provision for income taxes
22
60
82
Equity earnings
$51
239
93
($383
)
Income before minority interests and equity earnings
51
172
49
190
(383
)
79
Minority interests and equity earnings
2
(30
)
(28
)
Net income
$51
$172
$51
$160
($383
)
$51
-60-
Crown Holdings, Inc.
CONDENSED COMBINING STATEMENT OF OPERATIONS
For the year ended December 31, 2003
(in millions)
Parent
Issuer
Guarantors
Non
Guarantors
Eliminations
Total
Company
Net sales
$4,630
$2,000
$6,630
Cost of products sold, excluding depreciation an amortization
($15
)
3,946
1,608
5,539
Depreciation and amortization
227
99
326
Gross profit
15
457
293
765
Selling and administrative expense
267
70
337
Provision for asbestos
44
44
Provision for restructuring
17
2
19
Provision for asset impairments and loss/gain on sale of assets
71
70
30
($98
)
73
Loss from early extinguishments of debt
12
12
Net interest expense
102
278
(12
)
368
Technology royalty
(25
)
25
Translation and exchange adjustments
(63
)
(103
)
(41
)
(207
)
Income/(loss) before income taxes, minority interests
and equity earnings
(95
)
(103
)
219
98
119
Provision for income taxes
29
66
95
Equity earnings/(loss)
($32
)
249
124
(341
)
Income/(loss) before minority interests and equity earnings
(32
)
154
(8
)
153
(243
)
24
Minority interests and equity earnings
(24
)
(32
)
(56
)
Net income/(loss)
($32
)
$154
($32
)
$121
($243
)
($32
)
-61-
Crown Holdings, Inc.
CONDENSED COMBINING STATEMENT OF OPERATIONS
For the year ended December 31, 2002
(in millions)
Parent
Issuer
Guarantors
Non
Guarantors
Eliminations
Total
Company
Net sales
$4,971
$1,821
$6,792
Cost of products sold, excluding depreciation an amortization
($11
)
4,139
1,491
5,619
Depreciation and amortization
274
101
375
Gross profit
11
558
229
798
Selling and administrative expense
(1
)
253
65
317
Provision for asbestos
30
30
Provision for restructuring
10
9
19
Provision for asset impairments and loss/gain on sale of assets
32
223
8
($16
)
247
Gain from early extinguishments of debt
(28
)
(28
)
Net interest expense
19
315
(3
)
331
Technology royalty
(22
)
22
Translation and exchange adjustments
2
25
27
Income/(loss) before income taxes, minority interests, equity
earnings and cumulative effect of a change in accounting
(39
)
(225
)
103
16
(145
)
Provision for income taxes
1
29
30
Equity earnings/(loss)
($191
)
106
35
50
Income/(loss) before minority interests, equity earnings
and cumulative effect of a change in accounting
(191
)
67
(191
)
74
66
(175
)
Minority interests and equity earnings
(16
)
(16
)
Cumulative effect of a change in accounting, net of tax
(1,014
)
(894
)
(1,014
)
(231
)
2,139
(1,014
)
Net loss
($1,205
)
($827
)
($1,205
)
($173
)
$2,205
($1,205
)
-62-
Crown Holdings, Inc.
CONDENSED COMBINING BALANCE SHEET
As of December 31, 2004
(in millions)
Parent
Issuer
Guarantors
Non
Guarantors
Eliminations
Total
Company
Assets
Current assets
Cash and cash equivalents
$1
$168
$302
$471
Receivables, net
6
362
532
900
Intercompany receivables
1
53
37
($91
)
Inventories
556
338
894
Prepaid expenses and other current assets
59
19
78
Total current assets
8
1,198
1,228
(91
)
2,343
Intercompany debt receivables
$22
2,648
1,378
898
(4,946
)
Investments
75
10
85
Investments in subsidiaries
272
3,254
17
(3,543
)
Goodwill
1
1,931
660
2,592
Property, plant and equipment, net
1,329
673
2,002
Other non-current assets
84
978
41
1,103
Total
$294
$5,995
$6,906
$3,510
($8,580
)
$8,125
Liabilities and shareholders’ equity
Current liabilities
Short-term debt
$10
$41
$51
Current maturities of long-term debt
2
23
25
Accounts payable and accrued liabilities
$17
$94
1,237
595
1,943
Intercompany payables
37
54
($91
)
Income taxes payable
37
24
61
Total current liabilities
17
94
1,323
737
(91
)
2,080
Long-term debt, excluding current maturities
2,794
935
67
3,796
Long-term intercompany debt
1,419
2,786
741
(4,946
)
Postretirement and pension liabilities
1,003
16
1,019
Other non-current liabilities
25
587
140
752
Minority interests
201
201
Commitments and contingent liabilities
Shareholders’ equity
277
1,663
272
1,608
(3,543
)
277
Total
$294
$5,995
$6,906
$3,510
($8,580
)
$8,125
-63-
Crown Holdings, Inc.
CONDENSED COMBINING BALANCE SHEET
As of December 31, 2003
(in millions)
Parent
Issuer
Guarantors
Non
Guarantors
Eliminations
Total
Company
Assets
Current assets
Cash and cash equivalents
$5
$118
$278
$401
Receivables, net
12
299
483
794
Intercompany receivables
38
28
($66
)
Inventories
515
300
815
Prepaid expenses and other current assets
78
34
112
Total current assets
17
1,048
1,123
(66
)
2,122
Intercompany debt receivables
$8
2,452
1,448
1,141
(5,049
)
Investments
66
17
83
Investments in subsidiaries
138
3,393
312
(3,843
)
Goodwill
1,831
611
2,442
Property, plant and equipment, net
1,419
693
2,112
Other non-current assets
85
898
31
1,014
Total
$146
$5,947
$7,022
$3,616
($8,958
)
$7,773
Liabilities and shareholders’ equity
Current liabilities
Short-term debt
$46
$23
$69
Current maturities of long-term debt
3
158
161
Accounts payable and accrued liabilities
$6
$97
1,118
523
1,744
Intercompany payables
28
38
($66
)
Income taxes payable
35
27
62
Total current liabilities
6
97
1,230
769
(66
)
2,036
Long-term debt, excluding current maturities
2,197
1,458
54
3,709
Long-term intercompany debt
1,799
2,668
582
(5,049
)
Postretirement and pension liabilities
974
11
985
Other non-current liabilities
31
552
123
706
Minority interests
197
197
Commitments and contingent liabilities
Shareholders’ equity
140
1,823
140
1,880
(3,843
)
140
Total
$146
$5,947
$7,022
$3,616
($8,958
)
$7,773
-64-
Crown Holdings, Inc.
CONDENSED COMBINING STATEMENT OF CASH FLOWS
For the year ended December 31, 2004
(in millions)
Parent
Issuer
Guarantors
Non
Guarantors
Eliminations
Total
Company
Net cash provided by / (used for) operating activities
$11
($86
)
$171
$308
$404
Cash flows from investing activities
Capital expenditures
(105
)
(33
)
(138
)
Proceeds from sale of property, plant and equipment
29
10
39
Intercompany investing activities
557
452
(1
)
($1,008
)
Other, net
6
(14
)
(8
)
Net cash provided by / (used for) investing activities
557
382
(38
)
(1,008
)
(107
)
Cash flows from financing activities
Proceeds from long-term debt
563
125
32
720
Payments of long-term debt
(58
)
(650
)
(165
)
(873
)
Net change in short-term debt
(34
)
10
(24
)
Net change in long-term intercompany balances
(14
)
(552
)
139
427
Debt issue costs
(14
)
(17
)
(31
)
Dividends paid
(415
)
(74
)
(519
)
1,008
Common stock issued
3
3
Dividends paid to minority interests, net of contributions
(41
)
(41
)
Net cash used for financing activities
(11
)
(476
)
(511
)
(256
)
1,008
(246
)
Effect of exchange rate changes on cash and cash equivalents
1
8
10
19
Net change in cash and cash equivalents
(4
)
50
24
70
Cash and cash equivalents at January 1
5
118
278
401
Cash and cash equivalents at December 31
$0
$1
$168
$302
$0
$471
-65-
Crown Holdings, Inc.
CONDENSED COMBINING STATEMENT OF CASH FLOWS
For the year ended December 31, 2003
(in millions)
Parent
Issuer
Guarantors
Non
Guarantors
Eliminations
Total
Company
Net cash provided by / (used for) operating activities
($10
)
$106
$338
$434
Cash flows from investing activities
Capital expenditures
(86
)
(34
)
(120
)
Funding of restricted cash accounts
(228
)
(116
)
(344
)
Withdrawals from restricted cash accounts
228
116
344
Proceeds from sale of property, plant and equipment
30
5
35
Intercompany investing activities
(1,118
)
1,196
34
($112
)
Other, net
(9
)
3
(9
)
(15
)
Net cash provided by / (used for) investing activities
(1,127
)
1,143
(4
)
(112
)
(100
)
Cash flows from financing activities
Proceeds from long-term debt
2,170
450
5
2,625
Payments of long-term debt
(3
)
(651
)
(455
)
(1,109
)
Net change in short-term debt
(1,670
)
(3
)
(1,673
)
Net change in long-term intercompany balances
($2
)
(940
)
666
274
2
Debt issue costs
(86
)
(55
)
(141
)
Net payment from termination of cross-currency swaps
27
(35
)
(8
)
Dividends paid
(47
)
(65
)
112
Common stock issued
2
2
(2
)
2
Dividends paid to minority interests, net of contributions
(24
)
(24
)
Net cash provided by / (used for) financing activities
1,141
(1,278
)
(303
)
112
(328
)
Effect of exchange rate changes on cash and cash equivalents
8
24
32
Net change in cash and cash equivalents
4
(21
)
55
38
Cash and cash equivalents at January 1
1
139
223
363
Cash and cash equivalents at December 31
$0
$5
$118
$278
$0
$401
-66-
Crown Holdings, Inc.
CONDENSED COMBINING STATEMENT OF CASH FLOWS
For the year ended December 31, 2002
(in millions)
Parent
Issuer
Guarantors
Non
Guarantors
Eliminations
Total
Company
Net cash provided by operating activities
$126
$289
$415
Cash flows from investing activities
Capital expenditures
(59
)
(56
)
(115
)
Proceeds from sale of businesses
637
24
661
Proceeds from sale of property, plant and equipment
30
15
45
Intercompany investing activities
$148
42
(58
)
($132
)
Other, net
(6
)
6
Net cash provided by / (used for) investing activities
148
644
(69
)
(132
)
591
Cash flows from financing activities
Proceeds from long-term debt
87
87
Payments of long-term debt
(217
)
(47
)
(264
)
Net change in short-term debt
(894
)
(30
)
(924
)
Net change in long-term intercompany balances
(147
)
305
(158
)
Dividends paid
(4
)
(128
)
132
Common stock issued
3
3
Dividends paid to minority interests, net of contributions
(30
)
(30
)
Net cash used for financing activities
(147
)
(807
)
(306
)
132
(1,128
)
Effect of exchange rate changes on cash and cash equivalents
8
21
29
Net change in cash and cash equivalents
1
(29
)
(65
)
(93
)
Cash and cash equivalents at January 1
168
288
456
Cash and cash equivalents at December 31
$0
$1
$139
$223
$0
$363
-67-
Crown Holdings, Inc.
Y. Condensed Combining Financial Information
Crown Cork & Seal Company, Inc. (Issuer), a 100% owned subsidiary, has
outstanding registered debt that is fully and unconditionally guaranteed by
Crown Holdings, Inc. (Parent). No other subsidiary guarantees the debt. The following
condensed combining financial statements:
•
statements of operations and cash flows for the years
ended December 31, 2004, 2003 and 2002, and
•
balance sheets as of December 31, 2004 and 2003
are presented on the following pages to comply with the Company’s requirements
under Rule 3-10 of Regulation S-X.
CONDENSED COMBINING STATEMENT OF OPERATIONS
For the year ended December 31, 2004
(in millions)
Parent
Issuer
Non
Guarantors
Eliminations
Total
Company
Net sales
$7,199
$7,199
Cost of products sold, excluding depreciation and amortization
5,984
5,984
Depreciation and amortization
308
308
Gross profit
907
907
Selling and administrative expense
$5
358
363
Provision for asbestos
35
35
Provision for restructuring
7
7
Provision for asset impairments and loss/gain on sale of assets
1
46
47
Loss from early extinguishments of debt
1
38
39
Net interest expense
309
44
353
Translation and exchange adjustments
(98
)
(98
)
Income/(loss) before income taxes, minority interests,
and equity earnings
(351
)
512
161
Provision / (benefit) for income taxes
(94
)
176
82
Equity earnings
$51
294
($345
)
Income before minority interests and equity earnings
51
37
336
(345
)
79
Minority interests and equity earnings
14
(42
)
(28
)
Net income
$51
$51
$294
($345
)
$51
-68-
Crown Holdings, Inc.
CONDENSED COMBINING STATEMENT OF OPERATIONS
For the year ended December 31, 2003
(in millions)
Parent
Issuer
Non
Guarantors
Eliminations
Total
Company
Net sales
$
6,630
$
6,630
Cost of products sold, excluding depreciation and amortization
5,539
5,539
Depreciation and amortization
326
326
Gross profit
765
765
Selling and administrative expense
337
337
Provision for asbestos
$
44
44
Provision for restructuring
19
19
Provision for asset impairments and loss/gain on sale of assets
(156
)
73
$
156
73
(Gain)/loss from early extinguishments of debt
21
(9
)
12
Net interest expense
309
59
368
Translation and exchange adjustments
(207
)
(207
)
Income/(loss) before income taxes, minority interests,
and equity earnings
(218
)
493
(156
)
119
Provision / (benefit) for income taxes
(47
)
142
95
Equity earnings/(loss)
($
32
)
159
(127
)
Income/(loss) before minority interests and equity earnings
(32
)
(12
)
351
(283
)
24
Minority interests and equity earnings
(20
)
(36
)
(56
)
Net income/(loss)
($
32
)
($
32
)
$
315
($
283
)
($
32
)
-69-
Crown Holdings, Inc.
CONDENSED COMBINING STATEMENT OF OPERATIONS
For the year ended December 31, 2002
(in millions)
Parent
Issuer
Non
Guarantors
Eliminations
Total
Company
Net sales
$
6,792
$
6,792
Cost of products sold, excluding depreciation and amortization
5,619
5,619
Depreciation and amortization
375
375
Gross profit
798
798
Selling and administrative expense
317
317
Provision for asbestos
$
30
30
Provision for restructuring
19
19
Provision for asset impairments and loss/gain on sale of assets
213
34
247
Gain from early extinguishments of debt
(22
)
(6
)
(28
)
Net interest expense
311
20
331
Translation and exchange adjustments
27
27
Income/(loss) before income taxes, minority interests, equity earnings
and cumulative effect of a change in accounting
(532
)
387
(145
)
Provision / (benefit) for income taxes
(92
)
122
30
Equity earnings/(loss)
($
191
)
242
($51
)
Income/(loss) before minority interests, equity earnings
and cumulative effect of a change in accounting
(191
)
(198
)
265
(51
)
(175
)
Minority interests and equity earnings
7
(23
)
(16
)
Cumulative effect of a change in accounting
(1,014
)
(1,014
)
(1,014
)
2,028
(1,014
)
Net loss
($
1,205
)
($
1,205
)
($
772
)
$
1,977
($
1,205
)
-70-
Crown Holdings, Inc.
CONDENSED COMBINING BALANCE SHEET
As of December 31, 2004
(in millions)
Parent
Issuer
Non
Guarantors
Eliminations
Total
Company
Assets
Current assets
Cash and cash equivalents
$471
$471
Receivables, net
900
900
Inventories
894
894
Prepaid expenses and other current assets
78
78
Total current assets
2,343
2,343
Intercompany debt receivables
$22
3,204
($3,226
)
Investments
272
$
4,444
30
(4,661
)
85
Goodwill
2,592
2,592
Property, plant and equipment, net
2,002
2,002
Other non-current assets
9
1,094
1,103
Total
$294
$4,453
$11,265
($7,887
)
$8,125
Liabilities and shareholders’ equity
Current liabilities
Short-term debt
$51
$51
Current maturities of long-term debt
$1
24
25
Accounts payable and accrued liabilities
$17
49
1,877
1,943
Income taxes payable
61
61
Total current liabilities
17
50
2,013
2,080
Long-term debt, excluding current maturities
698
3,098
3,796
Long-term intercompany debt
3,226
($3,226
)
Postretirement and pension liabilities
1,019
1,019
Other non-current liabilities
207
545
752
Minority interests
201
201
Commitments and contingent liabilities
Shareholders’ equity
277
272
4,389
(4,661
)
277
Total
$294
$4,453
$11,265
($7,887
)
$8,125
-71-
Crown Holdings, Inc.
CONDENSED COMBINING BALANCE SHEET
As of December 31, 2003
(in millions)
Parent
Issuer
Non
Guarantors
Eliminations
Total
Company
Assets
Current assets
Cash and cash equivalents
$
401
$
401
Receivables, net
794
794
Inventories
815
815
Prepaid expenses and other current assets
112
112
Total current assets
2,122
2,122
Intercompany debt receivables
$
8
3,307
($3,315
)
Investments
138
$
4,473
37
(4,565
)
83
Goodwill
2,442
2,442
Property, plant and equipment, net
2,112
2,112
Other non-current assets
9
1,005
1,014
Total
$
146
$
4,482
$
11,025
($
7,880
)
$
7,773
Liabilities and shareholders’ equity
Current liabilities
Short-term debt
$
69
$
69
Current maturities of long-term debt
$
1
160
161
Accounts payable and accrued liabilities
$
6
81
1,657
1,744
Income taxes payable
4
58
62
Total current liabilities
6
86
1,944
2,036
Long-term debt, excluding current maturities
759
2,950
3,709
Long-term intercompany debt
3,315
($3,315
)
Postretirement and pension liabilities
985
985
Other non-current liabilities
184
522
706
Minority interests
197
197
Commitments and contingent liabilities
Shareholders’ equity
140
138
4,427
(4,565
)
140
Total
$
146
$
4,482
$
11,025
($
7,880
)
$
7,773
-72-
Crown Holdings, Inc.
CONDENSED COMBINING STATEMENT OF CASH FLOWS
For the year ended December 31, 2004
(in millions)
Parent
Issuer
Non
Guarantors
Eliminations
Total
Company
Net cash provided by / (used for) operating activities
$11
($263
)
$656
$404
Cash flows from investing activities
Capital expenditures
(138
)
(138
)
Proceeds from sale of property, plant and equipment
39
39
Intercompany investing activities
410
(398
)
($12
)
Other, net
4
(12
)
(8
)
Net cash provided by/(used for) investing activities
414
(509
)
(12
)
(107
)
Cash flows from financing activities
Proceeds from long-term debt
720
720
Payments of long-term debt
(62
)
(811
)
(873
)
Net change in short-term debt
(24
)
(24
)
Debt issue costs
(31
)
(31
)
Net change in long-term intercompany balances
(14
)
(89
)
103
Dividends paid
(12
)
12
Common stock issued
3
3
Dividends paid to minority interests, net of contributions
(41
)
(41
)
Net cash used for financing activities
(11
)
(151
)
(96
)
12
(246
)
Effect of exchange rate changes on cash and cash equivalents
19
19
Net change in cash and cash equivalents
70
70
Cash and cash equivalents at January 1
401
401
Cash and cash equivalents at December 31
$0
$0
$471
$0
$471
-73-
Crown Holdings, Inc.
CONDENSED COMBINING STATEMENT OF CASH FLOWS
For the year ended December 31, 2003
(in millions)
Parent
Issuer
Non
Guarantors
Eliminations
Total
Company
Net cash provided by / (used for) operating activities
($
323
)
$
757
$
434
Cash flows from investing activities
Capital expenditures
(120
)
(120
)
Funding of restricted cash accounts
(344
)
(344
)
Withdrawals from restricted cash accounts
344
344
Proceeds from sale of property, plant and equipment
35
35
Intercompany investing activities
855
(877
)
$
22
Other, net
4
(19
)
(15
)
Net cash provided by/(used for) investing activities
859
(981
)
22
(100
)
Cash flows from financing activities
Proceeds from long-term debt
2,625
2,625
Payments of long-term debt
(329
)
(780
)
(1,109
)
Net change in short-term debt
(1,576
)
(97
)
(1,673
)
Debt issue costs
(141
)
(141
)
Net payment from termination of cross-currency swaps
(8
)
(8
)
Net change in long-term intercompany balances
(
$
2
)
1,342
(1,340
)
Dividends paid
(5
)
5
Common stock issued
2
27
(27
)
2
Dividends paid to minority interests, net of contributions
(24
)
(24
)
Net cash provided by/(used for) financing activities
(536
)
230
(22
)
(328
)
Effect of exchange rate changes on cash and cash equivalents
32
32
Net change in cash and cash equivalents
38
38
Cash and cash equivalents at January 1
363
363
Cash and cash equivalents at December 31
$
0
$
0
$
401
$
0
$
401
-74-
Crown Holdings, Inc.
CONDENSED COMBINING STATEMENT OF CASH FLOWS
For the year ended December 31, 2002
(in millions)
Parent
Issuer
Non
Guarantors
Eliminations
Total
Company
Net cash provided by / (used for) operating activities
($
313
)
$
728
$
415
Cash flows from investing activities
Capital expenditures
(115
)
(115
)
Proceeds from sale of businesses
460
201
661
Proceeds from sale of property, plant and equipment
45
45
Intercompany investing activities
(108
)
89
$
19
Net cash provided by investing activities
352
220
19
591
Cash flows from financing activities
Proceeds from long-term debt
87
87
Payments of long-term debt
(212
)
(52
)
(264
)
Net change in short-term debt
(226
)
(698
)
(924
)
Net change in long-term intercompany balances
366
(366
)
Dividends paid
(11
)
11
Common stock issued
33
(30
)
3
Dividends paid to minority interests, net of contributions
(30
)
(30
)
Net cash used for financing activities
(39
)
(1,070
)
(19
)
(1,128
)
Effect of exchange rate changes on cash and cash equivalents
29
29
Net change in cash and cash equivalents
(93
)
(93
)
Cash and cash equivalents at January 1
456
456
Cash and cash equivalents at December 31
$
0
$
0
$
363
$
0
$
363
-75-
Crown Holdings, Inc.
Quarterly Data (unaudited)
(in millions)
2004
2003
First
Second
Third
Fourth
First
Second
Third
Fourth
Net Sales
$1,623
$1,836
$1,992
$1,748
$1,460
$1,726
$1,853
$1,591
Gross profit *
185
259
273
190
148
219
240
158
Net income/(loss)
(16
)
(1)
36
(2)
58
(3)
(27
)
(4)
(34
)
(5)
50
(6)
6
(7)
(54
)
(8)
Earnings/(loss) per average common share: †
Basic
($ .10
)
$ .22
$ .35
($ .16
)
($ .21
)
$ .30
$ .04
($ .33
)
Diluted
($ .10
)
(1)
$ .22
(2)
$ .35
(3)
($ .16
)
(4)
($ .21
)
(5)
$ .30
(6)
$ .04
(7)
($ .33
)
(8)
Average common shares outstanding:
Basic
165.1
165.2
165.3
165.4
163.8
164.9
164.9
165.0
Diluted
165.1
167.3
168.0
165.4
163.8
165.8
166.2
165.0
Common stock price range:**
High
$9.96
$10.60
$10.67
$14.20
$8.28
$7.95
$7.91
$9.50
Low
8.10
7.85
9.21
9.77
4.55
5.10
6.36
6.76
Close
9.32
9.97
10.31
13.74
5.62
7.14
6.75
9.06
†
Diluted earnings per share for 2004 and 2003 are the same as basic because common shares contingently issuable upon the exercise of stock
options were either not material or were 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.
**
Source: New York Stock Exchange — Composite Transactions
(1)
Includes a loss from the early extinguishments of debt of $4
($3 after taxes or $.02 per share) and foreign exchange losses on
foreign currency-denominated debt in Europe of $3 ($2 after taxes or $.01 per share).
(2)
Includes foreign exchange losses on foreign currency-denominated
debt in Europe of $22 ($15 after taxes or $.09 per share).
(3)
Includes an after-tax restructuring charge of $1, a loss from the
early extinguishments of debt of $33 ($29 after taxes or $.17 per
share), and foreign exchange gains of $32 ($22 after taxes or $.13 per share) on foreign
currency-denominated debt in Europe.
(4)
Includes an after-tax restructuring charge of $4, a charge for
asbestos of $35 ($35 after taxes or $.21 per share), a charge for
asset impairments of $47 ($41 after taxes or $.25 per share), a loss from the early
extinguishments of debt of $2 ($1 after taxes or $.01 per share) and foreign exchange gains of $91
($62 net of taxes or $.37 per share) on foreign currency-denominated debt in Europe.
(5)
Includes a loss from the early extinguishments of debt of $11 ($13 after taxes or $.08 per share)
and a foreign exchange gain on U.S. dollar debt in Europe of $13 ($11 after taxes or $.07 per share).
(6)
Includes a gain of $3 ($2 after taxes or $.01 per share) for asset sales, a gain from the early extinguishments
of debt of $2 ($1 after taxes or $.01 per share), a foreign exchange gain of $51 ($42 after taxes or $.25
per share) on U.S. dollar debt in Europe, and a loss of $22 ($22 after taxes or $.13 per share) for the
Company’s share of a goodwill impairment charge recorded by Constar.
(7)
Includes a net after-tax restructuring charge of $3, a charge for asset impairments and asset sales of $46 ($44 after taxes
or $.27 per share) and a gain of $47 ($28 after taxes or $.17 per share) on U.S. dollar debt in Europe.
(8)
Includes a net after-tax restructuring charge of $11, a charge for asbestos of $44 ($44 after taxes or $.27 per
share), a charge for asset impairments and asset sales of $30 ($24 after taxes or $.14 per share), a loss from the early
extinguishments of debt of $3 ($3 after taxes or $.02 per share) and a foreign exchange gain of $90 ($62 after taxes or $.37
per share) on U.S. dollar debt in Europe.
-76-
Crown Holdings, Inc.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
COLUMN A
COLUMN B
COLUMN C
Additions
COLUMN D
COLUMN E
Description
Balance at
beginning of
period
Charged to
costs and
expenses
Charged to
other
accounts
Deductions-
Write-Offs
Balance at
end of
period
For the Year Ended December 31, 2004
Allowances deducted from
assets to which they apply:
Trade accounts receivable
$ 56
($ 3
)
$ 2
$13
$ 42
Deferred tax assets
663
( 4
)
20
679
For the Year Ended December 31, 2003
Allowances deducted from
assets to which they apply:
Trade accounts receivable
54
1
1
56
Deferred tax assets
695
24
56
663
For the Year Ended December 31, 2002
Allowances deducted from
assets to which they apply:
Trade accounts receivable
95
20
61
54
Deferred tax assets
766
( 30
)
( 41
)
695
ITEM 9
.
DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A
.
CONTROLS AND PROCEDURES
At the end of the period covered by this Annual Report on Form 10-K, management,
including the Company’s Chief Executive
Officer and Chief Financial Officer, has evaluated the effectiveness of the design and
operation of its disclosure controls and procedures. Based upon that evaluation and as of
the end of the quarter for which this report is made, the Company’s Chief Executive
Officer and Chief Financial Officer concluded that the disclosure controls and procedures
were effective, in all material respects, to ensure that information to be disclosed in
reports that the Company files and submits under the Exchange Act is recorded, processed,
summarized and reported as and when required.
There has been no change in internal
controls over financial reporting that occurred during the quarter ended December 31,
2004 that has materially affected, or is reasonably likely to materially affect, the
Company’s internal control over financial reporting.
ITEM 9B
.
OTHER INFORMATION
None.
-77-
Crown Holdings, Inc.
PART III
ITEM 10
.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is
set forth in the Company’s Proxy Statement within the sections entitled
“Election of Directors,” “Section 16(a) Beneficial Ownership Reporting
Compliance” and “Corporate Governance” and is incorporated herein by
reference.
The following table sets forth certain
information concerning the principal executive officers of the Company, including their
ages and positions.
Name
Age
Present Title
Year Assumed
Present Position
John W. Conway
59
Chairman of the Board, President and Chief Executive Officer
2001
Alan W. Rutherford
61
Vice Chairman of the Board, Executive Vice President and Chief Financial Officer
2001
William R. Apted
57
President-European Division
2000
Frank J. Mechura
62
President-Americas Division
2001
William H. Voss
59
President-Asia-Pacific Division
1996
Timothy J. Donahue
42
Senior Vice President - Finance
2000
Thomas A. Kelly
45
Vice President and Corporate Controller
2000
All of the principal executive officers have been employed by the Company
for the past five years.
ITEM 11
.
EXECUTIVE COMPENSATION
The information required by this Item is
set forth in the Company’s Proxy Statement within the sections entitled
“Executive Compensation,” “Option Grants In Last Fiscal Year”
and “Corporate Governance” and is incorporated herein by reference.
ITEM 12
.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is
set forth in the Company’s Proxy Statement within the sections entitled “Proxy
Statement – Meeting, April 28, 2005,” “Equity-Compensation Plan
Information” and “Common Stock Ownership of Directors and Executive
Officers” and is incorporated herein by reference.
ITEM 13
.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is
set forth in the Company’s Proxy Statement within the sections entitled
“Election of Directors” and “Executive Compensation” and is
incorporated herein by reference.
ITEM 14
.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item is
set forth in the Company’s Proxy Statement within the section entitled
“Principal Accountant Fees and Services” and is incorporated herein by
reference.
-78-
Crown Holdings, Inc.
PART IV
ITEM 15
.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
a)
The
following documents are filed as part of this report:
(1)
All Financial Statements:
Crown Holdings, Inc. and Subsidiaries (see
Part II
,
Item 8
, pages 28 through 76 of this Report).
Management’s Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations for the years ended December 31, 2004, 2003 and 2002
Consolidated Balance Sheets as of December 31, 2004 and 2003
Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002
Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2004, 2003
and 2002
Notes to Consolidated Financial Statements
Supplementary Information
(2)
Financial Statement Schedules:
Schedule Number II -
Valuation and Qualifying Accounts and Reserves (see
page 77
of this Report).
All other schedules have been omitted because they are not applicable
or the required information is included in the Consolidated Financial Statements.
(3)
Exhibits
3.a
Articles
of Incorporation of Crown Holdings, Inc., as amended.
3.b
By-laws
of Crown Holdings, Inc., as amended.
4.a
Specimen certificate of Registrant’s Common Stock
(incorporated by reference to Exhibit 4.a of the Registrant’s Annual Report
on Form 10-K for the year ended December 31, 1995 (File No. 1-2227)).
4.b
Form of the Registrant’s 8% Debentures Due 2023
(incorporated by reference to Exhibit 24 of Registrant’s Current Report on
Form 8-K dated April 12, 1993 (File No. 1-2227)).
4.c
Officers’ Certificate (incorporated by reference to
Exhibit 4.3 of the Registrant’s Quarterly Report on Form 10-Q for the quarter
ended March 31, 1993 (File No. 1-2227)).
4.d
Indenture dated as of April 1, 1993 between Crown Cork & Seal
Company, Inc. and Chemical Bank, as Trustee (incorporated by reference to Exhibit 26 of the
Registrant’s Current Report on Form 8-K dated April 12, 1993 (File No 1-2227)).
4.e
Terms Agreement dated March 31, 1993 (incorporated by
reference to Exhibit 27 of the Registrant’s Current Report on Form 8-K dated
April 12, 1993 (File No. 1-2227)).
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Crown Holdings, Inc.
4.f
Indenture, dated December 17, 1996, among Crown Cork & Seal Company, Inc.,
Crown Cork & Seal Finance PLC, Crown Cork & Seal Finance S.A. and the Bank of New York, as trustee
(incorporated by reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K dated
December 17, 1996 (File No. 1-2227)).
4.g
Form of the Registrant’s 7-3/8% Debentures Due 2026
(incorporated by reference to Exhibit 99.1 of the Registrant’s Current
Report on Form 8-K dated December 17, 1996 (File No. 1-2227)).
4.h
Officers’ Certificate for 7-3/8% Debentures Due 2026
(incorporated by reference to Exhibit 99.6 of the Registrant’s Current
Report on Form 8-K dated December 17, 1996 (File No. 1-2227)).
4.i
Form of the Registrant’s 7-1/2% Debentures Due 2096
(incorporated by reference to Exhibit 99.2 of the Registrant’s Current
Report on Form 8-K dated December 17, 1996 (File No. 1-2227)).
4.j
Officers’ Certificate for 7-1/2% Debentures Due 2096
(incorporated by reference to Exhibit 99.7 of the Registrant’s Current
Report on Form 8-K dated December 17, 1996 (File No. 1-2227)).
4.k
Form of U.K. 7% Debentures Due 2006 (incorporated by
reference to Exhibit 99.4 of the Registrant’s Current Report on Form 8-K
dated December 17, 1996 (File No. 1-2227)).
4.l
Officers’ Certificate for 7% Debentures Due 2006
(incorporated by reference to Exhibit 99.9 of the Registrant’s Current Report
on Form 8-K dated December 17, 1996 (File No. 1-2227)).
4.m
Terms Agreement dated December 12, 1996 (incorporated
by reference to Exhibit 1.1 of the Registrant’s Current Report on Form
8-K dated December 17, 1996 (File No. 1-2227)).
4.n
Form of Bearer Security Depositary Agreement (incorporated
by reference to Exhibit 4.2 of the Registrant’s Registration Statement on Form S-3,
dated November 26, 1996, amended December 5 and 10, 1996 (File No. 333-16869)).
4.o
Form of Underwriting Agreement (incorporated by reference to
Exhibit 1.1 of the Registrant’s Registration Statement on Form
S-3, dated November 26, 1996, amended December 5 and 10, 1996 (File No. 333-16869)).
4.p
Amended and Restated Rights Agreement, dated as of December 9, 2004,
between Crown Holdings, Inc. and Wells Fargo Bank, N.A., as Rights Agent (incorporated by
reference to Exhibit 4.1 of the Registrant’s Current Report on Form 8-K dated December 9, 2004
(File No. 0-50189)).
4.q
Supplemental Indenture to Indenture dated April 1, 1993,
dated as of February 25, 2003, between Crown Cork & Seal Company, Inc., as Issuer,
Crown Holdings, Inc., as Guarantor and Bank One Trust Company, N.A., as Trustee
(incorporated by reference to the Registrant’s Current Report on Form 8-K dated
February 26, 2003 (File No. 0-50189)).
4.r
Supplemental Indenture to Indenture dated December 17, 1996, dated as of
February 25, 2003, between Crown Cork & Seal Company, Inc., as Issuer and Guarantor,
Crown Cork & Seal Finance PLC, as Issuer, Crown Cork & Seal Finance S.A., as Issuer,
Crown Holdings, Inc., as Additional Guarantor and Bank One Trust Company, N.A., as Trustee
(incorporated by reference to the Registrant’s Current Report on Form 8-K dated February 26, 2003
(File No. 0-50189)).
4.s
Credit Agreement, dated as of September 1, 2004, by and among the Company,
Crown Cork & Seal Company, Inc. and Crown International Holdings, Inc., as Parent Guarantors,
Crown European Holdings SA, as Euro Borrower, CROWN Americas, Inc. as U.S. Borrower, the Subsidiary Borrowers
named therein, the Lenders referred to therein, Citicorp North America, Inc. as Administrative Agent and
Citibank International plc, as U.K. Administrative Agent (incorporated by reference to Exhibit 4.a of the
Registrant’s Current Report on Form 8-K dated September 1, 2004 (File No. 0-50189)).
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Crown Holdings, Inc.
4.t
Euro Bank Pledge Agreement, dated as of September 1, 2004 by and among Crown Cork & Seal
Company, Inc., CROWN Americas Inc., Crown International Holdings, Inc., the Subsidiary Guarantors
(as defined therein) and Citicorp Trustee Company Limited, as Euro Collateral Agent
(incorporated by reference to Exhibit 4.b of the Registrant’s Current Report on Form 8-K
dated September 1, 2004 (File No. 0-50189)).
4.u
First Amended and Restated CEH Pledge Agreement, dated as of September 1, 2004,
by and between Crown European Holdings, S.A. and Citicorp Trustee Company Limited, as Euro Collateral Agent
(incorporated by reference to Exhibit 4.c of the Registrant’s Current Report on Form 8-K
dated September 1, 2004 (File No. 0-50189)).
4.v
First Amended and Restated Shared Pledge Agreement, dated as of September 1, 2004,
by and among the Company, Crown Cork & Seal Company, Inc., CROWN Americas, Inc., Crown International Holdings,
Inc., the Subsidiary Guarantors (as defined therein) and Citicorp North America, Inc., as Collateral Agent
(incorporated by reference to Exhibit 4.d of the Registrant’s
Current Report on Form 8-K dated September 1, 2004 (File No. 0-50189)).
4.w
First Amended and Restated Bank Pledge Agreement, dated as of September 1, 2004,
by and among the Company, Crown Cork & Seal Company, Inc., CROWN Americas, Inc., Crown International Holdings,
Inc., the Subsidiaries Guarantors (as defined therein) and Citicorp North America, Inc., as U.S. Collateral Agent
(incorporated by reference to Exhibit 4.e of the Registrant’s Current Report on Form 8-K dated
September 1, 2004 (File No. 0-50189)).
4.x
First Amended and Restated U.S. Security Agreement, dated as of September1, 2004, by
and among the Company, Crown Cork & Seal Company, Inc., CROWN Americas, Inc., Crown International Holdings, Inc.,
the Subsidiary Guarantors (as defined therein) and Citicorp North America, Inc., as U.S. Collateral Agent
(incorporated by reference to Exhibit 4.f of the Registrant’s Current Report on Form 8-K
dated September 1, 2004 (File No. 0-50189)).
4.y
U.S. Guarantee Agreement, dated as of September 1, 2004, among the Domestic Subsidiaries
referred to therein and Citicorp North America Inc., as Administrative Agent (incorporated by reference to
Exhibit 4.g of the Registrant’s Current Report on Form 8-K dated September 1, 2004 (File No. 0-50189)).
4.z
Non-U.S. Guarantee Agreement, dated as of February 26, 2003 among the Guarantors referred
to therein and Citicorp International plc, as U.K. Administrative Agent (incorporated by reference to
Exhibit 4.kk of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002
(File No. 0-50189)).
4.aa
Global Participation and Proceeds Sharing Agreement, dated as of September 1, 2004,
among Citicorp North America, Inc., as Bank Agent, U.S. Collateral Agent and Sharing Agent, Citibank
International plc, as U.K. Agent, Wells Fargo Bank, N.A., as Trustee, and Citicorp Trustee Company Limited,
as Euro Collateral Agent (incorporated by reference to Exhibit 4.h of the Registrant’s Current Report on
Form 8-K dated September 1, 2004 (File No. 0-50189)).
4.bb
Registration Rights Agreement relating to the 9.5% Second Priority Senior Secured Notes
due 2011 and the 10.25% Second Priority Senior Secured Notes due 2011, dated as of February 26, 2003 among
Crown European Holdings, Crown Holdings, Inc. and the other Guarantors named therein and the several purchasers
named in Schedule I thereto (incorporated by reference to Exhibit 4.mm of the Registrant’s Annual Report on
Form 10-K for the year ended December 31, 2002 (File No. 0-50189)).
4.cc
Registration Rights Agreement, dated as of September 1, 2004, by and among the Company,
Crown European Holdings S.A., Citigroup Global Markets Inc. and Lehman Brothers Inc., as Representatives,
the Initial Purchasers (as defined therein) and the Guarantors (as defined therein) (incorporated by reference
to Exhibit 4.i of the Registrant’s Current Report on Form 8-K dated September 1, 2004 (File No. 0-50189)).
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Crown Holdings, Inc.
4.dd
Indenture dated as of September 1, 2004, by and among the Company, as Issuer the
Guarantors named therein and Wells Fargo Bank, as Trustee, relating to the 6.25% First Priority Senior Secured
Notes due 2011 (incorporated by reference to Exhibit 4.j of the Registrant’s Current Report on Form 8-K dated
September 1, 2004 (File No. 0-50189)).
4.ee
Form of Crown European Holdings’ 9.5% Second Priority Senior Secured Notes due 2011
(incorporated by reference to Exhibit 4.jj of the Registrant’s Annual Report on Form 10-K for the year ended
December 31, 2003 (File No. 0-50189)).
4.ff
Indenture dated as of February 26, 2003, by and among Crown European Holdings, the
guarantors named therein and Wells Fargo Bank Minnesota, N.A., as Trustee, governing Crown European Holdings’
9.5% Second Priority Senior Secured Notes due 2011 and 10.25% Second Priority Senior Secured Notes due 2011
(incorporated by reference to Exhibit 4.oo of the Registrant’s Annual Report on Form 10-K for the year
ended December 31, 2002 (File No. 0-50189)).
4.gg
Form of Crown European Holdings’ 10.25% Second Priority Senior Secured Notes due 2011
(incorporated by reference to Exhibit 4.kk of the Registrant’s Annual Report on Form 10-K for the year
ended December 31, 2003 (File No. 0-50189)).
4.hh
Indenture dated as of February 26, 2003, by and among Crown European Holdings, the
guarantors named therein and Wells Fargo Bank, N.A., as trustee, governing Crown European Holdings’
10.875% Third Priority Senior Secured Notes due 2013 (incorporated by reference to Exhibit 4.rr of the
Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002 (File No. 0-50189)).
4.ii
Form of Crown European Holdings’ 10.875% Third Priority Senior Secured Notes due 2013
(incorporated by reference to Exhibit 4.mm of the Registrant’s Annual Report on Form 10-K for the year
ended December 31, 2003 (File No. 0-50189)).
4.jj
Form of Crown European Holdings’ 6.25% First Priority Senior Secured Notes due 2011
(incorporated by reference to Exhibit 4.a of the Registrant’s Quarterly Report on Form 10-Q for the quarter
ended September 30, 2004 (File No. 0-50189)).
4.kk
Registration Rights Agreement relating to the 10.875% Third Priority Senior Secured
Notes due 2013, dated as of February 26, 2003 among Crown European Holdings, Crown Holdings, Inc.
and the other Guarantors named therein and the several purchasers named in Schedule I thereto
(incorporated by reference to Exhibit 4.nn of the Registrant’s Annual Report on
Form 10-K for the year ended December 31, 2002 (File No. 0-50189)).
4.ll
Registration Rights Agreement relating to the 6.25% First Priority Senior
Secured Notes due 2011, dated as of October 6, 2004,
by and among the Company, Crown European Holdings, S.A., Citigroup
Global Markets Inc. and Lehman Brothers Inc., as
Representatives, the Initial Purchasers (as defined therein) and the
Guarantors (as defined therein) (incorporated by
reference to Exhibit 4.a of the Registrant’s Current Report on Form 8-K dated October 6, 2004 (File No. 0-50189)).
4.mm
First Amended and Restated U.S. Intercreditor and Collateral Agency Agreement,
dated as of September 1, 2004, among Citicorp North America, Inc., as Administrative Agent and U.S.
Collateral Agent, Citibank International plc, as U.K. Administrative Agent, Wells Fargo Bank, N.A., as First,
Second and Third Priority Notes Trustee, Citicorp North America, Inc., as U.S. Collateral Agent, Crown Holdings,
Inc., CROWN Americas, Inc., Crown Cork & Seal Company, Inc., Crown International Holdings, Inc. and
each of the U.S. subsidiaries of Crown Holdings listed on Schedule I thereto (incorporated by reference to
Exhibit 4.k of the Registrant’s Current Report on Form 8-K dated September 1, 2004 (File No. 0-50189)).
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Crown Holdings, Inc.
4.nn
First Amended and Restated Euro Intercreditor and Collateral Agency Agreement,
dated as of September 1, 2004, among Citibank International plc, as Bank Agent, Wells Fargo Bank, N.A., as
First, Second and Third Priority Notes Trustee, Citicorp Trustee Company Limited, as Euro Collateral Agent,
Crown European Holdings S.A. and the subsidiaries of Crown European Holdings S.A. listed on Schedule I thereto
(incorporated by reference to Exhibit 4.l of the Registrant’s Current Report
on Form 8-K dated September 1, 2004 (File No. 0-50189)).
Other long-term agreements of the Registrant are not filed pursuant to Item
601(b)(4)(iii)(A) of Regulation S-K, and the Registrant agrees to furnish copies of such agreements
to the Securities and Exchange Commission upon its request.
10.a.
Second Amended and Restated Receivables Purchase Agreement,
dated as of December 5, 2003, among Crown Cork & Seal Receivables
(DE) Corporation, as Seller, CROWN Cork & Seal USA, Inc.
(formerly known as Crown Cork & Seal Company (USA), Inc.), as
Servicer, the banks and other financial institutions party thereto as
Purchasers, and Citibank, N.A., as Agent
(incorporated by reference to Exhibit 10.a of the Registrant’s Annual Report on
Form 10-K for the year ended December 31, 2003 (File No. 0-50189)).
10.b.
First Amendment, dated as of September 1, 2004, to Second Amended and
Restated Receivables Purchase Agreement among Crown Cork & Seal Receivables (DE) Corporation,
as Seller, CROWN Cork & Seal USA, Inc. (formerly known as Crown Cork & Seal Company
(USA), Inc.), as Servicer, the banks and other financial institutions party thereto, as Purchasers,
and Citibank, N.A., as Agent (incorporated by reference to Exhibit 10.a of the Registrant’s
Current Report on Form 8-K dated September 1, 2004 (File No. 0-50189)).
10.c.
First Amendment, dated as of September 1, 2004, to Second Amended and
Restated Receivables Contribution and Sale Agreement among CROWN Cork & Seal USA, Inc.
(formerly known as Crown Cork & Seal Company (USA), Inc.), CROWN Risdon USA, Inc.
(formerly known as Risdon-AMS (USA), Inc.), CROWN Zeller USA, Inc. (formerly known as Zeller Plastik, Inc.),
CROWN Metal Packaging Canada LP, and Crown Cork & Seal Receivables (DE) Corporation
(incorporated by reference to Exhibit 10.b of the Registrant’s Current Report on Form 8-K
dated September 1, 2004 (File No. 0-50189)).
10.d.
Second Amended and Restated Receivables Contribution and Sale Agreement,
dated as of December 5, 2003, among CROWN Cork & Seal USA, Inc. (formerly known as Crown Cork & Seal
Company (USA), Inc.), CROWN Risdon USA, Inc. (formerly known as Risdon-AMS (USA), Inc.),
CROWN Zeller USA, Inc. (formerly known as Zeller Plastik, Inc.), Crown Canadian Holdings ULC,
and CROWN Metal Packaging Canada LP, as Sellers, Crown Cork & Seal Receivables (DE) Corporation, as Buyer, and CROWN
Cork & Seal USA, Inc., as the Buyer’s Servicer (incorporated by reference to Exhibit 10.b of the Registrant’s Annual
Report on Form 10-K for the year ended December 31, 2003 (File No. 0-50189)).
10.e.
Third Amended and Restated Parent Undertaking Agreement, dated as of September 1, 2004,
made by Crown Holdings, Inc., Crown Cork & Seal Company, Inc. and Crown International Holdings, Inc, in favor
of Citibank, N.A., as Agent and the Purchasers (incorporated by reference to Exhibit 10.c of the Registrant’s
Current Report on Form 8-K dated September 1, 2004 (File No. 0-50189)).
10.f
Second Amended and Restated Intercreditor Agreement dated as of September 1, 2004,
among Citibank, N.A., as Agent, Crown Holdings, Inc., Crown International Holdings, Inc., Crown Cork &
Seal Receivables (DE) Corporation, as Sellers, CROWN Cork & Seal Company (USA), Inc. (formerly known as
Crown Cork & Seal Company (USA), Inc.), CROWN Risdon USA, Inc. (formerly know as Risdon-AMS (USA), Inc.),
CROWN Zeller USA, Inc. (formerly know as Zeller Plastik, Inc.), and Citicorp North America, Inc., as Administrative
and U.S. Collateral Agent (incorporated by reference to Exhibit 10.d of the
Registrant’s Current Report on Form 8-K dated September 1, 2004 (File No. 0-50189)).
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Crown Holdings, Inc.
10.g
Employment Contracts:
(1)
Employment
contract between Crown Cork & Seal Company, Inc. and John W. Conway dated January 3, 2000
(incorporated by reference to Exhibit 10.a.2 of the Registrant’s Annual Report on Form
10-K for the year ended December 31, 1999 (File No. 1-2227)).
(2)
Amendment No. 1 to Executive Employment Agreement, dated as of January 1, 2004,
between Crown Cork & Seal Company, Inc., Crown Holdings, Inc., and John W. Conway (incorporated
by reference to Exhibit 10.f.(2) of the Registrant’s Annual Report on Form 10-K for the year ended
December 31, 2003 (File No. 1-2227)).
(3)
Employment contract between Crown Cork & Seal Company, Inc. and Alan W. Rutherford
dated January 3, 2000 (incorporated by reference to Exhibit 10.a.3 of the Registrant’s Annual Report on
Form 10-K for the year ended December 31, 1999 (File No. 1-2227)).
(4)
Amendment No. 1 to Executive Employment Agreement, dated as of January 1, 2004,
between Crown Cork & Seal Company, Inc., Crown Holdings, Inc., and Alan W. Rutherford (incorporated
by reference to Exhibit 10.f.(4) of the Registrant’s Annual Report on Form 10-K for the year ended
December 31, 2003 (File No. 1-2227)).
(5)
Executive Employment Agreement, dated as of July 22, 2004, between Crown Holdings,
Inc. and William R. Apted (incorporated by reference to Exhibit 10.1 of the Registrant’s
Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 (File No.0-50189)).
(6)
Executive Employment Agreement, dated as of July 22, 2004, between Crown
Holdings, Inc. and Frank J. Mechura (incorporated by reference to Exhibit 10.2 of the Registrant’s
Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 (File No. 0-50189)).
(7)
Executive Employment Agreement, dated as of July 22, 2004, between Crown Holdings,
Inc. and William H. Voss (incorporated by reference to Exhibit 10.3 of the Registrant’s Quarterly Report
on Form 10-Q for the quarter ended September 30, 2004 (File No. 0-50189)).
(8)
Executive Employment Agreement, dated as of July 22, 2004, between Crown Holdings,
Inc. and Timothy J. Donahue (incorporated by reference to Exhibit 10.4 of the Registrant’s Quarterly Report on
Form 10-Q for the quarter ended September 30, 2004 (File No. 0-50189)).
10.h
Crown
Cork & Seal Company, Inc. Executive Deferred Compensation Plan (incorporated by reference
to Exhibit 10 of the Registrant’s Annual Report on Form 10-K for the year ended December
31, 1991 (File No. 1-2227)).
10.i
Crown Holdings, Inc. Economic Profit Incentive Plan, dated as of January 1, 2004.
10.j
Crown Holdings, Inc. Economic Profit Incentive Plan, dated as of January 1, 2005.
10.k
Crown
Cork & Seal Company, Inc. Senior Executive Retirement Plan, as amended and restated as of
January 1, 2000 (incorporated by reference to Exhibit 10.8 of the Registrant’s Quarterly
Report on Form 10-Q for the quarter ended September 30, 2004 (File No. 0-50189)).
10.l
Amendment No. 1, effective July 22, 2004, to the Crown Cork & Seal Company, Inc.
Senior Executive Retirement Plan, as amended and restated January 1, 2000 (incorporated by reference to
Exhibit 10.9 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004
(File No. 0-51089)).
10.m
Crown Holdings, Inc. 1990 Stock-Based Incentive Compensation Plan
(incorporated by reference to Exhibit 10.2 of the Registrant’s Annual Report on Form 10-K for the year
ended December 31, 1992 (File No. 1-2227)).
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Crown Holdings, Inc.
10.n
Amendment No. 1 to the Crown Holdings, Inc. 1990 Stock-Based Incentive
Compensation Plan, dated as of September 21, 1998 (incorporated by reference to Exhibit 10.a of the
Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 (File No. 1-2227)).
10.o
Amendment No. 2 to the Crown Holdings, Inc. 1990 Stock-Based Incentive
Compensation Plan, dated as of January 1, 2003 (incorporated by reference to Exhibit 10.k of the
Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002 (File No. 0-50189)).
10.p
Crown Holdings, Inc. Stock Purchase Plan (incorporated by reference to Exhibit
4.3 of the Registrant’s Registration Statement on Form S-8, filed with the Securities and
Exchange Commission on March 16, 1994 (Registration No. 33-52699)).
10.q
Crown Holdings, Inc. 1994 Stock-Based Incentive Compensation Plan
(incorporated by reference to Exhibit 10.g of the Registrant’s Annual Report on Form 10-K
for the year ended December 31, 1994 (File No. 1-2227)).
10.r
Amendment No. 1 to the Crown Holdings, Inc. 1994 Stock-Based Incentive
Compensation Plan, dated as of September 21, 1998 (incorporated by reference to Exhibit 10.b of the
Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 (File No. 1-2227)).
10.s
Amendment No. 2 to the Crown Holdings, Inc. 1994 Stock-Based Incentive
Compensation Plan, dated as of January 1, 2003 (incorporated by reference to Exhibit 10.o of the
Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002 (File No. 0-50189)).
10.t
Crown Holdings, Inc. 1997 Stock-Based Incentive Compensation Plan,
amended and restated (incorporated by reference to the Registrant’s Definitive Additional Materials
on Schedule 14A, filed with the Securities and Exchange Commission on April 30, 2000 (File No. 1-2227)).
10.u
Amendment No. 3 to the Crown Holdings, Inc. 1997 Stock-Based
Incentive Compensation Plan, dated as of January 1, 2003 (incorporated by reference to Exhibit 10.q
of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002 (File No. 0-50189)).
10.v
Crown Holdings, Inc. 2001 Stock-Based Incentive Compensation Plan,
dated as of February 22, 2001 (incorporated by reference to the Registrant’s Definitive Proxy
Statement on Schedule 14A, filed with the Securities and Exchange Commission on March 27, 2001 (File
No. 1-2227)).
10.w
Amendment No. 1 to the Crown Holdings, Inc. 2001 Stock-Based Incentive
Compensation Plan, dated as of January 1, 2003 (incorporated by reference to Exhibit 10.s of the
Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002 (File No. 0-50189)).
10.x
Form of Agreement for Restricted Stock Awards under Crown Holdings, Inc. 2004 Stock-Based Incentive
Compensation Plan.
10.y
Crown Holdings, Inc. 2004 Stock-Based Incentive Compensation Plan, dated
as of April 22, 2004 (incorporated by reference to the Registrant’s Definitive Proxy Statement on
Schedule 14A, filed with the Securities and Exchange Commission on March 19, 2004 (File No. 0-50189)).
10.z
Form of Agreement for Non-Qualified Stock Option Awards under Crown Holdings,
Inc. 2004 Stock-Based Incentive Compensation Plan (incorporated by reference to Exhibit 10.6 of the
Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 (File No. 0-51089)).
10.aa
Crown Cork & Seal Company, Inc. Deferred Compensation Plan for Directors,
dated as of October 27, 1994 (incorporated by reference to Exhibit 10.b of the Registrant’s Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995 (File No. 1-2227)).
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Crown Holdings, Inc.
10.bb
Crown Holdings, Inc. Stock Compensation Plan for Non-Employee Directors,
dated as of April 22, 2004 (incorporated by reference to the Registrant’s Definitive Proxy Statement
on Schedule 14A, filed with the Securities and Exchange Commission on March 19, 2004 (File No. 0-50189)).
10.cc
Crown Cork & Seal Company, Inc. Pension Plan for Outside Directors,
dated as of October 27, 1994 (incorporated by reference to Exhibit 10.c of the Registrant’s Quarterly Report
on Form 10-Q for the quarter ended June 30, 1995 (File No. 1-2227)).
Exhibits
10.g through 10.cc, inclusive, are management contracts or compensatory plans or
arrangements required to be filed as exhibits pursuant to Item 14(c) of this Report.
12.
Computation of ratio of earnings to fixed charges.
21.
Subsidiaries of Registrant.
23.
Consent of Independent Registered Public Accounting Firm.
31.1.
Certification
of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities and
Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
31.2.
Certification
of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities and
Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
32.
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, executed by John W. Conway, Chairman of the Board, President
and Chief Executive Officer of Crown Holdings, Inc. and Alan W. Rutherford, Vice Chairman
of the Board, Executive Vice President and Chief Financial Officer of Crown Holdings, Inc.
99.
Separate financial statements of affiliates whose securities are pledged as collateral.
c)
The
consolidated statements and notes thereto and financial statement schedule for Crown
Cork & Seal Company, Inc., included in Exhibit 99 above, are incorporated herein by
reference.
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Crown Holdings, Inc.
SIGNATURES
Pursuant to the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
Crown Holdings, Inc.
Registrant
Date:
March 11, 2005
By:
/s/ Thomas A. Kelly
Thomas A. Kelly
Vice President and Corporate Controller
POWER OF ATTORNEY
KNOW ALL MEN BY THESE
PRESENTS, that each person whose signature appears below constitutes and appoints John
W. Conway, Alan W. Rutherford and William T. Gallagher, and each of them, his true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all capacities,
to sign any and all amendments to the Annual Report on Form 10-K for the Company's
2003 fiscal year, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Commission, granting unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or either of them, or their or his substitutes, may
lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the registrant
and in the capacities and on the date indicated above.
SIGNATURE
TITLE
/s/ John W. Conway
John W. Conway
Chairman of the Board, President
and Chief Executive Officer
/s/ Alan W. Rutherford
Alan W. Rutherford
Vice Chairman of the Board,
Executive Vice President and
Chief Financial Officer
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