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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, 1996
[ ] 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 of (I. R. S. Employer
incorporation or organization) Identification No.)
9300 Ashton Road, Philadelphia, PA 19136
(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 128,156,113 shares of Common Stock outstanding as of July 31, 1996.
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<PAGE>
Crown Cork & Seal Company, Inc.
PART 1 - FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF INCOME
(In millions except share data)
(Unaudited)
Three months ended June 30, 1996 1995
- --------------------------------------------------------------------------------
Net sales $ 2,353.7 $ 1,385.8
--------- ---------
Costs, expenses & other income
Cost of products sold, excluding
depreciation and amortization 1,894.0 1,153.8
Depreciation and amortization 135.2 65.0
Selling and administrative expense 106.2 36.0
Provision for restructuring 29.6 20.2
Interest expense 110.8 38.0
Interest income ( 22.2) ( 2.7)
Translation and exchange adjustments ( 41.0) ( 1.1)
--------- --------
2,212.6 1,309.2
--------- --------
Income before income taxes 141.1 76.6
Provision for income taxes 34.7 21.6
Minority interest, net of equity earnings ( 2.3) ( 2.8)
--------- --------
Net income 104.1 52.2
Preferred stock dividends 5.8 -
--------- --------
Net income available to common shareholders $ 98.3 $ 52.2
========= =========
Earnings per average common share $ .77 $ .58
========= =========
Dividends per common share $ .25 $ -
========= =========
Average common shares outstanding 128,125,736 90,197,100
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The financial statements for 1996 include the operations of CarnaudMetalbox from
the acquisition date of February 22, 1996.
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
Crown Cork & Seal Company, Inc.
CONSOLIDATED STATEMENTS OF INCOME
(In millions except share data)
(Unaudited)
Six months ended June 30, 1996 1995
- --------------------------------------------------------------------------------
Net sales $ 3,904.9 $ 2,512.5
---------- ----------
Costs, expenses & other income
Cost of products sold,
excluding depreciation and amortization 3,170.3 2,085.8
Depreciation and amortization 229.8 129.2
Selling and administrative expense 175.8 71.8
Provision for restructuring 29.6 20.2
Interest expense 172.9 73.5
Interest income ( 34.9) ( 5.5)
Translation and exchange adjustments ( 38.7) .5
--------- ----------
3,704.8 2,375.5
--------- ----------
Income before income taxes 200.1 137.0
Provision for income taxes 53.6 41.3
Minority interest, net of equity earnings ( 11.1) ( 7.0)
--------- ----------
Net income 135.4 88.7
Preferred stock dividends 8.0 -
--------- ----------
Net income available to common shareholders $ 127.4 $ 88.7
======== =========
Earnings per average common share $ 1.09 $ .99
======== =========
Dividends per common share $ .50 $ -
======== =========
Average common shares outstanding 116,623,109 89,920,245
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The financial statements for 1996 include the operations of CarnaudMetalbox from
the acquisition date of February 22, 1996.
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
Crown Cork & Seal Company, Inc.
CONSOLIDATED BALANCE SHEETS (Condensed)
(In millions except book value)
(Unaudited)
June 30, December 31,
1996 1995
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Assets
Current assets
Cash and cash equivalents $ 194.5 $ 68.1
Receivables 1,751.3 744.3
Inventories 1,507.3 811.9
Prepaid expenses and other current assets 178.4 84.6
---------- ---------
Total current assets 3,631.5 1,708.9
---------- ---------
Long-term notes and receivables 99.6 63.5
Investments 89.4 57.5
Goodwill, net of amortization 4,671.4 1,095.7
Property, plant and equipment 3,861.6 2,005.9
Other non-current assets 494.6 120.2
---------- ---------
Total $12,848.1 $5,051.7
========== =========
Liabilities and shareholders' equity
Current liabilities
Short-term debt $ 1,260.8 $ 537.9
Current portion of long-term debt 50.9 70.2
Accounts payable and accrued liabilities 1,956.5 668.2
United States and foreign income taxes 43.8 2.7
---------- ---------
Total current liabilities 3,312.0 1,279.0
---------- ---------
Long-term debt,
excluding current maturities 4,088.9 1,490.1
Postretirement and pension liabilities 718.8 590.6
Other non-current liabilities 749.3 112.2
Minority interests 361.9 118.6
Shareholders' equity 3,617.2 1,461.2
--------- ---------
Total $12,848.1 $5,051.7
========= =========
Book value per common share $24.16 $16.12
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The financial statements for 1996 include the financial position of
CarnaudMetalbox.
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
Crown Cork & Seal Company, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Condensed)
(In millions)
(Unaudited)
Six months ended June 30, 1996 1995
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Cash flows from operating activities
Net income $ 135.4 $ 88.7
Depreciation and amortization 229.8 129.2
Provision for restructuring 21.9 12.8
Foreign currency gain ( 42.1)
Equity in earnings of joint ventures,
net of dividends 5.7 ( 2.7)
Minority interest in
earnings of subsidiaries 6.0 9.9
Change in assets and liabilities,
other than debt ( 362.2) (436.2)
------- -----
Net cash used in operating activities ( 5.5) (198.3)
------- -----
Cash flows from investing activities
Capital expenditures ( 286.2) (206.5)
Acquisition of businesses,
net of cash acquired (1,524.6)
Proceeds from sale of property,
plant and equipment 17.7 12.8
Proceeds from sale of businesses 52.7
Other, net ( 1.0) ( 6.9)
------- -----
Net cash used in investing activities (1,741.4) (200.6)
------- -----
Cash flows from financing activities
Proceeds from long-term debt 1,880.9 310.5
Payments of long-term debt ( 51.1) (203.7)
Net change in short-term debt 93.2 283.7
Dividends paid ( 69.6)
Common stock:
Repurchased for treasury - ( .3)
Issued under various
employee benefit plans 3.2 14.5
Minority contributions,
net of dividends paid 12.1 9.7
------- -----
Net cash provided by
financing activities 1,868.7 414.4
------- -----
Effect of exchange rate changes
on cash and cash equivalents 4.6 9.9
------- ------
Net change in cash and cash equivalents 126.4 25.4
Cash and cash equivalents at beginning of period 68.1 43.5
------- ------
Cash and cash equivalents at end of period $ 194.5 $ 68.9
======= ======
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Schedule of non-cash investing activities: 1996
Acquisition of business
Fair value of assets acquired $7,850.4
Liabilities assumed ( 3,871.1)
Issuance of common stock ( 1,562.4)
Issuance of 4.5%
convertible preferred ( 520.7)
--------
Cash paid $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 statements.
5
<PAGE>
<TABLE>
Crown Cork & Seal Company, Inc.
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In millions) (Unaudited)
Minimum Cumulative
Preferred Common Paid-In Retained Pension Translation Treasury
Stock Stock Capital Earnings Liability Adjustments Stock Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 combination 186.5 1,375.9 1,562.4
4.5% convertible preferred stock issued in
business combination $520.7 520.7
Cash dividends paid - Common stock ( 64.1) ( 64.1)
Preferred stock dividends ( 8.0) ( 8.0)
Common stock issued under
employee benefit plans 2.2 1.0 3.2
Translation adjustments 6.4 6.4
------ ------ -------- -------- ----- ------ ------ --------
Balance at June 30, 1996 $520.7 $779.0 $1,560.8 $1,112.3 ($32.1) ($185.3) ($138.2) $3,617.2
====== ====== ======== ======== ======= ====== ====== ========
Minimum Cumulative
Common Paid-In Retained Pension Translation Treasury
Stock Capital Earnings Liability Adjustments Stock Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $592.5 $168.4 $ 974.1 ($48.1) ($175.9) ($145.8) $1,365.2
Net income 88.7 88.7
Treasury stock purchased ( .3) ( .3)
Common stock issued under employee benefit plans 9.6 4.9 14.5
Translation adjustments 2.2 2.2
------ ------ ------- ----- ------ ------- --------
Balance at June 30, 1995 $592.5 $177.7 $1,062.8 ($48.1) ($173.7) ($140.9) $1,470.3
====== ====== ======== ===== ====== ====== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
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, 1996 and the results of
operations and cash flows for the periods ended June 30, 1996 and
1995, respectively. These results have been determined on the basis of
generally accepted accounting principles and practices applied
consistently and are not necessarily indicative of the results that
may be expected for the year ending December 31, 1996.
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 to the Company's 1995 Form 10-K Annual Report as well as the
statements and notes related to CarnaudMetalbox (CMB) for 1995 filed
with the Company's Current Report on Form 8-K dated February 22, 1996,
as amended, and the Company's first quarter 1996 Quarterly Report on
Form 10-Q, as amended.
B. Summary of Significant Accounting Policies
Financial Instruments
In managing its interest rate and currency exposures, the Company
employs (i) interest rate swap and cap agreements, (ii) currency
forwards and options and (iii) a netting program which offsets
equivalent foreign currency assets and liabilities. The Company has
established a control environment which includes policies and
procedures for risk assessment and the approval for reporting and
monitoring of financial instrument activities. The Company designates
interest rate swaps as hedges of specific debt instruments and
recognizes interest differentials as adjustments to interest expense as
the differentials occur. Realized and unrealized gains and losses
arising from currency forwards, including swaps, and options are
recognized in income as offsets to gains and losses resulting from the
underlying hedged transactions. Gains and losses on contracts
designated as hedges of identifiable foreign currency firm commitments
are deferred and included in the measurement of the related foreign
currency transaction.
C. Acquisitions
Effective February 22, 1996, the Company acquired CMB, a leading
multinational manufacturer of metal and plastic packaging materials and
equipment with headquarters in Paris, France, for approximately $4,000.
The acquisition was accounted for as a purchase transaction and the
results of operations from February 22, 1996 are included in the
Company's financial statements as presented herein. The preliminary
purchase price allocation to the fair value of assets acquired and
liabilities assumed resulted in the recording of intangible assets,
principally goodwill, of approximately $3,600. Intangible assets are
amortized on a straight-line basis over periods not exceeding 40 years.
7
<PAGE>
Crown Cork & Seal Company, Inc.
D. Restructuring
During the second quarter of 1996, the Company provided $29.6 ($21.9
after taxes or $.17 per share) for the costs associated with the
closure of a South American operation and costs associated with
restructuring existing businesses in Europe. The Company anticipates
that the restructuring actions referred to above, when complete, will
generate approximately $6.0 in after-tax cost savings on an annualized
basis. The Company records restructuring charges against operations and
provides a reserve based on the best information available at the time
that the decision is made to restructure. The balance of these reserves
(excluding the writedown of assets which are reflected as a reduction
of the related asset account), is included within accounts payable and
accrued liabilities and other non-current liabilities.
The Company has made a preliminary assessment of the restructuring and
exit costs to be incurred relative to the acquisition of CMB. Affected
by the preliminary plan of restructuring are twenty-one plants to be
closed and approximately thirty to be reorganized. The plan of
restructuring which commenced at the end of the first quarter of 1996
is expected to be substantially completed during the first quarter of
1997. During this time, the Company will determine alternative sites
for manufacture and qualify the new manufacturing sites with customers.
The cost of providing severance pay and benefits for the reduction of
approximately 3,200 employees is currently estimated at $202 and is
primarily a cash expense. Employees to be terminated will include most,
if not all, employees at each plant 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
costs associated with the writedown of assets (property, equipment,
inventory, etc.) is currently estimated at approximately $139 and has
been reflected as a reduction in the fair value of the Company's
assets. Lease termination costs and other exit costs, primarily
repayments of government grants and subsidiaries, currently estimated
at approximately $29 and are primarily cash expenses.
The Company, on a preliminary basis, estimates that the plan of
restructuring of CMB operations noted above, when complete, will
generate annual cost savings of approximately $116 ($77 after-tax) on a
full year basis. It is also estimated that capital expenditures of
approximately $50 will be made to expand and upgrade other facilities
so existing business and customer relationships will not be affected by
the restructuring.
The Company expects that there will be other restructurings effected
within the next year. These plans will only be finalized when the
Company has had time to properly evaluate and assess business
conditions and operating efficiencies to make such decisions. As the
Company continues to restructure the newly combined Company, costs that
do not qualify for purchase accounting will be charged against
operations as incurred.
During 1995 and 1994, the Company recorded pre-tax restructuring
charges of $102.7 ($67.0 after taxes or $.74 per share) and $114.6
($73.2 after taxes or $.82 per share), respectively, as part of a
two-phase restructuring plan outlined in March 1994. The combined plan
was implemented to streamline the Company's North American operations
to improve productivity and enhance competitiveness.
8
<PAGE>
Crown Cork & Seal Company, Inc.
The components of restructuring are as follows:
<TABLE>
<CAPTION>
Provisions
Balance at for Provisions Transfer Balance at
December 31, existing for CMB 1996 against June 30,
1995 Businesses Acquisition Activity assets 1996
<S> <C> <C> <C> <C> <C> <C>
Employee costs $11.5 $16.3 $202.2 ($21.3) $208.7
Writedown of assets 7.4 139.4 ($146.8)
Lease termination
and other exit costs 13.7 5.9 29.2 ( 26.0) 22.8
----- ---- ----- ------- ------ -------
$25.2 $29.6 $370.8 ($47.3) ($146.8) $231.5
===== ===== ====== ====== ======= ======
</TABLE>
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 and related assumptions,
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 in
Management's Discussion and Analysis under "Forward-Looking
Statements". Shareholders are cautioned not to place undue reliance on
the estimate and the 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.
E. Inventories
June 30, December 31,
1996 1995
Finished Goods $598.3 $305.3
Work in Process 279.5 94.3
Raw Materials 503.5 331.3
Supplies and Repair Parts 126.0 81.0
------- ------
$1,507.3 $811.9
======== ======
F. Supplemental Cash Flow Information
Cash payments for interest, net of amounts capitalized ($4.5 and $3.0
for 1996 and 1995, respectively) were $136.8 and $59.9 during the six
months ended June 30, 1996 and 1995, respectively. Cash payments for
income taxes amounted to $27.3 and $14.1 during the six months ended
June 30, 1996 and 1995, respectively. The 1995 tax payments are net of
a second quarter refund of $15.0.
9
<PAGE>
Crown Cork & Seal Company, Inc.
PART 1 - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition
Acquisition of CarnaudMetalbox
The acquisition of CarnaudMetalbox (CMB), a multinational manufacturer
of metal and plastic packaging with significant operations in Europe,
was completed on February 22, 1996 with approximately 98.7% of the
outstanding shares of CMB tendered to the Company as of that date. The
Company acquired the remaining outstanding shares of CMB during the
second quarter of 1996. Management views the combination of the two
multinational packagers as a unique strategic opportunity to become the
world's largest packaging company. In this effort, management has
reorganized the Company into new operating units as presented below
under "Net Sales" and "Operating Income". The European food operation
of CMB, which when coupled with the 1994 acquisition of the container
division of Tri-Valley Growers, is expected to enhance the Company's
position within global markets and to reduce the Company's reliance on
North American beverage operations. Management believes that the
Company's recent ventures into China and the Middle East will be better
positioned for future growth when combined with CMB's operations in
these areas. Management believes many benefits may be derived from the
CMB acquisition; including improved purchasing power, greater product
and geographic diversification and product innovation.
Restructuring
In the first quarter of 1996, the Company made preliminary
restructuring estimates related to its acquisition of CMB. These
estimates were adjusted during the second quarter of 1996 as facts and
circumstances dictated. The plan, initially outlined at the end of the
first quarter 1996, is expected to be finalized by the end of the
first quarter of 1997. Further detail of the preliminary CMB
restructuring is presented in Note D to the Consolidated Financial
Statements presented in Item 1 of this Quarterly Report on Form 10-Q.
During the second quarter the Company continued restructuring actions
which are needed to create a more cost effective organization. Certain
costs incurred in the restructuring of the newly combined operations do
not qualify for purchase accounting treatment and, as such, these costs
have been recorded against earnings. The Company incurred a pre-tax
restructuring charge of $29.6 in the second quarter for non-qualifying
restructuring costs and also to exit existing operations. Further
details of these actions are presented in Note D to the Consolidated
Financial Statements presented in Item 1 of this Quarterly Report on
Form 10-Q.
Results of Operations
The Company reported net income of $98.3 or $.77 per share for the
second quarter of 1996 compared with net income of $52.2 or $.58 per
share for the same period in 1995. 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 existing operations. Net income in
1995 included after-tax restructuring charges of $12.8 for the closure
of a food can plant and the cancellation of the recovery actions at the
earthquake damaged Van Nuys plant. For the first six months of 1996,
net income was $127.4 or $1.09 per share compared with net income of
$88.7 or $.99 per share for the same period in 1995. Before preferred
stock dividends, net income for the six months ended June 30, 1996 was
$135.4.
Consolidated results include CMB from February 22, 1996 and,
accordingly, the results for the quarter and six months ended June
30,1996 are not necessarily comparable with the results of prior
periods.
10
<PAGE>
Crown Cork & Seal Company, Inc.
Item 2. Management's Discussion and Analysis (Continued)
Net Sales
Net sales in the quarter were $2,353.7, an increase of $967.9 or 69.8%,
over net sales of $1,385.8 for the second quarter of 1995. Net sales
for the first six months of 1996 were $3,904.9, an increase of $1,392.4
or 55.4% over net sales of $2,512.5 for the same period in 1995. In the
quarter, sales from domestic operations decreased 9.0%, partially
offset by the addition of CMB's U.S. operations, whereas non-U.S. sales
increased 327.7% due to the contribution from CMB operations, primarily
within Europe. Domestic sales in the second quarter accounted for 35.2%
of consolidated sales in 1996 as compared to 66.4% a year earlier.
Sales of beverage products as a percentage of consolidated sales have
declined in the second quarter from 40.0% to 29.4% whereas sales of
food cans and ends have increased from 17.1% to 29.7% compared to the
prior year second quarter. North American beverage sales represented
16.2% and 17.8%, respectively, of consolidated net sales for the
quarter and six months ended June 30, 1996 as compared to 34.0% and
31.3% for the comparable periods in 1995. An analysis of net sales by
operating unit follows:
Net sales
Second Quarter Six Months Ended Percentage Change
Divisions Second Six
1996 1995 1996 1995 Quarter Months
Americas $953.2 $1,064.6 $1,812.4 $1,918.3 ( 10.5%) ( 5.5%)
European 1,245.7 262.2 1,806.7 471.8 375.1% 282.9%
Asia-Pacific 107.8 41.7 191.3 76.3 158.5% 150.7%
Other 47.0 17.3 94.5 46.1 171.7% 105.0%
-------- -------- ------- -------
$2,353.7 $1,385.8 $3,904.9 $2,512.5 69.8% 55.4%
======== ======== ======== ========
Net sales within the Americas division, which includes metal and
plastic packaging operations in North, Central and South America,
declined 10.5% in the quarter and 5.5% for the six months ended June
30, 1996 as compared to the same periods in 1995. The decline was due
primarily to lower selling prices from the pass-through to customers of
lower raw material costs and a seven week work stoppage at four
beverage and four food can plants due to a strike by the International
Association of Machinists (IAM). Competitive pressures continue to
affect selling prices on most product lines. Sales and production
volumes for beverage and food cans although down in the quarter due to
the IAM strike remained strong year-to-date as compared to the prior
year. Demand in North America for aluminum beverage cans and ends is
expected to remain strong as the Company's operating facilities are
sold out for the remainder of 1996. PET volumes, while in total flat
year-on-year, have shown growth of 20% in the 20 ounce beverage size.
Other factors impacting sales in the quarter were: (i) the addition of
$32.6 of sales from CMB's Anchor Hocking operation, (ii) poor economic
conditions resulting in lower volumes in Latin America and (iii)
increased volumes in Canada and Mexico as these operations benefitted
from the IAM strike by shipping additional volumes into the U.S.
11
<PAGE>
Crown Cork & Seal Company, Inc.
Item 2. Management's Discussion and Analysis (Continued)
Net sales in the European Division, which includes Europe, Africa and
the Middle East, were substantially higher in the quarter and for the
six months ended June 30, 1996 as compared to the same periods in 1995
due to the addition of CMB. Sales for the Company's existing European
Operations were down 18.5% and 15.2% for the quarter and year-to-date
as compared to 1995 due primarily to: (i) generally weaker European
currencies compared to the U.S. dollar, (ii) lower volumes and prices
for plastic packaging, (iii) aggressive pricing from competition for
beverage closures and (iv) the deconsolidation of the aerosol
operations in Italy and the United Kingdom. The deconsolidation is in
line with the divestiture required by the European Commission in
connection with the CMB acquisition. Sales from CMB operations were
lower than comparable periods in 1995 due to: (i) the impact on
European currencies of a stronger U.S. dollar, (ii) lower volumes and
selling prices for plastic packaging, (iii) soft market conditions for
beverage closures and specialty packaging and (iv) the deconsolidation
of CMB's aerosol operations in line with the divestiture requirement.
Excluding the translation effect on sales and the impact of the aerosol
divestiture, sales in aerosol and beverage cans increased while plastic
and specialty packaging sales were down compared to the prior year.
Food can sales were equal to the prior year as growth in Eastern Europe
and the United Kingdom were offset by declines in Italy and in Germany.
Generally, pricing has remained competitive in most product lines.
Net sales in the Asia-Pacific Division have increased due to the
addition of CMB operations. In China, demand remains weak due to excess
capacity, resulting in very competitive price pressures. Sales outside
China have been in line with the prior year as strong seasonal demand
for fruit cans in Thailand and the increased contribution from new
operations in Vietnam have been offset by lower sales in Singapore. The
Company has agreed with its partner in Singapore, Fraser & Neave, to
restructure its acquired CMB holdings, including the curtailment of
operations at two facilities in China. This course of action has
received the acceptance of the Singapore Securities Industry Council.
The restructuring actions are expected to enhance the future market
position for this division.
Net sales for Other operating units were substantially higher in 1996,
quarter and year-to-date, from a year earlier due primarily to the
addition of CMB's Simplimatic Engineering operations. Simplimatic
contributed $24.3 and $39.9 in the quarter and year-to-date,
respectively. Within the quarter, Simplimatic sales were lower than the
same period in 1995 due to pressures on selling prices and delayed
customer orders.
Cost of Products Sold
Cost of products sold, excluding depreciation and amortization, for the
quarter ended June 30, 1996 was $1,894.0, a 64.2% increase from
$1,153.8 for the same period in 1995. For the six months ended June 30,
1996, these costs increased 52.0% to $3,170.3 from $2,085.8 in 1995.
These increases are due primarily to: (i) the addition of CMB from
February 22, 1996, (ii) inefficiencies caused by continuing 202
diameter conversions in the Americas Division, and (iii) the selloff of
1995 year-end inventory valued with higher-priced raw materials. These
increases have been partially offset by declines in the cost of the
Company's raw materials, primarily aluminum and resins.
As a percentage of net sales, cost of products sold was 80.5% and 81.2%
for the quarter and six months ended June 30, 1996, as compared to
83.3% and 83.0% for the same periods in 1995. The improvement has
resulted from increased sales as well as benefits from the Company's
continuing cost reduction/containment programs, such as metal
downgauging, the 1995 restructuring program and the continuing
integration of CMB operations. The Company has increased the focus on
production planning and inventory management so as to remain flexible
within the volatile markets in which it operates.
12
<PAGE>
Crown Cork & Seal Company, Inc.
Item 2. Management's Discussion and Analysis (Continued)
Selling and Administrative Expense
Selling and administrative expenses for the quarter ended June 30,
1996, were $106.2, an increase of 195.0% over 1995. As a percentage of
net sales these expenses have increased to 4.5% from 2.6% in the same
period for 1995. For the six months ended June 30,1996, these expenses
have increased 144.8% from a year earlier and as a percentage of net
sales are 4.5% as compared to 2.9% in 1995. These increases are
directly attributable to the addition of CMB whose operations are less
geographically concentrated and whose management structure is more
decentralized. The Company, during the continuing integration of CMB,
will continue its effort to eliminate redundant costs as quickly as
possible.
Operating Income
For the quarter, consolidated operating income increased 70.3% to
$188.7 from $110.8 for the comparable period in 1995. For the six
months ended June 30,1996, consolidated operating income increased
45.7% to $299.4 from $205.5 for the same period a year earlier.
Operating income for the second quarter and six months ended June 30,
1996, included pre-tax restructuring charges of $29.6 as compared to
charges of $20.2 against the respective period 1995 earnings. An
analysis of operating income, excluding restructuring, by operating
unit follows:
Operating Income
Second Quarter Six Months Ended Percentage Change
Second Six
1996 1995 1996 1995 Quarter Months
Americas $ 69.4 $ 91.7 $101.1 $158.7 ( 24.3%) ( 36.3%)
European 145.5 28.4 214.3 45.2 412.3% 374.1%
Asia-Pacific 3.1 7.0 8.5 11.6 ( 55.7%) ( 26.7%)
Other .3 3.9 5.1 10.2 ( 92.3%) ( 50.0%)
------ ------ ------ ------
$218.3 $131.0 $329.0 $225.7 66.6% 45.8%
====== ====== ====== ======
As a percentage of net sales, operating income for the Americas
Division was 7.3% in the second quarter and 5.6% for the six months
ended June 30, 1996 as compared to 8.6% and 8.3% for the same periods
in 1995. The decline in second quarter margins was due primarily to:
(i) continued pricing pressures in both metal and plastic beverage
containers, (ii) reduced aluminum scrap income resulting from the
declining price of aluminum, (iii) lower production volumes due to the
IAM strike at eight U.S. plants and (iv) continued sluggish economic
conditions in Latin America, primarily Argentina and Brazil. These
factors were partially offset by margin improvements in Canada due to
improved productivity and increased sales volumes for two-piece
beverage and aerosol cans and in Mexico due to improving economic
conditions and a stronger peso. Demand for beverage and aerosol cans
are currently at levels which should fully utilize plant capacities
for the remainder of the year.
13
<PAGE>
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 11.7% in the quarter and 11.9% for the six months ended June 30,
1996 as compared to 10.8% and 9.6% for the comparable periods in 1995.
The increased margin is directly attributable to the addition of CMB
operations, primarily its food can business. Operating margins in the
quarter for the Company's existing facilities in Europe continued to be
lower than 1995 levels due primarily to competitive pressures resulting
in reduced volumes and prices for metal and plastic packaging. CMB's
margins in the quarter were below 1995 levels due to: (i) volume
erosion and pricing pressure from soft market conditions for Specialty
Packaging in Germany and the United Kingdom, (ii) competitive pricing
and delayed harvests affecting food operations in Italy, Germany and
Spain and (iii) the deconsolidation of the aerosol operations required
to be divested.
Operating income as a percentage of net sales for the Asia-Pacific
Division was 2.9% in the quarter and 4.4% for the six months ended June
30, 1996 as compared to 16.8% and 15.2% for the comparable 1995
periods. The decline in margins was due primarily to the addition of
CMB operations. The combined operations in China have reported
significant profit erosion due to reduced pricing for beverage cans in
response to excess can capacity and aggressive competition. Actions
have been and are continuing to take place to restructure these
operations so that they can contribute favorably to future growth.
Other CMB operations in the region reported mixed results as strong
seasonal demand for fruit cans in Thailand was offset by lower beverage
demand in Singapore and inefficiencies caused by restructuring actions
in Malaysia.
Operating income for Other operating units has declined by 92.3% in the
quarter and 50.0% for the six months ended June 30, 1996 from the same
periods a year earlier. Contributing to the decline in the quarter
were: (i) lower sales volumes and unfavorable product mix in the
Machinery operations and (ii) reduced revenues at the Company's
Nationwide Recyclers facility due to delays in the FDA approval of
recycled PET resin for food packaging use.
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.
Net Interest Expense/Income
Consolidated net interest expense, net of interest income, for the
second quarter and six months ended June 30, 1996, was $88.6 and
$138.0, respectively, as compared to $35.3 and $68.0 for the comparable
periods in 1995. The increases are directly attributable to (i) the
acquisition financing for CMB and (ii) the increased debt levels
arising from the 1995 capital investment program along with initial
cash requirements for the Company's ongoing restructuring programs.
Foreign Exchange
In the quarter, the Company recorded a foreign exchange gain of $42.1
due to the impact of a stronger U.S. dollar against the Company's CMB
acquisition financing, denominated in French Francs. Subsequent to June
30, 1996, this French Franc acquisition debt was refinanced into
several functional currencies providing an effective hedge against
future foreign currency movements. Unfavorable adjustments of $1.1
resulted from the remeasurement of the Company's operations in highly
inflationary economies.
14
<PAGE>
Crown Cork & Seal Company, Inc.
Item 2. Management's Discussion and Analysis (Continued)
Taxes on Income
Year-to-date the effective tax rate was 26.8% in 1996 as compared to
30.1% in 1995. Non-U.S. operations continue to represent a greater
portion of the Company's results, and as such, the effective tax rate
may vary significantly from the U.S. statutory rate of 35% depending
upon the rates in income producing countries.
Minority Interests, Net of Equity in Earnings of Affiliates
Equity earnings in unconsolidated joint ventures have declined due to:
(i) the impact of volume erosion in Korea, (ii) the impact of higher
resin costs as well as soft market conditions at the Company's plastic
joint venture in Brazil and (iii) the devaluation of the Venezuelan
Bolivar by almost two hundred percent. The loss in equity earnings is
partially offset by lower results in China which have reduced minority
shareholders' interests.
Industry Segment Performance
The Company has integrated the operations of CMB into its existing
operations and realigned the management of its operating divisions
along geographic lines. The Company continues to operate in two
principal business segments, Metals and Plastics. These segments are
managed within each division as the former Plastics Division has been
reorganized along geographic lines and merged into the Americas and
European divisions. CMB Health and Beauty operations are included in
Plastics. Net sales for Plastics represented 22.8% of the Company's
consolidated net sales as compared to 25.1% in 1995. Sales for Plastics
were $891.4 in 1996, an increase of 41.2% compared to 1995 sales of
$631.2. Sales for Metals were $3,013.5 in 1996, an increase of 60.2%
compared to 1995 net sales of $1,881.3. The increase in both segments
is directly attributable to the addition of CMB. Further discussion of
operating performance within each segment is provided by division
under "Net Sales" and "Operating Income" contained within
this Management Discussion and Analysis.
Liquidity and Capital Resources
Cash from Operations
Net cash of $5.5 was used in operations during the six months ended
June 30, 1996, as compared to $198.3 for the same period in 1995. The
improved utilization of cash from operations resulted from (i) growth
in net income before noncash charges for depreciation and amortization,
restructuring and the exchange gain on the acquisition financing, (ii)
the portion of the seasonal buildup of CMB's inventories occurring
before the acquisition date and (iii) reduced working capital
requirements due to lower raw material costs.
Investing Activities
Investment activities in 1996 used cash of $1,741.4 compared to $200.6
in 1995. The increased use was primarily for the acquisition of CMB and
was partially reduced by the proceeds from the sale of businesses.
Capital expenditures for 1996 were $286.2, an increase of $79.7 or
$38.6% from a year earlier due primarily to the addition of CMB.
15
<PAGE>
Crown Cork & Seal Company, Inc.
Item 2. Management's Discussion and Analysis (Continued)
Financing Activities
Financing activities generated cash of $1,868.7 in 1996, compared with
$414.4 a year earlier. The increase of $1,454.3 is directly related to
the borrowings needed to fund the acquisition of CMB.
Total debt, net of cash and cash equivalents, at June 30, 1996, was
$5,206.1 and represents an increase of 156.4% above the December 31,
1995 level of $2,030.1. Total debt increased due primarily to the
acquisition of CMB. Total debt, net of cash and cash equivalents, as a
percentage of total capitalization was 56.7% at June 30, 1996, as
compared to 56.2% at December 31, 1995. Total capitalization is defined
by the Company as total debt, minority interest and shareholders'
equity.
With the acquisition of CMB, the Company has substantially increased
its exposure to risk from adverse fluctuations not only in exchange
rates, but also in interest rates and commodity prices. Historically,
the Company has, when considered appropriate, hedged its currency and
interest rate exposures and continues to assess the extent required for
hedging its exposure to adverse fluctuations in commodity prices. For
more details on the Company's policies pertaining to the use of
financial instruments see Note B of the Notes to the Consolidated
Financial Statements in Item 1 of this Quarterly Report on Form 10-Q.
In 1996 the Company has paid dividends totaling $69.6 representing
$.25 per common share for dividends declared and paid in the first
and second quarters and for dividends declared and paid during the
second quarter to holders of the Company's 4.5% convertible preferred
stock.
Other Matters
On May 31, 1996 the Company filed a Registration Statement on Form S-3
to register 10 million shares of its common stock for implementation of
a Dividend Reinvestment and Stock Purchase Plan ("Plan"). The Plan will
be in effect for the quarterly dividend, declared by the Board of
Directors, to be paid on August 20, 1996. The Plan will be administered
by First Chicago Trust Company of New York ("First Chicago"). The Plan
covers all registered shareholders of the Company's Common Stock as
well as those beneficial owners who have either become shareholders of
record by having shares transferred into their name or by making
arrangements with their broker or other nominees to participate on
their behalf. Details of the Plan are contained within a Prospectus
which is available upon request to First Chicago, the Plan
Administrator.
The Company has entered into a technology agreement with Groupe Sidel
under which Sidel will develop machines to blow mold shaped metal cans
using a process developed by the Company's Corporate Technology group.
16
<PAGE>
Crown Cork & Seal Company, Inc.
Item 2. Management's Discussion and Analysis (Continued)
Forward Looking Statements
Statements included in "Management's Discussion and Analysis of Results
of Operations and Financial Condition" and the discussion of the
restructuring plan in Note D to the Consolidated Financial Statements
included in this Quarterly Report on Form 10-Q and in Item 1:
"Business", Item 3: "Legal Proceedings" and Item 7: "Management's
Discussion and Analysis of Financial Condition and Results of
Operations", in the Annual Report on Form 10-K for the fiscal year
ended December 31, 1995 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 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.
Details of important factors that could cause the actual results of
operations or financial condition of the Company to differ from
expectations have been set forth under the caption "Forward Looking
Statements" contained within Item 2: "Management's Discussion and
Analysis" of the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1996, and are incorporated herein by
reference. Some of the factors are also discussed elsewhere in
this Form 10-Q and prior Company filings with the Securities and
Exchange Commission ("SEC"). In addition, other factors have been
or may be discussed from time to time in the Company's SEC filings.
17
<PAGE>
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 25,1996.
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, 1996, and such Item 4 is incorporated herein by
reference.
Item 5. Other Information
1) On July 26, 1996, the Company announced that Jean-Pierre
Rosso, Chairman, President and CEO of Case Corporation, was
elected to its Board of Directors.
2) On July 26,1996, CMB Asia, publicly traded on the Singapore
Stock Exchange, announced that it had incurred a charge of
approximately $70.0 to restructure certain operations. These
charges will be included as part of the CMB purchase
accounting adjustments.
3) On July 29,1996, the Company's Board of Directors declared
cash dividends of $0.25 per share on the Company's common
stock and $0.4712 per share on the Company's 4.5% convertible
preferred stock. Both dividends are payable on August 20, 1996
to shareholders of record on August 5, 1996.
4) On August 1, 1996, the Company announced that it had signed a
definitive agreement to sell a portion of its European aerosol
can operations to US Can Corporation for approximately $59
million (expressed on a debt free basis). The sale will
satisfy the divestiture decree of the Commission of the
European Communities (EC) which was a condition under which
approval was granted for the acquisition of Paris - based
CarnaudMetalbox earlier this year.
18
<PAGE>
Crown Cork & Seal Company, Inc.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
11. Statement re Computation of Per Share Earnings
19. Crown Cork & Seal Company, Inc. Dividend Reinvestment
and Stock Purchase Plan (incorporated by reference to the
Company's Prospectus dated May 31, 1996 forming a part
of the Company's Registration Statement on Form S-3
(No. 333-04971) filed with the Securities Exchange
Commission on May 31, 1996).
27. Financial Data Schedule
b) Reports on Form 8-K
On May 3, 1996, as amended on May 7, 1996, the Registrant
filed an amendment to its Current Report on Form 8-K dated
February 22, 1996, for the following event:
The Company provided under:
Item 7. Financial Statements and Exhibits
a) The audited consolidated financial statements of
CarnaudMetalbox for the years ended December 31, 1995,
1994 and 1993.
b) The unaudited pro forma consolidated condensed
financial statements of CarnaudMetalbox and the
Registrant for the year ended December 31, 1995.
19
<PAGE>
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/ Timothy J. Donahue
Timothy J. Donahue
Vice President and Controller
Date: August 14, 1996
20
<PAGE>
Crown Cork & Seal Company, Inc.
Exhibit 11
Computation of Earnings per Common Share
(in thousands, except per share data)
Three months ended Six Months ended
June 30, June 30,
1996 1995 1996 1995
Line
1 Net income available to common share $98,298 $52,210 $127,436 $88,731
shareholders
2 Weighted average number of shares
outstanding during period 128,126 90,197 116,623 89,920
3 Earnings per share based upon average
shares outstanding(1/2) $0.77 $0.58 $1.09 $0.99
4 Net shares issuable upon exercise of
dilutive outstanding stock options
(treasury stock method) 374 599 314 717
5 Average convertible preferred stock*
(if converted method) 11,326 0 7,841 0
6 Preference dividends $5,859 0 $8,004 0
7 Fully diluted shares (2+4+5) 139,826 90,796 124,778 90,638
8 Fully diluted earnings per share
((1+6)/7) $0.75 $0.57 $1.09 $0.98
* Preferred shares are convertible into common stock at .911 at the
discretion of the holder and amounts presented are based on the
issuance date of February 26, 1996.
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
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<ALLOWANCES> 14
<INVENTORY> 1507
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