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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, 1998
[ ] 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
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Crown Cork & Seal Company, Inc.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1526444
(State or other jurisdiction (Employer Identification No.)
of 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. [ ]
As of March 12, 1999, 122,304,150 shares of the Registrant's Common Stock,
excluding shares held in Treasury, and 8,376,451 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 $3,638,385,766.
DOCUMENTS INCORPORATED BY REFERENCE
Notice of Annual Meeting and Proxy Statement dated March 22, 1999 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..........................................................7
Item 3 Legal Proceedings...................................................8
Item 4 Submission of Matters to a Vote of Security Holders.................8
PART II
Item 5 Market for Registrant's Common Stock and Related
Stockholder Matters.................................................8
Item 6 Selected Financial Data.............................................9
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations..........................................11
Item 8 Financial Statements and Supplementary Data........................28
Item 9 Disagreements on Accounting and Financial Disclosure...............56
PART III
Item 10 Directors and Executive Officers of the Registrant.................56
Item 11 Executive Compensation.............................................57
Item 12 Security Ownership of Certain Beneficial Owners and Management.....57
Item 13 Certain Relationships and Related Transactions.....................57
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports
on Form 8-K.....................................................58
SIGNATURES...................................................................62
<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 1998 consolidated
net sales of $8.3 billion. Approximately 60% of 1998 net sales were derived from
operations outside the United States with approximately 72% 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 223 plants,
along with sales and service facilities in 49 countries and employs 38,459
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 three operating
segments, Americas, Europe and Asia-Pacific, and within selected geographic
areas is set forth later in this section on pages 3 through 6 under "Operating
Segments", in Part II herein on pages 12 and 13 under "Net Sales" and pages 13
and 14 under "Operating Income" within Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and within Item 8
herein on pages 51 through 53 under Note T to the Consolidated Financial
Statements entitled "Segment Information", which information is incorporated
herein by reference.
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 included
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 $8.3 billion in
1998. 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 within Item 8 of this Report on pages 37 and 38 under Note I
to the Consolidated Financial Statements, which information is incorporated
herein by reference.
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.
-1-
<PAGE>
Crown Cork & Seal Company, Inc.
DISTRIBUTION
As of December 31, 1998, the Company's products were manufactured in 69 plants
within the United States and 154 plants outside the U.S. The Company markets and
sells products to customers through its own sales and marketing staff located
centrally within each operating segment (division). The segments' sales staffs
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 1996 through 1998, 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 million in each of 1998 and 1997 and $52 million in
1996, 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. 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.
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 1998 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 months of the year. Consequently, sales and
earnings have generally been higher in the second and third quarters of the
calendar year.
-2-
<PAGE>
Crown Cork & Seal Company, Inc.
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, liquidity
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 pages 20 and
21 under the caption "Environmental Matters", which is incorporated herein by
reference.
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", which is incorporated herein by
reference.
EMPLOYEES
At December 31, 1998, the Company employed 38,459 people throughout the world. A
significant number of the Company's employees are covered by collective
bargaining agreements with varying terms and expiration dates.
OPERATING SEGMENTS
The Company is organized on the basis of geographic regions with three
reportable segments: Americas, Europe and Asia-Pacific. The Americas includes
the United States, Canada and Central and South America. Europe includes Europe,
Africa and the Middle East. Asia-Pacific includes China and Southeast Asia.
Although the economic environments within each of these reportable segments are
diverse, they are similar in the nature of their products, production and
distribution processes and types and classes of customers.
Global marketers continue to demand 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 and Asia and an RD&E
center in England.
-3-
<PAGE>
Crown Cork & Seal Company, Inc.
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 packaging in which it competes;
however, the Company encounters competition from a number of companies offering
similar products.
During 1998, the Company provided restructuring costs associated with a plan to
close 13 plants and to reorganize 3 additional plants. These actions reflect the
Company's continued commitment to realign its Americas' and European
manufacturing facilities with the objective of enhancing operating efficiencies.
Further discussion of the Company's 1998 restructuring action is contained in
Part II hereof within Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" on pages 18 and 19 under "Provision for
Restructuring" and within Item 8 herein on pages 39 through 41 Note L to the
Consolidated Financial Statements, which discussion is incorporated herein by
reference.
The Company's basic raw materials for its products are tinplate, aluminum and
resins. These materials are obtained from the major suppliers in the countries
within which the Company operates plants. Some plants in less-developed
countries, which do not have local mills, obtain their raw materials from nearby
more- developed countries. In 1998, consumption of tinplate, aluminum and resin
represented 28.2%, 23.5%, and 4.6%, respectively, of consolidated cost of sales.
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.
AMERICAS
For 1998, the Company's Americas segment had net sales of $4,077 (approximately
49% of consolidated net sales) and operating income of $289 (approximately 52%
of consolidated operating income). Excluding the provision for restructuring and
other charges, Americas operating income in 1998 was $374 or 43% of consolidated
operating income. Approximately 82% of Americas segment sales are derived from
within the United States. The Americas segment manufactures beer and beverage
cans and ends, steel and aluminum containers for vegetable, fruit, meat, fish,
seafood, tomato based products and other various food products. Steel cans for
aerosol, motor oil, paint and other household and industrial items and plastic
containers for beverage, food, household products, personal care and
pharmaceutical products.
The Company, based on sales, is one of three leading producers of aluminum
beverage cans and ends within the Americas. Sales dollars for aluminum beverage
cans and ends in 1998 increased over 1997 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. The Company
has also redeployed excess beverage can capacity in North America to emerging
markets, and to a lesser extent, retrofitted to produce two-piece food cans.
The Company, based on sales, is one of three leading producers of steel and
aluminum food cans and ends in North America. Sales dollars for food cans and
ends in 1998 increased over 1997 due to the pass-through of higher steel costs
to customers which was partially offset by lower sales unit volumes.
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 1998. During 1998, 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.
-4-
<PAGE>
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.
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 1998, as aluminum prices fluctuated,
selling prices to customers for aluminum beverage cans and ends were also
adjusted. 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 plastic
containers produced from PET (polyethylene terephthalate) and HDPE (high-density
polyethylene) within the United States. The Company is also a leading producer
of plastic closures for beverage containers and a leading producer of health and
beauty care products in the United States. Plastic products continue to
represent a larger portion of Americas segment dollar sales, despite decreases
in PET pricing which was passed-through to customers in the form of lower
selling prices. 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.
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. Further discussion of the Company's 1997
restructuring action 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 page 40
under Note L to the Consolidated Financial Statements, which information is
incorporated herein by reference.
At December 31, 1998, the Company operated 98 plants and employed approximately
14,700 persons in the Americas.
EUROPE
The European segment had net sales of $3,888 (approximately 47% of consolidated
net sales) in 1998 and operating income of $479 (approximately 86% of
consolidated operating income). Excluding the provision for restructuring and
other charges, operating income was $556 or 65% of consolidated operating
income. Net sales in the United Kingdom of $1,112 and France of $832 represented
29% and 21%, respectively, of segment net sales. The European segment
manufactures steel and aluminum beer and beverage cans and ends, steel and
aluminum food cans, steel cans for aerosol, motor oil, paint, other household
products and specialty packaged products, plastic containers and closures for
beverage, food, household products and health, beauty and personal care products
as well as metal crowns and closures for beverage and food products.
In 1996, the Company acquired CMB, a leading multinational manufacturer of metal
and plastic packaging materials and equipment. CMB, headquartered in Paris,
France, had approximately 28,000 employees located in 175 facilities and 38
countries as of the date of acquisition. CMB derived approximately 90% of its
pre-acquisition net sales of $4,900 from its European operations. The
acquisition of CMB positions the Company as a leading European manufacturer of
steel and aluminum food and beverage containers, aerosol containers and a
variety of plastic packaging products including PET beverage bottles and plastic
closures for beverage, household and personal care applications.
-5-
<PAGE>
Crown Cork & Seal Company, Inc.
At December 31, 1998, the Company operated 107 plants and employed approximately
21,000 persons throughout the European segment.
Discussion of the Company's European restructuring activities with respect to
the acquisition of CMB, including the closure of plants and regional
administrative offices and other plant reorganizations is contained in Part II
hereof within Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" on pages 18 and 19 under "Provision for
Restructuring" and within Item 8 of this Report on pages 39 through 41 under
Note L to the Consolidated Financial Statements, which discussion is
incorporated herein by reference.
ASIA - PACIFIC
The Asia-Pacific segment had net sales of $335 (approximately 4% of consolidated
net sales in 1998) and operating income, before restructuring and other charges,
of $3. While below reportable segment thresholds, the Company has defined
Asia-Pacific as a reportable segment as this segment is a separate operating
division within the Company. The Company reviews results of operations and
allocates resources to Asia-Pacific separately from its other operating
divisions. The Asia-Pacific segment manufactures aluminum beer and beverage
cans, steel food cans, PET beverage bottles, plastic closures for beverage,
food, household products and personal care applications and metal crowns and
closures for beverage and food products.
With the acquisition of CMB, the Company expanded its presence in Asia-Pacific,
primarily in the manufacture of two-piece aluminum beer and beverage cans in
Southeast Asia. Overcapacity in China and Southeast Asia has resulted in very
competitive selling price pressures. Recent economic and political turmoil in
several Southeast Asian countries has not only lowered demand in Southeast Asia,
but has also resulted in a decrease in exports from Company operations in China.
In connection with the CMB acquisition, the Company, through its subsidiary
CarnaudMetalbox Asia, Ltd., provided for the closure of eight acquired CMB
operations since 1996. The Company also closed two existing operations since
1997. The Company believes it is well positioned to benefit from future demand
growth in China and Southeast Asia and has restructured its cost base to remain
competitive in the near-term.
At December 31, 1998, the Company operated 18 plants and employed approximately
2,200 persons in Asia- Pacific.
-6-
<PAGE>
Crown Cork & Seal Company, Inc.
ITEM 2. PROPERTIES
Crown Cork & Seal Company, Inc. and its worldwide consolidated subsidiaries
operate 223 manufacturing facilities. Within the United States there are 69
manufacturing facilities. Generally, there are more individual facilities in
which multiple product lines are produced in the United States than outside the
United States. The Company has three operating segments, defined geographically,
within which it manufactures and markets its products.
The geographic breakdown of the Company's manufacturing facilities is as
follows:
<TABLE>
<CAPTION>
No. No.
Geographic Area* Americas Europe Asia-Pacific of Plants Leased
<S> <C> <C> <C> <C> <C>
United States 69 69 26
Canada 10 10
Central America 9 9 4
South America 10 10
United Kingdom 20 20 2
France 21 21 9
Other Europe 51 51 11
Africa 13 13 2
Middle East 2 2
Asia-Pacific 18 18 14
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Worldwide Total 98 107 18 223 68
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</TABLE>
* Excluded are productive facilities in announced restructuring 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 in the operating segments, the
Company has various support facilities. Such facilities include machine shop
operations, printing for cans and crowns, coil shearing, coil coating and RD&E.
-7-
<PAGE>
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 in the United States.
ITEM 3. LEGAL PROCEEDINGS
In management's opinion, there are no pending claims or litigation, the adverse
determination of which would have a material adverse effect on the consolidated
financial position or liquidity of the Company.
The Company is one of a number of defendants in a substantial number of lawsuits
filed by persons alleging bodily injury as a result of exposure to asbestos.
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.
During the fourth quarter of 1998, the Company recorded a charge of $78 million,
net of tax, to provide for an estimated liability for lawsuits alleging injury
as a result of exposure to asbestos. Further discussion of the Company's
provision for litigation is contained 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 "Provision for Litigation",
which is incorporated herein by reference.
Further information on these matters is presented in this Report in (i) Part II,
Item 7 entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations" under the headings "Provision for Litigation" on pages 19
and 20 and "Environmental Matters" on pages 20 and 21 and (ii) Part II, Item 8
of this Report on pages 38 and 39 under Note K to the Consolidated Financial
Statements entitled "Commitments and Contingent Liabilities", which information
is incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the principal executive officers of the Company,
including their ages and positions, is set forth in a table found in Part III,
Item 10, "Directors and Executive Officers of the Registrant" of this Report on
page 56, which table is incorporated herein by reference.
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 12, 1999, there were 5,497
registered shareholders of the Registrant's Common Stock and 50 registered
shareholders of the Registrant's 4.5% Cumulative Convertible Preferred Stock.
The market price at December 31, 1998, with respect to the Registrant's Common
Stock is set forth in Item 8 of this Report on page 54 under Note U to the
Consolidated Financial Statements entitled "Quarterly Data (unaudited)", which
is incorporated herein by reference. 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 21 and 22 of this Report, which is incorporated herein by reference.
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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) 1998 1997 1996 1995 1994
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Summary of Operations
Net sales........................................ $ 8,300 $ 8,495 $8,332 $ 5,054 $ 4,452
-------------------------------------------------------------
Cost of products sold............................ 6,527 6,708 6,733 4,319 3,706
Depreciation and amortization.................... 533 540 496 256 218
Selling and administrative expense............... 379 414 387 139 135
% to net sales................................ 4.6% 4.9% 4.6% 2.8% 3.0%
Provision for restructuring and
other charges................................. 304 67 40 103 115
Gain on sale of assets........................... (38) (24) (8) (7)
Interest expense, net of interest income......... 363 340 306 136 92
Translation and exchange adjustments............. 14 7 (37) (1) 10
-------------------------------------------------------------
Income before income taxes and
cumulative effect of accounting changes ...... 180 457 431 110 183
% to net sales................................ 2.2% 5.4% 5.2% 2.2% 4.1%
Provision for income taxes....................... 74 148 134 25 56
Minority interests, net of equity earnings....... (1) (7) (13) (10) 4
-------------------------------------------------------------
Net income before cumulative effect of
accounting changes............................ 105 302 284 75 131
% to net sales................................ 1.3% 3.6% 3.4% 1.5% 2.9%
Cumulative effect of accounting changes (1) ..... (8)
-------------------------------------------------------------
Net income (2)................................... 105 294 284 75 131
Preferred stock dividends........................ 17 23 20
-------------------------------------------------------------
Net income available to common
shareholders.................................. $ 88 $ 271 $ 264 $ 75 $ 131
==============================================================
Return on average shareholders' equity (3) ...... 3.2% 8.3% 11.3% 5.3% 10.0%
- - --------------------------------------------------------------------------------------------------------------------
Financial Position at December 31
Working capital.................................. ($ 1,542) ($ 902) ($ 371) $ 430 $ 123
Total assets..................................... 12,469 12,306 12,590 5,052 4,781
Short-term debt plus current long-term
debt maturities............................... 2,466 1,784 1,154 608 736
Long-term debt................................... 3,188 3,301 3,924 1,490 1,090
Total debt to total capitalization............... 62.3% 56.1% 56.4% 56.2% 55.3%
Minority interests............................... 280 283 244 119 75
Shareholders' equity............................. 2,975 3,529 3,563 1,461 1,365
- - --------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
Crown Cork & Seal Company, Inc.
<TABLE>
<CAPTION>
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA (Continued)
- - --------------------------------------------------------------------------------------------------------------------
(in millions, except per share, ratios and
other statistics) 1998 1997 1996 1995 1994
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Common Share Data (dollars per share)
Earnings per average common share
Basic - before cumulative effect of
accounting change.................. $.71 $2.17 $2.16 $.83 $1.47
after cumulative effect of
accounting change ................. 2.11
Diluted - before cumulative effect of
accounting change ................. .71 2.15 2.14 .83 1.46
after cumulative effect of
accounting change ................. 2.10
Cash Dividends................................... 1.00 1.00 1.00
Market price on December 31...................... 30.81 50.13 54.38 41.75 37.75
Book value (based on year-end
outstanding shares plus assumed
conversion of preference shares).............. 22.89 25.26 25.50 16.13 15.27
Number of shares outstanding
at year-end................................... 122.3 128.4 128.4 90.6 89.4
Average shares outstanding
Basic......................................... 124.4 128.4 122.5 90.2 89.1
Diluted....................................... 132.9 140.3 132.4 90.6 89.9
Shareholders (on record)......................... 5,644 5,763 5,736 5,976 6,011
- - --------------------------------------------------------------------------------------------------------------------
Other Statistics
Capital expenditures............................. $ 487 $ 515 $ 631 $ 434 $ 440
Number of Employees.............................. 38,459 40,985 44,611 20,409 22,373
Actual preferred shares outstanding.............. 8.4 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.
(2) Figures for 1998, 1997, 1996, 1995 and 1994 include after-tax adjustments
for restructuring, $127 or $1.02 per basic share and $.95 per diluted
share; $43 or $.33 per basic share and $.31 per diluted share; $32 or
$.26 per basic share and $.24 per diluted share; $67 or $.74 per basic
share and diluted share; and $73 or $.82 per basic share and $.81 per
diluted share, respectively. Net income for 1998 also includes an
after-tax charge for litigation, $78 or $.63 per basic share and $.59 per
diluted share.
(3) Excluding the adjustment for restructuring, litigation and the cumulative
effect of accounting changes, the return on average shareholders' equity
in 1998, 1997, 1996, 1995 and 1994 would have been 9.2%, 9.7%, 12.6%,
10.0% and 15.6%, respectively.
-10-
<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; per
share earnings are quoted as diluted)
INTRODUCTION
This discussion summarizes the significant factors affecting the results of
operations and financial condition of Crown Cork & Seal Company, Inc. (the
"Company") during the three-year period ended December 31, 1998. This discussion
should be read in conjunction with the letter to Shareholders and the
Consolidated Financial Statements included in this annual report.
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, pre-tax income, net income and earnings per
share) for 1998, 1997 and 1996 were impacted by restructuring and other charges
or accounting changes. These items are summarized below:
RESTRUCTURING AND OTHER CHARGES
Pre-tax income was charged for $304 ($205 after taxes or $1.54 per share), $67
($43 after taxes or $.31 per share) and $40 ($32 after taxes or $.24 per share)
in 1998, 1997 and 1996, respectively.
Further information concerning the details of the restructuring plans, including
a reconciliation of the restructuring accrual is included in Note L to the
Consolidated Financial Statements and under Provision for Restructuring as
provided later in this discussion. Further information concerning the details of
the other charge is included in Note K to the Consolidated Financial Statements
and under Provision for Litigation 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 $8 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
The Company is organized on the basis of geographic regions with three
reportable segments: Americas, Europe and Asia-Pacific. The Americas includes
the United States, Canada and South and Central America. Europe includes Europe,
Africa and the Middle East. Although the economic environments within each of
these reportable segments are quite diverse, they are similar in the nature of
their products, the production processes, the types or classes of customers for
products and the methods used to distribute products. Asia-Pacific, although
below reportable segment thresholds, has been designated as a reportable segment
because considerable review is made of this region for the allocation of
resources. Each reportable segment is an operating division within the Company
and has a President reporting directly to the Chief Executive Officer and the
Chief Operating Officer. "Other" includes Corporate activities, such as
Corporate Technology and, prior to 1998, included the divested machinery
operations of Crown-Simplimatic.
The Company evaluates performance and allocates resources based on operating
income, that is, income before net interest, foreign exchange and gain(loss) on
sale of assets. The accounting policies for each reportable segment are the same
as those described in Note A, "Summary of Significant Accounting Policies."
-11-
<PAGE>
Crown Cork & Seal Company, Inc.
NET SALES
Net sales during 1998 were $8,300, a decrease of $195 versus 1997 net sales of
$8,495. Net sales during 1996 were $8,332. Sales from U. S. operations decreased
1.7% in 1998 compared with a 2.0% increase in 1997. Non-U. S. sales decreased
2.7% in 1998 following a 1.9% increase in 1997. U. S. sales accounted for 40.2%
of consolidated net sales in 1998, 40.0% in 1997 and 39.9% in 1996.
<TABLE>
<CAPTION>
% Increase/
Net Sales (Decrease)
------------------------------ ------------------------
DIVISION 1998 1997 1996 1998/1997 1997/1996
- - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Americas.................................... $4,077 $4,021 $3,823 1.4 5.2
Europe...................................... 3,888 4,045 3,987 (3.9) 1.5
Asia-Pacific................................ 335 369 384 (9.2) (3.9)
Other....................................... 60 138 (56.5)
------------------------------
$8,300 $8,495 $8,332 (2.3) 2.0
==============================
</TABLE>
The increase in 1998 Americas Division net sales is a result of (i) sales unit
volume increases across most U.S. and Canadian product lines, most notably
beverage cans, aerosol cans, PET beverage bottles and beverage closures, (ii)
increased sales unit volumes of beverage cans in Argentina, Brazil and Mexico
and (iii) initial sales unit volumes at the Company's new beverage can plant in
Colombia; offsetting (i) sales unit volume decreases of food cans in the U.S.
and Canada and (ii) decreased raw material prices which forced decreases in
selling prices, primarily in PET bottles. The increase in 1997 Americas Division
net sales is a result of (i) sales unit volume increases across most U.S.
product lines and (ii) initial sales volumes at the Company's new beverage can
and end plants in Brazil; offsetting decreased raw material prices which
resulted in decreased selling prices, primarily in PET bottles and aluminum cans
and ends. U.S. sales accounted for approximately 81.8% of division net sales in
1998, 84.4% in 1997 and 87.0% in 1996.
Excluding the unfavorable impact of foreign currency translation and business
divestitures, net sales in the European Division decreased 2.1% in 1998 versus
1997. The decrease is a result of (i) lower PET resin costs passed on to
customers in the form of lower selling prices, (ii) lower food can volumes in
the United Kingdom and Spain, (iii) lower beverage can volumes in the United
Kingdom and Turkey and (iv) lower aerosol volumes in the United Kingdom; offset
by (i) increased food can volumes in France and Italy, (ii) increased beverage
closure volumes throughout the division and (iii) increased beverage can volumes
in Spain and the United Arab Emirates. Demand for several of the Company's
products in the United Kingdom was adversely affected by the strong pound
sterling during 1998. Not only was it more difficult for our customers to export
filled products, but their local market was made more competitive by filled
imports. 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 and (ii) sales unit volume decreases of
food and beverage cans. Pricing remained very competitive across all product
lines.
Net sales in 1998 as compared to 1997 for 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 $20, (ii) lower food can sales
unit volumes primarily reflecting the restructuring of operations in Malaysia
and Singapore in 1997, (iii) competitive pricing across all product lines
throughout the division due mainly to excess capacity and (iv) political unrest
which hampered economic growth in several Southeast Asian countries; offset by
increased sales unit volumes of (i) beverage cans in China, Singapore and
Vietnam and (ii) food cans in Thailand. Net sales in the Asia-Pacific Division
decreased in 1997 as compared to 1996 as a result of (i) foreign currency
translation which reduced division net sales by $25, (ii) excess beverage can
capacity and aggressive competition which eroded selling prices in China, (iii)
the closure of several
-12-
<PAGE>
Crown Cork & Seal Company, Inc.
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 throughout the
division and (b) food cans in Thailand.
COST OF PRODUCTS SOLD
Cost of products sold, excluding depreciation and amortization, for 1998 was
$6,527; a 2.7% decrease from $6,708 in 1997, following a decrease of .4% in 1997
and an increase of 55.9% in 1996. The decreases in 1998 and 1997 cost of
products sold are attributable to cost savings from restructuring programs, the
appreciation of the U.S. dollar against many foreign currencies and decreased
PET resin prices, offsetting increased sales unit volumes in many product lines.
The increase in 1996 cost of products sold was attributable to the increased net
sales level in 1996 partially offset by decreased raw material prices.
As a percentage of net sales, cost of products sold was 78.6% in 1998 as
compared to 79.0% in 1997 and 80.8% in 1996. The improvement in 1998 gross
margin is due primarily to the benefits derived from the Company's continuing
cost containment and restructuring programs partially offset by competitive
influences on selling prices.
SELLING AND ADMINISTRATIVE
Selling and administrative expenses for 1998 were $379, a decrease of 8.5% from
1997 compared to increases of 7.0% for 1997 and 178.0% for 1996. The decrease in
1998 costs is primarily related to the restructuring activities within acquired
CMB operations. 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. As a percentage of net sales,
selling and administrative expenses were 4.6% in 1998, 4.9% in 1997 and 4.6% in
1996.
OPERATING INCOME
The Company views operating income as the principal measure of performance
before interest costs and other nonoperating expenses. Operating income, after
restructuring and other charges, was $557, $766 and $676 in 1998, 1997 and 1996,
respectively. Operating income, before restructuring and other charges, at $861
in 1998, was $28 greater than in 1997. Operating income, before the
restructuring charge, at $833 in 1997, was $117 greater than in 1996. Operating
income, before restructuring and other charges, as a percentage of net sales was
10.4% in 1998 as compared to 9.8% in 1997 and 8.6% in 1996.
An analysis of operating income, before restructuring and other charges, by
operating division follows:
<TABLE>
<CAPTION>
% Increase/
Operating Income (Decrease)
--------------------------- ------------------------
DIVISION 1998 1997 1996 1998/1997 1997/1996
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Americas.................................... $374 $335 $293 11.6 14.3
Europe...................................... 556 565 480 (1.6) 17.7
Asia-Pacific................................ 3 7 14 (57.1) (50.0)
Other....................................... (72) (74) (71) 2.7 (4.2)
---------------------------
$861 $833 $716 3.4 16.3
===========================
</TABLE>
Operating income in the Americas Division was 9.2% of net sales in 1998 versus
8.3% in 1997 and 7.7% in 1996. The increase in 1998 operating income and margins
is due to (i) increased sales unit volumes in the U.S. and Canada across most
product lines, (ii) increased manufacturing efficiencies in the U.S. and (iii)
the benefits derived from restructuring, capital expenditure and other cost
improvement programs initiated
-13-
<PAGE>
Crown Cork & Seal Company, Inc.
in recent years; offsetting (i) continued U.S. pricing pressures in food cans
and in both metal and plastic beverage containers, (ii) lower beverage can
pricing in Argentina and Brazil and (iii) sales unit volume decreases of food
cans in the U.S. and Canada. The increase in 1997 operating margins is due to
(i) increased sales unit volumes in the U.S. and Canada across most product
lines, (ii) increased manufacturing efficiencies in most U.S. and Canadian
plants due to the completion of the 202 diameter conversion programs in 1996 and
(iii) the startup 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
Company has 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.
European Division operating income was 14.3% as a percentage of net sales in
1998 compared to 14.0% in 1997 and 12.0% in 1996. The decrease of $9 in
operating income in 1998 is a result of (i) the appreciation of the U.S. dollar
against most European currencies, (ii) very competitive food can pricing in
France and Italy and (iii) decreased sales unit volumes in the United Kingdom
across several product lines. However, operating income, as a percentage to net
sales, increased over 1997 due to cost savings achieved by restructuring and
modernizing acquired CMB and existing Company operations. 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) foreign exchange translation 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 and (iii) decreased sales unit
volumes of beverage cans and ends.
Operating income in the Asia-Pacific Division was .9% of net sales in 1998
versus 1.9% in 1997 and 3.6% in 1996. The decrease in 1998 and 1997 operating
margins is due to (i) competitive pricing across all product lines throughout
the division and (ii) the ongoing appreciation of the U.S. dollar against most
Southeast Asian currencies offsetting (i) strong sales unit volumes of beverage
cans in China, Singapore, and Vietnam, (ii) strong sales unit volumes of food
cans in Thailand and (iii) the benefits accruing to the Company from the closure
of ten plants since the second quarter of 1996.
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
included $90 in cash and $15 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, were realized
from the sales of the machinery operations and surplus properties in 1997 as
compared to gains of $24 in 1996.
NET INTEREST EXPENSE/INCOME
Net interest expense was $363 in 1998, an increase of $23 when compared to 1997
net interest expense of $340. Net interest expense was $306 in 1996. The
increase in 1998 net interest expense is due primarily to the repurchase of
common and preferred stock made in March 1998. 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. Further information regarding
acquisitions is found in Note I to the Consolidated Financial Statements, while
information specific to Company financing and repurchases of common and
preferred stock is presented in the Liquidity and Capital Resources section of
this discussion and Note M to the Consolidated Financial Statements.
-14-
<PAGE>
Crown Cork & Seal Company, Inc.
FOREIGN EXCHANGE
Unfavorable foreign exchange adjustments of $14 and $7 were recorded in 1998 and
1997, respectively, primarily from the remeasurement of the Company's operations
in highly inflationary economies. Favorable foreign exchange adjustments of $37
were recorded in 1996. During 1996, the Company recorded a foreign exchange gain
of $42 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 41.1%, 32.4% and 31.1% in 1998, 1997 and
1996, respectively. Excluding restructuring and other charges, the effective tax
rates were 35.7%, 32.8% and 30.1% in 1998, 1997 and 1996, respectively. The
increase in the effective tax rate in 1998 is principally a result of the effect
of non-deductible goodwill amortization having a greater percentage impact on
lower pre-tax income. The effective rate was lower than the U.S. statutory rate
of 35% in 1997 and 1996 as a result of lower effective rates in non-U.S.
operations and the continuing reevaluation of reserve and valuation allowance
requirements; partially offset by nondeductible 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 R to the Consolidated Financial
Statements.
MINORITY INTERESTS, NET OF EQUITY EARNINGS
Minority interests' share of net income was $5, $9 and $6 in 1998, 1997 and
1996, respectively. The decrease in minority interests in 1998 is due primarily
to (i) decreased profits in China, (ii) start-up losses in Colombia and (iii)
charges incurred to close the Hong Kong plant offset by increased profits in
Morocco.
Equity in earnings/(losses) of affiliates was $4, $2 and ($7) in 1998, 1997 and
1996, respectively. The increase in equity earnings in 1998 primarily relates to
(i) improved earnings in the Company's non-consolidated affiliates in Mexico and
Venezuela and (ii) no further losses being recognized in the Company's
non-consolidated joint venture in Korea as the investment has been reduced to
zero and the Company does not plan nor is required to inject capital in the
future.
NET INCOME AND EARNINGS PER SHARE
Net income for 1998 was $88 compared with $271 in 1997 and $264 in 1996. Diluted
earnings per share for 1998 was $.71 compared with $2.10 and $2.14 for 1997 and
1996, respectively. Net income from operations, excluding the provision for
restructuring and other charges, gain on sale of assets, the 1996 foreign
exchange gain of $42 referred to above and the cumulative effect of accounting
changes, was $293, $294 and $238 in 1998, 1997 and 1996, respectively, while
diluted earnings per share were $2.33, $2.26 and $1.94 in 1998, 1997 and 1996,
respectively.
FINANCIAL POSITION
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $284 at December 31, 1998 compared to $206 and
$161 at December 31, 1997 and 1996, respectively. The Company's primary sources
of cash in 1998 consisted of (i) funds provided from operations $672; (ii) the
sale of assets and businesses $82; and (iii) the net change in short-term debt
$877. The Company's primary uses of cash in 1998 consisted of (i) capital
expenditures of $487; (ii) payments of long-term debt $443; (iii) repurchases of
Company common and preferred stock $467; and (iv) dividends paid $143. The
increase in funds provided from operations in 1998 versus 1997 is a result of
lower increases in working capital and a 1998 refund of U.S. taxes paid in prior
years.
-15-
<PAGE>
Crown Cork & Seal Company, Inc.
The Company funds its working capital requirements on a short-term basis
primarily through issuances of commercial paper. At December 31, 1998 the
commercial paper program was supported by a $2,500 multicurrency credit
agreement maturing in February 2002 with interest at market rates. The Company's
use of the facility is not restricted. At December 31, 1998, $517 was drawn
against this facility. Based on the Company's intention and ability to maintain
its credit facility beyond 1999, $700 of commercial paper borrowings was
classified as long-term at December 31, 1998. There was $2,074 and $1,248 in
commercial paper outstanding at December 31, 1998 and 1997, respectively.
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 are rated Baa2 by Moody's Investor Service and BBB by
Standard and Poor's Corporation.
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 Compagnie Generale d'Industrie et de
Participations (CGIP). The repurchased shares represented approximately 5.3% of
the Company's then outstanding voting securities and left CGIP with 4.99% voting
power in the Company. The repurchased shares included all of CGIP's acquisition
preferred position which represented approximately 30% of the then outstanding
shares of acquisition preferred. These repurchased preference shares have been
retired. The transaction included an agreement to terminate the Shareholders
Agreement dated February 22, 1996 between the Company and CGIP. Among other
changes, CGIP no longer retains the right to designate Company directors. The
transaction value of $369 was financed through an increase in short-term
indebtedness.
The Company's ratio of total debt (net of cash and cash equivalents) to total
capitalization was 62.3%, 56.1% and 56.4% at December 31, 1998, 1997 and 1996,
respectively. Total capitalization is defined by the Company as total debt (net
of cash and cash equivalents), minority interests and shareholders' equity. The
increase in the Company's total debt in recent years is principally due to the
repurchase of common and preferred stock from CGIP referred to above, the 1996
acquisition of CMB and the significant capital expenditure program which the
Company has committed to in recent years. As of December 31, 1998, $135 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 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.
-16-
<PAGE>
Crown Cork & Seal Company, Inc.
International operations, principally European, constitute a significant portion
of the Company's consolidated revenues and identifiable assets. These operations
result in a large volume of foreign currency 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, 1998. Fair values included herein have been determined based on
quoted market prices. Further information specific to Company financing is
presented in Notes M and N to the Consolidated Financial Statements.
The table below provides information as of December 31, 1998 about the Company's
forward currency exchange contracts. The majority of the contracts expire in
1999.
Contract Average Contractual
Buy/Sell Amount Exchange Rate
FRF/GBP.................................... $593 9.25
GBP/FRF.................................... 576 9.30
USD/GBP.................................... 532 1.67
DEM/GBP.................................... 213 2.73
USD/FRF.................................... 133 5.55
USD/CAD.................................... 130 1.54
The Company has an additional $503 in a number of smaller contracts to purchase
or sell various other currencies, principally European, as of December 31, 1998.
The aggregate cost to settle all contracts, which is not material to any
individual contract, was $4 at December 31, 1998. Total forward exchange
contracts outstanding as of December 31, 1997 were $2,902.
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, 1998. 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 1999 2000 2001 2002 2003 Thereafter
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fixed rate..................... $124 $132 $39 $21 $617 $1,448
Average interest rate.......... 7.2% 7.3% 7.9% 8.2% 6.9% 7.9%
- - -------------------------------------------------------------------------------------------------------------------
Variable rate (1).............. $2,342 $29 $102 $774 $21 $5
Average interest rate.......... 5.3% 8.5% 5.3% 6.1% 8.8% 8.2%
- - -------------------------------------------------------------------------------------------------------------------
Interest rate swaps:
Fixed to variable.............. $74
Average pay rate............... 4.0%
Average receive rate........... 6.9%
- - -------------------------------------------------------------------------------------------------------------------
<FN>
(1) $700 of commercial paper borrowings due in 1999 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>
At December 31, 1997, fixed rate debt of $2,365 was outstanding with an average
interest rate of 7.6%, and variable rate debt of $2,721 with an average interest
rate of 5.8% was outstanding. At December 31, 1997, fixed to variable interest
rate swaps of $553 were outstanding with an average pay rate of 5.3% and an
average receive rate of 6.9%.
The Company's use of financial instruments in managing market risk exposures
described above is consistent with the prior year.
PROVISION FOR RESTRUCTURING
During 1998, the Company provided $179 ($127 after-tax or $.95 per share) for
the costs associated with closing thirteen plants and reorganizing three
additional plants. Included in the restructuring charge were costs to provide
severance and related benefits, write-down of assets and other exit costs. The
Company anticipates that this restructuring program will generate after-tax
savings of approximately $64 ($.48 per share) on an annualized basis when fully
implemented. The cost of providing severance and related benefits is estimated
at $99, is a cash expense, and covers a reduction of approximately 2,900
employees, 1,900 of whom are involved in direct manufacturing operations. Cash
requirements of this action will be funded from operations.
The employees identified in the restructuring actions include personnel at each
plant to be closed or reorganized. During 1998 approximately 2,200 employees,
including 1,800 involved in direct manufacturing operations, have been
terminated. Of those terminated, approximately 600 relate to the 1998
restructuring action. The 1998 restructuring action for employee reductions is
expected to be completed by the end of the third quarter of 1999.
Included in the 1998 action is a charge of $60, reflecting the impairment of
property, plant and equipment principally located in the Americas Division. The
reserves for write-downs have been reflected in the balance sheet as reductions
to the carrying values of the related assets. Write-downs of property, plant and
equipment were made where their carrying values exceeded the Company's estimate
of proceeds from abandonment or disposal. These estimates were principally
determined on the basis of past experience for comparable asset disposals.
Disposition of assets identified for disposal in the 1998 action, including
certain machinery, land and buildings, is expected to be substantially completed
by the end of 1999. Most of the revenue generating activities related to the
assets held for disposal will continue as a result of more effective utilization
of other assets. The carrying value of the land and buildings held for sale is
approximately $22. Annual depreciation previously recognized for the affected
assets was approximately $4.
Other non-recurring exit costs are estimated at $20 and are primarily a cash
expense, comprising the costs to effectively close and dispose of the facilities
identified in the 1998 plan. Exit costs include, but are not
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Crown Cork & Seal Company, Inc.
limited to, lease termination and other contract cancellations, dismantlement
costs and brokers' fees for assets to be sold. These costs are expected to be
substantially incurred by the end of 1999.
During 1997, the Company provided $67 ($43 after-tax 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. This restructuring program
covered approximately 600 employees.
During 1996, the Company provided restructuring costs relative to the
acquisition of CarnaudMetalbox (CMB). Affected by the plan of restructuring were
forty plants and regional administrative offices that were closed and an
additional fifty-two plants which were reorganized. The Company accrued
approximately $534 and allocated such costs to the purchase price of CMB in
accordance with purchase accounting requirements. These costs comprised:
severance and related benefits, write-down of assets, lease termination and
other exit costs. The cost of providing severance and related benefits for the
reduction of approximately 6,500 employees was $257 and was primarily a cash
expense. The write-down of assets (principally property, plant and equipment)
was approximately $217 and has been reflected as a reduction in the carrying
value of the Company's assets. Other exit costs, primarily repayments of
government grants and subsidies, were approximately $60 and were primarily cash
expenses. The restructuring costs recorded in connection with the CMB
acquisition included a $95 restructuring charge announced in 1996 by
CarnaudMetalbox Asia, Ltd., a subsidiary of CMB. Remaining balances in the
restructuring reserve primarily relate to payment options available to employees
under termination agreements. Such agreements are made with the respective union
or with the local governmental body, whereby a portion of the employee severance
is paid when the employee is terminated and the remaining portion is paid out
over an agreed period.
In 1996, the Company also provided $40 ($32 after-tax 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.
PROVISION FOR LITIGATION
The Company is one of a number of defendants in a substantial number of lawsuits
filed by persons alleging bodily injury as a result of exposure to asbestos.
This litigation arose from the insulation operations in the United States of a
company in which the Company acquired a majority interest in 1963. That company
sold this insulation business less than three months later.
Prior to 1998, the amounts paid to asbestos litigation claimants were covered by
a fund of $80 made available to the Company under a 1985 settlement with
carriers insuring the Company through 1976, when the Company became
self-insured. From 1985 through 1997, the Company disposed of approximately
70,000 cases for amounts which aggregated approximately one-half of the original
fund.
Until the fourth quarter of 1998 the Company considered that the fund was
adequate and that the likelihood of exposure for this litigation in excess of
the amount of the fund was remote. This view was based on the Company's analysis
of its potential exposure, the balance available under the 1985 settlement,
historical trends and actual settlement ranges.
A change in Texas law which limits out-of-state plaintiff filings in that state
and which will therefore be favorable in the long-term, caused, along with other
factors, an unexpected increase in claims activity. This, along with several
larger group settlements, caused the Company to reevaluate its position.
As a consequence, the Company has provided a charge of $78 after taxes ($ .59
per share) to supplement the remaining fund and cover estimated liability claims
pending or to be filed through 2003.
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Crown Cork & Seal Company, Inc.
At December 31, 1998, approximately 65,000 asbestos personal injury cases were
pending against the Company of which approximately 27,000 cases were filed in
1998. These figures, and the charge noted above, do not include 25,000 pending
cases involving plaintiffs who allege that they are, or were, maritime workers
subject to exposure to asbestos, but whose claims the Company believes, based
upon counsel's advice, will not, in the aggregate, involve any material
liability.
The liability recorded for asbestos claims constitutes management's best
estimate of such costs for pending and future claims. Because of the
uncertainties related to this kind of litigation, the Company believes it is not
possible to estimate the number of personal injury claims that may be filed
after 2003. The Company believes, however, that the number of claims against it
will slow significantly in the future as time elapses since 1963. The Company
cautions, however, that inherent in its estimate of liabilities are expected
trends in claim severity, frequency and other factors which may vary as claims
are filed and settled or otherwise disposed of. Accordingly, these matters, if
resolved in a manner different from the estimate, could have a material effect
on the operating results or cash flows in future periods. While it is not
possible to predict with certainty the ultimate outcome of these lawsuits and
contingencies, the Company believes, after consultation with counsel, that
resolution of these matters is not expected to have a material adverse effect on
the Company's financial position or liquidity.
CAPITAL EXPENDITURES
Consolidated capital expenditures totaled $487 in 1998 as compared with $515 in
1997. Minority partner contributions to consolidated capital expenditures were
approximately $6 and $26 in 1998 and 1997, respectively. During the past five
years, capital expenditures totaled $2,507.
Expenditures in the Americas Division totaled $161 including the completion of
the construction of a beverage can plant in Colombia, the conversion of beverage
can lines in Canada and Argentina to the 202 diameter from the 206 diameter and
several single-serve PET preform and bottle capacity expansion and
lightweighting projects in the U.S.
Spending in the European Division for 1998 totaled $300 as the Company continued
to invest in easy open food can end lines 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 ongoing restructuring programs, line speed programs
and in several new health and beauty care projects.
Investments of $7 were made in the Asia-Pacific Division in 1998. The Company
invested in several modernization and productivity improvement programs.
The Company expects its capital expenditures in 1999 to approximate $300
including joint-venture partner contributions estimated at approximately $5. 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 1999 through
2003 are expected to approximate $1,600, including $50 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
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Crown Cork & Seal Company, Inc.
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% 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 in
both 1998 and 1997. The Company's balance sheet reflects estimated gross
remediation liabilities of $18 and $39 at December 31, 1998 and 1997,
respectively, and estimated recoveries related to indemnification from the
sellers of acquired companies and the Company's insurance carriers of $21 and
$19 at December 31, 1998 and 1997, 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 $2,975 at December 31, 1998 as compared with $3,529 at
December 31, 1997. The decrease in 1998 equity is due to the repurchase of
6,528,783 common shares and 4,055,300 preferred shares, an $87 minimum pension
liability adjustment as more fully described in Note S to the Consolidated
Financial Statements, adjustments for currency translation in non-U.S.
subsidiaries of $31 and dividends declared on common stock of $125 offset by $88
of earnings in the business and the issuance of 467,600 common shares, including
195,600 shares for various employee benefit plans and 272,000 shares to five
company executive officers. The officers, four of whom are Directors of the
Company, borrowed money from the Company and used the funds to purchase the
shares directly from the Company. The book value of each share of common stock
at December 31, 1998 was $22.89 as compared to $25.26 at December 31, 1997.
In 1998, the return on average shareholders' equity before restructuring and
other charges and the 1997 cumulative effect of accounting change was 9.2% as
compared to 9.7% in 1997. Including the restructuring and other charges, but
excluding the 1997 cumulative effect of accounting change, the return on average
shareholders' equity was 3.2% in 1998 compared to 8.5% in 1997.
The Company announced a new share repurchase program in 1998 . This program
allows for the repurchase of up to ten million shares of outstanding common and
preferred stock, representing approximately 7.5% of then current combined shares
outstanding. Purchases may be made from time to time in open market transactions
at prevailing prices or in negotiated private transactions at management's
discretion.
The Board of Directors has also 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 6,528,783 shares
and 342,414 shares of common stock in 1998 and 1997 for $286 and
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$17, respectively. There were no stock repurchases during 1996. The Company also
acquired 4,055,300 shares of acquisition preferred for $181 during 1998.
The Company declared cash dividends totaling $125 and $128 in 1998 and 1997,
respectively, representing a quarterly dividend of $.25 per common share.
During 1998 and 1997, 10,631 and 8,105 shares, respectively, of common stock
were issued under the Dividend Reinvestment and Stock Purchase Plan.
At December 31, 1998, common shareholders of record numbered 5,644 compared with
5,763 at the end of 1997. Total common shares outstanding were 122,337,398 at
December 31, 1998 compared to 128,398,543 at December 31, 1997. Total
acquisition preferred shares outstanding were 8,376,451 at December 31, 1998
compared to 12,431,793 at December 31, 1997.
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.
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 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
accounting standard is effective for all fiscal quarters of all fiscal years
beginning after June 15, 1999. This statement establishes accounting and
reporting standards for derivative instruments and for hedging activities. The
statement requires that all derivatives are recognized as either assets or
liabilities in the statement of financial position and are measured at their
fair values. The Company is currently evaluating the requirements of this
standard to determine its impact on the consolidated financial statements.
YEAR 2000
Computers and computer dependent equipment are used throughout the Company's
operations. Certain computerized systems in use today were designed using two
digits rather than four digits to define the applicable year, which could result
in the systems recognizing a date containing "00" as the year 1900 rather than
the year 2000. This could lead to miscalculations or system failures and is
generally referred to as the "Year 2000" or "Y2K" issue.
In order to address the Y2K issue, the Company established a steering committee
that reports to senior executive management and the Board of Directors of the
Company. The steering committee is responsible
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Crown Cork & Seal Company, Inc.
for the formulation of the Company's Y2K global plan and oversight of strategy,
risk assessment, coordination and reporting. Project offices have also been
established within each division to roll out, monitor and manage implementation
of the Company's global plan.
The Company's global plan is divided into several major phases: Inventory and
Assessment, Remediation Analysis, Implementation and Contingency Planning.
Inventory and Assessment - The inventory phase was substantially completed in
June 1998 including the identification of internal mission-critical business
systems and vendor and other third party relationships. The Company
substantially completed its internal risk assessment of potentially Y2K impacted
information technology (IT) and non-IT equipment and facilities during October
1998. In that regard, the Company has identified Y2K issues with various
mid-range IT systems, personal computers and servers, telephone systems and
embedded systems in manufacturing and related equipment. The assessment of the
Company's third-party risks involves the identification of critical vendors, Y2K
confirmation correspondence, evaluations and selected vendor reviews. The
Company has completed the identification of its vendor relationships and has
received approximately 60% of its requested Y2K confirmation letters. Certain
top- critical vendors are being subjected to follow-up including interviews,
on-site visits and other available means. In addition, the Company has an
inadequate Y2K survey response from utility suppliers and is in the process of
evaluating its risk profile with respect to utility service. Accordingly, the
Company has initiated alternate follow-up procedures and strategies to support
its risk evaluation and contingency planning efforts. These assessments and
reviews are expected to be ongoing through June 1999. Despite these efforts, the
Company can provide no assurance that critical suppliers of important goods and
services (including but not limited to utility service and communications) will
complete their Year 2000 compliance plans in a timely manner.
Remediation Analysis - The Company substantially completed this project phase in
February 1999. During this stage of the project, remediation strategies were
evaluated and planned to correct identified Y2K non-compliance. Correction
strategies include vendor-supported upgrades, system or asset replacements, and
correction of non-compliant code and systems consolidation.
Implementation - This phase involves the correction and testing of identified
internal Y2K risks in accordance with the remediation analysis phase. The
Company's implementation plan established priorities for remediation or
replacement. The business systems considered most critical to ongoing operations
have been given the highest priority. Such mission-critical systems include
business and operating systems such as sales order billing, production planning,
procurement and disbursements, logistics and embedded systems in manufacturing
and related equipment that, if shut down or interrupted, could have a material
adverse impact on the Company. All other systems include business support
systems such as personal computer technology, internal data transmission and
voice communication that, if shut down or interrupted, may have a less material
impact on the Company's operations.
Mission Critical IT Systems - Approximately 90% of the Company's locations that
contain mission-critical IT systems require some form of correction. As of
December 31, 1998, approximately 30% of mission-critical business systems have
been remediated, 50% are currently being remediated and remediation of the
remaining 20% is to be initiated as soon as possible. The Company anticipates
that approximately 75% of identified non-compliant locations will be remediated
by June 30, 1999. Accordingly, we expect Y2K capable mission-critical systems to
cover approximately 80% of the Company's operation revenues by that date. The
Company anticipates that the remaining mission-critical implementations will be
completed during the third quarter 1999. Certain of these projects have been
delayed awaiting the release of compliant software upgrades or have modestly
extended project timelines to maximize the use of internal resources.
The Company's mission-critical system testing methods include obtaining hardware
and software certifications from critical vendors and consultants and performing
Y2K compliance tests including data exchange with critical vendors and
customers. Testing of critical systems is expected to be completed on an ongoing
basis during the second half of the year.
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Crown Cork & Seal Company, Inc.
Embedded Systems - During 1998, the Company performed a comprehensive evaluation
of embedded systems within its manufacturing and facilities infrastructure. This
evaluation covered approximately 27,000 inventoried systems and over 1,000
machinery and systems manufacturers. Assessment results indicate a very low
non-compliant rate. Accordingly, while the Company cannot rule out some
potential impact, overall risk in this area is believed to be low. Unit
replacements or reprogramming will occur as part of the Company's normal
maintenance program in 1999. Such costs are not expected to be significant. The
Company anticipates completing detailed testing of certain manufacturing
processes during April 1999 to validate its current risk assessment.
Personal Computer Technology - The Company is currently implementing replacement
or correction methods to address Y2K non-compliance in both hardware and
software. Modest portions of these corrections pertain to mission-critical
systems, which should be completed by June 1999. The Company considers its
overall risk in this area to be low.
Telephone Exchange Systems - The Company has substantially completed its
assessment of telephone exchange systems within its facilities. Approximately
20% of these systems will be remediated during 1999. Notwithstanding these
efforts, the Company believes that certain countries in which it operates may be
subject to broader regional communication system failures. Accordingly, extended
assessment of this risk is in process to both evaluate the reliability of the
initial assessment and identify contingency options including the possible
utilization of satellite phone technology.
Contingency Planning - The Company is developing contingency plans to address
potential disruptions that may result from unresolved Y2K issues. Because Y2K is
a date-driven risk, the Company is actively identifying practicable prevention
plans for its core operations to mitigate risks, especially in January 2000.
Prevention plans may include temporary deactivation of certain systems and
equipment just prior to January 1, 2000, targeted supply-chain management
measures to assure supply of certain key commodities as well as customer supply
initiatives. For instance, facility and manufacturing supplies may be procured
in 1999 to support production requirements in early 2000. Additionally, in order
to address any isolated or wide spread disruptions, the Company is considering
help-desk and manufacturing support options as part of its planning scenarios.
Risks of a less controllable nature, such as utility service outages and
communication systems failure, are being addressed in contingency planning.
Alternate site-manufacturing scenarios, alternative vendors and other scenarios
are under current consideration. The Company intends to complete most of its
prevention and contingency plan development and design by June 1999. The rollout
of the contingency planning will be initiated in the second quarter of 1999. The
Company is also considering potential seasonality effects of Year 2000 on
consumer demand and operating and working capital, particularly in the fourth
quarter of 1999 and first quarter of Year 2000.
The Company's Y2K global plan could be adversely affected if any of the
Company's factors or assumptions are incorrect or if its ongoing review
discovers unanticipated problems. The Company cannot give assurance that its
global plan will be completed on schedule or that it will not uncover Y2K issues
that could create a material impact on its performance.
The Company believes that the most reasonably likely worst-case scenario for the
Company with respect to the Y2K problem is the failure of a critical vendor,
such as a utility supplier, to provide required goods or services after December
31, 1999. Such a failure could result in temporary production outages and lost
sales and profits. The Company believes that, because of the high degree of
geographic dispersion of its operations (approximately 223 plants in 49
countries), it is unlikely an isolated third-party failure would have a material
adverse effect on the Company's results of operations, financial condition or
cash flow. The Company also believes that the formulation of contingency plans
should reduce the severity and length of any such possible disruptions and
losses. Nevertheless, because the Company's Y2K compliance is dependent upon key
third party Y2K readiness, there can be no assurance that the Company's Y2K
compliance efforts will prevent a Y2K problem outside its direct control from
adversely affecting the results
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Crown Cork & Seal Company, Inc.
of its operations, financial condition or cash flow. In addition, although not
anticipated, any failure by the Company to correct critical internal computer
systems before Year 2000 could have such an adverse affect.
The Company estimates that it will spend approximately $25-$30 (pre-tax) for its
Y2K compliance efforts. To date, the Company has spent approximately $9, of
which $4 has been expensed. The Company anticipates that funding for its Y2K
compliance program will be from operating cash flows. These cost estimates do
not include labor costs of employees allocated to the Y2K compliance effort, as
it is not practicable to accumulate such costs. The Company's total Y2K project
cost estimate is based on presently available information and does not
necessarily include all potential costs related to ongoing assessment and
remediation or any execution of contingency plans brought about by internal or
external Y2K issues or cost estimate changes related to replacement systems or
code remediation efforts. Actual results could differ from these estimates.
EURO CONVERSION
On January 1, 1999, eleven of the fifteen member nations ("the participating
countries") of the European Union ("EU") established fixed conversion rates
between their existing sovereign currencies ( the "legacy currencies") and the
Euro. For a period of three years, the transition period, both the Euro and the
individual participants' currencies will remain in circulation. Parties may pay
for goods and services using either the Euro or the participating country's
sovereign currency. Conversion rates will be computed through a "triangulation"
process which will convert one sovereign currency into an amount denominated in
the Euro and then convert the Euro-denominated amount into the second legacy
currency. After January 1, 2002, the Euro will be the sole legal tender for
these countries. During the transition period, the adoption of the Euro will
affect a multitude of financial systems and business applications as the
commerce of these nations will be transacted in the Euro and the legacy
currencies. For the twelve months ended December 31, 1998, approximately 26% of
the Company's revenues were derived from EU participating countries.
The participating countries will issue sovereign debt exclusively in Euro and
will redenominate outstanding sovereign debt. As of January 1, 1999, the
participating countries will no longer control their own monetary policies by
directing independent interest rates for the legacy currencies. Instead, the
authority to direct monetary policy, including money supply and official
interest rates for the Euro, will be exercised by the new European Central Bank.
The EU has adopted regulations providing that the Euro conversion should not
enable one party unilaterally to break or change its contractual obligations,
unless the parties have otherwise agreed.
The largest non-participating country is the United Kingdom which provides
approximately 13% of the Company's revenues and is a major trading partner with
the participating countries. Due to the current strength of sterling,
considerable attention is being given to its impact on trading activities with
participating countries and its impact on internal manufacturing operations.
The Company is currently addressing Euro-related issues and their impact on
information systems, currency exchange rate risk, employment and benefits,
taxation, contracts, competition and pricing. Under an action plan developed by
the Company, teams have been formed to address selling prices and costs,
personnel and communications, finance, administration and information technology
("IT").
The Company has incurred and expects to incur expenses for Euro-compliant
technology and operations staff to implement its Euro conversion plan. These
costs will be incurred through 2003 to cover the costs of preparing for and
making operational changes to accommodate the introduction of the Euro. The
costs for this conversion involve updated technology and have been included in
estimates provided for the Year 2000.
Approximately 5% of the outstanding foreign exchange contracts, representing
approximately 5% of contract notional value, are between participating
countries. Conversion to the Euro may reduce the amount of the Company's
exposure to exchange rate risk, due to the netting effect of having assets and
liabilities denominated in a single currency as opposed to the various legacy
currencies. As a result, the Company's
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Crown Cork & Seal Company, Inc.
foreign exchange hedging costs could be reduced. Conversely, because there will
be less diversity in the Company's exposure to foreign currencies, movements in
the Euro's value against the U.S. dollar could have a more pronounced effect,
whether positive or negative. Decisions on the functional currencies for the
European units is being closely evaluated so as to minimize the impact on the
Company's financial position.
As part of the conversion process, the Company is establishing contingency
plans. The contingency plans will provide mechanisms to assess and communicate
the impact of any delays. These plans also address likely problems in the
aftermath of conversion with a view to maximizing the Company's ability to avoid
disruption.
The company does not expect the Euro conversion, including the costs of
implementation, to have a material adverse effect upon the Company's results of
operations, financial condition or cash flow. However, the Company cannot
guarantee that, with respect to the Euro conversion, all problems, including
long-term competitive implications of the conversion, will be foreseen and
corrected, that no material disruption of the Company's business will occur, or
that there will be no delays in the dates targeted by the Company for the Euro
conversion process.
FORWARD LOOKING STATEMENTS
Statements included herein in "Management's Discussion and Analysis of Financial
Condition and Results of Operations," including, but not limited to, in the
"Year 2000" and "Euro conversion" sections, and in the discussions of the
restructuring plans and provision for litigation in Notes L and K to the
Consolidated Financial Statements included in this Annual Report, which are not
historical facts (including any statements concerning plans and objectives of
management for future operations or economic performance, or assumptions related
thereto), are "forward-looking statements," within the meaning of the federal
securities laws. In addition, the Company and its representatives may from time
to time make other oral or written statements which are also "forward-looking
statements." "Forward-looking statements" can be identified by words, such as
"believes", "estimates", "anticipates", "expects" and other words of similar
meaning in connection with a discussion of future operating or financial
performance. These may include, among others, statements relating to: (i) the
impact of an economic downturn or growth in particular regions, (ii) anticipated
uses of cash, (iii) cost reduction efforts and expected saving, (iv) the
expected outcome of contingencies, (v) the impact of the Year 2000 conversion
efforts and (vi) the transition to the use of the Euro.
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 the
availability and pricing of raw materials (including aluminum can sheet, steel
tinplate, plastic resin, inks and coatings) and the Company's ability to pass
raw material price increases through to its customers or to otherwise manage
these commodity pricing risks; the 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 including its effect on demand for beverages and on crop yields for
fruits and vegetables stored in food containers; changes or differences in U.S.
or
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Crown Cork & Seal Company, Inc.
international economic or political conditions, such as, inflation or
fluctuations in interest or foreign exchange rates and tax rates; the costs and
other effects of legal and administrative cases and proceedings, settlements and
investigations; the effects of the Year 2000 and Euro conversion issues, 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
Financial Condition and Results of Operations and certain other sections
contained in the Company's quarterly, annual or other reports filed with the
SEC, the Company does not intend to review or revise any particular
forward-looking statement in light of future events.
-27-
<PAGE>
Crown Cork & Seal Company, Inc.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Financial Statements
Report of Independent Accountants........................... 29
Consolidated Statements of Income........................... 30
Consolidated Balance Sheets................................. 31
Consolidated Statements of Cash Flows....................... 32
Consolidated Statements of Shareholders' Equity............. 33
Notes to Consolidated Financial Statements.................. 34
Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts
and Reserves...................................... 55
-28-
<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, 1998 and 1997,
and the results of their operations and cash flows for each of the three years
in the period ended December 31, 1998, 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 that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Thirty South Seventeenth Street
Philadelphia, Pennsylvania 19103
March 17, 1999
-29-
<PAGE>
Crown Cork & Seal Company, Inc.
CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share amounts)
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------
1998 1997 1996
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales................................................. $8,300 $8,495 $8,332
------ ------ ------
Costs, expenses and other income
Cost of products sold (excluding
depreciation and amortization)....................... 6,527 6,708 6,733
Depreciation and amortization.......................... 533 540 496
Selling and administrative expense..................... 379 414 387
Provision for restructuring and other
charges. . Notes K and L............................. 304 67 40
Gain on sale of assets................................. (38) (24)
Interest expense....................................... 408 379 328
Interest income........................................ (45) (39) (22)
Translation and exchange adjustments................... 14 7 (37)
------ ------ ------
8,120 8,038 7,901
------ ------ ------
Income before income taxes and cumulative effect
of accounting change................................... 180 457 431
Provision for income taxes . . Note R.................. 74 148 134
------ ------ ------
Income from operations before cumulative effect
of accounting change................................... 106 309 297
Minority interests, net of equity earnings............. (1) (7) (13)
------ ------ ------
Net income before cumulative effect
of accounting change................................... 105 302 284
Cumulative effect of accounting change,
net of tax . . Note B................................ (8)
------ ------ ------
Net income................................................ 105 294 284
Preferred stock dividends................................. 17 23 20
------ ------ ------
Net income available to common shareholders............... $ 88 $ 271 $ 264
====== ====== ======
- - ---------------------------------------------------------------------------------------------------------------
Average common share data:
Earnings per average common share . . Note P
Basic - before cumulative effect of
accounting change.............................. $ .71 $ 2.17 $ 2.16
====== ====== ======
after cumulative effect of
accounting change.............................. $ 2.11
======
Diluted - before cumulative effect of
accounting change.............................. $ .71 $ 2.15 $ 2.14
====== ====== ======
after cumulative effect of
accounting change.............................. $ 2.10
======
Dividends................................................. $ 1.00 $ 1.00 $ 1.00
====== ====== ======
- - ---------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
Certain prior year balances have been reclassified to improve comparability.
-30-
<PAGE>
Crown Cork & Seal Company, Inc.
CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------
December 31 1998 1997
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents............................................... $ 284 $ 206
Receivables . . Note D.................................................. 1,359 1,353
Inventories . . Note E.................................................. 1,421 1,387
Prepaid expenses and other current assets............................... 104 201
------- -------
Total current assets................................................ 3,168 3,147
------- -------
Long-term notes and receivables............................................ 44 65
Investments................................................................ 91 90
Goodwill, net of amortization.............................................. 4,565 4,625
Property, plant and equipment . . Note F................................... 3,743 3,664
Other non-current assets................................................... 858 715
------- -------
Total............................................................... $12,469 $12,306
======= =======
Liabilities & Shareholders' Equity
Current liabilities
Short-term debt . . Note M.............................................. $ 2,331 $ 1,385
Current portion of long-term debt . . Note M............................ 135 399
Accounts payable and accrued liabilities . . Note G..................... 2,181 2,237
United States and foreign income taxes.................................. 63 28
------- -------
Total current liabilities........................................... 4,710 4,049
------- -------
Long-term debt, excluding current maturities . . Note M.................... 3,188 3,301
Other non-current liabilities . . Note H................................... 609 432
Postretirement and pension liabilities . . Note S.......................... 707 712
Minority interests......................................................... 280 283
Commitments and contingent liabilities . . Notes J and K
Shareholders' equity
Preferred stock, 4.5% cumulative convertible,
par value: $41.8875; authorized: 12,432,622 . . Note O
1998 - outstanding 8,376,451....................................... 351
1997 - outstanding 12,431,793....................................... 521
Additional preferred stock, authorized: 30,000,000;
none issued . . Note O
Common stock, par value: $5.00; authorized:
500,000,000 . . Note O
1998 - issued 155,792,424............................................. 779
1997 - issued 155,792,386............................................. 779
Additional paid-in capital................................................. 1,340 1,561
Retained earnings.......................................................... 1,250 1,327
Accumulated other comprehensive income/(loss) . . Note C................... ( 578) ( 522)
Treasury stock (1998 - 33,455,026 shares; 1997 -
27,393,843 shares)...................................................... (167) (137)
------- -------
Total shareholders' equity.......................................... 2,975 3,529
------- -------
Total............................................................... $12,469 $12,306
======= =======
- - --------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
Certain prior year balances have been reclassified to improve comparability.
-31-
<PAGE>
Crown Cork & Seal Company, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------
1998 1997 1996
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income................................................ $ 105 $ 294 $ 284
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization ........................ 533 540 496
Provision for restructuring and other charges......... 205 43 32
Foreign currency gain................................. (42)
Gain on sale of assets................................ (28) (16)
Deferred income taxes................................. 113 93 92
Changes in assets and liabilities, net of
businesses acquired:
Receivables........................................... 1 (115) 247
Inventories........................................... (24) (70) 20
Accounts payable, accrued and other liabilities ...... (235) (219) (194)
Other, net............................................ (26) (136) (8)
--------- --------- ---------
Net cash provided by operating activities........... 672 402 911
--------- --------- ---------
Cash flows from investing activities
Capital expenditures...................................... (487) (515) (631)
Acquisition of businesses, net of cash acquired........... (31) (10) (1,538)
Proceeds from sale of property, plant and equipment ...... 47 43 33
Proceeds from sale of businesses.......................... 35 90 108
Other, net................................................ (16) (6) (7)
--------- --------- ---------
Net cash used for investing activities.............. (452) (398) (2,035)
--------- --------- ---------
Cash flows from financing activities
Proceeds from long-term debt.............................. 23 124 2,075
Payments of long-term debt................................ (443) (269) (303)
Net change in short-term debt............................. 877 360 (423)
Dividends paid............................................ (143) (152) (146)
Stock repurchased......................................... (467) (17)
Common stock issued - benefit plans....................... 6 11 11
Minority contributions, net of dividends paid............. (5) 10 4
--------- --------- ---------
Net cash (used for) provided by
financing activities.............................. (152) 67 1,218
--------- --------- ---------
Effect of exchange rate changes on cash
and cash equivalents...................................... 10 (26) (2)
--------- --------- ---------
Net change in cash and cash equivalents...................... 78 45 92
Cash and cash equivalents at January 1....................... 206 161 69
--------- --------- ---------
Cash and cash equivalents at December 31..................... $ 284 $ 206 $ 161
========= ========= =========
- - -----------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
-32-
<PAGE>
Crown Cork & Seal Company, Inc.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in millions, except share data)
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
| Accumulated
Compre-| Other
hensive| Preferred Common Paid-In Retained Comprehensive Treasury
Income | Stock Stock Capital Earnings Income/(Loss) Stock Total
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
|
Balance December 31, 1995 .................. | $593 $ 182 $1,049 ($224) ($139) $1,461
|
Net income - 1996........................... $284 | 284 284
Translation adjustments..................... (145) | (145) (145)
Minimum pension liability |
adjustment, net of $9 tax............... 17 | 17 17
---- |
Comprehensive income........................ $156 |
==== |
Stock issued in business combination: |
Common: 37,300,818 shares............... | 186 1,376 1,562
Preferred: 12,432,622 shares............ | $521 521
Dividends declared: |
Common.................................. | (128) (128)
Preferred .............................. | (20) (20)
Stock issued-benefit plans: |
459,165 shares.......................... | 9 2 11
| ---- ---- ------ ------ ----- ----- ------
|
Balance December 31, 1996................... | 521 779 1,567 1,185 (352) (137) 3,563
|
Net income - 1997........................... $294 | 294 294
Translation adjustments..................... (168) | (168) (168)
Minimum pension liability |
adjustment, net of $1 tax............... (2) | (2) (2)
---- |
Comprehensive income........................ $124 |
==== |
Stock repurchased: |
342,414 shares.......................... | (15) (2) (17)
Dividends declared: |
Common.................................. | (128) (128)
Preferred............................... | (24) (24)
Stock issued-benefit plans |
329,406 shares.......................... | 9 2 11
| ---- ---- ------ ------ ----- ----- ------
|
Balance December 31, 1997................... | 521 779 1,561 1,327 (522) (137) 3,529
|
Net income - 1998........................... $105 | 105 105
Translation adjustments..................... 31 | 31 31
Minimum pension liability |
adjustment, net of $47 tax.............. (87) | (87) (87)
---- |
Comprehensive income........................ $49 |
==== |
Stock repurchased: |
6,528,783 common shares................. | (225) (29) (32) (286)
4,055,300 preferred shares.............. | (170) (11) (181)
Dividends declared: |
Common.................................. | (125) (125)
Preferred............................... | (17) (17)
Stock issued-benefit plans |
467,600 shares.......................... | 4 2 6
| ---- ---- ------ ------ ----- ----- ------
|
Balance December 31, 1998................... | $351 $779 $1,340 $1,250 ($578) ($167) $2,975
| ==== ==== ====== ====== ===== ===== ======
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
Certain prior year balances have been reclassified upon adoption of SFAS No. 130
and to improve comparability.
-33-
<PAGE>
Crown Cork & Seal Company, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per share, employee, shareholder and statistical data; per
share earnings are quoted as diluted)
A. Summary of Significant Accounting Policies
Business and Principles of Consolidation
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 accumulated other comprehensive income/(loss) in
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 $452 and $334 at December 31, 1998 and 1997, 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
-34-
<PAGE>
Crown Cork & Seal Company, Inc.
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 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, $53
and $52 in 1998, 1997 and 1996, respectively, are expensed as incurred.
Substantially all engineering and development costs are related to developing
new products or designing significant improvements to existing products.
Reclassifications
Certain reclassifications of prior years' data have been made to improve
comparability
- - --------------------------------------------------------------------------------
B. Accounting Change
In the fourth quarter of 1997 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 $8 or $.05 per share.
- - --------------------------------------------------------------------------------
C. Comprehensive Income
Statement of Financial Accounting Standards ("SFAS") No. 130, Reporting
Comprehensive Income, establishes a standard for reporting and displaying
comprehensive income and its components within the financial statements.
Comprehensive income includes charges and credits to equity that are not the
result of transactions with shareholders. Comprehensive income is composed of
two subsets - net income and other comprehensive income. Included in other
comprehensive income for the Company are cumulative translation adjustments and
minimum pension liability adjustments. These adjustments are accumulated within
the Statement of Shareholders' Equity under the caption Accumulated Other
-35-
<PAGE>
Crown Cork & Seal Company, Inc.
Comprehensive Income/(Loss). As of December 31, accumulated other comprehensive
income/(loss), as reflected in the consolidated statement of shareholders'
equity, was comprised of the following:
1998 1997
---- ----
Minimum pension liability adjustments........................($104) ($17)
Cumulative translation adjustments........................... (474) (505)
----- -----
($578) ($522)
===== =====
Cumulative translation adjustments are not adjusted for income taxes as they
relate to indefinite investments in non-U. S. subsidiaries.
- - --------------------------------------------------------------------------------
D. Receivables
1998 1997
------ ------
Accounts and notes receivable........................... $1,161 $1,150
Less: allowance for possible losses..................... (45) (45)
------ ------
Net trade receivables.............................. 1,116 1,105
Miscellaneous receivables............................... 243 248
------ ------
$1,359 $1,353
====== ======
The Company has agreements to sell certain of its non-U.S. trade accounts
receivable. At December 31, 1998, approximately $201 ($149 at December 31, 1997)
of receivables had been sold with limited recourse and are reflected as a
reduction of trade receivables.
- - --------------------------------------------------------------------------------
E. Inventories
1998 1997
------ ------
Finished goods................................... $ 577 $ 560
Work in process.................................. 204 187
Raw materials and supplies....................... 640 640
------ ------
$1,421 $1,387
====== ======
Approximately 28% and 29% of worldwide inventories at December 31, 1998 and
1997, 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, 1998 and 1997, total inventories would have been $15
and $25 higher, respectively.
- - --------------------------------------------------------------------------------
F. Property, Plant and Equipment
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Buildings and improvements................................... $ 864 $ 926
Machinery and equipment...................................... 4,546 4,127
------ ------
5,410 5,053
Less: accumulated depreciation and amortization.............. (2,153) (1,921)
------ ------
3,257 3,132
Land and improvements........................................ 206 208
Construction in progress..................................... 280 324
------ ------
$3,743 $3,664
====== ======
</TABLE>
- - --------------------------------------------------------------------------------
-36-
<PAGE>
Crown Cork & Seal Company, Inc.
G. Accounts Payable and Accrued Liabilities
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Trade accounts payable................................................. $1,315 $1,343
Interest............................................................... 63 66
Salaries, wages and other employee benefits............................ 261 255
Environmental.......................................................... 3 4
Litigation............................................................. 42
Restructuring.......................................................... 128 152
Deferred taxes......................................................... 85 83
Other.................................................................. 284 334
------ ------
$2,181 $2,237
====== ======
</TABLE>
Miscellaneous current receivables include $37 for recoveries related to
litigation.
- - --------------------------------------------------------------------------------
H. Other Non-Current Liabilities
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Postemployment benefits................................................ $ 45 $ 37
Environmental.......................................................... 15 35
Litigation............................................................. 129
Deferred taxes......................................................... 356 305
Other.................................................................. 64 55
---- ----
$609 $432
==== ====
</TABLE>
Other non-current assets include $21 and $19 at December 31, 1998 and 1997,
respectively, for estimated recoveries related to environmental liabilities.
- - --------------------------------------------------------------------------------
I. Acquisitions
During 1998, the Company acquired, in separate transactions, the assets of food
can manufacturers in Portugal and Poland for cash payments of $31.
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. Under the terms of the purchase,
the Company holds a put option enabling it to return GAC to ACX.
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 M 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.
For financial reporting purposes, all of the acquisitions above were treated as
purchases. An excess purchase price of approximately $3,850 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.
-37-
<PAGE>
Crown Cork & Seal Company, Inc.
The following represents the non-cash impact of the acquisitions noted above:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Fair value of assets acquired, including goodwill............. $ 75 $ 70 $7,995
Liabilities assumed........................................... (44) (4,003)
Note payable.................................................. (60)
Issuance of common stock...................................... (1,562)
Issuance of 4.5% cumulative convertible preferred stock (521)
---- ---- ------
Cash paid................................................ $ 31 $ 10 $1,909
==== ==== ======
</TABLE>
- - --------------------------------------------------------------------------------
J. Lease Commitments
The Company and its subsidiaries lease manufacturing, warehouse and office
facilities and certain equipment. Certain non-cancelable leases are classified
as capital leases, and the leased assets are included in PP&E. Other long-term
non-cancelable leases are classified as operating leases and are not
capitalized. The amount of capital leases reported as capital assets, net of
accumulated amortization, at December 31, 1998 and 1997 was $54 and $46,
respectively.
Under long-term operating leases, minimum annual rentals are $26 in 1999, $18 in
2000, $14 in 2001, $11 in 2002, $8 in 2003, and a total of $38 in 2004 and
thereafter. Under long-term capital leases, minimum annual rentals are $14 in
1999, $8 in 2000, $7 in 2001, $6 in 2002, $4 in 2003, and a total of $11 in 2004
and thereafter. The present value of future minimum payments on capital leases
is $43 with the current portion of the obligation being $12. Rental expense (net
of sublease rental income of $5 in 1998, $4 in 1997 and $6 in 1996) amounted to
$42 in 1998, $38 in 1997 and $35 in 1996.
- - --------------------------------------------------------------------------------
K. 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 its products are
tinplate, aluminum and resins, all of which are purchased from multiple sources.
The Company is subject to material fluctuations in the cost of these raw
materials and has periodically adjusted its selling prices to reflect these
movements. There can be no 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 one of a number of defendants in a substantial number of lawsuits
filed by persons alleging bodily injury as a result of exposure to asbestos.
This litigation arose from the insulation operations in the United States of a
company in which the Company acquired a majority interest in 1963. That company
sold this insulation business less than three months later.
Prior to 1998, the amounts paid to asbestos litigation claimants were covered by
a fund of $80 made available to the Company under a 1985 settlement with
carriers insuring the Company through 1976, when the Company became
self-insured. From 1985 through 1997, the Company disposed of approximately
70,000 cases for amounts which aggregated approximately one-half of the original
fund.
Until the fourth quarter of 1998 the Company considered that the fund was
adequate and that the likelihood of exposure for this litigation in excess of
the amount of the fund was remote. This view was based on the Company's analysis
of its potential exposure, the balance available under the 1985 settlement,
historical trends and actual settlement ranges.
-38-
<PAGE>
Crown Cork & Seal Company, Inc.
A change in Texas law, which limits out-of-state plaintiff filings in that
state, and which will therefore be favorable in the long-term, caused, along
with other factors, an unexpected increase in claims activity. This, along with
several larger group settlements, caused the Company to reevaluate its position.
As a consequence, the Company has provided a charge of $78 after taxes (or $.59
per share) to supplement the remaining fund and cover estimated liability claims
pending or to be filed through 2003.
The liability recorded for asbestos claims constitutes management's best
estimate of such costs for pending and future claims. Because of the
uncertainties related to this kind of litigation, the Company believes it is not
possible to estimate the number of personal injury claims that may be filed
after 2003. The Company believes, however, that the number of claims against it
will slow significantly in the future as time elapses since 1963. The Company
cautions, however, that inherent in its estimate of liabilities are expected
trends in claim severity, frequency and other factors which may vary as claims
are filed and settled or otherwise disposed of. Accordingly, these matters, if
resolved in a manner different from the estimate, could have a material effect
on the operating results or cash flows in future periods. While it is not
possible to predict with certainty the ultimate outcome of these lawsuits and
contingencies, the Company believes, after consultation with counsel, that
resolution of these matters is not expected to have a material adverse effect on
the Company's financial position or liquidity.
The Company is also subject to various other lawsuits and claims with respect to
matters such as governmental and environmental regulations and other actions
arising out of the normal course of business. While the impact on future
financial results is not subject to reasonable estimation because considerable
uncertainty exists, management believes, after consulting with counsel, that the
ultimate liabilities resulting from such lawsuits and claims will not materially
affect the consolidated results, liquidity or financial position of the Company.
- - --------------------------------------------------------------------------------
L. Restructuring
During 1998, the Company provided $179 ($127 after-tax or $.95 per share) for
the costs associated with the plan to close thirteen plants and the
reorganization of three additional plants. These actions reflect the Company's
continued commitment to realign its manufacturing facilities with the objective
of enhancing operating efficiencies. Included in the restructuring charge were
costs to provide severance and related benefits, write-down of assets and other
exit costs. The Company anticipates that this restructuring program will
generate after-tax savings of approximately $64 ($.48 per share) on an
annualized basis when fully implemented.
The cost of providing severance and related benefits is estimated at $99, is a
cash expense, and covers a reduction of approximately 2,900 employees, 1,900 of
whom are involved in direct manufacturing operations.
Included in this restructuring provision is a charge of $60 reflecting the
impairment of property, plant and equipment principally located in the Americas
Division. This charge has been reflected as a reduction in the carrying values
of the related assets. Write-downs of property, plant and equipment were made
where their carrying values exceeded the Company's estimate of proceeds from
abandonment or disposal. These estimates were based principally on past
experience of comparable asset disposals. Disposition of assets identified for
disposal in the 1998 action, including certain machinery, land and buildings, is
expected to be substantially completed by the end of 1999. The carrying value of
the land and buildings held for sale is approximately $22. Annual depreciation
previously recognized for the affected assets was approximately $4.
Other non-recurring exit costs are estimated at $20 and are primarily a cash
expense, comprising the costs to effectively close and dispose of the facilities
identified in the 1998 plan. Exit costs include, but are not limited to, fees
related to lease termination and other contract cancellations, dismantlement
costs and
-39-
<PAGE>
Crown Cork & Seal Company, Inc.
brokers' fees for assets to be sold. These costs are expected to be
substantially incurred by the end of 1999.
During 1997, the Company provided $67 ($43 after-tax 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. This restructuring program
covered approximately 600 employees.
During 1996, the Company provided restructuring costs relative to the
acquisition of CarnaudMetalbox (CMB). Affected by the plan of restructuring were
forty plants and regional administrative offices which were closed and an
additional fifty-two plants which were reorganized. The Company accrued
approximately $534 and allocated such costs to the purchase price of CMB in
accordance with purchase accounting requirements. These costs comprised:
severance and related benefits, write-down of assets and other exit costs. The
cost of providing severance and related benefits for the reduction of
approximately 6,500 employees was $257 and was primarily a cash expense. The
write-down of assets (principally property, plant and equipment) was
approximately $217 and has been reflected as a reduction in the carrying values
of the Company's assets. Other exit costs, primarily repayments of government
grants and subsidies, were approximately $60 and were primarily cash expenses.
The restructuring costs recorded in connection with the CMB acquisition included
a $95 restructuring charge announced in 1996 by CarnaudMetalbox Asia, Ltd., a
subsidiary of CMB. Remaining balances in the restructuring reserve primarily
relate to payment options available to employees under termination agreements.
Such agreements were made with the respective union or with the local
governmental body generally, and provide that a portion of the employee
severance is paid when the employee is terminated and the remaining portion is
paid out over an agreed period.
In 1996, the Company also provided $40 ($32 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.
The balance of the 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 components of the
restructuring reserve and movements within these components during 1998 were as
follows:
<TABLE>
<CAPTION>
Other
Employee Exit Writedown Total
(in millions) Severance Costs of Assets
--------- -------- --------- ------
<S> <C> <C> <C>
Opening balance............................................... $120 $ 35 $ 155
Provisions accrued............................................ 99 20 $ 60 179
Payments made................................................. (107) (23) (130)
Transfer against assets....................................... (60) (60)
Other movements*.............................................. (15) (1) (16)
---- ---- -----
Closing balance............................................... $ 97 $ 31 $ 128
==== ==== =====
</TABLE>
*Includes provisions under purchase accounting for two 1998 acquisitions in
Europe, sale of businesses and translation adjustments.
During 1998, payments of $107 were made related to the termination of
approximately 2,200 employees, 1,800 of whom were involved in direct
manufacturing operations. Payments of $23 were made for other exit costs,
including property carrying costs, dismantlement costs, equipment removal and
various contractual obligations.
-40-
<PAGE>
Crown Cork & Seal Company, Inc.
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 material
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, which are unaudited, are not necessarily indicative of future
performance, which may be significantly more or less favorable than as set forth
above and are subject to the considerations described under "Forward-Looking
Statements" within "Management's Discussion and Analysis of Financial Condition
and Results of Operations." Shareholders are cautioned not to place undue
reliance on the estimates or the underlying 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.
- - --------------------------------------------------------------------------------
M. Short-Term Borrowings and Long-Term Debt
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Short-term borrowings (1)
Commercial paper (2)................................................... $1,374 $548
U.S. dollar bank loans/overdrafts...................................... 123 155
Other currency bank loans/overdrafts................................... 834 682
------ ------
Total short-term borrowings................................. $2,331 $1,385
------ ------
Long-term debt
U.S. Dollars:
Commercial paper (2) (3)............................................... $ 700 $ 700
Private placements: rates ranging
from 7.0% to 7.54%, due 2000 through 2005.......................... 205 205
Senior notes and debentures:
5.88% due 1998..................................................... 100
7.00% due 1999..................................................... 100 100
6.75% due 2003 (4)................................................. 400 400
6.75% due 2003..................................................... 200 200
8.38% due 2005..................................................... 300 300
7.00% due 2006 (4)................................................. 300 300
8.00% due 2023..................................................... 200 200
7.38% due 2026..................................................... 350 350
7.50% due 2096..................................................... 150 150
Other indebtedness: rates in 1998 ranging from
5.5% to 8.62%, due 1999 through 2015............................... 222 202
------ ------
3,127 3,207
------ ------
Other currencies (average interest rate at December 31,
1998 in parentheses):
Preference shares in French Francs (6.7%), due 1998.................... 254
Other French Franc indebtedness (4.1% to 7.45%),
due 1999 through 2015.............................................. 85 98
Capital lease obligations in various currencies........................ 43 43
Other indebtedness in various currencies (3.53% to 28.4%),
due 1999 through 2004.............................................. 68 98
------ ------
Total long-term debt (5).................................... 3,323 3,700
Less: current maturities............................................... (135) (399)
------ ------
Total long-term debt........................................ $3,188 $3,301
====== ======
</TABLE>
-41-
<PAGE>
Crown Cork & Seal Company, Inc.
(1) The weighted average interest rates for commercial paper outstanding
during 1998, 1997 and 1996, were 5.2%, 5.3% and 5.5%, respectively. The
weighted average interest rates for notes and overdrafts outstanding
during 1998, 1997 and 1996, were 5.6%, 6.4% and 6.3%, respectively.
(2) At December 31, 1998 and December 31,1997, $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) A committed $2.5 billion multicurrency revolving credit facility with a
maturity of February 4, 2002 is available to support the commercial paper
programs and short-term financing needs. The agreement contains certain
financial covenants related to leverage and interest coverage. At
December 31, 1998 and 1997, $517 and $355, respectively, was drawn
against the facility.
(4) On December 12, 1996, two wholly-owned finance subsidiaries located in
the United Kingdom and France, sold public debt securities which were
fully guaranteed by the Company. 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.
(5) The Company is also party to other interest rate swaps which mature in
2001. 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, 1998, the combined notional
values of these swaps was $74. At December 31, 1997, the combined
notional values of other interest rate swaps was $553.
Aggregate maturities of long-term debt for the five years subsequent to December
31, 1998 are $135, $161, $141, $95, and $638, respectively. Cash payments for
interest were $377 in 1998, $379 in 1997 and $291 in 1996, respectively
(including amounts capitalized of $6 in 1998, $6 in 1997 and $8 in 1996,
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 $3,437 and $3,791 at December 31, 1998 and 1997,
respectively.
- - --------------------------------------------------------------------------------
N. Financial Instruments
In the normal course of business, the 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, 1998, 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 $2,680 ($2,902 at December 31, 1997). 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, 1998 and December 31, 1997.
Gains and losses resulting from contracts that are designated and effective as
hedges are recognized in the same period as the underlying hedged transaction.
-42-
<PAGE>
Crown Cork & Seal Company, Inc.
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 M. 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 its products 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, 1998 and December 31, 1997 the fair value
of the outstanding commodity contracts was not material to the Company's
earnings, cash flows or financial position.
- - --------------------------------------------------------------------------------
O. 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. 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.
- - --------------------------------------------------------------------------------
-43-
<PAGE>
Crown Cork & Seal Company, Inc.
P. Earnings Per Share
The following table summarizes the basic and diluted earnings per share
computations for 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------------------------------------------------------
Average Average Average
Income Shares EPS Income Shares EPS Income Shares EPS
------ ------- --- ------ ------- --- ------ ------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Income..................... $105 $294 $284
Less: Preferred stock
dividends............... (17) (23) (20)
---- ---- ----
Basic EPS...................... $ 88 124.4 $.71 $271 128.4 $2.11 264 122.5 $2.16
Potentially dilutive securities:
Stock options............. .1 .6 .3
Assumed preferred stock
conversion.............. 17 8.4 23 11.3 20 9.6
---- ----- ---- ----- ---- -----
Diluted EPS.................... $105 132.9 $.71* $294 140.3 $2.10 $284 132.4 $2.14
==== ===== ==== ===== ==== =====
</TABLE>
* 1998 Diluted EPS is the same as Basic EPS due to the anti-dilutive effect from
the assumed conversion of convertible preferred stock and the addback of
preferred dividends.
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.
- - --------------------------------------------------------------------------------
Q. Stock Options
As of December 31, 1998, the Company currently has three stock-based incentive
compensation plans under which the Company grants options to executives and key
employees to purchase common stock. 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. 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 ratably
over the first five years 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 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.
-44-
<PAGE>
Crown Cork & Seal Company, Inc.
Stock option transactions were:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------- -------------------- ---------------------
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......................... 4,745,796 $44.54 4,625,708 $42.28 1,836,452 $33.30
Granted................................. 1,109,032 47.56 877,350 52.27 3,544,750 44.35
Exercised............................... (195,571) 33.81 (281,380) 33.36 (516,100) 25.58
Canceled................................ (360,551) 44.54 (475,882) 43.39 (239,394) 39.94
--------- --------- ---------
Options outstanding
at December 31....................... 5,298,706 $45.51 4,745,796 $44.54 4,625,708 $42.28
========= ========= =========
Options exercisable
at December 31....................... 1,805,674 1,083,464 709,115
Options available for
grant at December 31................. 5,721,135 6,469,616 1,871,084
</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>
$20.53 to $38.50 616,742 6.0 $35.59 358,084 $37.59
38.63 to 43.13 268,016 3.0 40.76 192,801 40.43
44.13 to 52.75 3,654,448 5.1 45.96 1,110,589 44.83
53.00 to 54.38 759,500 8.2 53.13 144,200 53.01
---------- ---------
5,298,706 5.6 $45.51 1,805,674 $43.58
========== =========
</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>
- - ------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income As reported $ 88 $ 271 $ 264
Pro forma $ 81 $ 264 $ 261
Basic earnings per share As reported $.71 $2.11 $2.16
Pro forma $.65 $2.05 $2.13
Diluted earnings per share As reported $.71 $ 2.10 $2.14
Pro forma $.65 $ 2.05 $2.12
</TABLE>
-45-
<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 has been estimated
on the date of the grant using the Black-Scholes option pricing model with the
following weighted average assumptions:
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Risk-free interest rate 4.5% 5.7% 6.2%
Expected life of option 4.9 years 4.9 years 4.9 years
Expected stock price volatility 24.5% 21.7% 20.7%
Expected dividend yield 3.2% 2.0% 2.2%
</TABLE>
The weighted average grant-date fair values for options granted during 1998,
1997 and 1996 were $9.96, $12.92, and $11.01, respectively.
- - --------------------------------------------------------------------------------
R. Income Taxes
Pre-tax income for the years ended December 31 was taxed under the following
jurisdictions:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Domestic...................................................... ($130) $ 49 $ 67
Foreign....................................................... 310 408 364
---- ---- ----
$180 $457 $431
==== ==== ====
The provision for income taxes consists of the following:
Current tax provision:
U.S. Federal............................................. $ 5 $ 14 $ 15
State and foreign........................................ 52 41 28
---- ---- ----
57 55 43
---- ---- ----
Deferred tax provision:
U.S. Federal............................................. (31) 10 17
State and foreign........................................ 48 83 74
---- ---- ----
17 93 91
---- ---- ----
$ 74 $148 $134
==== ==== ====
</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 pre-tax
income as a result of the following differences:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
U.S. statutory rate........................................... 35.0% 35.0% 35.0%
Non-U.S. operations at different rates........................ (12.6) (6.6) (7.7)
Effect of non-U.S. statutory rate changes..................... (1.6) (1.5)
Amortization of acquisition adjustments....................... 23.8 9.5 8.5
Valuation allowance........................................... (2.5) (2.7) (4.0)
Other items, net.............................................. (1.0) (1.3) (.7)
---- ---- ----
Effective income tax rate................................ 41.1% 32.4% 31.1%
==== ==== ====
</TABLE>
-46-
<PAGE>
Crown Cork & Seal Company, Inc.
The Company received federal, state, local and foreign income tax refunds (net
of payments) of $1 in 1998 and paid taxes (net of refunds) of $51 in 1997 and
$41 in 1996. The components of deferred tax assets and liabilities at December
31, were:
<TABLE>
<CAPTION>
1998 1997
--------------------- --------------------
Asset Liability Asset Liability
----- --------- ----- ---------
<S> <C> <C> <C> <C>
Depreciation.............................................. $ 420 $ 398
Postretirement and postemployment benefits................ $221 $222
Pensions.................................................. 68 91
Inventories............................................... 27 27
Tax loss and credit carryforwards......................... 232 210
Restructuring............................................. 26 41
Accruals and other........................................ 120 55 88 26
----- ----- ----- -----
599 570 561 542
Valuation allowance....................................... (94) (125)
----- ----- ----- -----
$ 505 $ 570 $ 436 $ 542
===== ===== ===== =====
</TABLE>
Prepaid expenses and other current assets include $52 and $95 of deferred tax
assets at December 31, 1998 and 1997, respectively. Other non-current assets
include $324 and $187 of deferred tax assets at December 31, 1998 and 1997,
respectively.
The Company has recorded $61 of deferred tax assets arising from tax loss and
credit carryforwards which will be realized through future operations and an
additional $77 which will be realized through the reversal of existing temporary
differences. Future recognition of the remaining $94 will be achieved 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 $80 expire over the next five years; $49 expire in years six
through fifteen; and $103 can be utilized over an indefinite period.
The valuation allowance of $94 includes $61 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 $549 as
of December 31, 1998. Management has no plans to distribute such earnings in the
foreseeable future.
- - --------------------------------------------------------------------------------
S. Pensions and Other Retirement Benefits
Pensions
The Company sponsors various pension plans, covering substantially all U.S. and
Canadian and some non- U.S. and non-Canadian employees, and participates in
certain multi-employer pension plans. The benefits under these plans are based
primarily on years of service and the employees' remuneration near retirement.
Contributions to multi-employer plans in which the Company and its subsidiaries
participate are determined in accordance with the provisions of negotiated labor
contracts or applicable local regulations. The Company's objective in funding
its pension plans is to accumulate funds sufficient to provide for all accrued
benefits. In certain countries the funding of pension plans is not a common
practice as funding provides no economic benefit. Consequently, the Company has
several pension plans which are not funded.
Plan assets of company-sponsored plans of $3,311 consist principally of common
stocks, fixed income securities and other investments, including $177 of the
Company's common stock.
-47-
<PAGE>
Crown Cork & Seal Company, Inc.
The 1998, 1997 and 1996 components of pension (income)/cost were as follows:
<TABLE>
<CAPTION>
U.S. Non-U.S.
------------------------------- ------------------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Service cost.......................... $ 10 $ 8 $ 12 $ 29 $ 26 $ 30
Interest cost......................... 88 93 89 140 136 111
Expected return on plan assets........ (145) (147) (128) (233) (206) (160)
Recognized actuarial (gain)/loss ..... (1) (2) 1 2 1
Recognized prior service cost......... 1 1 1 1 1
Cost/(income)attributable to
plant closings..................... 12 1 (1) (3) (1)
----- ----- ----- ----- ----- -----
Total pension income.................. ($ 35) ($ 46) ($ 26) ($ 65) ($ 44) ($ 17)
===== ===== ===== ===== ===== =====
</TABLE>
Additional pension expense of $8, $9 and $8 was recognized in 1998, 1997 and
1996 for non-Company sponsored plans.
The projected benefit obligation, accumulated benefit obligation and fair value
of plan assets for the U.S. pension plans with accumulated benefit obligations
in excess of plan assets were $823, $812 and $699, respectively, as of December
31, 1998, and $23, $21, and $8, respectively, as of December 31, 1997.
The projected benefit obligation, accumulated benefit obligation and fair value
of plan assets for the non-U.S. pension plans with accumulated benefit
obligations in excess of plan assets were $259, $220, and $104, respectively, as
of December 31, 1998, and $211, $184, and $64, respectively, as of December 31,
1997.
-48-
<PAGE>
Crown Cork & Seal Company, Inc.
Changes in the benefit obligation and plan assets for 1998 and 1997 were as
follows:
<TABLE>
<CAPTION>
U.S. Non-U.S.
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Change in Benefit Obligation
Benefit obligation at January 1........................... $1,237 $1,191 $1,771 $1,685
Service cost.............................................. 10 8 29 26
Interest cost............................................. 88 93 140 136
Plan participants' contributions.......................... 1 1 10 11
Amendments................................................ 8 4 2
Settlements and curtailments.............................. (10) (11)
Special termination benefits.............................. 12 1
Actuarial loss............................................ 50 64 121 101
Benefits paid............................................. (119) (125) (113) (102)
Foreign currency exchange rate changes.................... 9 (77)
------ ------ ------ ------
Benefit obligation at end of year...................... $1,287 $1,237 $1,957 $1,771
------ ------ ------ ------
Change in Plan Assets
Fair value of plan assets at January 1.................... $1,381 $1,337 $2,143 $1,958
Actual return on plan assets.............................. (39) 165 25 339
Employer contributions.................................... 2 3 17 20
Plan participants' contributions.......................... 1 1 10 11
Benefits paid............................................. (119) (125) (113) (102)
Settlement................................................ (11)
Foreign currency exchange rate changes.................... 3 (72)
------ ------ ------ ------
Fair value of plan assets at December 31............... $1,226 $1,381 $2,085 $2,143
------ ------ ------ ------
Plan assets(less than)/in excess of benefit
obligation............................................. ($61) $144 $128 $372
Net transition obligation................................. 7 8
Unrecognized actuarial loss/(gain)........................ 182 (53) 168 (148)
Unrecognized prior service cost........................... 16 8 3 4
------ ------ ------ ------
Net amount recognized.................................. $ 144 $ 107 $ 299 $ 228
====== ====== ====== ======
Amounts recognized in the balance sheet consist of:
Prepaid benefit cost...................................... $ 118 $ 113 $ 415 $ 345
Accrued benefit liability................................. (116) (16) (162) (146)
Intangible asset.......................................... 23 10 3 3
Accumulated other comprehensive income.................... 119 43 26
------ ------ ------ ------
Net amount recognized.................................. $ 144 $ 107 $ 299 $ 228
====== ====== ====== ======
</TABLE>
-49-
<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
- - ----------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Discount rate.................. 7.1% 7.4% 8.0% 7.2% 8.0% 8.8%
Compensation increase.......... 3.5% 3.5% 3.5% 5.3% 6.0% 6.5%
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 components of the net postretirement benefit cost were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Service cost.................................................................... $ 4 $ 4 $ 4
Interest cost................................................................... 40 39 39
Recognized actuarial gain....................................................... (1) (1) (1)
Recognized prior service cost................................................... (1) (2)
Loss attributable to plant closings............................................. 4
--- --- ---
Net periodic benefit cost.................................................. $46 $40 $42
=== === ===
</TABLE>
The following provides the components of the changes in the benefit obligation,
and reconciles the obligation to the amount recognized:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Benefit obligations at January 1....................................... $548 $504
Service cost........................................................... 4 4
Interest cost.......................................................... 40 39
Special termination benefits........................................... 4
Actuarial loss......................................................... 25 47
Benefits paid.......................................................... (51) (46)
Foreign currency exchange rate changes................................. (2)
---- ----
Benefit obligation at December 31...................................... 568 548
Unrecognized actuarial gain............................................ 16 41
Unrecognized prior service cost........................................ 11 12
---- ----
Net amount recognized............................................. $595 $601
==== ====
</TABLE>
The health care accumulated postretirement benefit obligation was determined at
December 31, 1998 and 1997 using health care trend rates of 8.0% and 8.7%,
respectively, decreasing to 4.8% over seven years and eight years, respectively.
The assumed long-term rate of compensation increase used for life insurance was
3.5% at both December 31, 1998 and 1997. The discount rate was 7.1% and 7.4% at
December 31, 1998 and 1997, respectively. Changing the assumed health care cost
trend rate by one percentage point in each year would change the accumulated
postretirement benefit obligation by $41 and the total of service and interest
cost by $3.
-50-
<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
1998 and 1997 were 112,471 and 89,392, respectively, and the Company's
contributions were approximately $1 for both years.
- - --------------------------------------------------------------------------------
T. Segment Information
In 1998, the Company adopted Statement of Financial Accounting Standards (SFAS)
No. 131, "Disclosures about Segments of an Enterprise and Related Information."
SFAS 131 supersedes SFAS 14, "Financial Reporting for Segments of a Business
Enterprise," replacing the "industry segment" approach with a "management"
approach. The prior years' segment information has been restated to the new
presentation. The management approach presents segments according to the
internal organization used by management for making operating decisions and
assessing performance. SFAS 131 also requires disclosures about enterprise-wide
products and services, significant geographic operations and major customers.
The adoption of SFAS 131 does not affect results of operations or financial
position but does affect the disclosures for segment information.
The Company is organized on the basis of geographic regions with three
reportable segments: Americas, Europe and Asia-Pacific. The Americas includes
the United States, Canada and South and Central America. Europe includes Europe,
Africa and the Middle East. Although the economic environments within each of
these reportable segments are quite diverse, they are similar in the nature of
their products, the production processes, the types or classes of customers for
products and the methods used to distribute products. Asia-Pacific, although
below reportable segment thresholds, has been designated as a reportable segment
because considerable review is made of this region for the allocation of
resources. Each reportable segment is an operating division within the Company
and has a President reporting directly to the Chief Executive Officer and the
Chief Operating Officer. "Other" includes Corporate activities, such as
Corporate Technology and, prior to 1998, includes the divested machinery
operations of Crown-Simplimatic.
The Company evaluates performance and allocates resources based on operating
income, that is, income before net interest, foreign exchange and gain/(loss) on
sale of assets. The accounting policies for each reportable segment are the same
as those described in the Summary of Significant Accounting Policies.
On an enterprise-wide basis, the Company's major products and their distribution
along geographic lines along with related long-lived assets are presented below.
-51-
<PAGE>
Crown Cork & Seal Company, Inc.
<TABLE>
<CAPTION>
Sales for major products were:
PRODUCTS 1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Metal beverage cans and ends............................. $2,554 $2,485 $2,299
Metal food cans and ends................................. 2,562 2,590 2,540
Other metal packaging.................................... 1,478 1,548 1,494
Plastic packaging........................................ 1,535 1,554 1,712
Other products........................................... 171 318 287
------ ------ ------
Consolidated net sales............................... $8,300 $8,495 $8,332
====== ====== ======
</TABLE>
Sales and long-lived assets for the major countries in which the Company
operates were:
<TABLE>
<CAPTION>
Net Sales Long-lived Assets
------------------------------ -----------------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
GEOGRAPHIC
United States.................... $3,337 $3,394 $3,327 $1,351 $1,421 $1,436
United Kingdom................... 1,112 1,241 1,225 522 474 461
France........................... 832 839 882 332 306 296
Other *.......................... 3,019 3,021 2,898 1,538 1,463 1,524
------ ------ ------ ------ ------ ------
Consolidated total........... $8,300 $8,495 $8,332 $3,743 $3,664 $3,717
====== ====== ====== ====== ====== ======
</TABLE>
*"Other" includes Other Europe, Africa, Middle East, Canada, South and Central
America and Asia-Pacific.
For the years ended December 31, 1998, 1997 and 1996, respectively, no one
customer accounted for more than 10% of the Company's consolidated net sales.
-52-
<PAGE>
Crown Cork & Seal Company, Inc.
The tables below present information about reportable segments for the years
ending December 31, 1998, 1997, 1996:
<TABLE>
<CAPTION>
December 31, 1998
Americas Europe Asia-Pacific Other Total
<S> <C> <C> <C> <C>
External sales................................... $4,077 $3,888 $335 $ 8,300
Depreciation & Amortization...................... 219 271 26 $17 533
Restructuring & other charges.................... 85 77 3 139 304
Segment income................................... 289 479 (211) 557
Capital expenditures............................. 161 300 7 19 487
Equity investments............................... 30 43 18 91
Deferred tax assets.............................. 137 186 5 48 376
Segment assets................................... 4,511 7,176 520 262 12,469
- - ---------------------------------------------------------------------------------------------------------------------
December 31, 1997
Americas Europe Asia-Pacific Other Total
External sales................................... $4,021 $4,045 $369 $60 $8,495
Depreciation & Amortization...................... 244 253 28 15 540
Restructuring & other charges.................... 55 12 67
Segment income................................... 280 553 7 (74) 766
Capital expenditures............................. 176 301 19 19 515
Equity investments............................... 30 37 23 90
Deferred tax assets.............................. 81 196 4 1 282
Segment assets................................... 4,721 6,941 509 135 12,306
- - ---------------------------------------------------------------------------------------------------------------------
December 31, 1996
Americas Europe Asia-Pacific Other Total
External sales................................... $3,823 $3,987 $384 $138 $8,332
Depreciation & Amortization...................... 232 223 34 7 496
Restructuring & other charges.................... 9 30 1 40
Segment income................................... 284 450 13 (71) 676
Capital expenditures............................. 225 281 90 35 631
Equity investments............................... 29 48 6 7 90
Deferred tax assets.............................. 52 339 15 2 408
Segment assets................................... 4,563 7,199 614 214 12,590
- - ---------------------------------------------------------------------------------------------------------------------
</TABLE>
A reconciliation of segment income to consolidated pre-tax income for the years
ended December 31, 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
INCOME 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Segment income........................................... $557 $766 $676
Interest expense......................................... 408 379 328
Interest income.......................................... (45) (39) (22)
Gain on sale of assets................................... (38) (24)
Translation & exchange adjustments....................... 14 7 (37)
---- ---- ----
Consolidated pre-tax income.......................... $180 $457 $431
==== ==== ====
- - ---------------------------------------------------------------------------------------------------------------------
</TABLE>
-53-
<PAGE>
Crown Cork & Seal Company, Inc.
U. Quarterly Data (unaudited)
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------------
(in millions) 1998 | 1997
- - ----------------------------------------------------------------------------------------------------------------------------
First Second Third Fourth | First Second Third Fourth
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.................. $1,892 $2,245 $2,291 $1,872 | $1,938 $2,287 $2,341 $1,929
Gross profit*.............. 285 412 199 (1) 288 (3) | 286 394 332 (4) 293
Net income (loss) |
available to common |
shareholders............ 36 122 (25)(1) (45)(2) | 33 126 80 (4) 32 (5)
- - ----------------------------------------------------------------------------------------------------------------------------
|
Earnings per average |
common share:** |
Basic .................. $.29 $ .98 ($.20)(1) ($.37)(2) | $.26 $.98 $.62 (4) $.25 (5)
Diluted................. + .95 + + | + .94 .61 (4) +
|
Dividends per common |
share .................. .25 .25 .25 .25 | .25 .25 .25 .25
|
Average common shares |
outstanding (in millions): |
Basic................... 127.1 124.4 123.7 122.3 | 128.5 128.6 128.3 128.4
Diluted................. 137.8 132.8 131.6 130.0 | 140.5 140.6 140.1 140.0
|
- - ----------------------------------------------------------------------------------------------------------------------------
Common stock |
price range:*** |
High.................... $55 3/16 $54 11/16 $48 1/2 $35 3/4 | $59 3/4 $58 1/2 $56 7/8 $51 3/16
Low..................... 46 1/2 45 9/16 25 5/8 24 | 51 5/8 51 1/8 44 7/8 43 9/16
Close................... 53 1/2 47 1/2 26 3/4 30 13/16 | 51 5/8 53 7/16 46 1/8 50 1/8
- - ----------------------------------------------------------------------------------------------------------------------------
<FN>
+ Diluted earnings per share for the first, third and fourth quarters of
1998 and the first and fourth quarters of 1997 are the same as Basic
because the assumed conversion of convertible preferred stock is
anti-dilutive.
* The Company defines gross profit as net sales less cost of products sold,
depreciation and amortization (excluding goodwill 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 $187; $127 after taxes or $1.03
per basic share and $.96 per diluted share. Excluding the impact of the
restructuring charges, net income was $102 or $.82 per basic share and
$.80 per diluted share. See Note L for additional details.
(2) Includes an after-tax charge for litigation of $78 or $.64 per basic
share and $.60 per diluted share. Excluding the impact of the litigation
charge, net income was $33 or $.27 per basic and diluted share. See Note
K for additional details.
(3) Includes an adjustment of $8 to the third quarter restructuring
provision. The reduction in the provision was offset by lower tax
benefits expected from such charges.
(4) Includes pre-tax restructuring charges of $67; $43 after taxes or $.34
per basic share and $.31 per diluted share. Excluding the impact of
restructuring charges, net income was $123 or $.96 per basic share and
$.92 per diluted share. See Note L for additional details.
(5) Includes the after-tax charge of $8 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 $40 or $.31 per basic and
diluted share. See Note B for additional details.
</FN>
- - ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
-54-
<PAGE>
Crown Cork & Seal Company, Inc.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
(In millions)
- - ---------------------------------------------------------------------------------------------------------------------------------
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 of
Description period Write-Offs period
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the Year Ended December 31, 1998
Allowances deducted from
assets to which they apply:
Trade accounts receivable $ 45 $ 14 $ 14 $ 45
Deferred tax assets 125 ( 4) 27 94
For the Year Ended December 31, 1997
Allowances deducted from
assets to which they apply:
Trade accounts receivable 92 9 56 45
Deferred tax assets 139 (12) 4 6 125
For the Year Ended December 31, 1996
Allowances deducted from
assets to which they apply:
Trade accounts receivable 10 9 91* 18 92
Deferred tax assets 23 ( 8) 124* 139
<FN>
* Acquisition of CarnaudMetalbox
</FN>
</TABLE>
-55-
<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 22, 1999, in the section entitled
"Election of Directors" and on page 17 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.
<TABLE>
<CAPTION>
Name Age Present Title
<S> <C> <C>
William J. Avery 58 Chairman of the Board of Directors
and Chief Executive Officer
Michael J. McKenna 64 Vice Chairman
John W. Conway 53 President and Chief Operating Officer
and President-Americas Division
Tommy H. Karlsson 52 Executive Vice President and
President-European Division
Richard L. Krzyzanowski 66 Executive Vice President,
Secretary and General Counsel
Alan W. Rutherford 55 Executive Vice President and
Chief Financial Officer
Ronald R. Thoma 64 Executive Vice President -
Procurement and Traffic
William H. Voss 53 Executive Vice President and
President - Asia-Pacific Division
Craig R. L. Calle 39 Senior Vice President -
Finance and Treasurer
Timothy J. Donahue 36 Senior Vice President
and Corporate Controller
</TABLE>
-56-
<PAGE>
Crown Cork & Seal Company, Inc.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth on pages 8 through 12 of the Company's Proxy Statement
dated March 22, 1999, 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 22, 1999, in the sections entitled "Proxy
Statement-Meeting, April 22, 1999" 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 22, 1999, in the section entitled
"Election of Directors" and is incorporated herein by reference.
-57-
<PAGE>
Crown Cork & Seal Company, Inc.
PART IV
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
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.
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)).
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)).
-58-
<PAGE>
Crown Cork & Seal Company, Inc.
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 the 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 & Seal Finance S.A. and The Bank
of New York, as trustee (incorporated by reference to Exhibit 4.1
of the Registrant's Current Report on Form 8-K dated December 17,
1996 (File No. 1-2227)).
4.r Form of the Company's 7-3/8% Debentures Due 2096 (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)).
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)).
-59-
<PAGE>
Crown Cork & Seal Company, Inc.
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 the 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 for 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)).
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)).
-60-
<PAGE>
Crown Cork & Seal Company, Inc.
10.f Crown Cork & Seal Company, Inc. 1997 Stock-Based Incentive
Compensation Plan (incorporated by reference to Exhibit 10.f of
the Company's Annual Report on Form 10-K for the year ended
December 31, 1997 (File No. 1-2227)).
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).
10.j 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)).
Exhibits 10.a through 10.j, inclusive, are management contracts
or compensatory plans or arrangements required to be filed as
exhibits pursuant to Item 14(c) of this Report.
12. Computation of ratio of earnings to fixed charges.
21. Subsidiaries of Registrant.
23. Consent of Independent 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 last quarter of the period for which this report is filed.
-61-
<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, 1999
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 3/31/99
- - -----------------------------------
William J. Avery Chairman of the Board and Chief
Executive Officer
/s/ Alan W. Rutherford 3/31/99
- - -----------------------------------
Alan W. Rutherford Director, Executive Vice President and
Chief Financial Officer
DIRECTORS
/s/ Henry E. Butwel 3/31/99 /s/ Josephine C. Mandeville 3/31/99
- - ----------------------------------- ------------------------------------------
Henry E. Butwel Josephine C. Mandeville
/s/ Charles F. Casey 3/31/99 /s/ Michael J. McKenna 3/31/99
- - ----------------------------------- ------------------------------------------
Charles F. Casey Michael J. McKenna
/s/ John W. Conway 3/31/99 /s/ Thomas A. Ralph 3/31/99
- - ----------------------------------- ------------------------------------------
John W. Conway Thomas A. Ralph
/s/ Francis X. Dalton 3/31/99 /s/ Jean-Pierre Rosso 3/31/99
- - ----------------------------------- ------------------------------------------
Francis X. Dalton Jean-Pierre Rosso
/s/ Tommy H. Karlsson 3/31/99 /s/ Harold A. Sorgenti 3/31/99
- - ----------------------------------- ------------------------------------------
Tommy H. Karlsson Harold A. Sorgenti
/s/ Richard L. Krzyzanowski 3/31/99 /s/ Guy de Wouters 3/31/99
- - ----------------------------------- ------------------------------------------
Richard L. Krzyzanowski Guy de Wouters
-62-
Amended: 4/23/98
BY-LAWS
OF
CROWN CORK & SEAL COMPANY, INC.
(A PENNSYLVANIA CORPORATION)
ARTICLE 1
Shareholders
SECTION 1: Annual Meetings. The Corporation shall hold annually a regular
meeting of its shareholders for the election of Directors and for the
transaction of general business which may properly come before the meeting in
accordance with these By-Laws in Philadelphia, Pennsylvania, on the fourth (4th)
Thursday in April in each year, if not a legal holiday, and, if a legal holiday,
then on the first day following (excluding Saturday) which is not a legal
holiday, or on such other date as may be designated by the Board of Directors
which is not a legal holiday, at 11:00 a.m., local time.
SECTION 2: Special Meetings. Special meetings may be called by a majority of the
Board of Directors or the chief executive officer, to meet at such place or time
as may be designated by the Board of Directors or the chief executive officer,
respectively. Except as provided by law, the shareholders shall not be entitled
to call a special meeting.
SECTION 3: Notice of Meetings. Written or printed notice of every annual and
every special meeting of the shareholders shall be given to each shareholder of
record entitled to vote at such meeting by mail, postage prepaid and addressed
to the address on the books of the Corporation, or as otherwise provided by law,
at least ten (10) days before such meeting. Notice of every special meeting
shall state the place, date and time of the meeting and the business proposed to
be transacted. Failure to give notice of any annual meeting, or any irregularity
in such notice, shall not affect the validity of any annual meeting or of any
proceedings at any such meeting. Notice of any meeting of shareholders need not
be given to any shareholder who waives notice thereof in writing either before
or after the holding thereof, and attendance at any such meeting shall
constitute waiver of notice thereof except as otherwise provided by law. No
notice of any adjourned meeting of shareholders need be given.
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SECTION 4: Quorum. At all meetings of shareholders, the presence, in person or
by proxy, of shareholders entitled to cast a majority in number of votes shall
be necessary to constitute a quorum for the transaction of business; but in the
absence of a quorum, the shareholders present in person or by proxy at the time
and place fixed for such meeting, or at the time and place of any adjournment
thereof, may, by majority vote, adjourn the meeting from time to time, but not
for a period of over fifteen (15) days with respect to any meeting at which
directors are to be elected or a period of over thirty (30) days with respect to
any other meeting at any one time.
SECTION 5: Voting. Except in cases in which it is by statute, by the Articles of
Incorporation or by these By-Laws otherwise provided, each shareholder entitled
to vote at such meeting shall be entitled to cast one vote for each share of
stock held by him, and a majority of the votes cast shall be sufficient to elect
and pass any measure.
SECTION 6: Proxies. Any shareholder entitled to vote at any meeting of
shareholders may vote by person or by proxy. Every proxy shall be in writing,
subscribed by the shareholder or his duly authorized attorney and dated.
SECTION 7: Judges of Election. Prior to any meeting of shareholders, the Board
of Directors may appoint three judges of election, and in default of such
appointment the shareholders at such meeting shall by majority vote appoint such
judges. The judges of election need not be shareholders and may not be
candidates for any office. The judges of election shall exercise all of the
powers and duties usually incident to their office.
SECTION 8: Nominations. (a)Only persons who are nominated in accordance with the
procedures set forth in these By-Laws shall be eligible to serve as Directors of
the Corporation. Nominations of persons for election to the Board of Directors
of the Corporation may be made at a meeting of shareholders (i) by or at the
direction of the Board of Directors or (ii) by any shareholder of the
Corporation who is a shareholder of record at the time of giving of notice
provided for in this By-Law, who shall be entitled to vote for the election of
Directors at the meeting and who complies with the notice procedures set forth
in this By-Law.
(b) Nominations by shareholders shall be made pursuant to
timely notice in writing to the Secretary of the Corporation. To be timely, a
shareholder's notice shall be delivered to or mailed and received at the
principal executive offices of the Corporation (i) in the case of an annual
meeting, not less than sixty (60) days nor more than ninety (90) days prior to
the first anniversary of the preceding year's annual meeting; provided, however,
that in the event that the date of the annual meeting is changed by more than
thirty (30) days from such anniversary date, notice by the shareholder to be
timely must be so received not later than the
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close of business on the tenth (10th) day following the earlier of the day on
which notice of the date of the meeting was mailed or public disclosure was
made, and (ii) in the case of a special meeting at which Directors are to be
elected, not later than the close of business on the tenth (10th) day following
the earlier of the day on which notice of the date of the meeting was mailed or
public disclosure was made. Such shareholder's notice shall set forth (i) as to
each person whom the shareholder proposes to nominate for election or reelection
as a Director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of Directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (including such person's written consent to being named
in the proxy statement as a nominee and to serving as a Director if elected and
including information as to the purpose of such nomination); (ii) as to the
shareholder giving the notice (A) the name and address, as they appear on the
Corporation's books, of such shareholder and (B) the class and number of shares
of the Corporation which are beneficially owned by such shareholder and also
which are owned of record by such shareholder; and (iii) as to the beneficial
owner, if any, on whose behalf the nomination is made. (A) the name and address
of such person and (B) the class and number of shares of the Corporation which
are beneficially owned by such person. At the request of the Board of Directors,
any person nominated by the Board of Directors for election as a Director shall
furnish to the Secretary of the Corporation that information required to be set
forth in a shareholder's notice of nomination which pertains to the nominee.
(c) No person shall be eligible to serve as a Director of the
Corporation unless nominated in accordance with the procedures set forth in this
By-Law. The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
procedures prescribed by these By-Laws, and if he should so determine, he shall
so declare to the meeting and the defective nomination shall be disregarded.
Notwithstanding the foregoing provisions of this By-Law, a shareholder shall
also comply with all applicable requirements of the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder with respect to the
matters set forth in this By-Law.
SECTION 9: Notice of Shareholder Business. (a) At an annual meeting of the
shareholders, only such business shall be conducted as shall have been brought
before the meeting (i) pursuant to the Corporation's notice of meeting, (ii) by
or at the direction of the Board of Directors or (iii) by any shareholder of the
Corporation who is a shareholder of record at the time of giving of the notice
provided for in this By-Law, who shall be entitled to vote at such meeting and
who complies with the notice procedures set forth in this By-Law.
(b) For business to be properly brought before an annual
meeting by a shareholder pursuant to clause (iii) of paragraph (a) of this
By-Law, the shareholder must have given timely notice thereof in writing to the
Secretary of the Corporation. To be timely, a shareholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than sixty (60) days nor more than ninety (90) days prior
to
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the first anniversary of the preceding year's annual meeting; provided, however,
that in the event that the date of the meeting is changed by more than thirty
(30) days from such anniversary date, notice by the shareholder to be timely
must be received no later than the close of business on the tenth (10th) day
following the earlier of the day on which notice of the date of the meeting was
mailed or public disclosure was made. A shareholder's notice to the Secretary
shall set forth as to each matter the shareholder proposes to bring before the
meeting (i) a brief description of the business desired to be brought before the
meeting and the reasons for conducting such business at the meeting, (ii) the
name and address, as they appear on the Corporation's books, of the shareholder
proposing such business, and the name and address of the beneficial owner, if
any, on whose behalf the proposal is made, (iii) the class and number of shares
of the Corporation which are owned beneficially and of record by such
shareholder of record and by the beneficial owner, if any, on whose behalf the
proposal is made and (iv) any material interest of such shareholder of record
and the beneficial owner, if any, on whose behalf the proposal is made in such
business.
(c) Notwithstanding anything in these By-Laws to the contrary,
no business shall be conducted at an annual meeting except in accordance with
the procedures set forth in this By-Law. The chairman of the meeting shall, if
the facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting and in accordance with the procedures
prescribed by these By-Laws, and if he should so determine, he shall so declare
to the meeting and any such business not properly brought before the meeting
shall not be transacted. Notwithstanding the foregoing provisions of this
By-Law, a shareholder shall also comply with all applicable requirements of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder with respect to the matters set forth in this By-Law.
ARTICLE II
Board of Directors
SECTION 1: Powers. The business and affairs of the Corporation, except as
otherwise provided by statute, the Articles of Incorporation or these By-Laws,
shall be conducted and managed by the Board of Directors. The number of
Directors of the Corporation, which shall be not more than eighteen (18) and not
less than ten (10), shall be determined from time to time by the Directors.
Directors must be shareholders of the Corporation.
SECTION 2: Election. The Directors of the Corporation shall be elected by ballot
at the annual meeting of the Shareholders and shall serve one (1) year and until
their successors shall be duly elected and qualified or until their earlier
death, resignation or removal.
SECTION 3: Annual Meeting. The regular annual meeting of the Board of Directors
shall be held immediately following each meeting of the shareholders at which a
Board of Directors shall have been elected for the purpose of organization and
the transaction of other business.
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SECTION 4: Regular Meetings. In addition to the annual meeting, regular meetings
of the Board of Directors shall be held at such intervals as may be fixed from
time to time by the Board of Directors.
SECTION 5: Special Meetings. Special meetings of the Board of Directors may be
called by the Chairman of the Board, the President, or a Vice President, or by a
majority of the Board of Directors, and shall be held at the time and place
specified in the call for such special meeting.
SECTION 6: Place of Meeting. Subject to the provisions of Section 4 of this
Article II, regular and special meetings of the Board of Directors may be held
within or without the Commonwealth of Pennsylvania, and at such times and places
as, in the case of a regular meeting, may be stated in the notice of the
meeting, or in the case of a special meeting, may be specified in the call for
such meeting.
SECTION 7: Conference Calls. Any one or more members of the Board of Directors
of the Corporation or any committee thereof may participate in a meeting of such
Board or committee by means of a conference telephone or similar communications
equipment allowing all persons participating in the meeting to hear each other
at the same time. Participation by such means shall constitute presence in
person at a meeting. No persons may participate in any meeting of the
shareholders by means of a conference telephone or similar communications
equipment.
SECTION 8: Notice of Meetings. Notice of the place, day and hour of every
regular and special meeting of the Board of Directors shall be given each
Director before the meeting personally be telegram, letter or telefax or by
mail, postage prepaid, to the address on the books of the Corporation or as
otherwise provided by law at least four (4) days before the meeting. No notice
need be given any director who waives such notice in writing either before or
after the holding thereof, and attendance at any such meeting shall constitute
waiver of notice thereof except as otherwise provided by law. No notice of any
adjournment meeting of the Board of Directors need be given.
SECTION 9: Quorum. No less than one-half of the Board of Directors shall
constitute a quorum for the transaction of any business at every meeting of the
Board of Directors, but if at any meeting there be less than a quorum present a
majority of those present may adjourn the meeting from time to time but not for
a period of over thirty (30) days at any one time, without notice other than by
announcement at the meeting until a quorum shall attend. At any such adjourned
meeting at which a quorum shall attend, any business may be transacted which
might have been transacted at the meeting as previously modified.
SECTION 10: Committees. From time to time, the Board of Directors may by
resolution provide for and appoint the members of an Executive Committee, or any
other regular or special committee, or committees, and all such committees shall
have and may exercise such powers as shall be conferred or authorized by the
resolution of appointment.
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SECTION 11: Vacancies. Vacancies in the Board of Directors occurring during the
year shall be filled for the unexpired terms by a majority of the remaining
members of the Board of Directors although less than a quorum.
SECTION 12: Limitation on Liability. A Director shall not be personally liable
for monetary damages for any action taken, or any failure to take any action,
unless (a) the Director has breached or failed to perform the duties of his
office under Subchapter B of Chapter 17 of the Pennsylvania Business Corporation
Law of 1988, as the same may be amended (relating to standard of care and
justifiable reliance) and (b) the breach or failure to perform constitutes
self-dealing, willful misconduct or recklessness. The provisions of this Section
12 shall not apply to (a) the responsibility or liability of a Director pursuant
to any criminal statute or (b) the liability of a Director for the payment of
taxes pursuant to local, state or federal law. Any repeal or modification of
this Section 12 shall be prospective only, and shall not affect, to the
detriment of any Director, any limitation on the personal liability of a
Director of the corporation existing at the time of such repeal or modification.
ARTICLE III
Officers
SECTION 1: Officers. The Officers of the Corporation shall be a Chairman of the
Board of Directors, a President, one or more Vice Presidents (one or more of
whom may be designated as Executive Vice Presidents or Senior Vice Presidents by
the Board of Directors), a Treasurer, one or more Assistant Treasurers, a
Secretary, and one or more Assistant Secretaries and a Controller. The Board of
Directors may elect such other officers as they may from time to time deem
necessary, who shall have such authority and shall perform such duties as from
time to time may be prescribed by the Board of Directors.
SECTION 2: Officers Holding More Than One Office. Any two (2) of the offices
provided for in this Article III may be held by the same person except that the
President may not hold the office of Vice President or Secretary, nor the
Treasurer that of Assistant Treasurer, nor the Secretary that of Assistant
Secretary.
SECTION 3: Chairman of the Board. The Chairman of the Board of Directors shall
preside at all meetings of the Board of Directors. He shall have supervision of
such matters as may be designated to him by the Board of Directors. The Board of
Directors may elect a Vice Chairman of the Board, who shall have such authority
and shall perform such duties as from time to time may be presented by the Board
of Directors.
SECTION 4: President. The President shall have such authority and perform such
duties as may from time to time be assigned to him by the Board of Directors,
and, in the absence of the Chairman of the Board and the Vice Chairman of the
Board, he shall preside at all meetings of the Board of Directors.
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SECTION 5: Chief Executive Officer. Either the Chairman of the Board or the
President, as determined by the Board of Directors, shall be the chief executive
officer of the Corporation and, subject to the Board of Directors, shall have
general charge of the business and affairs of the Corporation.
SECTION 6: Vice Presidents. The Vice Presidents shall perform such duties as may
be incidental to their office and as may be assigned to them from time to time
by the Board of Directors. In the absence of the President, the specific duties
assigned to that officer shall be exercised by the Vice Presidents.
SECTION 7: Secretary. The Secretary shall keep the minutes of all meetings of
the Board of Directors and the minutes of all meetings of the shareholders in
books provided for that purpose. He shall attend to the giving and serving of
all notices of the Corporation and shall be the custodian of the corporate seal.
He shall have charge of and keep and preserve such books and records of the
Corporation as the Board of Directors may prescribe, and he shall perform all
other duties incidental to his office and as may be assigned to him by the Board
of Directors from time to time. Unless otherwise ordered by the Board of
Directors, he may certify copies of and extracts from any of the official
records of the Corporation and may also certify as to the Officers of the
Corporation and as to similar matters.
SECTION 8: Treasurer. The Treasurer shall have the care and custody of the funds
and securities of the Corporation and shall deposit the same in such bank or
banks as the Board of Directors may select, or in the absence of such selection,
as may be selected by him. He shall disburse the funds of the Corporation in the
regular conduct of its business or as may be ordered by the Board. The Treasurer
shall perform such other duties as the Board of Directors may from time to time
require.
SECTION 9: Controller. The Controller shall maintain adequate records of all
assets, liabilities and transactions of the Corporation; see that adequate
audits thereof are currently and regularly made; and, in conjunction with other
officers and department heads, initiate and enforce measures and procedures
whereby the business of this Corporation shall be conducted with the maximum
safety, efficiency and economy. He shall have such other powers and perform such
other duties as the Board of Directors may from time to time prescribe.
SECTION 10: Assistant Secretaries and Assistant Treasurers. The Assistant
Secretaries and Assistant Treasurers shall have such powers and perform such
duties as may be assigned to them by the Board of Directors or by the President,
or by the Secretary or the Treasurer respectively, and in the absence or
incapacity of the Secretary or Treasurer, shall have the powers and perform the
duties of those officers respectively.
SECTION 11: Vacancies. Vacancies in any of the offices provided herein shall be
filled by the Board of Directors by majority vote for the unexpired terms.
SECTION 12: Contracts, Notes, Drafts, Etc. Except as otherwise provided by the
Board of Directors, all written material contracts, deeds, bonds and similar
instruments of the Corporation, shall be executed on its behalf by the Chairman
of the Board, the Vice Chairman of
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the Board, the President or any Vice President or Treasurer and shall be either:
(a) countersigned by the Secretary or an Assistant Secretary of the Corporation
or (b) have the corporate seal affixed thereto and attested by the Secretary, an
Assistant Secretary or a member of the legal department of the Corporation.
Notes drawn and drafts accepted by the Corporation shall be valid only when
signed by the Chairman of the Board, the Vice Chairman of the Board, the
President or any Vice President, the Treasurer or the Controller, and
countersigned by the Secretary, Assistant Treasurer, any Assistant Secretary or
any Assistant Controller. Funds of the Corporation deposited in banks and other
depositories by checks, drafts, or other orders for the payment of money,
bearing the signatures of any two (2) of the officers and/or such other
employees of the Corporation as the Board of Directors may from time to time
designate; and, in lieu of manual signature thereof, the Board of Directors may
adopt and thereupon the Corporation may use a facsimile signature of any officer
or officers, notwithstanding the fact that such officer or officers may no
longer be employed by the Corporation at the time the checks bearing such
facsimile signature are actually drawn or presented for payment. The funds
deposited in banks or other depositories in special accounts for payroll or
other purposes shall be drawn from such depositories by checks signed by any two
officers or such person or persons as the Board of Directors may from time to
time designate. Whenever the Board of Directors shall provide by resolution that
any contract or note shall be executed, or draft accepted, in any other manner
and by any other officer or agent than as specified in these By-Laws, such
method of execution, acceptance or endorsement shall be as equally effective to
bind the Corporation as if specified herein. Access to the safe deposit boxes of
the Corporation shall be had only in the presence of any two of the following
officers, that is to say, the Chairman of the Board, the Vice Chairman of the
Board, the President, any one of the Vice Presidents, the Secretary, the
Treasurer, or the Controller, or in the presence of any one of the
aforementioned officers and an Assistant Secretary or an Assistant Treasurer.
The signing of any instrument or the doing of any act by any person elected a
Vice President as such Vice President, or by any person elected an Assistant
Secretary or Assistant Treasurer as such Assistant Secretary or Assistant
Treasurer, as the case may be, shall not be subject to any inquiry as to whether
the President, the Secretary or the Treasurer, as the case may be, was at the
time of such signing or of such act, absent, unavailable or under any
disability.
ARTICLE IV
Indemnification
SECTION 1: Right to Indemnification. Subject to Section 3 hereof, the
Corporation shall indemnify to the fullest extent permitted by applicable law
any person who was or is a party or is threatened to be made a party to or is
otherwise involved in any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"Proceeding"), by reason of the fact that such person is or was a Director or
Officer of the Corporation, or is or was serving at the request of the
Corporation as a director or officer of another corporation or of a partnership,
joint venture, trust or other enterprise or entity, whether or not for profit,
whether domestic or foreign, including service with respect to an employee
benefit plan, its participants or beneficiaries, against all liability, loss and
expense (including attorneys' fees and amounts paid in settlement) actually and
reasonably incurred by such person
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in connection with such Proceeding, whether or not the indemnified liability
arises or arose from any Proceeding by or in the right of the Corporation.
SECTION 2: Advance of Expenses. Subject to Section 3 hereof, expenses incurred
by a Director or Officer in defending (or acting as a witness in) a Proceeding
shall be paid by the Corporation in advance of the final disposition of such
Proceeding, subject to the provisions of applicable law, upon receipt of an
undertaking by or on behalf of the Director or Officer to repay such amount if
it shall ultimately be determined that such person is not entitled to be
indemnified by the Corporation under applicable law.
SECTION 3: Procedure for Determining Permissibility. To determine whether any
indemnification or advance of expenses under this Article IV is permissible, the
Board of Directors by a majority vote of a quorum consisting of Directors who
are not parties to such Proceeding may, and on request of any person seeking
indemnification or advance of expenses shall, determine (i) in the case of
indemnification, whether the standards under applicable law have been met, and
(ii) in the case of advance of expenses prior to a change of control of the
Corporation as set forth below, whether such advance is appropriate under the
circumstances, provided that each such determination shall be made by
independent legal counsel if such quorum is not obtainable, or, even if
obtainable, a majority vote of a quorum of disinterested Directors so directs;
and provided further that, if there has been a change in control of the
Corporation between the time of the action or failure to act giving rise to the
claim for indemnification or advance of expenses and the time such claim is
made, at the option of the person seeking indemnification or advance of
expenses, the permissibility of indemnification shall be determined by
independent legal counsel and the advance of expenses shall be obligatory
subject to receipt of the undertaking in Section 2 hereof. The reasonable
expenses of any Director or Officer in prosecuting a successful claim for
indemnification, and the fees and expenses of any independent legal counsel
engaged to determine permissibility of indemnification or advance of expenses,
shall be borne by the Corporation. As used herein, a "change of control" of the
Corporation means (a) the acquisition by any person or entity, or two or more
such persons or entities acting in concert, of beneficial ownership (within the
meaning of Rule 13d-3, or any successor rule, of the Securities Exchange Act of
1934, as amended) of more than fifty percent (50%) of the outstanding voting
shares of the Corporation or (b) any change in one-third (1/3) or more of the
members of the Board of Directors unless such change was approved by a majority
of the Continuing Directors. The term "Continuing Directors" means the Directors
existing on July 27, 1995 or any person who subsequently becomes a Director if
such person's nomination for election or election to the Board of Directors is
recommended or approved by the Continuing Directors.
SECTION 4: Contractual Obligation. The obligations of the Corporation to
indemnify a Director or Officer under this Article IV, including, if applicable,
the duty to advance expenses, shall be considered a contract between the
Corporation and such Director or Officer, and no modification or repeal of any
provision of this Article IV shall affect, to the detriment of the Director or
Officer, such obligations of the Corporation in connection with a claim based on
any act or failure to act occurring before such modification or repeal.
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SECTION 5: Indemnification Not Exclusive; Inuring of Benefit. The
indemnification and advancement of expenses provided by this Article IV shall
not be deemed exclusive of any other right to which one indemnified may be
entitled under any statute, agreement, vote of shareholders or otherwise, both
as to action in such person's official capacity and as to action in another
capacity while holding such office, and shall inure to the benefit of the heirs,
legal representatives and estate of any such person.
SECTION 6: Insurance and Other Indemnification. The Board of Directors shall
have the power to (a) authorize the Corporation to purchase and maintain, at the
Corporation's expense, insurance on behalf of the Corporation and on behalf of
others to the extent that power to do so has not been prohibited by statute, (b)
create any fund of any nature, whether or not under the control of a trustee, or
otherwise secure any of its indemnification obligations, and (c) give other
indemnification to the extent permitted by statute.
ARTICLE V
Capital Stock
SECTION 1: Share Certificates. Every shareholder of record shall be entitled to
a share certificate representing the shares held by him. Every share certificate
shall bear the corporate seal (which may be a facsimile) and the signature of
the President or a Vice President and the Secretary or an Assistant Secretary or
the Treasurer or an Assistant Treasurer of the Corporation. Where a certificate
is signed by a transfer agent or registrar the signature of any corporate
officer may be a facsimile.
SECTION 2: Transfers. Transfers of share certificates and the shares represented
thereby shall be made on the books of the Corporation only by the registered
holder or by duly authorized attorney. Transfers shall be made only on surrender
of the share certificate or certificates.
ARTICLE VI
Record Dates
SECTION 1: Record Dates. Subject to the requirements of law and to the
provisions of the Articles of Incorporation, the Board of Directors may fix a
time in the future not exceeding, except in the case of an adjourned meeting,
ninety (90) days preceding the date of any meeting of shareholders, or the date
fixed for the payment of any dividend or distribution, or for the allotment of
rights, or when any change or conversion or exchange of shares shall go into
effect or any consent of shareholders shall be obtained, as a record date for
the determination of the shareholders entitled to notice of or to vote at any
such meeting or entitled to receive any such dividend or distribution or any
such allotment of rights, or to exercise the rights in respect to any such
change, consent, conversion or exchange of shares, and in such case only
shareholders of record on the date so fixed shall be entitled to notice of or to
vote at such meeting or to receive
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such dividend, distribution or allotment of rights, or to exercise such rights
as the case may be, notwithstanding any transfer of any shares of stock on the
books of the Corporation after any record date fixed as aforesaid. The Board of
Directors, in their discretion, may close the books of the Corporation against
transfers of shares during the whole or any part of such period.
ARTICLE VII
Dividends
SECTION 1: Declaration of Dividends. Subject to the provisions of statute and
the Articles of Incorporation, dividends may be declared and paid as often at
such times as the Board of Directors may determine.
ARTICLE VIII
Sundry Provisions
SECTION 1: Seal. The seal of the Corporation shall be in such force and shall
bear such inscription as may be adopted by the Board of Directors. If deemed
advisable by the Board of Directors, a duplicate seal or duplicate by seals may
be provided and kept for the necessary purposes of the Corporation.
SECTION 2: Fiscal Year. The fiscal year of the Corporation shall commence on
January 1st of each year and end on December 31st of each year, unless otherwise
provided by the Board of Directors.
SECTION 3: Voting Stock of Other Corporations. Any stock in other corporations,
which may from time to time be held by this Corporation, may be represented and
voted at any meeting of shareholders of such other corporations or instructions
given to any nominee holding such stock, by the Chairman of the Board, the
President or Vice Presidents of the Corporation, or by proxy executed in the
name of this Corporation by its Chairman of the Board, Vice Chairman of the
Board, President or a Vice President, with the corporate seal affixed and
attested by the Secretary or an Assistant Secretary.
ARTICLE IX
Amendments
SECTION 1: Amendments. Except as otherwise provided by law, these By-Laws may be
amended at any meeting of the Board of Directors at which a quorum is present by
a majority
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vote of the Directors present, or they may be amended by a majority vote at any
meeting of shareholders entitled to vote thereon, provided, in either case,
notice of the proposed amendment was included in the notice of the meeting
(unless, in the case of amendment at a meeting of the Board of Directors, such
notice is waived by a majority vote of the Directors present).
ARTICLE X
Certain Matters Relating to
Pennsylvania Act No. 36 of 1990
SECTION 1: Section 511. Subsections (d) through (f) of Section 511, Standard of
Care and Justifiable Reliance, of the Pennsylvania Associations Code, as
amended, shall not be applicable to the Corporation.
SECTION 2: Section 1721. Subsections (e) through (g) of Section 1721, Board of
Directors, of Pennsylvania Associations Code, as amended, shall not be
applicable to the Corporation.
SECTION 3: Subchapter G, Chapter 25. Subchapter G, Control-Share Acquisitions,
of Chapter 25 of the Pennsylvania Associations Code, as amended, shall not be
applicable to the Corporation.
SECTION 4: Subchapter H, Chapter 25. Subchapter H, Disgorgement by Certain
Controlling Shareholders Following Attempts to Acquire Control, of Chapter 25 of
the Pennsylvania Associations Code, as amended, shall not be applicable to the
Corporation.
12
STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO
FIXED CHARGES
Exhibit 12
Twelve months
ended
December 31,
1998
----------
Computation of Earnings:
Pretax income from continuing operations $180
Adjustments to income:
Add: Distributed income from less than
50% owned companies 7
Add: Portion of rent expense representative
of interest expense 6
Add: Interest incurred net of amounts
capitalized 408
Add: Amortization of interest previously
capitalized 1
Add: Amortization of debt issue costs and discount
or premium on indebtedness 2
---------
Earnings 604
---------
Computation of Fixed Charges:
Interest incurred $414
Amortization of debt issue costs and discount
or premium on indebtedness 2
Portion of rental expense representative
of interest 6
Preferred stock dividend requirements 29
---------
Fixed Charges 451
---------
Ratio of Earnings to Fixed Charges 1.3
Crown Cork & Seal Company, Inc.
Exhibit 21 - Subsidiaries of Registrant
Page 1 of 5
STATE OR COUNTRY OF
INCORPORATION OR
NAME ORGANIZATION
Crown Cork & Seal Company, Inc. Pennsylvania
Crown Cork & Seal Company (PA) Inc. Pennsylvania
Crown Consultants, Inc. Pennsylvania
Nationwide Recyclers 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
Risdon - AMS (USA), Inc. Delaware
Zeller Plastik, 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
Crown Cork de Puerto Rico, Inc. Delaware
Central States Can Company of Puerto Rico, Inc. Ohio
Aluplata S.A Argentina
Crown Cork de Argentina S.A Argentina
Crown Cork & Seal (Barbados) Foreign Sales Corporation Barbados
Crown Cork Company (Belgium) N.V Belgium
Crown Cork Holding Company 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
<PAGE>
Crown Cork & Seal Company, Inc.
Exhibit 21 - Subsidiaries of Registrant
Page 2 of 5
STATE OR COUNTRY OF
INCORPORATION OR
NAME ORGANIZATION
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
Crown Colombiana, S.A Colombia
Crown Pakkaus OY Finland
Astra Plastique France
Risdon S.A France
CarnaudMetalbox S.A France
CarnaudMetalbox Group Services France
CMB Plastique SNC France
Crown Cork et Seal Finance S.A France
Crown Cork Company (France) S.A France
Crown Developpement SNC France
Crown Financial Corporation France S.A France
Polyflex S.A France
Societe Bourguignonne D'Applications Plastiques France
Societe de Participations Entrangers CarnaudMetalbox France
Societe de Participations CarnaudMetalbox France
Societe Francasie De Developpement De La Boite Boisson France
Z. P. France France
CarnaudMetalbox Deutschland GmbH Germany
CarnaudMetalbox Nahrungsmitteldosen GmbH Germany
CarnaudMetalbox Plastik Holding GmbH Germany
Crown Bender (Germany) 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
<PAGE>
Crown Cork & Seal Company, Inc.
Exhibit 21 - Subsidiaries of Registrant
Page 3 of 5
STATE OR COUNTRY OF
INCORPORATION OR
NAME ORGANIZATION
CarnaudMetalbox Magyarorszag Hungary
CONSTAR International Plastics KFT Hungary
CarnaudMetalbox Italia SRL Italy
CMB Italcaps SRL Italy
Crown Cork Company (Italy) S.P.A Italy
FABA Sud Spa Italy
Risdon SRL Italy
Superbox Aerosols SRL Italy
Superbox Contenitori per Bevande SRL Italy
Zeller Plastik Italia SPA Italy
CarnaudMetalbox Kenya Limited 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
Carnaud Maroc Morocco
CMB Plastique Maroc Morocco
CarnaudMetalbox NV The Netherlands
CMB Closures Benelux BV The Netherlands
CMB Promotional Packaging (Netherlands) BV The Netherlands
CONSTAR International Holland (Plastics) 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
Zeller Plastik Philippines, Inc. Philippines
CarnaudMetalbox Gopak Sp. zo. o Poland
CarnaudMetalbox Tworzyna Sztuczne SP Z.O.D Poland
CarnaudMetalbox de Portugal Portugal
<PAGE>
Crown Cork & Seal Company, Inc.
Exhibit 21 - Subsidiaries of Registrant
Page 4 of 5
STATE OR COUNTRY OF
INCORPORATION OR
NAME ORGANIZATION
Crown Cork & Seal de Portugal Embalagens S.A Portugal
CarnaudMetalbox (Asia-Pacific) Holdings PTE Ltd. Singapore
CarnaudMetalbox Asia Limited 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
Crown Cork Company Iberica (Spain) SL Spain
Envases CarnaudMetalbox S.A Spain
Envases Metalicos Manlleu S.A Spain
Envases Metalner S.A Spain
Envases Murcianos S.A Spain
Ormis Embalajes Espana S.A Spain
Risdon Productos de Metal LTDA Spain
Crown Obrist AG 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 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 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
Speciality Packaging (UK) PLC United Kingdom
The Crown Cork Company Limited United Kingdom
<PAGE>
Crown Cork & Seal Company, Inc.
Exhibit 21 - Subsidiaries of Registrant
Page 5 of 5
NAME STATE OR COUNTRY OF
INCORPORATION OR
ORGANIZATION
United Closures & Plastic PLC United Kingdom
Zeller Plastik UK Limited United Kingdom
CarnaudMetalbox (Saigon) Limited Vietnam
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.
333-67175, 333-67173, 333-25837, 33-45900, 33-39529, 33-63732, 33-61240,
33-50369 and 33-52699) of Crown Cork & Seal Company, Inc. of our report dated
March 17, 1999 appearing on page 29 of this Form 10-K.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
March 31, 1999
<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 30 THROUGH 54 OF THE
COMPANY'S 1998 ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 284
<SECURITIES> 0
<RECEIVABLES> 1404
<ALLOWANCES> 45
<INVENTORY> 1421
<CURRENT-ASSETS> 3168
<PP&E> 5896
<DEPRECIATION> 2153
<TOTAL-ASSETS> 12469
<CURRENT-LIABILITIES> 4710
<BONDS> 3188
0
351
<COMMON> 779
<OTHER-SE> 1845
<TOTAL-LIABILITY-AND-EQUITY> 12469
<SALES> 8300
<TOTAL-REVENUES> 8300
<CGS> 6527
<TOTAL-COSTS> 7364
<OTHER-EXPENSES> 14
<LOSS-PROVISION> 14
<INTEREST-EXPENSE> 408
<INCOME-PRETAX> 180
<INCOME-TAX> 74
<INCOME-CONTINUING> 105
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 105
<EPS-PRIMARY> .71
<EPS-DILUTED> .71<F1><F2>
<FN>
<F1>The EPS-PRIMARY amount represents Basic Earnings Per Share and the EPS-
DILUTED amount represents Diluted Earnings Per Share in accordance with
Statement of Financial Accounting Standards No. 128, Earnings Per Share.
<F2>1998 Diluted EPS is the same as Basic EPS due to the anti-dilutive effect
from the assumed conversion of convertible preferred stock and the addback of
preferred dividends.
</FN>
</TABLE>
