³Ô¹Ï51±¬ÁÏÍø Cork & Seal Announces Second Quarter 2002 Results
PHILADELPHIA, July 15 /PRNewswire-FirstCall/ -- ³Ô¹Ï51±¬ÁÏÍø Cork & Seal Company, Inc. (NYSE: CCK) today announced its results for the second quarter and six months ended June 30, 2002.
Second quarter net income from continuing operations improved to $0.32 per diluted share over the $0.05 per diluted share in the second quarter of 2001. On an as-reported basis, second quarter net income rose to $0.48 per diluted share after an extraordinary gain over the $0.04 per diluted share reported for the second quarter of 2001. Year-to-date, the Company reported net income from continuing operations of $0.23 per diluted share compared to a net loss of $0.32 per diluted share for the first six months of 2001. The Company reported a net loss of $7.82 per diluted share for the six months ended June 30, 2002, after an extraordinary gain of $0.19 per diluted share on the early extinguishment of debt and a non-cash charge of $7.89 per diluted share for the impairment of goodwill recorded as a cumulative effect of a change in accounting.
Net sales in the second quarter were $1,789 million, 4.7% below the prior year period, reflecting divested operations, which accounted for $33 million in the 2001 second quarter, the pass-through of lower raw material costs and volume decreases in some product lines partially offset by the effects of currency translation ($20 million), increased selling prices and increased volumes across some product lines. The euro and pound sterling gained considerably against the U.S. dollar during the month of June (approximately .99 and 1.53, respectively, to the U.S. dollar at the end of the second quarter). Although the strengthening of the euro, pound sterling and other currencies against the U.S. dollar was significant, the impact on the Company's second quarter results was proportionately less as the Company's sales and earnings are translated at average rates. The Company's average income statement conversion rates for the year through June 30, 2002 were .899 for the euro and 1.445 for the sterling, improvements of 2.5% and 1.3%, respectively compared to the Company's year-to-date March 31, 2002 average. Non-U.S. sales accounted for approximately 61% of total Company sales through June 30, 2002 with approximately 38% of the Company's sales for the six months being denominated in either euros or pounds sterling.
Gross profit (net sales less cost of products sold) as a percentage of net sales increased to 19.1% compared to 17.2% in last year's second quarter. The improvement is a result of selling price increases, improved operating performance and continuing cost reduction efforts.
Operating income in the second quarter of 2002 increased to $164 million, or 9.2% of net sales, a 16.3% improvement over the $141 million, or 7.5% of net sales, reported in the 2001 second quarter. Excluding the impact of goodwill amortization from last year's second quarter results and non-cash pension expense/income from both the second quarter of 2002 and 2001, respectively, operating income increased to $172 million, or 9.6% of net sales, an improvement of $15 million, or 9.6% over second quarter 2001 operating income of $157 million, which was 8.4% of net sales. For the six months, after excluding goodwill amortization and pension expense/income, operating income of $275 million, or 8.2% of net sales, was an improvement of $47 million or 20.6% over six month 2001 operating income of $228 million which was 6.4% of net sales.
John W. Conway, Chairman and Chief Executive Officer, commented, "We are pleased to report that all divisions continued to perform well compared to the prior year. The Company continues to focus on its goals of remaining a low cost producer, further expanding its margins and paying down debt."
In the Americas Division operating income increased to 8.7% of net sales over the 5.8% in last year's second quarter. Excluding the impact of goodwill amortization from the prior year and non-cash pension expense from both the 2002 and 2001 second quarters, operating income rose to 10.4% of net sales over the 7.3% in the second quarter of 2001 and for the six months ended June 30, 2002 increased to 9.0% of net sales compared to 5.6% for the first six months of 2001.
In the European Division operating income increased to 11.6% of net sales from 11.5% in last year's same quarter. However, excluding the impact of goodwill amortization from the prior year and non-cash pension income from both the 2002 and 2001 second quarters, operating income declined to 10.7% of net sales in the 2002 second quarter from 11.7% in the prior year period. Year-to-date, operating income is 9.5% to net sales compared to 10.1% for the same six month period of 2001.
Operating income as a percentage of net sales improved to 11.8% in the Asia-Pacific Division from 7.3% in the second quarter of 2001 and to 11.1% for the first six months of 2002 compared to 7.1% for the same period of 2001.
Net interest expense in the second quarter was $84 million, down $31 million from the $115 million in the second quarter of 2001. The decrease reflects both lower average debt outstanding and lower average borrowing rates.
Debt and cash amounts were:
June 30, March 31, December 31, June 30,
2002 2002 2001 2001
Total debt $4,912 $5,104 $5,320 $5,630
Cash 308 311 456 308
Net debt $4,604 $4,793 $4,864 $5,322
Receivables
securitization $166 $141 $110 $218
The Company adopted, effective January 1, 2002, Statement of Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets" (SFAS 142), which requires that goodwill and certain other long-lived intangible assets no longer be amortized but be assessed for impairment, at least annually. Amortization of goodwill amounted to $28 million ($0.22 per diluted share) in the second quarter of 2001 and $57 million ($0.45 per diluted share) for the six months ended June 30, 2001. During the second quarter of 2002, the Company completed its transitional impairment review with the assistance of an appraisal firm and has recorded a $1,014 million non-cash charge ($7.89 per diluted share) for goodwill, substantially all of which was generated from the 1996 acquisition of CarnaudMetalbox. The charge, which is retroactive to the first quarter of 2002 in accordance with SFAS 142, reflects overall market declines since the acquisition, is non-operational, and is reflected as a cumulative effect of a change in accounting in the accompanying Consolidated Statements of Operations.
The following table reconciles earnings per share as reported with earnings per share on a continuing operations basis:
Three Months Ended Six Months Ended
June 30, June 30,
(Per diluted share) 2002 2001 2002 2001
Net income / (loss)
as reported $ .48 $ .04 ($7.82)* ($.33)
Less: Extraordinary gain
on early extinguishment
of debt (.19) (.19)
Add: Cumulative effect
of change in
accounting 7.89 (.03)
Provision for
restructuring and
asset impairments .02 .02 .04
(Gain)/loss on sale
of assets (.01) .25
Devaluation of
Argentine Peso .03 .09
Rounding effect due
to shares issued (.01)
Net income / (loss) from
continuing operations $.32 $.05 $.23 ($.32)
* Diluted E.P.S. is the same as basic E.P.S. because of the anti-dilutive effect of stock options.
On May 23, 2002, the Company announced that its wholly owned subsidiary, Constar International Inc., had filed a registration statement with the Securities and Exchange Commission relating to a proposed initial public offering of common stock and senior subordinated notes. The Company currently expects to retain an equity interest in Constar of approximately 45% following completion of the IPO, which is anticipated during the third quarter of 2002. Proceeds from the sale of the Company's shares in Constar and the Constar note offering will be used to repay a portion of the Company's outstanding indebtedness.
Beginning in the second quarter, the Company entered into privately negotiated debt for equity exchanges with holders of the Company's outstanding notes and to date has exchanged 33.4 million shares of common stock for $271 million of principal amount outstanding notes plus $6 million of accrued interest. As of June 30, 2002, 24.4 million shares of common stock had been exchanged for $210 million of debt and $5 million of accrued interest. As a result of the exchanges completed through June 30, 2002, the Company recorded an extraordinary gain on the early extinguishment of debt, net of tax, of $25 million ($0.19 per diluted share) in the second quarter of 2002. Consequently, based on exchanges completed to date, full year interest expense has been reduced by $21 million. The exchanges completed had no impact on net income per diluted share in the second quarter of 2002, are expected to be two cents accretive for the balance of 2002 and three cents accretive for a full year.
The Company expects that its debt at December 31, 2002 will be approximately $4.0 billion compared to $5.3 billion at December 31, 2001, as a result of previously completed divestitures, the foregoing debt for equity exchanges, free cash flow generation, and assuming that the Constar IPO is successfully completed.
A registration statement relating to the securities being offered by Constar has been filed with the Securities and Exchange Commission but has not yet become effective. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This press release does not constitute an offer to sell or the solicitation of an offer to buy any security nor shall there be any sale of any securities in any jurisdiction in which such offer, solicitations or sale would be unlawful.
Conference Call
The Company will hold a conference call tomorrow, July 16, 2002 at 11:00 am (EDT) to discuss this news release. The dial-in numbers for the conference call are (712) 271-3220 or toll free (888) 677-1185 and the access password is "packaging." A replay of the conference call will be available for a one-week period ending at midnight on Tuesday, July 23. The telephone numbers for the replay are (402) 998-0482 or toll free (800) 759-4661 and the access code is 4846. A live web cast of the call will be made available to the public on the Internet at the Company's website, www.crowncork.com.
The Company plans to release its results for the third quarter on October 17.
Cautionary Note Regarding Forward-Looking Statements
Except for historical information, all other information in this press release consists of forward-looking statements within the meaning of the federal securities laws. These forward-looking statements involve a number of risks, uncertainties and other factors, which may cause the actual results to be materially different from those expressed or implied in the forward-looking statements. Important factors that could cause the statements made in this press release or the actual results of operations or financial condition of ³Ô¹Ï51±¬ÁÏÍø to differ include, without limitation, that ³Ô¹Ï51±¬ÁÏÍø's cash flow and debt levels may vary depending upon actual performance, changes in cash requirements and other conditions and that the Constar offerings are subject to a number of conditions and approvals and the final terms may vary substantially as a result of market and other conditions. There can be no assurance that the Constar offerings will be completed as described or at all. Other important factors are discussed under the caption "Forward-Looking Statements" in the Company's Form 10-K Annual Report for the year ended December 31, 2001 and in subsequent filings. The Company does not intend to review or revise any particular forward-looking statement in light of future events.
³Ô¹Ï51±¬ÁÏÍø Cork & Seal is a leading supplier of packaging products to consumer marketing companies around the world. World headquarters are located in Philadelphia, Pennsylvania.
Consolidated Statements of Operations
(In millions, except share and per share data)
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
Net sales $1,789 $1,878 $3,356 $3,536
Cost of products sold 1,447 1,555 2,744 2,961
Depreciation 93 96 183 190
Amortization 1 28 2 58
Selling and administrative
expense 76 70 152 156
Pension expense / (income) 8 (12) 16 (23)
Provision for
restructuring (1) 2 1
Provision for asset
impairments 4 4
(Gain) / loss on sale
of assets (1) 24 (1)
Interest expense 86 120 179 235
Interest income (2) (5) (5) (11)
Translation and foreign
exchange adjustments 9 3 18 6
Income / (loss) before
extraordinary item,
cumulative effect of
a change in accounting
and income taxes 71 21 41 (40)
Provision for income taxes 26 14 46 3
Minority interests,
net of equity earnings (6) (2) (10) (2)
Net income / (loss) before
extraordinary item and
cumulative effect of a
change in accounting 39 5 (15) (45)
Extraordinary item - gain
on early extinguishment
of debt, net of tax 25 25
Cumulative effect of a
change in accounting,
net of tax (1) (1,014) 4
Net income / (loss) $64 $5 ($1,004) ($41)
Income / (loss) per
weighted average
common share:
Basic:
Net income / (loss) before
extraordinary item and
cumulative effect of a
change in accounting $.30 $.04 ($.12) ($.36)
Extraordinary item -
gain on early
extinguishments
of debt .19 .19
Cumulative effect of
a change in
accounting (7.89) .03
Net income / (loss) $.49 $.04 ($7.82) ($.33)
Diluted:
Net income / (loss) before
extraordinary item and
cumulative effect of a
change in accounting $.29 $.04 ($.12) ($.36)
Extraordinary item -
gain on early
extinguishments
of debt .19 .19
Cumulative effect of a
change in accounting (7.89) .03
Net income / (loss) $.48 $.04 ($ 7.82) ($.33)
Weighted average common
shares outstanding:
Basic 131,160,900 125,635,607 128,461,067 125,629,864
Diluted 133,238,280 125,635,607 129,836,316 125,629,864
Actual common shares
outstanding 150,321,659 125,640,231 150,321,659 125,640,231
Notes: (1) On January 1, 2001, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments," as amended and on January 1, 2002 the Company adopted SFAS No. 142 "Goodwill and Other Intangible Assets."
SOURCE ³Ô¹Ï51±¬ÁÏÍø Cork & Seal Company, Inc.
Web site:
CONTACT: Timothy J. Donahue, Senior Vice President - Finance, ³Ô¹Ï51±¬ÁÏÍø Cork & Seal Company, +1-215-698-5088; or Edward Bisno, Edelman Financial, +1-212-704-8212, for ³Ô¹Ï51±¬ÁÏÍø Cork & Seal Company