Crown Holdings Announces 2007 Fourth Quarter and Full Year Results
PHILADELPHIA, Jan 30, 2008 /PRNewswire-FirstCall via COMTEX News Network/ -- Crown Holdings, Inc. (NYSE: CCK), today announced its financial results for the fourth quarter and year ended December 31, 2007.
During the fourth quarter of 2007, the Company changed its method of accounting for the cost of inventories in its United States operations from the last-in, first-out (LIFO) method to the first-in, first-out (FIFO) method. All results have been presented on a FIFO basis as if the accounting change had occurred as of January 1, 2006.
Fourth Quarter Results
Net sales in the fourth quarter increased to $1,871 million, an 11.6% increase over the $1,676 million in the fourth quarter of 2006. The increase in sales was attributable to higher sales unit volumes, the pass-through of higher raw material costs and favorable foreign currency translation.
Fourth quarter gross profit rose 7.5% to $214 million over the $199 million in the 2006 fourth quarter. As a percentage of net sales, gross profit was 11.4% in the fourth quarter compared to 11.9% in the same quarter last year. The decline in percentage margin was attributable to the impact of passing through higher raw material costs partially offset by stronger sales unit volumes, increased operating efficiencies and productivity gains. Included within gross profit for the fourth quarter of 2007 is a net charge of $7 million for the settlement of litigation related to retiree medical benefits, as more fully described below, and the settlement of a supplier dispute.
Selling and administrative expense in the fourth quarter was $100 million compared to $84 million in last year's fourth quarter. The increase reflects a higher accrual for incentive compensation costs, foreign currency translation and general inflationary increases.
Segment income (a non-GAAP measure defined by the Company as gross profit less selling and administrative expense) was $114 million in the fourth quarter after the settlement charges of $7 million referred to above, down $1 million or 0.9% compared to the $115 million in the 2006 fourth quarter. Segment income as a percentage of net sales was 6.1% in the fourth quarter of 2007 compared to 6.9% in the fourth quarter of 2006. Excluding the settlement charges, segment income in the fourth quarter of 2007 was $121 million or 5.2% greater than the fourth quarter of 2006. A reconciliation to segment income from gross profit is provided as a note to the attached unaudited Consolidated Statements of Operations.
Commenting on the results, John W. Conway, Chairman and Chief Executive Officer, stated, "We are very pleased with our overall 2007 performance. Worldwide volumes were good despite the impact of poor weather on our European food can business. Our significant beverage can growth initiatives in emerging markets remained on plan and delivered increasingly positive contributions. Importantly, in 2007, the Company improved gross profit by more than 15% and generated strong free cash flow. Looking ahead, we expect the positive momentum to continue in 2008."
Interest expense in the fourth quarter was $86 million compared to $76 million in the fourth quarter of 2006. The increase reflects the impact of higher average short-term borrowing rates and foreign currency translation.
Net income from continuing operations in the fourth quarter improved to $343 million, or $2.11 per diluted share, compared to net income from continuing operations of $168 million, or $1.01 per diluted share, in the fourth quarter of 2006.
Included within net income from continuing operations in the 2007 fourth quarter is a net gain of $324 million, or $1.99 per diluted share. The net gain reflects a $479 million benefit related to the reversal of valuation allowances on the Company's U.S. deferred tax assets partially offset by a net charge of $7 million to settle retiree medical litigation and a supplier dispute, a $29 million net charge for asbestos, a $5 million net charge related to restructuring actions and a $114 million net impairment charge, primarily to write-off goodwill. In the 2006 fourth quarter, the Company recorded a net gain of $146 million, or $0.88 per diluted share, to record gains on sales of assets and the reversal of a tax balance in comprehensive income, partially offset by provisions for asbestos, the remeasurement of foreign currency exposures and an impairment charge recorded in the Company's plastic bottle joint venture.
Other Fourth Quarter Activity
As mentioned above, the Company recorded a 2007 fourth quarter charge of $7 million ($7 million, net of tax, or $0.04 per diluted share) for the settlement of litigation related to retiree medical benefits and a supplier dispute. As previously disclosed, the Company in prior years had amended retiree medical benefits for several groups of retirees. As a result of the settlement, the Company has reduced its accumulated post-retirement benefit obligation and increased comprehensive income, a separate component of shareholders' equity, by $101 million. Based on actuarial assumptions, the expense and cash payments related to retiree medical benefits are each expected to be reduced in 2008 and future years by approximately $9 million per year and exclude a one-time cash payment of $14 million to be made in 2008. Separately, a final settlement payment of $6 million has been made in the first quarter of 2008 related to previously closed U.S. manufacturing locations.
The Company recorded a charge in the fourth quarter of $29 million ($29 million, net of tax, or $0.18 per diluted share) to increase its asbestos litigation reserve. The Company estimates that its asbestos liability for pending and future asbestos claims will range between $201 million and $243 million. At December 31, 2006, the reported range was $198 million to $247 million. After the $29 million charge, the Company's recorded liability at December 31, 2007 was $201 million compared to $198 million at December 31, 2006. Asbestos-related payments totaled $26 million in 2007, including $9 million under existing settlement agreements, consistent with 2006 payments of $26 million, which also included $9 million under existing settlement agreements. Cases filed against the Company declined to 3,600 in 2007 compared to 4,800 in 2006.
In the fourth quarter of 2007, the Company recorded a restructuring charge of $6 million ($5 million, net of tax, or $0.03 per diluted share) and for the full year of 2007 restructuring charges totaled $20 million ($17 million, net of tax, or $0.10 per diluted share). For 2006, restructuring charges totaled $15 million ($12 million, net of tax, or $0.07 per diluted share).
The Company recorded a non-cash asset impairment charge of $114 million ($114 million, net of tax, or $0.70 per diluted share) in the 2007 fourth quarter primarily to write-down the carrying value of goodwill in its European metal vacuum closures business. For the full year, the provision for asset impairments net of gains on sales of assets was $100 million ($103 million, net of tax, or $0.62 per diluted share). The Company recorded a gain on sales of assets of $62 million ($51 million, net of tax, or $0.31 per diluted share) in the fourth quarter of 2006 primarily related to the sale of property in Europe.
The Company recorded a loss on the translation of foreign currency exposures in the fourth quarter of 2006 of $14 million ($14 million, net of tax, or $0.08 per diluted share) and for the year 2006, the loss was $6 million ($6 million, net of tax, or $0.04 per diluted share).
During the fourth quarter of 2007, the Company determined that it considered it more likely than not that the majority of its U.S. deferred tax assets would be realized through future income from operations. Accordingly, an income tax benefit of $479 million ($2.94 per diluted share) was recorded for the reversal of previously established valuation allowances. The reversal of the valuation allowance has no impact on taxes paid. In the 2006 fourth quarter, the Company recorded an income tax benefit of $121 million ($0.73 per diluted share) related to the reversal of a previously established adjustment to accumulated comprehensive income arising from the Company's U.S. minimum pension liability.
Net debt (a non-GAAP measure defined by the Company as total debt less cash) decreased by $435 million from September 30, primarily as a result of the reduction in working capital during the fourth quarter. Net debt at December 31, 2007 was $2,980 million, $154 million lower than the December 31, 2006 level as free cash flow (a non-GAAP measure defined by the Company as net cash provided by operating activities less capital expenditures) for 2007 more than offset common share repurchases of $118 million (representing approximately 5 million shares) and foreign exchange translation on net debt of $89 million.
For the twelve months ended December 31, 2007, the table below reconciles net cash provided by operating activities to free cash flow from ongoing operations (a non-GAAP measure). In 2007 and 2006, the Company sold two properties in Spain and realized gross proceeds of $89 million as reflected on the Consolidated Statements of Cash Flows. Proceeds from sales of property do not reflect taxes paid which totaled $28 million in 2007 as shown below.
Twelve months ended December 31, 2007
Net cash provided by operating activities $509
Capital expenditures (156)
Free cash flow 353
Taxes related to property sales 28
Increased accounts receivable securitization (21)
Free cash flow from ongoing operations $360
Debt and cash amounts were:
December 31, September 30, December 31,
2007 2007 2006
Total debt $3,437 $3,763 $3,541
Cash 457 348 407
Net debt $2,980 $3,415 $3,134
Receivables securitization $272 $328 $240
Full Year Results
For 2007, net sales rose to $7,727 million, up 10.7% over the $6,982 million in 2006. The increase reflects higher sales unit volumes, the pass- through of higher raw material costs and foreign currency translation. Approximately, 73% of net sales were from outside the United States in 2007 compared to 72% in 2006.
Gross profit for the year of $1,027 million, or 13.3% of net sales, increased 15.1% compared to $892 million of gross profit, or 12.8% of net sales for 2006. The increase was driven by stronger sales unit volumes, increased operating efficiencies and productivity gains.
Selling and administrative expense for 2007 was $385 million compared to $316 million in 2006. The increase is attributable to a higher accrual for incentive compensation costs, foreign currency translation and general inflationary increases.
Segment income in 2007, after the $7 million charge to settle retiree medical benefits and a supplier dispute, increased 11.5% to $642 million over the $576 million in 2006. Segment income as a percentage of net sales was 8.3% in 2007 compared to 8.2% in 2006. Excluding the settlement charges, segment income for 2007 grew to $649 million and was 12.7% over 2006 segment income.
Interest expense was $318 million in 2007 compared to $286 million in 2006. The increase reflects higher average short-term borrowing rates and foreign currency translation in 2007 compared to 2006.
For 2007, the Company reported net income from continuing operations of $545 million, or $3.29 per diluted share, compared to net income from continuing operations of $342 million, or $2.01 per diluted share in 2006.
Included within 2007 net income from continuing operations, the Company recorded a net gain of $323 million, or $1.95 per diluted share, reflecting a $479 million benefit related to the reversal of valuation allowances on deferred tax assets partially offset by a net charge of $7 million to settle retiree medical litigation and a supplier dispute, a $29 million net charge for asbestos, a $17 million net charge for restructuring actions and a $103 million net charge for asset impairments net of asset sale gains. In 2006, the Company recorded a net gain to net income from continuing operations of $144 million, or $0.84 per diluted share, to record gains on sales of assets and the reversal of a tax balance in comprehensive income partially offset by provisions for asbestos, restructuring, the remeasurement of foreign currency exposures, and an impairment charge recorded in the Company's plastic bottle joint venture.
Non-GAAP Measures
Segment income, free cash flow and net debt are not defined terms under U.S. generally accepted accounting principles (non-GAAP measures). Non-GAAP measures should not be considered in isolation or as a substitute for net income, cash flow or total debt data prepared in accordance with GAAP and may not be comparable to calculations of similarly titled measures by other companies.
The Company views segment income and free cash flow as the principal measures of performance of its operations and for the allocation of resources. The Company believes net debt is a useful measure of the Company's debt levels. Segment income, free cash flow and net debt are derived from the Company's Consolidated Statements of Operations and Cash Flows and Consolidated Balance Sheets, respectively, and reconciliations to segment income, free cash flow and net debt can be found within this release.
Conference Call
The Company will hold a conference call tomorrow, January 31, 2008 at 9:30 a.m. (EST) to discuss this news release and other matters. Forward-looking and other material information may be discussed on the conference call. The dial-in numbers for the conference call are (517) 308-9457 or toll-free (888) 820-8951 and the access password is "packaging." A live web cast of the call will be made available to the public on the Internet at the Company's web site, https://www.crowncork.com. A replay of the conference call will be available for a one-week period ending at midnight on February 7. The telephone numbers for the replay are (203) 369-3649 or toll free (800) 964-5457 and the access passcode is 3275.
Cautionary Note Regarding Forward-Looking Statements
Except for historical information, all other information in this press release consists of forward-looking statements. These forward-looking statements involve a number of risks, uncertainties and other factors that may cause 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 the Company to differ include the Company's ability to grow in emerging markets, increase worldwide volumes, improve return on invested capital, generate free cash flow and realize deferred tax assets through future income from operations in the U.S. and the realization of the expected reduction, based on actuarial assumptions, in cash payments for retiree medical benefits. 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, 2006 and in subsequent filings made prior to or after the date hereof. The Company does not intend to review or revise any particular forward-looking statement in light of future events.
Crown Holdings, Inc., through its subsidiaries, is a leading supplier of packaging products to consumer marketing companies around the world. World headquarters are located in Philadelphia, Pennsylvania.
For more information, contact:
Timothy J. Donahue, Senior Vice President - Finance, (215) 698-5088, or
Edward Bisno, Bisno Communications, (212) 717-7578.
Unaudited Consolidated Statements of Operations, Balance Sheets, Statements of Cash Flows and Segment Information follow this page.
Consolidated Statements of Operations (Unaudited)
(in millions, except share and per share data)
Three Months Twelve Months
Ended Ended
December 31, December 31,
2007 2006 2007 2006
Net sales $1,871 $1,676 $7,727 $6,982
Cost of products sold 1,596 1,420 6,471 5,863
Depreciation and amortization 61 57 229 227
Gross profit (1) 214 199 1,027 892
Selling and administrative
expense 100 84 385 316
Provision for asbestos 29 10 29 10
Provision for restructuring 6 1 20 15
Provision for asset
impairments and (gain)/loss
on sale of assets 114 (62) 100 (64)
Interest expense 86 76 318 286
Interest income (5) (4) (14) (12)
Translation and foreign
exchange adjustments 1 16 (12) 6
(Loss)/income before income
taxes, minority interests
and equity earnings (117) 78 201 335
Benefit from income taxes (479) (104) (417) (62)
Minority interests and
equity earnings (19) (14) (73) (55)
Income from continuing
operations 343 168 545 342
Loss from discontinued
operations
Loss from operations (6)
Loss on disposal (6) (27)
Net income $343 $162 $545 $309
Basic earnings/(loss) per
average common share
Continuing operations $2.16 $1.04 $3.38 $2.07
Discontinued operations (0.04) (0.20)
Net income $2.16 $1.00 $3.38 $1.87
Diluted earnings/(loss) per
average common share
Continuing operations $2.11 $1.01 $3.29 $2.01
Discontinued operations (0.04) (0.19)
Net income $2.11 $0.97 $3.29 $1.82
Weighted average common
shares outstanding:
Basic 158,876,567 162,286,149 161,331,007 165,527,147
Diluted 162,741,499 166,666,073 165,464,273 169,750,763
Actual common shares
outstanding 159,777,628 162,711,471 159,777,628 162,711,471
(1) A reconciliation from gross profit to segment income is found on the
following page.
Amounts for 2006 related to the Company's divested North American and European plastics businesses have been reclassified to discontinued operations as a result of the 2006 sales of those businesses.
Consolidated Supplemental Financial Data (Unaudited)
(in millions)
Reconciliation from Gross Profit to Segment Income
The Company views segment income, as defined below, as a principal measure of performance of its operations and for the allocation of resources. Segment income is defined by the Company as gross profit less selling and administrative expense. A reconciliation from gross profit to segment income for the three and twelve months ended December 31, 2007 and 2006 follows:
Three Months Ended Twelve Months Ended
December 31, December 31,
2007 2006 2007 2006
Gross profit $214 $199 $1,027 $892
Selling and administrative
expense 100 84 385 316
Segment income $114 $115 $642 $576
Segment Information
Three Months Ended Twelve Months Ended
December 31, December 31,
Net Sales 2007 2006 2007 2006
Americas Beverage $415 $390 $1,751 $1,600
North America Food 199 191 849 821
European Beverage 341 255 1,436 1,174
European Food 499 450 1,991 1,885
European Specialty Packaging 111 115 460 427
Total reportable segments 1,565 1,401 6,487 5,907
Non-reportable segments 306 275 1,240 1,075
Total net sales $1,871 $1,676 $7,727 $6,982
Segment Income
Americas Beverage $34 $42 $182 $160
North America Food 16 16 76 70
European Beverage 37 24 185 122
European Food 35 28 173 174
European Specialty Packaging (4) 3 14 23
Total reportable segments 118 113 630 549
Non-reportable segments 36 30 133 119
Corporate and unallocated
items (40) (28) (121) (92)
Total segment income $114 $115 $642 $576
Amounts for 2006 related to the Company's divested North American and European plastics businesses have been reclassified to discontinued operations as a result of the 2006 sales of those businesses.
Consolidated Balance Sheets (Condensed & Unaudited)
(in millions)
December 31, 2007 2006
Assets
Current assets
Cash and cash equivalents $457 $407
Receivables, net 673 689
Inventories 1,030 957
Prepaid expenses and
other current assets 74 60
Total current assets 2,234 2,113
Goodwill 2,199 2,185
Property, plant and equipment, net 1,604 1,608
Other non-current assets 964 503
Total $7,001 $6,409
Liabilities and shareholders'
equity/(deficit)
Current liabilities
Short-term debt $45 $78
Current maturities of long-term debt 38 43
Other current liabilities 2,000 1,835
Total current liabilities 2,083 1,956
Long-term debt, excluding current
maturities 3,354 3,420
Other non-current liabilities and
minority interests 1,527 1,527
Shareholders' equity/(deficit) 37 (494)
Total $7,001 $6,409
Consolidated Statements of Cash Flows (Condensed & Unaudited)
(in millions)
Twelve months ended December 31, 2007 2006
Cash flows from operating activities
Net income $545 $309
Depreciation and amortization 229 230
Provision for asset impairments and
(gain)/loss on sale of assets 100 (64)
Income taxes (507) (134)
Other, net 142 14
Net cash provided by operating
activities 509 355
Cash flows from investing activities
Capital expenditures (156) (191)
Proceeds from sales of business and
property, plant and equipment 73 88
Other, net (11) (8)
Net cash used for investing
activities (94) (111)
Cash flows from financing activities
Net change in debt (224) 8
Common share repurchases (118) (135)
Other, net (54) (31)
Net cash used for financing
activities (396) (158)
Effect of exchange rate changes on cash
and cash equivalents 31 27
Net change in cash and cash equivalents 50 113
Cash and cash equivalents at January 1 407 294
Cash and cash equivalents at December 31 $457 $407
(A) Free cash flow is defined by the Company as net cash provided by
operating activities less capital expenditures. A reconciliation from
net cash provided by operating activities to free cash flow for the
twelve months ended December 31 follows:
Twelve months ended December 31, 2007 2006
Net cash provided by operating activities $509 $355
Capital expenditures (156) (191)
Free cash flow $353 $164
Cash flows related to the Company's divested North American and European plastics businesses are included for the periods prior to the sale of those businesses in 2006.
SOURCE Crown Holdings, Inc.
https://www.crowncork.com