<PAGE>
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 MARCH 31, 1996
[ ] 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
incorporation or organization) (I.R.S. Employer 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 were 128,112,108 shares of Common Stock outstanding as of April 30, 1996.
<PAGE>
Crown Cork & Seal Company, Inc.
<TABLE>
<CAPTION>
PART 1 - FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF INCOME
(In millions except share data)
(Unaudited)
- ------------------------------------------------------------------------------
Three months ended March 31, .............. 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Net sales ................................. $ 1,551.2 $ 1,126.7
Costs, expenses & other income
Cost of products sold, excluding
depreciation and amortization ............. 1,276.3 932.0
Depreciation and amortization ............. 94.6 64.2
Selling and administrative expense ........ 69.6 35.8
Interest expense .......................... 62.1 35.5
Interest income ........................... ( 12.7) ( 2.8)
Translation and exchange adjustments ...... 2.3 1.6
------------ ----------
1,492.2 1,066.3
------------ ----------
Income before income taxes ................ 59.0 60.4
Provision for income taxes ................ 18.9 19.7
Minority interest, net of equity earnings . ( 8.8) ( 4.2)
------------ ----------
Net income ................................ 31.3 36.5
Preferred stock dividends ................. 2.2
----------- ----------
Net income available to common shareholders $ 29.1 $ 36.5
Earnings per average common share ......... $ .28 $ .41
=========== =========
Dividends per common share ................ $ .25
============ ==========
Average common shares outstanding ......... 105,120,482 89,640,314
- ----------------------------------------------------------------------------
</TABLE>
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.
<PAGE>
Crown Cork & Seal Company, Inc
CONSOLIDATED BALANCE SHEETS (Condensed)
(In millions except book value)
(Unaudited)
===============================================================================
March 31, December 31,
1996 1995
===============================================================================
Assets
Current assets
Cash and cash equivalents .................. $ 139.4 $ 68.1
Receivables .................................. 1,794.0 744.3
Inventories .................................. 1,613.9 811.9
Prepaid expenses and other current assets .... 238.0 84.6
--------- -------
Total current assets ......................... 3,785.3 1,708.9
--------- -------
Long-term notes and receivables .............. 81.1 63.5
Investments .................................. 91.6 57.5
Goodwill, net of amortization ................ 4,286.7 1,095.7
Property, plant and equipment ................ 3,923.9 2,005.9
Other non-current assets ..................... 536.6 120.2
--------- --------
Total ........................................ $12,705.2 $5,051.7
========= ========
Liabilities and shareholders' equity
Current liabilities
Short-term debt ................................ $ 1,094.7 $ 537.9
Current portion of long-term debt .............. 24.1 70.2
Accounts payable and accrued liabilities ....... 1,985.5 668.2
United States and foreign income taxes ....... 15.9 2.7
--------- -------
Total current liabilities ...................... 3,020.2 1,279.0
--------- -------
Long-term debt, excluding current maturities ... 4,174.8 1,490.1
Postretirement and pension liabilities ......... 727.2 590.6
Other non-current liabilities .................. 763.6 112.2
Minority interests ............................. 352.3 118.6
Shareholders' equity ........................... 3,567.1 1,461.2
--------- --------
Total .......................................... $12,705.2 $5,051.7
========= ========
Book value per common share .................... $ 23.78 $ 16.12
- -------------------------------------------------------------------------------
The financial statements for 1996 include the financial position of
CarnaudMetalbox.
The accompanying notes are an integral part of these financial statements.
<PAGE>
Crown Cork & Seal Company, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Condensed)
(In millions)
(Unaudited)
===============================================================================
Three months ended March 31 ............... 1996 1995
===============================================================================
Cash flows from operating activities
Net income ........................................... $ 31.3 $ 36.5
Depreciation and amortization ........................ 94.6 64.2
Equity in earnings of joint ventures,
net of dividends received 2.8 .7
Minority interest in earnings of subsidiaries ........ 4.5 3.8
Change in assets and liabilities, other than debt ( 71.6) (258.3)
------- -----
Net cash provided by (used in) operating activities . 61.6 (153.1)
------- -----
Cash flows from investing activities
Capital expenditures ................................. ( 135.0) ( 94.4)
Acquisition of business, net of cash acquired ........ (1,566.7)
Proceeds from sale of property, plant and equipment .. 12.8 1.1
Other, net ........................................... ( .4) ( 1.7)
Net cash used in investing activities ................ (1,689.3) ( 95.0)
------- -----
Cash flows from financing activities
Proceeds from long-term debt ........................ 1,809.8 303.8
Payments of long-term debt .......................... ( 80.4) (186.3)
Net change in short-term debt ....................... ( 7.8) 117.7
Dividends paid ...................................... ( 32.0)
Common stock issued under various employee benefits plan 3.0 9.7
Minority contributions, net of dividends paid .......... 14.0 ( .1)
-------- ------
Net cash provided by financing activities ............. 1,706.6 244.8
Effect of exchange rate changes on
cash and cash equivalents .... ( 7.6) 4.3
--------- ------
Net change in cash and cash equivalents .............. 71.3 1.0
Cash and cash equivalents at beginning of period ..... 68.1 43.5
-------- -------
Cash and cash equivalents at end of period .............. $ 139.4 $ 44.5
======== =======
==============================================================================
1996
------
Schedule of non-cash investing activities:
Acquisition of business
Fair value of assets acquired ........................ $7,329.3
Liabilities assumed .................................. ( 3,415.7)
Issuance of common stock ............................. ( 1,562.4)
Issuance of 4.5% convertible preferred stock ......... ( 520.7)
--------
Cash paid ............................................ $1,830.5
========
==============================================================================
Certain prior year balances have been reclassified to improve comparability.
The accompanying notes are an integral part of these financial statements.
<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 31.3 31.3
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 ....... ( 32.0) ( 32.0)
Cash dividends accrued -
4.5% Convertible
Preferred stock ( 2.2) ( 2.2)
Common stock issued under
employee benefits plans . 2.2 .8 3.0
Translation adjustments .. 22.7 22.7
-------- ------- ------- -------- ------- -------- -------- --------
Balance at March 31, 1996 . $520.7 $779.0 $1,560.8 $1,046.1 ($32.1) ($169.0) ($138.4) $3,567.1
======= ======= ======= ======== ======= ======== ======== ========
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 ....... 36.5 36.5
Common stock issued
under employee benefits plans 6.1 3.6 9.7
Translation adjustments . ( 5.5) ( 5.5)
------- ------ -------- -------- ------- -------- --------
Balance at March 31, 1995 .... $592.5 $174.5 $1,010.6 ($48.1) ($181.4) ($142.2) $1,405.9
======= ====== ======== ======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
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 March 31, 1996 and the results
of operations and cash flows for the periods ended March 31, 1996 and 1995,
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 1995 Form 10-K Annual Report
as well as 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.
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 $3,200. Intangible assets are
amortized on a straight-line basis over periods not exceeding 40 years.
<PAGE>
Crown Cork & Seal Company, Inc.
D. Restructuring
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. The Company records restructuring charges against operations
and provides a reserve based on the best information available at the time 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 components of restructuring are as follows:
<TABLE>
<CAPTION>
Balance at Provisions Balance at
December 31, 1996 for CMB Reclassi- March 31,
1995 Activity Acquisition fications 1996
<S> <C> <C> <C> <C> <C>
Employee costs $11.5 ($1.2) $174.0 $184.3
Writedown of assets 125.0 ($125.0)
Lease termination and
other exit costs 13.7 ( 2.9) 15.0 25.8
---- ----- ------ ------- ------
$5.2 ($4.1) $314.0 ($125.0) $210.1
===== ====== ====== ======= ======
</TABLE>
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 eighteen 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 2,700 employees is estimated at $174
and is primarily a cash expense. Employees to be terminated will include most,
if not all, employees at each plant to be closed or 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 estimated at approximately $125 and has been
reflected as a reduction in the fair value of the Company's assets at March 31,
1996. Lease termination costs and other exit costs, primarily repayments of
government grants and subsidies, are estimated at $15 and are primarily a cash
expense.
The Company, also on a preliminary basis, estimates that the plan of
restructuring of CMB operations noted above, when complete, will generate annual
cost savings of approximately $110 ($71 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 plans of restructuring finalized
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.
The foregoing discussion of restructuring charges and related cost savings
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, 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
be necessarily updated to reflect circumstances existing after the date hereof
or to reflect the occurrence of unanticipated events.
<PAGE>
Crown Cork & Seal Company, Inc.
E. Inventories
March 31, December 31,
1996 1995
Finished Goods $ 639.9 $305.3
Work in Process 258.8 94.3
Raw Materials 610.2 331.3
Supplies and Repair Parts 105.0 81.0
$1,613.9 $811.9
F. Supplemental Cash Flow Information
Cash payments for interest, net of amounts capitalized ($.9 and $.9 for 1996 and
1995, respectively) were $71.2 and $18.1 during the three months ended March 31,
1996 and 1995, respectively. Cash payments for income taxes amounted to $18.0
and $4.7 during the three months ended March 31, 1996 and 1995, respectively.
<PAGE>
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. Approximately 98.7% of the outstanding shares of CMB were
tendered to the Company. 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 further enhanced 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 has made preliminary restructuring
estimates related to its acquisition of CMB. The initial plan 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.
Results of Operations
Net income for the quarter ended March 31, 1996 was $31.3 or $.28 per share, a
decrease of 14.2% and 31.7% when compared to the respective prior year amounts
of $36.5 or $.41 per share. The primary factors contributing to the decline in
net income were (i) competitive pricing pressure on beverage containers in North
America, (ii) weaker than expected demand in aerosol cans, (iii) liquidation of
higher-priced year-end 1995 inventories, (iv) reduced aluminum scrap prices and
(v) inefficiencies caused by continuing 202 diameter end conversions.
Results of Operations include the results of CMB from February 22, 1996 and,
accordingly, results for the quarter ended March 31, 1996 are not necessarily
comparable with the results of prior periods.
Net Sales
Net sales in the quarter increased 37.7% from $1,126.7 in 1995 to $1,551.2 in
1996. Sales from domestic operations increased 3.5% and those in non-U.S.
markets increased approximately 104% due primarily to the contribution from the
CMB acquisition. Domestic sales accounted for 49.7% of consolidated sales in
1996 as compared to 66.1% a year earlier. Sales of beverage products as a
percentage of consolidated sales have declined from 34.5% to 26.6% whereas sales
of food cans and ends increased from 18.8% to 29.2% of consolidated net sales.
With the acquisition of CMB, the Company reorganized its operating units into
the Americas, Europe, Asia-Pacific, Plastics and Other divisions. An analysis of
net sales by operating division follows:
<PAGE>
Crown Cork & Seal Company, Inc.
Item 2. Management's Discussion and Analysis (Continued)
Net Sales
First Quarter Increase (Decrease)
Division: 1996 1995 $ %
---- ---- ----- ------
Americas $666.0 $649.4 $16.6 2.6
European 466.6 126.6 340.0 268.6
Plastics 250.1 260.2 ( 10.1) ( 3.9)
Asia-Pacific 83.5 34.6 48.9 141.3
Other 85.0 55.9 29.1 52.1
$1,551.2 $1,126.7 $424.5 37.7
Net sales for the Americas Division, which includes North, Central and South
America, increased over the respective period in 1995 due primarily to the
addition of CMB's Anchor Hocking operations. Unit sales volume increases in
beverage cans and ends as well as food cans were offset by reduced aerosol
volumes and continued severe competitive pricing pressures on beverage cans in
North America.
Net sales in the European Division were substantially higher than the respective
period in 1995 due to the addition of CMB. Sales in CMB's European operations
include plastic as well as metal packaging. Sales in the Company's existing
European operations were down 11.1% from a year earlier due to generally weaker
European currencies compared to the U.S. dollar and the deconsolidation of the
Company's aerosol operations in Italy and the U.K. in line with the divestiture
required by the European Commission in connection with the acquisition of CMB.
The decline in CMB sales from a year earlier, down 4.7%, was due to exchange
rates, lower plastic volumes from the closure of one facility and the passing on
to customers of lower resin costs. CMB aerosol sales were also down due to the
deconsolidation of CMB's aerosol plants in France, Germany and Spain in
connection with the divestiture required by the European Commission. CMB's unit
sales volume for food was stronger compared to the prior year. Generally,
pricing remained competitive in most product lines.
Net sales in the Plastics Division declined from the respective period in 1995
due primarily to: (1) closure of several non-PET facilities in late 1995 and (2)
reduced customer pricing to reflect lower raw material costs. Units sold in the
domestic market were, in fact, higher than 1995 levels.
Net sales increases in the Asia-Pacific Division are primarily due to the
addition of CMB operations as well as increased unit sales volumes at the
Company's existing consolidated joint ventures in Shanghai and Foshan, China. In
China, beverage pricing has suffered due to excess capacity. Food can pricing
and volumes provided by CMB have been strong. Management believes that these
markets will continue to develop in the years ahead.
Net sales in Other include those for the Machinery and Other Subsidiaries
divisions. The increase in net sales versus the prior year was due primarily to:
(i) increased machinery sales of fillers and washers from the Company's existing
Baltimore and Belgian machinery plants and (ii) the addition of CMB's
Simplimatic operations.
Cost of Products Sold
Cost of products sold, excluding depreciation and amortization, for the quarter
ended March 31, 1996, was $1,276.3, a 36.9% increase from $932.0 for the same
period in 1995. The increase is due to: (i) the addition of CMB from February
22, 1996, (ii) increased unit sales volumes in most product areas, (iii)
inefficiencies caused by continuing 202 diameter end conversions in the Americas
Division and (iv) sales of high-priced year-end 1995 inventories.
<PAGE>
Crown Cork & Seal Company, Inc.
Item 2. Management's Discussion and Analysis (Continued)
As a percentage of net sales, costs of products sold was 82.3% as compared to
82.7% in the same period for 1995. This improvement has resulted from increased
sales as well as benefits derived from the Company's continuing cost containment
programs, the effects of the 1995 restructuring program and increased focus on
production planning and inventory management.
Selling and Administrative
Selling and administrative expenses for the first quarter ended March 31, 1996
were $69.6, an increase of 94.4% over 1995. As a percentage of net sales these
expenses have increased to 4.5% from 3.2% in the same period for 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 integration of CMB, will seek to
eliminate redundant costs as quickly as possible.
Operating Income
The Company continues to view operating income before interest costs and other
non-operating expenses as the principal measure of performance. Operating income
for the first quarter ended March 31, 1996, was $110.7 or 16.9% higher than that
for the same period in 1995. Operating income as a percentage of net sales was
7.1% for 1996 as compared to 8.4% in 1995. An analysis of operating income by
operating division follows:
Operating Income
First Quarter Increase (Decrease)
Division 1996 1995 $ %
---- ---- ------ -----
Americas $25.9 $60.5 ($34.6) ( 57.2)
European 58.5 10.1 48.4 479.2
Plastics 5.8 10.1 ( 4.3) ( 42.6)
Asia-Pacific 5.3 4.6 .7 15.2
Other 15.2 9.4 5.8 61.7
$110.7 $94.7 $16.0 16.9
Operating income in the Americas Division was 3.9% of net sales in 1996 versus
9.3% in the same period of 1995. The decrease in 1996 operating margins was due
primarily to: (i) reduced beverage pricing, (ii) lower aerosol volumes, (iii)
inefficiencies caused by continuing 202 diameter end conversions, (iv) sales of
higher-priced year-end 1995 inventories and (v) sluggish economies in Argentina
and Brazil.
Operating income in the European Division was 12.5% of net sales as compared to
8.0% in 1995. The increased margins were directly attributable to the addition
of CMB's operations, primarily from increased unit sales volume for food cans.
Operating income from the Company's existing European operations was down due to
volume declines in Belgium, the United Kingdom and Ireland as well as the
depressed economic climate in Germany. CMB's operating income was up marginally
over the prior year as gains in beverage operations were offset by declines in
speciality packaging caused by soft market conditions as this product line has
experienced severe volume erosion and pricing pressure in the past ten months.
Operating income in the Plastics Division declined from 3.9% in 1995 as a
percentage of net sales to 2.3% in 1996. The decreased margins resulted from the
impact of competitive pricing for beverage bottles in both the U.S. and Europe
and the effect of high-priced year-end inventories being sold in the first
quarter of 1996.
<PAGE>
Crown Cork & Seal Company, Inc.
Item 2. Management's Discussion and Analysis (Continued)
Operating income for the Asia-Pacific Division was 6.3% of net sales as compared
to 13.3% in the respective period in 1995. The decline in margins is due
primarily to the deterioration in China of pricing in beverage cans and
increased aluminum costs. Contributing to pricing pressure is the excess
beverage can capacity that exists in China. Operating income increased due
primarily to the addition of CMB's operations in this region. CMB's operations
in Thailand (food) and Singapore (beverage) realized improved sales through
increased volumes and improved pricing from a year earlier.
Operating income for the Other operating units was $15.2 in 1996 versus $9.4 in
1995, an increase of 61.7%. This increase is due primarily to increased sales of
fillers, washers and spare parts from the Company's existing machinery
operations and the addition of CMB's Simplimatic operations to the Company's
Machinery Division.
The Company's basic raw materials for the products which it produces 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
Net interest expense was $49.4 in the first quarter, an increase of $16.7 when
compared to 1995 net interest expense of $32.7 million. The increase in net
interest expense is due primarily to (i) acquisition financing for CMB and
(ii)increased debt levels arising from the 1995 capital investment program and
the cash requirements for the 1995 restructuring program.
Taxes on Income
The effective tax rate was 32.0% in 1996 as compared to 32.6% 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% dependent upon the rates in income producing countries.
Minority Interests, Net of Equity in Earnings of Affiliates
Results from equity affiliates decreased significantly in 1996 due primarily to
volume declines in Korea and operating losses at the Company's plastic joint
venture in Brazil, resulting from higher resin costs and the recessionary
conditions existing in that country.
Liquidity and Capital Resources
Cash From Operations
Net cash of $61.6 was provided by operating activities in the quarter ended
March 31, 1996 as compared to cash of $153.1 used in operating activities during
the same period in 1995. This improvement resulted from (i) a portion of the
seasonal buildup of CMB's inventories occurring before the acquisition date and
(ii) a reduced level of working capital requirements due to decreased raw
material costs.
Investing Activities
Investing activities in 1996 used cash of $1,689.3 during the quarter ended
March 31, 1996, compared with cash used of $95.0 in 1995. The acquisition of
CMB, net of cash acquired, used cash of $1,566.7. For more details on this
transaction see Note C in Item 1 of this Form 10-Q and above under "Acquisition
of CarnaudMetalbox."
Capital expenditures for the first quarter of 1996 were $135.0, an increase of
$40.6 or 43.0% from a year earlier due primarily to the acquisition of CMB.
<PAGE>
Crown Cork & Seal Company, Inc.
Item 2. Management's Discussion and Analysis (Continued)
Financing Activities
Financing activities generated cash of $1,706.6 in the first quarter, compared
with $244.8 a year earlier. The increase of $1,461.8 is directly related to
borrowings to fund the acquisition of CMB.
Total debt, net of cash and cash equivalents, at March 31, 1996 was $5,154.2 and
represents an increase of 153.9% above the December 31, 1995 level of $2,030.1.
Total debt, net of cash and cash equivalents, as a percentage of total
capitalization was 56.8% at March 31, 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. Total debt increased due primarily to the
acquisition of CMB.
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 even commodity prices. Historically, the Company has, when
considered appropriate, hedged its currency and interest rate exposures. For
more details on the Company's policies pertaining to use of financial
instruments see Note B of the Notes to the Consolidated Financial Statements in
Item 1 of this Form 10-Q.
During the first quarter, the Company for the first time since August 1956, paid
a cash dividend totaling $32.0, representing $.25 per common share to
shareholders of record on March 15, 1996. On April 24, 1996, the Board of
Directors of the Company declared an additional quarterly cash dividend of $.25
per common share payable May 20, 1996 to shareholders of record on May 6, 1996.
Also declared at this time was a cash dividend on the Company's 4.5% Convertible
Preferred Stock that was issued in connection with the CMB acquisition and which
is also payable on May 20, 1996 to shareholders of record on May 6, 1996. The
dividends to be paid on the preferred stock are those accrued from the issuance
date.
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 From 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.
<PAGE>
2. Management's Discussion and Analysis (Continued)
Important factors that could cause the actual results of operations or financial
condition of the Company to differ include, but are not necessarily limited to,
the Company's ability to integrate CMB's operations into its existing operations
and to realize synergistic benefits from the CMB acquisition (including
effective raw material procurement, elimination of redundant selling, general
and administrative functions, and global product offerings) and the
consolidation and restructuring of the combined operations; ability to realize
cost savings from its restructuring programs; changes in raw material pricing
(including aluminum can sheet, steel tinplate, plastic resin, inks and coatings)
and the Company's ability to pass raw material price increases through to its
customers or to otherwise manage these commodity pricing risks; inefficiencies
caused by the continuing 202 diameter end conversion program; the Company's
ability to generate significant free cash flow to invest in its business and to
maintain appropriate debt levels; the Company's ability to realize efficient
capacity utilization and inventory levels and to innovate new designs and
technologies for its products in a cost-effective manner; changes in consumer
preferences for different packaging products; competitive pressures, including
new product developments or changes in competitors' pricing for products;
changes in governmental regulations or enforcement practices, especially with
respect to environmental, health and safety matters and restrictions as to
foreign investment or operation; changes in U.S. or international economic or
political conditions, such as, inflation or fluctuations in interest or foreign
exchange rates; the costs and other effects of legal and administrative cases
and proceedings, settlements and investigations; and changes in labor relations
and costs. Some of the factors noted above are discussed elsewhere in this Form
10-Q and prior the Company filings with the Securities and Exchange Commission
(the "SEC"). In addition, other factors have been or may be discussed from
time to time in the Company `s SEC filings.
While Crown 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.
<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 of the votes are as follows:
- - - - VOTES - - - -
(1) Election of the Board of Directors:
For Withheld
William J. Avery 118,187,850 599,053
Henry E. Butwel 118,212,948 573,955
Charles F. Casey 118,208,412 578,491
Francis X. Dalton 118,176,910 609,993
Guy de Wouters 118,201,937 584,966
Chester C. Hilinsk 118,166,978 619,925
Richard J. Krzyzanowski 118,215,644 571,259
Josephine C. Mandeville 118,196,264 590,639
Michael J. McKenna 118,215,594 571,309
Felix Rohatyn 118,207,246 579,657
Alan W. Rutherford 118,203,199 583,704
J. Douglass Scott 118,174,783 612,120
Ernest-Antoine Seilliere 118,204,397 573,637
Robert J. Siebert 118,168,197 618,706
Harold A. Sorgenti 118,213,266 573,637
Item 5. Other Information
(1) The Company announced on April 29, 1996, that it had signed a
definitive agreement to sell its U.S. paint and oblong can
business to Brockway Standard, Inc., a subsidiary of BWAY
Corporation, for approximately $43.7 million.
(2) The Company, to simplify its structure and to integrate 100% of
CMB, has initiated an offer, open from April 29 to
May 14, 1996, to purchase the remaining untendered CMB
shares for French Francs 225 per share. At the end of the offer
period, the Company will own 100% of CMB.
<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
27. Financial Data Schedule
b) Reports on Form 8-K
1) On March 1, 1996, as amended on May 3, 1996, the Registrant filed a
Current Report on Form 8-K for the following event:
The Company reported under:
(1) Item 2 - Acquisition or Disposition of Assets.
a) That on February 26, 1996, the Company completed
settlement of its previously announced exchange offer to
acquire all of the outstanding shares of common stock, par
value FF10 per share, of CarnaudMetalbox, a French societe
anonyme. The offer was made pursuant to the terms of the
Exchange Offer Agreement, dated May 22, 1995, as amended,
between the Company and Compagnie Generale d'Industrie et
de Participations ("CGIP"), a French societe anonyme and
the principal shareholder of CarnaudMetalbox.
b) That on February 22, 1996, pursuant to the Exchange
Offer Agreement, the Company and CGIP entered into a
Shareholders Agreement with provisions prohibiting CGIP
from further acquisition of beneficial ownership of voting
securities representing more than 19.95% of the
outstanding Total Voting Power of the Company and
entitling CGIP to designate up to three persons to be
nominated for election as directors of the Company.
(2) Item 5 - Other Events
That on February 22, 1996, the Company's Board of
Directors declared a cash dividend of $0.25 per share
on the Company's Common Stock payable on March 29, 1996.
Dividends on the Crown Preferred Stock issued in conjunction
with the Offer will accrue from the issuance date of February
26, 1996.
(3) Item 7- Financial Statements and Exhibits
a) The audited Consolidated Financial Statements of
CarnaudMetalbox for the years ended December 31, 1995,
1994, and 1993 and the independent auditors report
thereon.
b) The unaudited pro forma Consolidated Condensed
Financial Statements of CarnaudMetalbox and the Registrant
for the year ended December 31, 1995.
2) On January 2, 1996, the Registrant filed a Current Report on Form 8-K
for the following events:
The Company filed certain documents as exhibits, in connection
with the exchange offer for CMB.
<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: May 14, 1996
Exhibit 11
Crown Cork & Seal Company, Inc.
Computation of Earnings Per Share
Three months ended
March 31,
1996 1995
1. Net income available to common shareholders $29.1 $36.5
2. Weighted average number of shares outstanding
during period 105,120,482 89,640,314
3. Earnings per share based upon average
outstanding (1/2) $.28 $.41
4. Net shares issuable upon exercise of dilutive
outstanding stock options (treasury stock method) 345,518 707,376
5. Fully diluted shares (2+4) 105,466,000 90,347,690
6. Fully diluted earnings per share (1/5) $.28 $.40
Note: The 4.5% convertible preferred stock was not included in the computation
of earnings per share as it was anti-dilutive.
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