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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 JUNE 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE COMMISSION 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
of incorporation or organization) Identification No.)
One Crown Way, Philadelphia, PA 19154-4599
(Address of principal executive offices) (Zip Code)
215-698-5100
(Registrant'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 are 128,331,667 shares of Common Stock outstanding as of July 31, 1997.
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Crown Cork & Seal Company, Inc.
PART 1- FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF INCOME
(In millions except share data)
(Unaudited)
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Three months ended June 30, 1997 1996
- --------------------------------------------------------------------------------
Net sales $ 2,286.6 $ 2,353.7
---------- ----------
Costs, expenses & other income
Cost of products sold,
excluding depreciation and amortization 1,786.0 1,894.7
Depreciation and amortization 138.9 135.2
Selling and administrative expense 104.6 106.2
Provision for restructuring 29.6
Gain on sale of assets ( 28.1) ( .7)
Interest expense, net of interest income 84.6 88.6
Translation and exchange adjustments 1.7 ( 41.0)
--------- ---------
2,087.7 2,212.6
--------- ---------
Income before income taxes 198.9 141.1
Provision for income taxes 64.1 34.7
Minority interests, net of equity earnings ( 2.8) ( 2.3)
--------- ---------
Net income 132.0 104.1
Preferred stock dividends 5.8 5.8
--------- ---------
Net income available to common shareholders $ 126.2 $ 98.3
========= =========
Earnings per average common share:
Primary $ .98 $ .76
========= =========
Fully diluted $ .94 $ .74
========= =========
Dividends per common share $ .25 $ .25
========= =========
Weighed average common shares outstanding:
Primary 129,228,485 128,499,811
Fully diluted 140,554,068 139,826,484
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Certain prior year balances have been reclassified to improve comparability.
The accompanying notes are an integral part of these financial statements.
Earnings per share for 1996 reflect full dilution.
2
Crown Cork & Seal Company, Inc.
CONSOLIDATED STATEMENTS OF INCOME
(In millions except share data)
(Unaudited)
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Six months ended June 30, 1997 1996
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Net sales $ 4,223.9 $ 3,904.9
---------- ----------
Costs, expenses & other income
Cost of products sold,
excluding depreciation and amortization 3,330.4 3,180.5
Depreciation and amortization 278.2 229.8
Selling and administrative expense 208.5 175.8
Provision for restructuring 29.6
Gain on sale of assets ( 34.2) ( 10.2)
Interest expense, net of interest income 169.9 138.0
Translation and exchange adjustments 2.8 ( 38.7)
---------- ---------
3,955.6 3,704.8
---------- ---------
Income before income taxes 268.3 200.1
Provision for income taxes 89.9 53.6
Minority interests, net of equity earnings ( 7.4) ( 11.1)
---------- ---------
Net income 171.0 135.4
Preferred stock dividends 11.7 8.0
---------- ---------
Net income available to common shareholders $ 159.3 $ 127.4
========== =========
Earnings per average common share:
Primary $ 1.23 $ 1.09
========== ========
Fully diluted $ 1.22 $ 1.09
========== ========
Dividends per common share $ .50 $ .50
========== ========
Weighted average common shares outstanding:
Primary 129,207,609 116,935,458
Fully diluted 140,533,405 124,778,397
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The financial statements for 1996 include the operations of CarnaudMetalbox from
the acquisition date of February 22, 1996.
Certain prior year amounts have been reclassified to improve comparability.
The accompanying notes are an integral part of these financial statements.
Earnings per share for 1996 reflect full dilution.
3
Crown Cork & Seal Company, Inc.
CONSOLIDATED BALANCE SHEETS (Condensed)
(In millions except book value)
(Unaudited)
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June 30, December 31,
1997 1996
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Assets
Current assets
Cash and cash equivalents $ 205.8 $ 160.4
Receivables 1,606.2 1,349.3
Inventories 1,464.7 1,423.8
Prepaid expenses and other current assets 372.2 358.4
--------- --------
Total current assets 3,648.9 3,291.9
--------- --------
Long-term notes and receivables 89.5 82.2
Investments 100.3 90.3
Goodwill, net of amortization 4,683.9 4,809.9
Property, plant and equipment 3,646.6 3,717.3
Other non-current assets 710.1 598.6
--------- ---------
Total $12,879.3 $12,590.2
========= =========
Liabilities and shareholders' equity
Current liabilities
Short-term debt $ 1,721.0 $ 1,105.8
Current portion of long-term debt 42.2 48.5
Accounts payable and accrued liabilities 2,481.2 2,460.9
United States and foreign income taxes 65.5 47.3
--------- ---------
Total current liabilities 4,309.9 3,662.5
--------- ---------
Long-term debt, excluding current maturities 3,609.1 3,923.5
Postretirement and pension liabilities 719.3 738.9
Other non-current liabilities 475.0 458.2
Minority interests 254.8 243.8
Shareholders' equity 3,511.2 3,563.3
--------- ---------
Total $12,879.3 $12,590.2
========= =========
Book value per common share $23.30 $23.69
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The accompanying notes are an integral part of these financial statements.
4
Crown Cork & Seal Company, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Condensed)
(In millions)
(Unaudited)
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Six months ended June 30, 1997 1996
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Cash flows from operating activities
Net income $171.0 $ 135.4
Depreciation and amortization 278.2 229.8
Provision for restructuring 21.9
Foreign currency gain ( 42.1)
Gain on sale of assets ( 25.0) ( 6.0)
Equity in earnings of joint ventures,
net of dividends received 2.6 5.7
Minority interest in earnings of subsidiaries 4.4 6.0
Change in assets and liabilities, other than debt ( 580.1) ( 356.2)
------ -------
Net cash used in operating activities ( 148.9) ( 5.5)
------ -------
Cash flows from investing activities
Capital expenditures ( 202.6) ( 286.2)
Acquisition of businesses, net of cash acquired ( 10.0) ( 1,524.6)
Proceeds from sale of assets 25.5 17.7
Proceeds from sale of businesses 90.0 52.7
Other, net ( .4) ( 1.0)
------ --------
Net cash used in investing activities ( 97.5) ( 1,741.4)
------ --------
Cash flows from financing activities
Proceeds from long-term debt 1.5 1,880.9
Payments of long-term debt ( 257.2) ( 51.1)
Net change in short-term debt 647.1 93.2
Dividends paid ( 76.0) ( 69.6)
Common stock:
Repurchased for treasury ( 17.2)
Issued under employee benefit plans 7.3 3.2
Minority contributions, net of dividends paid ( 3.4) 12.1
------ --------
Net cash provided by financing activities 302.1 1,868.7
------ --------
Effect of exchange rate changes
on cash and cash equivalents ( 10.3) 4.6
------ --------
Net change in cash and cash equivalents 45.4 126.4
Cash and cash equivalents at beginning of period 160.4 68.1
------ --------
Cash and cash equivalents at end of period $205.8 $ 194.5
====== ========
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1997 1996
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Schedule of non-cash investing activities:
Acquisition of businesses:
Fair value of assets acquired $70.0 $7,850.5
Liabilities assumed ( 3,871.1)
Notes payable ( 60.0)
Issuance of common stock ( 1,562.4)
Issuance of 4.5% convertible preferred stock ( 520.8)
----- --------
Cash paid $10.0 $1,896.2
===== ========
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Certain prior year balances have been reclassified to improve comparability.
The accompanying notes are an integral part of these financial statement.
5
Crown Cork & Seal Company, Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In millions) (Unaudited)
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Minimum Cumulative
Preferred Common Paid-In Retained Pension Translation Treasury
Stock Stock Capital Earnings Liability Adjustments Stock Total
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 $520.8 $779.0 $1,567.3 $1,185.0 ($14.8) ($337.1) ($ 136.9) $3,563.3
Net income 171.0 171.0
Dividends declared:
Common ( 64.3) ( 64.3)
Preferred ( 11.7) ( 11.7)
Common stock issued under employee benefit plans 6.1 1.2 7.3
Repurchased for treasury ( 15.6) ( 1.6) ( 17.2)
Translation adjustments ( 137.2) ( 137.2)
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Balance at June 30, 1997 $520.8 $779.0 $1,557.8 $1,280.0 ($14.8) ($474.3) ($ 137.3) $3,511.2
============================================================================
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Minimum Cumulative
Preferred Common Paid-In Retained Pension Translation Treasury
Stock Stock Capital Earnings Liability Adjustments Stock Total
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 $592.5 $ 182.7 $1,049.0 ($32.1) ($191.7) ($139.2) $1,461.2
Net income 135.4 135.4
Common Stock issued in business combinations 186.5 1,375.9 1,562.4
4.5% convertible preferred stock issued in
business combinations $520.8 520.8
Dividends declared:
Common ( 64.1) ( 64.1)
Preferred ( 8.0) ( 8.0)
Common stock issued under employee benefit plans 2.2 1.0 3.2
Translation adjustments 6.3 6.3
-------------------------------------------------------------------------------
Balance at June 30, 1996 $520.8 $779.0 $1,560.8 $1,112.3 ($32.1) ($185.4) ($138.2) $3,617.2
===============================================================================
The accompanying notes are an integral part of these financial statements.
6
Crown Cork & Seal Company, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except 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
instructions to Rule 10-01 of Regulation S-X. In the opinion of
management, these consolidated financial statements contain all
adjustments necessary to present fairly the financial position of Crown
Cork & Seal Company, Inc. as of June 30, 1997 and the results of
operations and cash flows for the periods ended June 30, 1997 and 1996,
respectively. These results have been determined on the basis of
generally accepted accounting principles and practices consistently
applied and are not necessarily indicative of the results that may be
expected for the year ending December 31, 1997.
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 incorporated by reference in
the Company's Annual Report on Form 10-K for the year ended December
31, 1996.
B. Restructuring
The Company has made an assessment of the restructuring and exit costs
to be incurred relative to the acquisition of CarnaudMetalbox (CMB).
Affected by the plan of restructuring are forty plants and regional
administrative offices to be closed and approximately fifty-two plants
and regional administrative offices to be reorganized. The
restructuring effort, which commenced at the end of the first quarter
of 1996, is expected to be substantially completed during 1997. Since
commencement of the plan, the Company has determined alternative sites
for manufacture and qualified the new manufacturing sites with
customers. As of June 30, 1997, the Company had accrued approximately
$534 for the costs associated with restructuring CMB operations and
included such costs in the purchase price of CMB in accordance with
purchase accounting requirements. These costs comprise severance pay
and benefits, write-down of assets, lease termination and other exit
costs. The cost of providing severance pay and benefits for the
reduction of approximately 6,500 employees is estimated at
approximately $257 and is primarily a cash expense. Employees to be
terminated include most, if not all, employees at each plant or office
to be closed and selected employees at those plants to be reorganized,
including salaried employees and employees of the respective unions
represented at each plant site. The write-down of assets (principally
property, plant and equipment) is estimated at approximately $217 and
has been reflected as a reduction in the carrying value of the
Company's assets. Lease termination and other exit costs, primarily
repayments of government grants and subsidies, are estimated at
approximately $60 and are primarily cash expenses. The $534 in
restructuring costs recorded in connection with the CMB acquisition
includes the $95 restructuring charge announced in 1996 by
CarnaudMetalbox Asia Ltd., a subsidiary of the Company. The balance of
the restructuring reserves (excluding the write-down of assets which is
reflected as a reduction of the related asset account) is included
within accounts payable and accrued liabilities.
The Company estimates that the restructuring of CMB operations will
generate annual cost savings of approximately $160 ($105 after-tax) on
a full year basis. It is also estimated that capital expenditures of
approximately $100 will be made to expand and upgrade other facilities
to minimize the adverse effects of the restructuring on existing
business and customer relationships.
The components of restructuring are as follows:
-----------------------------------------------------------------------
Balance at Provisions Transfer Balance at
December 31, for CMB 1997 against June 30,
1996 businesses Activity assets 1997
-----------------------------------------------------------------------
Employee costs $222.1 ($11.9) ($47.8) $162.4
Write down of assets 32.0 ($32.0)
Lease termination
and other exit costs 37.6 11.5 ( 18.0) 31.1
------ ------ ----- ------ ------
$259.7 $31.6 ($65.8) ($32.0) $193.5
====== ===== ===== ===== ======
7
Crown Cork & Seal Company, Inc.
The foregoing restructuring charges and related cost savings represent
the Company's best estimates, but necessarily make numerous assumptions
with respect to industry performance, general business and economic
conditions, raw materials and product pricing levels, the timing of
implementation of the restructuring and related employee reductions and
facility closings and other matters, many of which are outside the
Company's control. The Company's estimate of cost savings, which is
unaudited, is not necessarily indicative of future performance, which
may be significantly more or less favorable than as set forth above and
is subject to the considerations described herein on Page 14 under
"Forward Looking Statements"; within Item 2 "Management's Discussion
and Analysis of Results of Operations and Financial Condition."
Shareholders are cautioned not to place undue reliance on the estimates
or the underlying assumptions and should appreciate that such
information may not necessarily be updated to reflect circumstances
existing after the date hereof or to reflect the occurrence of
unanticipated events.
C. Inventories
------------------------------------
June 30, December 31,
1997 1996
------------------------------------
Finished Goods $ 667.6 $ 529.8
Work in Process 197.9 210.7
Raw Materials 438.3 550.1
Supplies and Repair Parts 160.9 133.2
-------- --------
$1,464.7 $1,423.8
======== ========
D. Earnings per Share
In February 1997, the Financial Accounting Standards Board released
SFAS No. 128, Earnings per Share, which replaces Accounting Principles
Board Opinion No. 15. SFAS No. 128 is effective for both interim and
annual periods ending after December 15, 1997. Primary EPS will be
replaced by basic EPS. The calculation for basic EPS excludes any
potential dilutive securities. On a pro-forma basis, basic EPS is $.98
per share in the quarter, the same as reported in this report, and
$1.24 for the six months ended June 30, 1997. Fully diluted EPS will be
replaced by diluted EPS. Pro forma diluted EPS for the quarter and six
months ended June 30, 1997 is the same as fully diluted EPS as
presented within this report. Dual presentation of basic and diluted
EPS will be required on the face of the Consolidated Statements of
Income.
E. Supplemental Cash Flow Information
Cash payments for interest, net of amounts capitalized ($2.7 and $4.5
for 1997 and 1996, respectively), were $198.2 and $136.8 during the six
months ended June 30, 1997 and 1996, respectively. Cash payments for
income taxes amounted to $40.0 and $27.3 during the six months ended
June 30, 1997 and 1996, respectively.
8
Crown Cork & Seal Company, Inc.
PART 1 - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
(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 and six months ended June 30, 1997,
compared to the corresponding periods in 1996 and the changes in
financial condition and liquidity from December 31, 1996. 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, 1996, 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
The Company reported net income of $132.0 or $.94 per fully diluted
common share for the second quarter of 1997 compared with net income of
$104.1 or $.74 per fully diluted common share for the same period in
1996. Second quarter 1997 net income includes an after-tax gain of
$19.7 or $.14 per fully diluted common share primarily from the sale of
the Crown - Simplimatic Machinery operations and three surplus
properties in the United States. Second quarter 1996 net income
included a foreign exchange gain of $42.1 as well as after-tax charges
of $21.9 for the restructuring of businesses in Europe and South
America.
For the six months ended June 30, 1997, net income was $171.0 or $1.22
per fully diluted common share compared with net income of $135.4 or
$1.09 per fully diluted common share for the same period in 1996.
If the acquisition of CMB had occurred on January 1, 1996, comparative
pro forma net income and fully diluted earnings per share would have
been $114.3 and $.89, respectively, for the six months ended June 30,
1996.
Net Sales
Net sales in the quarter decreased $67.1 or 2.9% from $2,353.7 in 1996
to $2,286.6 in 1997. Net sales for the first six months of 1997 were
$4,223.9, an increase of $319.0 or 8.2% over net sales of $3,904.9 for
the same period of 1996. In the quarter, sales from domestic operations
increased 2.0% while non-U.S. sales decreased 5.8% due to the
appreciation of the U. S. dollar against other currencies, primarily
those within Europe. Domestic sales in the second quarter accounted for
39.8% of consolidated sales in 1997 as compared to 35.2% a year
earlier. Sales of beverage cans and ends as a percentage of
consolidated net sales have increased in the second quarter from 29.4%
to 30.9% whereas sales of food cans and ends have declined from 29.7%
to 28.2% compared to the prior year second quarter. North American
beverage can and end sales represented 18.2% and 17.0%, respectively,
of consolidated net sales for the quarter and six months ended June 30,
1997 as compared to 16.2% and 17.8% for the comparable periods in 1996.
If the acquisition of CMB had occurred on January 1, 1996, comparative
pro forma net sales for the six months ended June 30, 1997 would have
been $4,443.6.
9
Crown Cork & Seal Company, Inc.
Item 2. Management's Discussion and Analysis (Continued)
An analysis of net sales by operating division follows:
Net Sales Percentage Change
------------------------------------ ---------------
Second Quarter Six Months Ended Second Six
1997 1996 1997 1996 Quarter Months
---- ---- ---- ---- ------- ------
Divisions:
Americas $ 971.4 $ 969.5 $1,787.9 $1,830.1 .2% ( 2.3%)
European 1,145.0 1,227.5 2,101.4 1,787.2 ( 6.7%) 17.6%
Asia-Pacific 104.2 111.3 201.6 194.8 ( 6.4%) 3.5%
Other 66.0 45.4 133.0 92.8 45.4% 43.3%
------- -------- -------- --------
$2,286.6 $2,353.7 $4,223.9 $3,904.9 ( 2.9%) 8.2%
======== ======== ======== ========
Net sales within the Americas Division increased .2% in the quarter and
decreased 2.3% for the six months ended June 30, 1997 as compared to
the same periods in 1996. The increase in the second quarter is
primarily a result of (i) increased unit sales volumes in beverage cans
and ends, food cans and aerosol cans in the United States and Canada,
(ii) initial sales volumes at the Company's new beverage can and end
plants in Brazil and (iii) the 1996 strike by the International
Association of Machinists (IAM) which resulted in a seven week work
stoppage at four beverage and four food can plants in the second
quarter of 1996; offsetting (i) decreased raw material prices which
forced decreases in selling prices, primarily in PET bottles and
aluminum cans and ends, (ii) unit sales volume decreases in PET
containers and (iii) continued sluggish demand for beverage cans in
Mexico. Competitive pressures continue to affect selling prices on most
product lines.
Net sales in the European Division declined 6.7% in the quarter and
increased 17.6% for the six months ended June 30, 1997 compared to the
prior year periods. The decrease in sales in the quarter is due
primarily to (i) the appreciation of the U. S. dollar against most
European currencies, reducing quarter sales by $62, (ii) lower PET
resin costs passed on to customers in the form of lower selling prices,
(iii) ongoing restructuring effects, including the elimination of
products with negative contribution and (iv) unit sales volume
decreases in food cans and beverage cans and ends. Increased
competition and market softness has reduced sales volumes in food cans
while colder and wetter weather than usual in Northern Europe has
reduced unit sales volumes in beverage cans and ends. For the six
months ended June 30, 1997 sales increased over 1996 as a result of the
consolidation of CMB activity for the full six months in 1997 versus
only eighteen weeks in 1996.
Net sales in the Asia-Pacific Division decreased 6.4% in the second
quarter and increased 3.5% for the six months ended June 30, 1997
compared to the prior year periods. The decrease in sales in the
quarter is due to (i) excess beverage can capacity and aggressive
competition which continues to erode selling prices in China, (ii)
soft three-piece beverage can sales in Malaysia as the market shifts
to two-piece, (iii) declining fruit markets in Malaysia and (iv) the
closure of six plants in the region since the second quarter of 1996;
offsetting increased unit sales volumes in (i) beverage cans in China,
Thailand and Vietnam and (ii) food cans in Thailand and Singapore.
For the six months, sales are up over 1996 as CMB activity is
consolidated for the full six months in 1997 as compared to only
eighteen weeks in 1996.
Net sales for Other operating units increased 45.4% and 43.3%,
respectively, in the quarter and six months ended June 30, 1997
compared to the same periods in 1996. The increase is primarily due to
the addition of Golden Aluminum which was acquired March 1, 1997.
10
Crown Cork & Seal Company, Inc.
Item 2. Management's Discussion and Analysis (Continued)
Cost of Products Sold
Cost of products sold, excluding depreciation and amortization, for the
quarter ended June 30, 1997 was $1.786.0, a 5.7% decrease compared to
$1,894.7 for the same period in 1996. For the six months ended June 30,
1997, these costs increased 4.7% to $3,330.4 from $3,180.5 in 1996. The
decrease in the quarter reflects lower raw material costs offsetting
increased unit sales volumes in many product lines.
As a percentage of net sales, cost of products sold was 78.1% and 78.8%
for the quarter and six months ended June 30, 1997, as compared to
80.5% and 81.4%, respectively, in the same periods in 1996. This
improvement has resulted from (i) increased unit sales volumes, (ii)
benefits derived from the Company's continuing cost containment and
restructuring programs and (iii) the effect of decreases in raw
material costs.
Selling and Administrative
Selling and administrative expenses for the quarter ended June 30, 1997
were $104.6, a decrease of 1.5% compared to the second quarter of 1996.
As a percentage of net sales, selling and administrative expenses were
4.6% in the second quarter as compared to 4.5% for the same period of
1996. For the six months ended June 30, 1997, these expenses have
increased 18.6% from a year earlier and as a percentage of net sales
are 4.9% as compared to 4.5% in 1996. The increase in 1997 costs and
their percentage to net sales is directly related to the consolidation
of CMB activity for a full six months in 1997 as compared to only 18
weeks in 1996.
Operating Income
For the quarter, consolidated operating income increased 36.8% to
$257.1 from $188.0 for the comparable period in 1996. For the six
months ended June 30, 1997, consolidated operating income increased
40.7% to $406.8 from $289.2 for the same period a year earlier.
Consolidated operating income for the quarter and for the six months
ended June 30, 1996 included pretax restructuring charges of $29.6. An
analysis of operating income, excluding restructuring charges by
operating division follows:
Operating Income Percentage Change
---------------------------------- -----------------
Second Quarter Six Months Ended Second Six
1997 1996 1997 1996 Quarter Months
---- ---- ---- ---- ------- ------
Divisions:
Americas $ 90.2 $ 70.6 $143.4 $ 95.7 27.8% 49.8%
European 158.2 141.7 251.2 207.5 11.6% 21.1%
Asia-Pacific 8.6 3.8 8.8 9.1 126.3% ( 3.3%)
Other .1 1.5 3.4 6.5 ( 93.3%) (47.7%)
------ ------ ------ ------
$257.1 $217.6 $406.8 $318.8 18.2% 27.6%
====== ====== ====== ======
As a percentage of net sales, operating income for the Americas
Division was 9.3% in the second quarter of 1997 and 8.0% for the six
months' ended June 30, 1997 as compared to 7.3% and 5.3% for the same
periods of 1996. The increase in 1997 operating margins is due to (i)
increased unit sales volumes in beverage cans and ends, aerosol cans
and food cans in both the U. S. and Canada, (ii) the start-up of the
Company's new beverage can and end plants in Brazil and, (iii)
increased efficiencies in most U. S. and Canadian plants due to
restructuring programs initiated in 1995 and 1994, ongoing cost
containment programs and the completion of the 202 diameter conversion
programs in 1996; offset by (i) continued pricing pressures in both
metal and plastic beverage containers, (ii) lower unit sales volumes in
PET beverage bottles and (iii) weak demand for beverage cans in Mexico.
11
Crown Cork & Seal Company, Inc.
Item 2. Management's Discussion and Analysis (Continued)
Operating income as a percentage of net sales in the European Division
was 13.8% in the second quarter of 1997 and 12.0% for the six months
ended June 30, 1997 as compared to 11.5% and 11.6% for the same periods
of 1996. The increased margin is directly attributable to (i) cost
reduction programs the Company initiated upon the acquisition of CMB
whereby inefficient plants, negative contribution products and excess
administrative overheads are being eliminated, (ii) increased unit
sales volumes in PET bottles, plastic closures and aerosol cans and
(iii) better market conditions for specialty cans; offsetting (i)
decreased unit sales volumes in food cans in France and Italy due to
increased competition and (ii) decreased unit sales volumes in beverage
cans and ends as the season got off to a slow start due to the
unusually cold and wet weather in northern Europe.
Operating income in the Asia-Pacific Division was 8.3% of net sales in
the second quarter of 1997 and 4.4% for the six months ended June 30,
1997 as compared to 3.4% and 4.7% for the same periods of 1996. The
increase in second quarter operating margins is due primarily to (i)
the closure of six inefficient plants in the region since the second
quarter of 1996, (ii) strong food can unit sales volumes in Singapore
and Thailand and (iii) increased unit sale volumes of beverage cans in
Malaysia, Singapore and Thailand; offsetting (i) reduced beverage can
pricing throughout the region, (ii) lower unit sales volumes of three-
piece cans in Malaysia and (iii) new plant start-ups in China and
Vietnam.
Operating income for Other operating units was .2% of net sales in the
second quarter of 1997 and 2.6% for the six months ended June 30,1997
as compared to 3.3% and 7.0% for the same periods of 1996. The decrease
in 1997 operating margins is due primarily to (i) start-up losses at
Golden Aluminum which was purchased on March 1, 1997 and (ii) the sale
of the Company's Crown-Simplimatic Machinery operations on May 14,
1997.
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 previously adjusted its selling prices in
response to these movements. There can be no assurance, however, that
the Company will be able to recover fully any increases or fluctuations
in raw material costs from its customers.
Net Interest Expense / Income
Consolidated net interest expense, net of interest income, for the
second quarter and six months ended June 30, 1997, was $84.6 and
$169.9, respectively, as compared to $88.6 and $138.0 for the
comparable periods in 1996. The increase in net interest expense is due
primarily to (i) borrowings used in the acquisition of CMB remaining
outstanding for the full six months of 1997 as compared to only 18
weeks in 1996, (ii) cash requirements for restructuring programs and
(iii) the financing of seasonal working capital buildups.
Taxes on Income
Year-to-date, the effective tax rate was 33.5% in 1997 as compared to
26.8% in 1996. Operations in the United States, which are subject to
higher effective tax rates, have provided a greater portion of the
Company's income before taxes in the first six months of 1997 as
compared to 1996.
Minority Interests, Net of Equity in Earnings of Affiliates
Minority interests, net of equity in earnings of affiliates was $7.4
for the six months ended June 30, 1997 as compared to $11.1 for the
same period of 1996. This change is due primarily to (i) decreased
profits in the Company's consolidated joint ventures in China and
Vietnam, (ii) increased operating profits at the Company's
non-consolidated affiliate in Brazil, and (iii) the devaluation of the
Venezuelan Bolivar which resulted in losses in the Company's
non-consolidated Venezuelan affiliate in the second quarter of 1996.
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Crown Cork & Seal Company, Inc.
Item 2. Management's Discussion and Analysis (Continued)
Liquidity and Capital Resources
Cash from Operations
Net cash of $148.9 was used in operating activities during the six
months ended June 30, 1997, as compared to cash used of $5.5 for the
same period in 1996. In the first quarter of 1996 a significant portion
of the seasonal buildup of CMB's working capital occurred before the
acquisition date of February 22, 1996. Due to higher sales volumes in
the second and third quarters, it is customary to realize large working
capital buildups in the first quarter.
Investing Activities
Investing activities used cash of $97.5 during the six months ended
June 30, 1997 compared with cash used of $1,741.4 for the same period
of 1996. Capital expenditures for the six months ended June 30, 1997
were $202.6, a decrease of $83.6 as compared to capital expenditures of
$286.2 during the same period of 1996. For the six months ended June
30, 1996 the acquisition of CMB used cash of $1,524.6.
On March 5, 1997, the Company announced that it had purchased Golden
Aluminum Company (GAC) from ACX Technologies, Inc. The purchase price
was $70 million which included an immediate cash payment of $10 million
and a deferred payment of $60 million due within two years. Under the
terms of the purchase, the Company holds a put option enabling it to
return GAC to ACX if it chooses to exercise the option during the next
two years.
On May 14, 1997, the Company announced that it had sold its Machinery
Division known as Crown-Simplimatic to a group of investors including
division management. The selling price of $105 million includes $90
million in cash and $15 million of 8% Class A Preferred Stock that is
convertible into approximately 20% of the common stock of Crown
-Simplimatic.
The Company also sold three surplus properties in the United States
during the second quarter.
Gains, totaling $28.1, were realized from the sales of the machinery
operations and surplus properties.
Financing Activities
Financing activities generated cash of $302.1 during the six months
ended June 30,1997, compared with $1,868.7 for the prior year period.
The decrease is directly related to 1996 borrowings used to finance the
acquisition of CMB.
Total debt, net of cash and cash equivalents, at June 30, 1997 was
$5,166.5 and represents an increase of $249.1 above the December 31,
1996 level of $4,917.4. The increase is due primarily to the financing
of the seasonal working capital buildup offset somewhat by the
strengthening of the U.S. dollar which reduced consolidated debt by
$97.3. Total debt, net of cash and cash equivalents, as a percentage of
total capitalization was 57.8% at June 30, 1997 as compared to 56.4% at
December 31, 1996. Total capitalization is defined by the Company as
total debt, net of cash and cash equivalents, minority interests and
shareholders' equity.
On February 4, 1997, the Company's previous $1 billion multi-currency
facility and its previous French Franc (FRF) 13.7 billion credit
agreement were replaced with a new multi- currency revolving credit
agreement with a group of domestic and foreign banks. The new agreement
makes available $2.5 billion through the year 2002. Borrowings under
the new agreement are unsecured and bear interest at variable market
rates. The agreement contains certain financial covenants related to
leverage and interest coverage. Borrowings outstanding under the prior
FRF 13.7 billion credit agreement, amounting to $493.1 million at
December 31, 1996, were refinanced under this new agreement.
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Crown Cork & Seal Company, Inc.
Item 2. Management's Discussion and Analysis (Continued)
The decrease in working capital from December 31, 1996 is due primarily
to the refinancing of long-term debt on a short-term basis through the
issuance of commercial paper and also seasonal business factors.
Recent Accounting Developments
In June the Financial Accounting Standards Board ("FASB") issued two
new accounting standards, SFAS No. 130 - Reporting Comprehensive Income
and SFAS No.131 Disclosures about Segments of an Enterprise and Related
Information. Both standards are effective with annual reporting in
1998. The Company is currently assessing the impact that the new
standards will have on its financial statements. The implementation of
SFAS No. 130 will require that the components of comprehensive income
be reported in the financial statements. The implementation of SFAS No.
131 will require the disclosure of segment information utilizing the
approach that the Company uses to manage its internal organization.
Another important requirement by SFAS No. 131 is the reporting of
segment information, on a condensed basis, for interim periods. Interim
reporting will commence in 1999.
Forward Looking Statements
Statements included herein in "Management's Discussion and Analysis of
Results of Operations and Financial Condition," and in the discussion
of the restructuring plan in Note B to the Consolidated Financial
Statements included in this Quarterly Report on Form 10-Q and in Part
I, Item 1: "Business" and Item 3: "Legal Proceedings" and in Part II,
Item 7: "Management's Discussion and Analysis of Results of Operations
and Financial Condition," within the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1996, 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 makes 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 Results of Operations and Financial
Condition and certain other sections contained in the Company's
quarterly, annual or other reports filed with the SEC, the Company does
not intend to review or revise any particular forward-looking statement
in light of future events.
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, 1996 within Part II, Item 7:
"Management's Discussion and Analysis of Results of Operations and
Financial Condition" 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 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.
14
Crown Cork & Seal Company, Inc.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders was held on April 24,
1997. The matters voted upon and the results there of are set forth in
Part II, Item 4 of the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997 and such Item 4 is incorporated herein by
reference.
Item 5. Other Information
On July 24, 1997, the Company's Board of Directors declared cash
dividends of $.25 per share on the Company's common stock and $.4712
per share on the Company's 4.5% Convertible Preferred Stock. Both
dividends are payable on August 20, 1997 to shareholders of record on
August 6, 1997.
On August 12, 1997, the Company announced plans to improve the
structure of its polyethylene terephthalate (PET) plastic beverage
container business in the United States by closing six of the
manufacturing locations in its CONSTAR subsidiary. An after-tax charge
of $43.3 million ($.31 per share on a fully diluted basis) affecting
third quarter results also covers other, non-PET related restructuring
activities, primarily in Europe. Annual savings relating to these
actions, when fully implemented, are expected to be approximately $20.0
million ($.14 per share on a fully diluted basis). Following the
restructuring, the Company will operate 25 PET container manufacturing
facilities in 12 countries. The Company expects to maintain its
existing manufacturing capacity and, by relocating equipment among its
remaining larger facilities, meet all current and prospective volume
requirements.
15
Crown Cork & Seal Company, Inc.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
11. Statement re Computation of Per Share Earnings
27. Financial Data Schedule
b) Reports on Form 8-K
There were no reports on Form 8-K filed by Crown Cork & Seal
Company, Inc. during the quarter for which this report is
filed.
16
Crown Cork & Seal Company, Inc.
SIGNATURE
Pursuant to the requirements of Securities and Exchange Commission Act
of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
Crown Cork & Seal Company, Inc
Registrant
By: /s/ Timothy J. Donahue
-----------------------------
Timothy J. Donahue
Vice President and Controller
Dates: August 13, 1997
17