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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

Commission file number 0-50189
Crown Holdings, Inc.
(Exact name of registrant as specified in its charter)

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
(Title of Class)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filings requirements for the past 90 days.

Yes  X            No     

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [X] No [ ]

As of March 11, 2003, 164,890,215 shares of the Registrant’s Common Stock, excluding shares held in Treasury, were issued and outstanding, and the aggregate market value of such shares held by non-affiliates of the Registrant on such date was $760,143,891.

DOCUMENTS INCORPORATED BY REFERENCE

Notice of Annual Meeting and Proxy Statement dated March 21, 2003 is incorporated by Reference into Part III hereof. Only those specific portions so incorporated are to be deemed filed as part of this Form 10-K Annual Report.

Crown Holdings, Inc.

2002 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

Crown Holdings, Inc.

PART I

ITEM 1. BUSINESS

General

In connection with debt refinancing and a corporate reorganization in 2003, Crown Cork & Seal Company, Inc. formed a new public holding company named Crown Holdings, Inc. Crown Cork & Seal Company, Inc. (“Crown Cork”) is now a wholly-owned subsidiary of Crown Holdings, Inc. (the “Company” and the “Registrant”). The Company is a worldwide leader in the design, manufacture and sale of packaging products for consumer goods with 191 plants along with sales and service facilities throughout 44 countries and approximately 28,300 employees. The Company’s primary products include steel and aluminum cans for food, beverage, household and other consumer products and a wide variety of metal and plastic caps, closures and dispensing systems. The Company believes that, based on the number of units sold, it is the largest global supplier of food and aerosol cans and metal vacuum closures and the third largest global supplier of beverage cans. In addition, the Company believes that it is one of the largest producers of plastic closures in the world and the largest rigid packaging company in Europe and in Asia, excluding Japan. The Company’s leadership position in these markets with premier global consumer products companies results from its commitment to be the technology leader within the industry and to provide its longstanding customers with value-added product offerings. The Company also believes that its global operations help mitigate the adverse effects of periodic, market-specific dislocations in specific countries or regions. Consolidated net sales in 2002 were $6.8 billion with 63% of 2002 net sales derived from operations outside the United States, of which approximately 74% of these non-U.S. revenues were derived from operations in Europe (excluding the Middle East and Africa). Approximately 47% of consolidated net sales were derived from the Americas segment, 48% from the Europe segment and 5% from the Asia-Pacific segment.

Crown Cork was founded in 1892 and is a Pennsylvania corporation.

Business and Financial Improvement Plan

The Company has implemented an extensive plan designed to improve operating performance and financial condition, redeploy capital to core product areas and improve its technological leadership and manufacturing efficiencies. Beginning in 1999, the Company experienced declining revenue and net income and increasing debt balances. This deterioration in performance was attributable to a variety of factors, including reduced product prices and currency exchange adjustments. As a consequence of senior management retirements and in response to these developments, the Company has appointed a new chief executive officer, adopted a new business strategy and completed the following actions:

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Crown Holdings, Inc.

Business Strengths

The Company’s principal strength lies in its ability to meet the changing needs of its global customer base with products and processes from a broad range of well-established packaging businesses. The Company believes that it is well-positioned within the packaging industry because of its:

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Crown Holdings, Inc.

Business Strategy

The Company’s principal strategic goals are to continue to improve its business operations and reduce debt in order to regain investment grade ratings on its debt securities, increase its financial flexibility and position itself for further growth. To achieve these goals, the Company has several key business strategies:

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Crown Holdings, Inc.

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Crown Holdings, Inc.

Business Segments

The Company’s business is organized on the basis of geographic regions with three reportable segments: Americas, Europe and Asia-Pacific. The Americas includes the United States, Canada 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 those suppliers on the basis of their ability to provide service globally and to create innovative designs and technologies in a cost-effective manner. The Company believes it is well positioned to provide its global customers with value-added products given its technological leadership position within the packaging industry and its leading market positions within North America, Europe and Asia.

Ongoing productivity improvements and cost reduction efforts in recent years have focused on upgrading and modernizing facilities to reduce costs, improve efficiency and productivity and phase out uncompetitive facilities. These actions reflect the Company’s continued commitment to realign the manufacturing facilities within its operating segments with the intent to maintain its competitive position in its markets. The Company believes that its recent restructuring and capital investment programs have maintained a modern and efficient asset base.

Financial information concerning the Company’s operations in its three operating segments, Americas, Europe and Asia-Pacific, and within selected geographic areas is set forth in Part II herein on pages 18 and 19 under Net Sales and pages 20 and 21 under Segment Income within Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and within Item 8 herein on pages 63 through 65 under Note V to the consolidated financial statements entitled Segment Information, which information is incorporated herein by reference.

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Crown Holdings, Inc.

AMERICAS

For 2002, the Company’s Americas operating segment had net sales of $3.2 billion (approximately 47% of consolidated net sales) and segment income of $220 million. Approximately 78% of Americas segment sales are derived from within the United States. The Americas segment manufactures beverage, food and aerosol cans, specialty packaging, metal closures and caps, plastic closures and health and beauty care packaging.

Based on sales, the Company believes that it is one of the top four producers of aluminum beverage cans, food cans, and aerosol cans in the Americas. Sales dollars for aluminum beverage cans and ends in 2002 decreased from 2001 primarily due to lower sales unit volumes. 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.

Sales for food cans and ends in 2002 decreased from 2001 due primarily to reduced sales unit volumes.

The Company in North America has entered into contracts with its suppliers of aluminum can and end sheet that, by formula, guarantee prices for a period of six months. 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. 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.

At December 31, 2002, the Company operated 71 plants and employed approximately 8,000 persons in the Americas. During 2002, the Company divested its U.S. fragrance pumps business and sold 89.5% of the equity interests of Constar in an intial public offering. These divested operations accounted for approximately $500 million of segment net sales in 2002 and approximately $600 million of segment net sales in 2001. Prior to disposal, the divested operations included 15 plants and employed approximately 2,000 persons. There were also additional relatively minor divestitures in 2002 and at the end of 2001 which accounted for $22 million of net sales in 2001.

EUROPE

The European segment had net sales of approximately $3.2 billion (approximately 48% of consolidated net sales) in 2002 and segment income of $301 million. Net sales in the United Kingdom of $842 million and France of $652 million represented approximately 26% and 20%, respectively, of segment net sales. The European segment manufactures beverage, food and aerosol cans, specialty packaging, metal closures and caps, HDPE (high density polyethylene) containers, plastic closures, health and beauty care packaging and canmaking equipment.

Based on sales, the Company believes that it is one of three leading producers of steel and aluminum food cans, beverage cans, and aerosol cans in Europe. Sales for steel and aluminum food cans and ends were relatively unchanged from 2001 as the impact from lower sales unit volumes in certain regions was recovered by overall higher selling prices.

At December 31, 2002, the Company operated 102 plants and employed approximately 17,000 persons throughout the European segment. During 2002 the Company divested its European pharmaceutical packaging business, its beverage can operations in Central and East Africa and its Constar beverage plastics business. These divested operations accounted for approximately $200 million of segment net sales in 2002 and approximately $300 million in 2001. These operations included 13 plants and employed approximately 2,000 persons at December 31, 2001.

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Crown Holdings, Inc.

ASIA-PACIFIC

The Asia-Pacific segment had net sales of $330 million (approximately 5% of consolidated net sales in 2002) and segment income of $30 million. 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 beverage, food and aerosol cans, plastic closures and metal caps.

During 2002, five customers, combined, accounted for approximately 36% of segment net sales, but no one customer accounted for more than 10% of segment net sales.

At December 31, 2002, the Company operated 18 plants and employed approximately 2,000 persons throughout the Asia-Pacific segment.

Product Overview

        Beverage Cans

The Company believes that it is the third largest producer of beverage cans in the world and manufactures approximately one out of every five beverage cans used in the world, based upon internal estimates and third party research, amounting to more than 36 billion recyclable beverage cans produced annually in 40 plants worldwide. The Company supplies beverage cans and many other packaging products to a wide variety of beverage and beer companies, including Coca-Cola, Pepsi-Cola, Cadbury Schweppes, Cott Beverages, Heineken, Scottish Courage and Anheuser-Busch.

The beverage market is dynamic and highly competitive, with each packaging manufacturer striving to satisfy consumers’ ever-changing needs. The Company competes by offering its customers broad market knowledge, resources at all levels of its worldwide organization and extensive research and development capabilities that have enabled it to provide its customers with innovative products. The Company meets its customers’ beverage packaging needs with an array of two-piece beverage cans and ends, plastic closures and metal bottle caps. Recent innovations include the “SuperEnd™” beverage can end and shaped beverage cans.

Beverage can manufacturing is capital intensive, requiring significant investment in tools and machinery. The Company seeks to effectively manage its invested capital and in the past has redeployed excess beverage can capacity in North America to emerging markets, and to a lesser extent, retrofitted such excess capacity to produce two-piece steel food cans. Further, the Company continues to reduce can and end diameter, lighten its cans, reduce non-metal costs and restructure production processes.

The Company’s beverage business has been built around local, regional and global markets, which has served to develop its understanding of global consumer expectations. The Company believes that this understanding makes it a leading choice both for the global beverage producer seeking to achieve consistent high standards, and for the local producer seeking to benefit from the resources of a large supplier.

        Food Cans

The Company believes that it produces approximately one out of every three food cans manufactured in the combined North American and European markets and that it is the largest manufacturer of metal packaging for food products in the world, based upon internal estimates and third party research. The Company produces over 20 billion metal food containers annually in 70 can plants around the world. The Company manufactures a variety of food cans, including two-and three-piece cans in steel and aluminum in numerous shapes and sizes and sells food cans to food marketers such as Bonduelle, Heinz, Hillsdown, Mars, Menu Foods, and Nestlé. Technologies used to produce these cans include three-piece welded, two-piece drawn and wall-ironed, and two-piece drawn and redrawn. The Company believes its technological leadership within the industry allows it to develop value-added products for its global customers. The Company recently introduced its “easy-open” low energy food end (“EOLE”™) to North America, a technological innovation by the Company

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in Europe, which it expects to be well-received by its North American customers. The Company’s commitment to innovation has led to major developments in packaging materials, surface finishes, can shaping, lithography, sealing and opening techniques and environmental performance. The Company manufactures conventional and easy-open ends for a variety of heat-processed and dry food products including fruits and vegetables, meat and seafood, soups, ready-made meals, infant formula, coffee and pet food. In addition, the Company supplies a full range of coil shearing, specialty coating, advanced printing and decoration services.

The Company combines food can quality and variety with customer service from a worldwide network of plants and also exports food cans and components to countries lacking manufacturing facilities. Plants are strategically located near markets served, and the Company believes its plants are among the most efficient facilities in the can-making business. The Company believes that its broad geographic presence, state-of-the-art technology and high level of customer service make it a preferred supplier of metal packaging to many global food marketing companies, regional food packers and family-owned businesses.

        Aerosol Cans

The Company believes that it is the largest manufacturer of aerosol cans in the world, producing approximately 2.4 billion cans annually from 13 manufacturing sites. The Company believes that it has the leading market share position in Europe and the second largest position in the U.S. The Company serves its multinational and local customer base with operations located in Canada, Mexico, Argentina and Thailand. Customers include manufacturers of personal care, food, household and industrial products, including CCL Industries, Colgate Palmolive, Gillette, S.C. Johnson and Unilever. The aerosol can business, while highly competitive, is marked by its high value-added service to customers. Such value-added services include the ability to manufacture multiple sizes (height and width), the design of customer labels and multiple color schemes, among others.

        Plastic Closures

The Company believes that it is a global leader in plastic closure design, production and application, serving customers from manufacturing plants and licensees in 30 countries. It offers a variety of choices in plastic closures for the beverage, food (wet and dry), health and beauty care, household and industrial markets. The Company manufactures plastic closures for many types of beverage containers, offering multiple products for markets including soft drinks, mineral water and wines and spirits. The Company manufactures plastic beverage closures for consumer products marketers such as Coca-Cola, Danone, Diageo UDV, Nestlé and Pepsi-Cola. The Company manufactures plastic closures for non-beverage products for customers including Colgate Palmolive, Henkel, Procter & Gamble and Unilever.

        Specialty Packaging

The Company believes that it is one of the world’s leading manufacturers of specialty packaging for consumer and industrial products. The Company’s specialty packaging business is located primarily in Europe and serves many major European and multinational companies. The Company believes that its specialty packaging business has the widest range of products available to the market. The Company produces numerous different specialty containers, from hundreds of footprints, with many lid and closure variations. The Company’s specialty packaging customers include Akzo Nobel, American Home Products, Nestlé, Philip Morris (Kraft), Teisseire and United Biscuits.

The Company believes that it is able to set industry standards due, in part, to its experience in producing packaging that protects, enhances, innovates and promotes customer products. Its specialty packaging business has won numerous design awards, both in national and international forums, recognizing the quality and uniqueness of its products. In the consumer market, the Company manufactures a wide variety of tinplate containers for cookies and cakes, tea and coffee, confectionery, giftware, personal care, tobacco, wines and spirits, as well as non-processed food products. In the industrial market, the Company manufactures tinplate containers for paints and inks, do-it-yourself products, and chemical, automotive and household products. Utilizing a wide product range, well-equipped graphics studios and state-of-the-art manufacturing facilities, the Company develops high-quality, innovative packaging products that it believes meet or exceed customers’ requirements.

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Crown Holdings, Inc.

        Metal Closures

As an early pioneer in the metal closure business, the Company offers a wide variety of closures and sealing equipment solutions. For decades, it has provided innovative products and services to leading food and beverage marketers. Today, customers such as Abbott Laboratories, Heinz, Nestlé, Novartis and Unilever are served from a network of state-of-the-art metal closure plants around the world. The Company supplies total packaging solutions, including closures, capping systems and services while working closely with customers, retailers and glass manufacturers to develop innovative closure solutions and meet customer requirements. Its metal closure plants benefit from extensive technical expertise, state-of-the-art research and development capabilities and world-class manufacturing processes.

The Company strives to continuously improve its metal closure design and printing technology to better support customers’ marketing programs and promotional activities. The Company offers expertise in closure design and decoration, ranging from high quality printing of the closure, in up to nine colors, to inside-the-cap printing, which opens up new promotional possibilities.

        Health and Beauty Care

The Company believes that it is a leading producer of packaging for lipsticks, eye care products and fragrance closures. It services the world’s leading cosmetics and beauty care companies. The Company offers the advantages of a global, single-source packaging partner. Its innovative design and engineering coupled with advanced manufacturing and decorating capabilities allow it to meet the high quality standards and the demanding deadlines of its customers globally. The Company’s health and beauty customers include Avon, Elizabeth Arden, Estée Lauder, L’Oreal and Procter & Gamble.

The Company works with clients as a global partner through its advanced engineering capability. It has developed new packaging technology for the cosmetic and beauty care product industry, including:

Customers

The Company’s largest customers consist of many of the leading manufacturers and marketers of packaged products in the world. Consolidation trends among beverage and food marketers has led to a highly concentrated customer base. The Company’s top ten global customers represented less than 25% of its 2002 net sales. In each of the years in the period 2000 through 2002, no one customer of U.C. the Company accounted for more than ten percent of the Company’s net sales. Each operating segment of the Company has major customers and the loss of one or more of these major customers could have a material adverse effect on an individual segment. Major customers include such companies as Anheuser-Busch, Cadbury Schweppes, Coca-Cola (“Coke”), Cott Beverages, Gillette, Heineken, Mars, Nestle, Pepsi-Cola (“Pepsi”), Proctor & Gamble, Scottish Courage, S.C. Johnson and Unilever, along with other leading companies that manufacture and market a variety of consumer products. In addition to sales to Coke and Pepsi, the Company also supplies independent licensees of Coke and Pepsi.

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Crown Holdings, Inc.

Competition

Most of the Company’s products are sold in highly competitive markets, primarily based on price, service, quality, and performance. The Company competes with other packaging manufacturers as well as with fillers, food processors and packers who manufacture containers for their own use and for sale to others. The Company’s multinational competitors include, but are not limited to, Alcoa Inc., Amcor Limited, AptarGroup, Inc., Ball Corporation, Impress Holdings B.V., Metal Container Corporation, Owens-Illinois Inc., Rexam Plc, Silgan Holdings Inc., and U.S. Can Corporation.

Sales and Distribution

As of December 31, 2002, the Company’s products were manufactured in 44 plants within the United States and 147 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. Regional sales personnel support the segments sales staffs. The majority of the Company’s sales are to companies that have leading market positions in the packaged food, beverage, aerosol, health and beauty and specialty packaging businesses. Contracts with global suppliers are centrally negotiated, although products are ordered through and distributed directly by each plant. Facilities are generally located in proximity to major customers. The Company maintains continuous contact with customers in order to develop new business and to extend the terms of its existing contracts. The Company strives to be responsive to its customers quality, innovation and promotional requirements.

As is the practice in the packaging industry, most customers provide the Company with quarterly or annual estimates of product requirements along with related quantities pursuant to which periodic commitments are given. Such estimates assist the Company in managing production and controlling working capital requirements. The Company schedules its production to meet customer requirements. Because the production time for the Company’s products is short, any backlog of customer orders in relation to overall sales is immaterial.

Research and Development

The Company’s principal Research, Development & Engineering (“RD&E”) centers are located in Alsip, Illinois and Wantage, England. The Company uses its RD&E capabilities to (i) promote development of value-added packaging systems, (ii) design cost-efficient manufacturing systems and materials that also provide continuous quality improvement, (iii) support technical needs in customer and vendor relationships, and (iv) provide engineering services for the Company’s worldwide packaging activities. These capabilities allow the Company to identify market opportunities by working directly with customers to develop new products, such as the creation of new packaging shapes.

The Company expended $43 million in 2002, $40 million in 2001 and $41 million in 2000 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. The costs incurred were associated with a number of products in varying stages of development.

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Crown Holdings, Inc.

Materials and Suppliers

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. The prices of certain of these raw materials, such as aluminum and resin, have historically been subject to volatility. Each of these materials, as well as the other raw materials that the Company uses to manufacture its products have historically been available in adequate supply from multiple sources. For certain raw materials, however, there may be temporary shortages due to weather or other factors, including disruptions in supply caused by raw material transportation or production delays. Generally, the Company’s principal raw materials are obtained from the major suppliers in the countries within which it operates plants. Some plants in developing countries, which do not have local mills, obtain their raw materials from nearby, more-developed countries. In 2002, consumption of tinplate, aluminum and resin represented 23.0%, 22.6%, and 6.1%, respectively, of consolidated cost of products sold. The Company has secured what it considers adequate supplies of raw materials. For instance, in North America, the Company has entered into contracts with its suppliers of aluminum can and end sheet that, by formula, guarantee 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 ingot on the London Metal Exchange. Further, ceiling prices have been established under these contracts that set maximum prices that the Company would pay for aluminum. However, there can be no assurance that sufficient quantities will be available in the future. In addition, the Company may be subject to adverse price fluctuations when purchasing its raw materials. There can be no assurance that it will be able to recover fully any increases in raw material costs from its customers. The price of steel has been historically more stable and has not been subject to the same volatility as aluminum and resin. In response to the variability of aluminum and resin prices, ongoing productivity and cost reduction efforts in recent years have focused on improving raw material cost management as a key component.

The Company’s manufacturing facilities are dependent, in varying degrees, upon the availability of processed energy, such as natural gas and electricity. Certain of these energy sources may become difficult or impossible to obtain on acceptable terms due to external factors, and the Company cannot predict the effects, if any, of such occurrences on its future operations.

Seasonality

Food packaging products accounted for approximately $2 billion or approximately 29% of 2002 consolidated net sales. The food can business is somewhat seasonal with the first quarter tending to be the slowest period as the autumn packing period ends and new crops are not yet planted. The industry enters its busiest period in the third quarter when the majority of fruits and vegetables are harvested. Weather represents a substantial uncertainty in the food can industry and is a major factor in determining the outcome of food can demand in any given year.

The Company’s metal and plastic beverage operations 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.

The Company’s other businesses include aerosol, specialty and health and beauty care packaging, canmaking equipment and various other products which tend not to be significantly affected by seasonal variations.

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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 process modifications. The Company has a Corporate Environmental Protection Policy, and environmental considerations are among the criteria by which the Company evaluates projects, products, processes and purchases. While the Company does not believe that any of the foregoing matters are likely to have a material effect, 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 28 and 29 under the caption Environmental Matters, which is incorporated herein by reference.

Working Capital

During 2000, through several downgrades in credit ratings from Moody’s Investor Services and Standard & Poors Ratings Service, the Company’s ability to access the commercial paper market was eliminated and funding of working capital was then primarily provided by the Company’s multicurrency revolving credit facility. The credit facility, as amended and restated, matures in December 2003. Further 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 25 through 27 under the caption Liquidity and Capital Resources and within Item 8 herein on pages 53 and 54 under Note P to the consolidated financial statements entitled Debt and on pages 54 and 55 under Note Q to the consolidated financial statements entitled Debt Refinancing, which is incorporated herein by reference.

Collection and payment periods tend to be longer for the Company’s operations located outside the U.S. due to local business practices. In general, the working capital practices followed by the Company are typical of the businesses in which it operates.

Employees

At December 31, 2002, the Company employed approximately 28,300 people. Collective bargaining agreements with varying terms and expiration dates cover a significant number of the Company’s employees.

Relationship With Constar

In the fourth quarter of 2002, the Company completed the sale of an aggregate of 10,745,000 shares of common stock of Constar in an underwritten initial public offering. The Company sold 10,500,000 shares of Constar in the initial closing on November 20, 2002 and sold an additional 245,000 shares pursuant to the exercise of the underwriters’ over-allotment option on December 11, 2002. Following completion of the offering, the Company owned 1,255,000 shares of Constar common stock, representing approximately 10.5% of the outstanding shares. Total proceeds net of underwriting discounts from the Company’s sale of Constar shares were approximately $120 million. Constar used the proceeds of its concurrent senior subordinated notes offering and initial borrowings under its senior secured credit facility to repay its $350 million note to the Company. The Company applied the proceeds from these transactions, net of expenses, to reduce its outstanding indebtedness by approximately $460 million. Set forth below are descriptions of certain agreements and relationships that the Company entered into with Constar in connection with the Constar initial public offering. These descriptions do not purport to be complete and are qualified in their entirety by reference to the full text of these agreements.

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        Non-Competition Agreement

The Company and Constar entered into a non-competition agreement pursuant to which the parties will agree to matters relating to certain similar business activities that are carried on by both the Company and Constar. Under this agreement, the Company agreed that, during the five-year period following the date of the completion of the Constar initial public offering, so long as Constar or any of its affiliates continues to operate in the PET bottle and preform business, it will not, subject to certain exceptions, engage in, or acquire any ownership interest in any entity that engages in, the PET bottle and preform business in certain countries, including the United States and many European Union countries. In addition, the Company agreed that, during the five-year period following the date of the completion of the Constar initial public offering, so long as Constar or any of its affiliates continues to produce and distribute extrusion blow molded bottles, it will not, subject to certain exceptions, engage in, or acquire any ownership interest in any entity that engages in, the production and sale of any extrusion blow molded bottles, except cosmetics and fragrances, in the United States. In turn, Constar agreed that, during the five-year period following the date of the completion of the Constar initial public offering, so long as the Company continues to operate in the plastic closures business, neither Constar nor any of its affiliates will, subject to certain limited exceptions, engage in, or acquire any ownership interest in any entity that engages in, the plastic closures business.

        Pension Plan

In connection with the Constar initial public offering, Constar assumed sponsorship of and liability for the Company’s pension plan which covered all active and former hourly employees and certain former salaried employees of Constar. Under certain circumstances, the Company may be liable to the PBGC for any underfunding of the Constar pension plan if the plan were to terminate within five years of the Constar initial public offering.

        Other Agreements

The Company and Constar entered into a number of other agreements providing for, among other things, allocation of benefits obligations, transition services, supply arrangements, research and development services, certain licensing arrangements, technical services and tax sharing and indemnification.

Available Information

The Company’s internet web site address is www.crowncork.com. The Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports filed by the Company with the Securities and Exchange Commission pursuant to sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are accessible free of charge through the Company’s web site as soon as reasonably practicable after the documents are filed with, or otherwise furnished to, the Securities and Exchange Commission.

ITEM 2. PROPERTIES

As of December 31, 2002, Crown Holdings, Inc. and its worldwide-consolidated subsidiaries operated 191 manufacturing facilities. Within the United States there are 44 manufacturing facilities. The Company has three operating segments, defined geographically, within which it manufactures and markets its products. During 2002, as indicated in the Americas and European operating segment discussions above, 17 facilites were eliminated by the divestiture of Constar’s beverage plastics business in the U.S. and Europe.

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Crown Holdings, Inc.

The geographic breakdown of the Company’s manufacturing facilities is as follows:

* Excluded are productive facilities in unconsolidated joint ventures 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.

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, plant operations dedicated to printing for cans and crowns, coil shearing, and coil coating and RD&E operations.

The Company maintains research facilities in Alsip, Illinois and in Wantage, England and its corporate headquarters in Philadelphia, Pennsylvania. These facilities are owned by the Company.

The Company is involved in plastic container recycling in the United States.

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ITEM 3. LEGAL PROCEEDINGS

The Company is one of many 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 of a U.S. company, the majority of whose stock the Company purchased in 1963. Approximately ninety days after the stock purchase, this U. S. company sold its insulation operations and was later merged into the Company.

Over the past five years, the Company has provided $624 million to increase its accrual for probable and estimable costs related to asbestos. At December 31, 2002, the accrual for asbestos was $263 million. This accrual is related to the liability for pending and future claims that are probable and estimable.

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.

On March 19, 2003, the European Commission informed the Company that it is in the process of issuing a Statement of Objections alleging that certain of the Company’s European subsidiaries engaged in commercial practices that violated European competition law.

Further information on these matters and other legal proceedings is presented in this Report in Part II, within Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations under the headings Provision for Asbestos on pages 21 and 22 and Environmental Matters on pages 28 and 29 and within Item 8 of this Report on pages 46 through 49 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 78, 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 is listed on the New York Stock Exchange. On March 11, 2003, there were 5,553 registered shareholders of the Registrant’s common stock. The market price of the Registrant’s common stock at December 31, 2002 is set forth in Part II, Item 8 of this Report on pages 74 and 75 under Quarterly Data (unaudited), which information is incorporated herein by reference. The foregoing information regarding the number of registered shareholders of common stock does not include persons holding stock through clearinghouse systems. Details regarding the Company’s policy as to payment of cash dividends 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 29 and 30 of this Report and Item 8 of this Report on page 51 under Note N to the consolidated financial statements entitled Capital Stock, which is incorporated herein by reference. Information with respect to shares of common stock that may be issued under the Company’s equity compensation plans is set forth in Part III, Item 12 of this report on pages 77 and 78, which information is incorporated herein by reference.

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ITEM 6. SELECTED FINANCIAL DATA

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Crown Holdings, Inc.

FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA (Continued)

Notes:

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Crown Holdings, Inc.

INTRODUCTION

This discussion summarizes the significant factors affecting the results of operations and financial condition of Crown Holdings, Inc. (the “Company”) during the three-year period ended December 31, 2002. This discussion should be read in conjunction with the consolidated financial statements included in this annual report.

Financial results (operating income, net income and loss per share) for 2002, 2001, and 2000 were impacted by charges for asbestos, restructuring, asset impairments and loss/gain on sale of assets, a gain from the early extinguishment of debt, various tax adjustments and the cumulative effect of changes in accounting.

Upon adoption of FAS 142 in 2002 and FAS 133 in 2001, the Company recorded transition adjustments for the cumulative effect of a change in accounting of $1,014 ($7.05 per share) in 2002 and a credit of $4 ($.03 per share) in 2001. Further information concerning these adjustments is provided in Notes A and B to the consolidated financial statements.

RESULTS OF OPERATIONS

The Company is organized on the basis of geographic regions with three reportable operating segments: Americas, Europe and Asia-Pacific. The Americas includes the United States, Canada and South and Central America. Europe includes Europe, Africa and the Middle East. Although the economic environments within each operating segment are quite diverse, they are similar in the nature of their products, the production processes, the types and classes of customers for products and the methods used to distribute products. Asia-Pacific, although below reportable segment thresholds, has been designated as a reportable segment because considerable review is made of this region for the allocation of resources. Each segment is an operating division within the Company with a President who reports directly to the Chief Executive Officer of the Company. “Corporate” includes Corporate Technology and headquarters costs.

The Company evaluates performance and allocates resources based on segment income as defined in Note V to the consolidated financial statements. The accounting policies for each reportable segment are the same as those described in Note A to the consolidated financial statements.

NET SALES

Net sales during 2002 were $6,792, a decrease of $395 or 5.5% versus 2001 net sales of $7,187. Sales for 2001 decreased $102 or 1.4% from net sales of $7,289 in 2000. Excluding the favorable impact of foreign currency translation of $108 and the unfavorable impact of divested operations of $221, net sales would have decreased by $282 or 3.9% compared to the prior year. Sales for 2001 were unfavorably impacted by foreign currency translation of $147 compared to 2000. Sales from U.S. operations decreased by 12.8% and 2.8% in 2002 and 2001, respectively. Sales from non-U.S. operations decreased by .6% and .4% in 2002 and 2001, respectively. As a percentage of net sales, net sales in the U.S. accounted for 37.2% of consolidated net sales in 2002, 40.3% in 2001 and 40.9% in 2000. Sales of beverage cans and ends accounted for 34.0% of net sales in 2002 compared to 32.7% in 2001 and 32.1% in 2000. Sales of food cans and ends accounted for 28.6% of net sales in 2002 and 2001 and 29.3% in 2000.

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Excluding unfavorable currency translation of $41 and divested operations of $122, net sales in the Americas division decreased in 2002 by $276 or 7.5% compared to the prior year. This decrease in net sales was primarily due to (i) lower sales unit volumes across most product lines, (ii) the pass-through of lower raw material costs and (iii) lower sales in Argentina and Brazil due to the economic turmoil in those countries; partially offset by increased selling prices primarily for North American beverage, food and aerosol cans. U.S. net sales accounted for 77.8% of division net sales in 2002, 78.6% in 2001 and 79.7% in 2000.

Excluding unfavorable currency translation of $21, Americas division net sales in 2001 decreased by $55 or 1.5% compared to the same period in 2000. The decrease was primarily due to (i) lower selling prices for beverage cans and (ii) a 4.0% decrease in food can volumes in North America due to generally lower market demand for food cans and the bankruptcy of a large food can customer in 2000; partially offset by (i) a 2.6% increase in beverage can unit volumes and (ii) increased sales unit volumes of PET beverage bottles, custom PET bottles and plastic beverage and specialty closures.

Excluding favorable currency translation of $146 and divested operations of $99, net sales in the European division decreased by $12 in 2002 or .4% compared to a year earlier. The marginal decline in sales was primarily due to sales unit volume decreases of crowns from the elimination of production in Belgium and the pass-through of lower raw material costs in the plastic businesses partially offset by increased selling prices across many product lines.

Excluding the unfavorable impact of foreign currency translation of $112, European division net sales increased $73 or 2.3% in 2001 over 2000. The increase was primarily due to sales unit volume increases of (i) beverage cans in Spain, (ii) food cans in Greece, Central and Eastern Europe and Africa, (iii) PET preforms and bottles in the U.K. and (iv) health and beauty care packaging and plastic closures throughout the division. These volume gains were partially offset by lower sales unit volumes of (i) food cans in France and (ii) beverage cans in the Middle East. Selling prices for beverage and food cans in the U.K. decreased due in part to the strength of the sterling versus the euro.

The increase in net sales for the Asia-Pacific division in 2002 over 2001 was primarily due to increased sales unit volumes for beverage cans in Southeast Asia and plastic closures across most operations and favorable foreign currency translation of $3; partially offset by lower selling prices across most product lines.

The increase in Asia-Pacific division net sales in 2001 over 2000 was due to increased beverage can unit volume in Southeast Asia and food can and plastic beverage closure volumes throughout the division; partially offset by $14 of unfavorable currency translation.

COST OF PRODUCTS SOLD (EXCLUDING DEPRECIATION AND AMORTIZATION)

Cost of products sold, excluding depreciation and amortization, was $5,619, a decrease of 7.3% from $6,063 in 2001 which was 1.4% higher than 2000. The decrease in 2002 was primarily due to lower sales unit volumes across many product lines, lower raw material costs, divested businesses and improved operating performance; partially offset by the impact of currency translation. Included in cost of products sold for 2002 was a provision of $13 to provide for uncertainty regarding the ultimate collectibility of receivables from a European customer. The increase in 2001 was primarily due to increased sales unit volumes across many product lines and unfavorable production variances as the Company reduced inventories as part of its working capital reduction initiative. As a percentage of net sales, cost of products sold was 82.7% in 2002 as compared to 84.4% in 2001 and 82.1% in 2000. The decrease as a percentage of net sales in 2002 was

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primarily due to increased selling prices in the North American operations, improved operating performance, continued cost reduction efforts and lower raw material costs; partially offset by increased pension costs and the pass-through of lower raw material costs to customers, primarily in the plastics businesses. Pension expense included in cost of sales was $27 in 2002 compared to income of $46 in 2001. The increased percentage in 2001 was due to reduced selling prices across most product lines and unfavorable production variances as the Company reduced working capital levels.

SELLING AND ADMINISTRATIVE EXPENSE

Selling and administrative expense for 2002 was $317, an increase of 2.3% above the 2001 expense of $310, following a decrease of 1.3% from expense of $314 in 2000. The increase in 2002 was due to costs related to the Constar offering and the Company’s debt refinancing activities. The decrease in 2001 was due to lower headcount and the impact of currency translation.

SEGMENT INCOME

The Company views segment income as the principal measure of performance. Segment income was $462, $267 and $446 in 2002, 2001 and 2000, respectively. As a percentage of net sales, segment income was 6.8% in 2002, 3.7% in 2001 and 6.1% in 2000.

An analysis of segment income by division follows:

Segment income in the Americas division was 6.8% of net sales in 2002 versus 1.9% in 2001 and 5.3% in 2000. The increase in 2002 segment income was primarily due to (i) increased selling prices, primarily for North American beverage, food and aerosol cans, (ii) reduced provision for restructuring, (iii) cost reductions, (iv) improved plant efficiencies and (v) the adoption of FAS 142 on January 1, 2002 which eliminated the amortization of goodwill. Goodwill amortization in the Americas division was $38 in both 2001 and 2000. The improved segment income was reduced, in part, by lower sales unit volumes across most product lines, and an increase of $39 in pension expense. The decrease in 2001 segment income was due to (i) lower selling prices in the North American beverage can market, (ii) reduced U.S. food can sales unit volumes, (iii) increased provision for restructuring, (iv) increased pension expense and (v) unfavorable production variances related to lower production levels created by the Company’s working capital reduction initiative. The decreases were partially offset by division-wide increased sales volumes of beverage cans, PET bottles and plastic beverage and specialty closures. Americas pension expense of $61 in 2002 is expected to increase by approximately $20 in 2003, primarily due to the lower value of pension plan assets at December 31, 2002 versus the end of 2001, and lower discount rates in 2003, and includes the amortization of unrecognized losses.

European division segment income was 9.3% of net sales in 2002 versus 7.9% in 2001 and 9.5% in 2000. Excluding favorable currency translation of $11, the improvement in segment income was primarily due to (i) the adoption of FAS 142 on January 1, 2002 and the cessation of goodwill amortization, (ii) cost reductions, (iii) improved pricing for most operations and (iv) increased volumes in Spain, Turkey and Africa. Goodwill amortization was $75 in 2001 and $78 in 2000. The improvement in segment income in 2002 was offset, in part, by a decrease of $33 in noncash pension income. Pension income of $34 in 2002 is expected to decrease by approximately $45 in 2003 due to reduced plan assets and amortization of unrecognized losses. The decrease in segment income for 2001 was primarily due to cost/price pressures across most operations and lower food can sales unit volumes in France; partially offset by lower provision for restructuring and strong

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volume demand for beverage cans in Spain, health and beauty care packaging throughout the region and, to a lesser extent, PET preforms and bottles in the U. K.

Segment income in the Asia-Pacific division was 9.1% of net sales in 2002 versus 8.4% in 2001 and 7.1% in 2000. The improvement in 2002 was primarily due to increased beverage can volumes in China and throughout Southeast Asia and lower raw material costs; partially offset by lower selling prices and a provision for restructuring. The increase in 2001 was due to beverage can sales unit volume growth, particularly in Southeast Asia, and higher sales unit volumes of food cans and plastic beverage closures throughout the division.

PROVISION FOR ASBESTOS

Crown Cork & Seal Company, Inc. (“Crown Cork”) is one of many defendants in a substantial number of lawsuits filed throughout the United States by persons alleging bodily injury as a result of exposure to asbestos. These claims arose from the insulation operations of a U.S. company, the majority of whose stock Crown Cork purchased in 1963. Approximately ninety days after the stock purchase, this U.S. company sold its insulation operations and was later merged into Crown Cork.

Prior to 1998, the amounts paid to asbestos claimants were covered by a fund of $80 made available to Crown Cork under a 1985 settlement with carriers insuring Crown Cork through 1976, when Crown Cork became self-insured. Until 1998, the Company considered that the fund was adequate and that the likelihood of exposure in excess of the amount of the fund was remote. This view was based on the Company’s analysis of its potential exposure, the balance available under the 1985 settlement, historical trends and actual settlement ranges. However, an unexpected increase in claims activity, along with several larger group settlements, caused the Company to reevaluate its position.

Each quarter, the Company reviews and analyzes its claim experience, settlement trends, changes in the litigation environment and other factors to determine the adequacy of its asbestos accruals. In each of the years 2000 to 2002, the Company has engaged an expert in the field of medical demographics to perform an independent evaluation of the Company’s potential asbestos liability. Adjustments to the asbestos accrual are made based on changes to the above-mentioned factors after consultation with the Company’s expert and legal counsel.

During 2002, 2001 and 2000, respectively, Crown Cork (i) received 36,000, 53,000 and 44,000 new claims, (ii) settled or dismissed 43,000, 31,000 and 40,000 claims, and (iii) has 59,000, 66,000 and 44,000 claims outstanding at the end of the respective years. The outstanding claims at December 31, 2002 exclude 33,000 pending claims involving plaintiffs who allege that they are, or were, maritime workers subject to exposure to asbestos, but whose claims the Company believes, based on counsel’s advice, will not, in the aggregate, involve any material liability. During 2001, one jurisdiction accounted for 25,000 claims received, 17,000 of which were settled for $4 in 2001.

During 2002, 2001 and 2000, respectively, the Company (i) recorded pre-tax charges of $30, $51 and $255 to increase its accrual, (ii) made asbestos-related payments of $114, $118 and $94, (iii) settled claims totaling $77, $66 and $100, including amounts committed to be paid in future periods and (iv) had outstanding accruals of $263, $347 and $420 at the end of the year. The 2001 charge of $51 included an allowance of $6 for an insurance receivable.

In December 2001, the Commonwealth of Pennsylvania enacted legislation that limits the asbestos-related liabilities of Pennsylvania corporations that are successors by corporate merger to companies involved with asbestos. The legislation limits the successor’s liability for asbestos to the acquired company’s asset value. The Company has already paid significantly more for asbestos claims than the acquired company’s asset value. On June 12, 2002, Crown Cork received a favorable ruling from the Philadelphia Court of Common Pleas on its motion for summary judgment regarding the 376 asbestos-related cases pending against it in that court (in re Asbestos Litigation, October Term 1986, Number 001). The plaintiffs claimed that the legislation was procedurally inapplicable and that, if applicable, it violated due process and other clauses of the United

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Crown Holdings, Inc.

States and Pennsylvania constitutions. The plaintiffs’ appeal of that ruling was heard by the Supreme Court of Pennsylvania on October 22, 2002, and a decision could come at any time. An unfavorable decision may require the company to increase its accrual for pending and future asbestos-related claims.

Based on the updated report of the independent expert, the Company’s own review, and the view of counsel concerning the possible effects of the new legislation described above, the Company estimates that its probable and estimable asbestos liability for pending and future asbestos claims will range between $263 and $502. The accrual balance of $263 at the end of 2002 includes $146 for unasserted claims and $50 for committed settlements that will be paid over time, including $41 in 2003. The Company expects total cash payments for asbestos to be approximately $70 in 2003, including $41 under the committed settlements. Historically (1977-2002), Crown Cork estimates that approximately one-quarter of all asbestos claims made against it have been asserted by claimants who claim first exposure to asbestos after 1964. However, because of Crown Cork’s settlement experience to date and the increased difficulty of establishing identification of the subsidiary’s insulation products as the cause of injury by persons alleging first exposure to asbestos after 1964, the Company has not included in its accrual and range of potential liability any amounts for settlements by persons alleging first exposure to asbestos after 1964. Assumptions underlying the accrual and the range of potential liability include that claims for exposure to asbestos that occurred after the sale of the U.S. company’s insulation business in 1964 would not be entitled to settlement payouts and that the Pennsylvania asbestos legislation described above is expected to have a highly favorable impact on Crown Cork’s ability to settle or defend against asbestos-related claims. The Company’s accrual includes estimates for probable costs for claims through the year 2012. The upper end of the Company’s estimated range of possible asbestos costs of $502 includes claims beyond that date.

While it is not possible to predict the ultimate outcome of the asbestos-related claims and settlements, the Company believes, after consultation with counsel, that resolution of these matters is not expected to have a material adverse effect on the Company’s financial position. The Company cautions, however, that these estimates for asbestos cases and settlements are difficult to predict and may be influenced by many factors. Accordingly, these matters, if resolved in a manner different from the estimate, could have a material effect on the Company’s financial position and cash flow.

PROVISION FOR RESTRUCTURING

During 2002, the Company provided a net charge of $19 ($15 after-tax or $.10 per share) for costs associated with (i) the closure of two European food can plants, (ii) the closure of a crown plant and elimination of a crown operation within Europe, (iii) the elimination of a European metal closures operation, (iv) the downsizing of a European specialty plastics operation and (v) the elimination of a plastic bottle operation in China; partially offset by a credit for the reversal of other exit costs recognized in 2001 due to the favorable resolution of a lease termination in a U.S. food can plant. Included in the net provision was (i) $13 for termination benefits covering approximately 500 employees, 400 of whom were directly involved in manufacturing operations (ii) $8 for asset write-downs and (iii) a credit of $2 for lease termination and other exit costs due to the favorable resolution of the lease termination noted above. The Company anticipates that the restructuring actions will save approximately $10 before tax on an annual basis when fully implemented.

During 2001, the Company provided $48 ($46 after-tax or $.37 per share) for costs associated with (i) the closure of six U.S. food can plants, two European crown operations, a European food can plant and a European PET bottle plant and (ii) severance related to downsizing three plants in Africa; partially offset by a credit for the reversal of severance charges recognized in 2000 for certain restructuring plans which the Company decided not to pursue. Included in the net provision for 2001 was (i) $20 for termination benefits for 700 employees, 600 of whom were directly involved in manufacturing operations (ii) $20 for asset write-downs, (iii) $14 for lease termination and other exit costs, and (iv) a credit of $6 for the reversal of severance.

During 2000, the Company provided $52 ($37 after-tax or $.29 per share) for costs associated with overhead structure modifications in Europe, the closure of three plants in the Americas division, and the loss on sale of a South American operation to local management. This provision included (i) $42 for severance costs for

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approximately 1,000 employees, (ii) $5 for lease termination and other exit costs, (iii) $1 for the write-down of assets and (iv) $4 for the loss on sale.

The write-downs of assets were made under announced restructuring plans, as the carrying values exceeded the Company’s estimated proceeds from abandonment or disposal. The sale of plant sites may require more than one year to complete due to preparations for sale, such as site cleanup and buyer identification, as well as market conditions and the location of the properties.

PROVISION FOR ASSET IMPAIRMENTS AND LOSS/GAIN ON SALE OF ASSETS

During 2002, the Company recorded pre-tax charges of $247 ($258 after tax or $1.79 per share) for losses from divestitures of businesses, the sale of assets, and asset impairments outside of restructuring programs. During the fourth quarter of 2002, Constar International Inc., the Company’s wholly-owned subsidiary, completed its initial public offering. The Company retained a 10.5% interest in Constar with a carrying value of $30, received net proceeds of $460, and recorded a loss of $213 on the portion sold. The Company also completed the sales of its U.S. fragrance pumps business, its European pharmaceutical packaging business, its 15% shareholding in Crown Nampak (Pty) Ltd., and certain businesses in Central and East Africa. The Company received total proceeds of $201 and recorded total pre-tax losses of $26 on these divestitures. In addition to the business divestitures, the Company sold various other assets, primarily real estate, for total proceeds of $45 and a pre-tax gain of $11. The Company also recorded noncash asset impairment charges of (i) $10 to write-off certain surplus assets in the U.S. due to the Company’s assessment that their carrying value will not be recovered based on current operating plans, (ii) $4 to write-down the assets of a U.S. operation the Company is considering for sale or closure, (iii) $3 to write-down the value of surplus U.S. real estate the Company has for sale, and (iv) $2 to write-off the carrying value of other assets.

During 2001, the Company recorded a net charge of $213 ($208 after-tax or $1.66 per share) for noncash asset impairment charges and gains from asset sales. Of the total impairment charge, $204 arose from the Company’s planned divestitures of certain interests in Africa, including $71 for the reclassification of cumulative translation adjustments to earnings. The remaining impairment charge of $11 was due to the write-down of surplus equipment. The sale of surplus of properties generated proceeds of $28 and a net gain of $2.

A charge of $27 ($20 after-tax or $.16 per share) was recorded in 2000 for noncash asset impairment charges for the write-off a minority interest in a machinery company and an investment in Moldova and for losses on the sale of various assets. The investment write-offs were due to uncertainty regarding the ultimate recovery of these investments. The asset sales provided proceeds of $28 and a net loss of $1.

GAIN FROM EARLY EXTINGUISHMENT OF DEBT

During 2002 the Company entered into privately negotiated debt-for-equity exchanges with holders of its outstanding notes and debentures. The Company exchanged 33,386,880 shares of its common stock with a market value of $250 for debt with an aggregate face value of $271 and accrued interest of $7 and recognized a gain of $28 ($28 after tax or $.19 per share).

During January 2003, the Company exchanged an additional 5,386,809 shares of its common stock for debt and accrued interest, totaling $43.

NET INTEREST EXPENSE

Interest expense, net of interest income, was $331 in 2002, a decrease of $106 or 24.3% compared to 2001 net interest expense of $437. Net interest expense in 2000 was $373. The decrease in 2002 net interest expense was primarily due to lower average debt outstanding and lower average borrowing rates. The lower average debt outstanding reflects a reduction in working capital, proceeds from sales of assets and businesses and, to a lesser extent, the early extinguishment of debt through debt-for-equity exchanges. The increase in 2001 was primarily due to higher interest rates and fees incurred in connection with the extension of the Company’s $2,500 credit facility and new borrowings under a $400 term loan. The tightening bank credit

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environment and concern over the Company’s asbestos exposure and operating results contributed to downgrades in the Company’s credit ratings during 2001 and 2000 by the major rating agencies. Due to these downgrades, the Company lost access to several sources of lower cost financing, including the commercial paper market. Further information about the credit facility and term loan along with details of recent refinancing activities are summarized in the Liquidity and Capital Resources section of this discussion and in Notes P and Q to the consolidated financial statements.

TRANSLATION AND EXCHANGE ADJUSTMENTS

Unfavorable foreign exchange adjustments of $27, $10 and $8 were recorded in 2002, 2001 and 2000, respectively, primarily from the remeasurement of the Company’s non-U.S. subsidiaries with a U.S. dollar functional currency, including those in Argentina, Brazil, Colombia and Turkey.

TAXES ON INCOME

Taxes on income for 2002, 2001 and 2000 were provisions of $30 and $528 and a benefit of $58, respectively, against pre-tax losses of $145, $444 and $217, respectively. Significant items included in the 2002 provision were (i) a credit of $24 for the recovery of U.S. federal taxes paid in prior years, (ii) a charge of $11 on pre-tax losses of $247 from asset impairments and asset sales due to the differences in the book and tax basis, primarily due to goodwill, (iii) a credit of $20 for tax contingencies resolved in the U.S. and (iv) a charge of $20 for a tax contingency which arose in Europe. The provision for 2001 included adjustments of $452 and $114 to the valuation allowance for pre-2001 U.S. deferred tax assets and tax benefits not recognized on 2001 U.S. losses. Further information about income taxes is presented in Note U to the consolidated financial statements.

MINORITY INTERESTS, NET OF EQUITY EARNINGS

Minority interests’ share of net income/(loss) was $24, $10 and $18 in 2002, 2001 and 2000, respectively. The increase in 2002 was primarily due to (i) increased profits in the Company’s joint venture beverage can operations in Colombia, Greece, the Middle East, China and Vietnam, and (ii) improved profitability in the food can operations in Morocco; partially offset by lower profits in Brazil due to the economic turmoil in the region. The decrease in 2001 was due to (i) losses in the Company’s beverage can operations in Vietnam and PET operations in Hungary and Turkey, (ii) the purchase of the minority shares in CarnaudMetalbox Asia Limited during the second quarter of 2000 and (iii) lower profits in Morocco; partially offset by improved results in Brazil.

Equity in earnings of affiliates was $8, $6 and $3 in 2002, 2001 and 2000, respectively. The increases in 2002 and 2001 were due to continued improvement in the Company’s joint venture operations in the Middle East.

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Crown Holdings, Inc.

NET INCOME AND EARNINGS PER SHARE

Net loss of $1,205 for the year ended December 31, 2002, was an increase of $233 from the loss of $972 for the same period in 2001. Loss per share was $8.38 for the year ended December 31, 2002, an increase of $.64 from a per share loss of $7.74 for 2001. The increased losses were primarily due to a charge of $1,014 for the cumulative effect of a change in accounting from the adoption in 2002 of FAS 142; partially offset by (i) higher operating income, including the elimination of goodwill amortization in 2002, (ii) lower net interest expense, and (iii) additions of $452 and $114 to the tax valuation allowance in 2001 for pre-2001 U.S. deferred tax assets and tax benefits not recognized on 2001 U.S. losses.

The net loss of $972 in 2001 was an increase of $796 from the loss of $176 for the same period in 2000. Net loss per share of $7.74 was an increase of $6.34 from the loss per share of $1.40 in 2000. The increased losses were primarily due to (i) an increase in the tax valuation allowance to fully reserve for net U.S. deferred tax assets recognized in prior periods, (ii) lower operating income in the Americas and Europe, (iii) tax benefits not taken on 2001 U.S. operating losses, (iv) provisions for asset impairments related to the sale of certain African subsidiaries, and (v) higher net interest expense; partially offset by a lower provision for asbestos.

FINANCIAL POSITION

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents were $363 at December 31, 2002 compared to $456 and $382 at December 31, 2001 and 2000, respectively. The Company’s primary source of cash for 2002 consisted of funds provided from operations of $415 and from investing activities, primarily from sales of businesses, of $591. The increase in funds provided from operations in 2002 versus $310 in 2001 was primarily due to improved operating income and a decrease in interest payments from $469 in 2001 to $333 in 2002, partially offset by lower working capital reductions in 2002. Payments for asbestos were $114 in 2002 and $118 in 2001 and the Company expects to pay approximately $70 in 2003 due to reduced payments on prior year settlements. The Company contributed $144 to its pension plans in 2002 and expects to contribute $125 in 2003.

On February 26, 2003, the Company completed a refinancing and formed Crown Holdings, Inc. (“Crown” or “the Company”), a new public holding company. The formation of Crown Holdings, Inc is more fully described in Note N to the consolidated financial statements.

The proceeds from the refinancing consisted of the sale of $1,085 of 9.5% second priority senior secured notes due in 2011, €285 ($306 equivalent) of 10.25% second priority senior secured notes due in 2011, $725 of 10.875% third priority senior secured notes due in 2013, a $504 first priority term loan due in 2008 and a new $550 first priority revolving credit facility due in 2006.

The proceeds of $2,620 from the senior secured notes and the term loan, and $198 of borrowing under the new $550 credit facility, were used to repay the existing credit facility, to repurchase $568 of the Company’s outstanding unsecured notes, and to pay fees and expenses associated with the refinancing. The remaining proceeds of $344 were placed in accounts as collateral for the senior secured notes, the term loan and the revolving credit facility, and may only be used to repurchase or retire existing unsecured notes.

The secured notes are senior obligations of Crown European Holdings SA (“CEH”), an indirect wholly-owned subsidiary, and are guaranteed on a senior basis by Crown, Crown Cork & Seal Company, Inc. (“Crown Cork”), substantially all other U.S. subsidiaries, and certain subsidiaries in the U.K., Canada, France, Germany, Mexico, Switzerland and Belgium. The holders of the notes have second and third priority liens on assets of certain of the guarantor subsidiaries and the stock of Crown Cork. CEH may redeem all or some of the second priority secured notes at any time prior to March 2007 and the third priority secured notes at any time prior to March 2008 by paying a make-whole premium. Thereafter, CEH may redeem some or all of the secured notes at redemption prices initially representing a premium to principal equal to one-half of the applicable interest rate on the notes, declining annually thereafter. At any time prior to March 2006, CEH may redeem up to 35% of each of the secured notes with the net cash proceeds of certain equity offerings of

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capital stock of Crown that are used to capitalize CEH. CEH is also required to make an offer to purchase the secured notes upon the occurrence of certain change of control transactions or asset sales. The note indentures contain covenants that limit the ability of the Company and its subsidiaries to, among other things, incur additional debt, pay dividends or repurchase capital stock, create liens, and engage in sale and leaseback transactions.

CEH and the guarantors of the secured notes entered into an agreement to file a registration statement for a registered exchange of the secured notes. If CEH and the guarantors do not comply with their obligations under the registration rights agreement, they may be obligated to pay additional interest on the secured notes until the default is cured.

The $504 first priority term loan facility is payable in annual installments equal to 5.0% of the original principal amounts, beginning January 15, 2004, with a final payment due in 2008. The maturity is accelerated to September 2006 in the event that Crown’s unsecured public debt that matures in 2006 is not repaid, or funds are not set aside in a designated account to repay such debt, by September 15, 2006. The term loans include $450 of borrowings in U.S. dollars by Crown Cork & Seal Americas, Inc. (“Crown Americas”) and $54 equivalent of €50 in borrowings by CEH and bear interest at LIBOR plus 4.25%. The U.S. dollar loans are guaranteed by Crown, Crown Cork, and substantially all other U.S. subsidiaries, and are collateralized by substantially all assets of the U.S. guarantor subsidiaries. The euro loans are guaranteed by Crown, Crown Cork and substantially all other U.S. subsidiaries and by certain subsidiaries in the U.K., Canada, France, Germany, Mexico, Switzerland and Belgium. The euro loans are collateralized by substantially all assets of the U.S. guarantor subsidiaries and assets of certain of the non-U.S. guarantor subsidiaries. The revolving credit facility contains the same guarantee and collateral provisions as the term loan facility and bears interest at LIBOR plus 4.0%. All guarantees are full and unconditional on a joint and several basis.

The term loan and revolving credit facilities contain financial covenants including an interest coverage ratio, a fixed charge coverage ratio, a net leverage ratio, a first lien net leverage ratio, and a cash-inflows to cash-outflows ratio of each of Crown Americas and CEH. The facilities are mandatorily prepayable with the proceeds from certain asset sales, certain insurance recoveries on asset losses, debt issuances, equity issuances and excess cash flows.

The Company is highly leveraged. The ratio of total debt (net of cash and cash equivalents) to total capitalization was 97.1%, 82.9% and 68.3% at December 31, 2002, 2001 and 2000, respectively. Total capitalization is defined by the Company as total debt (net of cash and cash equivalents), minority interests and shareholders’ equity. The increase in the ratio of total debt to total capitalization is due to the reduction in shareholders’ equity caused primarily by the net loss and the minimum pension liability adjustment. Contractual obligations as of December 31, 2002 updated for the refinancing in 2003 are summarized in the table below.

In 2003 the Company expects that a significant portion of its cash flow will be dedicated to interest payments on its outstanding indebtedness, contributions to its pension plans and to asbestos-related payments.

In order to further reduce leverage and future cash interest payments, the Company may from time to time exchange shares of its common stock for the Company’s outstanding notes and debentures. The Company

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will evaluate any such transactions in light of then existing market conditions and may determine not to pursue such transactions.

MARKET RISK

In the normal course of business, the Company is exposed to fluctuations in currency values, interest rates, commodity prices and other market risks. The Company manages these risks through a program that includes the use of derivative financial instruments, primarily swaps and forwards, which involve little complexity and are not used for trading or speculative purposes. The Company’s objective in managing its exposure to market risk is to limit the impact on earnings and cash flow.

International operations, principally European, constitute a significant portion of the Company’s consolidated revenues and identifiable assets. These operations result in a large volume of foreign currency commitments and transactions and significant foreign currency net asset and liability exposures. The Company manages foreign currency exposures at the operating unit level. Exposures that cannot be naturally offset within an operating unit are hedged with derivative financial instruments, where possible. Foreign exchange contracts which hedge defined exposures generally mature within twelve months. The Company does not generally hedge its exposure to translation gains or losses on its non-U.S. net assets because cash flows are often reinvested within the operations which generate them and, where possible, borrowings are obtained in the local functional currency. The Company has also entered into cross-currency swaps to hedge the related foreign currency exchange risk related to subsidiary debt which is denominated in currencies other than the functional currency of the related subsidiary. The swaps outstanding at December 31, 2002 effectively convert U.S. dollar-denominated debt into local currency debt for both interest and principal.

The table below provides information in U.S. dollars as of December 31, 2002 about the Company’s forward currency exchange contracts. The majority of the contracts expire in 2003.

The Company has an additional $15 in a number of smaller contracts to purchase or sell various other currencies, principally Asian, as of December 31, 2002.

The aggregate notional value of foreign exchange contracts outstanding at December 31, 2002 was $402. This aggregate value was $151 or 60.2% higher than at the end of 2001. The increase was primarily due to increased hedging of exposures between sterling and the euro. During 2002 the Company initiated numerous contracts to hedge the exposure of U.K. selling prices on products to be shipped to the European continent due to the continued strength of sterling against the euro.

The Company’s refinancing, as described above, included $1,810 of U.S. dollar notes issued by Crown European Holdings (CEH). If CEH is unable to obtain contracts to hedge its exposure to these U.S. dollar obligations, exchange rate movements could have a significant impact on the Company’s results of operations in 2003 and beyond.

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Crown Holdings, Inc.

The Company manages its interest rate risk, primarily from fluctuations in U.S. prime and LIBOR interest rates, in order to balance its exposure between fixed and variable rates while attempting to minimize its interest costs. At December 31, 2002, three cross-currency swaps were outstanding with a U.S. dollar-equivalent notional amount of $700. These swaps effectively convert fixed rate U.S. dollar-denominated debt into fixed rate sterling-denominated debt (£302) and floating rate euro-denominated debt (€223). Due to the Company’s refinancing and repurchase of certain notes and debentures, the remaining U.S. dollar-denominated debt will not match the notional amounts of the swaps and the Company could be subject to the effect of changing interest and foreign exchange rates.

For debt obligations, the table below presents principal cash flows and related interest rates by year of maturity after consideration of the impact of the Company’s 2003 refinancing. Variable interest rates disclosed represent the weighted average rates at December 31, 2002. Debt converted to fixed or variable rate debt by cross-currency swaps has been included within the appropriate debt classification.

At December 31, 2001, debt outstanding included fixed rate debt of $2,510 with an average interest rate of 7.5%, and variable rate debt of $2,810 with an average interest rate of 4.8%.

The Company’s basic raw materials, primarily aluminum, tinplate and resins, are subject to significant price fluctuations which may be hedged by the Company through forward commodity contracts. Any gains or losses realized from the use of these contracts are included in inventory to the extent that they are designated and effective as hedges of the anticipated purchases. The maturities of the commodity contracts closely correlate to the anticipated purchases of those commodities. These contracts are used in combination with commercial supply contracts with customers and suppliers to manage exposure to price volatility.

The Company’s use of financial instruments in managing market risk exposures described above is consistent with the prior year. Further information on Company financing is presented in Notes P, Q and R to the consolidated financial statements.

CAPITAL EXPENDITURES

Consolidated capital expenditures were $115 in 2002 compared to $168 in 2001.

Expenditures in the Americas Division were $46 in 2002, including spending for additional SuperEnd™ beverage can end capacity.

Spending in the European Division of $66 included expenditures for the construction of a new beverage can plant in Spain, equipment modernization and can lightweighting.

The Company expects its capital expenditures in 2003 to be approximately $125, which the Company believes is sufficient to maintain its operations at their current levels of capacity and efficiency. At December 31, 2002, the Company had $5 of capital commitments.

ENVIRONMENTAL MATTERS

Compliance with the Company’s Environmental Protection Policy is a primary management objective and the responsibility of each employee of the Company. The Company is committed to the protection of human health and the environment and is operating within the increasingly complex laws and regulations of national, state, and local environmental agencies or is taking action aimed at assuring compliance with such laws and

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Crown Holdings, Inc.

regulations. Environmental considerations are among the criteria by which the Company evaluates projects, products, processes and purchases, and, accordingly, does not expect compliance with these laws and regulations to have a material effect on the Company’s competitive position, financial condition, results of operations or capital expenditures.

The Company is dedicated to a long-term environmental protection program and has initiated and implemented many pollution prevention programs with an emphasis on source reduction. The Company continues to reduce the amount of metal and plastic used in the manufacture of steel, aluminum and plastic containers through “lightweighting” programs. The Company recycles nearly 100% of scrap aluminum, steel, plastic and copper used in its manufacturing processes. Many of the Company’s programs for pollution prevention reduce operating costs and improve operating efficiencies.

The Company has been identified by the EPA as a potentially responsible party (along with others, in most cases) at a number of sites. Estimated remedial expenses for active projects are recognized in accordance with generally accepted accounting principles governing probability and the ability to reasonably estimate future costs. Actual expenditures for remediation were $2, $4 and $2 in 2002, 2001 and 2000, respectively. The Company’s balance sheet reflects estimated gross remediation liabilities of $14 and $18 at December 31, 2002 and 2001, respectively.

Environmental exposures are difficult to assess for numerous reasons, including the identification of new sites, advances in technology, changes in environmental laws and regulations and their application, the scarcity of reliable data pertaining to identified sites, the difficulty in assessing the involvement of and the financial capability of other potentially responsible parties and the time periods or the sometimes lengthy time periods over which site remediation occurs. It is possible that some of these matters, the outcome of which are subject to various uncertainties, may be decided unfavorably against the Company. It is, however, the opinion of Company management, after consulting with counsel, that any unfavorable decision will not have a material adverse effect on the Company’s financial position, cash flows or results of operations.

COMMON STOCK AND OTHER SHAREHOLDERS’ EQUITY

Details of a corporate reorganization consummated in connection with the Company’s 2003 refinancing and activities in its common stock for the past three years are provided in Note N to the consolidated financial statements.

Shareholders’ equity/(deficit) was ($87) at December 31, 2002 compared to $804 and $2,109 at December 31, 2001 and 2000, respectively. The decrease in 2002 equity was primarily due to the net loss for the year of $1,205 and a charge of $148 for the adjustment to the minimum pension liability; partially offset by net currency translation gains of $203, and the issuance of shares with an aggregate market value of $250 in debt-for-equity exchanges. The decrease in 2001 equity was primarily due to the net loss for the year of $972, currency translation losses of $60, and a $273 minimum pension liability adjustment.

The Company’s 1998 share repurchase program allows for the repurchase of up to ten million shares of outstanding common and preferred stock. The Company’s new credit agreement entered into in 2003, however, prohibits the repurchase of common stock. The Company acquired 6,082 shares, 20,695 shares and 3,165,528 shares of common stock for less than $1 in 2002 and 2001 and $49 in 2000, respectively.

The Company declared cash dividends on common stock of $125 in 2000. The Company paid no dividends in 2001 and 2002. The Company’s credit facility prohibits the payment of dividends.

At December 31, 2002, common shareholders of record numbered 5,579 compared with 5,552 at the end of 2001. Total common shares outstanding were 159,430,075 at December 31, 2002 compared to 125,702,056 at December 31, 2001. The increase in shares outstanding was primarily due to the exchanges of debt for equity during 2002. During 2000, all outstanding shares of acquisition preferred stock were converted into approximately 7.6 million shares of common stock.

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Crown Holdings, Inc.

The Board of Directors adopted a Shareholder Rights Plan in 1995, as amended in 2000, and declared a dividend of one right for each outstanding share of common stock. Such rights only become exercisable, or transferable apart from the common stock, after a person or group acquires beneficial ownership of, or commences a tender or exchange offer for, 15% or more of the Company’s common stock. Each right then may be exercised to acquire one share of common stock at an exercise price of $200, subject to adjustment. Alternatively, under certain circumstances involving the acquisition by a person or group of 15% or more of the Company’s common stock, each right will entitle its holder to purchase a number of shares of the Company’s common stock having a market value of two times the exercise price of the right. In the event the Company is acquired in a merger or other business combination transaction after a person or group has acquired 15% or more of the Company’s common stock, each right will entitle its holder to purchase a number of the acquiring company’s common shares having a market value of two times the exercise price of the right. The rights may be redeemed by the Company at $.01 per right at any time until the tenth day following public announcement that a 15% position has been acquired. The rights will expire on August 10, 2005.

On February 21, 2003 in connection with the formation of Crown Holdings, Inc., as discussed in Note N to the consolidated financial statements, the existing Shareholders’ Rights Plan was terminated. At the same time a new Rights Agreement was entered into by Crown Holdings, Inc. with terms substantially identical to the terminated plan.

INFLATION

Inflation has not had a significant impact on the Company over the past three years and the Company does not expect it to have a significant impact on the results of operations or financial condition in the foreseeable future.

CRITICAL ACCOUNTING POLICIES

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States which require that management make numerous estimates and assumptions. Actual results could differ from those estimates and assumptions, impacting the reported results of operations and financial position of the Company. The Company’s significant accounting policies are more fully described in Note A to the consolidated financial statements. Certain accounting policies, however, are considered to be critical in that (i) they are most important to the depiction of the Company’s financial condition and results of operations and (ii) their application requires management’s most subjective judgment in making estimates about the effect of matters that are inherently uncertain.

The Company’s potential liability for asbestos cases is highly uncertain due to the difficulty of forecasting many factors, including the level of future claims, the rate of receipt of claims, the jurisdiction in which claims are filed, the terms of settlements of other defendants with asbestos-related liabilities, the bankruptcy filings of other defendants (which may result in additional claims and higher settlement demands for non-bankrupt defendants), and the effect of the new Pennsylvania asbestos legislation (including its validity and applicability to non-Pennsylvania jurisdictions, where the substantial majority of the Company’s asbestos cases are filed). As additional experience is gained regarding claims or other new information becomes available regarding the potential liability, the Company will reassess the potential liability and revise its estimates as appropriate.

If facts and circumstances indicate goodwill may be impaired, the Company performs an impairment review by comparing the fair value of a reporting unit, including goodwill, to its carrying value. The impairment review involves a number of assumptions and judgments including the identification of the appropriate reporting units and the calculation of fair value. The Company uses a combination of market values for comparable businesses and discounted cash flow projections to calculate fair value. The Company’s estimates of future cash flows includes assumptions concerning future operating performance, economic conditions, and technological changes and may differ from actual future cash flows.

The Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized in the future. The estimate of the amount that is more likely than not to be realized

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Crown Holdings, Inc.

requires the use of assumptions concerning the Company’s future income. Actual results may differ from those estimates. Should the Company change its estimate of the amount of its deferred tax assets that it would be able to realize, an adjustment to the valuation allowance would result in an increase or decrease in net income in the period such a change in estimate was made.

Accounting for pensions and postretirement benefit plans requires the use of estimates and assumptions regarding numerous factors, including discount rate, rate of return on plan assets, compensation increases, health care cost increases, mortality and employee turnover. Actual results may differ from the Company’s actuarial assumptions, which may have an impact on the amount of reported expense or liability for pensions or postretirement benefits. The rate of return assumption is reviewed at each measurement date based on the pension plans’ investment policies and an analysis of the historical returns of the capital markets, adjusted for current interest rates as appropriate. For 2003 the Company is lowering its expected rate of return on plan assets to 9.0% in the U.S. and Canada from 9.5% in 2002, and to 8.5% in the U.K. from 9.25% in 2002. The discount rate is developed at each measurement date by reference to published indices of high-quality bond yields. A .25% change in the expected rate of return would change 2003 pension expense by approximately $7. A .25% change in the discount rates would change 2003 pension expense by approximately $12.

The Company accounts for stock-based compensation expense using the intrinsic value method. The effect on net income and earnings per share if the Company had applied the fair value provisions of FAS 123 is disclosed in Note A to the consolidated financial statements.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the FASB issued SFAS No. 143 (“FAS 143”), “Accounting for Asset Retirement Obligations.” This standard, effective for the Company on January 1, 2003, establishes accounting guidelines for the recognition and measurement of obligations for the retirement of tangible long-lived assets. The obligation is to be recorded at fair value in the period in which it is incurred. Adoption of this standard is not expected to have a material impact on the Company’s results of operations or financial position.

During July 2002, the FASB issued SFAS No. 146 (“FAS 146”), “Accounting for Costs Associated with Exit or Disposal Activities.” FAS 146 establishes accounting and reporting guidelines for the recognition and measurement of a liability at its fair value for the cost associated with an exit, including restructuring, or disposal activity in the period in which the liability is incurred, rather than at the date of a commitment to an exit or disposal plan. The standard supercedes Emerging Issues Task Force No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” The standard, effective for exit or disposal activities initiated on or after January 1, 2003, does not impact recognition of costs under the Company’s outstanding programs. Adoption by the Company of this standard may impact the timing of the recognition of costs associated with future exit or disposal activities, dependent upon the nature of the actions initiated.

In November 2002, the FASB issued FASB Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN 45 requires a guarantor to recognize, at the inception of a qualified guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The guarantee disclosure requirements of FIN 45 became effective in the fourth quarter of 2002. The initial recognition and measurement requirements are effective on a prospective basis for qualified guarantees issued or modified after December 31, 2002.

In January 2003, the FASB issued FIN 46, “Consolidation of Variable Interest Entities.” FIN 46 sets forth the criteria used in determining whether an investment in a variable interest entity (“VIE”) should be consolidated and is based on the general premise that companies that control another entity through interests other than voting interests should consolidate the controlled entity. FIN 46 would require the consolidation of specified VIEs created before February 1, 2003 commencing in the third quarter of 2003. For specified VIEs created after January 31, 2003, the interpretation would require immediate consolidation if circumstances warrant such consolidation. The Company does not expect the implementation of this interpretation to have a material impact on its consolidated financial statements.

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Crown Holdings, Inc.

FORWARD LOOKING STATEMENTS

Statements in this annual report, including those in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in the discussions of the provision for asbestos and other contingencies in Note K to the consolidated financial statements included in this Annual Report, which are not historical facts (including any statements concerning plans and objectives of management for future operations or economic performance, or assumptions related thereto), are “forward-looking statements,” within the meaning of the federal securities laws. In addition, the Company and its representatives may from time to time make other oral or written statements which are also “forward-looking statements.” Forward-looking statements can be identified by words, such as “believes,” “estimates,” “anticipates,” “expects”and other words of similar meaning in connection with a discussion of future operating or financial performance. These may include, among others, statements relating to: (i) the Company’s plans or objectives for future operations, products or financial performance, (ii) the Company’s indebtedness, (iii) the impact of an economic downturn or growth in particular regions, (iv) anticipated uses of cash, (v) cost reduction efforts and expected savings and (vi) the expected outcome of contingencies, including with respect to asbestos-related litigation and pension liabilities.

These forward-looking statements are made based upon management’s expectations and beliefs concerning future events impacting the Company and therefore involve a number of risks and uncertainties. Management cautions that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements.

Important factors that could cause the actual results of operations or financial condition of the Company to differ include, but are not necessarily limited to, the ability of the Company to repay, refinance or restructure its short and long-term indebtedness on adequate terms and to comply with the terms of its agreements relating to debt; loss of customers, including the loss of any significant customer, the Company’s ability to obtain and maintain adequate pricing for its products, including the impact on the Company’s revenue, margins and market share and the ongoing impact of recent price increases; the impact of the Company’s recent initiative to generate additional cash, including the reduction of working capital levels and capital spending; the ability of the Company to realize cost savings from its restructuring programs; changes in the availability and pricing of raw materials (including aluminum can sheet, steel tinplate, plastic resin, inks and coatings) and the Company’s ability to pass raw material price increases through to its customers or to otherwise manage these commodity pricing risks; the financial condition of the Company’s vendors and customers; the Company’s ability to generate significant cash to meet its obligations and invest in its business and to maintain appropriate debt levels; the Company’s ability to maintain adequate sources of capital and liquidity; the Company’s ability to realize efficient capacity utilization and inventory levels and to innovate new designs and technologies for its products in a cost-effective manner; changes in consumer preferences for different packaging products; competitive pressures, including new product developments, industry overcapacity, or changes in competitors’ pricing for products; the Company’s ability to generate sufficient production capacity; changes in governmental regulations or enforcement practices, including with respect to environmental, health and safety matters and restrictions as to foreign investment or operation; weather conditions including its effect on demand for beverages and on crop yields for fruits and vegetables stored in food containers; changes or differences in U.S. or international economic or political conditions, such as inflation or fluctuations in interest or foreign exchange rates and tax rates; war or acts of terrorism that may disrupt the Company’s production or the supply or pricing of raw materials, impact the financial condition of customers or adversely affect the Company’s ability to refinance or restructure its remaining indebtedness; energy and natural resource costs; the costs and other effects of legal and administrative cases and proceedings, settlements and investigations; the outcome of asbestos-related litigation (including the number and size of future claims and the terms of settlements, and the impact of bankruptcy filings by other companies with asbestos-related liabilities, any of which could increase Crown Cork’s asbestos-related costs over time, the adequacy of reserves established for asbestos-related liabilities, Crown Cork’s ability to obtain resolution without payment of asbestos-related claims by persons alleging first exposure to asbestos after 1964; and the impact of the recent Pennsylvania corporate legislation dealing with asbestos liabilities, litigation challenging that legislation and any future legislation dealing with asbestos liabilities), labor relations and workforce and social costs, including the Company’s pension obligations and other employee or retiree costs; investment performance of the

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Company’s pension plans, costs and difficulties related to the integration of acquired businesses; and the impact of any potential dispositions or other strategic realignments.

Some of the factors noted above are discussed elsewhere in this Annual Report and prior Company filings with the Securities and Exchange Commission (“SEC”). In addition, other factors have been or may be discussed from time to time in the Company’s SEC filings.

While the Company periodically reassesses material trends and uncertainties affecting the Company’s results of operations and financial condition in connection with the preparation of Management’s Discussion and Analysis of Financial Condition and Results of Operations and certain other sections contained in the Company’s quarterly, annual or other reports filed with the SEC, the Company does not intend to review or revise any particular forward-looking statement in light of future events.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information set forth on pages 27 and 28 within Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations under “Market Risk” is incorporated herein by reference.

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Crown Holdings, Inc.

ITEM 8. FINANCIAL STATEMENTS, SUPPLEMENTARY DATA AND FINANCIAL STATEMENT SCHEDULE

INDEX TO FINANCIAL STATEMENTS

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Crown Holdings, Inc.

Report of Independent Accountants

To the Board of Directors and Shareholders
of Crown Holdings, Inc.:

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Crown Holdings, Inc. and its subsidiaries at December 31, 2002 and 2001, and the results of their operations and cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion.

As discussed in Note B the Company adopted a new financial accounting standard for goodwill during 2002.

PricewaterhouseCoopers LLP

Philadelphia, Pennsylvania
March 19, 2003

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Crown Holdings, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts)

The accompanying notes are an integral part of these financial statements.

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Crown Holdings, Inc.

CONSOLIDATED BALANCE SHEETS (in millions, except share data)

The accompanying notes are an integral part of these financial statements.

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Crown Holdings, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)

The accompanying notes are an integral part of these financial statements.

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Crown Holdings, Inc.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY/(DEFICIT)
(in millions, except share data)

The accompanying notes are an integral part of these financial statements.

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Crown Holdings, 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. In connection with its refinancing and reorganization in 2003, as discussed in Notes N and Q, Crown Cork & Seal Company, Inc. formed a new public holding company, named Crown Holdings, Inc. Crown Cork & Seal Company, Inc. is now a wholly-owned subsidiary of Crown Holdings, Inc. The consolidated financial statements include the accounts of Crown Holdings, Inc. and its wholly-owned and majority-owned subsidiary companies (the “Company”).

The Company manufactures and sells metal containers, metal and plastic closures, crowns and canmaking equipment. These products are manufactured in the Company’s plants both within and outside the United States and are sold through the Company’s sales organization to the soft drink, food, citrus, brewing, household products, personal care and various other industries. The financial statements have been prepared in conformity with U.S. generally accepted accounting principles and reflect management’s estimates and assumptions. Actual results could differ from those estimates, impacting reported results of operations and financial position. All significant intercompany accounts and transactions are eliminated in consolidation. Investments in joint ventures and other companies in which the Company does not have control, but has the ability to exercise significant influence over operating and financial policies, are accounted for by the equity method. Other investments are carried at cost.

Foreign Currency Translation. For non-U.S. subsidiaries which operate in a local currency environment, assets and liabilities are translated into U.S. dollars at year-end exchange rates. Income and expense items are translated at average exchange rates prevailing during the year. Translation adjustments for these subsidiaries are accumulated as a separate component of accumulated other comprehensive income/(loss) in shareholders’ equity. For non-U.S. subsidiaries which operate in U.S. dollars (functional currency), local currency inventories and plant and other property are translated into U.S. dollars at approximate rates prevailing when acquired; all other assets and liabilities are translated at year-end exchange rates. Inventories charged to cost of sales and depreciation are remeasured at historical rates; all other income and expense items are translated at average exchange rates prevailing during the year. Gains and losses which result from remeasurement are included in earnings.

Revenue Recognition. The Company recognizes revenue from product sales when the goods are shipped and the title and risk of loss pass to the customer. Provisions for discounts and rebates to customers, returns, and other adjustments are provided in the same period that the related sales are recorded.

Shipping and Handling. Shipping and handling costs are included in cost of products sold in the Consolidated Statements of Operations.

Stock-Based Compensation. Compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company’s stock at the date of grant above the amount an employee must pay to acquire the stock granted under the option. The following table illustrates the effect on net loss and loss per share if the Company had applied the fair value recognition provisions of Statement of Financial Accounting Standards No. 123 (“FAS 123”) “Accounting for Stock-Based Compensation,” to stock options:

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Crown Holdings, Inc.

Cash and Cash Equivalents. Cash equivalents represent investments with maturities of three months or less from the time of purchase and are carried at cost which approximates fair value because of the short maturity of those instruments. Outstanding checks in excess of funds on deposit are included in accounts payable.

Inventory Valuation. Inventories are stated at the lower of cost or market, with cost for U.S. inventories principally determined under the last-in, first-out (“LIFO”) method. Non-U.S. inventories are principally determined under the average cost method.

Property, Plant and Equipment. Property, plant and equipment (“PP&E”) is carried at cost less accumulated depreciation and includes expenditures for new facilities and equipment and those costs which substantially increase the useful lives of existing PP&E. Cost of constructed assets includes capitalized interest incurred during the construction and development period. Maintenance, repairs and minor renewals are expensed as incurred. When PP&E is retired or otherwise disposed, the net carrying amount is eliminated with any gain or loss on disposition recognized in earnings at that time.

Depreciation and amortization are provided on a straight-line basis for financial reporting purposes and an accelerated basis for tax purposes over the estimated useful lives of the assets. The range of estimated economic lives in years assigned to each significant fixed asset category is as follows: Land Improvements-25; Buildings and Building Improvements-25 to 40; Machinery and Equipment-3 to 14.

Intangibles. Goodwill, representing the excess of the cost over the net tangible and identifiable intangible assets of acquired businesses, and other intangible assets are stated at cost.

Goodwill and intangible assets with indefinite lives are no longer amortized, but instead are tested for impairment, at least annually. Potential impairment is identified by comparing the fair value of a reporting unit to its carrying value, including goodwill. If the carrying value of the reporting unit exceeds its fair value, any impairment loss is measured by comparing the carrying value of the reporting unit’s goodwill to its implied fair value, using quoted market prices, a discounted cash flow model, or a combination of both.

Impairment or Disposal of Long-Lived Assets. In the event that facts and circumstances indicate that the carrying value of long-lived assets, primarily PP&E and certain identifiable intangible assets with defined lives, may be impaired, the Company performs a recoverability evaluation. If the evaluation indicates that the carrying amount of the asset is not recoverable from its undiscounted cash flows, then an impairment loss is measured by comparing the carrying amount of the asset to its fair value. Long-lived assets classified as held for sale are presented separately in the balance sheet at the lower of their carrying value or fair value less cost to sell.

Derivatives and Hedging. The Company recognizes all outstanding derivative financial instruments in the balance sheet at their fair values. The impact on earnings from recognizing the fair values of these instruments depends on their intended use, their hedge designation and their effectiveness in offsetting changes in the fair

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Crown Holdings, Inc.

values of the exposures that they are hedging. The effectiveness of these instruments to reduce risk associated with the exposures hedged is assessed and measured using a dollar-offset method, at inception and on an ongoing basis. Any amounts excluded from the assessment of hedge effectiveness, as well as any ineffective portion of designated hedges, are reported currently in earnings. Time value, a component of an instrument’s fair value, is excluded in assessing effectiveness for fair value hedges and included for cash flow hedges. If a derivative instrument ceases to be highly effective as a hedge, the Company discontinues hedge accounting immediately with changes in fair value reported currently in earnings. For derivative instruments that do not qualify for hedge accounting treatment, changes in fair value are reported currently in earnings.

The accounting treatment of these instruments is dependent upon their intended use. For instruments used to reduce or eliminate adverse fluctuations in the fair values of recognized assets and liabilities and unrecognized firm commitments, changes in their fair values are reported currently in earnings along with the changes in fair values of the hedged assets, liabilities or firm commitments. For instruments used to reduce or eliminate adverse fluctuations in cash flows of anticipated or forecasted transactions, changes in their fair values are reported in shareholders’ equity as a component of other comprehensive income. Adjustments accumulated in other comprehensive income are released to earnings when the related hedged items impact earnings or the anticipated transaction is no longer probable.

Upon adoption of SFAS No. 133 (“FAS 133”), “Accounting for Derivative Instruments and Hedging Activities,” as of January 1, 2002, the Company recorded a transition credit of $4, net of $1 tax, to earnings and a charge of $18, net of $10 tax, to accumulated other comprehensive income in shareholders’ equity. See Note R for details of the Company’s use of these instruments in 2002 along with disclosure of the fair values of those instruments outstanding at December 31, 2002 and 2001.

Treasury Stock. Treasury stock is reported at par value. The excess of fair value over par value is first charged to paid in capital, if any, and then to retained earnings.

Research and Development. Net research, development and engineering expenditures which amounted to $43, $40 and $41 in 2002, 2001 and 2000, respectively, are expensed as incurred and reported in selling and administrative expense in the Consolidated Statements of Operations. Substantially all engineering and development costs are related to developing new products or designing significant improvements to existing products.

Reclassifications. Certain reclassifications of prior years’ data have been made to improve comparability.

Other Recently Adopted Accounting Standards. In April 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 145 (“FAS 145”), “Recission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” In the fourth quarter of 2002, effective January 1, 2002, the Company early-adopted FAS 145. Among other provisions, the new standard no longer permits gains or losses from the extinguishment of debt to be reported as an extraordinary item unless the extinguishment qualifies as extraordinary under the criteria of Accounting Principles Board Opinion No. 30 (“APB 30”). The standard requires that prior gains or losses which were reported as extraordinary items and do not qualify as extraordinary under APB 30 be reclassified within income/(loss) from continuing operations. Extraordinary gains, from the early extinguishment of debt, reported in the second and third quarters of 2002, are now classified in income/(loss) from continuing operations. See Note N for further details about the early extinguishments of debt.

In November 2002, the FASB issued FASB Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN 45 requires a guarantor to recognize, at the inception of a qualified guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The guarantee disclosure requirements of FIN 45 became effective in the fourth quarter of 2002. The initial recognition and measurement requirements are effective on a prospective basis for qualified guarantees issued or modified after December 31, 2002.

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B. Goodwill

Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142 (“FAS 142”), “Goodwill and Other Intangible Assets.” During the second quarter of 2002, the Company completed its transitional impairment review and recognized a noncash, non-tax deductible impairment charge of $1,014 reported as the cumulative effect of a change in accounting, effective January 1, 2002. In evaluating and measuring the impairment charge, estimated fair values were calculated for each reporting unit within each reportable segment using a combination of market values for comparable businesses and discounted cash flow projections.

The changes in the carrying amount of goodwill by reportable segment for the years ended December 31, 2002 and 2001 were as follows:

The following is a reconciliation of previously reported financial information to adjusted amounts excluding goodwill amortization for the years ended December 31, 2002, 2001 and 2000, respectively:

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Crown Holdings, Inc.

Identifiable intangible assets other than goodwill are recorded in other noncurrent assets in the Consolidated Balance Sheets and, excluding minimum pension assets, are not material.

C. Accumulated Other Comprehensive Loss

As of December 31, accumulated other comprehensive loss consists of the following:

D. Receivables

The Company utilizes receivable securitization facilities in the normal course of business as part of its management of cash flow activities. Facilities were outstanding during 2002 and 2001 in North America and Europe providing for the accelerated receipt of cash from a qualified pool of receivables. The Company’s current facility entered into during 2001, provides for the accelerated receipt of cash up to $350 on the available pool of North American receivables. Under this facility the Company sells, on a revolving and non-recourse basis, accounts receivables to a wholly-owned, bankruptcy-remote subsidiary. This subsidiary was formed for the sole purpose of buying and selling receivables generated by the Company and, in turn, sells eligible accounts from the pool of purchased receivables to an unconsolidated entity of a leading financial institution. New receivables are added to the pool of receivables as collections reduce previously sold amounts. The Company continues to service these receivables for a fee but does not retain any interest in the receivables sold. The securitization facilities are accounted for as sales because the Company has relinquished control of the receivables. Accordingly, accounts receivable sold under securitization facilities are reflected as a reduction in receivables within the Consolidated Balance Sheets. At December 31, 2002 and 2001 receivables securitized were $100 and $110, respectively. During 2002 and 2001, the Company recorded expenses related to the outstanding securitization facilities of $10 and $18, respectively, as interest expense.

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Crown Holdings, Inc.

E. Inventories

Approximately 23% and 24% of worldwide productive inventories at December 31, 2002 and 2001, respectively, were stated on the LIFO method of inventory valuation. Had average cost (which approximates replacement cost) been applied to such inventories at December 31, 2002 and 2001, total inventories would have been $32 higher in both years. Cost of products sold in 2001 included a charge of $10 for the liquidation of LIFO inventory layers carried at higher costs that prevailed in prior years.

F. Property, Plant and Equipment

G. Non-Current Assets

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Crown Holdings, Inc.

H. Accounts Payable and Accrued Liabilities

I. Other Non-Current Liabilities

J. Lease Commitments

The Company leases manufacturing, warehouse and office facilities and certain equipment. Certain non-cancelable leases are classified as capital leases, and the leased assets are included in PP&E. Other long-term non-cancelable leases are classified as operating leases and are not capitalized. The amount of capital leases reported as capital assets, net of accumulated amortization, was $40 at both December 31, 2002 and 2001.

Under long-term operating leases, minimum annual rentals are $22 in 2003, $16 in 2004, $14 in 2005, $12 in 2006, $10 in 2007, and $40 thereafter. Such rental commitments have been reduced by minimum sublease rentals of $20 due under non-cancelable subleases. Under long-term capital leases, minimum annual rentals are $5 in 2003, $6 in 2004, $2 in 2005, $1 in 2006, $1 in 2007, and $3 thereafter. The present value of future minimum payments on capital leases is $17 with a current obligation of $5. Rental expense (net of sublease rental income of $3 in 2002, $4 in 2001 and $4 in 2000) was $33 in 2002, $34 in 2001 and $36 in 2000.

K. Commitments and Contingent Liabilities

Crown Cork & Seal Company, Inc. (“Crown Cork”) is one of many defendants in a substantial number of lawsuits filed throughout the United States by persons alleging bodily injury as a result of exposure to asbestos. These claims arose from the insulation operations of a U.S. company, the majority of whose stock Crown Cork purchased in 1963. Approximately ninety days after the stock purchase, this U.S. company sold its insulation operations and was later merged into Crown Cork.

Prior to 1998, the amounts paid to asbestos claimants were covered by a fund of $80 made available to Crown Cork under a 1985 settlement with carriers insuring Crown Cork through 1976, when Crown Cork became self-insured. Until 1998, the Company considered that the fund was adequate and that the likelihood of exposure in excess of the amount of the fund was remote. This view was based on the Company’s analysis of

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its potential exposure, the balance available under the 1985 settlement, historical trends and actual settlement ranges. However, an unexpected increase in claims activity, along with several larger group settlements, caused the Company to reevaluate its position.

Each quarter, the Company reviews and analyzes its claim experience, settlement trends, changes in the litigation environment and other factors to determine the adequacy of its asbestos accruals. In each of the years 2000 to 2002, the Company has engaged an expert in the field of medical demographics to perform an independent evaluation of the Company’s potential asbestos liability. Adjustments to the asbestos accrual are made based on changes to the above-mentioned factors after consultation with the Company’s expert and legal counsel.

During 2002, 2001 and 2000, respectively, Crown Cork (i) received 36,000, 53,000 and 44,000 new claims, (ii) settled or dismissed 43,000, 31,000 and 40,000 claims, and (iii) has 59,000, 66,000 and 44,000 claims outstanding at the end of the respective years. The outstanding claims at December 31, 2002 exclude 33,000 pending claims involving plaintiffs who allege that they are, or were, maritime workers subject to exposure to asbestos, but whose claims the Company believes, based on counsel’s advice, will not, in the aggregate, involve any material liability. During 2001, one jurisdiction accounted for 25,000 claims received, 17,000 of which were settled for $4 in 2001.

During 2002, 2001 and 2000, respectively, the Company (i) recorded pre-tax charges of $30, $51 and $255 to increase its accrual, (ii) made asbestos-related payments of $114, $118 and $94, (iii) settled claims totaling $77, $66 and $100, including amounts committed to be paid in future periods and (iv) had outstanding accruals of $263, $347 and $420 at the end of the year. The 2001 charge of $51 included an allowance of $6 for an insurance receivable.

In December 2001, the Commonwealth of Pennsylvania enacted legislation that limits the asbestos-related liabilities of Pennsylvania corporations that are successors by corporate merger to companies involved with asbestos. The legislation limits the successor’s liability for asbestos to the acquired company’s asset value. The Company has already paid significantly more for asbestos claims than the acquired company’s asset value. On June 12, 2002, Crown Cork received a favorable ruling from the Philadelphia Court of Common Pleas on its motion for summary judgment regarding the 376 asbestos-related cases pending against it in that court (in re Asbestos Litigation, October Term 1986, Number 001). The plaintiffs claimed that the legislation was procedurally inapplicable and that, if applicable, it violated due process and other clauses of the United States and Pennsylvania constitutions. The plaintiffs’ appeal of that ruling was heard by the Supreme Court of Pennsylvania on October 22, 2002, and a decision could come at any time. An unfavorable decision may require the Company to increase its accrual for pending and future asbestos-related claims.

Based on the updated report of the independent expert, the Company’s own review, and the view of counsel concerning the possible effects of the new legislation described above, the Company estimates that its probable and estimable asbestos liability for pending and future asbestos claims will range between $263 and $502. The accrual balance of $263 at the end of 2002 includes $146 for unasserted claims and $50 for committed settlements that will be paid over time, including $41 in 2003. Historically (1977-2002), Crown Cork estimates that approximately one-quarter of all asbestos claims made against it have been asserted by claimants who claim first exposure to asbestos after 1964. However, because of Crown Cork’s settlement experience to date and the increased difficulty of establishing identification of the subsidiary’s insulation products as the cause of injury by persons alleging first exposure to asbestos after 1964, the Company has not included in its accrual and range of potential liability any amounts for settlements by persons alleging first exposure to asbestos after 1964. Assumptions underlying the accrual and the range of potential liability include that claims for exposure to asbestos that occurred after the sale of the U.S. company’s insulation business in 1964 would not be entitled to settlement payouts and that the Pennsylvania asbestos legislation described above is expected to have a highly favorable impact on Crown Cork’s ability to settle or defend against asbestos-related claims. The Company’s accrual includes estimates for probable costs for claims through the year 2012. The upper end of the Company’s estimated range of possible asbestos costs of $502 includes claims beyond that date.

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Crown Holdings, Inc.

While it is not possible to predict the ultimate outcome of the asbestos-related claims and settlements, the Company believes, after consultation with counsel, that resolution of these matters is not expected to have a material adverse effect on the Company’s financial position. The Company cautions, however, that these estimates for asbestos cases and settlements are difficult to predict and may be influenced by many factors. Accordingly, these matters, if resolved in a manner different from the estimate, could have a material effect on the Company’s financial position and cash flow.

The Company has been identified by the EPA as a potentially responsible party (along with others, in most cases) at a number of sites. Actual expenditures for remediation were $2, $4 and $2 in 2002, 2001, and 2000, respectively. The Company’s balance sheet reflects estimated gross remediation liabilities of $14 and $18 at December 31, 2002 and 2001, respectively, and probable recoveries related to indemnification from the sellers of acquired companies and the Company’s insurance carriers of $2 at December 31, 2001.

On March 19, 2003, the European Commission informed the Company that it is in the process of issuing a Statement of Objections alleging that certain of the Company’s European subsidiaries engaged in commercial practices that violated European competition law. The Statement of Objections, which is understood to arise from an investigation of a complaint made by a competitor, alleges that certain food can contracts primarily in the United Kingdom and Ireland during the 1990’s infringed Article 82 of the EC Treaty (abuse of dominant position). The issuance of a Statement of Objections by the Commission is the initial step in formal proceedings. It does not constitute a decision on the merits. Under applicable procedures, the Company will have an opportunity to reply to the Statement of Objections and to contest its allegations at a formal hearing. The Commission will issue its formal decision sometime after the hearing and if it finds that the subsidiaries violated European competition law, the Commission has the authority to require the Company to modify its commercial practices and to levy fines. The Commission’s decision may be appealed to the European Court of First Instance. The Company believes that the allegations against it are without merit and intends to defend its position vigorously. However, because the matter is in its preliminary stages, the Company is unable to predict the ultimate outcome or its impact on the Company.

The Company is also subject to various other lawsuits and claims with respect to matters such as governmental and environmental regulations and other actions arising out of the normal course of business. While the impact on future financial results is not subject to reasonable estimation because considerable uncertainty exists, management believes, after consulting with counsel, that the ultimate liabilities resulting from such lawsuits and claims will not materially affect the consolidated results, liquidity or financial position of the Company.

The Company has various commitments to purchase materials and supplies as part of the ordinary conduct of business. The Company’s basic raw materials for its products are tinplate, aluminum and resins, all of which are purchased from multiple sources. The Company is subject to material fluctuations in the cost of these raw materials and has periodically adjusted its selling prices to reflect these movements. There can be no assurances, however, that the Company will be able to fully recover any increases or fluctuations in raw material costs from its customers. The Company also has commitments for standby letters of credit and for purchases of capital assets.

At December 31, 2002 the Company has guaranteed future rent payments for properties leased by Constar International. The guarantees represent an accommodation to landlords due to Constar’s divestiture from the Company. The maximum potential liability for these lease payments is $12. The lease agreements expire over the next five years with lease commitments of $4 in 2003, $4 in 2004, $2 in 2005, $1 in 2006 and $1 in 2007.

At December 31, 2002 the Company has certain indemnification agreements covering environmental remediation and other potential costs associated with properties sold or business divested. For agreements with defined liability limits the maximum potential amount of future liability is $57. Several agreements outstanding at December 31, 2002 do not provide liability limits. At December 31, 2002, the Company has recorded liabilities of approximately $3 covering these indemnification agreements. The Company accrues for costs associated with such indemnifications and potential costs when it is probable that a liability has been incurred and the amount can be reasonably estimated.

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Crown Holdings, Inc.

The Company also has guarantees aggregating to $19 with various governmental agencies within Europe to cover imports and other tax matters.

L. Restructuring

During 2002, the Company provided a net charge of $19 ($15 after tax) for costs associated with (i) the closure of two European food can plants, (ii) the closure of a crown plant and elimination of a crown operation within Europe, (iii) the elimination of a European metal closures operation, (iv) the downsizing of a European specialty plastics operation and (v) the elimination of a plastic bottle operation in China; partially offset by a credit for the reversal of other exit costs recognized in 2001 due to the favorable resolution of a lease termination in a U.S. food can plant. The related severance charges for these actions were associated with the termination of approximately 500 employees, 400 of whom were directly involved in manufacturing operations.

During 2001, the Company provided a net charge of $48 ($46 after tax) for costs associated with (i) the closure of six U.S. food can plants, two European crown operations, a European food can plant and a European PET bottle plant and (ii) severance related to downsizing three plants in Africa; partially offset by a credit for the reversal of severance charges recognized in 2000 for certain restructuring plans which the Company decided not to pursue. The severance charge was associated with the termination of approximately 700 employees, 600 of whom were directly involved in manufacturing operations.

During 2000, the Company provided $52 ($37 after-tax) for costs associated with overhead structure modifications in Europe, the closure of three plants in the Americas division, and the loss on sale of a South American operation to local management. This provision included (i) $42 for severance costs for approximately 1,000 employees, (ii) $5 for lease termination and other exit costs, (iii) $1 for the write-down of assets and (iv) $4 for the loss on sale.

The write-downs of assets were made under announced restructuring plans, as the carrying values exceeded the Company’s estimated proceeds from abandonment or disposal. The sale of plant sites may require more than one year to complete due to preparations for sale, such as site cleanup and buyer identification, as well as market conditions and the location of the properties.

Balances remaining in the reserves included provisions for current year actions as well as for contracts or agreements for which payments from prior restructuring actions are extended over time. This includes employee-related agreements with unions and governmental agencies as well as lease arrangements with landlords. The balance of the restructuring reserves (excluding asset write-downs that were recorded as a reduction to the related asset accounts) were included in accounts payable and accrued liabilities. The components of the restructuring reserve and movements within these components during 2001 and 2002 were as follows:

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Crown Holdings, Inc.

* Includes translation adjustments

During 2002, severance payments were made related to the termination of approximately 500 employees, 400 of whom were involved in direct manufacturing operations. The remaining termination benefits of $9 are expected to be paid in 2003.

M. Asset Impairments and Loss/Gain on Sale of Assets

During 2002, the Company recorded pre-tax charges of $247 ($258 after tax) for losses from divestitures of businesses, the sale of assets, and asset impairments outside of restructuring programs. During the fourth quarter of 2002, Constar International Inc. (“Constar”), the Company’s wholly-owned subsidiary, completed its initial public offering. The Company retained a 10.5% interest in Constar with a carrying value of $30, received net proceeds of $460, and recorded a loss of $213 on the portion sold. The Company also completed the sales of its U.S. fragrance pumps business, its European pharmaceutical packaging business, its 15% shareholding in Crown Nampak (Pty) Ltd., and certain businesses in Central and East Africa. The Company received total proceeds of $201 and recorded total pre-tax losses of $26 on these divestitures. In addition to the business divestitures, the Company sold various other assets, primarily real estate, for total proceeds of $45 and a pre-tax gain of $11. The Company also recorded asset impairment charges of (i) $10 to write-off certain surplus assets in the U.S. due to the Company’s assessment that their carrying value will not be recovered based on current operating plans, (ii) $4 to write-down the assets of a U.S. operation the Company is considering for sale or closure, (iii) $3 to write-down the value of surplus U.S. real estate the Company has for sale, and (iv) $2 to write-off the carrying value of other assets.

During 2001, the Company recorded a net charge of $213 ($208 after-tax) for noncash asset impairment charges and gains from asset sales. Of the total impairment charge, $204 arose from the Company’s planned divestitures of certain interests in Africa, including $71 for the reclassification of cumulative translation adjustments to earnings. The remaining impairment charge of $11 was due to the write-down of surplus equipment. The sale of surplus properties generated proceeds of $28 and a net gain of $2.

A charge of $27 ($20 after-tax) was recorded in 2000 for the noncash write-off of a minority interest in a machinery company and an investment in Moldova and for losses on the sale of various assets. The investment write-offs were due to uncertainty regarding the ultimate recovery of these investments. The asset sales provided proceeds of $28.

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Crown Holdings, Inc.

N. Capital Stock

In connection with its refinancing and reorganization, as discussed in Note Q, Crown Cork & Seal Company, Inc. formed a new public holding company, Crown Holdings, Inc. in February 2003. Crown Cork & Seal Company, Inc. is now a wholly-owned subsidiary of Crown Holdings, Inc. Shareholders of Crown Cork & Seal Company, Inc. became shareholders of Crown Holdings, Inc. and have the same number of shares and percentage of ownership and the same rights, privileges and interests with respect to Crown Holdings, Inc. that they held in Crown Cork & Seal Company, Inc. immediately prior to the reorganization. The conversion of shares of Crown Cork & Seal Company, Inc. into shares of Crown Holdings, Inc. occurred without the physical exchange of certificates, and certificates formerly representing shares of Crown Cork & Seal Company, Inc. are deemed to represent shares of Crown Holdings, Inc. The common stock of Crown Holdings, Inc. continues to be publicly traded under the symbol “CCK” on the New York Stock Exchange.

During 2002, the Company entered into privately negotiated debt-for-equity exchanges with holders of its outstanding notes and debentures. The Company exchanged 33,386,880 shares of its common stock with a market value of $250 for debt with a face value of $271 and accrued interest of $7 and recognized a gain of $28.

During January 2003, the Company exchanged an additional 5,386,809 shares of its common stock for debt and related accrued interest, totaling $43.

During 2001, loans made in prior years to certain executive officers to purchase shares of the Company’s common stock were partially repaid. Upon repayment, $4 was recognized as a credit to paid in capital.

Also during 2001, the Company’s Board of Directors terminated the restricted stock plan for non-employee directors. The plan was replaced by a compensation plan in which the non-employee directors receive a majority of their compensation in the form of company stock. During 2002 and 2001, 68,076 and 101,103 shares, respectively, were issued to the non-employee directors under this new plan.

During 2000, approximately 8.3 million shares of the Company’s 4.5% cumulative convertible preferred stock (“acquisition preferred”) were converted into approximately 7.6 million shares of its common stock. No additional shares of acquisition preferred stock were outstanding at December 31, 2002 and 2001.

Also during 2000, the Company repurchased approximately 3.2 million shares of its common stock for an aggregate cost of $49 under a stock repurchase program approved by the Board of Directors in 1998. The repurchase program has been suspended as the Company’s credit agreement, prohibits the repurchase of common stock except to meet the requirements for its stock-based compensation and savings plans.

The Company’s credit facility prohibits the payment of dividends.

The Board of Directors has the authority to issue, at any time or from time to time, up to 30 million shares of additional preferred stock in one or more classes or series of classes. Such shares of additional preferred stock would not be entitled to more than one vote per share when voting as a class with holders of the Company’s common stock. The voting rights and such designations, preferences, limitations and special rights are subject to the terms of the Company’s Articles of Incorporation, determined by the Board of Directors.

O. Stock Options

As of December 31, 2002, the Company had four stock-based incentive compensation plans, 1990, 1994, 1997 and 2001. Stock-based compensation plans provide for the granting of awards in the form of stock options, deferred stock, restricted stock or stock appreciation rights (“SARs”) and may be subject to the achievement of certain performance goals as determined by the Plan Committee so designated by the Company’s Board of Directors. There have been no issuances of deferred stock or SARs under any of the plans. During 2000, the Company issued 60,000 shares of restricted stock from the 1997 plan. As of

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December 31, 2002, no further option grants are available under the 1990, 1994 and 1997 plans. Option grants under the 2001 plan are available through February 2006. Options outstanding at December 31, 2002 include grants from all four plans discussed above.

Stock options granted during 2002 generally have a maximum term of ten years and vest over two years. The maximum number of shares of the Company’s common stock authorized for issuance was 6,000,000 under the 2001 plan.

A summary of stock option activity is as follows:

The following table summarizes information concerning currently outstanding and exercisable options: