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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO _________
COMMISSION FILE NUMBER 1-2227
CROWN CORK & SEAL COMPANY, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1526444
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
One Crown Way, Philadelphia, PA 19154
(Address of principal executive offices) (Zip Code)
215-698-5100
(Registrants's telephone number, including area code)
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 filing
requirements for the past 90 days. Yes X No ___
There were 125,628,543 shares of Common Stock outstanding as of April 30, 2001.
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Crown Cork & Seal Company, Inc.
PART I - FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF INCOME
(In millions except share and per share data)
(Unaudited)
- ---------------------------------------------------------------------------------------------------------------
Three months ended March 31, 2001 2000
- ---------------------------------------------------------------------------------------------------------------
Net sales $ 1,658 $1,699
----------- -----------
Costs, expenses & other income
Cost of products sold, excluding depreciation and amortization 1,395 1,352
Depreciation 94 97
Amortization 30 31
Selling and administrative expense 86 85
Provision for restructuring 2
Interest expense 115 92
Interest income ( 6) ( 4)
Translation and exchange adjustments 3
----------- -----------
1,719 1,653
----------- -----------
(Loss) / income before income taxes and cumulative effect
of accounting change ( 61) 46
(Benefit from) / provision for income taxes ( 11) 19
Minority interests, net of equity earnings ( 4)
----------- -----------
Net (loss) / income before cumulative effect of accounting change ( 50) 23
Cumulative effect of change in accounting principle for derivatives
and hedging activities, net of tax 4
----------- -----------
Net (loss) / income ( 46) 23
Preferred stock dividends 2
----------- -----------
Net (loss) / income available to common shareholders ($ 46) $ 21
=========== ===========
(Loss) / earnings per average common share:
Basic and diluted - before cumulative effect of accounting change ($ .40) $ .17
=========== ===========
- after cumulative effect of accounting change ($ .37) $ .17
=========== ===========
Dividends per common share $ .25
===========
Average common shares outstanding:
Basic 125,624,056 123,870,438
Diluted 125,624,056 128,569,627
- ----------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Certain prior year amounts have been reclassified to improve comparability.
2
Crown Cork & Seal Company, Inc.
CONSOLIDATED BALANCE SHEETS (Condensed)
(In millions except per share data)
- ---------------------------------------------------------------------------------------------------------------
March 31, December 31,
2001 2000
(Unaudited)
- ---------------------------------------------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents $ 291 $ 382
Receivables 1,126 1,153
Inventories 1,368 1,288
Prepaid expenses and other current assets 122 90
------- -------
Total current assets 2,907 2,913
------- -------
Long-term notes and receivables 22 25
Investments 150 142
Goodwill, net of amortization 3,766 3,920
Property, plant and equipment 2,839 2,969
Other non-current assets 1,303 1,190
------- -------
Total $10,978 $11,159
======= =======
Liabilities and shareholders' equity
Current liabilities
Short-term debt $ 522 $ 232
Current maturities of long-term debt 59 68
Accounts payable and accrued liabilities 1,736 1,903
Income taxes payable 64 58
------- -------
Total current liabilities 2,381 2,261
------- -------
Long-term debt, excluding current maturities 5,058 5,049
Postretirement and pension liabilities 712 731
Other non-current liabilities 747 814
Minority interests 195 195
Shareholders' equity 1,894 2,109
------- -------
Total $10,987 $11,159
======= =======
- ---------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
3
Crown Cork & Seal Company, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Condensed)
(In millions)
(Unaudited)
- -----------------------------------------------------------------------------------------------------------
Three months ended March 31, 2001 2000
- -----------------------------------------------------------------------------------------------------------
Cash flows from operating activities
Net (loss) / income ($ 46) $ 23
Depreciation and amortization 124 128
Cumulative effect of accounting change ( 4)
Provision for restructuring 1
Change in assets and liabilities, other than debt ( 359) ( 354)
---- ----
Net cash used in operating activities ( 284) ( 203)
---- ----
Cash flows from investing activities
Capital expenditures ( 47) ( 57)
Proceeds from sale of property, plant and equipment 1 9
Other, net ( 6) ( 1)
---- ----
Net cash used in investing activities ( 52) ( 49)
---- ----
Cash flows from financing activities
Proceeds from long-term debt 2
Payments of long-term debt ( 17) ( 24)
Net change in short-term debt 264 301
Stock repurchased ( 9)
Dividends paid ( 32)
Minority contributions, net of dividends paid ( 1)
---- ----
Net cash provided by financing activities 246 238
---- ----
Effect of exchange rate changes on cash and cash equivalents ( 1) ( 8)
---- ----
Net change in cash and cash equivalents ( 91) ( 22)
Cash and cash equivalents at beginning of period 382 267
---- ----
Cash and cash equivalents at end of period $291 $245
==== ====
- ------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
4
Crown Cork & Seal Company, Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In millions)
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
| Accumulated
| Other
Comprehensive | Preferred Common Paid-In Retained Treasury Comprehensive
Income / (Loss)| Stock Stock Capital Earnings Stock Income/(Loss) Total
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 | $780 $1,596 $ 994 ($ 151) ($1,110) $2,109
Net loss ($ 46) | ( 46) ( 46)
Translation adjustments ( 155) | ( 155) ( 155)
Derivatives qualifying as hedges ( 14) | ( 14) ( 14)
---- |
Comprehensive loss ($215) |
==== |
|
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 2001 | $780 $1,596 $ 948 ($151) ($1,279) $1,894
====================================================================================================================================
| Accumulated
| Other
Comprehensive | Preferred Common Paid-In Retained Treasury Comprehensive
Income | Stock Stock Capital Earnings Stock Income/(Loss) Total
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 | $349 $779 $1,317 $1,295 ($173) ($ 676) $2,891
Net income $ 23 | 23 23
Translation adjustments ( 94) | ( 94) ( 94)
---- |
Comprehensive loss ($ 71) |
==== |
|
Dividends declared: |
Common | ( 30) ( 30)
Preferred | ( 2) ( 2)
Stock repurchased | ( 6) ( 3) ( 9)
Preference stock conversions | ( 349) 1 311 37
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 2000 | $780 $1,622 $1,286 ($139) ($ 770) $2,779
====================================================================================================================================
The accompanying notes are an integral part of these financial statements.
5
Crown Cork & Seal Company, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except share and per share data)
(Unaudited)
A. Statement of Information Furnished
----------------------------------
The accompanying unaudited interim consolidated and condensed
financial statements have been prepared by the Company in accordance
with Form 10-Q instructions. In the opinion of management, these
consolidated financial statements contain all adjustments of a normal
and recurring nature necessary to present fairly the financial
position of Crown Cork & Seal Company, Inc. as of March 31, 2001 and
the results of its operations and cash flows for the periods ended
March 31, 2001 and 2000, respectively. These results have been
determined on the basis of generally accepted accounting principles
and practices consistently applied.
Certain information and footnote disclosures, normally included in
financial statements presented in accordance with generally accepted
accounting principles, have been condensed or omitted. The
accompanying Consolidated Financial Statements should be read in
conjunction with the financial statements and notes thereto included
in the Company's Annual Report on Form 10-K for the year ended
December 31, 2000.
B. Accounting Change
-----------------
Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," as amended (SFAS 133). SFAS 133 requires that
the Company recognize all outstanding derivative instruments on the
balance sheet at their fair values. The impact on earnings from
recognizing these instruments at fair value depends on whether the
instruments are designated and qualify as hedges. If the derivative
does not qualify as a hedge, changes in fair value are reported in
earnings immediately. If the derivative instrument qualifies as a
hedge and based on the risk being hedged, changes in the fair value of
the derivatives will either be offset against changes in fair value of
the hedged assets, liabilities or firm commitments through earnings
(fair value hedge) or recognized in other comprehensive income (cash
flow and net investment hedges). Any ineffective portion of designated
hedges is reported in earnings immediately. For cash flow hedges,
adjustments to the fair value of the derivative instruments are
temporarily reported in other comprehensive income until the related
hedged items impact earnings. For hedges of the net investment in
foreign operations, fair value adjustments are reported in other
comprehensive income as translation adjustments and released to
earnings when the investments are disposed. Within the balance sheet,
the fair value of the derivatives are reported as current or
non-current assets and liabilities consistent with the classification
of the hedged items. Within the Consolidated Statements of Cash
Flows, cash flows from hedging transactions are classified under the
same category as the cash flows of the hedged items.
At January 1, 2001, the Company recorded transition adjustments, the
cumulative effect of an accounting change, which resulted in an
after-tax credit of $4 to net income and an after-tax charge of $18 to
other comprehensive income within shareholders' equity. The per share
credit to earnings was $.03. The ongoing impact on the Company from
adoption of this standard will depend on a variety of factors,
including interest rates and other market conditions, as well as
future interpretive guidance from the Financial Accounting Standards
Board, which continues to address implementation issues.
The cumulative effect on earnings and equity was due primarily to net
fair value adjustments related to cross-currency swaps.
6
Crown Cork & Seal Company, Inc.
A reconciliation of current period changes, net of applicable income
taxes, in other comprehensive income within shareholders' equity,
referred to as "Derivatives qualifying as hedges" follows (net of tax
adjustments):
Transition adjustment as of January 1, 2001 ($18)
Current period changes in fair value - net 17
Reclassification to earnings - net ( 13)
---
Balance at March 31, 2001 ($14)
===
For hedges of future cash flows (cash flow hedge), which include
foreign exchange contracts, cross-currency swaps, and commodity
contracts, the ineffective portion was not material and no items were
excluded from the measure of effectiveness. Of the charge of $18
recorded in equity at January 1, 2001, $1, net of taxes, was
reclassified to earnings during the first quarter of 2001. Of the
charge of $14 recorded in equity at March 31, 2001, $6, net of income
taxes, is expected to be reclassified to earnings over the 12 month
period ending March 31, 2002. The actual amount that will be
reclassified to earnings over the next twelve months will vary from
this amount as a result of changes in market conditions. No amounts
were reclassified to earnings during the first quarter in connection
with forecasted transactions that were no longer considered probable
of occurring. At March 31, 2001, the maximum term of derivative
instruments that hedge forecasted transactions, except those related
to payment of variable interest on existing financial instruments, was
two years.
For hedges of recognized assets, liabilities and firm commitments,
including intercompany transactions, the ineffective portion was not
material. For fair value hedges, the Company excludes the time value
component of the derivative in its measurement of effectiveness.
Amounts excluded from the measure of effectiveness, reported in first
quarter earnings, amounted to less than $1 before income taxes. The
impact on earnings from the net fair value adjustments of cross-
currency swaps designated as fair value hedges is reported as
"interest expense" in the Consolidated Statements of Income.
In the fourth quarter of 2000, the Company adopted EITF 00-10,
"Accounting for Shipping and Handling Fees and Costs." EITF 00-10
requires that shipping and handling costs be excluded from revenues.
The Company, to comply with the standard, has reclassified from net
sales to cost of products sold $59 for the quarter ended March 31,
2000.
C. Receivables
-----------
During the first quarter of 2001, the Company entered into an interim
receivables securitization agreement on behalf of its U.S. operations.
The agreement provided for the accelerated receipt of up to $210 of
cash on available receivables. The interim agreement was amended and
restated as of May 7, 2001 to include the Company's Canadian
operations and to provide for the accelerated receipt of up to $350 of
cash on available receivables. Securitization transactions have been
accounted for as a sale in accordance with SFAS No. 125. Accordingly,
accounts included under outstanding securitization programs have been
reflected as a reduction in receivables in the accompanying
Consolidated Balance Sheet. At March 31, 2001, net proceeds received
under the program were $113. Outstanding receivable securitizations at
March 31, 2001 and 2000, including those in Europe, amounted to $225
and $183, respectively. During the first quarter of 2001 and 2000, the
Company recorded fees related to the outstanding securitizations
amounting to approximately $3 and $2, which amounts have been included
as interest expense within the Consolidated Statements of Income.
7
Crown Cork & Seal Company, Inc.
D. Inventories
-----------
----------------------------------------------------------
March 31, December 31,
2001 2000
----------------------------------------------------------
Finished goods $ 613 $ 530
Work in process 169 165
Raw material and supplies 586 593
------ ------
$1,368 $1,288
====== ======
E. Restructuring
-------------
During the fist quarter of 2001, the Company provided $4 for the costs
associated with the closure of a U.S. food can plant. Also during the
first quarter of 2001, the Company recorded a restructuring credit of
$2 for the reversal of severance costs related to an original
restructuring charge of $47 provided during the second quarter of
2000. The Company decided not to pursue certain restructuring
activities in its European operations that had been previously
approved.
Remaining balances in the reserves represent contracts or agreements
whereby payments are extended over time. This includes agreements with
unions and governmental agencies related to employees as well as with
landlords in lease arrangements. The balance of the restructuring
reserves (excluding write-down of assets which is reflected as a
reduction of the related asset account) is included within accounts
payable and accrued liabilities. The components of the restructuring
reserve and movements within these components in the first quarter of
2001 were as follows:
Termination Other Exit Asset
Benefits Costs Writedowns Total
-------- ---------- ---------- -----
Opening balance................... $24 $ 8 $32
Provision, net ................... ( 1) * 2 1 2
Payments made..................... ( 6) ( 3) ( 9)
Transfer against assets........... ( 1) ( 1)
--- --- --- ---
Closing balance................... $17 $ 7 $24
=== === ===
<FN>
* Includes reversal of severance of $2, representing headcount of 65
</FN>
During the first quarter of 2001, payments of $6 were made for the
termination of 222 employees, 162 of whom were involved in direct
manufacturing operations. Payments of $3 were made for other exit
costs, including dismantlement costs, equipment removal and various
contractual obligations.
8
Crown Cork & Seal Company, Inc.
F. Earnings Per Share
------------------
The following table summarizes the basic and diluted earnings per
share computations for the periods ended March 31, 2001 and 2000,
respectively:
2001 2000
------------------------------ ------------------------------
Income / Average Average
(loss) Shares EPS Income Shares EPS
------------------------------ ------------------------------
Net (loss) / income ($ 46) $ 23
Less:
Preferred stock dividends ( 2)
---- ----
Basic and diluted EPS ($ 46) 125.6 ($.37) $ 21 123.9 $.17
==== ====
Excluded from the computation of diluted earnings per share for the
quarter ended March 31, 2000 were approximately 4.7 million common
shares resulting from the assumed conversion of preferred stock as of
January 1, 2000. This conversion would have been antidilutive.
Common shares contingently issueable upon the exercise of stock
options, amounting to 9,321,503 and 8,085,165 shares at March 31, 2001
and 2000, respectively, were excluded from the computation of diluted
earnings per share because the grant prices of the then outstanding
options were above the average market price for the related period.
G. Supplemental Cash Flow Information
----------------------------------
Cash payments, including prepayments, for interest, net of amounts
capitalized, were $121 and $65 during the three months ended March 31,
2001 and 2000, respectively. Cash payments for income taxes amounted
to $6 in both years.
H. Segment Information
-------------------
The Company maintains three operating segments, defined
geographically: Americas, Europe and Asia-Pacific. Each reportable
segment is an operating division within the Company and has a
President reporting directly to the Chief Executive Officer.
"Corporate" includes Corporate Technology and headquarters' costs.
Divisional headquarter costs are maintained within the operating
segments. The interim segment information is as follows:
Quarter ended March 31,
2001 Americas Europe Asia-Pacific Corporate Total
---- -------- ------ ------------ --------- -----
External sales $843 $741 $ 74 $1,658
Provision for restructuring 4 ( 2) 2
Segment income 11 62 5 ($ 27) 51
2000
----
External sales 860 768 71 1,699
Segment income 75 76 6 ( 23) 134
9
Crown Cork & Seal Company, Inc.
The following table reconciles the Company's segment income to
consolidated pre-tax income:
Three Months Ended March 31,
------------------------------
2001 2000
------------------------------
Total segment income $ 51 $134
Interest expense 115 92
Interest income ( 6) ( 4)
Translation & exchange adjustments 3
---- ----
Consolidated pre-tax (loss) / income ($ 61) $ 46
==== ====
I. Commitments and Contingent Liabilities
--------------------------------------
The Company has various commitments to purchase materials and supplies
as part of the ordinary conduct of business. Such commitments are not
at prices in excess of current market.
The Company's basic raw materials for its products are tinplate,
aluminum and resins, all of which are purchased from multiple sources.
The Company is subject to material fluctuations in the cost of these
raw materials and has periodically adjusted its selling prices to
reflect these movements. There can be no assurance, however, that the
Company will be able to fully recover any increases or fluctuations in
raw material costs from its customers.
The Company is one of over 100 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. Within approximately three months of this stock
purchase, this U.S. company sold its insulation operations.
The accrual recorded for asbestos claims constitutes management's best
estimate of such costs for pending and future claims that are probable
and estimable. The Company cautions, however, that this estimate may
be influenced by changes in the litigation environment and other
factors which may vary as claims are filed and settled or otherwise
disposed of. Accordingly, these matters, if resolved in a manner
different from the estimate, could have a material effect on the
operating results or cash flows in future periods. While it is not
possible to predict with certainty the ultimate outcome of these
lawsuits and contingencies, the Company believes, after consultation
with counsel, that resolution of these matters is not expected to have
a material adverse effect on the Company's financial position.
The Company is also subject to various 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.
10
Crown Cork & Seal Company, Inc.
J. Recent Accounting Pronouncements
--------------------------------
In September 2000, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities (a replacement of
FASB Statement No. 125)." SFAS No. 140 revises the accounting for
securitization transactions and other transfers of financial assets
and collateral and requires certain disclosures. These disclosures
include information about securitized assets, including principal
outstanding and related accounting policies. The accounting
requirements of the standard are effective for transfers and servicing
of financial assets and extinguishment of liabilities occurring after
March 31, 2001, and must be applied prospectively. The Company does
not expect the requirements of the standard to have a material impact
on its financial position or results of operations in future periods.
11
Crown Cork & Seal Company, Inc.
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (in millions, except share, per share,
employee, shareholder and statistical data)
Introduction
------------
The following discussion presents management's analysis of the
results of operations for the three months ended March 31, 2001,
compared to the corresponding period in 2000 and the changes in
financial condition and liquidity from December 31, 2000. This
discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 2000, along
with the consolidated financial statements and related notes included
in and referred to within this report.
Results of Operations
---------------------
Net Income and Earnings Per Share
---------------------------------
Net income available to common shareholders for the quarter ended
March 31, 2001 was a loss of $46, or $.37 per share, versus a gain of
$21, or $.17 per share for the first quarter of 2000. Excluding the
cumulative effect of the accounting change for the adoption of FAS
133, the loss for the first quarter of 2001 was $50 or $.40 per share.
The decline in earnings primarily reflects lower operating income in
North America and Europe and increased net interest expense.
Net Sales
---------
Net sales in the quarter of $1,658 were $41 or 2.4% below the prior
year period. Excluding the effect of foreign currency translation of
$67, net sales would have increased $26 or 1.5% compared to the first
quarter of 2000. Sales from U.S. operations accounted for
approximately 40% of consolidated net sales in the first quarter of
both years. Sales of beverage cans and ends accounted for
approximately 31% and sales of food cans and ends accounted for
approximately 28% of consolidated sales in the first quarter of both
years.
An analysis of comparative net sales by operating division follows:
Net Sales
-----------------------------------------------
First Quarter Increase / (Decrease)
----------------- ---------------------
Division: 2001 2000 $ %
---- ---- --- ---
Americas $ 843 $ 860 ($ 17) (2.0)
Europe 741 768 ( 27) (3.5)
Asia-Pacific 74 71 3 4.2
Corporate
------ ------ ---- ----
$1,658 $1,699 ($ 41) (2.4)
====== ====== ====
The decrease in 2001 Americas Division net sales is primarily due to
lower food can volumes in North America, partially due to the
bankruptcy filing by a large customer in the second quarter of 2000,
and lower selling prices in North American beverage cans. Overall
division beverage can unit volumes were equal to the prior year as
strong demand in Latin America offset lower volumes in North America.
Sales unit volume increases in U.S. beauty care packaging, plastic
beverage bottles and plastic beverage closures were partially offset
by lower volumes in aerosol cans and metal closures.
12
Crown Cork & Seal Company, Inc.
Item 2. Management's Discussion and Analysis (Continued)
Net sales in the European Division decreased to $741 from $768 in the
first quarter of 2000. Excluding $56 of unfavorable currency
translation, net sales increased $29 or 3.8% versus the prior year
period, primarily due to sales unit volume increases. Beverage can
unit volumes increased 2.5% with strong performances throughout
Southern Europe. Food can volumes increased 1.0%, primarily in
Benelux, Eastern Europe, Germany and the UK. Aerosol can volumes
increased 8.1% with the UK showing the most improvement. The plastics
operations also contributed to the volume increases with improvements
in beverage closures, specialty closures and health and beauty care
packaging.
Net sales in the Asia-Pacific Division increased to $74 as compared to
$71 in the first quarter of 2000. Excluding losses of $4 due to
currency translation, sales increased $7 due to increased sales unit
volumes across all products. Overcapacity in the China beverage can
market continues to put pressure on selling prices.
Selling and Administrative
--------------------------
Selling and administrative expenses were $86 for the first quarter of
2000 as compared to $85 for the same period of the prior year. The
increase in the current year was due to employee separation costs,
offset by reductions due to lower manning and foreign currency
translation.
Restructuring Charge
--------------------
During the first quarter of 2001, the Company provided $4 for the
costs associated with the closure of a U.S. food can plant. Also
during the first quarter of 2001, the Company recorded a restructuring
credit of $2 for the reversal of severance costs related to an
original restructuring charge of $47 provided during the second
quarter of 2000. The Company decided not to pursue certain
restructuring activities in its European operations that had been
previously approved.
Operating Income
----------------
Consolidated operating income was $51 as compared to $134 in the first
quarter of 2000. Excluding restructuring, operating income was $53 in
the first quarter of 2001. Operating income, excluding restructuring,
as a percentage to net sales was 3.2% in 2001 versus 7.9% in 2000. An
analysis of operating income by division follows:
Operating Income (excluding restructuring)
--------------------------------------------------
First Quarter Increase / (Decrease)
---------------- ---------------------
Division: 2001 2000 $ %
---- ---- ----- -----
Americas $ 15 $ 75 ($60) (80.0)
Europe 60 76 ( 16) (21.1)
Asia-Pacific 5 6 ( 1) (16.7)
Corporate ( 27) ( 23) ( 4) (17.4)
---- ---- --- ----
$ 53 $134 ($81) (60.4)
==== ==== ===
Americas Division operating income, excluding restructuring, was 1.8%
of net sales in 2001 as compared to 8.7% for the same period of 2000.
The decrease in operating income was primarily due to (i) reduced
selling prices in the North America beverage can market, (ii) reduced
U.S. food can volumes, (iii) increased resin costs, (iv) lower pension
income in the U.S. and (v) higher energy costs.
13
Crown Cork & Seal Company, Inc.
Item 2. Management's Discussion and Analysis (Continued)
European Division operating income, excluding restructuring, was 8.1%
of net sales in the first quarter of 2001 as compared to 9.9% in 2000.
The decrease in 2001 was due to (i) cost/price pressure in certain
food operations, (ii) increased resin costs and (iii) pressure on UK
selling prices due to the relative weakness of the euro; partially
offset by sales unit volume increases throughout most product lines.
Asia-Pacific Division operating income decreased $1 versus 2000,
primarily due to selling price decreases in the China and Southeast
Asia beverage can markets, partially offset by sales unit volume gains
and cost reductions.
Net Interest Expense
--------------------
Net interest expense increased $21 in 2001 as compared to 2000
primarily due to higher interest rates. During the third and fourth
quarters of 2000 the Company's ability to access the commercial paper
market was eliminated due to downgrades in its credit ratings. Since
that time the Company has funded its operations through its
multicurrency credit facility and a new term loan which have higher
rates. The multicurrency credit facility, which was amended and
restated in March of 2001, is discussed more fully under Liquidity and
Capital Resources.
Translation and Exchange Adjustments
------------------------------------
The results for 2001 included losses of $2 and $1 in Brazil and
Turkey, respectively, in connection with currency devaluations that
occurred during the quarter.
Taxes on Income
---------------
The effective tax rate for the first quarter of 2001 was 18.0% as
compared to 41.3% for the same period in 2000. Excluding
non-deductible goodwill amortization of $29, the first quarter 2001
effective tax rate was approximately 34%. The effective tax rate for
the first three months of 2000, excluding goodwill amortization of
$30, was 25%. The lower rate in 2000 was primarily due to the
reduction of a valuation allowance of $4 for net operating loss
carryforwards in Mexico.
Minority Interests, Net of Equity Earnings
------------------------------------------
The charge for minority interests, net of equity earnings was $4 less
in 2001 than in the prior year. The reduction in the charge was
primarily due to the purchase, in the third quarter of 2000, of the
minority interests in the Company's Asia Limited subsidiaries.
14
Crown Cork & Seal Company, Inc.
Item 2. Management's Discussion and Analysis (Continued)
Liquidity and Capital Resources
-------------------------------
Cash from Operations
--------------------
Cash of $284 was used by operations in 2001 versus $203 in 2000. The
increase was due to reduced operating income and increased payments
for interest, including prepayments made in connection with the
Company's amended and restated multicurrency credit facility and new
term loan. These items were partially offset by an improvement in
working capital, including increased asset securitization proceeds.
Investing Activities
--------------------
Investing activities used cash of $52 in the first quarter of 2001
compared to $49 in the prior year period. The increased use of cash is
due to lower proceeds from asset sales of $8, and other investing
activities of $5, partially offset by lower capital spending of $10.
The Company is reviewing various strategic alternatives which could
include the sale of assets. The timing of any such sales, the proceeds
to be received, and any gain or loss on disposal cannot be determined
at this time. Net proceeds received from such dispositions will be
used to reduce outstanding debt pursuant to the terms of the Company's
multicurrency revolving credit facility which is referenced below.
Financing Activities
--------------------
Financing activities provided cash of $246 in the first quarter, an
increase of $8 over the prior year period. Increased borrowings were
required due to lower operating cash flows offset by the suspension
of dividend prepayments and stock repurchases.
On March 2, 2001 the Company amended and restated its $2,500
multicurrency revolving credit facility and obtained a new $400 term
loan. The amended and restated credit facility bears interest at LIBOR
plus 2.5% and the maturity date has been extended to December 8, 2003.
The term loan bears interest at LIBOR plus 3.5% and matures February
4, 2002.
Total debt, net of cash and cash equivalents was $5,348 at March 31,
2001, an increase of $381 above the December 31 level of $4,967. Total
debt, net of cash and cash equivalents, as a percentage to total
capitalization was 71.9% at March 31, 2001 as compared to 68.3% at
December 31, 2000. Total capitalization is defined by the Company as
total debt, minority interests and shareholders' equity.
The increase in total debt, net of cash and cash equivalents, from
December 31, 2000 is primarily due to the funding of working capital
requirements through the Company's multicurrency credit facility and a
new term loan. The increase in total debt as a percentage of total
capitalization was also affected by a reduction in shareholder's
equity due to negative currency translation adjustments in the first
quarter of 2001.
On March 13, 2001, Standard & Poor's lowered the Company's senior
implied rating to BB- from BB and senior unsecured debt to B from BB.
On April 17, 2001, Moody's lowered the Company's senior implied rating
to B3 from B2 and senior unsecured to Caa3 from B2. Both agencies
assigned a negative outlook.
15
Crown Cork & Seal Company, Inc.
Item 2. Management's Discussion and Analysis (Continued)
Forward Looking Statements
--------------------------
Statements included herein in "Management's Discussion and Analysis of
Financial Condition and Results of Operations", including, but not
limited to, the discussion of the asbestos activities in Note I to the
Consolidated Financial Statements included in this Quarterly Report on
Form 10-Q and also in Part I, Item 1: "Business" and Item 3: "Legal
Proceedings" and in Part II, Item 7: "Management's Discussion and
Analysis of Financial Condition and Results of Operations", within the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000, which are not historical facts (including any
statements concerning plans and objectives of management for future
operations or economic performance, or assumptions related thereto),
are "forward-looking statements" within the meaning of the federal
securities laws. In addition, the Company and its representatives may
from time to time make other oral or written statements which are also
"forward-looking statements".
These forward-looking statements are made based upon management's
expectations and beliefs concerning future events impacting the
Company and therefore involve a number of risks and uncertainties.
Management cautions that forward-looking statements are not guarantees
and that actual results could differ materially from those expressed
or implied in the forward-looking statements.
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 Securities and
Exchange Commission ("SEC"), the Company does not intend to review or
revise any particular forward-looking statement in light of future
events.
A discussion of important factors that could cause the actual results
of operations or financial condition of the Company to differ from
expectations has been set forth in the Company's Annual Report on Form
10-K for the year ended December 31, 2000 within Part II, Item 7;
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" under the caption "Forward Looking Statements"
and is incorporated herein by reference. Some of the factors are also
discussed elsewhere in this Form 10-Q and in prior Company filings
with the SEC. In addition, other factors have been or may be discussed
from time to time in the Company's SEC filings.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of March 31, 2001 there have been no material changes in the
Company's market risk exposure as described in Management's Discussion
and Analysis contained in the Company's Annual Report on Form 10-K for
the year ended December 31, 2000.
16
Crown Cork & Seal Company, Inc.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security Holders
The Company's Annual Meeting of Shareholders was held April 26, 2001.
The matters voted upon and the results of the votes are as follows:
- - - VOTES - - -
---------------------------------------
(1) Election of the Board of Directors
For Withheld
--- --------
Jenne K. Britell 100,042,530 1,614,459
John W. Conway 99,971,146 1,685,843
Arnold W. Donald 100,043,028 1,613,961
Marie L. Garibaldi 100,020,386 1,636,603
John B. Neff 100,030,300 1,626,689
James L. Pate 100,024,271 1,632,718
Thomas A. Ralph 100,004,944 1,652,045
Alan W. Rutherford 99,969,688 1,687,301
Harold A. Sorgenti 99,991,071 1,665,918
(2) Resolution for the adoption of the 2001 Crown Cork & Seal
Company, Inc. Stock-Based Incentive Compensation Plan
For Withheld Abstain
---------- ---------- -------
87,394,144 13,842,680 420,165
(3) Shareholder Proposal to Maximize Value
For Withheld Abstain / Non-Vote
--------- ---------- ------------------
5,451,417 62,979,891 33,225,681
17
Crown Cork & Seal Company, Inc.
Item 5. Other Information
The Company announced on May 1, 2001 that Frank J. Mechura
has been promoted to Executive Vice President of the Company
as well as President of the Americas Division, effective
immediately.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
3.1 Amended and Restated By-Laws of Crown Cork & Seal
Company, Inc.
10.a. Retirement Agreement, dated January 4, 2001,
between Crown Cork & Seal Company, Inc. and William
J. Avery.
10.b. Consulting Agreement, dated February 22, 2001,
between Crown Cork & Seal Company, Inc. and William
J. Avery.
10.c. Crown Cork & Seal Company, Inc. 2001 Stock-Based
Incentive Plan, dated as of February 22, 2001,
(incorporated by reference to the Registrant's
Definitive Proxy Statement on Schedule 14A, filed
with the Securities and Exchange Commission on
March 27, 2001 (File No. 1-2227)).
b) Reports on Form 8-K
There were no reports on Form 8-K filed by Crown Cork & Seal
& Company, Inc., during the quarter for which this report is
filed.
18
Crown Cork & Seal Company, Inc.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Crown Cork & Seal Company, Inc.
-------------------------------
Registrant
By: /s/ Thomas A. Kelly
---------------------------------------
Thomas A. Kelly
Vice President and Corporate Controller
Date: May 11, 2001
------------
19