CCK

Business Context and Reporting Period

Company: Crown Holdings, Inc. (formerly Crown Cork & Seal Company, Inc.)
Reporting Period: Fiscal year ended December 31, 2002
Industry: Global packaging (steel/aluminum cans, closures, dispensing systems)
Operations: 191 plants in 44 countries; ~28,300 employees. Segments: Americas (47% of sales), Europe (48%), Asia-Pacific (5%).

The Company underwent a corporate reorganization in early 2003, forming a new public holding company. In 2002, it executed a major business improvement plan including price increases, working capital reduction, and the divestiture of 89.5% of Constar International Inc. for net proceeds of $661 million.

Key Financial Metrics (2002)

Note: Net loss includes a non-cash charge of $1,014 million for the cumulative effect of adopting FAS 142 (Goodwill impairment). Excluding this charge, the loss before cumulative effect was $191 million.

Material Changes vs. Prior Period

• Revenue: Net sales decreased 5.5% to $6.792 billion, driven by lower unit volumes and divestitures, partially offset by price increases.
• Profitability: Segment income improved significantly to $462 million (6.8% margin) from $267 million (3.7% margin) due to price increases, cost reductions, and the cessation of goodwill amortization under FAS 142.
• Debt Reduction: Total debt (net of cash) decreased by $1.17 billion to $3.691 billion. The Company paid down $1.3 billion of debt in 2002 using free cash flow and asset sale proceeds.
• Equity: Shareholders' equity turned negative ($87 million deficit) primarily due to the net loss and a $148 million minimum pension liability adjustment.
• Divestitures: Sold 89.5% of Constar International Inc. and other non-core assets, recording a pre-tax loss of $247 million on asset impairments and sales.

Guidance, Outlook, and Risks

Outlook & Strategy: Management focuses on reducing debt to regain investment-grade ratings, increasing free cash flow, and growing in targeted markets (Southern/Eastern Europe, Southeast Asia). Capital expenditures for 2003 are expected to be approximately $125 million.

Recent Refinancing (Feb 2003): Completed a refinancing involving $2.6 billion in new senior secured notes and term loans to repay existing facilities and repurchase unsecured notes.

Key Risks & Contingencies:

• Asbestos Litigation: Accrual of $263 million for probable claims; estimated range of liability is $263 million to $502 million. Pending Pennsylvania legislation could limit liability, but an unfavorable court ruling could increase accruals.
• Competition Law: European Commission issued a Statement of Objections regarding alleged violations of competition law in the UK/Ireland food can market during the 1990s.
• Raw Materials: Exposure to volatility in aluminum, tinplate, and resin prices. While hedging and pass-through mechanisms exist, full recovery of cost increases is not guaranteed.
• Liquidity: Highly leveraged with 97.1% debt-to-capitalization. Credit agreements restrict dividends and stock repurchases.

Investor Verification Checklist

• Goodwill Impairment: Verify the $1.014 billion non-cash charge related to FAS 142 adoption and its impact on the reported net loss.
• Asbestos Liability: Monitor the outcome of the Pennsylvania Supreme Court appeal regarding asbestos liability caps and the adequacy of the $263 million accrual.
• Debt Covenants: Review the terms of the February 2003 refinancing, specifically the financial covenants (leverage ratios, interest coverage) and mandatory prepayment triggers.
• European Antitrust: Track the status of the European Commission investigation into food can contracts in the UK and Ireland.
• Pension Obligations: Assess the impact of the $148 million minimum pension liability adjustment and future funding requirements ($125 million expected for 2003).