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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 (FEE REQUIRED)
For the fiscal year ended December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _________ to _________
Commission file number 1-2227
Crown Cork & Seal Company, Inc.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1526444
(State or other jurisdiction of (Employer Identification No.)
incorporation or organization)
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 & Paris Bourse
4.5% Convertible Preferred Stock New York Stock Exchange & Paris Bourse
$41.8875 Par Value
Common Stock Purchase Rights New York Stock Exchange & Paris Bourse
-------------
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. [X]
As of March 13, 1998, 124,402,863 shares of the Registrant's Common Stock,
excluding shares held in Treasury, and 8,771,493 shares of the Registrant's 4.5%
Convertible Preferred Stock were issued and outstanding, and the aggregate
market value of such shares held by non-affiliates of the Registrant on such
date was $6,867,651,317.
DOCUMENTS INCORPORATED BY REFERENCE
Notice of Annual Meeting and Proxy Statement dated March 23, 1998 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.
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<PAGE>
Crown Cork & Seal Company, Inc.
1997 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Item 1 Business............................................................1
Item 2 Properties..........................................................6
Item 3 Legal Proceedings...................................................7
Item 4 Submission of Matters to a Vote of Security Holders.................7
PART II
Item 5 Market for Registrant's Common Stock and Related
Stockholder Matters...............................................7
Item 6 Selected Financial Data.............................................8
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................10
Item 8 Financial Statements and Supplementary Data........................23
Item 9 Disagreements on Accounting and Financial Disclosure...............50
PART III
Item 10 Directors and Executive Officers of the Registrant.................50
Item 11 Executive Compensation.............................................51
Item 12 Security Ownership of Certain Beneficial Owners and Management.....51
Item 13 Certain Relationships and Related Transactions.....................51
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports
on Form 8-K......................................................52
SIGNATURES...................................................................56
<PAGE>
Crown Cork & Seal Company, Inc.
PART I
ITEM 1. BUSINESS
GENERAL
Crown Cork & Seal Company, Inc. (the "Company" and the "Registrant") is one of
the world's leading manufacturers of packaging products with 1997 consolidated
net sales of $8.5 billion. More than 60% of 1997 net sales were derived from
operations outside the United States with approximately 75% of the non- U.S.
revenues derived in Europe. The Company believes that it is well positioned
within its industry having the ability to supply food, beverage and aerosol
containers to multinational consumer marketers on a global basis. As a
multinational packaging producer, the Company benefits from, but is exposed to,
the fluctuations of world trade. The Company currently operates 247 plants,
along with sales and service facilities in 52 countries and employs
approximately 41,000 people. The Company continually reviews its operations,
especially in terms of their competitiveness and the appropriate number, size
and location of its plants, emphasizing service to customers and rate of return
to investors.
Financial information concerning the Company's operations in its two principal
industry segments, Metals Packaging and Plastics Packaging, and within
geographic areas is set forth in Part II of this Report on pages 46 and 47 under
Note S to the Consolidated Financial Statements entitled "Segment Information by
Industry Segment and Geographic Area."
The Company's products include steel and aluminum cans for food, beverage,
brewing, household and other consumer products; plastic containers for beverage,
processed food, household, personal care and other products; metal and plastic
packaging products for health and beauty care applications including cosmetics,
fragrances and pharmaceuticals; metal specialty and promotional packaging
products; a wide variety of caps, crowns, closures, pumps and dispensing
systems; composite containers; and canmaking equipment.
Under current management, the Company has pursued a strategy of growth through
acquisition within the global packaging industry. From 1989 through 1996, the
Company completed twenty acquisitions of companies with aggregate net sales of
approximately $8 billion. The largest acquisitions over this period include
CarnaudMetalbox ("CMB") (February 1996), Van Dorn Company (April 1993), CONSTAR
International (October 1992), Continental Can International (May 1991),
Continental Can's U.S. food and beverage can businesses (July 1990) and
Continental Can Canada (December 1989). This strategy has contributed to an
increase in the Company's net sales from $1.9 billion in 1989 to $8.5 billion in
1997. The Company's acquisition strategy has resulted in numerous benefits to
the Company, including improved market positions, product and geographic
diversification, and cost savings.
Information about the Company's acquisitions over the most recent three years
appears in Part II herein on pages 18 and 19 under "Acquisition of
CarnaudMetalbox" within Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and within Item 8, herein on
pages 32 and 33 under Note H to the Consolidated Financial Statements.
The Company has invested in capital projects to (i) create additional
manufacturing capacity for beverage can production in emerging markets and for
polyethylene terephthalate (PET) containers globally, (ii) improve production
efficiencies, (iii) improve product quality and (iv) lower manufacturing costs.
The Company plans to continue capital expenditure programs designed to take
advantage of technological developments which enhance productivity and contain
costs, as well as, those that provide growth opportunities.
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<PAGE>
Crown Cork & Seal Company, Inc.
DISTRIBUTION
As of December 31, 1997, the Company's products were manufactured in 74 plants
within the United States and 173 plants outside the U.S. The Company markets and
sells products to customers through its own sales and marketing staff located
centrally within each division. The divisions' sales staff are supported by
regional sales personnel. Most of the Company's products are sold in highly
competitive markets, primarily based on price, service, quality and performance.
The majority of the Company's sales are to companies which have leading market
positions in the packaged food, beverage, aerosol, health and beauty and
specialty businesses. Contracts with global suppliers are centrally negotiated,
although products are ordered through and distributed directly by each plant.
In each of the years in the period 1995 through 1997, no one customer of the
Company accounted for more than ten percent of the Company's net sales.
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 conversion to plastic from other materials , as well as, the
creation of new packaging shapes.
The Company expended $53.1 million, $51.5 million and $22.3 million in 1997,
1996 and 1995, respectively, on RD&E activities. 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.
MATERIALS
The Company continues to pursue strategies which enable it to source its raw
materials with increasing effectiveness, and may consider vertical integration
into the production of certain raw materials. Recent acquisitions allowed the
Company to realize increased efficiencies in materials sourcing. The Company
purchased Golden Aluminum Company from ACX Technologies in March 1997. Golden
Aluminum is a pioneer and innovator in the use of continuous block casting
(mini-mill) technology to produce aluminum for use in can making, among other
capabilities.
The raw materials used in the manufacture of the Company's products are
primarily aluminum and tinplate for Metals Packaging, and various types of
resins, which are petrochemical derivatives, for Plastics Packaging. These
materials are generally available from several sources. The Company has secured
what it considers adequate supplies of raw materials but there can be no
assurance that sufficient quantities will be available in the future. The
Company may be subject to adverse price fluctuations on the purchase of such raw
materials. See "Metals Packaging" below.
SEASONALITY
The 1996 acquisition of CMB has increased the potential for seasonal effects on
the Company's results of operations. Food packaging products accounted for $2.6
billion or approximately 31% of 1997 consolidated net sales as compared to $1.0
billion or approximately 19% in 1995. Sales and earnings for food cans have
historically been higher in the third quarter of the year due to the
agricultural harvest.
The Company's metal and plastic beverage container businesses are predominantly
located in the Northern Hemisphere. Generally, beverage products are consumed in
greater amounts during warmer
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<PAGE>
Crown Cork & Seal Company, Inc.
months of the year. Consequently, 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, health and beauty,
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. Anticipated future restrictions in some jurisdictions on the
use of certain paint and lacquering ingredients may require the Company to
employ additional control equipment or alternative coating technologies. 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, 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 or results
of operations. Further discussion of the Company's environmental matters is
contained in Part II, Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" of this Report on page 20 under the caption
"Environmental Matters."
WORKING CAPITAL
Information relating to the Company's liquidity and capital resources is set
forth in Part II, Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," of this Report on pages 15 and 16 under
the caption "Liquidity and Capital Resources."
EMPLOYEES
At December 31, 1997, the Company employed 40,985 people throughout the world. A
significant number of the Company's employees are covered by collective
bargaining agreements with varying terms and expiration dates.
METALS PACKAGING
Metals Packaging, which accounted for approximately 82% of consolidated net
sales and approximately 81% of consolidated operating income (before net
interest costs, foreign exchange adjustments and other non-operating expenses)
in 1997, manufactures and markets steel and aluminum cans as well as composite
cans, crowns (also known as bottle caps) and metal closures. In May 1997 the
Company sold its Machinery Division, previously included in Metals Packaging.
All products within Metals Packaging are sold through the Company's sales
organization to the soft drink, food, citrus, brewing, household products,
personal care and various other industries. Approximately 32,000 persons were
employed in Metals Packaging at December 31, 1997.
Global beverage and food marketers continue to increase the consolidation of
their supplier base under long-term arrangements and to qualify suppliers on the
basis of their ability to provide service globally and to create innovative
designs and technologies in a cost-effective manner. The acquisition of CMB in
February 1996 has created a geographically diversified and innovative packaging
company with significant operations in Europe, the Middle East, Africa, Asia and
an RD&E center in England.
The Company believes that price, quality and customer service are the principal
competitive factors affecting its business. Based upon sales, the Company
believes that it is a leader in the markets for metal packaging in which it
competes; however, the Company encounters competition from a number of companies
offering similar products.
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<PAGE>
Crown Cork & Seal Company, Inc.
The Company's basic raw materials for its Metals Packaging products are tinplate
and aluminum. These metals are supplied by the major mills in the countries
within which the Company operates plants. Some plants in less-developed
countries, which do not have local mills, obtain their metal from nearby
more-developed countries. In 1997, approximately 78% of metal consumption in
Europe was for tinplate. In the United States, approximately 61% of metal
consumption was for aluminum. Although sufficient quantities of raw materials
have been available in the past, there can be no assurance that sufficient
quantities will be available in the future.
Prior to 1996, the Company entered into annual agreements with its tinplate and
aluminum suppliers, pursuant to which the Company obtained price commitments for
its tinplate and aluminum requirements for the next calendar year. The Company
continues to contract for its tinplate requirements on this basis. The Company's
suppliers of aluminum can and end sheet implemented a new pricing structure in
1995 which, by formula, is directly tied to the price of ingot on the London
Metal Exchange (LME). The formula takes the LME spot price of aluminum ingot and
adds other costs to convert and transport aluminum, thereby effectively
transferring the volatility in the commodity markets to the Company. This
pricing formula remained in effect during 1997. During 1997, the Company entered
into contracts with its suppliers of aluminum can and end sheet which, by
formula, guarantees prices for a period of six months. This pricing structure is
directly tied to a rolling average of the prior six months' market price of
aluminum on the LME. Further, "ceiling" prices have been established under these
contracts which set maximum prices that the Company would pay for aluminum.
Historically, the Company has adjusted the selling prices for its products in
response to changes in the cost of tinplate and aluminum. During 1995 when
aluminum costs increased, the Company announced price increases to its customers
but due to overcapacity within the aluminum beverage can market and the
customers' willingness to shift a portion of their packaging requirements away
from aluminum, the Company was unable to fully recover the increases in the cost
of aluminum from its customers. During 1997, as aluminum prices declined,
selling prices to customers for aluminum beverage cans and ends were also
reduced. In the future, there can be no assurance that the Company will be able
to recover fully any increases or fluctuations in metal prices from its
customers.
The Company, based on sales, is one of two leading producers of aluminum
beverage cans and ends within the United States. Sales dollars for aluminum
beverage cans and ends in 1997 increased over 1996 due to sales unit volume
growth which was partially offset by the continued pass-through of lower
aluminum costs to customers. The Company continues to reduce can and end
diameter, lightweight its cans, reduce non-metal costs and restructure
production processes. Some of the Company's excess beverage can capacity in
North America has been redeployed to emerging markets, and to a lesser extent,
retrofitted to produce two-piece food cans.
As the Company has continued to integrate the operations of CMB, it has made an
assessment of the restructuring and exit costs to be incurred relative to the
acquisition. Since commencement of the plan of restructuring, the Company has
determined alternative sites for manufacture and qualified the new manufacturing
sites with customers. Further discussion of the Company's restructuring
activities is contained in Part II hereof within Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
page 19 under "Provision for Restructuring." and within Item 8 herein on pages
34 and 35 under Note K to the Consolidated Financial Statements.
The CMB acquisition, when combined with the 1994 acquisition of the container
division of Tri-Valley Growers, significantly enhances the Company's position
with global food marketers and also reduces the percentage of aluminum beverage
can sales to overall consolidated net sales. The food can market is highly
competitive based on price and innovation. New technologies and products
continue to be developed to add value to customer products and to offer more
efficient packaging, such as easy-open ends, stackable cans and ferrolite cans
and ends. Food closure operations in Europe produce vacuum metal closures as
well as sealing systems for integration into customers' production lines.
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<PAGE>
Crown Cork & Seal Company, Inc.
Outside North America, the Company's Metals Packaging products consist of metal
cans for food, beverage, aerosol and specialty packaging as well as metal crowns
and closures. Europe is the most significant beverage crown and closure market
for the Company with returnable bottles continuing to be a significant form of
packaging for the beverage and brewing industries in the region.
PLASTICS PACKAGING
Plastics Packaging, which in 1997 accounted for approximately 18% of
consolidated net sales and approximately 19% of consolidated operating income
(before net interest costs, foreign exchange adjustments and other non-operating
expenses), manufactures plastic containers and plastic closures for the
beverage, food, health and beauty, household products, personal care, chemical
and other industries. Within the U.S. the Company manufactures and sells plastic
bottles through its CONSTAR subsidiary and plastic closures through its plants
in Virginia and Utah and plants acquired in the CMB acquisition. Plastic
closures are also manufactured in various metals packaging operations within
Europe, Asia, the Middle East and South America. CONSTAR, based on net sales, is
one of the two leading producers of plastic containers produced from PET and
HDPE (high-density polyethylene) within the United States.
During 1997, the Company commenced a restructuring program to improve the
structure of its PET plastic beverage container business in the United States.
Six CONSTAR manufacturing locations were closed or reorganized. The Company
expects to maintain its existing manufacturing capacity, and by relocating
equipment among its remaining larger facilities, meet all current and
prospective volume requirements.
The combination of CMB's Plastics division with CONSTAR International's
operations in Europe has resulted, the Company believes, in the leading European
producer of plastics packaging. This combination further strengthens the
Company's plastics marketing base in Europe and has added product and geographic
diversity. The combination of CMB European plastics operations with existing
Company operations has led to certain redundant operations being consolidated.
The ultimate result of these actions represents the Company's best efforts to
react to industry performance and general business and economic conditions.
Further discussion of the Company's restructuring activities is contained in
Part II hereof within Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" on page 19 under "Provision for
Restructuring" and within Item 8 herein on pages 34 and 35 under Note K to the
Consolidated Financial Statements.
The Company believes that price, quality and customer service are the principal
competitive factors affecting this segment. Based upon sales, the Company
believes that it is a leader in the markets for plastics packaging in which it
competes; however, the Company encounters competition from a number of companies
offering similar products.
The principal raw materials used in the manufacture of plastic containers and
closures are various types of resins which are purchased from several commercial
sources. Resins are presently available in quantities adequate for the Company's
needs. The Company has experienced fluctuations in the cost of resins in the
past and has periodically adjusted its selling prices for plastic containers and
closures to reflect these movements in resin costs. There can be no assurance,
however, that the Company will be able to recover fully any increases in resin
prices from its customers in the future.
Typically, the Company identifies market opportunities by working cooperatively
with customers and implementing commercially successful programs. The Company
believes that it will capitalize on conversions to plastic from other forms of
packaging and new markets through its technical expertise, quality reputation
and customer service. The Company also believes that its plastic container plant
sites are strategically located and sized to meet market requirements.
Capital expenditures for Plastics Packaging were approximately 23 percent of
total capital spending for the Company in 1997 as compared to 15 percent in
1996. The increase, in percentage terms,
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Crown Cork & Seal Company, Inc.
is primarily due to the completion of a PET plant in China, lower overall
capital spending, particularly in metals, as well as, those investments made in
connection with the ongoing restructuring programs. The Company remains
committed to servicing its global customers with plastic containers. Information
relating to the Company's capital expenditures is set forth in Part II, Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," of this Report on pages 19 and 20 under the caption "Capital
Expenditures."
ITEM 2. PROPERTIES
Crown Cork & Seal Company, Inc., and its worldwide consolidated subsidiaries
operate 247 manufacturing facilities. Within the United States there are 50
Metals Packaging manufacturing facilities and 24 Plastics Packaging
manufacturing facilities. Outside the United States there are 129 Metals
Packaging manufacturing facilities and 38 Plastics Packaging manufacturing
facilities. There are six manufacturing facilities outside the United States
that manufacture both metal and plastic products.
The geographic distribution of the manufacturing facilities is as follows:
<TABLE>
<CAPTION>
Metals Plastics Both No. of No.
Geographic Area* Packaging Packaging Segments Plants Leased
<S> <C> <C> <C> <C>
United States 50 24 - 74 28
Canada 9 1 - 10 -
Central America 7 1 - 8 3
South America 9 1 1 11 -
Europe 74 31 3 108 22
Africa 14 - - 14 3
Middle East - - 1 1 -
Asia 16 4 1 21 16
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Worldwide Total 179 62 6 247 72
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</TABLE>
* Excluded are productive facilities in announced restructurings as well as
service or support facilities.
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. Management believes that its manufacturing
facilities, taken as a whole, are well maintained and generally adequate for
current operations.
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 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.
In the design of each new facility, the Company's engineers are instructed to
pay particular attention to the safety of operations, abatement of pollution,
incorporation of the Company's research activities and the quality of the
product to be manufactured at such facility.
In addition to the manufacturing facilities for Metals Packaging and Plastics
Packaging, the Company has various support facilities. Such facilities include
machine shop operations, printing for cans and crowns, coil shearing, coil
coating and RD&E.
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Crown Cork & Seal Company, Inc.
The Company generally owns its manufacturing and other facilities, although
office facilities are often leased. The Company maintains research facilities in
Alsip, Illinois within the United States and in Wantage, England within the
United Kingdom.
The Company is directly involved in post-consumer plastic container recycling
and aluminum and steel can recycling at two locations in the United States.
ITEM 3. LEGAL PROCEEDINGS
In management's opinion, there are no pending claims or litigations, the adverse
determination of which would have a material adverse effect on the consolidated
financial position or results of operations of the Company. 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. Information on
this is presented in Part I, Item 1, entitled "Business" appearing on page 3 of
this Report and in Part II, Item 7, entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations" under "Environmental
Matters" appearing on page 20 of this Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Registrant's Common Stock and Preferred Stock are listed on the New York
Stock Exchange and the Paris Bourse. On March 13, 1998, there were 5,758
registered shareholders of the Registrant's Common Stock and 12 registered
shareholders of the Registrant's 4.5% Cumulative Convertible Preferred Stock.
The market price at December 31, 1997, with respect to the Registrant's Common
Stock is set forth in Item 8 on page 48 under Note U to the Consolidated
Financial Statements entitled "Quarterly Data (unaudited)". The foregoing
information regarding the number of registered shareholders of Common Stock and
Preferred Stock does not include persons holding stock through clearinghouse
systems in the United States and France. It is the present intention of the
Company to continue paying dividends on its common stock on a quarterly basis.
Further details regarding the Company's policy as to payment of cash dividends
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" appearing on pages 20 and 21 of this Report.
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<PAGE>
Crown Cork & Seal Company, Inc.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
(in millions, except per share, ratios and
other statistics) 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Summary of Operations
Net sales........................................ $ 8,494.6 $ 8,331.9 $ 5,053.8 $4,452.2 $4,162.6
--------------------------------------------------------------
Cost of products sold............................ 6,707.7 6,732.5 4,319.4 3,706.2 3,474.7
Depreciation and amortization.................... 540.0 495.9 256.3 218.3 191.7
Selling and administrative expense............... 413.6 387.2 139.3 135.4 126.6
% to net sales................................ 4.9% 4.6% 2.8% 3.0% 3.0%
Provision for restructuring...................... 66.6 39.8 102.7 114.6
Gain on sale of assets........................... (38.1) (23.8) (8.4) (6.7) (.7)
Interest expense, net of interest income......... 339.9 305.8 136.1 91.6 79.7
Translation and exchange adjustments............. 7.9 ( 36.5) ( 1.1) 10.1 10.8
--------------------------------------------------------------
Income before income taxes
and cumulative effect of accounting changes...... 457.0 431.0 109.5 182.7 279.8
% to net sales................................ 5.4% 5.2% 2.2% 4.1% 6.7%
Provision for income taxes....................... 147.7 134.4 24.9 55.6 97.4
Minority interests, net of equity earnings....... (7.7) (12.6) (9.7) 3.9 (1.5)
--------------------------------------------------------------
Net income before cumulative effect of
accounting changes............................ 301.6 284.0 74.9 131.0 180.9
% to net sales.............................. 3.6% 3.4% 1.5% 2.9% 4.3%
Cumulative effect of accounting changes (1)...... (7.6) (81.8)
--------------------------------------------------------------
Net income (2)................................... 294.0 284.0 74.9 131.0 99.1
Preferred stock dividends........................ 23.4 19.8
--------------------------------------------------------------
Net income available to common
shareholders.................................. $ 270.6 $ 264.2 $ 74.9 $ 131.0 $ 99.1
==============================================================
Return on average shareholders' equity (3)....... 8.3% 11.3% 5.3% 10.0% 8.3%
- -----------------------------------------------------------------------------------------------------------------------
Financial Position at December 31
Working capital.................................. ($ 902.1) ($ 370.6) $ 429.9 $ 122.6 $ 43.8
Total assets..................................... 12,305.7 12,590.2 5,051.7 4,781.3 4,236.3
Short-term debt plus current long-term
debt maturities............................... 1,784.7 1,154.3 608.1 735.8 474.8
Long-term debt................................... 3,301.4 3,923.5 1,490.1 1,089.5 891.5
Total debt to total capitalization............... 56.1% 56.4% 56.2% 55.3% 50.1%
Minority interests............................... 282.8 243.8 118.6 75.4 53.7
Shareholders' equity............................. 3,529.2 3,563.3 1,461.2 1,365.2 1,251.8
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</TABLE>
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<PAGE>
Crown Cork & Seal Company, Inc.
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA (Continued)
<TABLE>
<CAPTION>
(in millions, except per share, ratios and
other statistics) 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Common Share Data (dollars per share)
Earnings per average common share
Basic - before cumulative effect of
accounting change.................. $2.17 $2.16 $.83 $1.47 $2.08
after cumulative effect of
accounting change.................. 2.11 1.14
Diluted - before cumulative effect of
accounting change.................. 2.15 2.14 .83 1.46 2.03
after cumulative effect of
accounting change.................. 2.10 1.11
Cash Dividends................................... 1.00 1.00
Market price on December 31...................... 50.13 54.38 41.75 37.75 41.88
Book value (based on year-end
outstanding shares plus assumed
conversion of preference shares).............. 25.26 25.50 16.13 15.27 14.09
Number of shares outstanding
at year-end................................... 128.4 128.4 90.6 89.4 88.8
Average shares outstanding
Basic......................................... 128.4 122.5 90.2 89.1 87.1
Diluted....................................... 140.3 132.4 90.6 89.9 89.2
Shareholders (on record)......................... 5,763 5,736 5,976 6,011 6,168
- ---------------------------------------------------------------------------------------------------------------------
Other Statistics
Capital expenditures............................. $514.8 $631.2 $433.5 $439.8 $271.3
Number of Employees.............................. 40,985 44,611 20,409 22,373 21,254
Actual preferred shares outstanding.............. 12.4 12.4
=====================================================================================================================
</TABLE>
Notes:
Total capitalization includes total debt (net of cash and cash equivalents),
minority interests and shareholders' equity.
Certain reclassifications of prior years' data have been made to improve
comparability. The Company has completed a number of acquisitions during the
periods presented. Such acquisitions were accounted for using the purchase
method and may affect the comparability of data on a year-to-year basis.
(1) The cumulative effect of accounting changes resulted from the adoption by
the Company of EITF Bulletin 97-13 in 1997 and SFAS No's 106, 109 and 112
in 1993.
(2) Figures for 1997, 1996, 1995 and 1994 include after-tax adjustments for
restructuring, $43.3 or $.34 per basic share and $.31 per diluted share,
$31.7 or $.26 per basic share and $.24 per diluted share, $67.0 or $.74 per
basic and diluted share and $73.2 or $.82 per basic share and $.81 per
diluted share, respectively.
(3) Excluding the adjustments for restructuring and the cumulative effect of
accounting changes, the return on average shareholders' equity in 1997,
1996, 1995, 1994 and 1993 would have been 9.7%, 12.6%, 10.0%, 15.6% and
15.1%, respectively.
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<PAGE>
Crown Cork & Seal Company, 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)
INTRODUCTION
This discussion summarizes the significant factors affecting the results of
operations and financial position of Crown Cork & Seal Company, Inc. (the
"Company") during the three-year period ended December 31, 1997. This discussion
should be read in conjunction with the Consolidated Financial Statements
included in this annual report. References to earnings per share are on a
diluted basis only.
Effective February 22, 1996, the Company completed its acquisition of
CarnaudMetalbox ("CMB"). The consolidated financial statements include the
results of CMB operations from this date.
Financial results (operating income, pretax income, net income and earnings per
share) for 1997, 1996 and 1995 were impacted by restructuring charges or
accounting changes. These items are summarized below:
RESTRUCTURING
Pretax income was charged for $66.6 ($43.3 after taxes or $.31 per share), $39.8
($31.7 after taxes or $.24 per share) and $102.7 ($67.0 after taxes or $.74 per
share), in 1997, 1996 and 1995, respectively.
Further information concerning the details of the restructuring plans, including
a reconciliation of the restructuring accrual is included in Note K to the
Consolidated Financial Statements and under Provision for Restructuring as
provided later in this discussion.
ACCOUNTING CHANGES
During the fourth quarter of 1997, the Company implemented EITF 97-13
retroactive to October 1, 1997. The after-tax effect of this accounting change
was a one-time charge to 1997 earnings of $7.6 or $.05 per share. The
incremental charge to 1997 earnings in the fourth quarter from this accounting
change was not significant. This accounting change did not, and will not, have
any cash flow impact on the Company and is more fully described in Note B to the
Consolidated Financial Statements.
RESULTS OF OPERATIONS
NET SALES
Net sales during 1997 were $8,494.6, an increase of $162.7 or 2.0% versus 1996
net sales of $8,331.9. Net sales during 1995 were $5,053.8. Sales from domestic
operations increased 2.0% in 1997 compared with a 1.5% decrease in 1996. Foreign
sales increased 1.9% in 1997 following a 198.3% increase in 1996. Domestic sales
accounted for 40.0% of consolidated net sales in 1997, 39.9% in 1996 and 66.8%
in 1995.
<TABLE>
<CAPTION>
% Increase/
Net Sales (Decrease)
DIVISION 1997 1996 1995 1997/1996 1996/1995
<S> <C> <C> <C> <C> <C>
Americas.................................... $3,729.3 $3,625.9 $3,903.8 2.9 (7.1)
Europe...................................... 4,193.0 4,165.9 914.3 .7 355.6
Asia-Pacific................................ 368.5 376.2 151.9 (2.0) 147.7
Other....................................... 203.8 163.9 83.8 24.3 95.6
------------------------------
$8,494.6 $8,331.9 $5,053.8 2.0 64.9
==============================
</TABLE>
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Crown Cork & Seal Company, Inc.
The increase in 1997 Americas Division net sales is a result of (i) sales unit
volume increases of aerosol cans, food cans, beverage cans and beverage ends,
(ii) increased sales unit volumes of single-serve PET beverage bottles, plastic
beverage closures and beverage preforms and (iii) initial sales volumes at the
Company's new beverage can and end plants in Brazil; offsetting (i) decreased
raw material prices which resulted in decreased selling prices, primarily in PET
bottles and aluminum cans and ends, (ii) sales unit volume decreases of 2 liter
PET beverage bottles and (iii) sluggish demand for beverage cans in Mexico and
Argentina. The decrease in 1996 Americas Division net sales was a result of (i)
lower raw material prices which were passed on to customers in the form of lower
selling prices, (ii) a seven week work stoppage at eight plants and (iii) weak
economic conditions in Argentina and Brazil; partially offset by (i) the
inclusion of Anchor Hocking Packaging acquired as part of the CMB transaction
and (ii) sales unit volume increases of aluminum beverage ends, food cans,
aerosol cans and plastic closures. U.S. sales accounted for approximately 82.2%
of division net sales in 1997, 84.2% in 1996 and 85.4% in 1995.
Net sales in the European Division increased marginally in 1997 as a result of
(i) the consolidation of CMB activity for the full year versus only 45 weeks in
1996 and (ii) increased sales unit volumes of PET beverage bottles and plastic
beverage closures due to strong customer demand; offset by (i) the appreciation
of the U.S. dollar against most European currencies which reduced division net
sales by approximately $310, (ii) lower PET resin costs passed on to customers
in the form of lower selling prices, (iii) ongoing restructuring efforts,
including the elimination of products with negative contribution and (iv) sales
unit volume decreases of food and beverage cans. Food can sales unit volumes
were soft in Greece due to a spring frost which damaged the peach crop and in
Italy due to early season rains which limited the tomato yield. Beverage can
sales unit volumes declined due to poor summer weather in some areas and
restructuring efforts which restricted output in the Benelux region. Pricing
remained very competitive across all product lines. The increase in 1996
European Division net sales was due to the acquisition of CMB.
Net sales in the Asia-Pacific Division decreased as a result of (i) the
appreciation of the U.S. dollar against most Southeast Asian currencies which
reduced division net sales by approximately $25, (ii) excess beverage can
capacity and aggressive competition which continue to erode selling prices in
China, (iii) reduced demand in some areas as a result of tight customer
liquidity due to the regional currency devaluation and (iv) the closure of seven
plants in the region since the second quarter of 1996; partially offset by (i)
the consolidation of CMB activity for a full year versus only 45 weeks in 1996
and (ii) increased sales unit volumes of (a) beverage cans in China, Thailand,
Singapore and Vietnam and (b) food cans in Thailand. The increase in 1996
Asia-Pacific Division net sales was a result of (i) the acquisition of CMB and
(ii) increased sales unit volumes of beverage cans at company joint ventures in
China.
Net sales for Other operating units increased in 1997 as a result of the
acquisition of Golden Aluminum Company ("GAC"), partially offset by the
divestiture of the Crown-Simplimatic Machinery operations in May 1997. The
increase in Other net sales in 1996 was a result of the Simplimatic Machinery
operations acquired as part of the CMB transaction.
COST OF PRODUCTS SOLD
Cost of products sold, excluding depreciation and amortization for 1997 was
$6,707.7; a .4% decrease from $6,732.5 in 1996, following increases of 55.9% and
16.5% in 1996 and 1995, respectively. The decrease in 1997 cost of products sold
is attributable to the appreciation of the U.S. dollar against most European and
Southeast Asian currencies and decreased raw material prices, principally
aluminum and PET resin offsetting increased sales unit volumes in many product
lines. The increase in 1996 cost of products sold was directly attributable to
the increased net sales level in 1996 partially offset by decreased raw material
prices. The increase in 1995 cost of products sold was primarily a result of
increased aluminum and PET resin prices and increased sales unit volumes of (i)
PET beverage bottles in the U.S. and Europe and (ii) aluminum beverage cans and
ends in South America, the Middle East and China.
As a percentage of net sales, cost of products sold was 79.0% in 1997 as
compared to 80.8% in 1996 and 85.5% in 1995.
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Crown Cork & Seal Company, Inc.
SELLING AND ADMINISTRATIVE
Selling and administrative expenses for 1997 were $413.6, an increase of 6.8%
over 1996 compared to increases of 178.0% for 1996 and 2.9% for 1995. The
relative increase in 1997 costs and their percentage to net sales is directly
related to the consolidation of CMB activity for a full year in 1997 as compared
to only 45 weeks in 1996. The large increase in 1996 is directly attributable to
the acquisition of CMB whose general and administrative activities are highly
decentralized and which operates many business units in countries in which
social costs are very high. As a percentage of net sales, selling and
administrative expenses were 4.9% in 1997, 4.6% in 1996 and 2.8% in 1995.
OPERATING INCOME
The Company views operating income as the principal measure of performance
before interest costs and other non-operating expenses. Operating income, after
restructuring charges, was $766.7, $676.5 and $236.1 in 1997, 1996 and 1995,
respectively. Operating income of $833.3 in 1997, before the restructuring
charge of $66.6, was $117.0 or 16.3% greater than in 1996. Operating income of
$716.3 in 1996, before the restructuring charge of $39.8, was $377.5 or 111.4%
greater than in 1995. Operating income, before restructuring, as a percentage of
net sales was 9.8% in 1997 as compared to 8.6% in 1996 and 6.7% in 1995.
An analysis of operating income, before restructuring, by operating division
follows:
<TABLE>
<CAPTION>
% Increase/
Operating Income (Decrease)
DIVISION 1997 1996 1995 1997/1996 1996/1995
<S> <C> <C> <C> <C> <C>
Americas.................................... $259.5 $200.3 $227.1 29.6 (11.8)
Europe...................................... 558.7 490.0 70.7 14.0 593.1
Asia-Pacific................................ 6.3 10.7 31.0 (41.1) (65.5)
Other....................................... 8.8 15.3 10.0 (42.5) 53.0
----------------------------
$833.3 $716.3 $338.8 16.3 111.4
============================
</TABLE>
Operating income in the Americas Division was 7.0% of net sales in 1997 versus
5.5% in 1996 and 5.8% in 1995. The increase in 1997 operating margins is due to
(i) increased sales unit volumes of beverage cans, beverage ends, aerosol cans,
food cans, plastic beverage closures, single-serve PET beverage bottles and
beverage preforms in the U.S. and Canada, (ii) increased manufacturing
efficiencies in most U.S. and Canadian plants due to the completion of the 202
diameter conversion programs in 1996 and other cost improvement programs
initiated in recent years and (iii) the start-up of the Company's new beverage
can and beverage end plants in Brazil; offsetting (i) continued pricing
pressures in both metal and plastic beverage containers, (ii) lower sales unit
volumes of 2 liter PET beverage bottles and (iii) weak demand for beverage cans
in Mexico and Argentina. The decrease in 1996 operating margins was due to: (i)
continued pricing pressures in both metal and plastic beverage containers, (ii)
a seven week work stoppage at eight plants; (iii) lower sales unit volumes of
PET bottles and (iv) weaker economic conditions in Argentina and Brazil,
partially offset by; (i) the benefits accruing from the restructuring programs
initiated in the U.S. in 1995 and 1994, (ii) sales unit volume increases in
aluminum beverage ends, food cans, aerosol cans and plastic closures, (iii)
increased sales unit volumes and improved productivity in Canada and Mexico and
(iv) the inclusion of Anchor Hocking Packaging, acquired as part of the CMB
transaction. The Company's suppliers of aluminum can and end sheet implemented a
new pricing structure during 1995 which, by formula, is directly tied to the
price of ingot on the London Metal Exchange ("LME"). The formula takes the LME
spot price of aluminum ingot and adds other costs to convert and transport
aluminum, thereby effectively transferring the volatility in the commodity
markets to the Company. This pricing formula remained in effect during 1997.
During 1997, the Company entered into contracts with its suppliers of aluminum
can and end sheet which, by formula, guarantees prices for a period of six
months. This pricing structure is directly tied to a rolling average of the
prior six months' market price of aluminum on the LME.
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Crown Cork & Seal Company, Inc.
Further, "ceiling" prices have been established under these contracts which set
maximum prices that the Company would pay for aluminum.
European Division operating income was 13.3% as a percentage of net sales in
1997 compared to 11.8% in 1996 and 7.7% in 1995. The increase in operating
income in 1997 is directly attributable to (i) cost reduction programs initiated
by the Company upon the acquisition of CMB whereby inefficient plants, products
with negative contribution and excess administrative overheads were eliminated,
(ii) increased sales unit volumes in PET beverage bottles, plastic closures and
aerosol cans and (iii) better market conditions for specialty cans; offsetting
(i) the appreciation of the U.S. dollar against most European currencies which
reduced 1997 operating income by approximately $35, (ii) decreased sales unit
volumes of food cans in Greece and Italy due to poor early season weather, (iii)
competitive pricing pressure on food cans in France and Italy and (iv) decreased
sales unit volumes of beverage cans and ends. The increase in operating income
in 1996 is directly attributable to the addition of CMB operations, primarily
its food, beverage and aerosol can businesses. Operating margins for the
Company's existing facilities in Europe were lower than 1995 levels due
primarily to competitive pressures resulting in reduced volumes and prices for
metal and plastic packaging. Comparable operating margins for acquired CMB
operations were ahead of 1995 levels due to (i) sales unit volume gains in food,
beverage and aerosol cans and (ii) cost reduction programs in which the Company
began streamlining (a) inefficient plants, (b) excess administrative overheads
and (c) negative contribution products. Partially offsetting these gains were
(i) increased prices for tinplate and (ii) volume erosion and pricing pressures
from soft markets in specialty packaging and plastics.
Operating income in the Asia-Pacific Division was 1.7% of net sales in 1997
versus 2.8% in 1996 and 20.4% in 1995. The decrease in 1997 operating margins is
due to (i) reduced beverage can pricing throughout the region, (ii) the
appreciation of the U.S. dollar against most Southeast Asian currencies, (iii)
weak demand for food closures in China and (iv) lower sales unit volumes of
three-piece cans in Malaysia; offsetting (i) strong sales unit volumes of
beverage cans in Singapore, Malaysia and Thailand, (ii) strong sales unit
volumes of food cans in Thailand and (iii) the benefits accruing to the Company
from the closure of seven plants since the second quarter of 1996. The decrease
in 1996 operating margins was due primarily to the addition of CMB operations as
excess beverage can capacity and competitive pricing has significantly eroded
profits in China. Other factors affecting operating margins were (i) lower sales
unit volumes and competitive pricing in Malaysia (ii) competitive beverage can
pricing in Singapore, (iii) sales unit volume declines in three-piece cans in
Singapore and (iv) new plant start-ups in China, Singapore and Vietnam;
partially offset by (i) strong beverage and food can sales unit volumes in
Thailand and (ii) increased efficiencies in Shanghai.
Operating income from Other operating units was 4.3% of net sales in 1997 versus
9.3% in 1996 and 11.9% in 1995. Operating income decreased in 1997 as a result
of (i) start-up losses at GAC which was acquired in March 1997 and (ii) the sale
of the Company's Crown-Simplimatic Machinery operations. The increase in 1996
operating income was a result of the Simplimatic Machinery operations acquired
as part of the CMB transaction. The decrease in 1996 operating income as a
percentage to net sales reflects the lower margins earned on Simplimatic sales
compared to margins earned on tool shop and other operating unit sales.
GAIN ON SALE OF ASSETS
On May 14, 1997, the Company sold its Crown-Simplimatic Machinery operations to
a group of investors including division management. The selling price of $105
million included $90 million in cash and $15 million of 8% Class A Preferred
Stock that is convertible into approximately 20% of the common stock of
Crown-Simplimatic. The Company also sold ten surplus properties in 1997. Gains,
totaling $38.1, were realized from the sales of the machinery operations and
surplus properties in 1997 as compared to gains of $23.8 in 1996.
-13-
<PAGE>
Crown Cork & Seal Company, Inc.
NET INTEREST EXPENSE/INCOME
Net interest expense was $339.9 in 1997, an increase of $34.1 when compared to
1996 net interest expense of $305.8. Net interest expense was $136.1 in 1995.
The increase in 1997 net interest expense is due to (i) borrowings used in the
acquisition of CMB remaining outstanding for the full year as compared to only
45 weeks in 1996 and (ii) cash requirements for restructuring programs. The
increase in 1996 net interest expense is directly attributable to borrowings
which funded the acquisition of CMB. Further information regarding acquisitions
is found in Note H to the Consolidated Financial Statements, while information
specific to Company financing is presented in the Liquidity and Capital
Resources section of this discussion and Notes L and M to the Consolidated
Financial Statements.
FOREIGN EXCHANGE
Unfavorable foreign exchange adjustments of $7.9 in 1997 resulted primarily from
the remeasurement of the Company's operations in highly inflationary economies.
Favorable foreign exchange adjustments of $36.5 and $1.1 were recorded in 1996
and 1995, respectively. During 1996, the Company recorded a foreign exchange
gain of $42.1 due to the impact of a stronger U.S. dollar on the Company's CMB
acquisition financing, denominated in French Francs. This French Franc
acquisition debt was subsequently refinanced into several functional currencies
during 1996.
TAXES ON INCOME
The effective tax rates on income were 32.3%, 31.2% and 22.7% in 1997, 1996 and
1995, respectively. The effective rate is lower than the U.S. statutory rate of
35% as a result of lower effective rates in non-U.S. operations and the
continuing re-evaluation of reserve and valuation allowance requirements;
partially offset by non-deductible amortization of goodwill and other
intangibles. A reconciliation of the Company's effective tax rate from the U.S.
statutory rate is presented in Note Q to the Consolidated Financial Statements.
MINORITY INTERESTS, NET OF EQUITY EARNINGS
Minority interests share of net income was $9.8, $5.4 and $13.6 in 1997, 1996,
and 1995, respectively. The increase in minority interests in 1997 is due
primarily to increased profits in Brazil, Greece, Singapore and Thailand and
lower losses in South Africa.
Equity in earnings/(losses) of affiliates was $2.1, ($7.2) and $3.9 in 1997,
1996 and 1995, respectively. The increase in equity earnings in 1997 primarily
relates to improved earnings in the Company's non-consolidated affiliates in
Brazil, Mexico and Morocco and lower losses in Korea.
NET INCOME AND EARNINGS PER SHARE
Net income for 1997, excluding the effect of an accounting change, was $278.2
compared with $264.2 for 1996 and $74.9 in 1995. Diluted earnings per share for
1997 was $2.15 compared with $2.14 and $.83 in 1996 and 1995, respectively.
Excluding the provision for restructuring, 1997 net income increased 8.7% to
$321.5 and 1997 earnings per share increased 3.4% to $2.46. Excluding the
provision for restructuring, 1996 net income increased 108.5% to $295.9 and 1996
earnings per share increased 51.6% to $2.38 compared to 1995 while 1995
decreased 30.5% and 30.8%, respectively compared to 1994. The sum of per share
earnings by quarter does not equal earnings per share for the years ended
December 31, 1997, 1996 and 1995 due to the effect of shares issued during those
respective years.
INDUSTRY SEGMENT PERFORMANCE
This section presents individual segment results for the last three years. The
after-tax charge of $43.3 or $.31 per share related to the 1997 restructuring
charge is included as an after-tax charge in the Metal Packaging segment
("Metals") of $7.4 or $.05 per share and an after-tax charge of $35.9 or $.26
per share in the Plastics Packaging segment ("Plastics") and is excluded in
making comparisons to 1997 results. The
-14-
<PAGE>
Crown Cork & Seal Company, Inc.
after-tax charge of $31.7 or $.24 per share related to 1996 restructuring is
included in Metals and is excluded in making comparisons to 1996 results. The
after-tax charge of $67.0 or $.74 per share related to the 1995 restructuring
charge is included as an after-tax charge in Metals of $60.1 or $.66 per share
and an after-tax charge of $6.9 or $.08 per share in Plastics and is excluded in
making comparisons to 1995 results.
Net sales for Metals in 1997 were $6,940.9, an increase of 4.9% compared to 1996
net sales of $6,619.7. Net sales in 1995 were $3,811.1. Metals sales in 1997
increased over 1996 due to (i) the consolidation of CMB activity for the full
year versus only 45 weeks in 1996; (ii) sales unit volume increases in all
product lines in the U.S. and (iii) initial sales volumes at the Company's new
beverage can and end plants in Brazil; offsetting (i) the effect of the
appreciation of the U.S. dollar against most European and Asian currencies, (ii)
decreased aluminum prices which resulted in lower selling prices for beverage
cans and ends and (iii) European sales unit volume decreases in food and
beverage cans. Metals sales in 1996 increased over 1995 due to the CMB
acquisition, partially offset by decreased aluminum prices which were passed on
to customers in the form of lower selling prices.
Metals operating income in 1997 was $635.6, before restructuring charges of
$11.4, or 9.2% of net sales compared to 1996 operating income of $542.8 or 8.2%
of net sales, before restructuring charges of $39.8. Operating income in 1995
was $253.6 or 6.7% of net sales, before restructuring charges of $94.4. Metals
operating income increased in 1997 over 1996 due to (i) the consolidation of CMB
activity for the full year versus only 45 weeks in 1996, (ii) sales unit volume
increases in all product lines in the U.S., (iii) increased manufacturing
efficiencies in the U.S. and Canada and (iv) cost reduction programs initiated
in Europe and Asia by the Company upon the acquisition of CMB. The increase in
Metals operating income in 1996 was directly attributable to the European food,
beverage and aerosol businesses acquired with CMB and increased margins in the
North American food and beverage businesses due to improved manufacturing
efficiencies, a result of prior restructuring and capital expenditure programs.
Net sales for Plastics decreased $158.5 or 9.3% in 1997 from $1,712.2 in 1996.
The decrease in Plastics sales in 1997 is due to (i) decreased PET resin prices
which resulted in lower selling prices and (ii) the effect of the appreciation
of the U.S. dollar against most European and Asian currencies; offsetting
increased unit sales in PET beverage bottles and plastics beverage closures in
the U.S., Europe and Asia. The increase in 1996 Plastics net sales is due
entirely to Plastics businesses acquired with the CMB transaction partially
offset by decreased PET prices which were passed on to customers in the form of
lower selling prices.
Plastics operating income in 1997 was $197.7 or 12.7% of net sales before
restructuring charges of $55.2, as compared to 1996 operating income of $173.5
or 10.1% of net sales. Operating income in 1995 was $85.2 or 6.9% of net sales,
before restructuring charges of $8.3. The increase in Plastics operating income
in 1997 is due to (i) the consolidation of CMB activity for the full year versus
only 45 weeks in 1996, (ii) restructuring programs initiated in the U.S. and
Europe and (iii) sales unit volume increases in the U.S., Europe and Asia in PET
beverage bottles and plastic beverage closures. The increase in Plastics
operating income in 1996 was due to the CMB acquisition as profits in all
sectors of Plastics, excluding PET beverage bottles, offset increasing price
competition in PET beverage bottles. Additionally, as a percentage to net sales,
Plastics operating income increased in 1996 due to the effect of PET resin price
decreases.
FINANCIAL POSITION
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $205.6 at December 31, 1997 compared to $160.4
and $68.1 at December 31, 1996 and 1995, respectively. The Company's primary
sources of cash in 1997 consisted of (i) funds provided from operations $402.1;
(ii) the sale of assets and businesses $133.3; (iii) proceeds from long-term
borrowings $123.7; and (iv) the net change in short-term debt $359.5. The
Company's primary uses of cash in 1997 consisted of (i) capital expenditures of
$514.8; (ii) payments of long-term
-15-
<PAGE>
Crown Cork & Seal Company, Inc.
debt $268.5; and (iii) dividends paid $151.8. The decrease in funds provided
from operations in 1997 versus 1996 is a result of a portion of the 1996
seasonal buildup of CMB working capital occurring before the acquisition date.
The Company funds its working capital requirements on a short-term basis
primarily through issuances of commercial paper. At December 31, 1997 the
commercial paper program was supported by a $2,500 multi-currency credit
agreement which was formalized in February 1997, maturing in February 2002 with
interest at market rates. The Company's use of the facility is not restricted.
At December 31, 1997, $355.2 was drawn against this facility. Based on the
Company's intention and ability to maintain its credit facility beyond 1998 and
1997, respectively, $700 of commercial paper borrowings was classified as
long-term at both December 31, 1997 and 1996. There was $1,248.0 and $932.1 in
commercial paper outstanding at December 31, 1997 and 1996, respectively.
On December 1, 1995, the Company entered into a Revolving Credit and Term Loan
Agreement (Credit Agreement) with a syndicate of financial institutions.
Pursuant to the Credit Agreement, the lenders made available to the Company
French Francs (FRF) 13,700 in a multi-currency revolving credit facility to fund
the cash portion of the consideration to be paid in connection with the
Company's acquisition of CarnaudMetalbox and for general corporate purposes.
Borrowings under the facility were permitted in FRF, U.S. Dollars and British
Pound Sterling and bear interest at variable market rates. A total of FRF 9,100
(approximately $1,800) was drawn on February 22, 1996 to fund the purchase of
shares from those CMB shareholders electing cash (approximately 40.1 million CMB
shares at FRF 225 per share). At December 31, 1996, borrowings of $493.1 were
outstanding under this credit facility.
On November 26,1996, the Company filed with the Securities and Exchange
Commission a shelf registration statement for the offer and sale of up to $1,300
aggregate principal amount of debt securities of the Company. This amount was
combined with the remaining $200 from the December 1994 shelf registration,
providing an aggregate $1,500 funding availability. On December 12,1996, the
Company sold $1,200 of these public debt securities in five separate tranches,
with maturities ranging from seven to 100 years. The issuers were the Company
and two wholly-owned finance subsidiaries located in the United Kingdom and
France, whose borrowings are fully guaranteed by the Company. The face value of
the notes bear interest rates ranging from 6.75% to 7.38%. The offerings by the
subsidiaries were simultaneously converted into fixed rate, 8.28% Sterling and
5.75% French Franc obligations through interest rate and currency swaps with
various counterparties. Proceeds from the offering were used to repay
acquisition indebtedness arising from the CMB acquisition. The Company's
long-term debt securities ratings were reaffirmed at Baa1 by Moody's Investor
Service and confirmed at BBB by Standard and Poor's Corporation on February 3,
1998.
The Company's ratio of total debt (net of cash and cash equivalents) to total
capitalization was 56.1%, 56.4% and 56.2% at December 31, 1997, 1996 and 1995,
respectively. Total capitalization is defined by the Company as total debt,
minority interests and shareholders' equity. The increase in the Company's total
debt in recent years is due to acquisition activity, particularly the 1996
acquisition of CMB and the significant capital expenditure program which the
Company has committed to in recent years. As of December 31, 1997, $399.3 of
long-term debt matures within one year.
Management believes that, in addition to current financial resources (cash and
cash equivalents and the Company's commercial paper program), adequate capital
resources are available to satisfy the Company's ongoing investment programs.
Such sources of capital would include, but not be limited to, bank borrowings.
Management believes that the Company's cash flow is sufficient to maintain its
current operations.
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 addresses these risks through a program that includes the use of
financial instruments. The Company controls the credit risks associated with
these
-16-
<PAGE>
Crown Cork & Seal Company, Inc.
financial instruments through credit approval, investment limits and centralized
monitoring procedures and systems. The Company uses only liquid investments from
creditworthy institutions and does not enter into leveraged, tiered or illiquid
contracts. Further, the Company does not enter into financial instruments for
trading purposes.
International operations, principally European, constitute a significant portion
of consolidated revenues and identifiable assets. These operations result in a
large volume of foreign currency commitment and transaction exposures and
significant foreign currency net asset exposures. The Company manages its
foreign currency transaction risk to minimize the volatility of cash flows
caused by currency fluctuations by forecasting foreign currency denominated cash
flows of each subsidiary and aggregating these cash inflows and outflows in each
currency to determine the overall net transaction exposures. The Company does
not generally hedge its exposure to translation gains and losses, however, by
borrowing in local currencies, it reduces such exposure.
The information below summarizes the Company's market risks associated with debt
obligations and other significant financial instruments outstanding as of
December 31, 1997. Fair values included herein have been determined based on
quoted market prices. Further information specific to Company financing is
presented in Notes L and M to the Consolidated Financial Statements.
The table below provides information as of December 31, 1997 about the Company's
forward currency exchange contracts. The majority of the contracts expire in
1998.
<TABLE>
<CAPTION>
Contract Average Contractual
Buy/Sell Amount Exchange Rate
<S> <C> <C>
GBP/FRF......................................... $570 9.79
FRF/GBP......................................... 406 9.74
USD/GBP......................................... 372 1.65
FRF/USD......................................... 367 5.80
DEM/GBP......................................... 207 2.85
FRF/DEM......................................... 162 3.36
USD/FRF......................................... 159 5.82
SGD/USD......................................... 125 1.62
USD/BEF......................................... 103 36.54
</TABLE>
The Company has an additional $431 in a number of smaller contracts to purchase
or sell various other currencies, principally European, as of December 31, 1997.
The aggregate cost to settle all contracts, which is not material to any
individual contract, was $9.1 at December 31, 1997. Total forward exchange
contracts outstanding as of December 31, 1996 were $2,311.
The Company manages its interest rate risk in order to balance its exposure
between fixed and variable rates while attempting to minimize its interest
costs. Generally, the Company maintains variable interest rate debt at a level
of 40% to 60% of total borrowings. The Company manages its interest rate risk by
retiring and issuing debt from time to time and by executing interest rate
swaps.
For debt obligations, the table below presents principal cash flows and related
interest rates by year of maturity. Variable interest rates disclosed represent
the weighted average rates at December 31, 1997. For interest rate swaps, the
table presents notional amounts and related interest rates by year of maturity.
For these swaps, the variable rates presented are the average forward rates for
the term of each contract.
-17-
<PAGE>
Crown Cork & Seal Company, Inc.
<TABLE>
<CAPTION>
Year of Maturity
Debt 1998 1999 2000 2001 2002 Thereafter
<S> <C> <C> <C> <C> <C> <C>
Fixed rate..................... $137.9 $155.6 $42.4 $95.1 $35.0 $1,899.5
Average interest rate.......... 6.5% 7.4% 8.1% 8.4% 8.1% 7.6%
- ----------------------------------------------------------------------------------------------------------------
Variable rate (1).............. $1,646.8 $14.6 $117.6 $113.1 $713.1 $115.4
Average interest rate.......... 5.6% 7.1% 7.6% 4.8% 5.8% 7.6%
- ----------------------------------------------------------------------------------------------------------------
Interest rate swaps:
Fixed to variable.............. $254.3 $100.0 $93.9 $105.0
Average pay rate............... 3.7% 7.7% 4.4% 7.7%
Average receive rate........... 6.7% 7.5% 6.9% 7.0%
- ----------------------------------------------------------------------------------------------------------------
<FN>
(1) $700.0 of commercial paper borrowings due in 1998 are classified as
long-term, reflecting the Company's intent and ability to refinance these
borrowings on a long-term basis through committed credit facilities.
</FN>
</TABLE>
The Company's use of financial instruments in managing market risk exposures
described above is consistent with the prior year.
ACQUISITION OF CARNAUDMETALBOX
On February 26, 1996, the Company completed settlement of its previously
announced Exchange Offer (the "Offer") to acquire all of the outstanding shares
of common stock, par value FRF 10 per share, of CMB, a French societe anonyme.
Under the terms of the Offer, the Company offered to exchange or purchase each
CMB share validly tendered in the Offer for, at the election of the holder,
either (1) 1.086 Units, each Unit consisting of .75 shares of Crown common
stock, par value $5.00 per share and .25 shares of Crown 4.5% Convertible
Preferred Stock, par value $41.8875 per share (acquisition preferred) or (2) FRF
225 in cash. The Offer was made pursuant to the terms of the Exchange Offer
Agreement dated May 22, 1995, as amended, between the Company and Compagnie
Generale d'Industrie et de Participations (CGIP), a French societe anonyme and
the principal shareholder of CMB. A description of the Exchange Offer Agreement
was previously reported in the Company's Current Report on Form 8-K dated May
22, 1995 and the Company's Proxy Statement/Prospectus, dated November 14, 1995
forming a part of the Company's Amendment No. 1 to its Registration Statement on
Form S-4 filed with the Securities and Exchange Commission on November 14, 1995.
85,932,200 CMB shares, representing approximately 98.7% of the outstanding CMB
shares, were validly tendered into the Offer. Of the CMB shares tendered,
40,125,325 were tendered for cash (aggregating approximately FRF 9,000 or
approximately $1,800) and 45,797,825 were exchanged for Units (resulting in the
Company issuing 37,300,818 shares of common stock and 12,432,622 shares of
acquisition preferred). Pursuant to the terms of the Exchange Offer Agreement,
CGIP exchanged its CMB shares for Units and received 21,330,903 shares of common
stock and 7,110,300 shares of acquisition preferred. The Company acquired the
remaining outstanding shares of CMB during the second quarter of 1996. On
October 24, 1996, the Company announced that CGIP had sold a portion of its
investment in the Company to a group of underwriters. CGIP sold 10,637,500
shares of the Company's common stock and 3,450,000 shares of the Company's 4.5%
convertible preferred stock, resulting in total gross proceeds to CGIP of $644.6
million, before underwriting discounts, commissions and expenses. Upon
completion of the offering, CGIP owned common and convertible preferred stock
representing approximately 10.1% of the Company's voting power versus 19.9%
previously. The Company did not receive any of the proceeds from these secondary
offerings.
On March 2, 1998, the Company completed the repurchase of 4,093,826 shares of
its common stock at $49.00 per share and 3,660,300 shares of its acquisition
preferred at $46.00 per share from CGIP. The repurchased shares represented
approximately 5.3% of the Company's then outstanding voting securities and
leaves CGIP with 4.99% voting power in the Company. The repurchased shares
include all of CGIP's
-18-
<PAGE>
Crown Cork & Seal Company, Inc.
acquisition preferred position which represented approximately 30% of the then
outstanding shares of acquisition preferred. The transaction includes an
agreement to terminate the Shareholders Agreement dated February 22, 1996
between the Company and CGIP. Among other changes, CGIP will no longer retain
the right to designate Company directors. The transaction value of $369 was
financed through an increase in short-term indebtedness.
PROVISION FOR RESTRUCTURING
During 1997, the Company provided $66.6 ($43.3 after taxes or $.31 per share)
for the costs associated with a plan to improve the structure of its PET plastic
beverage container business in the United States by closing and reorganizing six
manufacturing locations in its CONSTAR subsidiary along with other, non-PET,
restructuring activities, primarily in Europe. The Company anticipates that the
restructuring actions referred to above, when complete will generate
approximately $20.0 in after-tax cost savings on an annualized basis.
The Company has made an assessment of the restructuring and exit costs to be
incurred relative to the acquisition of CMB. Affected by the plan of
restructuring are forty regional administrative offices and plants to be closed
and approximately fifty-two plants to be reorganized. The cost of providing
severance pay and benefits for the reduction of approximately 6,500 employees
(approximately 5,100 positions eliminated by the end of 1997) is approximately
$257 and is primarily a cash expense. Actual expenditures for severance pay and
benefits through December 31, 1997 amounted to approximately $165. Employees to
be terminated include most, if not all, employees at each plant to be closed or
reorganized including salaried employees and employees of the respective unions
represented at each plant site. The cost associated with the write-down of
assets (principally property, plant and equipment) is approximately $217 and has
been reflected as a reduction in the carrying value of the Company's assets.
Lease termination and other exit costs, primarily repayments of government
grants and subsidies approximates $60 of the provision and is primarily a cash
expense of which approximately $50 has been expended as of December 31, 1997.
Details of the restructuring are also presented in Note K to the Consolidated
Financial Statements.
The Company estimates that the plan of restructuring CMB operations when
complete, will generate annual cost savings of approximately $160 ($105
after-tax) on an annualized basis. It is also estimated that capital
expenditures of approximately $100 will be made to expand and upgrade other
facilities to minimize the adverse effects of the restructuring on existing
business and customer relationships.
During 1996, the Company provided $39.8 ($31.7 after taxes or $.24 per share)
for the costs associated with exiting certain lines of business in its South
African operations, the closure of a South American operation and costs
associated with restructuring existing businesses in Europe. During 1995, the
Company recorded a pre-tax restructuring charge of $102.7 ($67.0 after taxes or
$.74 per share) to streamline North American operations, improve productivity
and to enhance competitiveness. The 1996 and 1995 restructuring plans have been
completed.
CAPITAL EXPENDITURES
Consolidated capital expenditures totaled $514.8 in 1997 as compared with $631.2
in 1996. Minority partner contributions to consolidated capital expenditures
were approximately $26 and $88 in 1997 and 1996. During the past five years,
capital expenditures totaled $2,290.6.
Expenditures in the Americas Division totaled $161 including the completion of
the construction of a beverage can plant and a beverage end plant in Brazil, the
construction of a beverage can plant in Columbia, and the completion of a
two-piece steel food can line in the U.S.
Spending in the European Division for 1997 totaled $316 as the Company completed
the construction of a new beverage can and end plant in South Africa as well as
converting several beverage can and end lines to the 202 diameter from the 206
diameter. Investments were also made in connection with the ongoing
restructuring programs and for several easy open food can end lines.
-19-
<PAGE>
Crown Cork & Seal Company, Inc.
Investments of $19 were made in the Asia-Pacific Division in 1997. The Company
expanded its beverage can and end capacity in Huizhou, China, completed
construction of a PET plant in Beijing, China, and modernized food can
operations in Thailand.
The Company expects its capital expenditures in 1998 to approximate $475
including joint-venture partner contributions estimated at approximately $20.
The Company plans to continue capital expenditure programs designed to take
advantage of technological developments which enhance productivity and contain
costs, as well as those that provide growth opportunities. Capital expenditures,
exclusive of potential acquisitions, during the five-year period 1998 through
2002 are expected to approximate $2,250, including $150 being contributed from
joint-venture partners. Cash flow from operating activities will provide support
for these expenditures; however, depending upon the Company's evaluation of
growth opportunities and other existing market conditions, external financing
may be required from time to time.
ENVIRONMENTAL MATTERS
The Company has adopted a Corporate Environmental Protection Policy. The
implementation of this Policy is a primary management objective and the
responsibility of each employee of the Company. The Company is committed to the
protection of human health and the environment, and is operating within the
increasingly complex laws and regulations of national, state, and local
environmental agencies or is taking action aimed at assuring compliance with
such laws and regulations. Environmental considerations are among the criteria
by which the Company evaluates projects, products, processes and purchases, and,
accordingly, does not expect compliance with these laws and regulations to have
a material effect on the Company's competitive position, financial condition,
results of operations or capital expenditures.
The Company is dedicated to a long-term environmental protection program and has
initiated and implemented many pollution prevention programs with the 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 not only recycles nearly 100
percent of scrap aluminum, steel, plastic and copper used in its manufacturing
processes, but through its Nationwide Recyclers subsidiary, is directly involved
in post-consumer aluminum, steel and plastics recycling. Many of the Company's
programs for pollution prevention reduce operating costs and improve operating
efficiencies.
The Company has been identified by the EPA as a potentially responsible party
(along with others, in most cases) at a number of sites. Estimated remedial
expenses for active projects are recognized in accordance with generally
accepted accounting principles governing probability and the ability to
reasonably estimate future costs. Actual expenditures for remediation were $4.3
during 1997 and $6.0 in 1996. The Company's balance sheet reflects estimated
gross remediation liabilities of $39.4 and $53.6 at December 31, 1997 and 1996,
respectively, and estimated recoveries related to indemnification from the
sellers of acquired companies and the Company's insurance carriers of $18.5 and
$16.6 at December 31, 1997 and 1996, respectively.
Environmental exposures are difficult to assess for numerous reasons, including
the identification of new sites, advances in technology, changes in
environmental laws and regulations and their application, the scarcity of
reliable data pertaining to identified sites, the difficulty in assessing the
involvement of and the financial capability of other potentially responsible
parties and the time periods (sometimes lengthy) over which site remediation
occurs. It is possible that some of these matters (the outcome of which are
subject to various uncertainties) may be decided unfavorably against the
Company. It is however, the opinion of Company management, after consulting with
counsel, that any unfavorable decision will not have a material adverse effect
on the Company's financial position, cash flows or results of operations.
COMMON STOCK AND OTHER SHAREHOLDERS' EQUITY
Shareholders' equity was $3,529.2 at December 31, 1997 as compared with $3,563.3
at December 31, 1996. The decrease in 1997 equity is due to adjustments for
currency translation in non-U.S. subsidiaries
-20-
<PAGE>
Crown Cork & Seal Company, Inc.
of $167.5, dividends declared on common stock of $128.4 and the repurchase of
342,414 common shares offset by $270.6 of earnings in the business and the
issuance of 329,406 common shares for various stock purchase and savings plans.
The book value of each share of common stock at December 31, 1997 was $25.26 as
compared to $25.50 at December 31, 1996.
In 1997, the return on average shareholders' equity before restructuring and the
1997 cumulative effect of accounting change was 9.7% as compared to 12.6% in
1996. Including the restructuring charges, but excluding the 1997 cumulative
effect of accounting change, the return on average shareholders' equity was 8.5%
in 1997 compared to 11.3% in 1996.
The Board of Directors has approved resolutions authorizing the Company to
repurchase shares of its common stock to meet the requirements for the Company's
various stock purchase and savings plans. The Company acquired 342,414 shares
and 7,401 shares of common stock in 1997 and 1995 for $17.2 and $.3,
respectively. There were no stock repurchases during 1996.
The Company declared cash dividends totaling $128.4 and $128.2 in 1997 and 1996,
respectively, representing a quarterly dividend of $.25 per common share.
Upon the completion of the CMB acquisition, the Company's shareholders
authorized the Company to issue up to an additional 380 million shares of its
common stock, up to 30 million shares of additional preferred stock ("additional
preferred") and up to 50 million shares of acquisition preferred. In connection
with the completion of the CMB acquisition, the Company, on February 26, 1996,
issued approximately 37.3 million shares of its common stock and 12.4 million
shares of its acquisition preferred. Subsequent to the issuance of the
acquisition preferred, the number of authorized shares of acquisition preferred
was reduced and no further shares of acquisition preferred shall be issued. The
acquisition preferred, additional preferred, and shareholder rights plan are
more fully described in Note N to the Consolidated Financial Statements.
During 1996 the Company filed a Registration Statement to register 10 million
shares of its common stock for implementation of a Dividend Reinvestment and
Stock Purchase Plan ("Plan"). The Plan covers all registered shareholders of the
Company's common stock as well as those beneficial owners who have either become
shareholders of record by having shares transferred into their name or by making
arrangements with their broker or other nominees to participate on their behalf.
During 1997 and 1996, 8,105 and 3,527 shares, respectively, of common stock were
issued under the Plan.
At December 31, 1997, common shareholders of record numbered 5,763 compared with
5,736 at the end of 1996. Total common shares outstanding were 128,398,543 at
December 31, 1997 compared to 128,410,797 at December 31, 1996. Total
acquisition preferred shares outstanding were 12,431,793 at December 31, 1997
compared to 12,432,622 at December 31, 1996.
INFLATION
Inflation has not had a significant impact on the Company over the past three
years due to strong cash flow from operations. The Company continues to maximize
cash flow through programs designed for cost containment, productivity
improvements, and capital spending. Management does not expect inflation to have
a significant impact on the results of operations or financial condition in the
foreseeable future.
FUTURE ACCOUNTING CHANGES
In June 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income", No.
131, "Disclosures about Segments of an Enterprise and Related Information" and
No. 132, "Employers' Disclosure about Pensions and Other Postretirement
Benefits." The Company will adopt these new accounting standards in 1998.
Adoption of these accounting standards are for disclosure purposes only and will
not have an adverse effect on the Company's financial position, cash flows or
results of operations.
-21-
<PAGE>
Crown Cork & Seal Company, Inc.
YEAR 2000
The Company continues to assess its exposure related to the impact of the Year
2000 date issue. The Year 2000 date issue arises as a result of computer
programs being written using two digits (rather than four) to identify a year in
a date field. Company programs which have date-sensitive software may recognize
a date using "00" as the year 1900 rather than the year 2000, which could result
in miscalculations or system failures. The Company's strategic financial and
operational systems are being reviewed and, where required, detailed plans are
being developed and implemented to identify, correct, reprogram and test for
Year 2000 compliance. While final cost estimates are not complete, management
does not expect these costs will have a material adverse effect on the Company's
financial position, cash flows or results of operations. However, the Company
may be adversely affected by the Year 2000 date issue if the Company, its
suppliers or customers are unable to resolve this issue successfully. Management
continues to assess these risks and dedicate the necessary resources in order to
reduce exposure to the Company.
FORWARD LOOKING STATEMENTS
Statements included in Management's Discussion and Analysis of Results of
Operations and Financial Condition and the discussion of the restructuring plans
in Note K to the Consolidated Financial Statements included in this Annual
Report, which are not historical facts (including any statements concerning
plans and objectives of management for future operations or economic
performance, or assumptions related thereto), are "forward-looking statements",
within the meaning of the federal securities laws. In addition, the Company and
its representatives may from time to time make other oral or written statements
which are also "forward-looking statements".
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 Company's ability to continue integration of CMB's operations into its
existing operations and to realize synergistic benefits from the CMB acquisition
(including effective raw material procurement, elimination of redundant selling,
general and administrative functions, and global product offerings) and the
consolidation and restructuring of the combined operations and the ability to
realize cost savings from its restructuring programs; changes in raw material
pricing (including aluminum can sheet, steel tinplate, plastic resin, inks and
coatings) and the Company's ability to pass raw material price increases through
to its customers or to otherwise manage these commodity pricing risks; the
Company's ability to generate significant free cash to invest in its business
and to maintain appropriate debt levels; 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 or changes in competitors' pricing for
products; changes in governmental regulations or enforcement practices,
especially with respect to environmental, health and safety matters and
restrictions as to foreign investment or operation; weather conditions; changes
in U.S. or international economic or political conditions, such as, inflation or
fluctuations in interest or foreign exchange rates; the costs and other effects
of legal and administrative cases and proceedings, settlements and
investigations; and labor relations and workforce and social costs. Some of the
factors noted above are discussed elsewhere in this Annual Report and prior
Company filings with the Securities and Exchange Commission (the "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
Results of Operations and Financial Condition 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.
-22-
<PAGE>
Crown Cork & Seal Company, Inc.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Financial Statements
Report of Independent Accountants................... 24
Consolidated Statements of Income................... 25
Consolidated Balance Sheets......................... 26
Consolidated Statements of Cash Flows............... 27
Consolidated Statements of Shareholders' Equity..... 28
Notes to Consolidated Financial Statements.......... 29
Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts
and Reserves........................................... 49
-23-
<PAGE>
Crown Cork & Seal Company, Inc.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of Crown Cork & Seal Company, Inc.
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of Crown
Cork & Seal Company, Inc. and its subsidiaries at December 31, 1997 and 1996,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe our audits
provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
March 16, 1998
-24-
<PAGE>
Crown Cork & Seal Company, Inc.
CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share amounts)
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Net sales................................................. $8,494.6 $8,331.9 $5,053.8
-------- -------- --------
Costs, expenses and other income
Cost of products sold (excluding
depreciation and amortization)....................... 6,707.7 6,732.5 4,319.4
Depreciation and amortization.......................... 540.0 495.9 256.3
Selling and administrative expense..................... 413.6 387.2 139.3
Provision for restructuring . . Note K................. 66.6 39.8 102.7
Gain on sale of assets................................. (38.1) (23.8) (8.4)
Interest expense, net of interest income............... 339.9 305.8 136.1
Translation and exchange adjustments................... 7.9 (36.5) (1.1)
-------- -------- --------
8,037.6 7,900.9 4,944.3
-------- -------- --------
Income before income taxes and cumulative effect
of accounting change................................... 457.0 431.0 109.5
Provision for income taxes . . Note Q.................. 147.7 134.4 24.9
-------- -------- --------
Income from operations before cumulative effect
of accounting change................................... 309.3 296.6 84.6
Minority interests, net of equity earnings............. (7.7) (12.6) (9.7)
-------- -------- --------
Net income before cumulative effect
of accounting change................................... 301.6 284.0 74.9
Cumulative effect of accounting change,
net of tax . . Note B................................ (7.6)
-------- -------- --------
Net income................................................ 294.0 284.0 74.9
Preferred stock dividends . . Note N...................... 23.4 19.8
-------- -------- --------
Net income available to common shareholders............... $ 270.6 $ 264.2 $ 74.9
======== ======== ========
- ---------------------------------------------------------------------------------------------------------------
Average common share data:
Earnings per average common share . . Note O
Basic - before cumulative effect of
accounting change........................... $ 2.17 $ 2.16 $ .83
======== ======== ========
after cumulative effect of
accounting change........................... $ 2.11
======== ======== ========
Diluted - before cumulative effect of
accounting change........................... $ 2.15 $ 2.14 $ .83
======== ======== ========
after cumulative effect of
accounting change........................... $ 2.10
======== ======== ========
Dividends................................................. $ 1.00 $ 1.00
======== ======== ========
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
-25-
<PAGE>
Crown Cork & Seal Company, Inc.
CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
<TABLE>
<CAPTION>
December 31 1997 1996
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents............................................... $ 205.6 $ 160.4
Receivables . . Note C.................................................. 1,353.5 1,349.3
Inventories . . Note D.................................................. 1,387.5 1,423.8
Prepaid expenses and other current assets............................... 200.6 358.4
--------- ---------
Total current assets.................................................. 3,147.2 3,291.9
--------- ---------
Long-term notes and receivables............................................ 65.0 82.2
Investments................................................................ 89.5 90.3
Goodwill, net of amortization.............................................. 4,625.2 4,809.9
Property, plant and equipment . . Note E................................... 3,663.9 3,717.3
Other non-current assets................................................... 714.9 598.6
--------- ---------
Total................................................................. $12,305.7 $12,590.2
========= =========
Liabilities & Shareholders' Equity
Current liabilities
Short-term debt . . Note L.............................................. $ 1,385.4 $ 1,105.8
Current portion of long-term debt . . Note L............................ 399.3 48.5
Accounts payable and accrued liabilities . . Note F..................... 2,236.7 2,460.9
United States and foreign income taxes.................................. 27.9 47.3
--------- ---------
Total current liabilities............................................. 4,049.3 3,662.5
--------- ---------
Long-term debt, excluding current maturities . . Note L.................... 3,301.4 3,923.5
Other non-current liabilities . . Note G................................... 431.3 458.2
Postretirement and pension liabilities . . Note R.......................... 711.7 738.9
Minority interests......................................................... 282.8 243.8
Shareholders' equity
Preferred stock, 4.5% cumulative convertible,
par value: $41.8875; authorized: 12,432,622 . . Note N
1997 - outstanding 12,431,793......................................... 520.8
1996 - outstanding 12,432,622......................................... 520.8
Additional preferred stock, authorized: 30,000,000;
none issued . . Note N
Common stock, par value: $5.00; authorized:
500,000,000 . . Note N
1997 - issued 155,792,386............................................. 779.0
1996 - issued 155,791,632............................................. 779.0
Additional paid-in capital.............................................. 1,560.7 1,567.3
Retained earnings....................................................... 1,327.2 1,185.0
Minimum pension liability . . Note R.................................... (16.9) (14.8)
Cumulative translation adjustment....................................... (504.6) (337.1)
Treasury stock (1997 - 27,393,843 shares; 1996 -
27,380,835 shares).................................................... (137.0) (136.9)
--------- ---------
Total shareholders' equity............................................ 3,529.2 3,563.3
--------- ---------
Total................................................................. $12,305.7 $12,590.2
========= =========
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
-26-
<PAGE>
Crown Cork & Seal Company, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities
Net income .................................................. $ 294.0 $ 284.0 $ 74.9
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization............................ 540.0 495.9 256.3
Provision for restructuring.............................. 43.3 31.7 67.0
Foreign currency gain.................................... (42.1)
Gain on sale of assets................................... (27.6) (15.5) (5.5)
Deferred income taxes.................................... 92.9 91.7 (3.2)
Changes in assets and liabilities, net of businesses acquired:
Receivables................................................ (115.0) 247.2 (24.7)
Inventories................................................ (69.8) 20.3 (55.1)
Accounts payable, accrued and other liabilities............ (219.5) (193.8) (172.5)
Other, net................................................. (136.2) (8.2) 27.4
--------- --------- ---------
Net cash provided by operating activities.............. 402.1 911.2 164.6
--------- --------- ---------
Cash flows from investing activities
Capital expenditures......................................... (514.8) (631.2) (433.5)
Acquisition of businesses, net of cash acquired.............. (10.0) (1,537.5) (14.2)
Proceeds from sale of property, plant and equipment.......... 43.3 32.6 26.8
Proceeds from sale of businesses............................. 90.0 107.9
Other, net................................................... (6.4) (6.5) (17.1)
--------- --------- ---------
Net cash used for investing activities................. (397.9) (2,034.7) (438.0)
--------- --------- ---------
Cash flows from financing activities
Proceeds from long-term debt................................. 123.7 2,075.1 365.4
Payments of long-term debt................................... (268.5) (303.3) (209.0)
Net change in short-term debt................................ 359.5 (423.3) 99.8
Dividends paid............................................... (151.8) (145.4)
Common stock:
Repurchased for treasury................................... (17.2) (.3)
Issued under various employee benefit plans................ 10.5 11.0 21.2
Minority contributions, net of dividends paid................ 11.0 3.7 21.5
--------- --------- ---------
Net cash provided by financing activities.............. 67.2 1,217.8 298.6
--------- --------- ---------
Effect of exchange rate changes on cash
and cash equivalents......................................... (26.2) (2.0) (.6)
--------- --------- ---------
Net change in cash and cash equivalents......................... 45.2 92.3 24.6
Cash and cash equivalents at January 1.......................... 160.4 68.1 43.5
--------- --------- ---------
Cash and cash equivalents at December 31........................ $ 205.6 $ 160.4 $ 68.1
========= ========= =========
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
-27-
<PAGE>
Crown Cork & Seal Company, Inc.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in millions, except share data)
<TABLE>
<CAPTION>
Minimum Cumulative
Preferred Common Paid-In Retained Pension Translation Treasury
Stock Stock Capital Earnings Liability Adjustment Stock Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1994................... $592.5 $168.4 $974.1 ($48.1) ($175.9) ($145.8) $ 1,365.2
Net income - 1995........................... 74.9 74.9
Stock repurchased:
7,401 shares........................... (.3) (.3)
Stock issued under stock option
and employee savings plans:
1,298,175 shares....................... 14.6 6.6 21.2
Minimum pension liability
adjustment............................. 16.0 16.0
Translation adjustments..................... (15.8) (15.8)
------ ------ -------- -------- ------ ------- ------- --------
Balance December 31, 1995................... 592.5 182.7 1,049.0 (32.1) (191.7) (139.2) 1,461.2
Net income - 1996........................... 284.0 284.0
Stock issued in business
combination:
Common: 37,300,818 shares.............. 186.5 1,375.9 1,562.4
Preferred: 12,432,622 shares........... $520.8 520.8
Dividends declared:
Common................................. (128.2) (128.2)
Preferred.............................. (19.8) (19.8)
Stock issued under stock option
and employee savings plans:
459,165 shares......................... 8.7 2.3 11.0
Minimum pension liability
adjustment............................. 17.3 17.3
Translation adjustments..................... (145.4) (145.4)
------ ------ -------- -------- ------ ------- ------- --------
Balance December 31, 1996................... 520.8 779.0 1,567.3 1,185.0 (14.8) (337.1) (136.9) 3,563.3
Net income - 1997........................... 294.0 294.0
Stock repurchased:
342,414 shares......................... (15.5) (1.7) (17.2)
Dividends declared:
Common................................. (128.4) (128.4)
Preferred.............................. (23.4) (23.4)
Stock issued under stock option
and employee savings plans:
329,406 shares......................... 8.9 1.6 10.5
Minimum pension liability
adjustment............................. (2.1) (2.1)
Translation adjustments..................... (167.5) (167.5)
------ ------ -------- -------- ------ ------- ------- --------
Balance December 31, 1997................... $520.8 $779.0 $1,560.7 $1,327.2 ($16.9) ($504.6) ($137.0) $3,529.2
====== ====== ======== ======== ====== ======= ======= ========
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
-28-
<PAGE>
Crown Cork & Seal Company, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share, employee, shareholder and statistical data)
A. Summary of Significant Accounting Policies
Business and Principles of Consolidation
The consolidated financial statements include the accounts of Crown Cork & Seal
Company, Inc. (the "Company") and its wholly-owned and majority-owned subsidiary
companies. The Company manufactures and sells metal and plastic containers,
metal and plastic closures, crowns and canmaking equipment. These products are
manufactured in the Company's plants both within and outside the United States
and are sold through the Company's sales organization to the soft drink, food,
citrus, brewing, household products, personal care and various other industries.
The financial statements have been prepared in conformity with generally
accepted accounting principles and reflect management estimates and assumptions.
Actual results could differ from those estimates, impacting reported results of
operations and financial position. All significant intercompany accounts and
transactions are eliminated in consolidation. Investments in joint ventures and
other companies in which the Company does not have control, but has the ability
to exercise significant influence over operating and financial policies
(generally greater than 20% ownership), are accounted for by the equity method.
Other investments are carried at cost.
Foreign Currency Translation
For non-U.S. subsidiaries which operate in a local currency environment, assets
and liabilities are translated into U.S. dollars at year-end exchange rates.
Income and expense items are translated at average exchange rates prevailing
during the year. Translation adjustments for these subsidiaries are accumulated
in a separate component of Shareholders' Equity. For non-U.S. subsidiaries which
operate in U.S. dollars (functional currency) or whose economic environment is
highly inflationary, local currency inventories and plant and other property are
translated into U.S. dollars at approximate rates prevailing when acquired; all
other assets and liabilities are translated at year-end exchange rates.
Inventories charged to cost of sales and depreciation are remeasured at
historical rates; all other income and expense items are translated at average
exchange rates prevailing during the year. Gains and losses which result from
remeasurement are included in earnings.
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.
Inventory Valuation
Inventories are stated at the lower of cost or market, with cost for domestic
metal, plastic container, crown and closure inventories principally determined
under the last-in, first-out ("LIFO") method. Non-U.S. inventories are
principally determined under the average cost method.
Goodwill
Goodwill, representing the excess of the cost over the net tangible and
identifiable intangible assets of acquired businesses, is stated at cost and is
amortized, principally on a straight-line basis, over the estimated future
periods to be benefited (primarily 40 years). On an annual basis the Company
reviews the recoverability of goodwill based primarily upon an analysis of
undiscounted cash flows from the acquired businesses. Accumulated amortization
amounted to $333.8 and $221.6 at December 31, 1997 and 1996, respectively.
Property, Plant and Equipment
Property, plant and equipment ("PP&E") is carried at cost and includes
expenditures for new facilities and those costs which substantially increase the
useful lives of existing PP&E. Cost of significant assets includes capitalized
interest incurred during the construction and development period. Maintenance,
repairs and minor renewals are expensed as incurred. When properties are retired
or otherwise disposed, the
-29-
<PAGE>
Crown Cork & Seal Company, Inc.
related costs and accumulated depreciation are eliminated from the respective
accounts and any profit or loss on disposition is reflected in income. Costs
assigned to PP&E of acquired businesses are based on estimated fair value at the
date of acquisition.
Depreciation and amortization are provided on a straight-line basis for
financial reporting purposes and an accelerated basis for tax purposes over the
estimated useful lives of the assets. The range of estimated economic lives
assigned to each significant fixed asset category are as follows: Land
Improvements--25; Buildings and Building Improvements--25 to 40; Other
Depreciable Assets--3 to 14.
Impairment of Long-Lived Assets
In the event that facts and circumstances indicate that the cost of long-lived
assets may be impaired, an evaluation of recoverability would be performed. If
an evaluation is required, the estimated future undiscounted cash flows
associated with the asset would be compared to the asset's carrying amount to
determine whether a write-down to market value is required.
Treasury Stock
Treasury stock is reported at par value and constructively retired. 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
Research, development and engineering expenditures which amounted to $53.1,
$51.5 and $22.3 in 1997, 1996 and 1995, respectively, are expensed as incurred.
Substantially all engineering and development costs are related to developing
new products or designing significant improvements to existing products.
Earnings Per Share
The Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards No. 128, Earnings Per Share ("SFAS No. 128"), in February
1997. SFAS No. 128 simplifies the procedure for computing earnings per share
("EPS") and replaces primary and fully diluted earnings per share with basic
("Basic") and diluted ("Diluted") earnings per share. Basic EPS excludes all
potentially dilutive securities and is computed by dividing income available to
common shareholders by the weighted average number of common shares outstanding
during the period. Diluted EPS includes the assumed exercise and conversion of
potentially dilutive securities, including stock options and convertible
preferred stock, in periods when they are not anti-dilutive, otherwise, it is
the same as Basic EPS. The adoption of SFAS No. 128 has resulted in the
restatement of earnings per share for all prior periods presented in the
consolidated financial statements and notes thereto. See Note O for a further
discussion and presentation of the computations required by the new Standard.
Reclassifications
Certain reclassifications of prior years' data have been made to improve
comparability.
- --------------------------------------------------------------------------------
B. Accounting Change
In the fourth quarter the Company adopted the provisions of the Emerging Issues
Task Force Bulletin 97-13 ("EITF 97-13"), "Accounting for Costs Incurred in
Connection with a Consulting Contract or an Internal Project that Combines
Business Process Reengineering and Information Technology Transformation". EITF
97-13 requires that the costs of business process reengineering activities that
are part of systems development projects be expensed as they are incurred.
Unamortized costs that were previously capitalized, through September 30, 1997,
were written off as a cumulative effect of an accounting change. This resulted
in an after-tax charge of $7.6 or $.05 per diluted share.
- --------------------------------------------------------------------------------
-30-
<PAGE>
Crown Cork & Seal Company, Inc.
C. Receivables
1997 1996
Accounts and notes receivable...........................$1,150.1 $1,266.2
Less: allowance for possible losses..................... (44.5) (92.0)
-------- --------
Net trade receivables.............................. 1,105.6 1,174.2
Miscellaneous receivables............................... 247.9 175.1
-------- --------
$1,353.5 $1,349.3
======== ========
The Company has agreements to sell certain of its non-U.S. trade accounts
receivable. At December 31, 1997 approximately $149 ($134 at December 31, 1996)
of receivables had been sold with limited recourse and are reflected as a
reduction of trade receivables. Related fees and discounting expense amounted to
$1.4 in 1997 and $5.0 in 1996 and are included in interest expense.
- --------------------------------------------------------------------------------
D. Inventories
1997 1996
Finished goods..................................... $ 560.5 $ 529.8
Work in process.................................... 187.3 210.7
Raw materials...................................... 467.6 550.1
Supplies and repair parts.......................... 172.1 133.2
-------- --------
$1,387.5 $1,423.8
======== ========
Approximately 29% and 34% of worldwide inventories at December 31, 1997 and
1996, 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, 1997 and 1996, total inventories would have been
$25.3 and $18.5 higher, respectively.
- --------------------------------------------------------------------------------
E. Property, Plant and Equipment
1997 1996
Buildings and improvements............................ $ 925.9 $ 886.4
Machinery and equipment............................... 4,127.2 3,744.0
-------- --------
5,053.1 4,630.4
Less: accumulated depreciation and amortization....... (1,921.0) (1,537.9)
-------- --------
3,132.1 3,092.5
Land and improvements................................. 207.9 258.2
Construction in progress.............................. 323.9 366.6
-------- --------
$3,663.9 $3,717.3
======== ========
- --------------------------------------------------------------------------------
-31-
<PAGE>
Crown Cork & Seal Company, Inc.
F. Accounts Payable and Accrued Liabilities
1997 1996
Trade accounts payable................................ $1,342.8 $1,377.0
Interest.............................................. 65.5 78.2
Salaries, wages and other employee benefits........... 254.9 214.5
Environmental......................................... 4.5 6.7
Restructuring......................................... 151.9 243.3
Deferred taxes........................................ 83.0 101.5
Other................................................. 334.1 439.7
-------- --------
$2,236.7 $2,460.9
======== ========
- --------------------------------------------------------------------------------
G. Other Non-Current Liabilities
1997 1996
Postemployment benefits............................... $ 36.5 $ 36.3
Environmental......................................... 34.9 46.9
Restructuring......................................... 3.4 16.4
Deferred taxes........................................ 304.4 304.0
Other................................................. 52.1 54.6
------ ------
$431.3 $458.2
====== ======
Other non-current assets include $18.5 and $16.6 at December 31, 1997 and 1996,
respectively, for estimated recoveries related to environmental liabilities.
- --------------------------------------------------------------------------------
H. Acquisitions
On March 5, 1997, the Company acquired Golden Aluminum Company ("GAC") from ACX
Technologies, Inc. The purchase price was $70 which included an immediate cash
payment of $10 and a deferred payment of $60 due within two years. Under the
terms of the purchase, the Company holds a put option enabling it to return GAC
to ACX if it chooses to exercise the option during the next two years.
Effective February 22,1996 the Company acquired CarnaudMetalbox ("CMB") for
approximately $3,986; including $1,903 in cash, $1,562 in Crown common stock and
$521 in Crown 4.5% cumulative convertible preferred stock. The cash portion of
the consideration was financed through a Revolving Credit and Term Loan
Agreement. This agreement was subsequently refinanced. See Note L and
Management's Discussion and Analysis for further details on the refinancing. The
Company also acquired, in separate transactions, the assets of a tooling company
in Pennsylvania for approximately $1 in cash and the assets of a coil cutting
and coating facility in California for approximately $5 in cash. Both
transactions were financed through cash from operations.
During 1995, the Company acquired, in separate transactions, the assets of a
plastics recycling company in Florida for approximately $3 in cash and the
assets of a beverage can manufacturer in Huizhou, China for approximately $11 in
cash. Both transactions were financed through cash from operations.
For financial reporting purposes, all of the acquisitions above were treated as
purchases. An excess purchase price of approximately $3,800 has been determined,
based upon the fair values of assets acquired and liabilities assumed in
connection with the above acquisitions. The operating results of each
acquisition are included in consolidated net income from the date of
acquisition.
-32-
<PAGE>
Crown Cork & Seal Company, Inc.
The following represents the non-cash impact of the acquisitions noted above:
1997 1996 1995
Fair value of assets acquired,
including goodwill ............... $ 70.0 $ 7,995.2 $ 14.2
Liabilities assumed ................... (4,003.5)
Note payable .......................... (60.0)
Issuance of common stock .............. (1,562.4)
Issuance of 4.5% cumulative convertible
preferred stock .................. (520.8)
---------- ---------- -------
Cash paid ............................. $ 10.0 $ 1,908.5 $ 14.2
========== ========== =======
- --------------------------------------------------------------------------------
I. Lease Commitments
The Company and its subsidiaries lease manufacturing, warehouse and office
facilities and certain equipment, a significant portion of these obligations
having been assumed with the acquisition of CMB. 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, at December 31, 1997 was $45.9.
Under long-term operating leases, minimum annual rentals are $27.0 in 1998,
$19.6 in 1999, $13.6 in 2000, $10.7 in 2001, $9.0 in 2002, and a total of $48.9
for 2003 and thereafter. Under long-term capital leases, minimum annual rentals
are $11.2 in 1998, $10.7 in 1999, $6.8 in 2000, $6.0 in 2001, $5.4 in 2002, and
a total of $9.5 for 2003 and thereafter. The present value of future minimum
payments on capital leases is $42.9 with the current portion of the obligation
being $9.0. Rental expense (net of sublease rental income of $3.7 in 1997, $5.5
in 1996 and $.8 in 1995) amounted to $37.5 in 1997, $35.1 in 1996 and $22.7 in
1995.
- --------------------------------------------------------------------------------
J. Commitments and Contingent Liabilities
The Company has various commitments to purchase materials and supplies as part
of the ordinary conduct of business. Such commitments are not at prices in
excess of current market.
The Company's basic raw materials for the products in its Metals and Plastics
packaging segments are tinplate, aluminum and resins, all of which are purchased
from multiple sources. The Company is subject to material fluctuations in the
cost of these raw materials and has previously adjusted its selling prices to
reflect these movements. There can be no assurance, however, that the Company
will be able to recover fully any increases or fluctuations in raw material
costs from its customers.
The Company is subject to various lawsuits and claims with respect to matters
such as governmental regulations and other actions arising out of the normal
course of business. While the impact on future financial results is not subject
to reasonable estimation because considerable uncertainty exists, management
believes, after consulting with counsel, that the ultimate liabilities resulting
from such lawsuits and claims will not materially affect the consolidated
results or financial position of the Company.
- --------------------------------------------------------------------------------
-33-
<PAGE>
Crown Cork & Seal Company, Inc.
K. Restructuring
During the third quarter of 1997, the Company provided $66.6 ($43.3 after taxes
or $.31 per diluted share) for the costs associated with a plan to improve the
structure of its polyethylene terephthalate ("PET") plastic beverage container
business in the United States by closing and reorganizing six manufacturing
locations in its CONSTAR subsidiary along with other, non-PET, restructuring
activities, primarily in Europe. Annual savings relating to these actions, when
fully implemented, are expected to be approximately $20.0 ($.14 per diluted
share). The Company expects to maintain its existing manufacturing capacity, and
by relocating equipment among its remaining larger facilities, meet all current
and prospective volume requirements. The Company records restructuring charges
against operations and provides a reserve based on the best information
available at the time that the decision is made to restructure. The balance of
restructuring reserves (excluding the write-down of assets which is reflected as
a reduction of the related asset account) is included within accounts payable
and accrued liabilities.
The Company made an assessment of the restructuring and exit costs to be
incurred relative to the acquisition of CMB. Affected by the plan of
restructuring are forty plants and regional administrative offices to be closed
and approximately fifty-two plants to be reorganized. Since commencement of the
plan of restructuring, the Company has determined alternative sites for
manufacture and qualified the new manufacturing sites with customers. The
Company had accrued approximately $534 for the costs associated with
restructuring CMB operations and allocated such costs to the purchase price of
CMB in accordance with purchase accounting requirements. These costs comprise;
severance pay and benefits, write-down of assets, lease termination and other
exit costs. The cost of providing severance pay and benefits for the reduction
of approximately 6,500 employees is estimated at approximately $257 and is
primarily a cash expense. Employees to be terminated include most, if not all,
employees at each plant or office to be closed and selected employees at those
plants to be reorganized, including salaried employees and employees of the
respective unions represented at each plant site. The write-down of assets
(principally property, plant and equipment) is estimated at approximately $217
and has been reflected as a reduction in the carrying value of the Company's
assets. Lease termination and other exit costs, primarily repayments of
government grants and subsidies, are estimated at approximately $60 and are
primarily cash expenses. The $534 in restructuring costs recorded in connection
with the CMB acquisition includes the $95 restructuring charge announced in 1996
by CarnaudMetalbox Asia Ltd., a subsidiary of the Company.
The Company estimates that the plan of restructuring CMB operations will
generate annual cost savings of approximately $160 ($105 after-tax) on a full
year basis. It is also estimated that capital expenditures of approximately $100
will be made to expand and upgrade other facilities to minimize the adverse
effects of the restructuring on existing business and customer relationships.
During 1996, the Company provided $39.8 ($31.7 after taxes or $.24 per diluted
share) for the costs associated with exiting certain lines of business in its
South African operations, the closure of a South American operation and costs
associated with restructuring existing businesses in Europe. During 1995, the
Company recorded a pre-tax restructuring charge of $102.7 ($67.0 after taxes or
$.74 per diluted share) to streamline North American operations, improve
productivity and to enhance competitiveness. The 1996 and 1995 restructuring
plans have been completed.
-34-
<PAGE>
Crown Cork & Seal Company, Inc.
The components of the restructuring reserve are as follows:
<TABLE>
<CAPTION>
Balance at Provisions Provisions Transfer Balance at
December 31, for existing for CMB 1997 against December 31,
1996 businesses businesses activity assets 1997
<S> <C> <C> <C> <C> <C> <C>
Employee costs................... $222.1 $13.3 ($11.9) ($104.0) $119.5
Write-down of assets............. 44.3 32.0 ($76.3)
Lease termination and
other exit costs............ 37.6 9.0 11.5 (22.3) 35.8
------ ----- ----- ------- ------ ------
$259.7 $66.6 $31.6 ($126.3) ($76.3) $155.3
====== ===== ===== ======= ====== ======
</TABLE>
The foregoing restructuring charges and related cost savings represent the
Company's best estimates, but necessarily make numerous assumptions with respect
to industry performance, general business and economic conditions, raw materials
and product pricing levels, the timing of implementation of the restructuring
and related employee reductions and facility closings and other matters, many of
which are outside the Company's control. The Company's estimates of cost savings
are not necessarily indicative of future performance, which may be significantly
more or less favorable than as set forth above and is subject to the
considerations described in Management's Discussion and Analysis under "Forward
Looking Statements". Shareholders are cautioned not to place undue reliance on
the estimates and the assumptions and should appreciate that such information
may not necessarily be updated to reflect circumstances existing after the date
hereof or to reflect the occurrence of unanticipated events.
- --------------------------------------------------------------------------------
-35-
<PAGE>
Crown Cork & Seal Company, Inc.
L. Short-Term Borrowings and Long-Term Debt
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Short-term borrowings (1)
Commercial paper (2)................................................... $ 548.0 $ 232.1
U.S. dollar bank loans/overdrafts...................................... 155.2 164.9
Other currency bank loans/overdrafts................................... 682.2 708.8
-------- --------
Total short-term borrowings..................................... $1,385.4 $1,105.8
-------- --------
Long-term debt (6)
U.S. Dollars:
Commercial paper (2) (5)............................................... $ 700.0 $ 700.0
Private placements: rates in 1997 ranging
from 7.0% to 7.54%, due 2000 through 2005........................... 205.0 205.0
Senior notes and debentures:
5.88% due 1998...................................................... 100.0 100.0
7.00% due 1999...................................................... 100.0 100.0
6.75% due 2003 (3).................................................. 400.0 400.0
6.75% due 2003...................................................... 200.0 200.0
8.38% due 2005...................................................... 300.0 300.0
7.00% due 2006 (3).................................................. 300.0 300.0
8.00% due 2023...................................................... 200.0 200.0
7.38% due 2026 (3).................................................. 350.0 350.0
7.50% due 2096 (3).................................................. 150.0 150.0
Other indebtedness: rates in 1997 ranging from
6.2% to 10.1%, due 1998 through 2015................................ 202.3 188.0
-------- --------
3,207.3 3,193.0
-------- --------
Other currencies (average interest rate at December 31,
1997 in parentheses):
Perpetual notes in French Francs (8.0%) (4)............................ 232.5
Preference shares in French Francs (6.7%), due 1998.................... 254.3 283.9
Other French Franc indebtedness (7.0% to 9.8%),
due 1998 through 2001............................................... 97.8 147.9
Capital lease obligations in various currencies........................ 42.9 40.0
Other indebtedness in various currencies, rates in 1997
ranging from 3.75% to 17.5%, due 1998 through 2003.................. 98.4 74.7
-------- --------
Total long-term debt............................................ 3,700.7 3,972.0
Less: current maturities............................................... (399.3) (48.5)
-------- --------
Total long-term debt............................................ $3,301.4 $3,923.5
======== ========
<FN>
(1) The weighted average interest rates for commercial paper outstanding during
1997, 1996 and 1995, were 5.3%, 5.5% and 6.1%, respectively. The weighted
average interest rates for notes and overdrafts outstanding during 1997,
1996 and 1995, were 6.4%, 6.3% and 8.6%, respectively.
(2) At December 31, 1997 and December 31, 1996, $700 of commercial paper was
reported as long term, reflecting the Company's intent and ability to
refinance these borrowings on a long-term basis through committed credit
facilities.
(3) On November 26, 1996, the Company filed with the Securities and Exchange
Commission a shelf registration statement for the possible offering and
sale of up to $1,300 aggregate principal amount of debt securities of the
Company. This amount was combined with the remaining $200 from a
-36-
<PAGE>
Crown Cork & Seal Company, Inc.
December 1994 Registration Statement, providing an aggregate $1,500 funding
availability. On December 12,1996, the Company sold $1,200 of these public
debt securities in five separate tranches, with maturities ranging from
seven to 100 years. The issuers included the Company and two wholly-owned
finance subsidiaries located in the United Kingdom and France, whose
borrowings are fully guaranteed by the Company. The face value of the notes
bear interest rates ranging from 6.75% to 7.38%. The offerings by the
subsidiaries, amounting to $700, were simultaneously converted into fixed
rate, 8.28% Sterling and 5.75% French Franc obligations through interest
rate and currency swaps with various counterparties. Proceeds from the
offering were used to repay acquisition indebtedness arising from the CMB
acquisition.
(4) On January 31, 1997, the perpetual notes were terminated and refinanced by
the Company's committed long-term credit facilities.
(5) On February 4, 1997, the Company's $1,000 multicurrency credit facility and
FRF 13,700 credit agreement were replaced with a new multicurrency
revolving credit agreement with a group of domestic and foreign banks. The
new agreement makes available $2,500 through 2002. Borrowings of $355.2 at
December 31, 1997 under the new agreement are unsecured and bear interest
at variable market rates. The agreement contains certain financial
covenants related to leverage and interest coverage. Borrowings outstanding
under the prior FRF 13,700 credit agreement amounting to $493.1, at
December 31, 1996, were refinanced under this new agreement.
(6) The Company is also party to other interest rate swap agreements, with
remaining terms of between one to five years. The notional amounts of these
agreements do not represent amounts exchanged by the parties and are not a
measure of the Company's exposure to credit or market risks. At December
31, 1997 and December 31, 1996 the notional amounts of these swaps were
$553 and $1,219, respectively.
</FN>
</TABLE>
Aggregate maturities of total long-term debt for the five years subsequent to
December 31, 1997 are $399.3, $170.2, $160.0, $208.2 and $48.1, respectively.
Cash payments for interest were $378.7 in 1997, $290.5 in 1996 and $113.4 in
1995 (including amounts capitalized of $6.0 in 1997, $7.7 in 1996 and $5.8 in
1995, respectively).
The estimated fair value of the Company's long-term borrowings, including
interest rate financial instruments, based on quoted market prices for the same
or similar issues or on current rates offered to the Company for debt of the
same remaining maturities was $3,790.8 at December 31, 1997 and did not differ
materially from the carrying value at December 31, 1996.
- --------------------------------------------------------------------------------
M. Financial Instruments
In the normal course of business, operations of the Company are exposed to
fluctuations in currency values, interest rates, commodity prices and other
market risks. The Company addresses these risks through a program that includes
the use of financial instruments. The Company controls the credit risks
associated with these financial instruments through credit approval, investment
limits and centralized monitoring procedures and systems. The Company uses only
liquid investments from creditworthy institutions and does not enter into
leveraged, tiered or illiquid contracts. Further, the Company does not enter
into financial instruments for trading purposes.
Foreign Currency Management
With respect to balance sheet exposures, the Company has an internal netting
strategy to match foreign currency assets and liabilities wherever possible.
This is achieved through the individual capital structure of overseas
subsidiaries complemented by the use of financial instruments. The Company also
enters into various types of foreign exchange contracts, principally forward
exchange contracts and swaps, in managing the foreign exchange risk arising from
certain foreign currency transactions. At December 31, 1997 the Company had
outstanding forward exchange contracts, principally in European currencies,
Singapore dollars, and US dollars (both buy and sell) for an aggregate notional
amount of $2,902 ($2,311
-37-
<PAGE>
Crown Cork & Seal Company, Inc.
at December 31, 1996). Based on year-end exchange rates and the maturity dates
of the various contracts, the aggregate contract value of these items
approximated fair value at December 31, 1997 and December 31, 1996. Gains and
losses resulting from contracts that are designated and effective as hedges are
recognized in the same period as the underlying hedged transaction.
Interest Rate Risk Management
The Company uses interest rate swaps, interest rate caps, and currency swaps to
manage interest rate risk related to borrowings. Interest rate and currency swap
agreements which hedge third party debt issues are described in Note L. Costs
associated with these financial instruments are generally amortized over the
lives of the instruments and are not material to the Company's financial
results. Differences in interest, which are paid or received, are recognized as
adjustments to interest expense.
Commodities
The Company's basic raw materials for products in its metal and plastic
packaging segments are subject to significant price fluctuations. In terms of
commodity risks, the Company uses a combination of commercial supply contracts
and financial instruments, including forwards and options, to minimize these
exposures. The maturity of the commodity instruments correlates to the actual
purchases of the commodities. Commodity instruments are accounted for as hedges,
with any gains or losses included in inventory, to the extent that they are
designated and are effective as hedges of anticipated commodity purchases. At
December 31, 1997 and December 31,1996 the fair value of the outstanding
commodity contracts was not material to the Company's earnings, cash flows or
financial position.
- --------------------------------------------------------------------------------
N. Capital Stock
The purchase of CMB resulted in the issuance of approximately 37.3 million
shares of the Company's common stock and 12.4 million shares of its 4.5%
cumulative convertible preferred stock (acquisition preferred) to tendering CMB
shareholders. Generally, each share of acquisition preferred stock is entitled
to the number of votes equal to the number of shares of common stock into which
such share of acquisition preferred stock is convertible as of the applicable
record date. Dividends on shares issued accrue and are paid quarterly in arrears
on February 20, May 20, August 20 and November 20 each year. The acquisition
preferred stock ranks senior to the Company's common stock as to dividends and
liquidation rights. Each share of acquisition preferred stock is convertible
into common stock at a rate equal to the $41.8875 par value of such acquisition
preferred stock divided by the applicable conversion price of $45.9715, subject
to adjustment in certain events. The Company will at all times reserve and keep
available, out of its authorized and unissued common stock, sufficient amounts
of its common stock to effect any future conversions. The acquisition preferred
stock is mandatorily convertible February 26, 2000 and has a liquidation value
equivalent to its par value plus accrued and unpaid dividends.
The Board of Directors has the authority to issue, at any time or from time to
time, up to a maximum of 30 million shares of additional preferred stock in one
or more classes or series of classes. The additional preferred stock would rank
on a parity with or junior to the acquisition preferred stock in respect of
dividend and liquidation rights and such shares 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.
In May 1996, the Company registered 10 million shares of common stock with the
Securities and Exchange Commission for the implementation of a Dividend
Reinvestment and Stock Purchase Plan ("Plan"). The Plan covers all registered
shareholders of the Company's common stock as well as those beneficial owners
who have either become shareholders of record by having shares transferred into
their name or by making arrangements with their broker or other nominees to
participate on their behalf. The Plan allows for full or partial dividend
reinvestment in the Company's common stock.
-38-
<PAGE>
Crown Cork & Seal Company, Inc.
The Board of Directors adopted a Shareholder Rights Plan in 1995 and declared a
dividend of one right for each outstanding share of common stock. Such rights
only become exercisable, or transferable apart from the common stock, after a
person or group acquires beneficial ownership of, or commences a tender or
exchange offer for, 15% or more of the Company's common stock. Each right then
may be exercised to acquire one share of common stock at an exercise price of
$200, subject to adjustment. Alternatively, under certain circumstances
involving the acquisition by a person or group of 15% or more of the Company's
common stock, each right will entitle its holder to purchase a number of shares
of the Company's common stock having a market value of two times the exercise
price of the right. In the event the Company is acquired in a merger or other
business combination transaction after a person or group has acquired 15% or
more of the Company's common stock, each right will entitle its holder to
purchase a number of the acquiring company's common shares having a market value
of two times the exercise price of the right. The rights may be redeemed by the
Company at $.01 per right at any time until the tenth day following public
announcement that a 15% position has been acquired. The rights will expire on
August 10, 2005.
- --------------------------------------------------------------------------------
O. Earnings Per Share
The following table summarizes the basic and diluted earnings per share
computations for 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
Average Average Average
Income Shares EPS Income Shares EPS Income Shares EPS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Income $294.0 $284.0 $74.9
Less: Preferred stock
dividends (23.4) (19.8)
------ ------ -----
Basic EPS $270.6 128.4 $2.11 $264.2 122.5 $2.16 $74.9 90.2 $.83
Potentially dilutive securities:
Stock options .6 .3 .4
Assumed preferred stock
conversion 23.4 11.3 19.8 9.6
------ ----- ------ ----- ----- ----
Diluted EPS $294.0 140.3 $2.10 $284.0 132.4 $2.14 $74.9 90.6 $.83
====== ===== ====== ===== ===== ====
</TABLE>
- --------------------------------------------------------------------------------
P. Stock Options
As of December 31, 1997, the Company has three stock-based incentive
compensation plans under which the Company grants options to executives and key
employees to purchase common stock: the 1990 plan, the 1994 plan and the 1997
plan. The number of shares authorized for issuance were 6,000,000 under the 1990
plan, 4,000,000 under the 1994 plan and 5,000,000 under the 1997 plan. Awards
can be made 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 as designated by
the Board of Directors. There have been no issuances of deferred stock,
restricted stock or SARs under any of the plans. At December 31, 1997, there had
been no awards granted under the 1997 plan. Under all plans, the option exercise
price equals the fair market value of the common shares on the date of the
grant. Options generally become exercisable over a five-year period from the
grant date and expire ten years after the date of grant.
In 1995, the Financial Accounting Standards Board issued SFAS No. 123,
Accounting for Stock-Based Compensation ("SFAS No. 123"). Under the provisions
of SFAS No. 123, companies can elect to account for stock-based compensation
plans using a fair-value-based method or continue measuring compensation expense
for those plans using the intrinsic value method prescribed in APB No. 25,
Accounting for Stock
-39-
<PAGE>
Crown Cork & Seal Company, Inc.
Issued to Employees ("APB No.25"). The Company applies APB No. 25 and related
interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized for these plans.
Stock option transactions were:
<TABLE>
<CAPTION>
1997 1996 1995
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Options outstanding
at January 1......................... 4,625,708 $42.28 1,836,452 $33.30 2,970,225 $25.67
Granted................................. 877,350 52.27 3,544,750 44.35 326,600 40.32
Exercised............................... (281,380) 33.36 (516,100) 25.58 (1,385,309) 17.56
Canceled................................ (475,882) 43.39 (239,394) 39.94 (75,064) 36.87
--------- --------- ----------
Options outstanding
at December 31....................... 4,745,796 $44.54 4,625,708 $42.28 1,836,452 $33.30
========= ========= ==========
Options exercisable
at December 31....................... 1,083,464 709,115 591,351
Options available for
grant at December 31................. 6,469,616 1,871,084 5,176,440
</TABLE>
The following table summarizes information concerning currently outstanding and
exercisable options:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
<S> <C> <C> <C> <C> <C>
$10.44 to $38.25 485,740 4.9 $35.22 263,927 $33.50
38.38 to 43.13 413,256 3.4 40.11 238,999 39.57
44.13 to 52.56 3,260,800 4.9 44.96 580,538 44.46
53.00 to 54.38 586,000 8.9 53.03
--------- ---------
4,745,796 5.3 $44.54 1,083,464 $40.71
========= =========
</TABLE>
Had compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant date for awards under those
plans, consistent with the requirements of SFAS No. 123, net income and earnings
per share would have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C> <C>
Net income As reported $270.6 $264.2 $74.9
Pro forma $263.6 $260.5 $74.7
Basic earnings per share As reported $ 2.11 $ 2.16 $ .83
Pro forma $ 2.05 $ 2.13 $ .83
Diluted earnings per share As reported $ 2.10 $ 2.14 $ .83
Pro forma $ 2.05 $ 2.12 $ .82
</TABLE>
-40-
<PAGE>
Crown Cork & Seal Company, Inc.
The pro forma results may not be representative of the effects on reported
income for future years. The fair value of each stock option grant has been
estimated on the date of the grant using the Black-Scholes option pricing model
with the following weighted average assumptions:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Risk-free interest rate 5.7% 6.2% 5.4%
Expected life of option 4.9 years 4.9 years 4.9 years
Expected stock price volatility 21.7% 20.7% 20.7%
Expected dividend yield 2.0% 2.2% None
</TABLE>
The weighted average grant date fair values for options granted during 1997,
1996 and 1995 were $12.92, $11.01 and $13.01, respectively.
- --------------------------------------------------------------------------------
Q. Income Taxes
Pretax income for the years ended December 31 was taxed under the following
jurisdictions:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Domestic.................................................. $ 48.8 $ 66.8 $ 30.8
Foreign................................................... 408.2 364.2 78.7
------ ------ ------
$457.0 $431.0 $109.5
====== ====== ======
The provision for income taxes consists of the following:
Current tax provision:
U.S. Federal......................................... $ 13.9 $ 15.0 $ 16.2
State and foreign.................................... 40.9 27.7 11.9
------ ------ ------
54.8 42.7 28.1
------ ------ ------
Deferred tax provision:
U.S. Federal......................................... 9.9 17.5 (3.1)
State and foreign.................................... 83.0 74.2 (.1)
------ ------ ------
92.9 91.7 (3.2)
------ ------ ------
$147.7 $134.4 $ 24.9
====== ====== ======
</TABLE>
The provision for income taxes differs from the amount of income tax determined
by applying the applicable U.S. statutory federal income tax rate to pretax
income as a result of the following differences:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
U.S. statutory rate....................................... 35.0% 35.0% 35.0%
Non-U.S. operations at different rates.................... (6.6) (7.7) (14.5)
Effect of non-U.S. statutory rate changes................. (1.5)
Amortization of acquisition adjustments................... 9.5 8.5 8.0
Valuation allowance....................................... (2.7) (4.0) (1.8)
Other items, net.......................................... (1.4) (.6) (4.0)
----- ----- -----
Effective income tax rate............................ 32.3% 31.2% 22.7%
===== ===== =====
</TABLE>
-41-
<PAGE>
Crown Cork & Seal Company, Inc.
The Company paid federal, state, local and foreign (net) income taxes of $51.0
for 1997, $41.4 for 1996 and $28.0 for 1995. The components of deferred tax
assets and liabilities at December 31, were:
<TABLE>
<CAPTION>
1997 1996
Asset Liability Asset Liability
<S> <C> <C> <C> <C>
Depreciation.............................................. $397.7 $421.5
Postretirement and
postemployment benefits................................ $221.8 $208.3
Pensions.................................................. 90.7 46.9
Inventories............................................... 27.4 32.6
Tax loss and
credit carryforwards................................... 209.9 275.0
Restructuring............................................. 40.6 90.0
Accruals and other........................................ 88.3 25.8 85.6 16.8
------ ------ ------ ------
560.6 541.6 658.9 517.8
Valuation allowance....................................... (124.2) (139.0)
------ ------ ------ ------
$436.4 $541.6 $519.9 $517.8
====== ====== ====== ======
</TABLE>
Prepaid expenses and other current assets include $95.3 and $237.1 of deferred
tax assets at December 31, 1997 and 1996, respectively. Other non-current assets
include $186.9 and $170.5 of deferred tax assets at December 31, 1997 and 1996,
respectively.
The Company has recorded $61.4 of deferred tax assets arising from tax loss and
credit carryforwards, which will be realized through future operations and an
additional $24.3 which will be realized through the reversal of existing
temporary differences. Future recognition of the remaining $124.2 will be made
either when the benefit is realized or when it has been determined that it is
more likely than not that the benefit will be realized through future earnings.
Carryforwards of $52.4 expire over the next five years, $49.7 in years six
through fifteen and $107.8 can be utilized over an indefinite period.
The valuation allowance of $124.2 includes $113.3 which, if reversed in future
periods, will reduce goodwill.
The cumulative amount of the Company's share of undistributed earnings of
non-U.S. subsidiaries for which no deferred taxes have been provided was $238.8
as of December 31, 1997. Management has no plans to distribute such earnings in
the foreseeable future.
- --------------------------------------------------------------------------------
R. Pensions and Other Retirement Benefits
Pensions
The Company sponsors various pension plans, covering substantially all U.S.,
Canadian and some non-U.S. and non-Canadian employees and participates in
certain multi-employer pension plans. The benefits for these plans are based
primarily on years of service and the employees' remuneration near retirement.
Contributions to multi-employer plans in which the Company and its subsidiaries
participate are determined in accordance with the provisions of negotiated labor
contracts or applicable local regulations. The Company's objective in funding
its pension plans is to accumulate funds sufficient to provide for all accrued
benefits. In certain countries the funding of pension plans is not a common
practice as funding provides no economic benefit. Consequently, the Company has
several pension plans which are not funded.
-42-
<PAGE>
Crown Cork & Seal Company, Inc.
Plan assets of company-sponsored plans of $3,524.1 consist principally of common
stocks, fixed income securities and other investments, including $287.6 of the
Company's common stock.
The 1997, 1996 and 1995 components of pension (income)/cost were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Service cost--benefits earned during the year................. $ 43.4 $ 49.7 $ 19.9
Interest cost on projected benefit obligations................ 228.5 200.3 96.9
Return on assets: -actual.................................. (503.8) (353.9) (200.7)
-deferred gain........................... 151.5 66.4 79.3
Amortization of net unrecognized loss
at January 1, 1986....................................... .1 .1 .1
Amortization of net unrecognized (gain)/loss.................. (.4) 2.8 2.2
(Income)/cost attributable to plant closings.................. (.1) (.8) 8.3
------- ------- ------
Total pension (income)/cost................................... ($ 80.8) ($ 35.4) $ 6.0
======= ======= ======
</TABLE>
The funded status of company-sponsored plans, including the assets and
liabilities assumed in connection with acquisitions, at December 31, 1997 and
1996 was as follows:
<TABLE>
<CAPTION>
1997 1996
U.S. Plans Non-U.S. Plans U.S. Plans Non-U.S. Plans
Over- Under- Over- Under- Over- Under- Over- Under-
funded funded funded funded funded funded funded funded
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Actuarial present value of:
Vested benefit obligation............($1,175.4) ($19.9) ($1,553.0) ($168.3) ($1,138.1) ($17.7) ($1,476.1) ($155.6)
Non-vested benefits.................. (11.4) (1.3) (2.8) (15.4) (8.2) (1.5) (4.0) (15.2)
-------------------------------------------------------------------------------------------
Accumulated benefit obligation.......($1,186.8) ($21.2) ($1,555.8) ($183.7) ($1,146.3) ($19.2) ($1,480.1) ($170.8)
===========================================================================================
Actuarial present value of projected
benefit obligation...................($1,214.1) ($22.7) ($1,559.6) ($211.0) ($1,170.7) ($20.5) ($1,484.9) ($200.5)
Plan assets at fair value............... 1,373.1 8.2 2,079.0 63.8 1,331.0 5.8 1,907.2 50.5
-------------------------------------------------------------------------------------------
Plan assets in excess of (less than)
projected benefit obligation......... 159.0 (14.5) 519.4 (147.2) 160.3 (14.7) 422.3 (150.0)
Unrecognized net (gain)/loss since 1986. (51.8) (1.6) (177.6) 30.0 (99.5) (1.8) (131.2) (.6)
Unrecognized (gain)/loss
at January 1, 1986................... (2.8) 10.2 (.2) (3.2) 11.0 (.4)
Unrecognized prior service cost......... 8.1 .3 3.2 5.4 (1.5) 3.1
Minimum liability....................... (10.3) (29.1) (10.8) (25.8)
-------------------------------------------------------------------------------------------
Prepaid (accrued) pension cost
at December 31....................... $112.5 ($15.9) $344.8 ($146.3) $63.0 ($16.3) $289.2 ($173.3)
===========================================================================================
</TABLE>
Other non-current assets include $436.5 and $340.3 of prepaid pension cost at
December 31, 1997 and 1996, respectively.
The Company recognizes a minimum pension liability for underfunded plans. The
minimum liability is equal to the excess of the accumulated benefit obligation
over plan assets. A corresponding amount is recognized as either an intangible
asset, to the extent of previously unrecognized prior service cost and
previously unrecognized transition obligation, or a reduction of shareholders'
equity. The Company had recorded additional liabilities of $39.4 and $36.6 as of
December 31, 1997 and 1996, respectively. An intangible asset of $12.9 and $13.7
and a shareholders' equity reduction, net of income taxes, of $16.9 and $14.8
was recorded as of December 31, 1997 and 1996, respectively.
-43-
<PAGE>
Crown Cork & Seal Company, Inc.
The weighted average actuarial assumptions for the Company's pension plans are
as follows:
<TABLE>
<CAPTION>
U.S. Plans Non-U.S. Plans
1997 1996 1995 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Discount rate.................. 7.4% 8.0% 7.4% 8.0% 8.8% 8.5%
Compensation increase.......... 3.5% 3.5% 5.0% 6.0% 6.5% 5.5%
Long-term rate of return....... 11.0% 11.0% 11.0% 11.0% 11.0% 11.0%
</TABLE>
Other Postretirement Benefit Plans
The Company and certain subsidiaries sponsor 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.
The net postretirement benefit cost was comprised of the following:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Service cost - benefits earned during the year............................. $3.5 $4.2 $4.0
Interest cost on accumulated postretirement benefit obligation............. 39.5 38.8 36.5
Amortization of net unrecognized (gain).................................... (3.6) (1.4) (5.0)
Cost attributable to plant closings........................................ .2 4.2
----- ----- -----
Net postretirement benefit cost................................... $39.6 $41.6 $39.7
===== ===== =====
</TABLE>
Health care claims and life insurance benefits paid totaled $45.5 in 1997, $40.9
in 1996 and $42.5 in 1995.
The following provides a reconciliation of the accumulated postretirement
benefit obligation to the liabilities recognized in the Company's balance sheet
as of December 31:
1997 1996
Retirees............................................... ($452.3) ($406.2)
Fully eligible active plan participants................ (37.3) (50.3)
Other active plan participants......................... (58.0) (47.8)
------- -------
Total accumulated obligation........................... (547.6) (504.3)
Unrecognized net (gain)................................ (53.7) (103.6)
------- -------
Accrued postretirement benefit obligation.............. ($601.3) ($607.9)
======= =======
The health care accumulated postretirement benefit obligation was determined at
December 31, 1997 and 1996 using health care trend rates of 8.7% and 9.2%,
respectively, decreasing to 4.8% and 4.9% over eight years and nine years,
respectively. The assumed long-term rate of compensation increase used for life
insurance was 3.5% at both December 31, 1997 and 1996. The discount rate was
7.4% and 8.0% at December 31, 1997 and 1996, respectively. Changing the assumed
health care cost trend rate by one percentage point in each year would change
the accumulated postretirement benefit obligation by $42.8 and the net
postretirement benefit cost by $3.0.
-44-
<PAGE>
Crown Cork & Seal Company, Inc.
Employee Savings Plan
The Company sponsors a Savings Investment Plan which covers substantially all
domestic salaried employees who are 21 years of age with one or more years of
service. The Company matches with equivalent value of Company stock, up to 1.5%
of a participant's compensation.
Employee Stock Purchase Plan
The Company also sponsors an Employee Stock Purchase Plan which covers all
domestic employees with one or more years of service who are non-officers and
non-highly compensated as defined by the Internal Revenue Code. Eligible
participants contribute 85% of the quarter-ending market price towards the
purchase of each common share. The Company's contribution is equivalent to 15%
of the quarter-ending market price. Total shares purchased under the plan in
1997 and 1996 were 89,392 and 78,051, respectively, and the Company's
contributions were approximately $.6 in both years.
- --------------------------------------------------------------------------------
-45-
<PAGE>
Crown Cork & Seal Company, Inc.
S. Segment Information by Industry Segment and Geographic Area
A. Industry Segment
<TABLE>
<CAPTION>
Net Operating % To Identifiable Depreciation Capital
1997 Sales Income Net Sales Assets & Amortization Expenditures
<S> <C> <C> <C> <C> <C> <C>
Metal Packaging & Other (1)............. $6,940.9 $624.2(2) 9.0 $9,684.8 $389.2 $396.2
Plastic Packaging....................... 1,553.7 142.5(2) 9.2 2,415.3 150.8 118.6
-------- ------ --------- ------ ------
Consolidated............................ $8,494.6 $766.7(5) 9.0 $12,100.1(6) $540.0 $514.8
======== ====== ========= ====== ======
1996
Metal Packaging & Other (1)............. $6,619.7 $503.0(3) 7.6 $9,877.1 $367.0 $534.1
Plastic Packaging....................... 1,712.2 173.5 10.1 2,552.7 128.9 97.1
-------- ------ --------- ------ ------
Consolidated............................ $8,331.9 $676.5(5) 8.1 $12,429.8(6) $495.9 $631.2
======== ====== ========= ====== ======
1995
Metal Packaging & Other (1)............. $3,811.1 $159.2(4) 4.2 $3,688.9 $177.9 $287.7
Plastic Packaging....................... 1,242.7 76.9(4) 6.2 1,294.7 78.4 145.8
-------- ------ --------- ------ ------
Consolidated............................ $5,053.8 $236.1(5) 4.7 $4,983.6(6) $256.3 $433.5
======== ====== ========= ====== ======
B. Geographic Area
1997
United States........................... $3,394.4 $217.8(2) 6.4 $4,010.5 $212.4 $128.9
Europe.................................. 3,775.9 482.5(2) 12.8 6,182.2 253.3 284.4
Asia-Pacific............................ 368.5 3.3 .9 435.2 31.8 18.6
Other................................... 955.8 63.1 6.6 1,472.2 42.5 82.9
-------- ------ --------- ------ ------
Consolidated............................ $8,494.6 $766.7(5) 9.0 $12,100.1(6) $540.0 $514.8
======== ====== ========= ====== ======
1996
United States........................... $3,327.1 $205.1 6.2 $3,843.8 $204.0 $199.2
Europe.................................. 3,745.2 427.8(3) 11.4 6,884.9 219.0 232.3
Asia-Pacific............................ 383.9 5.9 1.5 619.8 34.6 90.9
Other................................... 875.7 37.7(3) 4.3 1,081.3 38.3 108.8
-------- ------ --------- ------ ------
Consolidated............................ $8,331.9 $676.5(5) 8.1 $12,429.8(6) $495.9 $631.2
======== ====== ========= ====== ======
1995
United States........................... $3,376.2 $140.6(4) 4.2 $3,372.6 $175.4 $260.5
Europe.................................. 785.2 58.3 7.4 606.1 38.6 50.9
Asia - Pacific.......................... 151.9 22.5 14.8 222.7 7.4 61.9
Other................................... 740.5 14.7(4) 2.0 782.2 34.9 60.2
-------- ------ --------- ------ ------
Consolidated............................ $5,053.8 $236.1(5) 4.7 $4,983.6(6) $256.3 $433.5
======== ====== ========= ====== ======
<FN>
(1) Within "Metal Packaging & Other" is the Company's machinery operation, sold
in May 1997, which, along with other non-metal packaging domestic
affiliates, is not significant.
(2) Operating income for 1997 includes restructuring charges of $55.2 for U.S.
Plastics Packaging and $11.4 for Europe Metal Packaging.
(3) Operating income for 1996 includes restructuring charges of $30.1 for
Europe Metal Packaging and $9.7 for Other Metal Packaging.
(4) Operating income for 1995 includes restructuring charges of $81.4 for U.S.
Metal Packaging, $3.9 for U.S. Plastic Packaging, $4.4 for Other Plastic
Packaging and $13.0 for Other Metal Packaging.
</FN>
</TABLE>
-46-
<PAGE>
Crown Cork & Seal Company, Inc.
(5) The following reconciles operating income to pre-tax income:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Operating income*......................................... $ 766.7 $ 676.5 $ 236.1
Interest and other corporate
expense**.............................................. (309.7) (245.5) (126.6)
------- ------- -------
Pre-tax income............................................ $ 457.0 $ 431.0 $ 109.5
======= ======= =======
</TABLE>
* Has been restated for prior years to conform with the 1996 presentation of
operating income.
** Includes interest expense net of interest income, gain on sale of assets
and translation and exchange adjustments.
(6) The following reconciles identifiable assets to total assets:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Identifiable assets....................................... $12,100.1 $12,429.8 $4,983.6
Corporate assets.......................................... 205.6 160.4 68.1
--------- --------- --------
Total assets.............................................. $12,305.7 $12,590.2 $5,051.7
========= ========= ========
</TABLE>
The results of operations and financial position of CarnaudMetalbox are included
from the acquisition date of February 22, 1996.
Included in "Other" are affiliates in Canada, Central and South America, Africa
and the Middle East.
For the years ended December 31, 1997, 1996 and 1995, respectively, no one
customer accounted for more than 10% of the Company's net sales.
Total non-U.S. liabilities were $4,760.1, $4,772.0 and $822.4 at December 31,
1997, 1996 and 1995, respectively.
Certain reclassifications of prior years' data have been made to improve
comparability.
- --------------------------------------------------------------------------------
T. Subsequent Events
On March 2, 1998, the Company completed the repurchase of approximately 4.1
million shares of its common stock at $49.00 per share and approximately 3.7
million shares of its acquisition preferred at $46.00 per share from CGIP. The
repurchased shares represented approximately 5.3% of the Company's then
outstanding voting securities and leaves CGIP with 4.99% voting power in the
Company. The repurchased shares include all of CGIP's acquisition preferred
position which represented approximately 30% of the then outstanding shares of
acquisition preferred. The transaction includes an agreement to terminate the
Shareholders Agreement dated February 22, 1996 between the Company and CGIP.
Among other changes, CGIP will no longer retain the right to designate Company
directors. The transaction value of $369 was financed through an increase in
short-term indebtedness.
- --------------------------------------------------------------------------------
-47-
<PAGE>
Crown Cork & Seal Company, Inc.
U. Quarterly Data (unaudited)
<TABLE>
<CAPTION>
1997 1996
First Second Third Fourth First Second Third Fourth
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.................. $1,937.3 $2,286.6 $2,341.3 $1,929.4 $1,551.2 $2,353.7 $2,462.1 $1,964.9
Gross profit*.............. 253.6 361.7 302.2(1) 262.8 170.8 294.2(3) 343.5 255.2(4)
Net income available to
common shareholders..... 33.1 126.2 79.4(1) 31.9(2) 29.1 98.3(3) 103.5 33.3(4)
- ----------------------------------------------------------------------------------------------------------------------------------
Average common shares
outstanding (in millions):
Basic................... 128.5 128.6 128.3 128.4 105.1 128.1 128.5 128.3
Diluted................. 140.5 140.6 140.1 140.0 109.8 139.8 139.8 140.1
Earnings per average
common share:**
Basic................... $.26 $.98 $.62(1) $.25(2) $.28 $.77(3) $.81 $.26(4)
Diluted ................ + .94 .61(1) + + .75(3) .78 +
Dividends per
common share............ .25 .25 .25 .25 .25 .25 .25 .25
- ----------------------------------------------------------------------------------------------------------------------------------
Common stock
price range:***
High.................... $59 3/4 $58 1/2 $56 7/8 $51 3/16 $51 $49 1/8 $49 1/2 $55 1/2
Low..................... 51 5/8 51 1/8 44 7/8 43 9/16 40 5/8 43 5/8 41 45 1/2
Close................... 51 5/8 53 7/16 46 1/8 50 1/8 48 3/4 45 46 1/8 54 3/8
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
The results in 1996 include the operations of CarnaudMetalbox from the
acquisition date of February 22,1996.
+ Diluted earnings per share for the first and fourth quarters is the same as
Basic as the assumed exercise of stock options and conversion of
convertible preferred stock is anti-dilutive.
* Net sales less cost of products sold, depreciation and amortization and the
provision for restructuring.
** The sum of the quarterly earnings per share does not equal the year-to-date
earnings per share due to the effect of shares issued during the year.
*** Source: New York Stock Exchange - Composite Transactions.
(1) Includes pre-tax restructuring charges of $66.6, $43.3 after taxes or $.34
per basic share and $.31 per diluted share. Excluding the impact of the
restructuring charges, net income was $122.7 or $.96 per basic share and
$.92 per diluted share. See Note K for additional details.
(2) Includes the after-tax charge of $7.6 or $.06 per basic and diluted share
for the cumulative effect of an accounting change. Excluding the impact of
the accounting change, net income was $39.5 or $.31 per basic and diluted
share.
(3) Includes pre-tax restructuring charges of $29.6, $21.9 after taxes or $.17
per basic share and $.16 per diluted share. Excluding the impact of the
restructuring charges, net income was $120.2 or $.94 per basic share and
$.90 per diluted share. See Note K for additional details.
(4) Includes pre-tax restructuring charges of $10.2, $9.8 after taxes or $.08
per basic and diluted share. Excluding the impact of the restructuring
charges, net income was $43.1 or $.34 per basic and diluted share. See Note
K for additional details.
</FN>
</TABLE>
-48-
<PAGE>
Crown Cork & Seal Company, Inc.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In millions)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
Additions
Balance at Charged to costs Charged to other
beginning of and expenses accounts Deductions- Balance at end
Description period Write-Offs of period
For the Year Ended December 31, 1997
<S> <C> <C> <C> <C> <C>
Allowances deducted from
assets to which they
apply:
Trade accounts receivable $92.0 $9.2 $56.7 $44.5
Deferred tax assets 139.0 (12.2) $3.7 6.3 124.2
For the Year Ended December 31, 1996
Allowances deducted from
assets to which they
apply:
Trade accounts receivable 10.0 9.5 90.5* 18.0 92.0
Deferred tax assets 22.8 (8.0) 124.2* 139.0
For the Year Ended December 31, 1995
Allowances deducted from
assets to which they
apply:
Trade accounts receivable 10.6 4.9 5.5 10.0
Deferred tax assets 29.2 (2.2) 4.2 22.8
<FN>
* Acquisition of CarnaudMetalbox
</FN>
</TABLE>
-49-
<PAGE>
Crown Cork & Seal Company, Inc.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by this Item, is set forth on pages 4, 5 and 6 of the
Company's Proxy Statement dated March 23, 1998, in the section entitled
"Election of Directors" and on page 15 in the section entitled "Section 16(a)
Beneficial Ownership Reporting Compliance" 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
William J. Avery 57 Chairman of the Board of Directors
and Chief Executive Officer
Michael J. McKenna 63 President and
Chief Operating Officer
Ian B. Carmichael 61 Executive Vice President -
Corporate Technologies
John W. Conway 52 Executive Vice President and
President-Americas Division
Mark W. Hartman 60 Executive Vice President -
Office of the Chairman
Tommy H. Karlsson 51 Executive Vice President and
President-European Division
Richard L. Krzyzanowski 65 Executive Vice President,
Secretary and General Counsel
Alan W. Rutherford 54 Executive Vice President
and Chief Financial Officer
Ronald R. Thoma 63 Executive Vice President -
Procurement and Traffic
William H. Voss 52 Executive Vice President and
President - Asia-Pacific Division
Craig R. L. Calle 38 Senior Vice President-
Finance and Treasurer
Timothy J. Donahue 35 Senior Vice President
and Corporate Controller
-50-
<PAGE>
Crown Cork & Seal Company, Inc.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth on pages 8 through 11 of the Company's Proxy Statement
dated March 23, 1998, in the section entitled "Executive Compensation" is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is set forth on pages 2 through 6 of the
Company's Proxy Statement dated March 23, 1998, in the sections entitled "Proxy
Statement-Meeting, April 23, 1998" and "Election of Directors" and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is set forth on pages 4, 5 and 6 of the
Company's Proxy Statement dated March 23, 1998, in the section entitled
"Election of Directors" and is incorporated herein by reference.
-51-
<PAGE>
Crown Cork & Seal Company, Inc.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
a) The following documents are filed as part of this report:
(1) All Financial Statements:
Crown Cork & Seal Company, Inc. and Subsidiaries (see Part II pages 25
through 48 of this Report).
(2) Financial Statement Schedules:
Schedule Number
II.- Valuation and Qualifying Accounts and Reserves (see page 49 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
2. Stock Purchase Agreement, dated February 3, 1998 between
Compagnie Generale d'Industrie et de Participations and Crown
Cork & Seal Company, Inc. (incorporated by reference to Exhibit
A of Amendment No. 4 of the Company's Schedule 13D, dated
February 3, 1998 (File No. 005-10521)).
3.a Amended and Restated Articles of Incorporation of Crown Cork &
Seal Company, Inc. (incorporated by reference to Exhibit 3.1 of
the Company's Registration Statement on Form 8-A dated February
20, 1996 (File No. 1-2227)).
3.b By-laws of Crown Cork & Seal Company, Inc., as amended,
(incorporated by reference to Exhibit 3.3 of the Company's
Registration Statement on Form 8-A dated February 20, 1996 (File
No. 1-2227)).
3.c Resolution fixing the terms of the Registrant's 4.5% Convertible
Preferred Stock (incorporated by reference to Exhibit 3.2 of the
Company's Registration Statement on Form 8-A, dated February 20,
1996 (File No. 1-2227)).
4.a Specimen certificate of Registrant's Common Stock (incorporated
by reference to Exhibit 4.a of the Company's Annual Report on
Form 10-K for the year ended December 31, 1995 (File No.
1-2227)).
4.b Specimen certificate of Registrant's 4.5% Convertible Preferred
Stock (incorporated by reference to Exhibit 4 of the Company's
Registration Statement on Form 8-A dated February 20, 1996 (File
No. 1-2227)).
4.c Form of the Company's 6-3/4% Notes Due 2003 (incorporated by
reference to Exhibit 23 of Registrant's Current Report on Form
8-K dated April 12, 1993 (File No. 1-2227)).
4.d Form of the Company'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.e Officers' Certificate of the Company (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)).
-52-
<PAGE>
Crown Cork & Seal Company, Inc.
4.f Indenture dated as of April 1, 1993 between the Company 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.g 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)).
4.h Form of the Company's 7% Notes Due 1999 (incorporated by
reference to Exhibit 99.1 of the Registrant's Current Report on
Form 8-K dated June 16, 1994 (File No. 1-2227)).
4.i Officers' Certificate of the Company dated June 16, 1994
(incorporated by reference to Exhibit 99.2 of the Registrant's
Current Report on Form 8-K dated June 16, 1994 (File No.
1-2227)).
4.j Terms Agreement dated June 9, 1994 (incorporated by reference to
Exhibit 99.3 of Registrant's Current Report on Form 8-K dated
June 16, 1994 (File No. 1-2227)).
4.k Indenture dated as of January 15, 1995 between the Company and
Chemical Bank, as Trustee (incorporated by reference to Exhibit
4 of the Registrant's Current Report on Form 8-K dated January
25, 1995 (File No. 1-2227)).
4.l Form of the Company's 8-3/8% Notes Due 2005 (incorporated by
reference to Exhibit 99a of the Registrant's Current Report on
Form 8-K dated January 25, 1995 (File No. 1-2227)).
4.m Officers' Certificate of the Company dated January 25, 1995
(incorporated by reference to Exhibit 99b of the Registrant's
Current Report on Form 8-K dated January 25, 1995 (File No.
1-2227)).
4.n Terms Agreement dated January 18, 1995 (incorporated by
reference to Exhibit 99c of the Registrant's Current Report on
Form 8-K dated January 25, 1995 (File No. 1-2227)).
4.o Revolving Credit and Competitive Advance Facility Agreement,
dated as of February 4, 1997, among the Registrant, the
Subsidiary Borrowers referred to therein, the Lenders referred
to therein, the Chase Manhattan Bank, as Administrative Agent,
Societe Generale, as Documentation Agent, and Bank of America
Illinois, as Syndication Agent (incorporated by reference to
Exhibit 4.o of the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1996 (File No. 1-2227)).
4.p Rights Agreement, dated August 7, 1995, between Crown Cork &
Seal Company, Inc. and First Chicago Trust of New York
(incorporated by reference to Exhibits 1 and 2 to the Company's
Registration Statement on Form 8-A, dated August 10, 1995 (File
No. 1-2227)).
4.q Indenture, dated December 17, 1996, among the Company, Crown
Cork & Seal Finance PLC, Crown Cork & Deal 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.r Form of the Company'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.s Form of the Company's 7-1/2% Debentures Due 2026 (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)).
-53-
<PAGE>
Crown Cork & Seal Company, Inc.
4.t Form of UK 6-3/4% Notes Due 2003 (incorporated by reference to
Exhibit 99.3 of the Registrant's Current Report on Form 8-K
dated December 17, 1996 (File No. 1-2227)).
4.u Form of UK 7% Notes 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.v Form of French 6-3/4% Notes Due 2003 (incorporated by reference
to Exhibit 99.5 of the Registrant's Current Report on Form 8-K
dated December 17, 1996 (File No. 1-2227)).
4.w Officers' Certificate for 7-3/4% 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.x Officers' Certificate for 7-1/2% Debentures Due 2096
(incorporated by reference to Exhibit 99.7 of Registrant's
Current Report on Form 8-K dated December 17, 1996 (file No. 1-
2227)).
4.y Officers' Certificate for 6-3/4% Notes Due 2003 (incorporated by
reference to Exhibit 99.8 of the Registrant's Current Report on
Form 8-K dated December 17, 1996 (File No. 1- 2227)).
4.z Officers' Certificate for 7% Notes 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.aa Officers' Certificate 6-3/4% Notes Due 2003 (incorporated by
reference to Exhibit 99.10 of the Registrant's Current Report on
Form 8-K dated December 17, 1996 (File No. 1-2227)).
4.bb 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 12, 1996 (File No. 1-2227)).
4.cc 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)).
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 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 (No. 1-2227)).
10.b 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)).
10.c Crown Cork & Seal Company, Inc. Restricted Stock Plan for
Non-Employee Directors. (incorporated by the reference to
Exhibit 10.3 of the Registrant's Annual Report on Form 10- K for
the year ended December 31, 1992 (File No. 1-2227)).
10.d Crown Cork & Seal Company, Inc. Stock Purchase Plan
(incorporated by reference to Exhibit 4.3 of the Company's
Registration Statement on Form S-8, filed with the Securities
and Exchange Commission on March 16, 1994 (Registration No.
33-52699)).
-54-
<PAGE>
Crown Cork & Seal Company, Inc.
10.e Crown Cork & Seal Company, Inc. 1994 Stock-Based Incentive
Compensation Plan (incorporated by reference to Exhibit 10.g of
the Company's Annual Report on Form 10-K for the year ended
December 31, 1994 (File No. 1-2227)).
10.f Crown Cork & Seal Company, Inc. 1997 Stock-Based Incentive
Compensation Plan.
10.g Crown Cork & Seal Company, Inc. Deferred Compensation Plan for
Directors, dated as of October 27, 1994 (incorporated by
reference to Exhibit 10.b of Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995 (File No.
1-2227)).
10.h 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)).
10.i Crown Cork & Seal Company, Inc. Dividend Reinvestment and Stock
Purchase Plan (incorporated by reference to the Company's
Prospectus dated May 31, 1996 forming a part of the Company's
Registration Statement on Form S-3 (No. 333-04971) filed with
the Securities and Exchange Commission on May 31, 1996).
Exhibits 10.a through 10.i, inclusive, are management contracts
or compensatory plans or arrangements required to be filed as
exhibits pursuant to Item 14(c) of this Report.
11. Statement re Computation of Per Share Earnings
12. Computation of ratio of earnings to fixed charges
21. Subsidiaries of Registrant.
23. Consent of Independent Accountants.
27. Financial Data Schedule
b) Reports on Form 8-K
There were no reports on Form 8-K filed by Crown Cork & Seal Company,
Inc. during the quarter for which this report is filed.
-55-
<PAGE>
Crown Cork & Seal Company, 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 Cork & Seal Company, Inc.
---------------------------------
Registrant
Date: March 31, 1998
-------------------------------
By: /s/ Timothy J. Donahue
---------------------------------
Timothy J. Donahue
Senior Vice President and
Corporate Controller
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 dates indicated:
SIGNATURE TITLE
/s/ William J. Avery 3/31/98
- -----------------------------------
William J. Avery Chairman of the Board
and Chief Executive Officer
/s/ Alan W. Rutherford 3/31/98
- -----------------------------------
Alan W. Rutherford Director, Executive Vice President
and Chief Financial Officer
DIRECTORS
/s/ Henry E. Butwel 3/31/98 /s/ Josephine C. Mandeville 3/31/98
- ----------------------------------- ---------------------------------------
Henry E. Butwel Josephine C. Mandeville
/s/ Charles F. Casey 3/31/98 /s/ Michael J. McKenna 3/31/98
- ----------------------------------- ---------------------------------------
Charles F. Casey Michael J. McKenna
/s/ John W. Conway 3/31/98 /s/ Jean-Pierre Rosso 3/31/98
- ----------------------------------- ---------------------------------------
John W. Conway Jean-Pierre Rosso
/s/ Harold A. Sorgenti 3/31/98
- ----------------------------------- ---------------------------------------
Francis X. Dalton Harold A. Sorgenti
/s/ Richard L. Krzyzanowski 3/31/98 /s/ Guy de Wouters 3/31/98
- ----------------------------------- ---------------------------------------
Richard L. Krzyzanowski Guy de Wouters
-56-
CROWN CORK & SEAL COMPANY, INC.
1997 STOCK-BASED INCENTIVE COMPENSATION PLAN
Date Adopted: February 27, 1997
<PAGE>
CROWN CORK & SEAL COMPANY, INC.
1997 STOCK-BASED INCENTIVE COMPENSATION PLAN
1. Purpose of the Plan
The purpose of the Plan is to assist the Company, its Subsidiaries and
Affiliates in attracting and retaining valued employees by offering them a
greater stake in the Company's success and a closer identity with it, and to
encourage ownership of the Company's stock by such employees.
2. Definitions
2.1 "Affiliate" means any entity other than the Subsidiaries in which
the Company has a substantial direct or indirect equity interest, as determined
by the Board.
2.2 "Award" means an award of Deferred Stock, Restricted Stock,
Options or SARs under the Plan.
2.3 "Board" means the Board of Directors of the Company.
2.4 "Code" means the Internal Revenue Code of 1986, as amended.
2.5 "Common Stock" means the common stock of the Company, par value
$5.00 per share, or such other class or kind of shares or other securities
resulting from the application of Section 10.
<PAGE>
2.6 "Company" means Crown Cork & Seal Company, Inc., a Pennsylvania
corporation, or any successor corporation.
2.7 "Committee" means the committee designated by the Board to
administer the Plan under Section 4. The Committee shall have at least two
members, each of whom shall be a member of the Board, a Disinterested Person and
an Outside Director.
2.8 "Deferred Stock" means an Award made under Section 6 of the Plan
to receive Common Stock at the end of a specified Deferral Period.
2.9 "Deferral Period" means the period during which the receipt of a
Deferred Stock Award under Section 6 of the Plan will be deferred.
2.10 "Disinterested Person" means a person who meets the definition of
a "Non-Employee Director" under Rule 16b-3(b)(3) promulgated by the Securities
and Exchange Commission under the 1934 Act (as effective on November 1, 1996),
or any successor definition adopted by the Securities and Exchange Commission.
2.11 "Employee" means an officer or other key employee of the Company,
a Subsidiary or an Affiliate including a director who is such an employee.
2.12 "Fair Market Value" means, on any given date, the mean between
the highest and lowest prices of actual sales of shares of Common Stock on the
principal national securities exchange on which the Common Stock is listed on
such
-2-
<PAGE>
date or, if Common Stock was not traded on such date, on the last preceding day
on which the Common Stock was traded.
2.13 "Holder" means an Employee to whom an Award is made.
2.14 "Incentive Stock Option" means an Option intended to meet the
requirements of an incentive stock option as defined in section 422 of the Code
and designated as an Incentive Stock Option.
2.15 "1934 Act" means the Securities Exchange Act of 1934, as amended.
2.16 "Non-Qualified Option" means an Option not intended to be an
Incentive Stock Option, and designated as a Non-Qualified Option.
2.17 "Option" means any stock option granted from time to time under
Section 8 of the Plan.
2.18 "Outside Director" means a member of the Board who: (i) is not a
current employee of the Company, its Subsidiaries or Affiliates; (ii) is not a
former employee of the Company, its Subsidiaries or Affiliates who receives
during the year compensation for prior services with the Company, its
Subsidiaries or Affiliates (other than benefits under a tax-qualified retirement
plan); (iii) has not been an officer of the Company, its Subsidiaries or
Affiliates; and (iv) does not receive any remuneration from the Company, its
Subsidiaries or Affiliates (either directly or indirectly) in any capacity other
than as director. The requirements of this Section shall be interpreted and
-3-
<PAGE>
applied in a manner consistent with the requirements of Treasury Regulation
ss.1.162-27(e)(3), including, without limitation, the rules respecting "de
minimis remuneration" contained therein.
2.19 "Plan" means the Crown Cork & Seal Company, Inc. 1997 Stock-Based
Incentive Compensation Plan herein set forth, as amended from time to time.
2.20 "Restricted Stock" means Common Stock awarded by the Committee
under Section 7 of the Plan.
2.21 "Restriction Period" means the period during which Restricted
Stock awarded under Section 7 of the Plan is subject to forfeiture.
2.22 "SAR" means a stock appreciation right awarded by the Committee
under Section 9 of the Plan.
2.23 "Retirement" means retirement from the active employment of the
Company, a Subsidiary or an Affiliate pursuant to the relevant provisions of the
applicable pension plan of such entity or as otherwise determined by the Board.
2.24 "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company (or any subsequent
parent of the Company) if each of the corporations other than the last
corporation in the unbroken chain owns stock possession 50% or more of the total
combined voting power of all classes of stock in one of the other corporations
in such
-4-
<PAGE>
chain.
2.25 "Ten Percent Shareholder" means a person who on any given date
owns, either directly or indirectly (taking into account the attribution rules
contained in section 424(d) of the Code), stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company or a
Subsidiary.
3. Eligibility
Any Employee is eligible to receive an Award.
4. Administration and Implementation of Plan
4.1 The Plan shall be administered by the Committee, which shall have
full power to interpret and administer the Plan and full authority to act in
selecting the Employees to whom Awards will be granted, in determining the type
and amount of Awards to be granted to each such Employee, the terms and
conditions of Awards granted under the Plan and the terms of agreements which
will be entered into with Holders.
4.2 The Committee's powers shall include, but not be limited to, the
power to determine whether, to what extent and under what circumstances an
Option may be exchanged for cash, Restricted Stock, Deferred Stock or some
combination thereof; to determine whether, to what extent and under what
-5-
<PAGE>
circumstances an Award is made and operates on a tandem basis with other Awards
made hereunder; to determine whether, to what extent and under what
circumstances Common Stock or cash payable with respect to an Award shall be
deferred, either automatically or at the election of the Holder (including the
power to add deemed earnings to any such deferral); and to determine the effect,
if any, of a change in control of the Company upon outstanding Awards; and to
grant Awards (other than Incentive Stock Options) that are transferable by the
Holder.
4.3 The Committee shall have the power to adopt regulations for
carrying out the Plan and to make changes in such regulations as it shall, from
time to time, deem advisable. The Committee shall have the power unilaterally
and without approval of a Holder to amend an existing Award in order to carry
out the purposes of the Plan so long as such an amendment does not take away any
benefit granted to a Holder by the Award and as long as the amended Award
comports with the terms of the Plan. Any interpretation by the Committee of the
terms and provisions of the Plan and the administration thereof, and all action
taken by the Committee, shall be final and binding on Holders.
4.4 The Committee may condition the grant of any Award or the lapse of
any Deferral or Restriction Period (or any combination thereof) upon the
Holder's achievement of a Performance Goal that is established by the Committee
before the grant of the Award. For this purpose, a "Performance Goal" shall mean
a
-6-
<PAGE>
goal that must be met by the end of a period specified by the Committee (but
that is substantially uncertain to be met before the grant of the Award) based
upon: (i) the price of Common Stock, (ii) the market share of the Company, its
Subsidiaries or Affiliates (or any business unit thereof), (iii) sales by the
Company, its Subsidiaries or Affiliates (or any business unit thereof), (iv)
earnings per share of Common Stock, (v) return on shareholder equity of the
Company, or (vi) costs of the Company, its Subsidiaries or Affiliates (or any
business unit thereof). The Committee shall have discretion to determine the
specific targets with respect to each of these categories of Performance Goals.
Before granting an Award or permitting the lapse of any Deferral or Restriction
Period subject to this Section, the Committee shall certify that an individual
has satisfied the applicable Performance Goal.
5. Shares of Stock Subject to the Plan
5.1 Subject to adjustment as provided in Section 10, the total number
of shares of Common Stock available for Awards under the Plan shall be 5,000,000
shares.
5.2 The maximum number of shares of Common Stock subject to Awards
that may be granted to any Employee shall not exceed 250,000 during any calendar
year (the "Individual Limit"). Subject to Section 5.3 and Section 10, any Award
that is canceled or repriced by the Committee shall count against the Individual
-7-
<PAGE>
Limit. Notwithstanding the foregoing, the Individual Limit may be adjusted to
reflect the effect on Awards of any transaction or event described in Section
10.
5.3 Any shares issued by the Company through the assumption or
substitution of outstanding grants from an acquired company shall not (i) reduce
the shares available for Awards under the Plan, or (ii) be counted against the
Individual Limit. Any shares issued hereunder may consist, in whole or in part,
of authorized and unissued shares or treasury shares. If any shares subject to
any Award granted hereunder are forfeited or such Award otherwise terminates
without the issuance of such shares or the payment of other consideration in
lieu of such shares, the shares subject to such Award, to the extent of any such
forfeiture or termination, shall again be available for Awards under the Plan.
6. Deferred Stock
An Award of Deferred Stock is an agreement by the Company to deliver
to the recipient a specified number of shares of Common Stock at the end of a
specified deferral period or periods. Such an Award shall be subject to the
following terms and conditions:
6.1 Deferred Stock Awards shall be evidenced by Deferred Stock
agreements. Such agreements shall conform to the requirements of the Plan and
may contain such other provisions as the Committee shall deem advisable.
-8-
<PAGE>
6.2 Upon determination of the number of shares of Deferred Stock to be
awarded to a Holder, the Committee shall direct that the same be credited to the
Holder's account on the books of the Company but that issuance and delivery of
the same shall be deferred until the date or dates provided in Section 6.5
hereof. Prior to issuance and delivery hereunder the Holder shall have no rights
as a stockholder with respect to any shares of Deferred Stock credited to the
Holder's account.
6.3 Amounts equal to any dividends declared during the Deferral Period
with respect to the number of shares covered by a Deferred Stock Award will be
paid to the Holder currently, or deferred and deemed to be reinvested in
additional Deferred Stock, or otherwise reinvested on such terms as are
determined at the time of the Award by the Committee, in its sole discretion,
and specified in the Deferred Stock agreement.
6.4 The Committee may condition the grant of an Award of Deferred
Stock or the expiration of the Deferral Period upon the Employee's achievement
of one or more Performance Goal(s) specified in the Deferred Stock agreement. If
the Employee fails to achieve the specified Performance Goal(s), the Committee
shall not grant the Deferred Stock Award to the Employee, or the Holder shall
forfeit the Award and no Common Stock shall be transferred to him pursuant to
the Deferred Stock Award. Dividends paid during the Deferral Period on Deferred
Stock subject to a Performance Goal shall be reinvested in additional Deferred
Stock
-9-
<PAGE>
and the lapse of the Deferral Period for such Deferred Stock shall be
subject to the Performance Goal(s) previously established by the Committee.
6.5 The Deferred Stock agreement shall specify the duration of the
Deferral Period taking into account termination of employment on account of
death, disability, Retirement or other cause. The Deferral Period may consist of
one or more installments. At the end of the Deferral Period or any installment
thereof the shares of Deferred Stock applicable to such installment credited to
the account of a Holder shall be issued and delivered to the Holder (or, where
appropriate, the Holder's legal representative) in accordance with the terms of
the Deferred Stock agreement. The Committee may, in its sole discretion,
accelerate the delivery of all or any part of a Deferred Stock Award or waive
the deferral limitations for all or any part of a Deferred Stock Award.
7. Restricted Stock
An Award of Restricted Stock is a grant by the Company of a specified
number of shares of Common Stock to the Employee, which shares are subject to
forfeiture upon the happening of specified events. Such an Award shall be
subject to the following terms and conditions:
7.1 Restricted Stock shall be evidenced by Restricted Stock
agreements. Such agreements shall conform to the requirements of the Plan and
may
-10-
<PAGE>
contain such other provisions as the Committee shall deem advisable.
7.2 Upon determination of the number of shares of Restricted Stock to
be granted to the Holder, the Committee shall direct that a certificate or
certificates representing the number of shares of Common Stock be issued to the
Holder with the Holder designated as the registered owner. The certificate(s)
representing such shares shall be legended as to sale, transfer, assignment,
pledge or other encumbrances during the Restriction Period and deposited by the
Holder, together with a stock power endorsed in blank, with the Company, to be
held in escrow during the Restriction Period.
7.3 During the Restriction Period the Holder shall have the right to
receive dividends from and to vote the shares of Restricted Stock.
7.4 The Committee may condition the grant of an Award of Restricted
Stock or the expiration of the Restriction Period upon the Employee's
achievement of one or more Performance Goal(s) specified in the Restricted Stock
Agreement. If the Employee fails to achieve the specified Performance Goal(s),
the Committee shall not grant the Restricted Stock to the Employee, or the
Holder shall forfeit the Award of Restricted Stock and the Common Stock shall be
forfeited to the Company.
7.5 The Restricted Stock agreement shall specify the duration of the
Restriction Period and the performance, employment or other conditions
(including
-11-
<PAGE>
termination of employment on account of death, disability, Retirement
or other cause) under which the Restricted Stock may be forfeited to the
Company. At the end of the Restriction Period the restrictions imposed hereunder
shall lapse with respect to the number of shares of Restricted Stock as
determined by the Committee, and the legend shall be removed and such number of
shares delivered to the Holder (or, where appropriate, the Holder's legal
representative). The Committee may, in its sole discretion, modify or accelerate
the vesting and delivery of shares of Restricted Stock.
8. Options
Options give an Employee the right to purchase a specified number of shares
of Common Stock from the Company for a specified time period at a fixed price.
Options may be either Incentive Stock Options or Non-Qualified Stock Options.
The grant of Options shall be subject to the following terms and conditions:
8.1 Option Grants: Options shall be evidenced by Option agreements.
Such agreements shall conform to the requirements of the Plan, and may contain
such other provisions as the Committee shall deem advisable.
8.2 Option Price: The price per share at which Common Stock may be
purchased upon exercise of an Option shall be determined by the Committee, but,
in the case of grants of Incentive Stock Options, shall be not less than the
Fair Market Value of a share of Common Stock on the date of grant. In the case
of any
-12-
<PAGE>
Incentive Stock Option granted to a Ten Percent Shareholder, the option
price per share shall not be less than 110% of the Fair Market Value of a share
of Common Stock on the date of grant. The option price per share for
Non-Qualified Options may be less than the Fair Market Value of a share of
Common Stock on the date of grant.
8.3 Term of Options: The Option agreements shall specify when an
Option may be exercisable and the terms and conditions applicable thereto. The
term of an Option shall in no event be greater than fifteen years (five years in
the case of an Incentive Stock Option granted to a Ten Percent Shareholder and
ten years in the case of all other Incentive Stock Options) and no Option may be
exercisable sooner than six months from its date of grant.
8.4 Incentive Stock Options: Each provision of the Plan and each
Option agreement relating to an Incentive Stock Option shall be construed so
that each Incentive Stock Option shall be an incentive stock option as defined
in section 422 of the Code, and any provisions of the Option agreement thereof
that cannot be so construed shall be disregarded. In no event may a Holder be
granted an Incentive Stock Option which does not comply with such grant and
vesting limitations as may be prescribed by section 422(b) of the Code.
Incentive Stock Options may not be granted to employees of Affiliates.
8.5 Restrictions on Transferability: No Incentive Stock Option shall
be transferable otherwise than by will or the laws of descent and distribution
and,
-13-
<PAGE>
during the lifetime of the Holder, shall be exercisable only by the Holder.
Upon the death of a Holder, the person to whom the rights have passed by will or
by the laws of descent and distribution may exercise an Incentive Stock Option
only in accordance with this Section 8.
8.6 Payment of Option Price: The option price of the shares of Common
Stock upon the exercise of an Option shall be paid in full in cash at the time
of the exercise or, with the consent of the Committee, in whole or in part in
Common Stock valued at Fair Market Value on the date of exercise. With the
consent of the Committee, payment upon the exercise of a Non-Qualified Option
may be made in whole or in part by Restricted Stock (based on the fair market
value of the Restricted Stock on the date the Option is exercised, as determined
by the Committee). In such case the Common Stock to which the Option relates
shall be subject to the same forfeiture restrictions originally imposed on the
Restricted Stock exchanged therefor.
8.7 Termination by Death: If a Holder's employment by the Company, a
Subsidiary or Affiliate terminates by reason of death, any Option granted to
such Holder may thereafter be exercised (to the extent such Option was
exercisable at the time of death or on such accelerated basis as the Committee
may determine at or after grant) by, where appropriate, the Holder's transferee
or by the Holder's legal representative, for a period of 6 months from the date
of death or until the expiration of the stated term of the Option, whichever
period is shorter.
-14-
<PAGE>
8.8 Termination by Reason of Retirement or Disability: If a Holder's
employment by the Company, a Subsidiary or Affiliate terminates by reason of
disability (as determined by the Committee) or Retirement, any unexercised
Option granted to the Holder may thereafter be exercised by the Holder (or,
where appropriate, the Holder's transferee or legal representative), to the
extent it was exercisable at the time of termination or on such accelerated
basis as the Committee may determine at or after grant, for a period of 24
months or such shorter term as determined by the Committee (3 months in the case
of an Incentive Stock Option) from the date of such termination of employment or
until the expiration of the stated term of the Option, whichever period is
shorter.
8.9 Other Termination: If a Holder's employment by the Company,
Subsidiary or Affiliate terminates for any reason other than death, disability
or Retirement, all unexercised Options awarded to the Holder shall terminate on
the date of such termination of employment.
9. Stock Appreciation Rights
SARs give the Employee the right to receive, upon exercise of the SAR, the
increase in the Fair Market Value of a specified number of shares of Common
Stock from the date of grant of the SAR to the date of exercise. The grant of
SARs shall be subject to the following terms and conditions:
-15-
<PAGE>
9.1 SARs are rights to receive a payment in cash, Common Stock,
Restricted Stock or Deferred Stock as selected by the Committee. The value of
these rights, which are determined by the appreciation in the number of shares
of Common Stock subject to the SAR, shall be evidenced by SAR agreements. Such
agreements shall conform to the requirements of the Plan and may contain such
other provisions as the committee shall deem advisable. An SAR may be granted in
tandem with all or a portion of a related Option under the Plan ("Tandem SAR"),
or may be granted separately ("Freestanding SAR"). A Tandem SAR may be granted
either at the time of the grant of the Option or at any time thereafter during
the term of the Option and shall be exercisable only to the extent that the
related Option is exercisable. In no event shall any SAR be exercisable with the
first six months of its grant.
9.2 The base price of a Tandem SAR shall be the option price under the
related Option. The base price of a Freestanding SAR shall be not less than 100%
of the Fair Market Value of the Common Stock, as determined by the Committee, on
the date of grant of the Freestanding SAR.
9.3 An SAR shall entitle the recipient to receive a payment equal to
the excess of the Fair Market Value of the shares of Common Stock covered by the
SAR on the date of exercise over the base price of the SAR. Such payment may be
in cash, in shares of Common Stock, in shares of Deferred Stock, in shares of
Restricted Stock or any combination, as the Committee shall determine. Upon
exercise
-16-
<PAGE>
of a Tandem SAR as to some or all of the shares of Common Stock covered
by the grant, the related Option shall be canceled automatically to the extent
of the number of shares of Common Stock covered by such exercise, and such
shares shall no longer be available for purchase under the Option pursuant to
Section 8. Conversely, if the related option is exercised as to some or all of
the shares of Common Stock covered by the grant, the related Tandem SAR, if any,
shall be canceled automatically to the extent of the number of shares of Common
Stock covered by the Option exercise.
9.4 SARs shall be subject to the same terms and conditions applicable
to Options as stated in sections 8.3, 8.5, 8.7, 8.8 and 8.9. SARs shall also be
subject to such other terms and conditions not consistent with the Plan as shall
be determined by the Committee.
10. Adjustments upon Changes in Capitalization
In the event of a reorganization, recapitalization, stock split, spin-off,
split-off, split-up, stock dividend, issuance of stock rights, combination of
shares, merger, consolidation or any other change in the corporate structure of
the Company affecting Common Stock, or any distribution to stockholders other
than a cash dividend, the Board shall make appropriate adjustment in the number
and kind of shares authorized by the Plan and any adjustments to outstanding
Awards as it determines appropriate. No fractional shares of Common Stock shall
be issued pursuant to such an adjustment.
-17-
<PAGE>
The Fair Market Value of any fractional shares resulting from adjustments
pursuant to this Section shall, where appropriate, be paid in cash to the
Holder.
11. Effective Date, Termination and Amendment
The Plan shall become effective on February 27, 1997, subject to
shareholder approval. Options granted under the Plan prior to such shareholder
approval shall expressly not be exercisable prior to such approval. The Plan
shall remain in full force and effect until the earlier of 5 years from the date
of its adoption by the Board, or the date it is terminated by the Board. The
Board shall have the power to amend, suspend or terminate the Plan at any time,
provided that no such amendment shall be made without stockholder approval which
shall (i) increase (except as provided in Section 10) the total number of shares
available for issuance pursuant to the Plan; (ii) change the class of employees
eligible to be Holders; (iii) modify the Individual Limit (except as provided
Section 10) or the categories of Performance Goals set forth in Section 4.4; or
(iv) change the provisions of this Section 11. Termination of the Plan pursuant
to this Section 11 shall not affect Awards outstanding under the Plan at the
time of termination.
12. Transferability
Except as provided below, Awards may not be pledged, assigned or
-18-
<PAGE>
transferred for any reason during the Holder's lifetime, and any attempt to do
so shall be void and the relevant Award shall be forfeited. The Committee may
grant Awards (except Incentive Stock Options) that are transferable by the
Holder during his lifetime, but such Awards shall be transferable only to the
extent specifically provided in the agreement entered into with the Holder. The
transferee of the Holder shall, in all cases, be subject to the provisions of
the agreement between the Company and the Holder.
13. General Provisions
13.1 Nothing contained in the Plan, or any Award granted pursuant to
the Plan, shall confer upon any Employee any right with respect to continuance
of employment by the Company, a Subsidiary or Affiliate, nor interfere in any
way with the right of the Company, a Subsidiary or Affiliate to terminate the
employment of any Employee at any time.
13.2 For purposes of this Plan, transfer of employment between the
company and its Subsidiaries and Affiliates shall not be deemed termination of
employment.
13.3 Holders shall be responsible to make appropriate provision for
all taxes required to be withheld in connection with any Award, the exercise
thereof and the transfer of shares of Common Stock pursuant to this Plan. Such
responsibility
-19-
<PAGE>
shall extend to all applicable Federal, state, local or foreign withholding
taxes. In the case of the payment of Awards in the form of Common Stock, or the
exercise of Options or SARs, the Company shall, at the election of the Holder,
have the right to retain the number of shares of Common Stock whose Fair Market
Value equals the amount to be withheld in satisfaction of the applicable
withholding taxes. Agreements evidencing such Awards shall contain appropriate
provisions to effect withholding in this manner.
13.4 Without amending the Plan, Awards may be granted to Employees who
are foreign nationals or employed outside the United States or both, on such
terms and conditions different from those specified in the Plan as may, in the
judgment of the committee, be necessary or desirable to further the purpose of
the Plan.
13.5 To the extent that Federal laws (such as the 1934 Act, the Code
or the Employee Retirement Income Security Act of 1974) do not otherwise
control, the Plan and all determinations made and actions taken pursuant hereto
shall be governed by the law of Pennsylvania and construed accordingly.
13.6 The Committee may amend any outstanding Awards to the extent it
deems appropriate. Such amendment may be made by the Committee without the
consent of the Holder, except in the case of amendments adverse to the Holder,
in which case the Holder's consent is required to any such amendment.
-20
Crown Cork & Seal Company, Inc.
Exhibit 11
Computation of Earnings per Common Share
(in millions except per share data)
<TABLE>
<CAPTION>
Three months ended Twelve Months ended
December 31, December 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Line
1 Net income available to common $ 31,991 $ 33,309 $270,652 $264,204
shareholders
2 Weighted average number of shares
outstanding during period 128,374 128,319 128,436 122,468
3 Net shares issuable upon exercise of
dilutive outstanding stock options 270 505 513 357
4 Weighted average convertible
preferred stock* 11,325 11,314 11,325 9,583
5 Preference dividends $5,859 $5,926 $23,435 $19,789
6 Basic earnings per common share $ 0.25 $ 0.26 $ 2.11 $ 2.16
7 Diluted earnings per common
share $ 0.25 $ 0.26 $ 2.10 $ 2.14
<FN>
* Preferred shares are convertible into common stock (at the discretion of the
holder) at a rate of .911. For 1996 this assumed conversion was averaged from
the issuance date of February 26, 1996.
</FN>
</TABLE>
STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO
FIXED CHARGES
Exhibit 12
Twelve months
ended
December 31,
1997
-------------
Computation of Earnings:
Pretax income from continuing operations 457.0
Adjustments to income:
Add: Distributed income from less than
50% owned companies 2.3
Add: Portion of rent expense representative
of interest expense 6.6
Add: Interest incurred net of amounts
capitalized 378.6
Add: Amortization of interest previously
capitalized 3.2
Add: Amortization of debt issue costs and discount
or premium on indebtedness 2.4
-------
Earnings 850.1
-------
Computation of Fixed Charges:
Interest incurred 384.6
Amortization of debt issue costs and discount
or premium on indebtedness 2.4
Portion of rental expense representative
of interest 6.6
Preferred stock dividend requirements 34.6
-------
Fixed Charges 428.2
-------
Ratio of Earnings to Fixed Charges 2.0
Crown Cork & Seal Company, Inc.
Exhibit 21 - Subsidiaries of Registrant
1 of 4
STATE OR COUNTRY OF
INCORPORATION OR
NAME ORGANIZATION
Crown Cork & Seal Company, Inc. Pennsylvania
Crown Cork & Seal Company (PA) Inc. Pennsylvania
Nationwide Recyclers, Inc. Pennsylvania
CONSTAR, Inc. Pennsylvania
Golden Aluminum Company Colorado
AH Packaging Co. Delaware
CONSTAR INTERNATIONAL INC Delaware
CarnaudMetalbox Enterprises, Inc. Delaware
CarnaudMetalbox Investments (USA), Inc. Delaware
CarnaudMetalbox Holdings (USA), Inc. Delaware
Crown Cork & Seal Holdings, Inc. Delaware
Crown Cork & Seal Technologies Corporation Delaware
Crown Cork & Seal Company (USA), Inc. Delaware
Crown Financial Management, Inc. Delaware
Crown Overseas Investments Corporation Delaware
Crown Beverage Packaging, Inc. Delaware
Risdon - AMS (USA), Inc. Delaware
Zeller Plastik, Inc. Delaware
Central States Can Company of Puerto Rico, Inc. Ohio
Aluplata SA Argentina
Crown Cork de Argentina S.A Argentina
Crown Cork & Seal (Barbados) Foreign Sales Corporation Barbados
CMB Packaging International NV Belgium
Crown Cork Company (Belgium) N.V Belgium
Crown Cork Coordination Center, N.V Belgium
Speciality Packaging Belgie NV Belgium
Crown Brasil Holding Ltd. Brazil
Crown Cork Embalagens S.A Brazil
Crown Cork do Nordeste Ltd. Brazil
Crown Cork Tampas Plasticos, S.A Brazil
Crown Cork & Seal Canada Inc. Canada
Risdon - AMS (Canada), Inc. Canada
Crown Cork de Chile, S.A.I Chile
Beijing CarnaudMetalbox Co., Ltd. China
Beijing Crown Can Co., Ltd. China
CarnaudMetalbox Huapeng (Wuxi) Closures Co., Ltd. China
Foshan Crown Can Company, Limited China
Foshan Crown Easy-Opening Ends Co., Ltd. China
Huizhou Crown Can Co., Ltd. China
Shanghai Crown Packaging Co., Ltd. China
Jiangmen Zeller Plastik, Ltd. China
Crown Litometal S.A Colombia
<PAGE>
Crown Cork & Seal Company, Inc.
Exhibit 21 - Subsidiaries of Registrant
2 of 4
STATE OR COUNTRY OF
INCORPORATION OR
NAME ORGANIZATION
Crown Colombiana, S.A Colombia
Crown Cork de Puerto Rico, Inc. Delaware
Astra Plastique France
AMS Packaging France
CarnaudMetalbox France
CarnaudMetalbox Alimentaire France France
CarnaudMetalbox Capsules SA France
CarnaudMetalbox Group Services France
CarnaudMetalbox Industries France
CarnaudMetalbox Plastique SA France
CarnaudMetalbox Sante Beaute France
CMB Plastique France
Crown Cork & Seal Finance S.A France
Crown Cork Company (France) S.A France
Crown Development SNC France
Crown Financial Corporation France S.A France
Polyflex France
Societe Bourguignonne D'Applications Plastiques France
Societe de Participations Entrangers CarnaudMetalbox France
Societe de Participations CarnaudMetalbox France
Societe De Mecanique Generale France
Societe Francasie De Development De La Boite Boisson France
Zeller Plastik France France
Blechpackungswerk Eberswalde GmbH Germany
CarnaudMetalbox Deutschland GmbH Germany
CarnaudMetalbox Nahrungsmitteldosen GmbH Germany
CarnaudMetalbox Plastik Holding GmbH Germany
CMB Nordstar Verpakkungen Germany
Crown Bender (Germany) GmbH Germany
Crown Cork Holding GmbH Germany
Eberswalde Verpackungen GmbH Germany
Stephan & Hoffman Blechverpackungen GmbH Germany
Wehrstedt GmbH Germany
Zeller Plastik GmbH Germany
Zuchner Gruss Metallverpackungen GmbH Germany
Zuchner Metallverpackugen GmbH Germany
Zuchner Verpackugen GmbH & Co Germany
Zuchner Verschlusse GmbH Germany
Hellas Can Packaging Manufacturers Greece
Crown Can Hong Kong Limited Hong Kong
CarnaudMetalbox Magyarorszag Hungary
CONSTAR International Plastics KFT Hungary
CarnaudMetalbox Italia SRL Italy
CMB Italcaps SRL Italy
<PAGE>
Crown Cork & Seal Company, Inc.
Exhibit 21 - Subsidiaries of Registrant
3 of 4
STATE OR COUNTRY OF
INCORPORATION OR
NAME ORGANIZATION
Crown Cork Company (Italy) S.P.A Italy
FABA Sud Spa Italy
Nuova Sirma Italy
Reggiani SRL Italy
Superbox Aerosols SRL Italy
Superbox Contenitori per Bevande SRL Italy
Zeller Plastik Italia SPA Italy
CarnaudMetalbox Kenya Kenya
Societe Malgache D'Emgallages Metalliques Madagascar
CarnaudMetalbox Bevcan SDN BHD Malaysia
Crown Cork de Mexico, S.A Mexico
Envases Generales Crown, S.A. DE C.V Mexico
CarnaudMetalbox Maroc Morocco
Crown Cork Company (Morocco) S.A Morocco
CarnaudMetalbox NV The Netherlands
CMB Closures Benelux BV The Netherlands
CMB Promotional Packaging (Netherlands) BV The Netherlands
CONSTAR International Holland B.V The Netherlands
Crown Cork Company (Holland) B.V The Netherlands
Crown Cork Mijdrecht B.V The Netherlands
Crown Cork Netherlands Holding B.V The Netherlands
Speciality Packaging Nederland BV The Netherlands
CarnaudMetalbox Nigeria PLC Nigeria
CarnaudMetalbox Tworzyna Sztuczne SP Z.O.D Poland
Gopak Metal Packaging Poland
CMB Colep Embalagens SA Portugal
Crown Cork & Seal (Portugal) S.A Portugal
CarnaudMetalbox (Asia-Pacific) Holdings PTE Ltd. Singapore
CarnaudMetalbox Asia Limited Singapore
CarnaudMetalbox Closures Asia Pacific Ltd Singapore
CarnaudMetalbox Packaging PTE Limited Singapore
CarnaudMetalbox Slovakia Spol. S.R.O Slovakia
Crown Cork Company, S.A. (Pty) Ltd. South Africa
Crown Investment Holdings (Pty) Ltd. South Africa
CMB Envases Alimentarios SA Spain
Crown Cork Company Iberica (Spain) S.A Spain
Envases CarnaudMetalbox SA Spain
Envases de Bebidas SA Spain
Envases Metalicos Namlleu SA Manlleu Spain
Envases Metalner SA Spain
Envases Murcianos SA Spain
<PAGE>
Crown Cork & Seal Company, Inc.
Exhibit 21 - Subsidiaries of Registrant
4 of 4
STATE OR COUNTRY OF
INCORPORATION OR
NAME ORGANIZATION
Risdon Productos de Metal LTDA Spain
Crown Obrist Switzerland
CarnaudMetalbox Tanzania Limited Tanzania
CarnaudMetalbox (Thailand) PLC Thailand
CarnaudMetalbox Bevcan Limited Thailand
Crown Cork & Seal (Thailand) Co., Ltd. Thailand
ZPJK (Thailand) Co., Ltd. Thailand
CarnaudMetalbox Ambalaj Sanayi
Ve Ticaret Anonim Sirketi Turkey
CMB Plaspak Plastic Ambalaj Sanayi AS Turkey
CONSTAR Ambalaj Sanayi Ve Ticaret A.S Turkey
Emirates Can Company, Ltd. (Dubai, UAE) United Arab Emirates
CarnaudMetalbox Bevcan PLC United Kingdom
CarnaudMetalbox Closures PLC United Kingdom
CarnaudMetalbox Engineering PLC United Kingdom
CarnaudMetalbox Group UK Limited United Kingdom
CarnaudMetalbox Holdings (UK) Limited United Kingdom
CarnaudMetalbox Overseas Limited United Kingdom
CarnaudMetalbox PLC United Kingdom
CMB Bottles and Closures United Kingdom
CONSTAR International U.K., Ltd. United Kingdom
Crown Cork & Seal Finance PLC United Kingdom
Crown UK Holdings Ltd. United Kingdom
Risdon Limited United Kingdom
Speciality Packaging (UK) PLC United Kingdom
The Crown Cork Company Limited United Kingdom
United Closures & Plastic PLC United Kingdom
Zeller Plastik UK Limited United Kingdom
CarnaudMetalbox (Saigon) Limited Vietnam
Crown Vinalimex Packaging, Ltd. Vietnam
CarnaudMetalbox (Zimbabwe) Ltd. Zimbabwe
Crown Cork Company 1958 PVT Ltd. Zimbabwe
(1) The list includes only consolidated subsidiaries which are directly owned
or indirectly owned by the Registrant.
(2) In accordance with Regulation S-K, Item 601(b)(22)(ii), the names of
certain subsidiaries have been omitted from the foregoing list. The unnamed
subsidiaries, considered in the aggregate as a single subsidiary, would not
constitute a significant subsidiary, as defined in Regulation S-X, Rule
1-02 (w).
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-3 (Nos. 33-56965,
333-16869 and 333-04971) and in the Registration Statements on Form S-8 (Nos.
333-25837, 33-01893, 33-45900, 33-39529, 33-63732, 33-61240, 33-61238, 33-50369
and 33-52699) of Crown Cork & Seal Company, Inc. of our report dated March 16,
1998 appearing on page 24 of this Form 10-K.
PRICE WATERHOUSE LLP
Philadelphia, Pennsylvania
March 30, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF INCOME AND NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS ON PAGES 25 THROUGH 49 OF THE
COMPANY'S 1997 ANNUAL REPORT TO SHAREHOLDERS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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0
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