================================================================================
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, 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 (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 125,622,898 shares of Common Stock outstanding as of October 31,
2000.
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<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 September 30, 2000 1999
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 1,954 $ 2,140
----------- -----------
Costs, expenses & other income
Cost of products sold, excluding depreciation and amortization 1,581 1,673
Depreciation 96 101
Amortization 29 31
Selling and administrative expense 77 85
Provision for restructuring and other charges ( 7)
Gain on sale of assets ( 13)
Interest expense 102 91
Interest income ( 5) ( 5)
Translation and exchange adjustments 2 2
----------- -----------
1,882 1,958
----------- -----------
Income before income taxes 72 182
Provision for income taxes 23 57
Minority interests, net of equity earnings ( 5) ( 7)
----------- -----------
Net income 44 118
Preferred stock dividends 4
----------- -----------
Net income available to common shareholders $ 44 $ 114
=========== ===========
Earnings per average common share:
Basic $ .35 $ .93
=========== ===========
Diluted $ .35 $ .91
=========== ===========
Dividends per common share $ .25 $ .25
=========== ===========
Weighted average common shares outstanding:
Basic 125,788,021 122,332,141
Diluted 125,788,021 129,963,348
-------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
-2-
<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>
-------------------------------------------------------------------------------------------------
Nine months ended September 30, 2000 1999
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 5,470 $ 5,931
----------- -----------
Costs, expenses & other income
Cost of products sold, excluding depreciation and amortization 4,367 4,620
Depreciation 288 301
Amortization 90 95
Selling and administrative expense 240 267
Provision for restructuring and other charges 77 ( 7)
Gain on sale of assets ( 17)
Interest expense 291 275
Interest income ( 15) ( 20)
Translation and exchange adjustments 4 12
----------- -----------
5,342 5,526
----------- -----------
Income before income taxes 128 405
Provision for income taxes 50 141
Minority interests, net of equity earnings ( 15) ( 17)
----------- -----------
Net income 63 247
Preferred stock dividends 2 12
----------- -----------
Net income available to common shareholders $ 61 $ 235
=========== ===========
Earnings per average common share:
Basic $ .49 $ 1.92
=========== ===========
Diluted $ .49 $ 1.90
=========== ===========
Dividends per common share $ .75 $ .75
=========== ===========
Weighted average common shares outstanding:
Basic 125,704,205 122,336,218
Diluted 127,252,357 129,970,903
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</TABLE>
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)
--------------------------------------------------------------------------------
September 30, December 31,
2000 1999
(Unaudited)
--------------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents $ 256 $ 267
Receivables 1,278 1,166
Inventories 1,240 1,312
Prepaid expenses and other current assets 103 96
------- -------
Total current assets 2,877 2,841
------- -------
Long-term notes and receivables 21 27
Investments 135 178
Goodwill, net of amortization 3,856 4,228
Property, plant and equipment, net 2,895 3,255
Other non-current assets 1,077 1,016
------- -------
Total $10,861 $11,545
======= =======
Liabilities and shareholders' equity
Current liabilities
Short-term debt $ 932 $ 1,362
Current portion of long-term debt 56 169
Accounts payable and accrued liabilities 1,720 1,803
United States and foreign income taxes 69 80
------- -------
Total current liabilities 2,777 3,414
------- -------
Long-term debt, excluding current maturities 4,133 3,573
Postretirement and pension liabilities 661 686
Other non-current liabilities 598 686
Minority interests 189 295
Commitments and contingent liabilities
Shareholders' equity 2,503 2,891
------- -------
Total $10,861 $11,545
======= =======
Book value per common share $ 19.94 $ 22.46
--------------------------------------------------------------------------------
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, 2000 1999
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 63 $247
Depreciation and amortization 378 396
Gain on sale of assets ( 10)
Provision for restructuring and other charges 55 ( 5)
Change in other assets and liabilities, net of
businesses acquired ( 350) ( 488)
---- ----
Net cash provided by operating activities 146 140
---- ----
Cash flows from investing activities
Capital expenditures ( 170) ( 210)
Acquisition of businesses, net of cash acquired ( 49)
Proceeds from sale of property, plant and equipment 23 28
Proceeds from sale of businesses 44
Other, net ( 2) ( 6)
---- ----
Net cash used in investing activities ( 149) ( 193)
---- ----
Cash flows from financing activities
Proceeds from long-term debt 3 358
Payments of long-term debt ( 172) ( 197)
Net change in short-term debt 413 ( 30)
Stock repurchased ( 49) ( 7)
Dividends paid ( 95) ( 103)
Acquisition of minority interests ( 77)
Minority contributions, net of dividends paid ( 4) ( 8)
---- ----
Net cash provided by financing activities 19 13
---- ----
Effect of exchange rate changes on cash and cash equivalents ( 27) ( 25)
---- ----
Net change in cash and cash equivalents ( 11) ( 65)
Cash and cash equivalents at beginning of period 267 284
---- ----
Cash and cash equivalents at end of period $256 $219
==== ====
-----------------------------------------------------------------------------------------------
Nine months ended September 30, 2000 1999
-----------------------------------------------------------------------------------------------
Schedule of non-cash investing activities:
Acquisition of businesses:
Fair value of assets acquired $ 67
Liabilities assumed ( 18)
----
Cash Paid $ 49
====
-----------------------------------------------------------------------------------------------
</TABLE>
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, 1999 | $349 $779 $1,317 $1,295 ($173) ($676) $2,891
Net income $ 44 $ 63 | 63 63
Translation adjustments ( 138) ( 306) | ( 306) ( 306)
---- ---- |
Comprehensive loss ($ 94) ($243) |
==== ==== |
Dividends declared: |
Common | ( 94) ( 94)
Preferred | ( 2) ( 2)
Stock repurchased | ( 33) ( 16) ( 49)
Preferred stock conversions | ( 349) 1 311 37
------------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 2000 | $780 $1,595 $1,262 ($152) ($982) $2,503
====================================================================================================================================
| 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, 1998 | $351 $779 $1,340 $1,250 ($167) ($578) $2,975
Net income $118 $247 | 247 247
Translation adjustments 80 ( 131) | ( 131) ( 131)
---- ---- |
Comprehensive income $198 $116 |
==== ==== |
Dividends declared: |
Common | ( 91) ( 91)
Preferred | ( 12) ( 12)
Stock repurchased | ( 6) ( 1) ( 7)
--------------------------------------------------------|---------------------------------------------------------------------------
Balance at September 30, 1999 | $351 $779 $1,334 $1,394 ($168) ($709) $2,981
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
-6-
<PAGE>
Crown Cork & Seal Company, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share data)
(Unaudited)
A. Statement of Information Furnished
----------------------------------
The accompanying unaudited interim consolidated and condensed financial
statements have been prepared by the Company in accordance with Form
10-Q instructions. In the opinion of management, these consolidated
financial statements contain all adjustments necessary to present
the financial position of Crown Cork & Seal Company, Inc. as of
September 30, 2000, and the results of its operations and cash flows
for the periods ended September 30, 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
common share computations for the periods ended September 30, 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 $ 44 $118
Less:
Preferred stock dividends ( 4)
---- ----
Basic EPS 44 125.8 $ .35 114 122.3 $ .93
Potentially dilutive securities:
Stock options
Assumed preferred
stock conversion 4 7.7
---- ----- ---- -----
Diluted EPS $ 44 125.8 $ .35 $118 130.0 $ .91
==== ===== ==== =====
-------------------------- --------------------------
Average Average
Year-to-date Income Shares EPS Income Shares EPS
------------ -------------------------- --------------------------
Net income $ 63 $247
Less:
Preferred stock dividends ( 2) ( 12)
---- ----
Basic EPS 61 125.7 $ .49 235 122.3 $1.92
Potentially dilutive securities:
Stock options
Assumed preferred
stock conversion 12 7.7
---- ----- ---- -----
Diluted EPS $ 61 125.7 $ .49 $247 130.0 $1.90
==== ===== ==== =====
</TABLE>
-7-
<PAGE>
Crown Cork & Seal Company, Inc.
Excluded from the computation of diluted earnings per share for the
nine months ended September 30, 2000 were 1.5 common share equivalents
resulting from the assumed conversion of weighted average outstanding
preferred stock. The conversion would have been anti-dilutive.
C. Receivables
-----------
Included in the caption "Cost of products sold, excluding depreciation
and amortization," the Company provided $20 ($13 after-tax or $.10 per
diluted share) during the second quarter against a receivable from a
U.S. food can customer that has filed a voluntary Chapter 11
bankruptcy petition. The Company believes that the net receivable is
recorded at its recoverable value, but its ultimate realization is
dependent upon the outcome of the bankruptcy proceedings.
D. Inventories
-----------
------------------------------------------------------------
September 30, December 31,
2000 1999
------------------------------------------------------------
Finished goods $ 510 $ 503
Work in process 162 174
Raw materials and supplies 568 635
------ ------
$1,240 $1,312
====== ======
E. Asset Impairments
-----------------
Included in the caption "Provision for restructuring and other charges"
within the Consolidated Statements of Income, the Company recorded a
charge of $26 ($19 after-tax or $.15 per diluted share) in the second
quarter to write-off a minority interest in a machinery company and an
investment in Eastern Europe due to uncertainty regarding the ultimate
recovery of these investments. The events which caused the Company to
review its investments for impairment were a Chapter 11 bankruptcy
petition filed by the machinery company and the politically unstable
environment in which the Company's investment in Eastern Europe
operates.
F. Restructuring
-------------
During the second quarter the Company provided $51 ($36 after-tax or
$.28 per diluted share) for the costs associated with (i) overhead
structure modifications in Europe resulting in the termination of
approximately 700 employees and (ii) the closure of three Americas
Division plants resulting in the termination of approximately 350
employees. These costs included 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
1,050 employees was $45 and is primarily a cash expense. The cost
associated with the write-down of assets was $2. Lease termination and
other exit costs were $4.
During 1998, the Company provided $179 for the costs associated with a
plan to close thirteen plants and reorganize three additional plants.
During the third quarter of 1999, management decided not to close one
of the plants identified in the 1998 provision and, accordingly,
reversed the reserve previously established to income. Also in the
third quarter of 1999, the Company closed one plant in Europe and
reorganized certain research and development functions worldwide. The
impact of this 1999 activity 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.
Balances remaining in the reserves represent current year provisions as
well as contracts or agreements whereby payments from prior
restructuring actions 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 were
-8-
<PAGE>
Crown Cork & Seal Company, Inc.
reflected as a reduction of the related asset account) were included
within accounts payable and accrued liabilities. The components of the
restructuring reserve and movements within these components during the
first nine months of 2000 were as follows:
<TABLE>
<CAPTION>
Termination Other Exit Asset
Benefits Costs Write-down Total
-------- ----- ---------- -----
<S> <C> <C> <C> <C>
January 1....................... $14 $ 7 $21
Provision....................... 45 4 $ 2 51
Payments........................ ( 17) ( 2) ( 19)
Transfer against assets......... ( 2) ( 2)
Other *......................... ( 4) ( 2) ( 6)
--- --- ---
September 30.................... $38 $ 7 $45
=== === ===
<FN>
* includes translation adjustments
</FN>
</TABLE>
During the first nine months of 2000, payments of $17 were made related
to the termination of approximately 375 employees, 299 of whom were
involved in direct manufacturing operations. Payments of $2 were made
for other exit costs, including dismantlement costs, equipment removal
and various contractual obligations.
G. Short-Term Borrowings and Long-Term Debt
----------------------------------------
Recent rating agency actions, as discussed in Part 1, Item 1,
"Management's Discussion and Analysis" within "Liquidity and Capital
Resources" under the caption "Financing Activities," have resulted in
the elimination, at this time, of the Company's access to the
commercial paper market. Funding for recent and future commercial
paper maturities has been and will be provided, as necessary, through
draw downs from the Company's multicurrency revolving credit facility.
As of September 30, 2000 the Company had drawn $1,368 of its $2,500
multicurrency revolving credit facility. The facility has a maturity
date of February 4, 2002, and the balance, therefore, was classified as
"Long-term debt, excluding current maturities" in the Consolidated
Balance Sheet. Commercial paper of $570 outstanding at September 30,
2000 was classified as "Short-term debt" in the Consolidated Balance
Sheet.
During the third quarter of 2000, the interest coverage and leverage
ratio covenants of the multicurrency revolving credit facility were
amended at the Company's request. The amendment is filed as Exhibit 4
to this Quarterly Report on Form 10-Q and is incorporated herein by
reference. The Company was in compliance with the amended covenants as
of September 30, 2000.
H. Purchase of Minority Interests
------------------------------
During the third quarter of 2000, the Company purchased, for $82, the
minority interests in its CarnaudMetalbox Asia Limited subsidiary
operations in Thailand, Singapore, Vietnam and China. Of the total
purchase price, $77 was paid as of September 30 with the remainder
expected to be paid in the fourth quarter.
I. Supplemental Cash Flow Information
----------------------------------
Cash payments for interest, net of amounts capitalized ($1 for 2000 and
1999), were $239 and $264 during the nine months ended September 30,
2000 and 1999, respectively. Cash payments for income taxes amounted to
$31 and $46 during the nine months ended September 30, 2000 and 1999,
respectively.
-9-
<PAGE>
Crown Cork & Seal Company, Inc.
J. 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. "Corporate" 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 September 30,
---------------------------
2000 Americas Europe Asia-Pacific Corporate Total
---- -------- ------ ------------ --------- -----
<S> <C> <C> <C> <C> <C>
External sales $ 987 $ 885 $ 82 $1,954
Segment income 69 118 7 ($ 23) 171
1999
----
External sales 1,055 1,012 73 2,140
Restructuring
and other charges ( 14) 3 4 ( 7)
Segment income 120 157 6 ( 26) 257
Nine months ended September 30,
-------------------------------
2000 Americas Europe Asia-Pacific Corporate Total
---- -------- ------ ------------ --------- -----
External sales $2,789 $2,450 $231 $5,470
Restructuring
and other charges 10 47 $ 20 77
Segment income 220 251 19 ( 82) 408
1999
----
External sales 2,907 2,777 247 5,931
Restructuring
and other charges ( 14) 3 4 ( 7)
Segment income 299 397 25 ( 66) 655
</TABLE>
The following table reconciles the Company's segment income to
consolidated pre-tax income:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total segment income $171 $257 $408 $655
Interest expense 102 91 291 275
Interest income ( 5) ( 5) ( 15) ( 20)
Gain on sale of assets ( 13) ( 17)
Translation and exchange adjustments 2 2 4 12
---- ---- ---- ----
Consolidated pre-tax income $ 72 $182 $128 $405
==== ==== ==== ====
</TABLE>
-10-
<PAGE>
Crown Cork & Seal Company, Inc.
K. 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. 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 reserve for asbestos claims at September 30, 2000 constitutes
management's best estimate of such costs. 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.
L. Recent Accounting Pronouncements
--------------------------------
In September 2000, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 140,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, a replacement of FASB Statement No.
125." SFAS No. 140 is effective for transfers after March 31, 2001 and
is effective for disclosures about securitizations and collateral and
for recognition and reclassification of collateral for fiscal years
ending after December 15, 2000. The Company is currently reviewing this
new standard in order to determine its impact, if any, on the
consolidated financial statements.
In September 2000, the Emerging Issues Task Force (EITF) reached a
final consensus on the accounting for shipping and handling revenues
and costs as discussed in EITF No. 00-10. The Task Force concluded that
the costs for shipping and handling on customer sales should be
classified outside net sales within the Consolidated Statements of
Income. The consensus recommends that these costs be reported in cost
of products sold but permits alternative expense classifications with
sufficient disclosure of the amount and location of these costs within
the Consolidated Statements of Income. Implementation of this standard
will result in a reclassification of outbound freight costs from a
reduction of gross sales to an increase to cost of products sold, the
amount of which has not been determined at this time. The standard is
effective for the fourth quarter of 2000.
-11-
<PAGE>
Crown Cork & Seal Company, Inc.
In June 2000, the FASB issued SFAS No. 138, an amendment to SFAS No.
133. This statement is effective concurrently with SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB statement No. 133, an amendment
of FASB statement No. 133." SFAS No. 137 deferred the effective date
for accounting and reporting requirements of SFAS No. 133 to fiscal
years beginning after June 15, 2000. These statements establish
accounting and reporting guidelines for derivative instruments and
hedging activities. These statements require that all derivative
instruments be measured at their current fair value and recorded on the
consolidated balance sheet as either assets or liabilities. The
accounting for changes in the fair value of these instruments is based
on their intended use along with their hedge designation. The Company
continues its preparation for the January 1, 2001 implementation and
continues to evaluate its potential impact on the consolidated
financial statements.
In December 1999, the U. S. Securities and Exchange Commission (SEC
issued Staff Accounting Bulletin (SAB) No. 101. SAB No. 101 summarizes
certain of the SEC staff views on applying generally accepted
accounting principles to recognition, presentation and disclosure of
revenue in the consolidated financial statements. Adoption of SAB No.
101, as amended by SAB Nos. 101A and 101B, issued in 2000, is required
in the fourth quarter. The Company continues to review the guidelines
of SAB No. 101 and its amendments to determine the impact of its
provisions, if any, on the consolidated financial statements.
M. Foreign Currency Risk
---------------------
The Company is exposed to foreign currency risk as a result of its
international operations, principally European, which constitute a
significant portion of the Company's consolidated revenues and
identifiable assets. These operations have resulted in a large volume
of foreign currency commitment and transaction exposures and
significant foreign currency net asset exposures. The Company manages
its risk to adverse fluctuations in foreign exchange 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 September 30, 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 approximately $1,102 compared to $1,336 at December
31, 1999. Based on exchange rates at September 30, 2000 and the
maturity dates of the various contracts, the fair value of these items
at September 30, 2000 was approximately $5 above 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.
-12-
<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 per share, employee, shareholder and statistical
data; per share earnings are quoted as diluted)
Introduction
------------
The following discussion presents management's analysis of the results
of operations for the three and nine months ended September 30, 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.
Restructuring and Other Charges
-------------------------------
During the second quarter, the Company provided $51 ($36 after-tax or
$.28 per share) for the costs associated with (i) structure
modifications in Europe resulting in the termination of approximately
700 employees and, (ii) the closure of three Americas Division plants
resulting in the termination of approximately 350 employees. The cash
impact of the restructuring plan is currently estimated at $5, when
completed. The Company anticipates that the restructuring actions will
generate after-tax savings of approximately $30 ($.24 per diluted
share) on an annualized basis when fully implemented. Additional
details about the restructuring activities are provided in Note F to
the Consolidated Financial Statements included in Item 1 of this
Quarterly Report on Form 10-Q.
During the second quarter, the Company also provided $26 ($19 after-tax
or $.15 per share) for asset impairments. Additional details about the
asset impairment charges are provided in Note E to the Consolidated
Financial Statements included in Item 1 of this Quarterly Report on
Form 10-Q.
During the third quarter of 1999, the Company reported a credit to
restructuring of $7 ($5 after-tax or $.04 per share) for the reversal
of a portion of its September 1998 restructuring provision, offset in
part by an additional provision for the closure of a plant in Europe
and the reorganization of worldwide research and development
operations.
The foregoing restructuring charges represent the Company's best
estimates, but necessarily make numerous assumptions with respect to
industry performance, general business and economic conditions, raw
material 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." 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.
Results of Operations
---------------------
Net Income and Earnings Per Share
---------------------------------
Net income available to common shareholders for the quarter ended
September 30, 2000 was $44, a decrease of $70 compared to prior year
net income of $114. Third quarter earnings per share decreased to $.35
from $.91 a year earlier. Third quarter 1999 net income included (i) an
after-tax credit for restructuring of $5 (or $.04 per share) as noted
above, (ii) an after-tax charge of $2 (or $.02 per share) for
earthquake damage sustained at a beverage can plant in Turkey, (iii)
an after-tax charge of $4 (or $.03 per share) related to the
disposition of Golden Aluminum Company, and (iv) an after-tax credit of
$7 (or $.05 per share) related to assets sales. Excluding these items
-13-
<PAGE>
Crown Cork & Seal Company, Inc.
Item 2. Management's Discussion and Analysis (Continued)
(a total credit of $6 or $.04 per share), third quarter net income
available to common shareholders decreased from $108 in 1999 to $44 in
2000. Earnings per share, as adjusted, decreased from $.87 in the third
quarter of 1999 to $.35 in 2000. The decrease was due primarily to
lower U.S. beverage can and food can volumes, lower European food can
volumes, increased raw materials and conversion costs, competitive
pressures on pricing across several products, and rising interest
rates, all of which management expects will continue in the near term.
In addition, consolidation among the Company's customers and suppliers
continued to put pressure on operating margins.
For the nine months ended September 30, 2000, net income available to
common shareholders was $61 or $.49 per share compared with net income
of $235 or $1.90 per share for the same period in 1999. The decline in
earnings included the impact of the second quarter after-tax charges of
$55 or $.44 per share for restructuring and other charges identified
above, and $13 or $.10 per share for a bad debt provision for a U.S.
food can customer. Excluding the effects of these and other
non-recurring items in 2000 and 1999, net income available to common
shareholders was $129 or $1.03 per share compared with $227 or $1.84
per share for the same period in 1999, a decrease of $98.
Net Sales
---------
Net sales in the third quarter of $1,954 decreased $186 or 8.7%
compared to 1999 sales of $2,140 due to (i) currency translation from
the continuing strength of the U.S. dollar against the Euro, (ii) lower
lower sales unit volumes of beverage cans in the U.S. and food cans in
the U.S. and Europe, and (iii) business divestitures, partially offset
by (iv) the pass-through of higher aluminum and resin costs. Net sales
for the nine months ended September 30, 2000 decreased $461 or 7.8%
compared to 1999. Foreign currency translation reduced net sales by
$116 in the third quarter of 2000 compared to the same period
in 1999. Divested operations accounted for $34 of the decrease in sales
compared to the third quarter of 1999. Sales from U.S. operations
decreased 9.3% and those in non-U.S. operations decreased 8.3%, with
U.S. sales accounting for 40.6% in the third quarter of 2000 compared
to 40.9% for the same period in 1999. Sales of beverage cans and ends
in the quarter increased to 31.4% from 28.9% of total net sales, while
sales of food cans and ends accounted for 32.7% in 2000 compared to
34.0% in 1999.
An analysis of comparative net sales by operating division follows:
<TABLE>
<CAPTION>
Net Sales Percentage Change
--------------------------------------------- ------------------------
Third Quarter Nine Months Third Nine
2000 1999 2000 1999 Quarter Months
---- ---- ---- ---- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Divisions:
Americas $ 987 $1,055 $2,789 $2,907 ( 6.4%) ( 4.1%)
Europe 885 1,012 2,450 2,777 (12.5%) (11.8%)
Asia-Pacific 82 73 231 247 12.3% ( 6.5%)
Corporate
------ ------ ------ ------
$1,954 $2,140 $5,470 $5,931 ( 8.7%) ( 7.8%)
====== ====== ====== ======
</TABLE>
Net sales in the Americas Division decreased $68 and $118 for the three
and nine months ended September 30, 2000, compared with the same
periods in 1999. The decrease in the third quarter was primarily due to
$34 of divested operations, and lower beverage and food can volumes,
partially offset by the pass-through of increased aluminum and resin
costs. Americas Division beverage can volumes decreased 3.5% in the
third quarter compared to 1999 as a 6.2% decrease in North America
-14-
<PAGE>
Crown Cork & Seal Company, Inc.
Item 2. Management's Discussion and Analysis (Continued)
was partially offset by increases in Latin America. The decrease in
North America reflected an overall industry decline in excess of 5%.
The decrease in U.S. food can volumes was primarily due to a customer
in Chapter 11 bankruptcy proceedings who has reduced its volume
requirements compared to the third quarter of the prior year. U.S.
beverage closure volumes increased 22.4% compared to the same quarter
of the prior year, while PET beverage bottle volumes decreased 3.4%.
Net sales in the European Division decreased $127 and $327 for the
three and nine months ended September 30, 2000, compared to the same
periods in 1999. The continued strength of the U.S. dollar against the
Euro reduced reported third quarter sales by $113 million compared to
the same quarter of 1999. Excluding the effects of currency
translation, third quarter net sales decreased 1.4% compared to the
prior year. Third quarter food can volumes decreased 5.1% compared to
the prior year, primarily in the U.K. Beverage can volumes in the
quarter increased 5.1% as strong demand in southern Europe was
partially offset by lower demand in the UK.
Net sales in the Asia-Pacific Division increased $9 in the third
quarter compared to the prior year, but decreased $16 from 1999 for the
nine months ended September 30, 2000. The quarterly improvement in 2000
was primarily due to stronger beverage can sales in China and
Singapore. Chinese beverage can sales were particularly low in the
third quarter of 1999, which the Company believes was due to lower
consumer demand after the bombing of the Chinese embassy in Kosovo,
and the effects of the contaminant scare that affected one of our major
customers.
Cost of Products Sold
---------------------
Cost of products sold, excluding depreciation and amortization, was
$1,581 for the quarter, a decrease of $92 or 5.5% compared to $1,673
for the same period of 1999. Cost of products sold for the nine months
ended September 30, 2000 was $4,367, a decrease of $253 or 5.5%
compared to the same period of 1999. The decrease was primarily due to
lower net sales and currency translation as described above.
As a percentage to net sales, cost of products sold was 80.9% for the
third quarter compared to 78.2% for the same period in 1999. For the
nine months ended September 30, 2000, cost of products sold was 79.8%
compared to 77.9% in 1999. Excluding the bad debt charge from a U.S.
food can customer as noted above, cost of products sold was 79.5% for
the nine months ended September 30, 2000.
Selling and Administrative
--------------------------
Selling and administrative expenses, excluding depreciation, were $77
for the third quarter, a decrease of $8 or 9.4% compared to 1999. As a
percentage to net sales, selling and administrative expenses were 3.9%
compared to 4.0% in the third quarter of 1999. The decrease in the
current year was due to prior years' restructuring efforts and the
appreciation of the U.S. dollar against the Euro.
Operating Income
----------------
For the quarter ended September 30, 2000 operating income decreased to
$171 from $250 in the third quarter of 1999. For the first nine months
operating income decreased to $485 from $648 in the prior year.
Operating income for 2000 included $77 related to restructuring and
other charges as described in Notes E and F to the Consolidated
Financial Statements included in Item 1 of this Quarterly Report on
Form 10-Q.
-15-
<PAGE>
Crown Cork & Seal Company, Inc.
Item 2. Management's Discussion and Analysis (Continued)
An analysis of operating income by division, excluding restructuring
and other charges of $77 in the second quarter of 2000 and a credit of
$7 in the third quarter of 1999, follows:
<TABLE>
<CAPTION>
Operating Income Percentage Change
--------------------------------------------- ------------------------
Third Quarter Nine Months Third Nine
2000 1999 2000 1999 Quarter Months
---- ---- ---- ---- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Divisions:
Americas $ 69 $106 $230 $285 (34.9%) (19.3%)
Europe 118 160 298 400 (26.3%) (25.5%)
Asia-Pacific 7 6 19 25 (16.7%) (24.0%)
Corporate ( 23) ( 22) ( 62) ( 62) 4.5%
---- ---- ---- ----
$171 $250 $485 $648 (31.6%) (25.2%)
==== ==== ==== ====
</TABLE>
Americas Division operating income was $69 or 7.0% of net sales in the
third quarter compared to $106 or 10.0% in the same period of 1999. The
decrease in 2000 operating margins was due to lower beverage and
food can volumes in the U.S., and the inability to fully recover resin
cost increases from customers. These losses were partially offset by
the continued strong demand in Latin American beverage can operations.
European Division operating income of $118 or 13.3% of net sales
decreased from $160 or 15.8% in the third quarter of 1999. The decrease
of $42 was primarily due to (i) food can sales unit volume decreases,
(ii) foreign exchange translation of $17, (iii) increased resin costs,
and (iv) competitive pricing across several product lines, partially
offset by volume gains in beer and beverage cans.
Asia-Pacific Division operating margin was 8.5% for the three months
ended September 30, 2000 compared to 8.2% in the same period of 1999.
Net Interest Expense / Income
-----------------------------
Net interest expense of $97 in the third quarter was $11 or 12.8%
higher than 1999. The increase was due to higher interest rates,
partially offset by the effects of lower net debt and foreign currency
translation.
Taxes on Income
---------------
The effective tax rate for the quarter and year-to-date was 31.9% and
39.1% compared to 31.3% and 34.8% in the same periods of 1999. The
higher rate in 2000 was largely due to lower pre-tax income, which
increased the impact of non-deductible goodwill and other permanent
differences on the effective tax rate. During the third quarter of 2000
the Company recorded a net credit of $3 in connection with its release
of certain years' prior tax contingencies, offset in part by charges to
increase valuation allowances for deferred tax assets.
Minority Interests, Net of Equity in Earnings of Affiliates
-----------------------------------------------------------
The charge for minority interests, net of equity earnings, decreased by
$2 in the third quarter of 2000 compared to 1999 due to (i) lower
profits in Chinese beverage can operations, and (ii) the purchase of
the minority interests in the Company's CarnaudMetalbox Asia Limited
affiliate, offset by (iii) improved results in the Latin American
beverage can operations.
-16-
<PAGE>
Crown Cork & Seal Company, Inc.
Item 2. Management's Discussion and Analysis (Continued)
Liquidity and Capital Resources
-------------------------------
Cash from Operations
--------------------
Net cash of $146 was provided by operations in the nine months ended
September 30, 2000 compared to $140 in the same period of 1999. Current
year cash provided by operations included $205 from a North American
receivables securitization program entered into during the second
quarter. Excluding the cash received from the securitization program,
cash of $59 was used by operations in 2000. The decrease of $199 from
1999 was due primarily to lower net income from continuing operations
and a reduction in certain liability balances.
Investing Activities
--------------------
Investing activities used cash of $149 in the first nine months of 2000
compared to cash used of $193 in 1999.
Financing Activities
--------------------
Financing activities provided cash of $19 in the first nine months of
2000 compared to $13 in 1999.
During the third quarter of 2000, the Company purchased, for $82, the
minority interests in its CarnaudMetalbox Asia Limited subsidiary
operations in Thailand, Singapore, Vietnam and China. Of the total
purchase price, $77 was paid as of September 30 with the remainder
expected to be paid in the fourth quarter.
During the nine months ended September 30, 2000, the Company, under a
stock repurchase program approved by the Board of Directors in
September 1998,repurchased approximately 3.2 million common shares at
an aggregate cost of $49.
Total debt, net of cash and cash equivalents, was $4,865 at September
30, 2000 as compared to $4,837 at December 31, 1999. Total debt, net of
cash and cash equivalents, as a percentage to total capitalization was
64.4% at September 30, 2000 and 60.3% at December 31, 1999. Total
capitalization is defined by the Company as total net debt, minority
interests and shareholders' equity. The increase in total debt as a
percentage of total capitalization was affected by a reduction in
shareholders' equity due to negative currency translation adjustments
in the first nine months of 2000.
On July 26, 2000, Standard and Poor's, a rating agency, lowered its
long- and short-term ratings on the Company's indebtedness to BBB- and
A-3, respectively, from BBB and A-2, respectively. On August 3,
2000, Moody's Investors Service (Moody's"), a rating agency, lowered
its long- and short-term ratings on the Company's indebtedness to Baa3
and Prime-3, respectively, from Baa2 and Prime-2, respectively. On
November 7, 2000, Moody's further lowered its long- and short-term
ratings on the Company's indebtedness to Ba2 and Not Prime. The
long-term ratings remain under review by Moody's for possible further
downgrade. Recent rating agency actions have resulted in the
elimination, at this time, of the Company's access to the commercial
paper market. Funding for recent and future commercial paper maturities
has been and will be provided, as necessary, through draw downs from
the Company's multicurrency revolving credit facility. Commercial paper
outstanding at September 30, 2000 totaled $570.
As of September 30, 2000, the Company had drawn $1,368 against its
$2,500 multicurrency credit facility. The credit facility has no
restrictions on the use of the funds and the Company anticipates that
it will be sufficient to fund its future operations in the near term
including, as necessary, refinancing the Company's outstanding
commercial paper. The multicurrency facility borrowing rate of LIBOR
plus 1 1/2%, as of November 7, 2000, is higher than that which was
available in the commercial paper market and will, therefore,
increase the Company's future borrowing costs. The facility has a
maturity date of February 4, 2002.
The Company currently believes that it will have access to sufficient
credit and other liquidity sources to refinance existing indebtedness
and fund its operations. However, there can be no assurance that such
sources will be available or that the terms will not vary materially
from those of the Company's current credit facilities. Further negative
rating agency actions may adversely impact the Company's continued
access to credit and other liquidity sources and may increase the cost
of securing funds from such sources in the future.
-17-
<PAGE>
Crown Cork & Seal Company, Inc.
Item 2. Management's Discussion and Analysis (Continued)
Recent Accounting Pronouncements
--------------------------------
The Company is currently reviewing the guidelines of the following
accounting and reporting pronouncements: SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities, a replacement of FASB Statement No. 125," issued in
September 2000, EITF No. 00-10, "Accounting for Shipping and Handling
Revenues and Costs," final consensus reached in September 2000, SFAS
No. 133 (as amended by SFAS Nos. 137 and 138), "Accounting for
Derivative Instruments and Hedging Activities," issued by the FASB in
June 1998 and SAB No. 101, "Revenue Recognition in Financial
Statements," issued by the SEC in December 1999. Details of these
pronouncements are contained in Note L to the Consolidated Financial
Statements included in Item 1 of this Quarterly Report on Form 10-Q.
Management expects that these accounting and reporting standards will
not have a material impact on its consolidated financial statements.
However, the requirement of SFAS No. 133 may result in slightly higher
volatility in the Company's quarterly consolidated financial results.
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 provided approximately 12% of the Company's revenues in the nine
months ended September 30, 2000 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 September 30, 2000, approximately 70% 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, and the Company has benefited
from reduced hedging costs.
The Company believes it 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 "Restructuring and Other Charges," "Financing
Activities" and "Euro Conversion" sections, and in the discussions of
receivables in Note C, and asbestos claims in Note K to the
Consolidated Financial Statements included in Item 1 of 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
-18-
<PAGE>
Crown Cork & Seal Company, Inc.
Item 2. Management's Discussion and Analysis (Continued)
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".
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
----------------------------------------------------------
Information about the Company's exposure to market risk is contained 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 year ended December 31, 1999. For additional
information about current factors impacting the Company's market risk
exposure, see Item 1, Part 1, "Notes to Consolidated Financial
Statements" within Notes G, "Short-Term Borrowings and Long-Term Debt,"
and M, "Foreign Currency Risk" and in Item 2, Part 1, "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" within Results of Operations under the caption "Operating
Income" and within Liquidity and Capital Resources under the captions
"Financing Activities" and "Euro Conversion" included in this Quarterly
Report on Form 10-Q.
-19-
<PAGE>
Crown Cork & Seal Company, Inc.
PART II - OTHER INFORMATION
Item 5. Other Information
On October 26, 2000, the Company's Board of Directors declared cash
dividends of $.25 per share on the Company's common stock. Dividends
are payable on November 20, 2000 to shareholders of record on November
6, 2000.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
4. Amendment No. 2 to Revolving Credit and Competitive
Advance Facility Agreement, dated as of September 26,
2000, among the Registrant, the Subsidiary Borrowers
referred to therein, the Lenders referred to therein,
the Chase Manhattan Bank as Administrative Agent,
Societe Generale, as Documentation Agent, and Bank of
America Illinois, as Syndication Agent.
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.
-20-
<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/ Thomas A. Kelly
-------------------------------
Thomas A. Kelly
Vice President and Corporate Controller
Date: November 10, 2000
-----------------
