-----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, B7J8FyPrTWpuS3oZ7mFicSQ96bGHoMQwN7jwz8tXCA/sAll5spAu2aarVVvPm2x5 wvAJDSs6zSKmfxScEsfR6w== 0000025890-95-000021.txt : 19951222 0000025890-95-000021.hdr.sgml : 19951222 ACCESSION NUMBER: 0000025890-95-000021 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951221 SROS: NYSE SROS: PHLX FILER: COMPANY DATA: COMPANY CONFORMED NAME: CROWN CORK & SEAL CO INC CENTRAL INDEX KEY: 0000025890 STANDARD INDUSTRIAL CLASSIFICATION: METAL CANS [3411] IRS NUMBER: 231526444 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-02227 FILM NUMBER: 95603501 BUSINESS ADDRESS: STREET 1: 9300 ASHTON RD CITY: PHILADELPHIA STATE: PA ZIP: 19136 BUSINESS PHONE: 2156985100 10-Q/A 1 AMEMDMENT TO FORM 10-Q THIRD QUARTER 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q/A [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995 COMMISSION FILE NUMBER 1-2227 CROWN CORK & SEAL COMPANY, INC. (Exact name of registrant as specific in its charter) Pennsylvania 23-15264444 (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) No.) 9300 Ashton Road, Philadelphia, PA 19136 (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 reported 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 subjected to such filing requirements for the past 90 days. Yes X No There were 90,610,547 shares of Common Stock outstanding as of October 31, 1995. 2 Crown Cork & Seal Company, Inc. INDEPENDENT ACCOUNTANTS' REPORT To the Shareholders and Board of Directors of Crown Cork & Seal Company, Inc. We have reviewed the accompanying consolidated financial information of Crown Cork & Seal Company, Inc. and consolidated subsidiaries as of September 30, 1995 and for the nine-month period then ended. This financial information is the responsibility of the company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying financial information for it to be in conformity with generally accepted accounting principles. Price Waterhouse LLP Philadelphia, PA December 4, 1995 3 Crown Cork & Seal Company, Inc. PART 1 - FINANCIAL INFORMATION CONSOLIDATED STATEMENTS OF INCOME (In millions except share data) (Unaudited) Three months ended September 30, 1995 1994 Net sales $ 1,427.1 $ 1,283.3 Costs, expenses & other income Cost of products sold, excluding depreciation and amortization 1,249.7 1,074.4 Depreciation and amortization 67.3 53.1 Selling and administrative expense 36.0 34.7 Provision for restructuring 82.5 114.6 Interest expense 38.1 26.9 Interest income ( 3.3) ( 2.1) Translation and exchange adjustments ( 1.8) ( .3) 1,468.5 1,301.3 Loss before income taxes ( 41.4) ( 18.0) Provision for income taxes ( 23.9) ( 8.4) Equity earnings, net of minority interests ( 2.4) 2.1 Net Loss ($ 19.9) ($ 7.5) Loss per average common share ($ .22) ($ .08) Average common shares outstanding 90,469,197 89,115,758 The accompanying notes are an integral part of these financial statements. 4 Crown Cork & Seal Company, Inc. PART 1 - FINANCIAL INFORMATION CONSOLIDATED STATEMENTS OF INCOME (In millions except share data) (Unaudited) Nine months ended September 30, 1995 1994 Net sales $ 3,939.6 $ 3,360.8 Costs, expenses & other income Cost of products sold, excluding depreciation and amortization 3,335.5 2,787.0 Depreciation and amortization 196.5 160.3 Selling and administrative expense 107.8 101.0 Provision for restructuring 102.7 114.6 Interest expense 111.6 70.6 Interest income ( 8.8) ( 5.1) Translation and exchange adjustments ( 1.3) 5.8 3,844.0 3,234.2 Income before income taxes 95.6 126.6 Provision for income taxes 17.4 42.1 Equity earnings, net of minority interests ( 9.4) 6.4 Net income $ 68.8 $ 90.9 Earnings per average common share $ .76 $ 1.02 Average common shares outstanding 90,105,240 89,028,346 The accompanying notes are an integral part of these financial statements. 5 Crown Cork & Seal Company, Inc. CONSOLIDATED BALANCE SHEETS (In millions except share data) (Unaudited) September 30, December 31, 1995 1994 ASSETS CURRENT ASSETS Cash and cash equivalents $ 58.0 $ 43.5 Receivables 975.6 738.0 Inventories 844.4 767.5 Prepaid expenses and other current assets 76.0 56.6 Total Current Assets 1,954.0 1,605.6 Long-term notes and receivables 66.9 70.4 Investments 54.2 47.7 Goodwill, net of amortization 1,107.5 1,122.4 Property, plant and equipment 1,938.3 1,816.5 Other non-current assets 114.3 118.7 TOTAL $5,235.2 $4,781.3 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Short-term debt $ 997.7 $ 604.5 Current portion of long-term debt 66.1 131.3 Accounts payable and accrued liabilities 683.1 737.1 United States and foreign income taxes 7.2 10.1 Total Current Liabilities 1,754.1 1,483.0 Long-term debt, excluding current maturities 1,162.6 1,089.5 Postretirement and pension liabilities 634.2 639.4 Other non-current liabilities 120.7 128.8 Minority interests 105.5 75.4 Shareholders' equity 1,458.1 1,365.2 TOTAL $5,235.2 $4,781.3 BOOK VALUE PER COMMON SHARE $16.10 $15.28 The accompanying notes are an integral part of these financial statements. 6 Crown Cork & Seal Company, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (Condensed) (In millions) (Unaudited) Nine months ended September 30, 1995 1994 Cash flows from operating activities Net income $ 68.8 $ 90.9 Depreciation and amortization 196.5 160.3 Provision for restructuring 67.0 73.2 Equity in earnings of joint ventures, net of dividends received .5 ( 10.7) Minority interest in earnings of subsidiaries 13.2 9.3 Change in assets and liabilities, other than debt ( 433.4) ( 422.9) Net cash used in operating activities ( 87.4) ( 99.9) Cash flows from investing activities Capital expenditures ( 295.4) ( 323.0) Acquisition of business, net of cash acquired ( 14.2) ( 66.2) Proceeds from sales of property, plant and equipment 12.8 9.5 Other, net ( 3.8) Net cash used in investing activities ( 300.6) ( 379.7) Cash flows from financing activities Proceeds from long-term debt 329.4 148.5 Payments of long-term debt ( 205.9) ( 181.8) Net change in short-term debt 258.8 504.4 Common stock: Repurchased for treasury ( .3) ( 12.6) Issued under various employee benefit plans 18.8 12.4 Minority contributions, net of dividends paid 9.6 7.3 Net cash provided by financing activities 410.4 478.2 Effect of exchange rate changes on cash and cash equivalents ( 7.9) 9.5 Net change in cash and cash equivalents 14.5 8.1 Cash and cash equivalents at beginning of period 43.5 54.2 Cash and cash equivalents at end of period $ 58.0 $ 62.3 Schedule of non-cash Investing Activities 1995 1994 Acquisition of business: Fair value of assets acquired $14.2 $89.1 Liabilities assumed ( 25.1) Cash paid $14.2 $64.0 Certain prior year balances have been reclassified to improve comparability. The accompanying notes are an integral part of these financial statements. 7 Crown Cork & Seal Company, Inc. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (In millions) (Unaudited)
Minimum Cumulative Common Paid-In Retained Pension Translation Treasury Stock Capital Earnings Liability Adjustment Shares Total Balance at December 31, 1994 $592.5 $168.4 $ 974.1 ($48.1) ($175.9) ($145.8) $1,365.2 Net income 68.8 68.8 Treasury stock purchased ( .3) ( .3) Stock issued under employee benefit plans 12.6 6.2 18.8 Translation adjustments 5.6 5.6 Balance at September 30, 1995 $592.5 $180.7 $1,042.9 ($48.1) ($170.3) ($139.6) $1,458.1 Minimum Cumulative Common Paid-In Retained Pension Translation Treasury Stock Capital Earnings Liability Adjustment Shares Total Balance at December 31, 1993 $592.5 $167.4 $843.1 ($46.3) ($156.5) ($148.4) $1,251.8 Net income 90.9 90.9 Treasury stock purchased ( 10.9) ( 1.7) ( 12.6) Stock issued under employee benefit plans 8.9 3.5 12.4 Translation adjustments 20.8 20.8 Balance at September 30, 1994 $592.5 $165.4 $934.0 ($46.3) ($135.7) ($146.6) $1,363.3 The accompanying notes are an integral part of these financial statements.
8 Crown Cork & Seal Company, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In millions, except per share and employee 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 (consisting of only normal recurring accruals) necessary to present fairly the financial position of Crown Cork & Seal Company, Inc. as of September 30, 1995 and the results of operations and cash flows for the periods ended September 30, 1995 and 1994, respectively. These results have been determined on the basis of generally accepted accounting principles and practices applied consistently. 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 statements and notes thereto incorporated by reference in the Company's 1994 Form 10-K Annual Report as well as its first and second quarter 1995 Form 10-Q's. B. Summary of Significant Accounting Policies Goodwill On an annual basis the Company reviews the recoverability of goodwill based primarily upon an analysis of undiscounted cash flows from the acquired business. Property, Plant and Equipment The range of estimated economic lives assigned to each significant fixed asset category are as follows: Land Improvements 25 Building and Improvements 25 to 40 Other depreciable assets 3 to 14 C. Restructuring In March 1994 the Company outlined a two-phase implementation plan to effectively restructure its North American operations. Phase one of this plan, principally affecting the food and aerosol container sectors, was initiated in the third quarter of 1994 and was completed in September 1995. This phase contained a pre-tax restructuring charge of $114.6 million ($73.2 million after-tax) and commenced in the fourth quarter of 1994 with the closure of seven plants. 9 Crown Cork & Seal Company, Inc. In the third quarter of 1995, the Company announced that it was implementing the second phase of the restructuring plan affecting its North American operations which the Company initially outlined in March 1994. In this second phase, two aluminum beverage can plants and one beverage end plant will be closed in order to match manufacturing capacity with demand. An additional beverage can plant will be off-line during 1996 to upgrade its production equipment. The Company also intends to close two food can plants in the U.S. and combine two non-U.S. food operations into one location. In the Plastics Division, one facility will be closed and two others will be reorganized to improve cost effectiveness. In connection with this second phase, the Company incurred a restructuring charge of $82.5 million ($54.2 million or $0.60 per share on an after-tax basis) in the third quarter ended September 30, 1995. The Company has estimated that the pre-tax annual savings resulting from these actions will be approximately $36 million after the second phase is completed in September 1996. The restructuring charge of $82.5 million ($54.2 million after taxes) includes cash charges of $28.6 million, $19.4 million of which is for employee separation costs from the elimination of approximately 950 positions. Employees terminated include most, if not all, employees at each plant to be closed including salaried and hourly employees and employees of the respective union represented at that plant site. Non-cash charges include writedowns of assets (spare parts, property and equipment, etc.) totaling $53.9 million. With the addition of the third quarter restructuring charge, 1995 pre-tax earnings have been reduced due to restructuring by $102.7 million ($67.0 million after tax). The balance and components of these reserves at September 30, 1995 are as follows: Partial Reversal of December 31, 9/30/94 Add'l 1995 1995 1994 Provision Provision Activity Balance Employee costs $16.6 ($3.0) $ 28.8 ($19.5) $22.9 Writedown of assets ( 5.3) 58.4 ( 53.1) Lease termination and property holding costs 5.9 ( .8) 15.4 ( 1.1) 19.4 Anticipated gain from sale of properties ( 11.1) 10.9 ( .2) Incremental operating losses 5.4 ( 1.7) ( 3.7) $16.8 $ .1 $102.6 ($77.4) $42.1 The adjustment for writedown of assets has actually been recorded against the related assets but is presented herein as a reconciliation between announced provisions or reversals and the reserve balances. Where applicable, the Company has also established reserves to restructure acquired companies. These purchase accounting adjustments related primarily to employee separation costs to be incurred upon plant closures, such as severance and additional pension and retiree medical liabilities. As of September 30, 1995 the balance for such expenses, classified as restructuring in the balance sheet, was $14.2 million. 10 Crown Cork & Seal Company, Inc. D. Inventories September 30, December 31, 1995 1994 Finished Goods $347.0 $284.7 Work in Process 124.7 106.6 Raw Materials 300.1 309.2 Supplies and Repair Parts 72.6 67.0 Total $844.4 $767.5 E. Supplemental Cash Flow Information Cash payments for interest, net of amounts capitalized ($5.6 million and $4.7 million for 1995 and 1994 respectively), were $87.5 million and $54.0 million during the nine months ended September 30, 1995 and 1994, respectively. Cash payments for income taxes amounted to $18.5 million and $63.1 million during the nine months ended September 30, 1995 and 1994, respectively. The 1995 tax payments are below 1994 payments due, in part, to a second quarter domestic refund of $15.0 million, lower domestic earnings and the impact on tax depreciation from the recent capital programs. 11 Crown Cork & Seal Company, Inc. PART 1 - FINANCIAL INFORMATION Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Restructuring In the third quarter of 1995, the Company announced that it was implementing the second phase of the restructuring plan affecting its North American operations. The plan was initially outlined in March 1994. In connection with this second phase, the Company has incurred a restructuring charge of $82.5 million ($54.2 million or $0.60 per share on an after-tax basis) in the third quarter ended September 30, 1995. Further detail of the restructuring is presented in Note C to the Consolidated Financial Statements. Net Income and Earnings Per Share Net income in the third quarter, before the restructuring charge, was $34.2 million or $.38 per share, a decrease of 47.9% and 48.6%, when compared to respective prior year amounts of $65.7 million or $.74 per share. The charge taken for the restructuring in the quarter was $82.5 million ($54.2 million after taxes) or $.60 per share. Following the restructuring charge, the Company reported a net loss of $19.9 million and a per share loss of $.22 compared to a loss of $7.5 million or $.08 per share in 1994. After the total 1995 net charge to income for restructuring of $67.0 million, net income for the nine months ended September 30, 1995 was $68.8 million or $.76 per share as compared to $90.9 million or $1.02 per share in 1994. Total 1994 net restructuring charges were $73.2 million or $.82 per share. The primary factors for the decline in net income were: (1) competitive pressures limiting the recovery of higher raw material costs through adequate net selling prices and (2) weaker than expected demand. On September 19, 1995, the Company announced that it expected earnings per share for 1995 to be less than the $2.29 per share which it reported in 1994, as measured before restructuring charges. Management stated that it expected second half 1995 net earnings before any restructuring charges would be unlikely to exceed $55 million and could be lower. Management considers the results in the third quarter to be consistent with the earnings outlook for the second half of 1995 that was announced on September 19, 1995. Continuing exposure to volatile raw material costs in the aluminum and plastic resin sectors substantially reduced profitability in the quarter. The foregoing discussion of restructuring charges and related cost savings, and of anticipated second half results, represents the Company's best estimate, but it necessarily makes numerous assumptions with respect to industry performance, general business and economic conditions, raw materials and product pricing levels, restructuring costs and other matters, many of which are outside the Company's control. The Company's estimate and related assumptions are not necessarily indicative of future performance, which may be significantly more or less favorable than as set forth above. Shareholders are cautioned not to place undue reliance on the estimate and the assumptions and should appreciate that such information may not be necessarily updated to reflect circumstances existing after the date hereof or to reflect the occurence of unanticipated events. 12 Crown Cork & Seal Company, Inc. Item 2. Management's Discussion and Analysis (Continued) Net Sales Net sales for the quarter increased 11.2% from $1,283.3 million in 1994 to $1,427.1 million in 1995. Sales from domestic operations increased 9.4% and those in foreign markets increased 15.6%. Domestic sales accounted for 67.7% of consolidated net sales in 1995 as compared to 68.9% in 1994. Net sales for the nine months ended September 30, 1995 of $3,939.6 million represent an increase of 17.2 % from the prior year level of $3,360.8 million. An analysis of net sales by operating division follows: Net Sales Percentage Third Quarter Nine Months Ended Change Third Nine 1995 1994 1995 1994 Quarter Months North American $ 840.4 $ 789.2 $2,242.8 $2,019.4 6.5 11.1 International 253.8 233.1 732.1 621.0 8.9 17.9 Plastics 315.6 240.3 901.3 657.2 31.3 37.1 Other 17.3 20.7 63.4 63.2 (16.4) .3 $1,427.1 $1,283.3 $3,939.6 $3,360.8 11.2 17.2 North American Division net sales increased in the quarter and for the nine months ended September 30, 1995 over the respective period in 1994 due primarily to the pass-through of substantially higher raw material costs. This pass-through did not fully recover the costs increases experienced for aluminum can sheet. It has been difficult to increase selling prices to recover such raw material cost increases. The pass-through of higher costs was offset by unit sales volume declines across most product lines. In the quarter, domestic beverage can volumes were down approximately 2.5% from a year earlier and combined food and aerosol can volumes were down approximately 9.7%. Canadian and Mexican volumes were also down in the quarter and year-to-date. Increased sales in the International Division were due primarily to increased unit sales in China, the Middle East and Latin America along with the effects of a weakening U.S. dollar against most European currencies. In the third quarter, some U.S. dollar recovery aided in reducing the impact of translation on European net sales. Within China, unit sales growth resulted from the commencement of production of two-piece beverage cans and beverage ends in Shanghai and beverage ends in Foshan. Sales growth in Latin America and the Middle East resulted from the attainment in 1995 of full production for two-piece beverage cans and beverage ends at the Company's plants in Argentina and Dubai. As customers continue to convert to plastic for packaging their products, the Company with its recent unit capacity expansion program has been responsive to this continuing demand by providing PET packaging for beverage, processed food and household products. The increase in 1995 Plastic Division net sales has resulted from higher unit sales volumes across most product lines both in the U.S. and in Europe as well as from higher selling prices representing the pass-through of substantially higher resin costs to customers. 13 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 third quarter was $1,249.7 million, a 16.3% increase from $1,074.4 million in 1994. For nine months ended September 30, 1995, cost of products sold increased 19.7% to $3,335.5 million from $2,787.0 million in 1994. These increases are due primarily to higher net raw material costs, both for aluminum can and end sheet, plastic resins and unit sales gains in plastics. The higher raw material costs, primarily in the domestic markets, have not been fully passed through to customers and, as such, have been a factor in the increased nine month ratio between cost of products sold and net sales from 82.9% in 1994 to 84.7% in 1995, and the resultant erosion of margin. The Company expects continued difficulty in recovering higher raw material costs and is concerned about eroding manufacturing efficiencies due to weaker than expected customer demand in virtually all products and across all geographic areas. Depreciation and amortization as a percentage of net sales for the nine months have increased from 4.8% in 1994 to 5.0% in 1995. This increase primarily reflects the Company's efforts to improve productivity and efficiencies and to meet customer demands for new products through its annual capital investment programs. The Company expects resin pricing to stabilize following steady increases since October 1994 due, in part, to additional capacity becoming available next year. As for aluminum can and end sheet prices, recent discussions with the Company's suppliers has indicated that they are at least aware of the effects of their pricing practices on market demand for aluminum beverage cans. In the interim, the Company, to maintain its competitive position, plans to complete its 202 diameter aluminum end conversion program by the end of 1995 and accelerate line speeds at various plants. Selling and Administrative Selling and administrative expenses for the third quarter were $36.0 million, 2.5% of net sales. Expenses increased by 3.7% over 1994 but improved as a percentage of net sales from 2.7% a year earlier. For nine months ended September 30, 1995, selling and administrative expenses increased 6.7% from a year earlier but improved as a percentage of net sales from 3.0% in 1994 to 2.7% in 1995. 14 Crown Cork & Seal Company, Inc. Item 2. Management's Discussion and Analysis (Continued) Operating Income Operating income, before restructuring charges, was $74.1 million or 5.2% of net sales for the quarter ended September 30, 1995 and $299.8 million or 7.6% of net sales year-to-date. These results represent a decline of 38.8% from the quarter ended September 30, 1994 and 4.1% from the nine months ended September 30, 1994. An analysis of operating income, before restructuring charges, by operating division follows: Operating Income Percentage Third Quarter Nine Months Ended Change Third Nine 1995 1994 1995 1994 Quarter Months North American $29.1 $ 60.5 $158.2 $172.3 (51.9) ( 8.2) International 28.8 28.5 76.6 74.4 1.0 3.0 Plastics 15.8 29.7 58.1 60.3 (46.8) ( 3.6) Other .4 2.4 6.9 5.5 (83.3) 25.5 $74.1 $121.1 $299.8 $312.5 (38.8) ( 4.1) Operating income in the North American Division as a percentage of net sales was 3.5% in the quarter and 7.1% year-to-date as compared to 7.7% and 8.5%, respectively, for 1994. The decrease in 1995 margins from 1994 was primarily due to escalating raw material costs, the most significant being those related to aluminum can and end sheet used in beverage canmaking. Competitive pressures and industry overcapacity have been factors in preventing the Company from fully passing these substantial cost increases through to its customers. In addition to higher raw material costs, lower 1995 volumes impacted existing capacity utilization. Lower capacity utilization has resulted in plant inefficiencies which have eroded product margins and resulted in implementation of phase two of the Company's restructuring plan as discussed above. The Company intends to redeploy temporarily excess capacity into markets which will provide sufficient return on its capital. The benefits of phase one of the restructuring plan, completed in September 1995, have largely been offset by reduced volumes in three-piece food and aerosol cans. The Company believes that it has improved operating leverage in the event that volumes rebound in 1996 as any rebound will flow through its remaining productive plants. International Division operating margins were 11.3% for the quarter and 10.5% year-to-date as compared to 12.2% and 12.0%, respectively, for 1994. The lower margins are primarily due to competitive pressures on selling prices and changes in product mix. 15 Crown Cork & Seal Company, Inc. Item 2. Management's Discussion and Analysis (Continued) Operating income as a percentage of net sales for the Plastics Division has declined from 12.4% in 1994 to 5.0% in 1995 for the quarter and for the nine months ended September 30 from 9.2% in 1994 to 6.4% in 1995. The margin erosion in the quarter and year-to-date was due primarily to difficulties experienced in recovering the steady increases, since October 1994, in PET resin prices and, to a lesser extent, inefficiencies caused by the impact of continued capacity enhancement programs at various plants. With excess capacity in the U.S. PET bottle market and eroding margins due to the difficult PET price structure, the Company has responded by restricting capital spending, closing one plant and reorganizing two plants. Although the Company believes that these actions will increase profitability in the future through improved utilization of remaining capacity, the Company expects that margins may erode further in the fourth quarter. Net Interest Expense/Income Net interest expense was $34.8 million in the quarter and $102.8 million year-to-date and represents increases over 1994 of 40.3% and 56.9% respectively. The increase in net interest expense is due primarily to (a) generally higher interest rates, (b) increased working capital requirements resulting from the impact on inventories of higher raw material costs and (c) capital spending programs to expand production worldwide and to improve production efficiencies. Taxes on Income The effective tax rate before restructuring charges was 11.1% in the quarter and 26.8% year-to-date as compared to 34.1% in the quarter and 34.6% year-to-date in 1994. The lower effective tax rate is primarily due to increased pre-tax income, especially in the third quarter, from non-U.S. operations with lower statutory rates, such as those in China, the United Arab Emirates and Switzerland. Liquidity and Capital Resources Cash and cash equivalents at September 30, 1995, were $58.0 million as compared to $43.5 million at December 31, 1994 and $62.3 million at September 30, 1994. Working capital at September 30, 1995 was $199.9 million, an improvement of $77.3 million from December 31, 1994 and $240.2 million from September 30, 1994. Net book value of property, plant and equipment representing 37.0% of total assets increased by $121.8 million from December 31, 1994. The change in net book value resulted from: (1) capital expenditures of $295.4 million, (2) reserve for writedown of assets under the restructuring plans of $53.1 million, (3) retirement and/or sale of assets, (4) depreciation on assets of $174.5 million and (5) the impact of translation on non-U.S. assets. Total debt at September 30, 1995 was $2,226.4 million and represented an increase of 22.0% over the December 31, 1994 debt level of $1,825.3 million. Total debt, net of cash and cash equivalents, as a percentage of total capitalization was 58.1% at September 30, 1995 as compared to 55.3% at December 31. 16 Crown Cork & Seal Company, Inc. Item 2. Management's Discussion and Analysis (Continued) The primary sources of cash through the nine months ended September 30, 1995 have been: (1) proceeds from short-term debt, primarily commercial paper, of $258.8 million and (2) proceeds from long-term borrowings of $329.4 million. Short-term debt, through issuances of commercial paper, has historically funded the Company's working capital requirements on an interim basis. The current commercial paper program is supported by a $1,000.0 million multi-currency credit facility which bears interest at variable market rates and which matures in February 2000. There are no restrictions attached to this facility. At September 30, 1995 outstanding commercial paper was $937.4 million as compared to $425.6 million at December 31, 1994 and $774.5 million at September 30, 1994. Proceeds from long-term debt were generated through the issuance of $300 million of 8.38% notes due 2005. These notes were part of a $500.0 million shelf registration filed with the Securities and Exchange Commission on December 20, 1994. Funds from the notes were used to paydown short-term indebtedness. The primary uses of cash for the nine months were: (1) capital expenditures, (2) working capital requirements and (3) repayment of long-term debt. Capital expenditures of $295.4 million represent a decrease of 8.5% from the year earlier level of $323.0 million. The reduction in overall spending from a year earlier represents the Company's continuing effort to reduce interest costs by lowering or restricting debt levels. Spending for the North American Division was $126.9 million. Included in spending for this division were: (1) continuing conversion of aluminum beverage can and end lines to 202 diameter at various plants, (2) modernization of a plant in Texas to meet customer needs and (3) downpayments on two new high-speed beverage can lines. Spending in the Plastic Division has declined by 30.3% from a year earlier as the Company continues to evaluate its capacity utilization within this segment; and, as such, has restricted current spending. Primary spending has been in response to customer requirements, specifically single-serve PET preform and bottle lines. Spending in the International Division totaled $47.0 million as compared to 1994 spending of $43.5 million. The major projects in this division have been concentrated in the Company's joint ventures as well as further expansion of existing European plastic cap production. Aside from capital expenditures, working capital required significant cash commitment due primarily to the impact of substantially higher raw material cost in 1995. The Company continues to proceed with its proposed acquisition of CarnaudMetalbox. The Company has received commitments from thirteen banks as part of its 13.7 billion French Franc (approximately $2.8 billion) Multi-Currency Revolving Credit/Term Loan facility. Funds from this acquisition facility will be used to finance the cash portion of the proposed exchange offer to acquire the shares of CarnaudMetalbox of France. The Company expects that the indebtedness incurred under such a facility will be repaid from (1) funds generated internally by the Company and its subsidiaries, (2) additional borrowings, (3) proceeds from asset dispositions and possibly (4) equity offerings. A combination of two or more sources will more than likely generate these future cash resources. 17 Crown Cork & Seal Company, Inc. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K a. Exhibits 2.a Exchange Offer Agreement, dated as of May 22, 1995, as amended as of November 13, 1995 between Crown Cork & Seal Company, Inc., and Compagnie Generale d' Industrie et de Participations (incorporated by reference to Annex A of the Proxy Statement/Prospectus forming a part of the Registrant's Registration Statement on Form S-4 filed with the Commission on November 13, 1995 (File No. 33-64167)). 3.a By-laws of the Registrant as amended by the Company's Board of Directors on July 27, 1995 (incorporated by reference to Exhibit 3 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995 (File No. 1-2227)). 4. Rights Agreement dated as of August 7, 1995 between Crown Cork & Seal Company, Inc., and First Chicago Trust Company of New York (incorporated by reference to Exhibit 1 of the Registrant's Form 8-A dated August 10, 1995 (File No. 1-2227)). 11. Statement re: Computation of per share earnings 15. Letter re unaudited interim financial information 27. Financial Data Schedule b. Reports on Form 8-K No reports on Form 8-K have been filed during the three months ended September 30, 1995. 18 Crown Cork & Seal Company, Inc. SIGNATURES 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 Date: December 21, 1995 By: /S/Timothy J. Donahue Timothy J. Donahue Vice President and Controller EX-11 2 COMPUTATION OF EPS 19 Crown Cork & Seal Company, Inc. Exhibit 11 - Statement re Computation of per share earnings Nine Months Ended Three Months Ended September 30, September 30, 1995 1994 1995 1994 1. Net Income (in millions) $ 68.8 $ 90.9 ($ 19.9) ($ 7.4) 2. Weighted average number of shares outstanding during the period 90,105,240 89,028,346 90,469,197 89,115,758 3. Earnings per share based upon average outstanding shares (1/2) $ 0.76 $ 1.02 ($ 0.22) ($ 0.08) 4. Net shares issuable upon exercise of dilutive outstanding stock options (treasury stock method) 516,409 865,453 372,073 798,528 5. Fully diluted shares(2+4) 90,621,649 89,893,799 90,841,270 89,914,286 6. Fully diluted earnings per share (1/5) $ 0.76 $ 1.01 ($ 0.22) ($ 0.08) EX-15 3 PW AWARENESS LETTER 20 December 20, 1995 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, DC 20549 Ladies and Gentlemen: We are aware that Crown Cork & Seal Company, Inc. has incorporated by reference our report dated December 4, 1995 (issued pursuant to the provisions of Statement on Auditing Standards No. 71) in the Prospectus constituting part of Amendment No. 1 to its Registration Statement on Form S-4 (No. 33-64167) filed on November 14, 1995. We are also aware of our responsibilities under the Securities Act of 1933. Yours very truly, Price Waterhouse LLP EX-27 4 THIRD QUARTER FINANCIAL DATA SCHEDULE
5 1,000,000 9-MOS DEC-31-1995 SEP-30-1995 58 0 987 11 844 1954 3151 1213 5235 1754 1163 592 0 0 866 5235 3940 3940 3532 3635 3 2 112 96 17 69 0 0 0 69 .76 .76
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