- --------------------------------------------------------------------------------
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 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 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 128,296,876 shares of Common Stock outstanding as of October 31, 1996.
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<PAGE>
Crown Cork & Seal Company, Inc.
PART 1 - FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF INCOME
(In millions except per share data)
(Unaudited)
Three months ended September 30, 1996 1995
- -------------------------------------------------------------------------------
Net sales $2,462.1 $1,427.1
-------- --------
Costs, expenses & other income
Cost of products sold, excluding
depreciation and amortization 1,988.6 1,252.8
Depreciation and amortization 130.0 67.3
Selling and administrative expense 101.6 36.0
Provision for restructuring 82.5
Gain on sale of assets ( 12.6) ( 3.1)
Interest expense 106.7 38.1
Interest income ( 21.7) ( 3.3)
Translation and exchange adjustments 3.0 ( 1.8)
--------- ----------
2,295.6 1,468.5
--------- ----------
Income (loss) before income taxes 166.5 ( 41.4)
Provision for income taxes 54.1 ( 23.9)
Minority interest, net of equity earnings ( 3.0) ( 2.4)
--------- ---------
Net income (loss) 109.4 ( 19.9)
Preferred stock dividends 5.9
--------- ---------
Net income (loss) available
to common shareholders $ 103.5 ($ 19.9)
========= =========
Earnings (loss) per average common share:
Primary $ .81 ($ .22)
========= =========
Fully diluted $ .78 ($ .22)
========= =========
Dividends per common share $ .25
========= =========
Weighted average common shares outstanding:
Primary 128.5 90.8
Fully diluted 139.8 90.8
- --------------------------------------------------------------------------------
The financial statements for 1996 include the operations of CarnaudMetalbox for
the three months ended September 30, 1996.
Certain prior year amounts have been reclassified to improve comparability.
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 per share data)
(Unaudited)
Nine months ended September 30, 1996 1995
- --------------------------------------------------------------------------------
Net sales $6,367.0 $3,939.6
-------- --------
Costs, expenses & other income
Cost of products sold, excluding
depreciation and amortization 5,169.1 3,343.6
Depreciation and amortization 359.8 196.5
Selling and administrative expense 277.4 107.8
Provision for restructuring 29.6 102.7
Gain on sale of assets ( 22.8) ( 8.1)
Interest expense 279.6 111.6
Interest income ( 56.6) ( 8.8)
Translation and exchange adjustments ( 35.7) ( 1.3)
-------- --------
6,000.4 3,844.0
-------- --------
Income before income taxes 366.6 95.6
Provision for income taxes 107.7 17.4
Minority interest, net of equity earnings ( 14.1) ( 9.4)
-------- --------
Net income 244.8 68.8
Preferred stock dividends 13.9
-------- --------
Net income available to common shareholders $ 230.9 $ 68.8
======== ========
Earnings per average common share:
Primary $ 1.91 $ .76
======== ========
Fully diluted $ 1.89 $ .76
======== ========
Dividends per common share $ .75
======== ========
Weighted average common shares outstanding:
Primary 120.8 90.6
Fully diluted 129.8 90.6
- --------------------------------------------------------------------------------
The financial statements for 1996 include the operations of CarnaudMetalbox from
the acquisition date of February 22, 1996.
Certain prior year amounts have been reclassified to improve comparability.
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
Crown Cork & Seal Company, Inc.
CONSOLIDATED BALANCE SHEETS
(In millions except book value)
(Unaudited)
September 30, December 31,
1996 1995
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ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 168.7 $ 68.1
Receivables 1,822.7 744.3
Inventories 1,332.7 811.9
Prepaid expenses and other current assets 202.8 84.6
--------- --------
Total current assets 3,526.9 1,708.9
--------- --------
Long-term notes and receivables 83.4 63.5
Investments 90.9 57.5
Goodwill, net of amortization 4,643.0 1,095.7
Property, plant and equipment 3,768.8 2,005.9
Other non-current assets 423.0 120.2
--------- --------
TOTAL $12,536.0 $5,051.7
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt $ 1,174.3 $ 537.9
Current portion of long-term debt 34.2 70.2
Accounts payable and accrued liabilities 2,135.0 668.2
United States and foreign income taxes 33.5 2.7
--------- --------
Total current liabilities 3,377.0 1,279.0
--------- --------
Long-term debt, excluding current maturities 4,040.6 1,490.1
Postretirement and pension liabilities 679.0 590.6
Other non-current liabilities 493.8 112.2
Minority interests 274.8 118.6
Shareholders' equity 3,670.8 1,461.2
--------- --------
TOTAL $12,536.0 $5,051.7
========= ========
Book value per common share $24.57 $16.12
- --------------------------------------------------------------------------------
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)
Nine months ended September 30, 1996 1995
- -------------------------------------------------------------------------------
Cash flows from operating activities
Net income $ 244.8 $ 68.8
Depreciation and amortization 359.8 196.5
Provision for restructuring 21.9 67.0
Foreign currency gain ( 42.1) -
Gain on sale of assets ( 22.8) ( 8.1)
Equity in earnings of joint ventures,
net of dividends 7.0 .5
Minority interest in
earnings of subsidiaries 10.5 13.2
Change in assets and liabilities,
other than debt ( 320.8) ( 425.3)
--------- -------
Net cash provided by
(used in) operating activities 258.3 ( 87.4)
--------- --------
Cash flows from investing activities
Capital expenditures ( 428.4) ( 295.4)
Acquisition of businesses,
net of cash acquired ( 1,533.1) ( 14.2)
Proceeds from sale of property,
plant and equipment 27.4 12.8
Proceeds from sale of businesses 107.9
Other, net ( 14.4) ( 3.8)
--------- --------
Net cash used
in investing activities ( 1,840.6) ( 300.6)
--------- --------
Cash flows from financing activities
Proceeds from long-term debt 1,886.6 329.4
Payments of long-term debt ( 90.4) ( 205.9)
Net change in short-term debt ( 23.9) 258.8
Dividends paid ( 107.4) -
Common stock:
Repurchased for treasury ( .3)
Issued under various
employee benefit plans 5.5 18.8
Minority contributions,
net of dividends paid 14.9 9.6
-------- -------
Net cash provided by
financing activities 1,685.3 410.4
-------- -------
Effect of exchange rate changes
on cash and cash equivalents ( 2.4) ( 7.9)
-------- -------
Net change in cash and cash equivalents 100.6 14.5
Cash and cash equivalents
at beginning of period 68.1 43.5
-------- -------
Cash and cash equivalents
at end of period $ 168.7 $ 58.0
======== =======
- --------------------------------------------------------------------------------
Schedule of non-cash investing activities: 1996 1995
---- ----
Acquisition of businesses
Fair value of assets acquired $7,855.1 $14.2
Liabilities assumed ( 3,867.3)
Issuance of common stock ( 1,562.4)
Issuance of 4.5% convertible preferred ( 520.7)
-------- -----
Cash paid $1,904.7 $14.2
======== =====
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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 244.8 244.8
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 ( 96.1) ( 96.1)
Preferred stock dividends ( 13.9) ( 13.9)
Common stock issued under
employee benefit plans 4.2 1.3 5.5
Translation adjustments ( 13.8) ( 13.8)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1996 $520.7 $779.0 $1,562.8 $1,183.8 ($32.1) ($205.5) ($137.9) $3,670.8
- ------------------------------------------------------------------------------------------------------------------------------------
Minimum Cumulative
Common Paid-In Retained Pension Translation Treasury
Stock Capital Earnings Liability Adjustments Stock Total
<S> <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 68.8 68.8
Treasury stock purchased ( .3) ( .3)
Common 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
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<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
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 September 30, 1996, and the results of
its operations and cash flows for the periods ended September 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 included in the Company's 1995 Form 10-K
Annual Report along with 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
and second quarter 1996 Quarterly Reports 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.
Earnings per Share
Primary earnings per average common share are computed by dividing net
income available to common shareholders by primary weighted average
common shares. Primary weighted average common shares equal weighted
average common shares plus dilutive common share equivalents. On a
fully-diluted basis, both net income and weighted average common shares
are adjusted to assume the conversion of the Company's 4.5% convertible
preferred stock.
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.
The following unaudited pro forma summary presents the consolidated
results of operations as if the acquisition had been completed at the
beginning of the period presented and does not purport to be indicative
of what would have occurred had the acquisition actually been made as of
such date or results which may occur in the future. Comparative pro
forma information for the nine months ended September 30, 1995 cannot be
presented because CMB quarterly results were previously not reported nor
are such results currently available.
Nine Months
Ended
(unaudited) September 30, 1996
------------------------------------------------------------------------
Net sales $6,973
Net income available to common shareholders $ 210
Earnings per average common share:
Primary $ 1.63
Fully diluted $ 1.60
------------------------------------------------------------------------
Adjustments made in arriving at the pro forma unaudited results of
operations include increased interest expense on acquisition debt,
amortization of goodwill, adjustments to the fair value of assets
acquired and depreciable lives, preferred stock dividends and related
tax adjustments. No effect has been given for any future transition and
restructuring costs or synergistic benefits which may be realized from
the acquisition.
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.
Except for the restructuring costs associated with the acquisition of
CMB discussed below, the Company records restructuring charges against
operations and provides a reserve or writes down assets, as appropriate,
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 plants 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. As
of September 30, 1996, the Company had accrued approximately $371
million for the costs associated with restructuring CarnaudMetalbox
operations and allocated such costs to the purchase price of
CarnaudMetalbox in accordance with purchase accounting requirements.
These costs are comprised of severance pay and benefits, writedown of
assets and lease termination and other exit costs. The cost of providing
severance pay and benefits for the reduction of approximately 3,200
employees is currently estimated at approximately $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
cost 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 subsidies are currently estimated at approximately
$29 and are primarily cash expenses. The $371 million in restructuring
costs recorded in connection with the CarnaudMetalbox acquisition
include the $70 million restructuring charge previously announced by
CarnaudMetalbox Asia Ltd., a subsidiary of the Company.
8
<PAGE>
Crown Cork & Seal Company, Inc.
The Company, on a preliminary basis, estimates that this plan of
restructuring CMB operations when complete, will generate annual costs
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 to minimize the adverse
effects of the restructuring on existing business and customer
relationships.
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 operations, 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 to enhance competitiveness.
The components of restructuring are as follows:
Balance Balance
at Provisions Provisions at
December for for Tranfer September
31, existing CMB 1996 against 30,
1995 businesses businesses activity assets 1996
-------------------------------------------------------------------------
Employee costs $11.5 $16.3 $202.2 ($33.1) $196.9
Writedown of
assets 7.4 139.4 ($146.8)
Lease
termination
and other
exit costs 13.7 5.9 29.2 ( 28.0) 20.8
------ ------ ------ ------ ------- ------
$25.2 $29.6 $370.8 ($61.1) ($146.8) $217.7
-------------------------------------------------------------------------
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.
9
<PAGE>
Crown Cork & Seal Company, Inc.
E. Inventories
September 30, December 31,
1996 1995
--------------------------------------------------------------------------
Finished Goods $514.5 $305.3
Work in Process 257.5 94.3
Raw Materials 443.1 331.3
Supplies and Repair Parts 117.6 81.0
-------- ------
$1,332.7 $811.9
-------- ------
F. Supplemental Cash Flow Information
Cash payments for interest, net of amounts capitalized ($2.3 and $5.6
for 1996 and 1995, respectively), were $255.3 and $87.5 during the nine
months ended September 30, 1996 and 1995, respectively. Cash payments
for income taxes amounted to $41.5 and $18.5 during the nine months
ended September 30, 1996 and 1995, respectively. The 1995 tax payments
were net of a second quarter domestic tax refund of $15.0.
10
<PAGE>
Crown Cork & Seal Company, Inc.
PART 1 - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Introduction
The following discussion presents management's analysis of the results
of operations for the three and nine months ended September 30, 1996,
compared to the corresponding periods in 1995 and the changes in
financial condition and liquidity from December 31, 1995. This
discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto included in the Company's Annual
Report on Form 10-K for the year-ended December 31,1995, along with
the consolidated financial statements and related notes included in and
referred to within this report.
Effective February 22,1996, the Company completed its acquisition of
CarnaudMetalbox("CMB"). The consolidated financial statements include
the CMB operations from this date.
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 and third quarters of 1996 as
facts and circumstances dictated. The restructuring plan, initially
outlined at the end of the first quarter 1996 and as subsequently
adjusted, is expected to be finalized by the end of the first quarter
1997. See Note D to the Consolidated Financial Statements presented in
Item 1 of this Quarterly Report on Form 10-Q for a further discussion
of the restructuring costs associated with the acquisition of CMB.
In addition, the Company has continued restructuring actions which the
Company believes 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.
These non-qualifying integration costs amounted to $5.2 in the third
quarter and are included within cost of products sold. The Company also
incurred a pre-tax restructuring charge of $29.6 in the second quarter
to exit existing operations. See Note D to the Consolidated Financial
Statements presented in Item 1 of this Quarterly Report on Form 10-Q
for a further discussion of such restructurings.
Results of Operations
Net Income and Earnings Per Share
The Company reported net income of $109.4 or $.78 per fully diluted
common share for the third quarter of 1996 compared with a net loss of
$19.9 or $.22 per share for the same period in 1995. Third quarter 1996
net income includes an after-tax gain of $8.0 or $.06 per fully diluted
common share primarily from the sale of real estate in the Far East and
after-tax charges of $3.8 or $.03 per fully diluted common share for
the non-qualifying CMB integration costs. Third quarter 1995 results
included after-tax restructuring charges of $54.2 or $.60 per share for
the closure in the Americas of two beverage can plants, a beverage end
plant, two food can plants and a plastic bottle operation and the
reorganization of several food and plastic bottle operations. For the
nine months ended September 30, 1996, net income was $244.8 or $1.89
per fully diluted common share compared with net income of $68.8 or
$.76 per share for the same period in 1995.
11
<PAGE>
Crown Cork & Seal Company, Inc.
Item 2. Management's Discussion and Analysis (Continued)
Net Sales
Net sales in the quarter were $2,462.1, an increase of $1,035.0 or
72.5% over net sales of $1,427.1 for the third quarter in 1995. Net
sales for the first nine months of 1996 were $6,367.0, an increase of
$2,427.4 or 61.6% over net sales of $3,939.6 for the same period in
1995. In the quarter, sales from domestic operations decreased 8.4%
partially offset by the addition of CMB's U.S. operations, whereas
non-U.S. sales increased 247.3% due to the contribution from CMB's
operations, primarily within Europe. Domestic sales in the third
quarter accounted for 36.3% of consolidated net sales in 1996 as
compared to 68.3% a year earlier. Sales of beverage products as a
percentage of consolidated net sales have declined in the third quarter
from 36.7% to 25.8% whereas sales of food cans and ends have increased
from 23.1% to 37.9% compared to the prior year third quarter. North
American beverage sales represented 14.7% and 16.6%, respectively, of
consolidated net sales for the quarter and nine months ended September
30, 1996, as compared to 30.9% and 31.1% for the comparable periods in
1995. An analysis of net sales by division follows:
Net sales
Third Quarter Nine Months Ended Percentage Change
Divisions Third Nine
1996 1995 1996 1995 Quarter Months
---- ---- ---- ---- ------- ------
Americas $1,020.1 $1,115.7 $2,830.1 $3,034.0 ( 8.6%) ( 6.7%)
European 1,303.5 253.8 3,112.6 725.6 413.6% 329.0%
Asia-Pacific 106.1 40.3 297.4 116.6 163.3% 155.1%
Other 32.4 17.3 126.9 63.4 87.3% 100.2%
-------- -------- -------- --------
$2,462.1 $1,427.1 $6,367.0 $3,939.6 72.5% 61.6%
======== ======== ======== ========
Net sales within the Americas Division, which includes metal and
plastic packaging operations in North, Central and South America,
declined 8.6% in the quarter and 6.7% for the nine months ended
September 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
during the second quarter at eight plants due to a union strike.
Competitive pressures continue to affect selling prices on most product
lines. In the quarter, sales units of food cans in the U.S. were up
10.5% with beverage end units up 7.2%, PET bottle units down 14.3% and
beverage can units down 11.9%. The anticipated October aluminum price
reduction and unseasonably cool and wet weather were the primary
factors for unit declines in beverage cans and PET bottles. Beverage
can unit volume in Canada was up 13% in the quarter as shipments to the
U.S. and local demand were strong. Poor economic conditions in Latin
America continues to depress sales while the addition of CMB's U.S.
operations to the division, primarily Anchor Hocking, added $48.9 in
the quarter.
Net sales in the European Division, which includes Europe, Africa and
the Middle East, were substantially higher in the quarter and for the
nine months ended September 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 23.1% and 16.3% 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 in accordance with the
divestiture required by the European Commission in connection with the
CMB acquisition. Sales from CMB operations were marginally 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 speciality 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 in the United Kingdom were offset by declines in Germany.
Generally, pricing has remained competitive in most product lines.
12
<PAGE>
Crown Cork & Seal Company, Inc.
Item 2. Management's Discussion and Analysis (Continued)
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 sales of fruit juice and
coffee cans were strong in Thailand and the increased contribution from
new operations in Vietnam have been offset by lower sales in Singapore
and Malaysia.
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 $13.7 and $53.5 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 September 30, 1996, was $1,988.6, a 58.7% increase from
$1,252.8 for the same period in 1995. For the nine months ended
September 30, 1996, these costs increased 54.6% to $5,169.1 from
$3,343.6 in 1995. These increases are due primarily to : (i) the
addition of CMB from February 22, 1996 and (ii) the sell-off of 1995
year-end inventory valued with higher-priced raw materials. These
increases have been partially offset by declines in the costs of the
Company's raw materials, primarily aluminum and resins.
As a percentage of net sales, cost of products sold was 80.8% and 81.2%
for the quarter and nine months ended September 30, 1996, compared to
87.8% and 84.9% 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 its focus on
production planning and inventory management to remain as flexible as
possible within the volatile markets in which it operates.
Selling and Administrative Expense
Selling and administrative expense for the quarter ended September 30,
1996, was $101.6, an increase of 182.2% over 1995. As a percentage of
net sales these expenses have increased to 4.1% from 2.5% in the same
period for 1995. For the nine months ended September 30, 1996, these
expenses have increased 157.3% from a year earlier and as a percentage
of net sales are 4.4% as compared to 2.7% 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.
Operating Income
For the quarter, consolidated operating income increased $253.4 to
$241.9 from a loss of $11.5 for the comparable period in 1995. For the
nine months ended September 30, 1996, consolidated operating income
increased 181.0% to $531.1 from $189.0 for the same period a year
earlier. Operating income for the nine months ended September 30, 1996,
included pre-tax restructuring charges of $29.6 as compared to charges
of $82.5 in the third quarter 1995 and $102.7 for the nine months ended
September 30, 1995.
13
<PAGE>
Crown Cork & Seal Company, Inc.
Item 2. Management's Discussion and Analysis (Continued)
An analysis of operating income, excluding restructuring, by division
follows:
Operating Income
Third Quarter Nine Months Ended Percentage Change
Divisions Third Nine
1996 1995 1996 1995 Quarter Months
---- ---- ---- ---- ------- ------
Americas $79.8 $40.6 $165.2 $198.4 96.6% ( 16.7%)
European 155.0 22.6 373.3 67.8 585.8% 450.6%
Asia-Pacific 4.1 7.4 12.6 19.0 ( 44.6%) ( 33.7%)
Other 3.0 .4 9.6 6.5 650.0% 47.7%
------ ----- ------ ------
$241.9 $71.0 $560.7 $291.7 240.7% 92.2%
====== ===== ====== ======
As a percentage of net sales, operating income for the Americas
Division was 7.8% in the third quarter and 5.8% for the nine months
ended September 30, 1996 as compared to 3.6% and 6.5% for the same
periods in 1995. The increase in third quarter margins was due
primarily to the restructuring programs initiated in the U.S. in 1995
and 1994 offset by continued pricing pressures in both metal and
plastic beverage containers and continued sluggish economic conditions
in Latin America, primarily Argentina and Brazil.
Operating income as a percentage of net sales in the European Division
was 11.9% in the quarter and 12.0% for the nine months ended September
30, 1996 as compared to 8.9% and 9.3% for the comparable periods in
1995. The increased margin is directly attributable to the addition of
CMB operations, primarily its food, beverage and aerosol can
businesses. 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 ahead of 1995 levels due to strong seasonal results in food and
aerosol offset by volume erosion and pricing pressure from soft market
conditions for Specialty Packaging and Plastics.
Operating income as a percentage of net sales for the Asia-Pacific
Division was 3.9% in the quarter and 4.2% for nine months ended
September 30, 1996 as compared to 18.4% and 16.3% 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
demand for coffee and juice cans in Thailand was offset by lower
beverage demand in Singapore and inefficiencies caused by restructuring
actions in Malaysia.
The Company's basic raw materials for its products are tinplate,
aluminum and resins, all of which are purchased from multiple sources.
The Company is subject to material fluctuations in the cost of these
raw materials and has previously adjusted its selling prices in
response to these movements. There can be no assurance, however, that
the Company will be able to recover fully any increases or fluctuations
in raw material costs from its customers.
Net Interest Expense/Income
Consolidated net interest expense, net of interest income, for the
third quarter and nine months ended September 30, 1996, was $85.0 and
$223.0, respectively, as compared to $34.8 and $102.8 for the
comparable periods in 1995. The increases are directly attributable to
(i) the acquisition financing for CMB, (ii) capital investment programs
and (iii) initial cash requirements for the Company's ongoing
restructuring programs.
14
<PAGE>
Crown Cork & Seal Company, Inc.
Item 2. Management's Discussion and Analysis (Continued)
Foreign Exchange
In the second quarter, the Company recorded a foreign exchange gain of
$42.1 due to the impact of a stronger U.S. dollar on 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 $6.4 for
the nine months ended September 30, 1996 resulted primarily from the
remeasurement of the Company's operations in highly inflationary
economies.
Taxes on Income
Year-to-date the effective tax rate was 29.4% in 1996 as compared to
18.2% 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 tax rates in income producing countries.
Minority Interest, Net of Equity in Earnings of Affiliates
Equity earnings in unconsolidated joint ventures have declined from a
year earlier 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 impact of 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 which include both metal and plastics sales. The
former Plastic Division has also been reorganized along geographic
lines and merged into the Americas and European Divisions. 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 $258.3 was provided by operations during the nine months
ended September 30, 1996, as compared to cash used of $87.4 for the
same period in 1995. Improved cash from operations has 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 build-up 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 $1,840.6 compared to $300.6
in 1995. The increased use was primarily for the acquisition of CMB and
partially offset by proceeds received from the sale of businesses.
Capital expenditures for 1996 were $428.4, an increase of $133.0 or
45.0% 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 $1,685.3 in 1996, compared with
$410.4 a year earlier. The increase of $1,274.9 is directly related to
the borrowings needed to fund the acquisition of CMB.
Total debt, net of cash and cash equivalents, at September 30, 1996,
was $5,080.4 and represents an increase of 150.3% 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 56.3% at September 30, 1996, as
compared to 56.7% at June 30, 1996, and 56.2% at December 31, 1995.
Total capitalization is defined by the Company as total debt, minority
interests 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 to which
hedging its exposure to adverse fluctuations in commodity prices is
appropriate. 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 $107.4 representing
$.25 per common share for dividends declared and paid in the first
three quarters and for dividends declared and paid during the second
and third quarters to holders of the Company's 4.5% convertible
preferred stock.
Other Matters
On October 24, 1996, the Company announced that its largest
shareholder, Compagnie Generale d'Industrie et de Participations
(CGIP), sold a portion of its investment in the Company to a group of
underwriters. CGIP sold 10,637,500 shares of the Company's common stock
and 3,450,000 shares of 4.5% convertible preferred stock, resulting in
total gross proceeds to CGIP of $644.6 million, before underwriting
discounts, commissions and expenses. Upon completion of the offerings,
CGIP owned common and preferred stock representing approximately 10.1%
of the Company's voting power versus 19.9% previously. The Company did
not receive any of the proceeds from the secondary offerings. In
consideration of the productive relationship with CGIP, the Company has
decided not to request that a CGIP nominee on the Crown Board of
Directors resign at this time. The Company has reserved the right to
request such resignation under the Shareholders Agreement between CGIP
and the Company.
On September 12, 1996, the Company announced that it had completed the
sale of a portion of its European aerosol can operations to U.S. Can
Corporation. The purchase price was $58.6 which includes cash of $52.8
and the assumption of $5.8 in net financial obligations, to be adjusted
upon completion of the final closing balance sheet for these
operations. Proceeds from the transaction were used to reduce
short-term indebtedness. The mandated divestiture satisfies the
condition under which the Commission of the European Communities
granted approval for the Company to proceed with its acquisition of CMB
earlier this year.
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
and which is incorporated by reference therein, 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.
A discussion of important factors that could cause the actual results
of operations or financial condition of the Company to differ from
expectations has been set forth in the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1996 under the caption
"Management's Discussion and Analysis of Results of Operations and
Financial Condition - Forward Looking Statements and is 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 5. Other Information
1) On October 9, 1996, the Company announced that its affiliate,
CarnaudMetalbox Polska SP Z.O.O., signed an agreement to
purchase FABRYKA OPAKOWAN BLASZANYCK ("GOPAK") from the State
Treasury of Poland. GOPAK is a leading manufacturer of crown
corks, fish cans and vacuum closures in Poland and had 1995
sales of approximately $25 million.
2) On October 24, 1996, the Company announced that its largest
shareholder, Compagnie Generale d'Industrie et de
Participations (CGIP), had sold a portion of its investment in
the Company to a group of underwriters. CGIP sold 10,637,500
shares of the Company's common stock and 3,450,000 shares of
the Company's 4.5% convertible preferred stock, resulting in
total gross proceeds to CGIP of $644.6 million, before
underwriting discounts, commissions and expenses. Upon
completion of the offering, CGIP owned common and convertible
preferred stock representing approximately 10.1% of the
Company's voting power versus 19.9% previously. The Company did
not receive any of the proceeds from these secondary offerings.
3) On October 25, 1996, the Company's Board of Directors declared
cash dividends of $.25 per share on the Company's common stock
and $.4712 per share on the Company's 4.5% convertible
preferred stock. Both dividends are payable on November 20,
1996, to shareholders of record on November 4, 1996.
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
27. Financial Data Schedule
99. Letter of agreement between the Company and Compagnie
Generale d'Industrie et de Participations ("CGIP")
(incorporated herein by reference to Exhibit 99.2
of the Company's Current Report on Form 8-K dated
September 26, 1996 (No. 1-2227)).
b) Reports on Form 8-K
On September 26, 1996, the Registrant filed a Current Report on
Form 8-K for the following event:
The Company reported under:
(1) Item 5. Other Events
That it had announced on September 26, 1996 that it
had filed a Registration Statement on Form S-3 to
offer for sale shares of its Common Stock and 4.5%
Convertible Preferred Stock owned by CGIP. In
connection therewith, the Registrant and CGIP
entered into a letter agreement clarifying the
rights and obligations of each party pursuant to
the Shareholders Agreement between them.
(2) Item 7. Financial Statements and Exhibits
b)Pro Forma Financial Information
The unaudited pro forma consolidated condensed
statements of operations of the Company and
CarnaudMetalbox for the six months ended June 30,
1996 and 1995, and the unaudited pro forma
consolidated condensed statement of operations for
the year ended December 31, 1995, as updated from
that which was included in the Company's Current
Report on Form 8-K/A filed on May 7, 1996.
c)Exhibits
1) The Registrant's News Release dated
September 26 1996, announcing the filing of
a Registration Statement on Form S-3.
2) Letter of Agreement between the Company and
CGIP.
3) Unaudited pro forma consolidated condensed
statements of operations of CMB and the
Company for the six months ended June 30,
1996 and 1995, and 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: November 14, 1996
-----------------
20
<PAGE>
Crown Cork & Seal Company, Inc.
Exhibit 11
Computation of Earnings per Common Share
Three months ended Nine Months ended
September 30, September 30,
1996 1995 1996 1995
Line
1 Net income(loss) available to common
shareholders $103,461 $(19,896) $230,896 $68,802
2 Weighted average number of shares
outstanding during period 128,181 90,469 120,504 90,105
3 Net shares issuable upon exercise of
stock options - primary 330 372 317 514
4 Net shares issuable upon exercise of
stock options - fully diluted 342 372 333 516
5 Average convertible preferred stock*
(if converted method) 11,326 0 9,001 0
6 Preference dividends $ 5,859 0 $13,863 0
7 Primary earnings(loss) per share $0.81 ($0.22) $1.91 $0.76
(1/(2+3))
8 Fully diluted earnings(loss)per share
((1+6)/(2+4+5)) $0.78 ($0.22) $1.89 $0.76
* 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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<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 169
<SECURITIES> 0
<RECEIVABLES> 1836
<ALLOWANCES> 13
<INVENTORY> 1333
<CURRENT-ASSETS> 3527
<PP&E> 5056
<DEPRECIATION> 1287
<TOTAL-ASSETS> 12536
<CURRENT-LIABILITIES> 3377
<BONDS> 4041
0
521
<COMMON> 779
<OTHER-SE> 2371
<TOTAL-LIABILITY-AND-EQUITY> 12536
<SALES> 6367
<TOTAL-REVENUES> 6367
<CGS> 5169
<TOTAL-COSTS> 5559
<OTHER-EXPENSES> (36)
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<INCOME-PRETAX> 367
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