================================================================================
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 SEPTEMBER 30, 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 122,337,398 shares of Common Stock outstanding as of October 31,1998.
================================================================================
<PAGE>
Crown Cork & Seal Company, Inc.
PART I - FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF INCOME
(In millions except per share data)
(Unaudited)
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------
Three months ended September 30, 1998 1997
- - --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 2,291.0 $ 2,341.3
----------- -----------
Cost, expenses & other income
Cost of products sold, excluding depreciation and amortization 1,803.7 1,835.9
Depreciation and amortization 133.9 136.6
Selling and administrative expense 91.1 102.8
Provision for restructuring 186.6 66.6
Gain on sale of assets (3.9)
Interest expense 102.2 95.2
Interest income (12.4) (10.7)
Translation and exchange adjustments 7.8 3.2
----------- -----------
2,312.9 2,225.7
----------- -----------
Income before income taxes (21.9) 115.6
Provision for income taxes (3.8) 35.3
Minority interests, net of equity earnings (3.0) 5.0
----------- -----------
Net income (21.1) 85.3
Preferred stock dividends 4.1 5.9
----------- -----------
Net income available to common shareholders ($ 25.2) $ 79.4
=========== ===========
Earnings per average common share:
Basic ($ .20) $ .62
=========== ===========
Diluted ($ .20) $ .61
=========== ===========
Dividends per common share $ .25 $ .25
=========== ===========
Weighted average common shares outstanding:
Basic 123.7 128.3
Diluted 131.6 140.1
- - --------------------------------------------------------------------------------------------------------
</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 STATEMENTS OF INCOME
(In millions except per share data)
(Unaudited)
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------
Nine months ended September 30, 1998 1997
- - --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 6,428.4 $ 6,565.2
----------- -----------
Cost, expenses & other income
Cost of products sold, excluding depreciation and amortization 5,033.1 5,166.3
Depreciation and amortization 406.6 414.8
Selling and administrative expense 281.9 311.3
Provision for restructuring 186.6 66.6
Gain on sale of assets (38.1)
Interest expense 300.1 281.8
Interest income (32.2) (27.4)
Translation and exchange adjustments 15.3 6.0
----------- -----------
6,191.4 6,181.3
----------- -----------
Income before income taxes 237.0 383.9
Provision for income taxes 88.5 125.2
Minority interests, net of equity earnings (2.2) (2.4)
----------- -----------
Net income 146.3 256.3
Preferred stock dividends 13.3 17.6
----------- -----------
Net income available to common shareholders $ 133.0 $ 238.7
=========== ===========
Earnings per average common share:
Basic $ 1.06 $ 1.86
=========== ===========
Diluted $ 1.06 $ 1.83
=========== ===========
Dividends per common share $ .75 $ .75
=========== ===========
Weighted average common shares outstanding:
Basic 125.1 128.5
Diluted 134.0 140.4
- - --------------------------------------------------------------------------------------------------------
</TABLE>
Certain prior year balances 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 (Condensed)
(In millions except per share data)
(Unaudited)
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------
September 30, December 31,
1998 1997
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 241.5 $ 205.6
Receivables 1,841.6 1,353.5
Inventories 1,466.4 1,387.5
Prepaid expenses and other current assets 208.9 200.6
------------ ------------
Total current assets 3,758.4 3,147.2
------------ ------------
Long-term notes and receivables 46.7 65.0
Investments 88.1 89.5
Goodwill, net of amortization 4,662.0 4,625.2
Property, plant and equipment 3,685.5 3,663.9
Other non-current assets 849.0 714.9
------------ ------------
Total $ 13,089.7 $ 12,305.7
============ ============
Liabilities and shareholders' equity
Current liabilities
Short-term debt $ 2,487.6 $ 1,385.4
Current portion of long-term debt 398.0 399.3
Accounts payable and accrued liabilities 2,285.3 2,236.7
United States and foreign income taxes 60.7 27.9
------------ ------------
Total current liabilities 5,231.6 4,049.3
------------ ------------
Long-term debt, excluding current maturities 3,192.1 3,301.4
Postretirement and pension liabilities 710.7 711.7
Other non-current liabilities 465.6 431.3
Minority interests 275.9 282.8
Shareholders' equity 3,213.8 3,529.2
------------ ------------
Total $ 13,089.7 $ 12,305.7
============ ============
Book value per common share $ 24.69 $ 25.26
- - ------------------------------------------------------------------------------------------------------------
</TABLE>
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)
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------
Nine months ended September 30, 1998 1997
- - -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 146.3 $ 256.3
Depreciation and amortization 406.6 414.8
Provision for restructuring 126.9 43.3
Gain on sale of assets (27.6)
Change in assets and liabilities, other than debt, net of
businesses acquired (613.5) (620.2)
--------- ---------
Net cash provided by operating activities 66.3 66.6
--------- ---------
Cash flows from investing activities
Capital expenditures (342.1) (343.3)
Acquisition of businesses, net of cash acquired (31.0) (10.0)
Proceeds from sale of property, plant and equipment 32.8 34.0
Proceeds from sale of businesses 31.8 90.0
Other, net (18.6) (5.9)
--------- ---------
Net cash used in investing activities (327.1) (235.2)
--------- ---------
Cash flows from financing activities
Proceeds from long-term debt 5.4 24.7
Repayment of long-term debt (146.0) (264.2)
Net change in short-term debt 999.6 578.9
Stock repurchased (461.8) (17.2)
Dividends paid (108.4) (114.0)
Common stock issued 13.8 8.9
Minority contributions, net of dividends paid (2.3) 4.5
--------- ---------
Net cash provided by financing activities 300.3 221.6
--------- ---------
Effect of exchange rate changes on cash and cash equivalents (3.6) (16.1)
Net change in cash and cash equivalents 35.9 36.9
Cash and cash equivalents at beginning of period 205.6 160.4
--------- ---------
Cash and cash equivalents at end of period $ 241.5 $ 197.3
========= =========
- - -----------------------------------------------------------------------------------------------------
1998 1997
- - -----------------------------------------------------------------------------------------------------
Schedule of non-cash investing activities:
Acquisition of businesses:
Fair value of assets acquired $ 74.5 $ 70.0
Note Payable (60.0)
Liabilities assumed (43.5)
--------- ---------
Cash Paid $ 31.0 $ 10.0
========= =========
- - -----------------------------------------------------------------------------------------------------
</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.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In millions)
(Unaudited)
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
| Accumulated
| Other
Comprehensive Income |Preferred Common Paid-In Retained Treasury Comprehensive
Quarter Year-To-Date |Stock Stock Capital Earnings Stock Income Total
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <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) $3,529.2
Net income ($ 21.1) $146.3 | 146.3 146.3
Translation adjustments 125.7 93.9 | 93.9 93.9
------ ------ |
Comprehensive income $104.6 $240.2 |
====== ====== |
Dividends declared: |
Common | (94.3) (94.3)
Preferred | (13.3) (13.3)
Stock repurchased |(169.9) (260.3) (31.6) (461.8)
Common stock issued | 11.5 2.3 13.8
- - ------------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1998 |$350.9 $779.0 $1,311.9 $1,365.9 ($166.3) ($427.6) $3,213.8
====================================================================================================================================
| Accumulated
| Other
Comprehensive Income |Preferred Common Paid-In Retained Treasury Comprehensive
Quarter Year-To-Date |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 $85.3 $256.3 | 256.3 256.3
Translation adjustments (3.5) (140.7) | (140.7) (140.7)
----- ------ |
Comprehensive income $81.8 $115.6 |
===== ====== |
Dividends declared: |
Common | (96.4) (96.4)
Preferred | (17.6) (17.6)
Stock repurchased | (15.6) (1.6) (17.2)
Common stock issued | 7.6 1.3 8.9
- - ----------------------------------------------------|-------------------------------------------------------------------------------
Balance at September 30, 1997 |$520.8 $779.0 $1,559.3 $1,327.3 ($137.2) ($492.6) $3,556.6
====================================================================================================================================
</TABLE>
Certain prior year balances have been reclassified to improve comparability.
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
Crown Cork & Seal Company, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share data)
(Unaudited)
A. Statement of Information Furnished
----------------------------------
The accompanying unaudited interim consolidated and condensed financial
statements have been prepared by the Company in accordance with Form
10-Q instructions. In the opinion of management, these consolidated
financial statements contain all adjustments necessary to present
fairly the financial position of Crown Cork & Seal Company, Inc. as of
September 30, 1998, and the results of its operations and cash flows
for the periods ended September 30, 1998 and 1997, respectively. These
results have been determined on the basis of generally accepted
accounting principles and practices consistently applied.
Certain information and footnote disclosures, normally included in
financial statements presented in accordance with generally accepted
accounting principles, have been condensed or omitted. The accompanying
Consolidated Financial Statements should be read in conjunction with
the financial statements and notes thereto incorporated by reference in
the Company's Annual Report on Form 10-K for the year ended December
31, 1997.
B. Earnings Per Share
------------------
The following table summarizes the basic and diluted earnings per
common share computations for the periods ended September 30, 1998 and
1997, respectively:
<TABLE>
<CAPTION>
1998 1997
-------------------------- --------------------------
Average Average
Quarter Income Shares EPS Income Shares EPS
------- -------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income ($ 21.1) $85.3
Less:
Preferred dividends ( 4.1) (5.9)
------ -----
Basic EPS ($ 25.2) 123.7 ($ .20) 79.4 128.3 $ .62
Potentially dilutive securities:
Stock options .5
Assumed preferred
stock conversion 7.9 5.9 11.3
------ ----- ----- -----
Diluted EPS ($ 25.2) 131.6 ($ .20)* $85.3 140.1 $ .61
====== ===== ===== =====
1998 1997
-------------------------- --------------------------
Average Average
Year-to-date Income Shares EPS Income Shares EPS
------------ -------------------------- --------------------------
Net income $146.3 $256.3
Less:
Preferred dividends (13.3) (17.6)
------ ------
Basic EPS 133.0 125.1 $1.06 238.7 128.5 $1.86
Potentially dilutive securities:
Stock options .2 .6
Assumed preferred
stock conversion 8.7 17.6 11.3
------ ----- ------ -----
Diluted EPS $133.0 134.0 $1.06* $256.3 140.4 $1.83
====== ===== ====== =====
<FN>
*1998 diluted E.P.S. is the same as Basic E.P.S. due to the
anti-dilutive effect from the assumed conversion of the preferred
stock and the addback of preferred dividends.
</FN>
</TABLE>
7
<PAGE>
Crown Cork & Seal Company, Inc.
C. Inventories
-----------
--------------------------------------------------------
September 30, December 31,
1998 1997
--------------------------------------------------------
Finished goods $ 592.4 $ 560.5
Work in process 215.1 187.3
Raw materials 441.3 467.6
Supplies and repair parts 217.6 172.1
-------- --------
$1,466.4 $1,387.5
======== ========
D. Restructuring
-------------
During the third quarter of 1998, the Company provided $186.6 ($126.9
after-tax or $ .96 per diluted share) for the costs associated with
closing twelve plants and reorganizing three plants throughout the
Company. These costs comprised 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
2,700 employees, 7% of the then current workforce, is $99.0 and is
primarily a cash expense. Employees to be terminated will include
employees at each plant to be closed or reorganized including salaried
employees and employees of the respective unions represented at each
plant site. The cost associated with the write-down of assets
(principally property, plant and equipment) is $67.0 and has been
reflected as a reduction in the carrying value of the Company's
assets. Lease termination and other exit costs are $20.6 and
are primarily cash expenses. The Company anticipates that the
restructuring actions will generate after-tax savings of approximately
$64 ($.48 per diluted share) on an annualized basis when fully
implemented. This rationalization of less efficient capacity follows a
series of productivity-related investments in the Company's plants over
the past several years.
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 $20 ($.14 per diluted
share).
The Company has incurred restructuring and exit costs relative to the
acquisition of CarnaudMetalbox (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 determined alternative sites for manufacture and qualified the
new manufacturing sites with customers. The Company 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
comprised; 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 was
approximately $257 and was primarily a cash expense. The write-down of
assets (principally property, plant and equipment) was 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, were approximately $60
and were primarily cash expenses. The restructuring costs recorded in
8
<PAGE>
Crown Cork & Seal Company, Inc.
connection with the CMB acquisition included a $95 restructuring
charge announced in 1996 by CarnaudMetalbox Asia, Ltd., a subsidiary
of the Company. 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.
The Company anticipates that the plan of restructuring CMB operations
will generate annual cost savings of approximately $160($105 after-tax)
on a full year basis. Capital expenditures of approximately $100 were
made to expand and upgrade other facilities to minimize the adverse
effects of the restructuring on existing business and customer
relationships.
The balance of the 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
components of the restructuring reserve are as follows:
<TABLE>
<CAPTION>
Opening Transfer Ending
Balance 1998 1998 against Balance
1/1/98 Provision Activity assets 9/30/98
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Employee costs $119.5 $ 99.0 ($ 88.1) $130.4
Writedown of assets 67.0 ( 67.0)
Lease termination
and other exit costs 35.8 20.6 ( 32.5) 23.9
------ ------ ------ ------ ------
$155.3 $186.6 ($120.6) ($ 67.0) $154.3
====== ====== ====== ====== ======
</TABLE>
The foregoing restructuring charges and related cost savings represent
the Company's best estimates, but necessarily make numerous assumptions
with respect to industry performance, general business and economic
conditions, raw materials and product pricing levels, the timing of
implementation of the restructuring and related employee reductions and
facility closings and other matters, many of which are outside the
Company's control. The Company's 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 20 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.
9
<PAGE>
Crown Cork & Seal Company, Inc.
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 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 September 30, 1998 and September 30, 1997, accumulated other
comprehensive income (loss), as reflected in the consolidated
statements of changes in shareholders' equity, comprised the following:
September 30, September 30,
1998 1997
------------- -------------
Minimum pension liability adjustments ($ 16.9) ($ 14.8)
Cumulative translation adjustments ( 410.7) ( 477.8)
------ ------
($427.6) ($492.6)
====== ======
F. Supplemental Cash Flow Information
----------------------------------
Cash payments for interest, net of amounts capitalized ($4.1 and $5.5
for 1998 and 1997, respectively), were $272.6 and $263.1 during the
nine months ended September 30, 1998 and 1997, respectively. Cash
payments for income taxes amounted to $27.1 and $45.7 during the nine
months ended September 30, 1998 and 1997, respectively.
G. Commitments and Contingent Liabilities
--------------------------------------
The Company has various commitments to purchase materials and supplies
as part of the ordinary conduct of business. Such commitments are not
at prices in excess of current market.
The Company's basic raw materials for its products are tinplate,
aluminum and resins, all of which are purchased from multiple sources.
The Company is subject to material fluctuations in the cost of these
raw materials and has previously adjusted its selling prices to reflect
these movements. There can be no assurance, however, that the Company
will be able to recover fully any increases or fluctuations in raw
material costs from its customers.
The Company is subject to various lawsuits and claims with respect to
matters such as those pertaining to environmental, product liabilty,
and safety and health matters. The ultimate liability cannot presently
be determined as considerable uncertainties exist. It is posssible that
results of operations in a particular period could be materially
affected by certain contingencies. Management believes that based on
current available information and after consultation with counsel that
the ultimate disposition of matters that are pending or asserted will
not have a material adverse effect on the financial positon of the
Company.
10
<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 and nine months ended September 30, 1998,
compared to the corresponding periods 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 thereto
included in and referred to within this report.
All per share information is computed using average common shares
outstanding, assuming dilution. Per share information for 1998 excludes
the anti-dilutive effect of convertible preference shares and their
related dividends. Further details of the calculations of earnings per
share are presented in Note B to the Consolidated Financial Statements
included in Item 1 of this Quarterly Report on Form 10-Q.
Restructuring
-------------
On September 22, 1998, the Company announced a restructuring program
which will rationalize certain plants throughout the Company and which
will reduce the number of employees by approximately 2,700, 7% of the
then current workforce. The Company provided $186.6 ($126.9 after-tax
or $.96 per diluted share) for the costs associated with the
restructuring program.
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 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.
Further details of these actions are presented in Note D to the
Consolidated Financial Statements included in Item 1 of this Quarterly
Report on Form 10- Q.
Results of Operations
---------------------
Net Income and Earnings Per Share
---------------------------------
The Company reported a net loss of $25.2 or $.20 per common share for
the third quarter of 1998 as compared with net income of $79.4 or $.61
per common share for the same period in 1997. Excluding restructuring
charges and gains on sale of assets, third quarter net income available
to common shareholders decreased $18.4 or 15.3% from $120.1 in 1997 to
$101.7 in 1998. Earnings per common share, excluding restructuring
charges and gains on asset sales, decreased 11.1% to $.80 from $.90 a
year earlier and reflects a 6.1% decline in diluted average common
shares outstanding, due primarily to the March 1998 repurchase of
shares from Compagnie Generale d'Industries et de Participations
(CGIP). Further details of this transaction are presented under
Liquidity and Capital Resources as provided later in this discussion.
Foreign currency weaknesses in Canada, Mexico and Brazil resulted in a
reduction of approximately $.05 per common share to quarterly earnings.
For the nine months ended September 30, 1998, net income available to
common shareholders was $133.0 or $1.06 per common share compared with
net income of $238.7 or $1.83 per common share for the same period in
1997. Net income for the nine months included after-tax restructuring
charges of $126.9 and $43.3 for 1998 and 1997, respectively, and an
after-tax gain on sale of assets of $27.6 in 1997. Excluding the
non-recurring items, 1998 net income available to common shareholder
increased 2.2% to $259.9 in 1998 from $254.4 in 1997 with earnings
per share increasing 5.2% to $2.04 in 1998 from $1.94 in 1997.
11
<PAGE>
Crown Cork & Seal Company, Inc.
Item 2. Management's Discussion and Analysis (Continued)
Net Sales
---------
Net sales in the quarter were $2,291.0 and for the nine months ended
September 30, 1998 were $6,428.4, a decrease of 2.1% from 1997 sales
levels of $2,341.2 and $6,565.2, respectively. The weakening currencies
in Canada, Mexico, Brazil and throughout Asia reduced consolidated net
sales by $11.3 in the third quarter as compared to 1997. The impact of
a stronger U. S. dollar, primarily against European currencies, reduced
consolidated net sales for the first nine months of 1998 by $127.4 when
compared to the same period in 1997. Excluding the effects of foreign
exchange translation and divestitures, net sales would have been lower
by 1.0% in the quarter and higher by 1.0% for the nine months when
compared to the same periods in 1997.
In the quarter, sales from U. S. operations decreased by 4.7% and those
in non-U. S. markets increased marginally. U. S. sales, in the third
quarter, accounted for approximately 40.4% of consolidated net sales
in 1998 as compared to 41.7% in 1997. Sales of beverage cans and
ends as a percentage of consolidated net sales have increased in the
third quarter from 29.3% to 30.2% and sales of food cans and ends have
increased from 34.0% to 34.6% compared to the prior year third quarter.
North American beverage can and end sales as a percentage of
consolidated net sales in the quarter were 17.4% and for the nine
months were 18.1% compared to 17.2% and 17.1%, respectively, for
the same periods in 1997.
An analysis of comparative net sales by operating division follows:
<TABLE>
<CAPTION>
Net Sales Percentage Change
-------------------------------------------- -----------------------
Third Quarter Nine Months Ended Third Nine
------------- ----------------- ----- ----
1998 1997 1998 1997 Quarter Months
---- ---- ---- ---- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Divisions:
Americas $1,097.1 $1,111.1 $3,066.7 $2,975.2 (1.3%) 3.1%
Europe 1,083.6 1,096.0 3,028.3 3,122.3 (1.1%) (3.0%)
Asia-Pacific 87.0 93.1 253.8 294.7 (6.6%) (13.9%)
Other 23.3 41.1 79.6 173.0 (43.3%) (54.0%)
-------- -------- -------- --------
$2,291.0 $2,341.3 $6,428.4 $6,565.2 (2.1%) (2.1%)
======== ======== ======== ========
</TABLE>
Net sales in the Americas Division decreased $14.0 or 1.3% in the third
quarter whereas net sales for the nine months increased $91.5 or 3.1%
when compared to the same periods in 1997. The decrease in the quarter
was due primarily to (i) lower sales unit volumes in the U. S., most
notably, beverage cans and food cans and (ii) decreased aluminum prices
which forced decreases in selling prices in beverage cans and ends,
partially offset by increased sales unit volumes of (i) U. S. aerosol
cans and (ii) U. S. PET beverage containers, primarily single serve 20
ounce bottles and beverage preforms.
Net sales in the European Division decreased $12.4 or 1.1% and $94.0 or
3.0% for the three and nine months ended September 30, 1998. The impact
on net sales from translation resulted in an increase in net sales of
$11.9 in the quarter and a decrease in net sales of $72.2 year-to-date
when compared to a year earlier. Excluding the impact on net sales from
translation, net sales would have been down 2.2% in the quarter and
.7% for the nine months as compared to the prior year periods. Third
quarter local currency sales decreased primarily due to lower unit
sales volumes of beverage cans and aerosol cans partially offset by
increased unit sales volumes for plastic closures and food cans.
Competition remains very aggressive throughout the division.
12
<PAGE>
Crown Cork & Seal Company, Inc.
Item 2. Management's Discussion and Analysis (Continued)
Asia-Pacific net sales have decreased $6.1 or 6.6% and $40.9 or 13.9%
for the three and nine months ended September 30, 1998. The impact on
net sales from translation resulted in a decrease of $5.5 in the
quarter and a decrease of $17.8 year-to-date when compared to the same
periods a year earlier. Excluding the impact on net sales from
translation, local sales were lower by .6% in the quarter and 7.8% for
the nine months compared to the same periods in 1997. The decline in
local sales is due primarily to (i) lower food can sales unit volumes
primarily reflecting the restructuring of operations in Malaysia and
Singapore in 1997 and (ii) competitive pricing throughout the region,
partially offset by increased beverage can volumes resulting from full
production at the Company's new plant in Singapore along with increased
demand in both China and Vietnam.
Net sales in the Other operating units are lower for the three and nine
months ended September 30, 1998 compared to the prior year periods due
primarily to lower third party sales at the Company's Golden Aluminum
facilities in the quarter and year-to-date and to the divestiture of
the Crown-Simplimatic machinery operations in May 1997.
Cost of Products Sold
---------------------
Cost of products sold, excluding depreciation and amortization, was
$1,803.7 for the quarter and $5,033.1 for the nine months ended
September 30, 1998, a decrease of 1.8% and 2.6%, respectively, as
compared to the same periods in 1997. The decrease reflects (i) cost
savings from restructuring programs, (ii) lower aluminum costs and
(iii) 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 78.7% and 78.3%
for the quarter and nine months ended September 30, 1998, as compared
to 78.4% and 78.7% in the same periods of 1997. The improvement
year-to-date was due primarily to the benefits derived from the
Company's continuing cost containment and restructuring programs and
the effect of decreases in raw material costs, offset by competitive
influences on selling prices.
Selling and Administrative
--------------------------
Selling and administrative expenses for the quarter ended September 30,
1998 were $91.1, a decrease of $11.7 or 11.4% from the third quarter of
1997. As a percentage of net sales, selling and administrative expenses
were 4.0% in the third quarter as compared to 4.4% for the same period
of 1997. For the nine months ended September 30, 1998, these expenses
have decreased $29.4 or 9.4% from a year earlier and, as a percentage
of net sales, decreased from 4.7% in 1997 to 4.4% in 1998. The decrease
in 1998 costs is primarily related to the restructuring activities
within acquired CarnaudMetalbox (CMB) operations.
Operating Income
----------------
For the quarter, consolidated operating income decreased 62.0% to $75.7
from $199.4 for the comparable period in 1997. For the nine months
ended September 30, 1998, consolidated operating income decreased 14.2%
to $520.2 from $606.2 from the same period a year earlier. Consolidated
operating income for the quarter and nine months ended September 30,
1998 included pretax restructuring charges of $186.6 as compared to
$66.6 for the same periods in 1997.
13
<PAGE>
Crown Cork & Seal Company, Inc.
Item 2. Management's Discussion and Analysis (Continued)
An analysis of operating income, excluding restructuring charges, by
operating division follows:
<TABLE>
<CAPTION>
Operating Income Percentage Change
---------------------------------------- ------------------
Third Quarter Nine Months Ended Third Nine
------------- ----------------- ----- ----
1998 1997 1998 1997 Quarter Months
---- ---- ---- ---- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Divisions:
Americas $ 90.3 $ 96.1 $234.4 $243.5 ( 6.0%) ( 3.7%)
Europe 167.9 168.3 461.4 415.7 ( .2%) 11.0%
Asia-Pacific 1.9 (1.4) 3.6 7.4 - (51.4%)
Other 2.2 3.0 7.4 6.2 (26.7%) 19.4%
------ ------ ------ ------
$262.3 $266.0 $706.8 $672.8 ( 1.4%) 5.1%
====== ====== ====== ======
</TABLE>
As a percentage of net sales, operating income for the Americas
Division was 8.2% in the third quarter and 7.6% for the first nine
months of 1998, as compared to 8.6% and 8.2% for the same periods in
1997. The decrease in third 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) sales unit volume decreases of beverage cans and food
cans in the U. S.
Operating income as a percentage of net sales for the European Division
was 15.5% in the third quarter and 15.2% for the first nine months of
1998 as compared to 15.4% and 13.3% for the comparable periods in
1997. The increased margin is primarily 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 of food cans and plastic closures; offsetting the (i) strength
of the pound sterling relative to the European currencies and (ii)
decreased sales unit volumes of beverage cans and plastic bottles.
Competitive pricing, especially in certain food can markets, continues
to restrain profit growth.
Operating income in the Asia-Pacific Division as a percentage of net
sales was 2.2% in the quarter and 1.4% for the nine months of 1998 when
compared to a year earlier with a negative margin of 1.5% in the third
quarter and a profit margin of 2.5% for the nine months of 1997. The
improved margin in the quarter was due to the large third quarter 1997
devaluation of many Southeast Asian currencies not recurring in the
third quarter of 1998. Additionally, strong food can sales in Thailand
continue to offset the effects of weak Asian economies and competitive
pricing throughout the region.
Operating income for Other operating units was 9.4% of net sales in the
quarter and 9.3% for the nine months of 1998 as compared to 7.3% and
3.6% for the same periods in 1997. The improvement in operating margins
is primarily attributable to the May 1997 divestiture of the
Crown-Simplimatic machinery operations.
Net Interest Expense / Income
-----------------------------
Net interest expense for the third quarter and nine months ended
September 30, 1998 was $89.8 and $267.9, respectively, as compared to
$84.5 and $254.4 for the comparable periods in 1997. The increase in
net interest expense is due primarily to increased borrowings to effect
the restructuring programs and stock repurchases throughout the year.
14
<PAGE>
Crown Cork & Seal Company, Inc.
Item 2. Management's Discussion and Analysis (Continued)
Taxes on Income
---------------
The effective tax rate for the nine months ended September 30, 1998
was 37.3% as compared to 32.6% for the same period of 1997. The
effective tax rate of 37.3% exceeds the U. S. 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.
Minority Interests, Net of Equity in Earnings of Affiliates
-----------------------------------------------------------
Minority interests, net of equity earnings, decreased $8.0 in the third
quarter, but improved $.2 year-to-date compared to the prior year
periods. The decrease in the quarter was due primarily to increased
minority interests as a result of the consolidation in 1998 of the
Company's Moroccan joint venture which was previously accounted for on
an equity basis.
Liquidity and Capital Resources
-------------------------------
Cash from Operations
--------------------
Net cash of $66.3 was provided by operating activities during the nine
months ended September 30, 1998, as compared to cash provided of $66.6
for the same period in 1997. Working capital is traditionally reduced
in the fourth quarter of the year as receivables from the higher sales
volumes of the second and third quarters are collected.
Investing Activities
--------------------
Investing activities used cash of $327.1 during the nine months ended
September 30, 1998 compared with cash used of $235.2 for the same
period in 1997. The increase in cash used in investing activities is
primarily due to (i) the 1997 divestiture of the Crown-Simplimatic
machinery operations which resulted in cash proceeds of $90 in 1997 and
(ii) expenditures for the acquisition of businesses, net of cash
acquired, of $31.0 as compared to $10.0 for the same period in 1997.
Financing Activities
--------------------
Financing activities provided cash of $300.3 during the nine months
ended September 30, 1998 compared with $221.6 for the prior year
period.
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. 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 September 30, 1998 was
$5,836.2 and represents an increase of $955.7 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 62.6% at September 30, 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.
15
<PAGE>
Crown Cork & Seal Company, Inc.
Item 2. Management's Discussion and Analysis (Continued)
The increase in total debt, net of cash and cash equivalents, from
December 31, 1997 is due primarily to (i) the repurchase of common and
preferred shares, (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.
The Company funds its working capital requirements on a short-term
basis primarily through issuances of commercial paper. In support of
the commercial paper programs, a $2,500 multi-currency credit agreement
exists which matures in February 2002 with interest at market rates.
The Company's use of the facility is not restricted. At September 30,
1998 and 1997, $293.5 and $395.2, respectively, was drawn against this
facility. At December 31, 1997, $355.2 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 September 30, 1998 and
1997. There were $2,490 and $1,500 in commercial paper outstanding at
September 30, 1998 and 1997, respectively, and $1,248 outstanding at
December 31, 1997.
The Company announced on September 22, 1998 that the Board of Directors
had approved several strategic initiatives designed to enhance
shareholder value over the next several years. The initiatives included
a reduction in planned capital expenditures for the next few years and
a share repurchase program. Capital expenditures for 1999 and 2000 are
expected to be approximately $300 per year. From 1996 through the end
of 1998, the Company will have committed approximately $1,600 to
capital expenditures.
The share repurchase program allows for the reduction of up to ten
million shares of outstanding common and preferred stock, representing
approximately 7.5% of current combined shares outstanding. Purchases
will be made from time to time in open market transactions at
prevailing prices or in negotiated private transactions at management's
discretion.
Recent Accounting Developments
------------------------------
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities". This accounting standard is effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999. This
statement establishes accounting and reporting standards for derivative
instruments and for hedging activities. The statement requires that all
derivatives are recognized as either assets or liabilities in the
statement of financial position and are measured at their fair values.
The Company is currently evaluating the requirements of this standard
to determine its impact on the consolidated financial statements.
For the year ended December 31, 1998, the Company will adopt SFAS No.
131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 131 requires the disclosure of segment
information on the same basis that is used internally for evaluating
performance and for allocating resources. The Company will also adopt
SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits", issued in February 1998. SFAS No. 132 revises
the disclosure requirement for pension and other postretirement
benefit plans. Neither standard will have an adverse effect on the
Company's financial position, cash flows or results of operations.
Market Risk
-----------
In the normal course of business, the Company is exposed to
fluctuations in currency values, interest rates, commodity prices and
other market risks. The Company addresses these risks through a program
that includes the use of financial instruments. The Company controls
the credit risks associated with these financial instruments through
credit approval, investment limits and centralized monitoring
procedures and systems. The Company uses only liquid investments from
creditworthy institutions and does not enter into leveraged, tiered or
illiquid contracts. Further, the Company does not enter into financial
instruments for trading purposes.
There have been no material changes in the Company's exposure to market
risk since December 31, 1997.
16
<PAGE>
Crown Cork & Seal Company, Inc.
Item 2. Management's Discussion and Analysis (Continued)
Year 2000
---------
Computers and computer dependent equipment are used throughout the
Company's operations. Certain computerized systems in use today were
designed using two digits rather than four digits to define the
applicable year, which could result in the systems recognizing a date
containing "00" as the year 1900 rather than the year 2000. This could
lead to miscalculations or system failures and is generally referred to
as the "Year 2000" or "Y2K" issue.
In order to address the Y2K issue, the Company established a steering
committee that reports to the Company's senior executive management and
the Board of Directors. The steering committee is responsible for the
formulation of the Company's Y2K global plan and oversight of strategy,
risk assessment, coordination and reporting. Offices have also been
established within each division to roll out, monitor and manage
implementation of the Company's global plan.
The Company's global plan is divided into several major phases:
Inventory and Assessment, Remediation Analysis, Implementation, and
Contingency Planning.
Inventory and Assessment - The inventory phase was substantially
completed in June 1998 including the identification of critical vendor
and other third party relationships. The scope of the inventory
included the collection of site-specific data about critical systems
including all information technology ("IT") hardware and software, data
interchange points, embedded chips and programs in manufacturing,
facilities and facility-support equipment. In addition, surveys were
collected and data bases were utilized to assist in identifing critical
vendors and other third parties.
The assessment phase of the global plan is divided into internal and
external risk assessment. The Company substantially completed its
internal risk assessment during October 1998. This assessment covered
both IT and non-IT risk areas including embedded systems in
manufacturing equipment and telephone exchange systems. The Company has
identified as having Y2K issues various mid-range IT systems, personal
computers and servers, telephone systems and embedded systems in
manufacturing and related equipment. The process of assessing the
Company's external risks involves the identification of critical
vendors, Y2K confirmation correspondence, evaluations and selected
vendor reviews. The Company has completed the identification of its
vendor relationships and has received to date approximately 40% of its
requested Y2K confirmation letters. These assessments and reviews are
expected to be ongoing through June 1999.
Remediation Analysis - The Company is in the process of completing this
project phase. During this stage of the project, remediation strategies
were evaluated and planned to correct mid-range IT systems, personal
computers and servers (including hardware and software). Key
remediation strategies include systems upgrade, replacement, code
remediation and systems consolidation. In addition, non-compliant
telephone exchange equipment and other Y2K sensitive embedded systems
will be remediated.
Implementation - This phase involves the correction and testing of
identified internal Y2K risks in accordance with the remediation
analysis phase. Because of the lack of systems standardization and the
relative age of systems within the Company's European operations, an IT
remediation program was initiated in 1997. The Company anticipates that
other remediation efforts for Europe will be launched during the fourth
quarter of 1998. The Company's other divisions are scheduled to launch
their internal IT and non-IT remediation efforts in the third and
fourth quarters of 1998. The Company expects to complete its correction
of all of its divisions' critical systems by June 1999. However,
additional refinements may continue through the end of 1999.
The Company anticipates that testing methods will include obtaining
hardware and software certifications from critical vendors and
consultants, and performing Y2K compliance tests of critical systems
including data exchange with critical vendors and customers. The
Company is targeting completion of testing of critical systems during
the third quarter of July 1999. Testing of less critical systems is
expected to be completed on an ongoing basis through the second half
of 1999.
17
<PAGE>
Crown Cork & Seal Company, Inc.
Item 2. Management's Discussion and Analysis (Continued)
Contingency Planning - The Company is in the process of developing a
contingency plan to address potential disruptions that may result from
unresolved Y2K issues. The Company's contingency plan may include
identification of alternative suppliers and manufacturing sites and
inventory management programs. The Company intends to complete most of
its contingency planning by June 1999.
The Company's Y2K global plan could be adversely affected if any of the
Company's factors or assumptions are incorrect or if its ongoing review
discovers unanticipated problems. The Company cannot give assurance
that its global plan will be completed on schedule or that it will not
uncover Y2K issues that could create a material impact on its
performance.
The Company believes that the most reasonably likely worst-case
scenario for the Company with respect to the Y2K problem is the failure
of a critical vendor, including but not limited to a utility supplier,
to provide required goods and/or services after December 31, 1999. Such
a failure could result in temporary production outages and lost sales
and profits. The Company believes that because of the high degree
of geographic dispersion of its operations (with approximately 247
plants in 49 countries), it is unlikely an isolated third-party
failure would have a material adverse effect on the Company's
results of operations, financial condition, or cash flow. The Company
also believes that the formulation of contingency plans should
reduce the severity and length of any such possible disruptions and
losses. Nevertheless, because the Company's Y2K compliance is
dependent upon key third party Y2K readiness, there can be no
assurance that the Company's Y2K compliance efforts will preclude a
Y2K issue or series of issues outside its direct control from
adversely affecting its results of operations, financial condition or
cash flow. In addition, although not anticipated, any failure by the
Company to correct critical internal computer systems before Year
2000 could also have such an adverse effect.
The Company estimates that it will spend approximately $25-$30
(pre-tax) for its Y2K compliance efforts, of which approximately 60%
will be expensed as incurred. To date, the Company has spent
approximately $6. The Company anticipates that funding for its Y2K
compliance program will be from operating cash flows. The Company's
total Y2K project cost estimate is based on presently available
information and does not necessarily include all potential costs
related to ongoing assessment and remediation or any execution of
contingency plans brought about by internal or external Y2K issues,
or cost estimate changes related to replacement systems or code
remediation efforts. Actual results could differ from these estimates.
18
<PAGE>
Crown Cork & Seal Company, Inc.
Item 2. Management's Discussion and Analysis (Continued)
Euro Conversion
---------------
Certain participating countries of the European Union are scheduled to
adopt the "Euro" on January 1, 1999. The Euro is intended to become the
lead currency in the European Economic and Monetary Union formed by the
participating countries, with national currencies expressed as a
denomination of the Euro. During the three-and-a-half year transition
period following its introduction, countries will be allowed to
transact business both in the Euro and in their own currencies. On July
1, 2002, the Euro will be the one and only official currency in
European Union countries who are participating in the conversion.
The Company is currently addressing Euro-related issues and their
impact on information systems, currency exchange rate risk, employment
and benefits, taxation, contracts, competition and pricing. For the
nine months ended September 30, 1998, approximately 25% of the
Company's revenues were derived from operations in member countries of
the European Economic and Monetary Union.
Under an action plan initiated by the Company, teams have been formed
to address selling prices and costs, personnel and communications,
finance, administration and information technology. The Euro will be
implemented initially as an additional currency both in domestic and
foreign markets for European businesses domiciled in the European
Monetary Union zone. Beginning in 1999 with the market release and
implementation of Euro compliant software, the Company anticipates that
its individual businesses will start to work on a dual currency basis
where appropriate. This dual currency system will be introduced to ease
the transition to the Euro for the Company's customers, suppliers and
employees continuing to prefer to work in national currencies until
January 1, 2002. After this date all transactions involving the Company
with respect to countries participating in the Euro conversion will be
based solely on the Euro.
The Company has outstanding foreign exchange contracts, involving the
currencies of countries participating in the Euro conversion. The
Company believes that conversion to the Euro may reduce the amount of
the Company's exposure to exchange rate risk,due to the netting effect
of having assets and liabilities denominated in a single currency as
opposed to the various legacy currencies. As a result, the Company's
foreign exchange hedging costs could be reduced. Conversely, because
there will be less diversity in the Company's exposure to foreign
currencies, movements of the Euro's value in U.S. dollars could have
a more pronounced effect, whether positive or negative.
Although the Company has received commitments from certain key vendors
that they will be Euro compliant, the Company can give no assurance
that third parties on whom it depends will have the systems necessary
to process Euro-denominated transactions.
As part of the conversion process, the Company is developing
contingency plans. The contingency plans are expected to be in place
sometime during 1999 and through the transition period and will
provide mechanisms to assess and communicate the impact of any delays
in the Euro conversion process as well as address likely problems
in the aftermath of conversion.
The largest European country which is not currently participating in
the Euro conversion is the United Kingdom, which, at September 30,
1998, accounted for approximately 13% of the Company's consolidated net
sales. The Company is attentive to the potential impact which the UK's
nonparticipation might have on trading activities with countries
participating in the Euro conversion as well as on internal UK
operations.
The Company does not expect the Euro conversion, including the costs of
implementation, to have a material adverse effect upon the Company's
results of operations, financial condition or cash flow. However, the
Company cannot guarantee that, with respect to the Euro conversion, all
problems, including long-term competitive implications of the
conversion, will be foreseen and corrected, that no material disruption
of the Company's business will occur, or that there will be no delays
in the dates targeted by the Company for the Euro conversion process.
19
<PAGE>
Crown Cork & Seal Company, Inc.
Item 2. Management's Discussion and Analysis (Continued)
Forward Looking Statements
--------------------------
Statements included herein in "Management's Discussion and Analysis of
Results of Operations and Financial Condition", including, but not
limited to, in the "Year 2000" and "Euro Conversion" sections, 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 Securities and
Exchange Commission ("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 SEC. In addition, other factors have been or may be discussed
from time to time in the Company's SEC filings.
20
<PAGE>
Crown Cork & Seal Company, Inc.
PART II - OTHER INFORMATION
Item 5. Other Information
On September 22, 1998, the Company announced that Thomas A. Ralph, a
partner in the Philadelphia-based law firm of Dechert, Price & Rhoads
was elected to its Board of Directors.
On September 22, 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 November 20, 1998 to shareholders of record on
November 4, 1998.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
27. Financial Data Schedule
b) Reports on Form 8-K
On September 30, 1998, the Registrant filed a Current Report
on Form 8-K, dated September 22, 1998:
Item 5. Other Events - announced a third quarter 1998
restructuring charge and other strategic initiatives.
21
<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: November 16, 1998
22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet, Consolidated Statement of Income and Notes
to the consolidated financial statements on pages 2 through 10 of the
Company's Quarterly Report on Form 10-Q for the period ended September 30,
1998 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 242
<SECURITIES> 0
<RECEIVABLES> 1,882
<ALLOWANCES> 40
<INVENTORY> 1,466
<CURRENT-ASSETS> 3,758
<PP&E> 6,083
<DEPRECIATION> 2,397
<TOTAL-ASSETS> 13,090
<CURRENT-LIABILITIES> 5,232
<BONDS> 3,192
0
351
<COMMON> 779
<OTHER-SE> 2,084
<TOTAL-LIABILITY-AND-EQUITY> 13,090
<SALES> 6,428
<TOTAL-REVENUES> 6,428
<CGS> 5,033
<TOTAL-COSTS> 5,440
<OTHER-EXPENSES> 15
<LOSS-PROVISION> 7
<INTEREST-EXPENSE> 300
<INCOME-PRETAX> 237
<INCOME-TAX> 89
<INCOME-CONTINUING> 146
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 146
<EPS-PRIMARY> 1.06
<EPS-DILUTED> 1.06<F1>
<FN>
<F1>The EPS-PRIMARY amount represents Basic earnings per share and the
EPS-DILUTED amount represents Diluted earnings per share in accordance
with Statement of Financial Accounting Standards No. 128, Earnings Per
Share.
</FN>
</TABLE>
