-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ijzfa1VVCx1KfXPTdp8UdcYFRXvGlAMNR/J4CtJD0UFaKN2/YVTV3eBA+8TV3Edv z8k1sI8bX/iOdV4Q0T4bmA== /in/edgar/work/20000802/0000025890-00-000017/0000025890-00-000017.txt : 20000921 0000025890-00-000017.hdr.sgml : 20000921 ACCESSION NUMBER: 0000025890-00-000017 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000802 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CROWN CORK & SEAL CO INC CENTRAL INDEX KEY: 0000025890 STANDARD INDUSTRIAL CLASSIFICATION: [3411 ] IRS NUMBER: 231526444 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-02227 FILM NUMBER: 684749 BUSINESS ADDRESS: STREET 1: ONE CROWN WAY CITY: PHILADELPHIA STATE: PA ZIP: 19154 BUSINESS PHONE: 2156985100 10-Q 1 0001.txt SECOND QUARTER 2000 FORM 10-Q ================================================================================ 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 JUNE 30, 2000 [ ] 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 of (I.R.S. Employer Identification No.) incorporation or organization) One Crown Way, Philadelphia, PA 19154-4599 (Address of principal executive offices) (Zip Code) 215-698-5100 (Registrant's telephone number, including area code) Indicated 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 125,950,853 shares of Common Stock outstanding as of July 28, 2000. ================================================================================ 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 June 30, 2000 1999 - -------------------------------------------------------------------------------------------------- Net sales $ 1,876 $ 1,997 ----------- ----------- Costs, expenses & other income Cost of products sold, excluding depreciation and amortization 1,493 1,529 Depreciation 95 99 Amortization 30 32 Provision for restructuring and other charges 77 Selling and administrative expense 78 91 Gain on sale of assets ( 2) Interest expense 97 91 Interest income ( 6) ( 7) Translation and exchange adjustments 2 1 ----------- ----------- 1,866 1,834 ----------- ----------- Income before income taxes 10 163 Provision for income taxes 8 55 Minority interests, net of equity earnings ( 6) ( 8) ----------- ----------- Net income (loss) ( 4) 100 Preferred stock dividends 4 ----------- ----------- Net income (loss) available to common shareholders ($ 4) $ 96 =========== =========== Earnings (loss) per average common share: Basic ($ .03) $ .78 =========== =========== Diluted ($ .03) $ .77 =========== =========== Dividends per common share $ .25 $ .25 =========== =========== Weighted average common shares outstanding: Basic 127,433,082 122,350,114 Diluted 127,433,082 130,040,318 - ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. 2 Crown Cork & Seal Company, Inc. PART I - FINANCIAL INFORMATION CONSOLIDATED STATEMENTS OF INCOME (In millions except share and per share data) (Unaudited)
- -------------------------------------------------------------------------------------------------- Six months ended June 30, 2000 1999 - -------------------------------------------------------------------------------------------------- Net sales $ 3,516 $ 3,791 ----------- ----------- Costs, expenses & other income Cost of products sold, excluding depreciation and amortization 2,786 2,947 Depreciation 192 200 Amortization 61 64 Provision for restructuring and other charges 77 Selling and administrative expense 163 182 Gain on sale of assets ( 4) Interest expense 189 184 Interest income ( 10) ( 15) Translation and exchange adjustments 2 10 ----------- ----------- 3,460 3,568 ----------- ----------- Income before income taxes 56 223 Provision for income taxes 27 84 Minority interests, net of equity earnings ( 10) ( 10) ----------- ----------- Net income 19 129 Preferred stock dividends 2 8 ----------- ----------- Net income available to common shareholders $ 17 $ 121 =========== =========== Earnings per average common share: Basic $ .14 $ .99 =========== =========== Diluted $ .14 $ .99 =========== =========== Dividends per common share $ .50 $ .50 =========== =========== Weighted average common shares outstanding: Basic 125,661,602 122,338,291 Diluted 127,996,659 129,984,457 - --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. 3 Crown Cork & Seal Company, Inc. CONSOLIDATED BALANCE SHEETS (Condensed) (In millions except per share data) (Unaudited) - -------------------------------------------------------------------------------- June 30, December 31, 2000 1999 - -------------------------------------------------------------------------------- Assets Current assets Cash and cash equivalents $ 244 $ 267 Receivables 1,263 1,166 Inventories 1,447 1,312 Prepaid expenses and other current assets 110 96 ------- ------- Total current assets 3,064 2,841 ------- ------- Long-term notes and receivables 25 27 Investments 142 178 Goodwill, net of amortization 4,021 4,228 Property, plant and equipment 3,062 3,255 Other non-current assets 1,063 1,016 ------- ------- Total $11,377 $11,545 ======= ======= Liabilities and shareholders' equity Current liabilities Short-term debt $ 1,685 $ 1,362 Current maturities of long-term debt 65 169 Accounts payable and accrued liabilities 1,791 1,803 United States and foreign income taxes 63 80 ------- ------- Total current liabilities 3,604 3,414 ------- ------- Long-term debt, excluding current maturities 3,511 3,573 Postretirement and pension liabilities 674 686 Other non-current liabilities 659 686 Minority interests 288 295 Commitments and contingent liabilities Shareholders' equity 2,641 2,891 ------- ------- Total $11,377 $11,545 ======= ======= Book value per common share $ 20.89 $ 22.46 - -------------------------------------------------------------------------------- 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)
- ---------------------------------------------------------------------------------------- Six months ended June 30, 2000 1999 - ---------------------------------------------------------------------------------------- Cash flows from operating activities Net income $ 19 $129 Depreciation and amortization 253 264 Provision for restructuring and other charges 55 Gain on sale of assets ( 3) Change in assets and liabilities, other than debt, net of businesses acquired ( 392) ( 523) ---- ---- Net cash used in operating activities ( 65) ( 133) ---- ---- Cash flows from investing activities Capital expenditures ( 116) ( 178) Acquisition of businesses, net of cash acquired ( 50) Proceeds from sale of property, plant and equipment 20 21 Other, net ( 3) ( 4) ---- ---- Net cash used in investing activities ( 99) ( 211) ---- ---- Cash flows from financing activities Proceeds from long-term debt 3 6 Payments of long-term debt ( 150) ( 176) Net change in short-term debt 400 536 Stock repurchased ( 36) ( 1) Dividends paid ( 65) ( 69) Minority contributions, net of dividends paid ( 2) ( 5) ---- ---- Net cash provided by financing activities 150 291 ---- ---- Effect of exchange rate changes on cash and cash equivalents ( 9) ( 28) ---- ---- Net change in cash and cash equivalents ( 23) ( 81) Cash and cash equivalents at beginning of period 267 284 ---- ---- Cash and cash equivalents at end of period $244 $203 ==== ==== --------------------------------------------------------------------------------------- Six months ended June 30, 2000 1999 --------------------------------------------------------------------------------------- Schedule of non-cash investing activities: Acquisition of businesses: Fair value of assets acquired $68 Liabilities assumed ( 18) ---- Cash Paid $ 50 ==== - ----------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. 5 Crown Cork& Seal Company, Inc. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (In millions) (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------ | Accumulated | Other Comprehensive Income | Preferred Common Paid-In Retained Treasury Comprehensive Quarter Year-To-Date | Stock Stock Capital Earnings Stock Income Total - ------------------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1999 | $349 $779 $1,317 $1,295 ($173) ($676) $2,891 Net income (loss) ($ 4) $ 19 | 19 19 Translation adjustments ( 74) ( 168) | ( 168) ( 168) --- ---- | Comprehensive income (loss) ($78) ($149) | === ==== | Dividends declared: | Common | ( 63) ( 63) Preferred | ( 2) 2) Stock repurchased | ( 25) ( 11) ( 36) Preferred stock conversions | ( 349) 1 311 37 - ------------------------------------------------------------------------------------------------------------------------------------ Balance at June 30, 2000 | $780 $1,603 $1,249 ($147) ($844) $2,641 ==================================================================================================================================== | Accumulated | Other Comprehensive Income | Preferred Common Paid-In Retained Treasury Comprehensive Quarter Year-To-Date | Stock Stock Capital Earnings Stock Income Total - ------------------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1998 | $351 $779 $1,340 $1,250 ($167) ($578) $2,975 Net income $100 $129 | 129 129 Translation adjustments ( 71) ( 210) | ( 210) ( 210) ---- ---- | Comprehensive income (loss) $ 29 ($ 81) | ==== ==== | Dividends declared: | Common | ( 61) ( 61) Preferred | ( 8) ( 8) Stock repurchased | ( 1) ( 1) - ------------------------------------------------------------------------------------------------------------------------------------ Balance at June 30, 1999 | $351 $779 $1,339 $1,310 ($167) ($788) $2,824 ====================================================================================================================================
The accompanying notes are an integral part of these financial statements. 6 Crown Cork & Seal Company, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In millions, except per share data) (Unaudited) A. Statement of Information Furnished ---------------------------------- The accompanying unaudited interim consolidated and condensed financial statements have been prepared by the Company in accordance with Form 10-Q instructions. In the opinion of management, these consolidated financial statements contain all adjustments necessary to present fairly the financial position of Crown Cork & Seal Company, Inc. as of June 30, 2000, and the results of its operations and cash flows for the periods ended June 30, 2000 and 1999, respectively. These results have been determined on the basis of generally accepted accounting principles and practices consistently applied. Certain information and footnote disclosures, normally included in financial statements presented in accordance with generally accepted accounting principles, have been condensed or omitted. The accompanying Consolidated Financial Statements should be read in conjunction with the financial statements and notes thereto incorporated by reference in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. B. Earnings Per Share ------------------ The following table summarizes the basic and diluted earnings per common share computations for the periods ended June 30, 2000 and 1999, respectively:
2000 1999 ------------------------------------- ----------------------------------- Average Average Quarter Income Shares EPS Income Shares EPS ------- ------------------------------------- ----------------------------------- Net income ($ 4) $100 Less: Preferred stock dividends ( 4) --- ---- Basic EPS ( 4) 127.4 ($ .03) 96 122.3 $ .78 Potentially dilutive securities: Stock options .1 Assumed preferred stock conversion 4 7.6 ---- ----- ---- ----- Diluted EPS ($ 4) 127.4 ($ .03) $100 130.0 $ .77 ==== ===== ==== ===== 2000 1999 ------------------------------------- ------------------------------------- Average Average Year-to-date Income Shares EPS Income Shares EPS ------------ ------------------------------------- ------------------------------------- Net income $ 19 $129 Less: Preferred stock dividends ( 2) ( 8) ---- ---- Basic EPS 17 125.7 $ .14 121 122.3 $ .99 Potentially dilutive securities: Stock options .1 Assumed preferred stock conversion 8 7.6 ---- ----- ---- ----- Diluted EPS $ 17 125.7 $ .14 $129 130.0 $ .99 ==== ===== ==== =====
7 Crown Cork & Seal Company, Inc. Excluded from the computation of diluted earnings per share for the six months ended June 30, 2000 were 2.3 common share equivalents resulting from the assumed conversion of weighted average outstanding preferred stock. The conversion would have been anti-dilutive. Common shares contingently issuable upon the exercise of stock options, amounting to 7.8 and 5.1 shares for the quarters ended June 30, 2000 and 1999 and 7.9 and 5.1 shares for the six months ended June 30, 2000 and 1999, respectively, were excluded from the computation of diluted earnings per share because the grant price of the then outstanding options was above the average market price for the related period. C. Receivables ----------- Included in the caption "Cost of products sold, excluding depreciation and amortization," the Company has provided $20 million ($13 after-tax or $.10 per diluted share) against a receivable from a U.S. food can customer that has filed a voluntary Chapter 11 bankruptcy petition. The Company believes that its net receivable is recorded at its recoverable value, but its ultimate realization is dependent upon the outcome of the bankruptcy proceedings. During the second quarter of 2000, the Company entered into a receivables securitization agreement on behalf of its North American operations. The agreement provides for the accelerated receipt of up to $220 of cash on available receivables. The securitization transactions have been accounted for as a sale in accordance with SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." Accordingly, accounts receivable sold under this securitization program have been reflected as a reduction in receivables in the accompanying consolidated balance sheet. At June 30, 2000 net proceeds received under this program were $105. D. Inventories ----------- ----------------------------------------------------------- June 30, December 31, 2000 1999 ----------------------------------------------------------- Finished goods $ 620 $ 503 Work in process 186 174 Raw materials and supplies 641 635 ------ ------ $1,447 $1,312 ====== ====== E. Restructuring ------------- During the second quarter the Company provided $51 ($36 after-tax or $.28 per diluted share) for the costs associated with (i) overhead structure modifications in Europe resulting in the termination of approximately 700 employees and (ii) the closure of three Americas Division plants resulting in the termination of approximately 350 employees. These costs included 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 1,050 employees was $45 and is primarily a cash expense. The cost associated with the write-down of assets was $2. Lease termination and other exit costs were $4. 8 Crown Cork & Seal Company, Inc. During 1998, the Company provided $179 for the costs associated with a plan to close thirteen plants and reorganize three additional plants During 1999, management decided not to close one of the plants identified in the 1998 provision and, accordingly, reversed the reserve previously established to income. Also in 1999, the Company closed one plant in Europe and reorganized certain research and development functions worldwide. The impact of this 1999 activity was a net credit to income of $7, of which $6 covered reduced severance costs and employee benefits and $1 was for lower exit costs. Balances remaining in the reserves represent new provisions as well as contracts or agreements whereby payments from prior restructuring actions 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 during the first six months of 2000 were as follows: Termination Other Exit Asset Benefits Costs Write-down Total -------- ----- ---------- ----- January 1.................... $14 $7 $21 Provision.................... 45 4 2 51 Payments..................... ( 9) ( 2) ( 11) Transfer against assets...... ( 2) ( 2) Other *...................... ( 3) ( 1) ( 4) --- -- --- --- Total.............. $47 $8 $55 === === === === * includes translation adjustments During the first six months of 2000, payments of $9 were made related to the termination of approximately 150 employees, 106 of whom were involved in direct manufacturing operations. Payments of $2 were made for other exit costs, including dismantlement costs, equipment removal and various contractual obligations. The foregoing restructuring charges represent the Company's best estimates, but necessarily make numerous assumptions with respect to industry performance, general business and economic conditions, raw materials and product pricing levels, the timing of implementation of the restructuring and related employee reductions and facility closings and other matters, many of which are outside the Company's control. The Company's estimates of cost savings, which are unaudited, are not necessarily indicative of future performance, which may be significantly more or less favorable than as set forth above and are subject to the considerations described under "Forward-Looking Statements" within "Management's Discussion and Analysis of Financial Condition and Results of Operations." Shareholders are cautioned not to place undue reliance on the estimates or the underlying assumptions and should appreciate that such information may not necessarily be updated to reflect circumstances existing after the date hereof or to reflect the occurrence of unanticipated events. F. Asset Impairments ----------------- Included in the caption "Provision for restructuring and other charges" within the Consolidated Statements of Income, the Company recorded a charge of $26 ($19 after-tax or $.15 per diluted share) in the second quarter to write-off a minority interest in a machinery company and an investment in Eastern Europe due to uncertainty regarding the ultimate recovery of these investments. The events which caused the Company to review its investments for impairment were a Chapter 11 bankruptcy petition filed by the machinery company and the politically unstable environment in which the Company's investment in Eastern Europe operates. 9 Crown Cork & Seal Company, Inc. G. Supplemental Cash Flow Information ---------------------------------- Cash payments for interest, net of amounts capitalized, were $186 and $204 during the six months ended June 30, 2000 and 1999, respectively. Cash payments for income taxes amounted to $27 and $40 during the six months ended June 30, 2000 and 1999, respectively. 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 and the Chief Operating Officer. "Other" represents "Corporate" which includes research, development and engineering and administrative costs for the U. S. corporate headquarters. Divisional headquarter costs are maintained within the operating segments. The interim segment information is as follows:
Quarter ended June 30, ---------------------- 2000 Americas Europe Asia-Pacific Other Total ---- -------- ------ ------------ ------ ----- External sales $ 972 $ 825 $ 79 $1,876 Restructuring and other charges 10 47 $20 77 Segment income 76 57 6 ( 36) 103 1999 ---- External sales 981 930 86 1,997 Segment income 103 154 11 ( 22) 246 Six months ended June 30, ------------------------- 2000 Americas Europe Asia-Pacific Other Total ---- -------- ------ ------------ ----- ----- External sales $1,802 $1,565 $149 $3,516 Restructuring and other charges 10 47 $20 77 Segment income 151 133 12 ( 59) 237 1999 External sales 1,852 1,765 174 3,791 Segment income 179 240 19 ( 40) 398
The following table reconciles the Company's segment income to consolidated pre-tax income:
Second Quarter Ended Six Months Ended June 30, June 30, -------------------- ---------------- 2000 1999 2000 1999 ---- ---- ---- ---- Total segment income $103 $246 $237 $398 Interest expense 97 91 189 184 Interest income ( 6) ( 7) ( 10) ( 15) Gain on sale of assets ( 2) ( 4) Translation and exchange adjustments 2 1 2 10 ---- ---- ---- ---- Consolidated pre-tax income $ 10 $163 $ 56 $223 ==== ==== ==== ====
10 Crown Cork & Seal Company, Inc. 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 previously adjusted its selling prices to reflect these movements. There can be no assurance, however, that the Company will be able to recover fully any increases or fluctuations in raw material costs from its customers. The Company is 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. The Company cautions, however, that inherent in its estimate of liabilities are expected trends in claim severity, frequency and other factors which may vary as claims are filed and settled or otherwise disposed of. Accordingly, these matters, if resolved in a manner different from the estimate, could have a material effect on the operating results or cash flows in future periods. While it is not possible to predict with certainty the ultimate outcome of these lawsuits and contingencies, the Company believes, after consultation with counsel, that resolution of these matters is not expected to have a material adverse effect on the Company's financial position or liquidity. The Company is also subject to various 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. J. Recent Accounting Pronouncements -------------------------------- In June 2000, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 138, an amendment to SFAS No. 133. This statement is effective concurrently with SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB statement No. 133, an amendment of FASB statement No. 133." SFAS No. 137 deferred the effective date of the accounting and reporting requirements of SFAS No. 133 to fiscal years beginning after June 15, 2000. These statements establish accounting and reporting standards for derivative instruments and hedging activities. These statements require that a company recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The accounting for changes in the fair value of a derivative instrument depends on its intended use and the resulting designation. The Company continues to evaluate the requirements of these statements and to prepare an implementation plan. In December 1999, the U.S. Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 101. SAB No. 101 provides guidance on the recognition, presentation and disclosure of revenue in the financial statements. Adoption of SAB No. 101, as amended by SAB Nos. 101A and 101B, issued during 2000, is required by the fourth quarter of 2000. The Company continues to evaluate the guidelines of this SAB. 11 Crown Cork & Seal Company, Inc. K. Foreign Currency Risk --------------------- The Company manages its risk to adverse fluctuations in foreign exchange rates through the use of a netting strategy which matches foreign currency assets and liabilities whenever possible and the use of financial instruments. These financial instruments are foreign currency contracts, such as swaps and forwards. At June 30, 2000, the Company had outstanding contracts, primarily in European currencies, Singapore dollars, Canadian dollars and U.S. dollars (both buy and sell) for an aggregate notional amount of approximately $1,290 compared to $1,336 at December 31, 1999. Based on exchange rates at June 30, 2000 and the maturity dates of the various contracts, the fair value of these items at June 30, 2000 was the same as the contract notional value. Gains and losses resulting from contracts that are designated and effective as hedges are recognized in the same period as the underlying hedged transaction. 12 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 six months ended June 30, 2000, compared to the corresponding period in 1999 and the changes in financial condition and liquidity from December 31, 1999. 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, 1999, along with the consolidated financial statements and related notes included in and referred to within this report. Restructuring and Other Charges ------------------------------- During the second quarter, the Company provided $51 ($36 after-tax or $.28 per share) for the costs associated with structure modifications in Europe resulting in the termination of approximately 700 employees and the closure of three Americas Division plants resulting in the termination of approximately 350 employees. The cash impact of the restructuring plan this year is currently estimated at $5, when completed. The Company anticipates that the restructuring actions will generate after-tax savings of approximately $30 ($.24 per diluted share) on an annualized basis when fully implemented. Additional details about the restructuring activities are provided in Note E to the Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q. During the second quarter, the Company also provided $26 ($19 after-tax or $.15 per share) for asset impairments. Additional details about the asset impairment charges are provided in Note F to the Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q. Results of Operations --------------------- Net Income and Earnings Per Share --------------------------------- Net income available to common shareholders for the quarter ended June 30, 2000 was a loss of $4, a decrease of $100 when compared to prior year income of $96. Earnings per diluted share was a loss of $.03 in the quarter compared to a gain of $.77 a year earlier. The decline in earnings includes the impact of after-tax charges of $55, or $.43 per diluted share for restructuring and other charges identified above, and $13 or $.10 per diluted share for a bad debt provision for a U.S. food can customer. Excluding the charges noted above as well as gains on sale of assets, earnings per diluted share was $.50, a decrease of $.26 or approximately 34% from $.76 a year earlier. The decrease is due primarily to lower U.S. beverage and food can volumes, lower European food can volumes, higher resin costs, competitive pressures on pricing across several products, and rising interest rates, all of which management expects will continue in the near-term. For the six months ended June 30, 2000, net income available to common shareholders was $17 or $.14 per common share compared to net income of $121 or $.99 per common share for the same period in 1999. Excluding the effects of the charges noted above as well as any gain on sale of assets in 2000 and 1999, net income available to common shareholders was $85 or $.68 per common share as compared with $118 or $.97 per common share for the same period in 1999. 13 Crown Cork & Seal Company, Inc. Item 2. Management's Discussion and Analysis (Continued) Net Sales --------- Net sales in the second quarter of $1,876 decreased $121 or 6.1% compared to 1999 sales of $1,997, due to (i) currency translation from the continuing strength of the U.S. dollar against most European currencies, (ii) lower sales unit volumes of beverage cans in the U.S. and food cans in the U.S. and Europe, and (iii) business divestitures, offset by the partial pass-through of higher aluminum and resin costs. Net sales for the six months ended June 30, 2000 decreased $275 or 7.3% compared to 1999. Foreign currency translation reduced net sales by $87 in the second quarter of 2000 as compared to the same period in 1999. Divested operations also accounted for $23 of the decrease in sales compared to the second quarter of 1999. Sales from U.S. operations decreased 4.6% and those in non-U.S. operations decreased 7.1%, with U.S. sales accounting for approximately 41% of total net sales in the second quarter of both years. Sales of beverage cans and ends increased to 34.0% from 32.4% of total net sales, while food cans and ends represented 27.4% in 2000 as compared to 29.5% in the second quarter of 1999. An analysis of comparative net sales by operating division follows: Net Sales Percentage Change --------------------------------- ----------------- Second Quarter Six Months Ended Second Six 2000 1999 2000 1999 Quarter Months ---- ---- ---- ---- ------- ------ Divisions: Americas $ 972 $ 981 $1,802 $1,852 ( 1%) ( 3%) Europe 825 930 1,565 1,765 (11%) (11%) Asia-Pacific 79 86 149 174 ( 8%) (14%) Other ------ ------ ------ ------ $1,876 $1,997 $3,516 $3,791 ( 6%) ( 7%) ====== ====== ====== ====== Net sales in the Americas Division decreased $9 and $50 for the three and six months ended June 30, 2000, compared with the same periods in 1999. The decrease in the second quarter was primarily due to $23 of divested operations and to lower U.S. beverage can volumes, offset by the partial pass-through of increased aluminum and resin costs. Beverage can volumes decreased 2.4% as increases in Latin America were offset by lower U.S. volumes. The improvement in Latin America reflects the recovery of these markets from the slowdown caused by the devaluation of the Brazilian currency in early 1999. Aerosol can volumes increased 2.1% while division food can volumes decreased 1.2%. U.S. food can volumes for the remainder of the year may be affected by the customer currently in Chapter 11. U.S. plastic beverage closure volumes have increased 2.5% while PET beverage container volumes decreased 2.5%. Net sales in the European Division decreased $105 and $200 for the three and six months ended June 30, 2000, compared to the same periods in 1999. The decrease in the quarter was largely due to the effect of currency translation ($85)from the continued strength of the U.S dollar against most European currencies. Excluding the effects of currency translation, net sales in the second quarter would have decreased 2.2% versus 1999, primarily due to sales unit volume losses in the U.K. and Italy. These losses were offset by volume gains of 4.8% in beer and beverage cans, and gains throughout the plastics operations. Net sales in the Asia-Pacific Division decreased $7 and $25 for the three and six months ended June 30, 2000 compared to the same periods in 1999. The decrease in the second quarter was primarily due to lower volumes and prices in the Chinese beverage can market. Overall second quarter beverage can volumes were within 1% of 1999 levels, as the losses in China were offset by stronger demand in most of Southeast Asia. Demand for plastic beverage closures remained strong in China and Thailand while food can volumes were at the same level as 1999. 14 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, was $1,493 for the quarter, a decrease of $36 or 2.4% as compared to $1,529 for the same period of 1999. Cost of products sold for the six months ended June 30, 2000 was $2,786, a decrease of 5.5% compared to the same period of 1999. The decrease was primarily due to lower net sales and currency translation as described above. As a percentage to net sales, cost of products sold was 79.6% for the second quarter compared to 76.6% for the same period in 1999. For the six months ended June 30, 2000, cost of products sold was 79.2% compared to 77.7% in 1999. Excluding the bad debt charge for a U.S. food can customer as noted above, cost of products sold was 78.5% and 78.7% for the three and six months ended June 30, 2000. Selling and Administrative -------------------------- Selling and administrative expenses, excluding depreciation, were $78 for the second quarter, a decrease of $13 or 14.3% compared to 1999. As a percentage to net sales, selling and administrative expenses were 4.2% compared to 4.6% in the second quarter of 1999. The decrease in the current year is due to prior years' restructuring efforts and the appreciation of the U.S. dollar against most European currencies. Operating Income ---------------- For the quarter ended June 30, 2000 operating income decreased to $103 from $246 in the second quarter of 1999. For the first six months operating income decreased to $237 from $398 in the prior year. The 2000 operating income included $77 related to restructuring and other charges as described in Notes E and F to the Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q. An analysis of operating income by division, excluding restructuring and other charges of $77, follows: Operating Income Percentage Change --------------------------------- ----------------- Second Quarter Six Months Ended Second Six 2000 1999 2000 1999 Quarter Months ---- ---- ---- ---- ------- ------ Divisions: Americas $ 86 $103 $161 $179 (17%) (10%) Europe 104 154 180 240 (32%) (25%) Asia-Pacific 6 11 12 19 (45%) (37%) Other ( 16) ( 22) ( 39) ( 40) 27% 3% ---- ---- ---- ---- $180 $246 $314 $398 (27%) (21%) ==== ==== ==== ==== Americas Division operating income was $86 or 8.8% of net sales in the second quarter compared to $103 or 10.8% in the same period of 1999. Excluding the charge of $20 taken for the write-off of a bad debt as discussed in Note C to the Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q, second quarter 2000 operating income was $106 or 10.9% of net sales. The increase in 2000 operating margins was due to prior years' cost reduction programs and to strong performances in Latin American beverage can operations, partially offset by lower beverage and food can volumes in North America, and significant increases in resin costs which were not completely passed through to customers. 15 Crown Cork & Seal Company, Inc. Item 2. Management's Discussion and Analysis (Continued) European Division operating income of $104 or 12.6% of net sales decreased from $154 and 16.6% in the second quarter of 1999. The decrease of $50 was primarily due to (i) food can sales unit volume decreases, (ii) foreign exchange translation due to the strong U.S. dollar, (iii) increased resin costs, and (iv) competitive pricing across several products lines, all of which more than offset unit volume gains in (i) beer and beverage cans, (ii) plastic beverage and specialty closures, and (iii) health and beauty care packaging products. Asia-Pacific Division operating margin was 7.6% for the three months ended June 30, 2000 compared to 12.8% in the same period of 1999. The decrease in 2000 operating income and margins was due primarily to lower sales unit volumes and very competitive pricing for beverage cans in China. Net Interest Expense / Income ----------------------------- Net interest expense of $91 in the second quarter was $7 or 8.3% higher than 1999. The increase was due to higher interest rates, which offset the effects of lower net debt and foreign currency translation. Gain on Sale of Assets ---------------------- During the second quarter the Company realized gains of $4, primarily from the sale of U.S. real estate and recognized losses of $4 on other property and equipment. Taxes on Income --------------- The effective tax rate in the second quarter was 80.0% compared to 33.7% in the same period of 1999. The higher rate in 2000 was largely due to lower pre-tax income, which increased the impact of non-deductible goodwill and other permanent differences on the effective tax rate. During the second quarter of 2000 the Company reduced a previously established valuation allowance of $4, due to the realization of net operating loss carryforwards in Mexico. Minority Interests, Net of Equity in Earnings of Affiliates ----------------------------------------------------------- The charge for minority interests, net of equity earnings, decreased by $2 in the second quarter of 2000 compared to 1999 due to lower profits in Chinese beverage can operations, partially offset by improved results in the Latin American beverage can operations. Liquidity and Capital Resources ------------------------------- Cash from Operations -------------------- Cash of $65 was used by operations in the six months ended June 30, 2000 compared to $133 in the second quarter of 1999. Current year cash included $105 from a North American receivables securitization program entered into during the second quarter, as discussed in Note C to the Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q. Excluding the cash received from the sale of these receivables, cash used by operations increased by $37 from the same quarter in 1999 primarily due to lower operating income. 16 Crown Cork & Seal Company, Inc. Item 2. Management's Discussion and Analysis (Continued) Investing Activities -------------------- Investing activities used cash of $99 in the first six months of 2000 compared to cash used of $211 in 1999. The improvement was primarily due lower capital expenditures in 2000, and business acquisitions in 1999. The Company intends to limit its capital spending to no more than $250 in 2000, but will continue to evaluate projects that provide growth opportunities or develop new technologies. Financing Activities -------------------- Financing activities provided cash of $150 in the first six months of 2000 compared to $291 in 1999, primarily due lower cash used by operating and financing activities, offset by increased stock repurchases. Total debt, net of cash and cash equivalents, was $5,017 at June 30, 2000 and represented an increase of $180 from the balance of $4,837 at December 31, 1999. Total debt, net of cash and cash equivalents, as a percentage to total capitalization was 63.1% at June 30, 2000 and 60.3% at December 31, 1999. Total capitalization is defined by the Company as total net debt, minority interests and shareholders' equity. The increase in total debt, net of cash and cash equivalents, from December 31, 1999 was due primarily to the funding of working capital requirements on a short-term basis through the issuance of commercial paper. The increase in total debt as a percentage of total capitalization was also affected by a reduction in shareholders' equity due to negative currency translation adjustments in the first six months of 2000. On July 26, 2000, Standard & Poor's, a rating agency, lowered its long- and short-term ratings on the Company's indebtedness to BBB- and A-3, respectively, from BBB and A-2, respectively. In addition, on June 27, 2000, Moody's Investor Service, another rating agency, placed its long- and short-term ratings of the Company's indebtedness which are currently Baa2 and P-2, respectively, on review for possible downgrade. Recent Accounting Pronouncements -------------------------------- The Company is currently reviewing the guidelines of the following accounting and reporting pronouncements: SFAS No. 133 (as amended by SFAS No. 138), "Accounting for Derivative Instruments and Hedging Activities," issued by the FASB in June 1998 and SAB No. 101, "Revenue Recognition in Financial Statements," issued by the SEC in December 1999. Details of these pronouncements are contained in Note J to the Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q. Management expects that SAB 101 will not have a significant impact on the Company's financial condition and results of operations. The Company continues to review SFAS No. 133 along with the recent amendment to determine the extent of its impact on the Company's financial condition and results of operations. Euro Conversion --------------- On January 1, 1999, eleven of the fifteen member nations ("the participating countries") of the European Union ("EU") established fixed conversion rates between their existing currencies (the "legacy currencies") and one common currency, the Euro. At that time the Euro began trading on currency exchanges and was available for financial transactions. Beginning in January 2002, new Euro-denominated currency (bills and coins) will be issued, and legacy currencies will be withdrawn from circulation. 17 Crown Cork & Seal Company, Inc. Item 2. Management's Discussion and Analysis (Continued) The largest non-participating country is the United Kingdom ("U.K.") which provides approximately 12% of the Company's revenues and is a major trading partner with the participating countries. Due to the non-participation of the U.K. in the Euro, the competitive position of the Company's U.K. operations is subject to, among other things, fluctuations in the exchange rate between Euro and sterling. Price competition may arise from imports into the U.K. or from the U.K. operations exporting to the European continent. At June 30, 2000, approximately 67% of the contract notional value of outstanding foreign exchange contracts involve the Euro, primarily with sterling. With the convergence of short-term interest rates within the EU, the foreign exchange exposure between the currencies of participating countries has diminished considerably, and the Company has benefitted from reduced hedging costs. The Company believes it has identified and substantially addressed the significant issues that may have resulted or will result from the Euro conversion. These issues include increased competitive pressures from greater price transparency, changes in information systems to accommodate various aspects of the new currency and exposure to market risk with respect to financial instruments. The conversion to the Euro, including the costs of implementation, has not been and is not expected to be material. However, the Company cannot guarantee that, with respect to the Euro conversion, all problems, including long-term competitive implications of the conversion, will be foreseen and corrected and that no material disruption of the Company's business will occur. Forward Looking Statements -------------------------- Statements included herein in "Management's Discussion and Analysis of Financial Condition and Results of Operations", including, but not limited to, in the "Restructuring and other Charges" and "Euro Conversion" sections, and in the discussions of receivables in Note C, the restructuring plans in Note E and asbestos claims in Note I to the Consolidated Financial Statements included in Item 1 of 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, 1999, 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. 18 Crown Cork & Seal Company, Inc. Item 2. Management's Discussion and Analysis (Continued) 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, 1999 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 June 30, 2000 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, 1999. 19 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 on April 27, 2000. The matters voted upon and the results thereof are set forth in Part II, Item 4 of the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000 and such Item 4 is incorporated herein by reference. Item 5. Other Information a) On July 27, 2000, the Company's Board of Directors declared cash dividends of $.25 per share on the Company's common stock. Dividends are payable on August 21, 2000 to shareholders of record on August 7, 2000. b) On July 28, 2000, the Company announced that Dr. Jenne K. Britell was elected to its Board of Directors. Item 6. Exhibits and Reports on Form 8-K a) Exhibits 4. Amended and Restated Rights Agreement dated as of May 25, 2000, between Crown Cork & Seal Company, Inc. and First Chicago Trust Company of New York (incorporated by reference to Exhibit 1 to Amendment No. 1 to the Registrant's Registration Statement on Form 8-A, dated May 30, 2000 (File No. 1-2227)). 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. 20 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: August 2, 2000 -------------- 21 EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
5 This schedule contains summary information extracted from the consolidated balance sheets, consolidated statements of income and the notes to the consolidated financial statements on pages 2 through 12 of the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2000 and is qualified in its entirety by reference to such financial statements. 1,000,000 6-MOS DEC-31-2000 JUN-30-2000 244 0 1340 77 1447 3064 5375 2313 11377 3604 3511 0 0 780 1861 11377 3516 3516 2786 3116 2 23 189 56 27 19 0 0 0 19 .14 .14 Diluted EPS for the six months ended June 30, 2000 is the same as Basic EPS due to the anti-dilutive effect from the assumed conversion of average outstanding convertible preferred stock and the addback of preferred dividends.
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