³Ô¹Ï51±¬ÁÏÍø Cork & Seal Reports First Quarter 2002 Results
PHILADELPHIA, April 18 /PRNewswire-FirstCall/ -- ³Ô¹Ï51±¬ÁÏÍø Cork & Seal Company, Inc. (NYSE: CCK) today announced its results for the first quarter ended March 31, 2002. On a continuing operations basis and before the cumulative effect of an accounting change in the prior year period, the Company reported a net loss of $0.10 per diluted share compared to a net loss of $0.37 per diluted share in the first quarter of 2001. The Company reported a net loss of $0.43 per diluted share for the quarter ended March 31, 2002, including charges for the loss on sales of assets, currency devaluation and restructuring actions. In the first quarter of 2001, the Company reported a net loss of $0.37 per diluted share, including a credit for the cumulative effect of an accounting change and a charge for restructuring actions.
Net sales in the first quarter were $1,567 million, 5.5% below the prior year period, reflecting the effects of currency translation ($43 million) and divested operations ($17 million). Excluding the effects of currency translation and divested operations, net sales were 1.9% less than the prior year period, reflecting the pass-through of lower raw material costs and volume decreases in some product lines partially offset by increased selling prices across many product lines.
Gross profit as a percentage of net sales increased to 17.2% of net sales compared to 15.2% in last year's first quarter. The improvement resulted from recently announced pricing initiatives together with improved operating performance and continuing cost reduction efforts.
Operating income in the first quarter increased to $95 million, or 6.1% of net sales, a 79% improvement over the $53 million, or 3.2% of net sales, reported in the 2001 first quarter. Excluding the impact of goodwill amortization from last year's first quarter results and non-cash pension expense/income from both the first quarter of 2002 and 2001, respectively, operating income increased to $103 million, or 6.6% of net sales. This was a 45% improvement over the prior year period's $71 million in operating income which was 4.3% of net sales.
As previously announced, the Company successfully completed the divestiture of its fragrance pump and pharmaceutical packaging businesses, aggregating approximately $170 million in gross sale proceeds. Net sales approximated $90 million for these two businesses in 2001. The Company recorded an after-tax loss on the sales of $32 million, or $0.25 per diluted share, to write-off its investment in these businesses, including $126 million of goodwill. The Company also completed the sale of its 15% shareholding of Nampak Ltd. in South Africa for $24 million in the first quarter. Net proceeds from these transactions were used to pay down short-term indebtedness. The Company also recorded a currency translation loss of $7 million or $0.06 per diluted share, to account for the large devaluation in the Argentine peso during the first quarter.
Commenting on the first quarter results, John W. Conway, Chairman and Chief Executive Officer, stated, "We are very pleased to see an improvement in the financial results for the Company. Although we still have a way to go before reaching ³Ô¹Ï51±¬ÁÏÍø's more traditional operating levels, we are very confident in the course we have set to remain a low cost producer and improve margins."
The Company's net interest cost in the first quarter was $90 million, $19 million less than the same quarter last year. The significant decrease reflects both lower average debt outstanding and lower average borrowing rates.
Debt and cash amounts were:
March 31, December 31, March 31,
2002 2001 2001
Total debt $5,104 $5,320 $5,639
Cash 311 456 291
Net debt $4,793 $4,864 $5,348
Receivables securitization $141 $110 $225
The following table reconciles earnings per share as reported with earnings per share on a continuing operations basis:
Three Months Ended March 31,
(Per diluted share) 2002 2001
Net loss as reported ($.43) ($.37)
Less: Cumulative effect of accounting change (.03)
(.43) (.40)
Add: Provision for restructuring .02 .03
Loss on sales of assets .25
Devaluation of Argentine Peso .06
Net loss from continuing operations ($.10) ($.37)
In addition and for comparison purposes, the Company notes three items with significant variances between the first quarter 2002 and 2001.
First, the Company's decision in the fourth quarter of 2001 to provide a valuation allowance to fully offset its net U.S. deferred tax assets will result in greater volatility in quarterly earnings per share. Historically, the Company had recognized a U.S. tax benefit in the first quarter with the realization of that benefit occurring in the more profitable quarters to follow. In the 2002 first quarter and going forward, the Company will no longer recognize this U.S. tax benefit in loss quarters and accordingly will not record a U.S. tax charge in profit quarters. During the three months ended March 31, 2001, the Company recorded a tax benefit on U.S. losses of $26 million or $0.21 per diluted share. During the three months ended March 31, 2002 there was no tax benefit recognized on U.S. losses as the Company increased its valuation allowance by $12 million or $0.09 per diluted share.
Second, in accordance with a new accounting pronouncement (SFAS 142), the Company has discontinued amortization of its goodwill beginning January 1, 2002. Preliminary results indicate that a transitional impairment charge will be required in accordance with SFAS 142. The Company continues to assess the transitional impairment charge, with the assistance of an independent appraisal firm.
Third, non-cash pension costs have changed substantially between the first quarter 2002 and 2001. Due to changes in interest rates and returns on assets, after-tax pension income of $8 million ($0.06 per diluted share) in the first quarter of 2001 has changed to after-tax pension expense of $10 million ($0.08 per diluted share) in the first quarter of 2002.
The following table is presented to further clarify the impact of the significant year-over-year operating income improvement on earnings per share:
Three Months Ended March 31,
(Per diluted share) 2002 2001
Net loss from continuing
operations as reported above ($.10) ($.37)
Goodwill amortization .23
Non-cash pension expense/(income) .08 (.06)
Tax benefit on U.S. losses (.18)
Comparable earnings from
operating activities ($.02) ($.38)
Review by Division
The Americas Division generated net sales of $792 million in the first quarter, $51 million lower than in the prior year period. Excluding currency translation of $12 million and divested operations of $14 million, net sales would have been $25 million or 3.0% lower than last year's first quarter reflecting the pass-through of lower raw material costs and lower volumes in select product lines, partially offset by increased pricing across several product lines. Principally, as a result of improved pricing, the operating margin as a percentage of net sales in the first quarter increased to 5.6% from 1.8% in the prior year period. Excluding the impact of goodwill amortization from the prior year and non-cash pension expense from both the 2002 and 2001 first quarters, operating margins as a percentage of net sales expanded to 7.4% compared to last year at 3.6 % of net sales.
Consistent with industry-wide shipment statistics, North American beverage can volumes declined 2.3% in the seasonally soft first quarter. Food can volumes were down 3.3% after a strong fourth quarter of 2001. Unit volume demand was very strong for single-serve PET beverage bottles, custom PET bottles, and plastic beverage and specialty closures. Our Risdon-AMS beauty care packaging business performed well in the quarter, rebounding from a soft fourth quarter, while the Company's South American businesses performed well operationally but were impacted by the economic turmoil in Argentina.
The European Division generated net sales of $698 million in the first quarter, $43 million lower than in the prior year period. Excluding currency translation of $30 million, net sales were 1.8% lower than the 2001 first quarter, reflecting divested operations and the pass-through of lower raw material costs. Operating income improved to 9.0% of net sales from 8.1% in the prior year period; however, excluding goodwill amortization from the prior year period and non-cash pension income from both periods, operating income fell to 8.0% of net sales in the first quarter of 2002 compared to the prior year period at 8.4%.
With all operations performing well, especially those in France and Spain, the beverage can operations reported year-over-year unit volume growth of 13.7%. Food can volumes across the Division were down marginally as volume gains in France and West Africa were offset by declines in Italy and the UK. Aerosol can volumes, down 2.9% versus the prior year, were affected by lower overall market demand. The plastics sector experienced higher sales unit volumes across most product lines, most notably beauty care packaging and PET preforms and bottles.
The Asia-Pacific Division reported net sales of $77 million, up $3 million or 4.1% compared to the prior year period. Operating income at $8 million, or 10.4% of net sales, increased $3 million over first quarter 2001 operating income of $5 million, which was 6.8% of net sales. Demand for beverage cans continued to be strong with volume gains in China and throughout Southeast Asia.
Conference Call
The Company will hold a conference call today, April 18, 2002 at 11:00 am (EDT) to discuss this news release. The dial-in numbers for the conference call are (610) 769-3105 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 Thursday, April 25. 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 second quarter on July 18 and 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 actual results of operations or financial condition of the Company to differ 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 March 31,
2002 2001
Net sales $1,567 $1,658
Cost of products sold 1,297 1,406
Depreciation 90 94
Amortization (1) 1 30
Selling and administrative expense 76 86
Pension expense (income) 8 (11)
Provision for restructuring 2 2
Loss on sale of assets 24
Interest expense 93 115
Interest income (3) (6)
Translation and foreign
exchange adjustments 9 3
Loss before income taxes and
cumulative effect of
a change in accounting (30) (61)
Provision/(benefit)
for/from income taxes 20 (11)
Minority interests,
net of equity earnings (4)
Net loss before cumulative
effect of a change in accounting (54) (50)
Cumulative effect of a
change in accounting (2) 4
Net loss ($54) ($46)
Loss per average common share:
Basic and diluted
- before cumulative effect of a
change in accounting ($.43) ($.40)
- after cumulative effect of a
change in accounting ($.43) ($.37)
Weighted average common
shares outstanding:
Basic 125,731,235 125,624,056
Diluted 126,436,838 125,624,056
Actual common shares outstanding 125,768,575 125,628,722
(1) On January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and
Other Intangible Assets." SFAS No. 142 requires that goodwill and
other long-lived intangible assets no longer be amortized, but be
tested for impairment, at least annually, using the guidelines
within the standard. Amortization for 2001 includes goodwill
amortization of $29 or $.23 per diluted share.
(2) On January 1, 2001, the Company adopted SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities," as amended.
That standard requires that the fair value of outstanding
derivatives be recognized within the Company's balance sheet. The
Company, to comply with this standard, recognized an after-tax
transition gain of $4 or $.03 per diluted share.
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SOURCE ³Ô¹Ï51±¬ÁÏÍø Cork & Seal Company, Inc.
Web site:
CONTACT: Timothy J. Donahue, Senior Vice President - Finance of ³Ô¹Ï51±¬ÁÏÍø Cork & Seal Company, +1-215-698-5088, or Edward Bisno of Edelman Financial, +1-212-704-8212, for ³Ô¹Ï51±¬ÁÏÍø Cork & Seal Company