================================================================================
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, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO _________
COMMISSION FILE NUMBER 1-2227
CROWN CORK & SEAL COMPANY, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1526444
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Crown Way, Philadelphia, PA 19154
(Address of principal executive offices) (Zip Code)
215-698-5100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
There were 128,106,916 shares of Common Stock outstanding as of April 20, 2000.
================================================================================
<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, 2000 1999
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 1,640 $ 1,794
----------- -----------
Cost, expenses & other income
Cost of products sold, excluding depreciation and amortization 1,293 1,418
Depreciation 97 101
Amortization 31 32
Selling and administrative expense 85 91
Gain on sale of assets (2)
Interest expense 92 93
Interest income (4) (8)
Translation and exchange adjustments 9
----------- -----------
1,594 1,734
----------- -----------
Income before income taxes 46 60
Provision for income taxes 19 28
Minority interest, net of equity earnings (4) 2
----------- -----------
Net income 23 30
Preferred stock dividends 2 4
----------- -----------
Net income available to common shareholders $ 21 $ 26
=========== ===========
Basic and diluted earnings per average common share $ .17 $ .21
=========== ===========
Dividends per common share $ .25 $ .25
=========== ===========
Average common shares outstanding:
Basic 123,870,438 122,326,336
Diluted 128,569,627 129,957,939
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
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,
2000 1999
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 245 $ 267
Receivables 1,210 1,166
Inventories 1,454 1,312
Prepaid expenses and other current assets 98 96
----------- -----------
Total current assets 3,007 2,841
----------- -----------
Long-term notes and receivables 26 27
Investments 160 178
Goodwill, net of amortization 4,116 4,228
Property, plant and equipment 3,134 3,255
Other non-current assets 1,039 1,016
----------- -----------
Total $ 11,482 $ 11,545
=========== ===========
Liabilities and shareholders' equity
Current liabilities
Short-term debt $ 1,605 $ 1,362
Current maturities of long-term debt 166 169
Accounts payable and accrued liabilities 1,691 1,803
United States and foreign income taxes 79 80
----------- -----------
Total current liabilities 3,541 3,414
=========== ===========
Long-term debt, excluding current maturities 3,533 3,573
Postretirement and pension liabilities 681 686
Other non-current liabilities 660 686
Minority interests 288 295
Shareholders' equity 2,779 2,891
----------- ------------
Total $ 11,482 $ 11,545
=========== ============
Book value per common share $ 21.69 $ 22.46
- ---------------------------------------------------------------------------------------------------------------
</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, 2000 1999
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 23 $ 30
Depreciation and amortization 128 133
Gain on sale of assets (2)
Change in assets and liabilities, other than debt (354) (396)
-------- --------
Net cash used in operating activities (203) (235)
-------- --------
Cash flows from investing activities
Capital expenditures (57) (82)
Proceeds from sale of property, plant and equipment 9 11
Other, net (1) (2)
-------- --------
Net cash used in investing activities (49) (73)
-------- --------
Cash flows from financing activities
Proceeds from long-term debt 2 4
Payments of long-term debt (24) (50)
Net change in short-term debt 301 406
Stock repurchased (9) (1)
Dividends paid (32) (34)
Minority contributions, net of dividends paid (2)
-------- --------
Net cash provided by financing activities 238 323
-------- --------
Effect of exchange rate changes on cash and cash equivalents (8) (23)
-------- --------
Net change in cash and cash equivalents (22) (8)
Cash and cash equivalents at beginning of period 267 284
-------- --------
Cash and cash equivalents at end of period $ 245 $ 276
======== ========
- ---------------------------------------------------------------------------------------------------------
</TABLE>
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/(Loss) Total
- ----------------------------------------------|-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
|
Balance at December 31, 1999 | $349 $779 $1,317 $1,295 ($173) ($676) $2,891
Net income $ 23 | 23 23
Translation adjustments (94) | (94) (94)
------ |
Comprehensive income/(loss) ($ 71) |
====== |
Dividends declared: |
Common | (30) (30)
Preferred | (2) (2)
Stock repurchased | (6) (3) (9)
Preference stock conversions | (349) 1 311 37
- ----------------------------------------------|-------------------------------------------------------------------------------------
Balance at March 31, 2000 | $780 $1,622 $1,286 ($139) ($770) $2,779
==============================================|=====================================================================================
| Accumulated
| Other
Comprehensive | Preferred Common Paid-In Retained Treasury Comprehensive
Income | Stock Stock Capital Earnings Stock Income/(Loss) Total
- ----------------------------------------------|-------------------------------------------------------------------------------------
Balance at December 31, 1998 | $351 $779 $1,340 $1,250 ($167) ($578) $2,975
Net income $ 30 | 30 30
Translation adjustments (140) | (140) (140)
------ |
Comprehensive income/(loss) ($ 110) |
|
Dividends declared: |
Common | (31) (31)
Preferred | (4) (4)
Stock repurchased | (1) (1)
- ----------------------------------------------|-------------------------------------------------------------------------------------
Balance at March 31, 1999 | $351 $779 $1,339 $1,245 ($167) ($718) $2,829
====================================================================================================================================
</TABLE>
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, 2000, and the results of its operations and cash flows for
the periods ended March 31, 2000 and 1999, 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, 1999.
B. Earnings Per Share
------------------
The following table summarizes the basic and diluted earnings per share
computations for the period ended March 31, 2000 and 1999,
respectively:
<TABLE>
<CAPTION>
2000 1999
------------------------- -------------------------
Average Average
Quarter Income Shares EPS Income Shares EPS
------- ------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Income $ 23 $ 30
Less:
Preferred stock dividends (2) (4)
---- ----
Basic EPS $ 21 123.9 $.17 $ 26 122.3 $.21
Potentially dilutive securities
Stock options
---- ----- ---- -----
Diluted EPS $ 21 123.9 $.17 $ 26 122.3 $.21
==== ===== ==== =====
</TABLE>
Excluded from the computation of diluted earnings per share for the
quarters ended March 31, 2000 and 1999 were 4.7 and 7.6 common
shares, respectively, resulting from the assumed conversion of
preferred stock. This conversion would have been antidilutive.
Common shares contingently issueable upon the exercise of stock
options, amounting to 8,085,165 and 6,123,621 shares at March 31, 2000
and 1999, respectively, were excluded from the computation of diluted
earnings per share because the grant prices of the then outstanding
options was below the average market price for the related period.
6
<PAGE>
Crown Cork & Seal Company, Inc.
C. Inventories
-----------
-----------------------------------------------------------
March 31, December 31,
2000 1999
-----------------------------------------------------------
Finished goods $ 635 $ 503
Work in process 179 174
Raw material and supplies 640 635
------ ------
$1,454 $1,312
====== ======
D. Restructuring
-------------
During 1998, the Company provided $179 for the costs associated with a
plan to close thirteen plants and reorganize three additional plants.
Included in this restructuring provision was the cost of providing
severance and related benefits estimated at $99, covering the reduction
of approximately 2,900 employees, 1,900 of whom were involved in direct
manufacturing operations, a charge of $60 reflecting the impairment of
property, plant and equipment principally located in the Americas
Division and other non-recurring costs estimated at $20. During 1999,
management decided not to close one of the plants identified in the
1998 provision and, accordingly, reversed the reserve previously
established to income. The Company closed one plant in Europe and
reorganized certain research and development functions worldwide. The
impact of these 1999 adjustments was a net credit to income of $7, of
which $6 covered reduced severance costs and employee benefits and $1
was for lower exit costs. The Company estimates that the 1998
restructuring program will generate after-tax savings of approximately
$59 ($.45 per share) on an annualized basis when fully implemented
after giving effect to the reversal discussed above.
Remaining balances in the reserves represent contracts or agreements
whereby payments are extended over time. This includes agreements with
unions and governmental agencies related to employees as well as with
landlords in lease arrangements. The balance of the restructuring
reserves (excluding 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 and movements within these components in the first quarter of
2000 were as follows:
<TABLE>
<CAPTION>
Employee Other Exit
(in millions) Severance Costs Total
--------- ---------- -----
<S> <C> <C> <C>
Opening balance............................ $ 14 $ 7 $ 21
Payments made.............................. (5) (1) (6)
Other movements *.......................... (1) (1)
----- ---- -----
Closing balance............................ $ 8 $ 6 $ 14
===== ==== =====
<FN>
* includes translation adjustments
</FN>
</TABLE>
During the first quarter of 2000, payments of $5 were made primarily
related to termination benefits under contractual arrangements
covering previously terminated employees. Payments of $1 were made for
other exit costs, including dismantlement costs, equipment removal and
various contractual obligations.
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
7
<PAGE>
Crown Cork & Seal Company, Inc.
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
are subject to the considerations described under "Forward-Looking
Statements" within "Management's Discussion and Analysis of Financial
Condition and Results of Operations." 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. Supplemental Cash Flow Information
----------------------------------
Cash payments for interest, net of amounts capitalized were $65 and $76
during the three months ended March 31, 2000 and 1999, respectively.
Cash payments for income taxes amounted to $6 and $15 during the three
months ended March 31, 2000 and 1999, respectively.
F. Segment Information
-------------------
The Company maintains three operating segments, defined geographically:
Americas, Europe and Asia-Pacific. Each reportable segment is an
operating division within the Company and has a President reporting
directly to the Chief Executive Officer and the Chief Operating
Officer. "Other" represents "Corporate" which includes research,
development and engineering and administrative costs for the U. S.
corporate headquarters. Divisional headquarter costs are maintained
within the operating segments. The interim segment information is as
follows:
<TABLE>
<CAPTION>
Quarter ended March 31,
-----------------------
2000 Americas Europe Asia-Pacific Other Total
---- -------- ------ ------------ ----- -----
<S> <C> <C> <C> <C> <C>
External sales $ 830 $ 740 $ 70 $1,640
Segment income 75 76 6 ($23) 134
1999
----
External sales 871 835 88 1,794
Segment income 76 86 9 (19) 152
</TABLE>
The following table reconciles the Company's segment income to
consolidated pre-tax income:
Three Months Ended March 31,
----------------------------
INCOME 2000 1999
----------------------------
Total segment income $134 $152
Interest expense 92 93
Interest income (4) (8)
Gain on sale of assets (2)
Translation & exchange adjustments 9
---- ----
Consolidated pre-tax income $ 46 $ 60
==== ====
8
<PAGE>
Crown Cork & Seal Company, Inc.
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 one of over 100 defendants in a substantial number of
lawsuits filed by persons alleging bodily injury as a result of
exposure to asbestos. This litigation arose from the insulation
operations of a U.S. company, the majority of whose stock the Company
purchased in 1963. Within approximately three months of this stock
purchase, this U.S. company sold its insulation operations.
The accrual recorded for asbestos claims constitutes management's best
estimate of such costs for pending and future claims. The Company
cautions, however, that inherent in its estimate of liabilities are
expected trends in claim severity, frequency and other factors which
may vary as claims are filed and settled or otherwise disposed of.
Accordingly, these matters, if resolved in a manner different from the
estimate, could have a material effect on the operating results or cash
flows in future periods. While it is not possible to predict with
certainty the ultimate outcome of these lawsuits and contingencies, the
Company believes, after consultation with counsel, that resolution of
these matters is not expected to have a material adverse effect on the
Company's financial position or liquidity.
The Company is also subject to various lawsuits and claims with respect
to matters such as governmental and environmental regulations and other
actions arising out of the normal course of business. While the impact
on future financial results is not subject to reasonable estimation
because considerable uncertainty exists, management believes, after
consulting with counsel, that the ultimate liabilities resulting from
such lawsuits and claims will not materially affect the consolidated
results, liquidity or financial position of the Company.
H. Recent Accounting Pronouncements
--------------------------------
Recently issued accounting pronouncements include Financial
Interpretation ("FIN") No. 44 "Accounting for Certain Transactions
involving Stock Compensation: An Interpretation of APB Opinion No.
25," issued by the Financial Accounting Standards Board ("FASB") in
March 2000, Staff Accounting Bulletin ("SAB") No. 101 "Revenue
Recognition in Financial Statements," issued by the Securities and
Exchange Commission ("SEC") in December 1999 and SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities,"
issued by the FASB in June 1998.
SAB No. 101 provides guidance on the recognition, presentation and
disclosure of revenue in the financial statements. SAB No. 101
outlines the basic criteria that must be met to recognize revenue.
Adoption of SAB No. 101, as amended by SAB No. 101A, is required by
the second quarter of 2000, and early adoption is permitted. The
Company is currently evaluating the guidelines in this SAB, but does
not expect that it will have an impact on its results of operations.
FIN No. 44, among other issues, clarifies the application of Accounting
Principles Board ("APB") No. 25 regarding (1) the definition of
employee for purposes of applying APB No. 25, (2) the criteria for
determining whether a plan qualifies as a noncompensatory plan, (3) the
accounting consequences of various modifications to the terms of
previously fixed stock options or awards, and (4) the accounting for an
exchange of stock compensation awards in a business combination. FIN
No. 44 will be effective July 1, 2000. However, certain of the
9
<PAGE>
Crown Cork & Seal Company, Inc.
conclusions included in the interpretation apply to events occurring
after December 15, 1998 or January 12, 2000. The December 15, 1998
effective date applies prospectively after July 1, 2000 to the
accounting for certain exercise price modifications made after December
15, 1998 and for the definition of an employee for purposes of
determining eligibility to apply APB No. 25 to accounting for stock
option grants to such persons where the grant occurred after December
15, 1998. Management is currently evaluating the effect FIN No. 44 will
have on its financial position or results of operations.
In June 1999 the FASB issued SFAS No. 137, an amendment to SFAS No.
137 effectively deferred the transition date to January 1, 2001 from
January 1, 2000. SFAS No. 133 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 standard also significantly changes the
requirements for hedge accounting. The Company continues to evaluate
the requirements of this standard and is preparing an implementation
plan.
I. Foreign Currency Risk
---------------------
The Company manages its risk to adverse fluctuations in foreign
exchanges rates through the use of a netting strategy which matches
foreign currency assets and liabilities whenever possible and the use
of financial instruments. These financial instruments are foreign
currency contracts, such as swaps and forwards. At March 31, 2000,
the Company had outstanding contracts, primarily in European
currencies, Singapore dollars, Canadian dollars and U.S. dollars (both
buy and sell) for an aggregate notional amount of $1,520 compared to
$1,336 at December 31, 1999. Based on exchange rates at March 31, 2000
and the maturity dates of the various contracts, the fair value of
these items at March 31, 2000 was approximately $10 below the contract
notional value. Gains and losses resulting from contracts that are
designated and effective as hedges are recognized in the same period
as the underlying hedged transaction.
10
<PAGE>
Crown Cork & Seal Company, Inc.
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (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, 2000, compared to
the corresponding period in 1999 and the changes in financial condition
and liquidity from December 31, 1999. 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, 1999, 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, 2000 was $21, a decrease of $5 or 19.2% when compared to the
respective prior year amount of $26. Earnings per common share
decreased $.04 or 19.0% to $.17 from $.21 a year earlier. The decline
in earnings primarily reflects lower net sales of both beverage cans
in North America and food cans in Europe as well as the impact from the
continued strengthening of the U.S. dollar against many foreign
currencies. Competitive market conditions from 1999 continued into the
first quarter of 2000. In the U.S., a beverage can competitor decided
to maintain substantial excess capacity prior to recently agreeing
to sell out to another competitor. This competitor's decision has
contributed to near-term price and volume pressure. The Company's
European food can business remains profitable, but we expect that
pricing and volume will remain challenging in the near-term.
Management is also cautious about possibly higher interest rates during
the remainder of 2000.
Net Sales
---------
Net sales in the quarter decreased $154 or 8.6% to $1,640 from $1,794
in 1999 due primarily to foreign exchange translation, business
divestitures and lower sales unit volumes of beverage cans in North
America and of food cans in Europe. Foreign exchange translation
reduced net sales by $68 in the first quarter of 2000 as compared to
the same period in 1999. During 1999, the Company divested its
composite can operations in the U.S., its Golden Aluminum facilities in
the U.S. and a majority portion of its South African beverage can
business. Divested operations contributed $35 to net sales in the
first quarter of 1999. Excluding the effects of foreign currency
translation and businesses divested, net sales would have been 2.8%
lower than in the first quarter of 1999. Sales from U.S. operations
decreased by 7.1% and those in non-U.S. markets decreased by 9.5%.
U.S. sales accounted for approximately 40% of consolidated net sales
in the first quarter of both 2000 and 1999. Sales of beverage cans and
ends as a percentage of consolidated net sales increased to 31.0% from
29.4% and sales of food cans and ends decreased in the first quarter to
28.5% from 31.3% compared to the first quarter of 1999.
11
<PAGE>
Crown Cork & Seal Company, Inc.
Item 2. Management's Discussion and Analysis (Continued)
An analysis of comparative net sales by operating division follows:
Net Sales
-----------------------------------------------
First Quarter Increase / (Decrease)
------------------ ---------------------
Division: 2000 1999 $ %
------ ------ ------ ------
Americas $ 830 $ 871 ($41) (4.7)
Europe 740 835 (95) (11.4)
Asia-Pacific 70 88 (18) (20.5)
Other
------ ------ ------
$1,640 $1,794 ($154) (8.6)
====== ====== ======
The decrease in 2000 Americas Division net sales is primarily due to
operations divested of $21 and to lower sales unit volumes of beverage
and food cans in North America. Plastic beverage and specialty
closure sales unit volumes grew by 13.0% and 23.7%, respectively, in
the first quarter. North American aerosol can sales unit volumes were
3.0% higher, while PET beverage container volume slipped 2.3% compared
to the first quarter of 1999. The Company's Risdon-AMS beauty care
packaging business benefited from increased demand across all of its
core products: fragrance pumps, eyecare and lipsticks. Beverage can
volume in South America was up 34.4% in the first quarter which
reflects the recovery of these markets from the early first quarter
1999 economic turmoil resulting from the devaluation of Brazil's local
currency against the U.S. dollar.
Net sales in the European Division decreased compared to 1999 as a
result of the effects of the continued strengthening of the U.S.
dollar against the Euro which reduced division net sales by $69,
operations divested of $14 and lower sales unit volumes of food cans
across the Division. Excluding currency translation and operations
divested, net sales would have been 98.6% of the prior year level. Food
can unit volumes were down 3.7% in the quarter as growth in Belgium and
Central Europe was offset by market softness in the U.K. and Germany.
Beer and beverage can volume was up 4.9% across the division with
strong demand in the U.K., Spain and northwest Europe. The Plastics
sector enjoyed increased demand across most product lines, most notably
beverage and specialty closures and health and beauty care packaging.
Net sales in the Asia-Pacific Division decreased in 2000 as compared to
1999 primarily due to lower sales unit volumes of beverage cans and
food cans. Beverage can volume was down 20% as customer demand remained
very weak in China and northern Vietnam, offsetting good performances
in Malaysia, Singapore and Thailand. Food can sales unit volumes were
down 16% across the division with the majority of the decline
attributable to Thailand. Although the overall Thai business
environment remains healthy, shipments of coffee and seafood cans were
lower than in the first quarter of 1999. The division enjoyed an
increase in unit volume shipments of plastic beverage closures as
demand was very strong in China and Thailand.
Cost of Products Sold
---------------------
Cost of products sold, excluding depreciation and amortization, was
$1,293 for the quarter ended March 31, 2000, a decrease of $125 or 8.8%
compared to $1,418 for the same period in 1999. The decrease primarily
reflects lower net sales as described above.
As a percentage to net sales, cost of products sold was 78.8% compared
to 79.0% for the first quarter of 1999. The improvement in gross margin
as a percentage to net sales is due primarily to the benefits derived
from the Company's continuing cost containment and restructuring
programs, offset to some extent by lower net sales which in turn
results in lower margin contribution and by competitive influences on
selling prices across many product lines.
12
<PAGE>
Crown Cork & Seal Company, Inc.
Item 2. Management's Discussion and Analysis (Continued)
Selling and Administrative
--------------------------
Selling and administrative expenses for the quarter ended March 31,
2000 were $85, a decrease of $6 or 6.6% from the first quarter of 1999.
As a percentage to net sales, selling and administrative expenses,
excluding depreciation, were 5.2% in the first quarter as compared to
5.1% for the same period of 1999. The decrease in 2000 costs is
directly related to the continuing rationalization of these costs
throughout the Company and the appreciation of the U.S. dollar against
the Euro.
Operating Income
----------------
For the quarter ended March 31, 2000, consolidated operating income
decreased $18 to $134 from $152 at March 31, 1999. Operating income as
a percentage to net sales was 8.2% for the first quarter of 2000 as
compared to 8.5% in 1999. An analysis of operating income by operating
division follows:
Operating Income
----------------------------------------------
First Quarter Increase / (Decrease)
---------------- ---------------------
Division: 2000 1999 $ %
---- ---- ---- ----
Americas $ 75 $ 76 ( 1) ( 1.3)
Europe 76 86 (10) (11.6)
Asia-Pacific 6 9 ( 3) (33.3)
Other (23) (19) ( 4) (21.1)
---- ---- ----
$134 $152 (18) (11.8)
==== ==== ====
As a percentage of net sales, Americas Division operating income was
9.0% in the first quarter of 2000 as compared to 8.7% for the same
period in 1999. The increase in first quarter 2000 operating margin as
a percentage to net sales was primarily due to (i) continuing cost
savings from the 1998 restructuring program, (ii) sales unit volume
gains of aerosol cans and plastic closures in North America, (iii)
sales unit volume gains of beauty care packaging products and (iv)
sales unit volume gains of beverage cans in South America which offset
sales unit volume declines of beverage and food cans in North America.
The slight decrease in absolute operating margin is a result of lower
net sales.
European Division operating income as a percentage of net sales was
10.3% in both the first quarter of 2000 and the first quarter of 1999.
The decrease in first quarter 2000 operating income was primarily due
to (i) sales unit volume decreases of food cans, (ii) the strengthening
of the U.S. dollar against the Euro and (iii) the effect of competitive
pricing across several product lines which offset sales unit volume
gains of (i) beer and beverage cans, (ii) plastic beverage and
specialty closures and (iii) health and beauty care packaging products.
While pricing remains competitive across many product lines, the
Company has been able to partially offset these pricing situations
through restructuring, capital expenditure and other cost improvement
programs.
In the first quarter of 2000, operating income in the Asia-Pacific
Division was 8.6% of net sales as compared to 10.2% for the same period
in 1999. The decrease in 2000 operating income and margins was due
primarily to sales unit volume decreases of (i) beverage cans in China
and (ii) food cans in Thailand offsetting sales unit volume increases
of (i) beverage cans in Malaysia, Singapore and Thailand and (ii)
plastic beverage closures in China and Thailand.
13
<PAGE>
Crown Cork & Seal Company, Inc.
Item 2. Management's Discussion and Analysis (Continued)
Net Interest Expense / Income
-----------------------------
Net interest expense was $88 in the first quarter, an increase of $3 or
3.5% compared to first quarter 1999 net interest expense of $85. The
increase in net interest expense is due primarily to (i) lower interest
income, a result of lower invested cash balances, and (ii) generally
higher interest rates which have offset the effect of (i) lower total
debt and (ii) the effect of foreign currency translation.
Gain on Sale of Assets
----------------------
During the first quarter of 2000, the Company realized $4 of gains
resulting from the sale of real estate in Spain. The Company also
recognized losses of approximately $4 on other real estate and
machinery and equipment.
Taxes on Income
---------------
The effective tax rate in the first quarter of 2000 was 41.3% as
compared to 46.7% for the same period of 1999. The decrease in the
effective rate is due to (i) the non-deductible 1999 foreign exchange
loss in Brazil of $9 which did not recur in the first quarter of 2000,
(ii) increased pre-tax income in other lower tax rate countries in
South America and Asia and (iii) the reduction of a previously
established valuation allowance of $4 for net operating loss
carryforwards in Mexico. This benefit was realized in the first quarter
of 2000.
Minority Interests, Net of Equity in Earnings of Affiliates
-----------------------------------------------------------
The charge for minority interests, net of equity earnings, increased by
$2 in the first quarter of 2000 over 1999. This increase was due to
improved results in Brazil and Colombia partially offset by lower
profits in the Company's consolidated joint ventures in China and
Morocco.
Liquidity and Capital Resources
-------------------------------
Cash from Operations
--------------------
Net cash of $203 was used by operating activities during the three
months ended March 31, 2000 as compared to cash used of $235 for the
same period in 1999. The $32 improvement is due to lower working
capital employed, a result of better working capital management in 1999
which has carried into 2000. For the three months ended March 31,
1998, the Company used net cash of $325 from operating activities.
Investing Activities
--------------------
Investing activities used cash of $49 during the quarter ended March
31, 2000 compared with cash used of $73 for the same period of 1999 and
cash used of $147 for same period of 1998. Capital expenditures for the
first quarter of 2000 were $57, a decrease of $25 as compared to
capital expenditures of $82 during the same period of 1999. Capital
expenditures totaled $113 in the first quarter of 1998. The Company
intends to limit its capital spending to no more than $300 in 2000. The
Company will continue to evaluate projects which provide growth
opportunities and those that develop new technologies.
14
<PAGE>
Crown Cork & Seal Company, Inc.
Item 2. Management's Discussion and Analysis (Continued)
Financing Activities
--------------------
Financing activities provided cash of $238 in the first quarter
compared with cash provided of $323 in the first quarter of 1999. Lower
working capital employed has been maintained throughout the first
quarter of 2000 and, as such, the increase from December 31, 1999
in commercial paper borrowings in the first quarter of 2000 is lower
than in the first quarter of 1999.
Total debt, net of cash and cash equivalents, at March 31, 2000 was
$5,059 and represents an increase of $222 above the December 31, 1999
level of $4,837. Total debt, net of cash and cash equivalents, as a
percentage to total capitalization was 62.3% at March 31, 2000 as
compared to 60.3% at December 31, 1999. Total capitalization is defined
by the Company as total debt, minority interests and shareholders'
equity.
The increase in total debt, net of cash and cash equivalents, from
December 31, 1999 is due primarily to the funding of working capital
requirements on a short-term basis through the issuance of commercial
paper. The increase in total debt as a percentage to total
capitalization was also impacted by a reduction in shareholders' equity
due to negative currency translation adjustments in the first quarter
of 2000.
Recent Accounting Pronouncements
--------------------------------
The Company is currently reviewing the guidelines of the following
accounting and reporting pronouncements: SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," issued by the FASB in
June 1998; SAB No. 101, "Revenue Recognition in Financial Statements,"
issued by the SEC in December 1999 and FIN No. 44, "Accounting for
Certain Transactions Involving Stock Compensation: An Interpretation of
APB Opinion No. 25, " issued by the FASB in March 2000. Details of
these pronouncements are contained in Note H to the consolidated
financial statements which appear on pages 9 and 10 of this Quarterly
Report on Form 10-Q. Management expects that SAB 101 and FIN 44 will
not have a material impact on the Company's financial condition and
results of operations.
The Company continues to review SFAS No. 133 along with a recent
proposed amendment to determine the extent of its impact on the
Company's financial condition and results of operations.
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.
Based on information to date, the Company has not experienced any
significant Year 2000 or leap year problems. Also, the Company's
suppliers and customers have not experienced any Year 2000 problems
which have had a significant impact on the Company.
It is possible that the full impact of the Year 2000 date change has
not been realized. Year 2000 issues could arise within the Company's
mission critical IT, embedded and other systems. Also, customers and
suppliers could experience Year 2000 events. As such, the Company will
continue to monitor for potential Year 2000 issues both within the
Company and among its critical customers and suppliers. Contingency
plans, developed to address potential disruptions from unresolved Y2K
issues, will remain in place. Based on operations since January 1,
2000, management does not anticipate any significant impact on its
ongoing business as a result of the Year 2000 issue.
15
<PAGE>
Crown Cork & Seal Company, Inc.
Item 2. Management's Discussion and Analysis (Continued)
In connection with its Year 2000 project, the Company has spent
approximately $19 of which $9 has been expensed. The Company does not
anticipate significant future costs related to the Year 2000 issue
beyond those incurred through December 31, 1999. This spending does not
include labor costs for employees assigned to the Year 2000 project, as
it was not practicable to accumulate such costs. Funding for the Year
2000 project came from operating cash flows.
Euro Conversion
---------------
On January 1, 1999, eleven of the fifteen member nations ("the
participating countries") of the European Union ("EU") established
fixed conversion rates between their existing currencies ( the "legacy
currencies") and one common currency, the Euro. At that time the Euro
began trading on currency exchanges and was available for financial
transactions. Beginning in January 2002, new Euro-denominated currency
(bills and coins) will be issued, and legacy currencies will be
withdrawn from circulation.
The largest non-participating country is the United Kingdom ("U.K.")
which provides approximately 13% of the Company's revenues and is a
major trading partner with the participating countries. Due to the
non-participation of the U.K. in the Euro, the competitive position
of the Company's U.K. operations is subject to, among other things,
fluctuations in the exchange rate between Euro and sterling. Price
competition may arise from imports into the U.K. or from the U.K.
operations exporting to the European continent. At March 31, 2000,
approximately 63% of the contract notional value of outstanding
foreign exchange contracts involve the Euro, primarily with sterling.
With the convergence of short-term interest rates within the EU, the
foreign exchange exposure between the currencies of participating
countries has diminished considerably. The Company's foreign exchange
exposure management has systematically been adapted to this evolution,
thereby benefiting from reduced hedging costs. The definitive fixing of
the exchange rates will only make this benefit permanent.
The Company has identified and substantially addressed the significant
issues that may have resulted or will result from the Euro conversion.
These issues include increased competitive pressures from greater price
transparency, changes in information systems to accommodate various
aspects of the new currency and exposure to market risk with respect to
financial instruments. The conversion to the Euro, including the costs
of implementation, has not been and is not expected to be material.
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 and that no material
disruption of the Company's business will occur.
Forward Looking Statements
--------------------------
Statements included herein in "Management's Discussion and Analysis of
Financial Condition and Results of Operations", 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, 1999, 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".
16
<PAGE>
Crown Cork & Seal Company, Inc.
Item 2. Management's Discussion and Analysis (Continued)
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 Financial Condition and Results of
Operations 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, 1999 within Part II, Item 7;
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
As of March 31, 2000 there have been no material changes in the
Company's market risk exposure as described in the Management's
Discussion and Analysis contained in the Company's Annual Report on
Form 10-K for the year ended December 31, 1999.
17
<PAGE>
Crown Cork & Seal Company, Inc.
PART II - OTHER INFORMATION
Item 2. Changes in Securities
On February 26, 2000, 8,132,816 shares of the Company's 4.5% cumulative
convertible preferred stock ("acquisition preferred"), the amount then
outstanding, mandatorily converted into 7,410,297 shares of common
stock.
On February 14, 2000, 193,135 shares of the Company's acquisition
preferred were converted into 175,975 shares of common stock.
Item 4. Submission of Matters to Vote of Security Holders
The Company's Annual Meeting of Shareholders was held April 27, 2000.
The matters voted upon and the results of the votes are as follows:
- - - VOTES - - -
---------------------------------
(1) Election of the Board of Directors
For Withheld
--- --------
William J. Avery 107,083,979 2,452,360
Henry E. Butwel 106,233,026 3,303,313
John W. Conway 107,194,850 2,341,489
Arnold W. Donald 107,169,520 2,366,819
Marie L. Garibaldi 107,130,711 2,405,628
John B. Neff 107,191,478 2,344,861
James L. Pate 107,160,249 2,376,090
Thomas A. Ralph 106,072,820 3,463,519
Alan W. Rutherford 107,152,545 2,383,794
Harold A. Sorgenti 107,184,586 2,351,753
Guy de Wouters 107,151,616 2,384,723
(2) Amendment to the Company's 1997 Stock-Based Incentive
Compensation Plan
For Withheld Abstain
----------- --------- -------
103,215,036 5,636,683 684,620
Item 5. Other Information
(1) On February 25, 2000, the Company's Board of Directors declared cash
dividends of $.25 per share on the Company's common stock. Dividends
are payable on May 22, 2000 to shareholders of record on May 4, 2000.
18
<PAGE>
Crown Cork & Seal Company, Inc.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
10. Crown Cork & Seal Company, Inc. 1997 Stock-Based
Incentive Compensation Plan, amended and restated
(incorporated by reference to the Registrant's
Definitive Additional Material on Schedule 14A filed
with the Securities and Exchange Commission on April 13,
2000 (File No. 1-2227)).
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.
19
<PAGE>
Crown Cork & Seal Company, Inc.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Crown Cork & Seal Company, Inc.
-------------------------------
Registrant
By: /s/ Timothy J. Donahue
-------------------------------
Timothy J. Donahue
Senior Vice President and Corporate Controller
Date: May 1, 2000
-----------
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets, consolidated statements of income and the
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 March 31, 2000
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 245
<SECURITIES> 0
<RECEIVABLES> 1,250
<ALLOWANCES> 40
<INVENTORY> 1,454
<CURRENT-ASSETS> 3,007
<PP&E> 5,360
<DEPRECIATION> 2,226
<TOTAL-ASSETS> 11,482
<CURRENT-LIABILITIES> 3,541
<BONDS> 3,533
0
0
<COMMON> 780
<OTHER-SE> 1,999
<TOTAL-LIABILITY-AND-EQUITY> 11,482
<SALES> 1,640
<TOTAL-REVENUES> 1,640
<CGS> 1,293
<TOTAL-COSTS> 1,421
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 92
<INCOME-PRETAX> 46
<INCOME-TAX> 19
<INCOME-CONTINUING> 23
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23
<EPS-BASIC> .17
<EPS-DILUTED> .17<F1>
<FN>
<F1>First quarter 2000 Diluted EPS is the same as Basic EPS due to the
anti-dilutive effect from the assumed conversion of convertible preferred
stock and the addback of preferred dividends.
</FN>
</TABLE>
