================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
[ ] 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 (I.R.S. Employer Identification No.)
of incorporation or organization)
One Crown Way, Philadelphia, PA. 19154-4599
(Address of principal executive offices) (Zip Code)
215-698-5100
(Registrant's telephone number, including area code)
Indicated by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
There were 124,429,856 shares of Common Stock outstanding as of April 30, 1998.
================================================================================
<PAGE>
Crown Cork & Seal Company, Inc.
PART I - FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF INCOME
(In millions except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Three months ended March 31, 1998 1997
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 1,892.4 $ 1,937.3
----------------- -----------------
Cost, expenses & other income
Cost of products sold, excluding depreciation and amortization 1,502.2 1,544.4
Depreciation and amortization 136.6 139.3
Selling and administrative expense 97.6 103.9
Gain on sale of assets (6.1)
Interest expense 93.8 92.6
Interest income (7.4) (7.3)
Translation and exchange adjustments 1.7 1.1
----------------- -----------------
1,824.5 1,867.9
----------------- -----------------
Income before income taxes 67.9 69.4
Provision for income taxes 27.9 25.8
Minority interest, net of equity earnings 1.7 (4.6)
----------------- -----------------
Net income 41.7 39.0
Preferred stock dividends 5.1 5.9
----------------- -----------------
Net income available to common shareholders $ 36.6 $ 33.1
================= =================
Basic and diluted earnings per average common share $ .29 $ .26
================= =================
Dividends per common share $ .25 $ .25
================= =================
Weighted average common shares outstanding:
Basic 127,100,189 128,479,826
Diluted 137,782,068 140,522,967
--------------------------------------------------------------------------------------------------------------------
</TABLE>
Certain prior year balances 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 BALANCE SHEETS (Condensed)
(In millions except per share data)
(Unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
March 31, December 31,
1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 220.5 $ 205.6
Receivables 1,551.0 1,353.5
Inventories 1,564.2 1,387.5
Prepaid expenses and other current assets 224.1 200.6
------------ ------------
Total current assets 3,559.8 3,147.2
------------ ------------
Long-term notes and receivables 52.2 65.0
Investments 90.1 89.5
Goodwill, net of amortization 4,567.0 4,625.2
Property, plant and equipment 3,655.2 3,663.9
Other non-current assets 752.2 714.9
------------ ------------
Total $ 12,676.5 $ 12,305.7
============ ============
Liabilities and shareholders' equity
Current liabilities
Short-term debt $ 2,274.8 $ 1,385.4
Current portion of long-term debt 382.5 399.3
Accounts payable and accrued liabilities 2,165.5 2,236.7
United States and foreign income taxes 55.2 27.9
------------ ------------
Total current liabilities 4,878.0 4,049.3
------------ ------------
Long-term debt, excluding current maturities 3,267.1 3,301.4
Postretirement and pension liabilities 708.4 711.7
Other non-current liabilities 423.8 431.3
Minority interests 285.1 282.8
Shareholders' equity 3,114.1 3,529.2
------------ ------------
Total $ 12,676.5 $ 12,305.7
============ ============
Book value per common share $ 23.52 $ 25.26
- ----------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
Crown Cork & Seal Company, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Condensed)
(In millions)
(Unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Three months ended March 31, 1998 1997
---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 41.7 $ 39.0
Depreciation and amortization 136.6 139.3
Gain on sale of assets (5.3)
Change in assets and liabilities, other than debt, net of businesses acquired (503.4) (430.4)
-------- --------
Net cash used in operating activities (325.1) (257.4)
-------- --------
Cash flows from investing activities
Capital expenditures (113.3) (106.2)
Acquisition of businesses, net of cash acquired (34.2) (10.0)
Proceeds from sale of property, plant and equipment 4.6 15.0
Other, net (4.2) (.4)
-------- --------
Net cash used in investing activities (147.1) (101.6)
-------- --------
Cash flows from financing activities
Proceeds from long-term debt 3.9
Payments of long-term debt (3.6) (253.9)
Net change in short-term debt 893.1 693.2
Stock Repurchased (369.0)
Dividends paid (38.0) (38.0)
Common stock issued under various employee benefit plans 3.9 3.3
Minority contributions, net of dividends paid (1.8) (.8)
-------- --------
Net cash provided by financing activities 488.5 403.8
-------- --------
Effect of exchange rate changes on cash and cash equivalents (1.4) (6.3)
-------- --------
Net change in cash and cash equivalents 14.9 38.5
Cash and cash equivalents at beginning of period 205.6 160.4
-------- --------
Cash and cash equivalents at end of period $ 220.5 $ 198.9
======== ========
- ------------------------------------------------------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------------------------------------------------------------
Schedule of non-cash investing activities:
Acquisition of businesses:
Fair value of assets acquired $ 51.2 $ 70.0
Liabilities assumed ( 17.0)
Note Payable ( 60.0)
-------- --------
Cash Paid $ 34.2 $ 10.0
======== ========
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Certain prior year balances have been reclassified to improve comparability.
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
Crown Cork & Seal Company, Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In millions)
(Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
| Accumulated
| Other
Comprehensive |Preferred Common Paid-In Retained Treasury Comprehensive
Income | Stock Stock Capital Earnings Stock Income Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 | $520.8 $779.0 $1,560.7 $1,327.2 ($137.0) ($521.5) $3,529.2
Net income $ 41.7 | 41.7 41.7
Translation adjustments (54.5) | (54.5) (54.5)
------ |
Comprehensive income (loss) ($12.8) |
====== |
Dividends declared: |
Common | (32.1) (32.1)
Preferred | (5.1) (5.1)
Stock repurchased | (153.3) (195.2) (20.5) (369.0)
Common stock issued under employee |
benefit plans | 3.2 .7 3.9
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1998 | $367.5 $779.0 $1,368.7 $1,331.7 ($156.8) ($576.0) $3,114.1
===================================================================================================================================
| Accumulated
| Other
Comprehensive | Preferred Common Paid-In Retained Treasury Comprehensive
Income | Stock Stock Capital Earnings Stock Income Total
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 | $520.8 $779.0 $1,567.3 $1,185.0 ($136.9) ($351.9) $3,563.3
Net income $ 39.0 | 39.0 39.0
Translation adjustments ( 53.7) | ( 53.7) ( 53.7)
------- |
Comprehensive income (loss) ($ 14.7) |
======= |
Dividends declared: |
Common | ( 32.1) (32.1)
Preferred | ( 5.9) ( 5.9)
Common stock issued under employee |
benefit plans | 2.7 .6 3.3
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1997 | $520.8 $779.0 $1,570.0 $1,186.0 ($136.3) ($405.6) $3,513.9
===================================================================================================================================
</TABLE>
Certain prior year balances have been reclassified to improve comparability.
The accompanying notes are an integral part of these financial statements.
5
<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, 1998,
and the results of its operations and cash flows for the periods ended
March 31, 1998 and 1997, respectively. These results have been determined
on the basis of generally accepted accounting principles and practices
consistently applied.
Certain information and footnote disclosures, normally included in
financial statements presented in accordance with generally accepted
accounting principles, have been condensed or omitted. The accompanying
Consolidated Financial Statements should be read in conjunction with the
financial statements and notes thereto incorporated by reference in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
B. Earnings Per Share
The following table summarizes the basic and diluted earnings per share
computations for the period ended March 31, 1998 and 1997, respectively:
<TABLE>
<CAPTION>
1998 1997
-------------------------------- -----------------------------
Average Average
Income Shares EPS Income Shares EPS
------------ ---------- -------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Income $ 41.7 $ 39.0
Less:
Preferred stock dividends ( 5.1) ( 5.9)
--------- -------
Basic EPS $ 36.6 127.1 $ .29 $ 33.1 128.5 $ .26
Potentially dilutive securities:
Stock options .4 .7
--------- ----- ------- -------
Diluted EPS $ 36.6 127.5 $ .29 $ 33.1 129.2 $ .26
======= ====== ======= =======
</TABLE>
Excluded from the computation of diluted earnings per share for the
quarters ended March 31, 1998 and 1997, respectively, were 10.3 and 11.3
potentially dilutive securities resulting from the assumed conversion of
preferred stock. This conversion would have been antidilutive.
C. Inventories
- --------------------------------------------------------------------------------
March 31, December 31,
1998 1997
- --------------------------------------------------------------------------------
Finished goods $ 679.3 $ 560.5
Work in process 223.7 187.3
Raw materials 476.5 467.6
Supplies and repair parts 184.7 172.1
---------- ----------
$ 1,564.2 $ 1,387.5
========== ==========
6
<PAGE>
Crown Cork & Seal Company, Inc.
D. Restructuring
During the third quarter of 1997, the Company provided $66.6 ($43.3 after
taxes or $.31 per diluted share) for the costs associated with a plan to
improve the structure of its polyethylene terephthalate ("PET") plastic
beverage container business in the United States by closing and
reorganizing six manufacturing locations in its CONSTAR subsidiary along
with other, non-PET, restructuring activities, primarily in Europe. Annual
savings relating to these actions, when fully implemented, are expected to
be approximately $20.0 ($.14 per diluted share). The Company expects to
maintain its existing manufacturing capacity, and by relocating equipment
among its remaining larger facilities, meet all current and prospective
volume requirements. The Company records restructuring charges against
operations and provides a reserve based on the best information available
at the time that the decision is made to restructure. The balance of
restructuring reserves (excluding the write-down of assets which is
reflected as a reduction of the related asset account) is included within
accounts payable and accrued liabilities.
The Company made an assessment of the restructuring and exit costs to be
incurred relative to the acquisition of CMB. Affected by the plan of
restructuring were forty plants and regional administrative offices which
were closed and an additional fifty-two plants which were reorganized.
Since commencement of the plan of restructuring, the Company has determined
alternative sites for manufacture and qualified the new manufacturing sites
with customers. The Company had accrued approximately $534 for the costs
associated with restructuring CMB operations and allocated such costs to
the purchase price of CMB in accordance with purchase accounting
requirements. These costs comprise; severance pay and benefits, write-down
of assets, lease termination and other exit costs. The cost of providing
severance pay and benefits for the reduction of approximately 6,500
employees is estimated at approximately $257 and is primarily a cash
expense. Employees to be terminated include most, if not all, employees at
each plant or office 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 write-down of assets
(principally property, plant and equipment) is estimated at approximately
$217 and has been reflected as a reduction in the carrying value of the
Company's assets. Lease termination and other exit costs, primarily
repayments of government grants and subsidies, are estimated at
approximately $60 and are primarily cash expenses. The $534 in
restructuring costs recorded in connection with the CMB acquisition
includes the $95 restructuring charge announced in 1996 by CarnaudMetalbox
Asia, Ltd., a subsidiary of the Company.
The Company estimates that the plan of restructuring CMB operations will
generate annual cost savings of approximately $160 ($105 after-tax) on a
full year basis. It is also estimated that capital expenditures of
approximately $100 will be made to expand and upgrade other facilities to
minimize the adverse effects of the restructuring on existing business and
customer relationships.
Remaining balances in the restructuring reserve primarily relate to
employee termination agreements. Such agreements are made with the
respective union or with the local governmental body, whereby a portion of
the employee severance is paid when the employee is terminated and the
remaining portion is paid out over an agreed period of time. The components
of the restructuring reserve are as follows:
<TABLE>
<CAPTION>
Balance Balance
at 1998 at
December 31, activity March 31,
1997 1998
----------- -------- ---------
<S> <C> <C> <C>
Employee costs $ 119.5 ($ 73.3) $ 46.2
Lease termination and
other exit costs 35.8 ( 11.2) 24.6
-------- ------- -------
$ 155.3 ($ 84.5) $ 70.8
======== ======= =======
</TABLE>
7
<PAGE>
Crown Cork & Seal Company, Inc.
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 estimates of cost savings, which are unaudited, are not
necessarily indicative of future performance, which may be significantly
more or less favorable than as set forth above and is subject to the
considerations described herein on page 13 under "Forward-Looking
Statements within Item 2 - Management's Discussion and Analysis of Results
of Operations and Financial Condition". Shareholders are cautioned not to
place undue reliance on the estimates or the underlying assumptions and
should appreciate that such information may not necessarily be updated to
reflect circumstances existing after the date hereof or to reflect the
occurrence of unanticipated events.
E. New Reporting and Disclosure Requirement
Commencing January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income",
issued in June 1997. SFAS No.130 establishes a standard for reporting and
displaying comprehensive income and its components within the financial
statements. Comprehensive income includes charges and credits to equity
that are not the result of transactions with shareholders. Comprehensive
income is composed of two subsets - "net income" and "other comprehensive
income". Included in comprehensive income, for the Company, are net income,
cumulative translation adjustments required under SFAS No. 52 and the
minimum pension liability adjustments required under SFAS No. 87. The
adjustments for translation and minimum pension represent "other
comprehensive income" and are accumulated within the Statement of
Shareholders' Equity under the caption "Accumulated Other Comprehensive
Income".
As of March 31, 1998 and March 31, 1997, accumulated other comprehensive
income (loss), as reflected in the consolidated statements of changes in
shareholders' equity, was comprised of the following:
<TABLE>
<CAPTION>
March 31, March 31,
1998 1997
--------------- ---------------
<S> <C> <C>
Minimum pension liability adjustments ($ 16.9) ($ 14.8)
Cumulative translation adjustments ( 559.1) ( 390.8)
------- -------
($576.0) ($405.6)
======= =======
</TABLE>
F. Supplemental Cash Flow Information
Cash payments for interest, net of amounts capitalized ($1.1 for 1998 and
$1.6 for 1997), were $65.7 and $68.6 during the three months ended March
31, 1998 and 1997, respectively. Cash payments for income taxes amounted to
$7.6 and $5.4 during the three months ended March 31, 1998 and 1997,
respectively.
8
<PAGE>
Crown Cork & Seal Company, Inc.
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition (in millions, except share, per share, employee,
shareholder and statistical data)
Introduction
The following discussion presents management's analysis of the results
of operations for the three months ended March 31, 1998, compared to
the corresponding period in 1997 and the changes in financial condition
and liquidity from December 31, 1997. 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, 1997, along with the consolidated financial
statements and related notes included in and referred to within this
report.
Results of Operations
Net Income and Earnings Per Share
Net income available to common shareholders for the quarter ended March
31, 1998 was $36.6, an increase of 10.6% when compared to the
respective prior year amount of $33.1. Earnings per common share
increased by 11.5% to $.29 from $.26 a year earlier and reflects a 1.1%
decline in average common shares outstanding, primarily resulting from
the March 1998 repurchase of shares from Compagnie Generale d'
Industrie et de Participations (CGIP). Further details of this
transaction are presented under Liquidity and Capital Resources as
provided later in this discussion. The effects of a stronger U.S.
dollar reduced net income by approximately $0.01 per share in the first
quarter of 1998.
Net Sales
Net sales in the quarter decreased 2.3% from $1,937.3 in 1997 to
$1,892.4 in 1998. Sales from domestic operations increased by 1.1% and
those in non-U.S. markets decreased by 4.5%. The divestiture of the
Crown-Simplimatic machinery operations (disposed of in the second
quarter of 1997) reduced consolidated net sales by $47 in the first
quarter as compared to 1997. The appreciation of the U.S. dollar
against other currencies, primarily those within Europe, reduced
consolidated net sales by $65 in the first quarter as compared to 1997.
U.S. sales accounted for approximately 40% of consolidated net sales in
1998 and 39% in 1997. An analysis of comparative net sales by operating
division follows:
<TABLE>
<CAPTION>
Net Sales
------------------------------------------------------
First Quarter Increase/(Decrease)
Division: 1998 1997 $ %
---------- ---------- ------- --------
<S> <C> <C> <C> <C>
Americas $ 901.5 $ 851.5 50.0 5.9
European 890.5 922.6 (32.1) (3.5)
Asia-Pacific 75.1 97.4 (22.3) (22.9)
Other 25.3 65.8 (40.5) (61.6)
---------- ---------- -----
$ 1,892.4 $ 1,937.3 (44.9) (2.3)
========== ========== =====
</TABLE>
Net sales in the Americas Division increased $50.0 or 5.9% for the
three months ended March 31, 1998 as compared to the same period in
1997. The increase was primarily due to sales unit volume increases in
(i) U.S. beverage, food and aerosol cans, (ii) U.S. PET beverage
containers, primarily single serve 20 ounce bottles, plastic beverage
closures and beverage preforms, (iii) beverage cans and ends in Canada
and (iv) at the Company's new beverage can and end plants in Brazil.
Competitive pressures continue to impact selling prices in most product
lines within this division.
9
<PAGE>
Crown Cork & Seal Company, Inc.
Item 2. Management's Discussion and Analysis (Continued)
Net sales in the European Division decreased by $32.1 or 3.5% in the
quarter from a year earlier due primarily to the general weakening of
most European currencies against the U.S. dollar. The impact of
translation on sales resulted in a net sales reduction of $52.0.
Excluding the impact of the translation, sales increased 2.2% in the
quarter from a year earlier. This increase in local sales was due to
increased sales unit volumes in (i) food cans; primarily in France,
Italy and Central Europe, (ii) PET beverage bottles and (iii) plastic
closures; partially offset by a small sales unit volume decrease in
beverage cans. Competition has remained very aggressive throughout the
division in most product lines.
Net sales in the Asia-Pacific Division have decreased $22.3 or 22.9% in
the quarter from a year earlier due primarily to (i) weakening Asian
currencies resulting in a U.S. dollar sales loss of $6.2, (ii) lower
food can sales unit volumes primarily reflecting the restructuring of
operations in Malaysia and Singapore in 1997 and (iii) competitive
pricing throughout the region; partially offset by increased beverage
can volumes resulting from full production at the Company's new plant
in Singapore and increased demand in both China and Vietnam.
Net sales for Other operating units are lower in the quarter compared
to the prior year due to the May 1997 divestiture of the Company's
Crown-Simplimatic machinery operations. These operations accounted for
sales of $47 in the first quarter of 1997. Partially offsetting the
impact of the divestiture of Crown-Simplimatic was the March 1, 1997
acquisition of Golden Aluminum.
Cost of Products Sold
Cost of products sold, excluding depreciation and amortization, was
$1,502.2 for the quarter ended March 31, 1998, a 2.7% decrease compared
to $1,544.4 for the same period in 1997. The decrease reflects (i) cost
savings from restructuring programs and (ii) the appreciation of the
U.S. dollar against most foreign currencies; offset by increased sales
unit volumes in many product lines.
As a percentage of net sales, cost of products sold was 79.4% as
compared to 79.7% in the same period of 1997. The improvement has
resulted from (i) increased sales unit volumes, (ii) benefits derived
from the Company's continuing cost containment and restructuring
programs and (iii) the effect of decreases in raw material costs.
Selling and Administrative
Selling and administrative expenses for the quarter ended March 31,
1998 were $97.6, a decrease of $6.3 or 6.1% from the first quarter of
1997. As a percentage of net sales, selling and administrative
expenses, excluding depreciation, were 5.2% in the first quarter as
compared to 5.4% for the same period of 1997. The decrease in 1998
costs is directly related to the restructuring of activities within
acquired CarnaudMetalbox (CMB) operations.
10
<PAGE>
Crown Cork & Seal Company, Inc.
Operating Income
For the quarter ended March 31, 1998, consolidated operating income
increased $6.3 or 4.2% compared to the same period in 1997. Operating
income as a percentage of net sales was 8.2% for the first quarter of
1998 as compared to 7.7% in 1997. An analysis of operating income by
operating division follows:
<TABLE>
<CAPTION>
Operating Income
-------------------------------------------------
First Quarter Increase/(Decrease)
---------------------- ---------------------
Division: 1998 1997 $ %
-------- -------- ------ -------
<S> <C> <C> <C> <C>
Americas $ 54.7 $ 57.2 (2.5) (4.4)
European 97.7 89.2 8.5 9.5
Asia-Pacific 1.1 .2 .9 450.0
Other 2.5 3.1 (.6) (19.4)
-------- -------- ---- -----
$ 156.0 $ 149.7 6.3 4.2
======== ======== ==== =====
</TABLE>
As a percentage of net sales, operating income for the Americas
Division was 6.1% in the first quarter of 1998 as compared to 6.7% for
the same period in 1997. The decrease in first quarter 1998 operating
margin was primarily due to (i) continued U.S. pricing pressures in
both metal and plastic beverage containers, (ii) lower beverage can
pricing in Argentina and Brazil and (iii) production inefficiencies at
the Company's new beverage can and end plants in Brazil; partially
offset by sales unit volume increases in most product lines.
Operating income as a percentage of net sales for the European Division
was 11.0% in the first quarter of 1998 as compared to 9.7% for the
comparable period in 1997. The increased margin is directly
attributable to (i) the benefits realized from the closure or
reorganization of inefficient plants, removal of products with negative
contribution and the elimination of excess administrative overheads as
part of the cost reduction programs initiated with the acquisition of
CMB and (ii) increased sales unit volumes in food cans, PET beverage
bottles and plastic closures; offsetting the (i) appreciation of the
U.S. dollar against most European currencies and (ii) decreased unit
sales volumes for beverage cans.
Operating income in the Asia-Pacific Division as a percentage of net
sales was 1.5% in the first quarter of 1998 versus .2% in the same
period of 1997. The increase in 1998 operating margins is due primarily
to (i) the benefits realized from 1997 and 1996 restructuring
activities in the division and (ii) increased beverage can sales unit
volumes in China, Malaysia, Singapore and Vietnam; partially offset by,
the impact of continued currency deterioration in the region and
competitive beverage can pricing.
Operating income for Other operating units was 9.9.% of net sales in
1998 versus 4.7% in 1997. The improvement in the operating margin is
directly attributable to the May 1997 divestiture of the Company's
Crown-Simplimatic machinery operations.
Net Interest Expense / Income
Net interest expense was $86.4 in the first quarter, an increase of
$1.1 when compared to first quarter 1997 net interest expense of $85.3.
The increase in net interest expense is due primarily to cash
requirements for restructuring programs and the March 1998 stock
repurchase from CGIP.
Taxes on Income
The effective tax rate in the first quarter of 1998 was 41.1% as
compared to 37.2% for the same period of 1997. The effective rate of
41.1% exceeds the statutory rate of 35% due primarily to provisions for
state taxes and non-deductible amortization of goodwill and other
intangibles offset partially by income derived from non-U.S. operations
which are taxed at lower rates than the U.S. statutory rate.
11
<PAGE>
Crown Cork & Seal Company, Inc.
Minority Interests, Net of Equity in Earnings of Affiliates
Minority interests, net of equity earnings, improved in the quarter by
$6.3 compared to the prior year due primarily to (i) increased
operating results in the Company's unconsolidated joint ventures in
Brazil and Venezuela, (ii) decreased profits in the Company's
consolidated joint ventures in China and (iii) no further losses being
recognized in the Company's unconsolidated joint venture in Korea as
the investment has been reduced to zero and the Company does not plan
nor is required to inject capital in the future.
Liquidity and Capital Resources
Cash from Operations
Net cash of $325.1 was used by operating activities during the three
months ended March 31, 1998, as compared to cash used of $257.4 for the
same period in 1997. The increase in cash used by operating activities
is related to cash payments for restructuring activities and cash
payments to settle year-end 1997 accounts payable balances. Due to
higher sales volumes in the second and third quarters, it is customary
for large working capital buildups in the first quarter.
Investing Activities
Investing activities used cash of $147.1 during the quarter ended March
31, 1998 compared with cash used of $101.6 for the same period in 1997.
Capital expenditures for the first quarter of 1998 were $113.3, an
increase of $7.1 as compared to capital expenditures of $106.2 during
the same period of 1997 with acquisition of businesses, net of cash
acquired, at $34.2 compared to $10.0 in the first quarter of 1997.
Financing Activities
Financing activities generated cash of $488.5 in the first quarter
compared with $403.8 in the first quarter of 1997.
On March 2, 1998, the Company completed the repurchase of approximately
4.1 million shares of its common stock at $49.00 per share and
approximately 3.7 million shares of its acquisition preferred at $46.00
per share from CGIP. The repurchased shares represented approximately
5.3% of the Company's then outstanding voting securities and leaves
CGIP with 4.99% voting power in the Company. The repurchased shares
include all of CGIP's acquisition preferred position which represented
approximately 30% of the then outstanding shares of acquisition
preferred. The transaction includes an agreement to terminate the
Shareholders Agreement dated February 22, 1996 between the Company and
CGIP. Among other changes, CGIP will no longer retain the right to
designate Company directors. The transaction value of $369 was financed
through an increase in short-term indebtedness.
Total debt, net of cash and cash equivalents, at March 31, 1998 was
$5,703.9 and represents an increase of $823.4 above the December 31,
1997 level of $4,880.5. Total debt, net of cash and cash equivalents,
as a percentage of total capitalization was 62.7% at March 31, 1998 as
compared to 56.1% at December 31, 1997. Total capitalization is defined
by the Company as total debt, minority interests and shareholders'
equity.
The Company funds its working capital requirements on a short-term
basis primarily through issuances of commercial paper. The commercial
paper program is supported by a $2,500 multi-currency credit agreement
which matures in February 2002 with interest at market rates. The
Company's use of the facility is not restricted. At March 31, 1998 and
1997, $279.7 and $378.5, respectively, was drawn against this facility.
Based on the Company's intention and ability to maintain its credit
facility beyond 1999 and 1998, respectively, $700 of commercial paper
borrowings were classified as long-term at both March 31, 1998 and
1997. There was $2,175.8 and $1,714.2 in commercial paper outstanding
at March 31, 1998 and 1997, respectively.
12
<PAGE>
Crown Cork & Seal Company, Inc.
The increase in total debt, net of cash and cash equivalents, from
December 31, 1997 is due primarily to (i) the repurchase of shares from
CGIP, (ii) the funding of the Company's restructuring activities and
(iii) the funding of working capital requirements on a short-term basis
through the issuance of commercial paper.
Recent Accounting Developments
The Company, in the fourth quarter, will adopt SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information",
issued in June 1997, and SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits", issued in February 1998.
Neither standard will have an adverse effect on the Company's financial
position, cash flows or results of operations. SFAS No. 131 requires
the disclosure of segment information on the same basis that is used
internally for evaluating performance and for allocating resources.
SFAS No. 132 revises the disclosures required about pension and other
postretirement benefit plans.
Market Risk
There have been no material changes in the Company's exposure to market
risk since December 31, 1997.
Forward Looking Statements
Statements included herein in "Management's Discussion and Analysis of
Results of Operations and Financial Condition", and in the discussion
of the restructuring plans in Note D to the Consolidated Financial
Statements included in this Quarterly Report on Form 10-Q and also in
Part I, Item 1: "Business" and Item 3: "Legal Proceedings" and in Part
II, Item 7: "Management's Discussion and Analysis of Financial
Condition and Results of Operations", within the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997, 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 Annual Report on Form
10-K for the year ended December 31, 1997 within Part II, Item 7;
"Management's Discussion and Analysis of Results of Operations and
Financial Condition" under the caption "Forward Looking Statements" and
is incorporated herein by reference. Some of the factors are also
discussed elsewhere in this Form 10-Q and in prior Company filings with
the 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.
13
<PAGE>
Crown Cork & Seal Company, Inc.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security Holders
The Company's Annual Meeting of Shareholders was held April 23, 1998.
The matters voted upon and the results of the votes are as follows:
- - - VOTES - - -
--------------------------------
Election of the Board of Directors
For Withheld
William J. Avery 113,725,278 1,699,601
Henry E. Butwel 113,725,993 1,698,886
Charles F. Casey 113,683,575 1,741,304
John W. Conway 113,731,974 1,692,905
Francis X. Dalton 113,683,197 1,741,682
Richard L. Krzyzanowski 113,729,690 1,695,189
Josephine C. Mandeville 113,751,837 1,673,042
Michael J. Mc Kenna 113,724,646 1,700,233
Jean-Pierre Rosso 113,731,711 1,693,168
Alan W. Rutherford 113,731,110 1,693,769
Harold A. Sorgenti 113,716,009 1,708,870
Guy de Wouters 113,695,926 1,728,953
14
<PAGE>
Crown Cork & Seal Company, Inc.
Item 5. Other Information
(1) The Company announced on April 28, 1998 that its Board of Directors has
appointed Michael J. McKenna to the newly created position of Vice
Chairman. Mr. John W. Conway, Executive Vice President and President -
Americas Division since 1996, assumes Mr. McKenna's responsibilities as
President and Chief Operating Officer and will continue to oversee the
Americas Division. Mr. Tommy H. Karlsson, Executive Vice President and
President - European Division, was appointed to the Company's Board of
Directors.
(2) On April 2, 1998, 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 May 20, 1998 to shareholders of record on May
1, 1998.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
2. Stock Purchase Agreement dated February 3, 1998 between
Compagnie Generale d'Industrie et de Participations and
Crown Cork & Seal Company, Inc. (incorporated by reference
to Exhibit A of Amendment No. 4 of the Company's Schedule
13D, dated February 3, 1998 (File No. 005-10521)).
27. Financial Data Schedule
b) Reports on Form 8-K
There were no reports on Form 8-K filed by Crown Cork & Seal
Company, Inc., during the quarter for which this report is filed.
15
<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
Senior Vice President and
Corporate Controller
Date: May 15, 1998
16
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS, CONSOLIDATED STATEMENTS OF INCOME AND NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS ON PAGES 2 THROUGH 8 OF THE
COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED MARCH 31,
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