Crown Holdings Reports Third Quarter 2014 Results
Third Quarter Highlights
- Income per diluted share
$1.76 ; before certain items$1.36 versus$1.04 in 2013 - YTD income per diluted share
$2.70 ; before certain items$2.94 compared to$2.50 in 2013 - Entered into agreement to acquire Mexican beverage packaging company EMPAQUE from
Heineken N.V.
Net sales in the third quarter grew to
Segment income (a non-GAAP measure) rose to
Commenting on the quarter,
"We are fortunate to have reached an agreement to acquire EMPAQUE,
Interest expense in the third quarter was
Net income attributable to
During the third quarter of 2014, the Company recorded an income tax benefit of
On
A reconciliation from net income and income per diluted share to net income before certain items and income per diluted share before certain items is provided below.
Nine Month Results
Net sales for the first nine months of 2014 rose to
Segment income in the first nine months of 2014 grew to
Interest expense for the first nine months of 2014 was
Net income attributable to
Non-GAAP Measures
Segment income and free cash flow are not defined terms under U.S. generally accepted accounting principles (non-GAAP measures). Segment income is defined by the Company as gross profit excluding the impact of fair value adjustments to inventory acquired in an acquisition and the timing impact of hedge ineffectiveness, less selling and administrative expense. Free cash flow is defined by the Company as net cash provided by operating activities less capital expenditures and certain other items. In addition, the information presented regarding net income before certain items and income per diluted share before certain items does not conform to U.S. GAAP and includes non-GAAP measures. Non-GAAP measures should not be considered in isolation or as a substitute for net income, income per diluted share or cash flow data prepared in accordance with U.S. 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. Free cash flow has certain limitations, however, including that it does not represent the residual cash flow available for discretionary expenditures since other non-discretionary expenditures, such as mandatory debt service requirements, are not deducted from the measure. The amount of mandatory versus discretionary expenditures can vary significantly between periods. The Company believes that net income before certain items and income per diluted share before certain items are useful in evaluating the Company's operations. Segment income, free cash flow, net income before certain items and income per diluted share before certain items are derived from the Company's Consolidated Statements of Operations and Cash Flows, as applicable, and reconciliations to segment income, free cash flow, net income before certain items and income per diluted share before certain items can be found within this release.
Conference Call
The Company will hold a conference call tomorrow,
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, including the Company's ability to continue to grow sales, segment income and income per share before certain items, to successfully close the acquisition of EMPAQUE and the timing of required approvals, and to successfully integrate its acquisitions of Mivisa and EMPAQUE, the level of future customer demand for food cans in
For more information, contact:
Unaudited Consolidated Statements of Operations, Balance Sheets, Statements of Cash Flows, Segment Information and Supplemental Data follow.
Consolidated Statements of Operations (Unaudited) (in millions, except share and per share data) |
||||||||||
Three Months Ended |
Nine Months Ended September 30, |
|||||||||
2014 |
2013 |
2014 |
2013 |
|||||||
Net sales |
$2,594 |
$2,389 |
$6,970 |
$6,585 |
||||||
Cost of products sold |
2,119 |
1,961 |
5,740 |
5,419 |
||||||
Depreciation and amortization |
53 |
34 |
135 |
98 |
||||||
Gross profit (1) |
422 |
394 |
1,095 |
1,068 |
||||||
Selling and administrative expense |
95 |
113 |
302 |
319 |
||||||
Restructuring and other |
8 |
31 |
91 |
39 |
||||||
Foreign exchange |
( 2) |
( 2) |
4 |
|||||||
Interest expense |
64 |
58 |
188 |
179 |
||||||
Interest income |
( 2) |
( 1) |
( 5) |
( 4) |
||||||
Loss from early extinguishment of debt |
34 |
34 |
38 |
|||||||
Income before income taxes |
225 |
195 |
481 |
497 |
||||||
Provision for income taxes |
( 41) |
67 |
42 |
146 |
||||||
Equity earnings |
( 1) |
( 2) |
||||||||
Net income |
266 |
127 |
439 |
349 |
||||||
Net income attributable to noncontrolling interests |
( 22) |
( 26) |
( 65) |
( 74) |
||||||
Net income attributable to Crown Holdings |
$244 |
$101 |
$374 |
$275 |
||||||
Earnings per share attributable to Crown Holdings common shareholders: |
||||||||||
Basic |
$1.78 |
$0.73 |
$2.73 |
$1.96 |
||||||
Diluted |
$1.76 |
$0.73 |
$2.70 |
$1.94 |
||||||
Weighted average common shares outstanding: |
||||||||||
Basic |
137,378,646 |
137,821,990 |
137,148,914 |
140,484,130 |
||||||
Diluted |
138,662,223 |
139,154,205 |
138,435,783 |
141,873,439 |
||||||
Actual common shares outstanding |
138,907,411 |
138,047,748 |
138,907,411 |
138,047,748 |
||||||
(1) A reconciliation from gross profit to segment income is found on the following page.
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 excluding the impact of fair value adjustments to inventory acquired in an acquisition and the timing impact of hedge ineffectiveness, less selling and administrative expense. A reconciliation from gross profit to segment income for the three and nine months ended
Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||||||||
2014 |
2013 |
2014 |
2013 |
||||||||||
Gross profit |
$ |
422 |
$ |
394 |
$ |
1,095 |
$ |
1,068 |
|||||
Fair value adjustment to inventory (1) |
4 |
19 |
|||||||||||
Impact of hedge ineffectiveness (1) |
(3) |
1 |
|||||||||||
Selling and administrative expense |
(95) |
(113) |
(302) |
(319) |
|||||||||
Segment income |
$ |
328 |
$ |
281 |
$ |
813 |
$ |
749 |
|||||
(1) Included in cost of products sold.
Segment Information |
|||||||||||||
Three Months Ended |
Nine Months Ended |
||||||||||||
Net Sales |
2014 |
2013 |
2014 |
2013 |
|||||||||
Americas Beverage |
$ |
570 |
$ |
583 |
$ |
1,713 |
$ |
1,717 |
|||||
North America Food |
236 |
249 |
628 |
652 |
|||||||||
European Beverage |
474 |
481 |
1,358 |
1,344 |
|||||||||
European Food |
787 |
543 |
1,715 |
1,349 |
|||||||||
Asia Pacific |
310 |
300 |
924 |
877 |
|||||||||
Total reportable segments |
2,377 |
2,156 |
6,338 |
5,939 |
|||||||||
Non-reportable segments |
217 |
233 |
632 |
646 |
|||||||||
Total net sales |
$ |
2,594 |
$ |
2,389 |
$ |
6,970 |
$ |
6,585 |
|||||
Segment Income |
|||||||||||||
Americas Beverage |
$ |
77 |
$ |
83 |
$ |
241 |
$ |
244 |
|||||
North America Food |
40 |
26 |
107 |
98 |
|||||||||
European Beverage |
81 |
82 |
223 |
211 |
|||||||||
European Food |
107 |
63 |
196 |
134 |
|||||||||
Asia Pacific |
38 |
32 |
108 |
100 |
|||||||||
Total reportable segments |
343 |
286 |
875 |
787 |
|||||||||
Non-reportable segments |
26 |
31 |
72 |
84 |
|||||||||
Corporate and other unallocated items |
(41) |
(36) |
(134) |
(122) |
|||||||||
Total segment income |
$ |
328 |
$ |
281 |
$ |
813 |
$ |
749 |
|||||
Consolidated Supplemental Data (Unaudited)
(in millions, except per share data)
Reconciliation from Net Income and Income Per Diluted Common Share to Net Income before Certain Items and Income Per Diluted Common Share before Certain Items
The following table reconciles reported net income and diluted earnings per share attributable to the Company to net income before certain items and income per diluted common share before certain items, as used elsewhere in this release.
Three Months Ended September 30, |
Nine Months Ended |
|||||||||||||||
2014 |
2013 |
2014 |
2013 |
|||||||||||||
Net income attributable to Crown Holdings, as reported |
$ |
244 |
$ |
101 |
$ |
374 |
$ |
275 |
||||||||
Items, net of tax: |
||||||||||||||||
Hedge ineffectiveness (1) |
(2) |
1 |
||||||||||||||
Fair value adjustment to inventory (2) |
3 |
13 |
||||||||||||||
Restructuring and other (3) |
6 |
26 |
82 |
33 |
||||||||||||
Loss from early extinguishment of debt (4) |
27 |
27 |
28 |
|||||||||||||
Incomes taxes (5) |
(90) |
18 |
(90) |
18 |
||||||||||||
Net income before the above items |
$ |
188 |
$ |
145 |
$ |
407 |
$ |
354 |
||||||||
Income per diluted common share as reported |
$ |
1.76 |
$ |
0.73 |
$ |
2.70 |
$ |
1.94 |
||||||||
Income per diluted common share before the above items |
$ |
1.36 |
$ |
1.04 |
$ |
2.94 |
$ |
2.50 |
||||||||
Effective tax rate as reported |
(18.2%) |
34.4% |
8.7% |
29.4% |
||||||||||||
Effective tax rate before the above items |
21.6% |
23.9% |
24.6% |
25.1% |
||||||||||||
Net income before certain items, income per diluted common share before certain items and the effective tax rate before certain items are non-GAAP measures and are not meant to be considered in isolation or as a substitute for net income, income per diluted common share and effective tax rates determined in accordance with U.S. GAAP. The Company believes these non-GAAP measures are useful in evaluating the performance of the Company's ongoing business.
(1) In the third quarter and first nine months of 2014, the Company recorded income of
$3 million ($2 million net of tax) and a charge of$1 million ($1 million net of tax) in cost of products sold related to hedge ineffectiveness caused primarily by volatility in the metal premium component of aluminum prices. This ineffectiveness creates a timing issue whereby the Company is required to recognize a portion of its unrealized hedging gains or losses immediately in earnings rather than when the amounts are subsequently realized and passed through to customers in the form of adjusted selling prices.(2) In the third quarter and first nine months of 2014, the Company recorded charges of
$4 million ($3 million net of tax) and$19 million ($13 million net of tax) in cost of products sold for fair value adjustments related to the sale of inventory acquired in its acquisition of Mivisa.(3) In the third quarter and first nine months of 2014, the Company recorded restructuring and other charges of
$11 million ($9 million net of tax) and$38 million ($32 million net of tax) for the closure of a food plant, incremental costs incurred due to an ongoing labor dispute in the Company's Americas Beverage segment and other costs related to previously announced restructuring actions. In the third quarter and first nine months of 2013, the Company recorded restructuring and other charges of$33 million ($28 million net of tax) and$41 million ($35 million net of tax) for costs related to restructuring actions.In the third quarter and first nine months of 2014, the Company recorded gains of
$3 million ($3 million net of tax) and charges of$53 million ($50 million net of tax) primarily for asset sales and impairments related to the divestment of certain operations and transaction costs incurred in connection with its acquisition of Mivisa. In the third quarter of 2013, the Company recorded gains on asset sales of$2 million ($2 million net of tax).(4) In the third quarter of 2014, the Company recorded a charge of
$34 million ($27 million net of tax) for premiums paid and the write off of deferred financing fees in connection with the redemption of its outstanding €500 million senior notes due 2018. In the first quarter of 2013, the Company recorded a charge of$38 million ($28 million net of tax) in connection with the redemption of its outstanding$400 million senior notes.(5) In the third quarter of 2014, the Company recorded an income tax benefit of
$90 million in connection with the reversal of tax valuation allowances inFrance . In the third quarter of 2013, the Company recorded tax charges of$18 million to reduce the value of its deferred tax assets due to a change inU.K. corporate income tax rates, and to recognize the impact of a new tax law inGreece that eliminates a Company's ability to maintain tax free reserves.
Consolidated Balance Sheets (Condensed & Unaudited) (in millions)
|
||||||||||
September 30, |
2014 |
2013 |
||||||||
Assets |
||||||||||
Current assets |
||||||||||
Cash and cash equivalents |
$ |
380 |
$ |
236 |
||||||
Receivables, net |
1,385 |
1,459 |
||||||||
Inventories |
1,473 |
1,331 |
||||||||
Prepaid expenses and other current assets |
370 |
218 |
||||||||
Total current assets |
3,608 |
3,244 |
||||||||
Goodwill and intangibles |
3,067 |
2,010 |
||||||||
Property, plant and equipment, net |
2,447 |
2,097 |
||||||||
Other non-current assets |
695 |
691 |
||||||||
Total |
$ |
9,817 |
$ |
8,042 |
||||||
Liabilities and equity |
||||||||||
Current liabilities |
||||||||||
Short-term debt |
$ |
157 |
$ |
363 |
||||||
Current maturities of long-term debt |
90 |
172 |
||||||||
Accounts payable and accrued liabilities |
2,519 |
2,179 |
||||||||
Total current liabilities |
2,766 |
2,714 |
||||||||
Long-term debt, excluding current maturities |
5,200 |
3,718 |
||||||||
Other non-current liabilities |
1,303 |
1,429 |
||||||||
Noncontrolling interests |
278 |
285 |
||||||||
Crown Holdings shareholders' equity/(deficit) |
270 |
( |
104) |
|||||||
Total equity |
548 |
181 |
||||||||
Total |
$ |
9,817 |
$ |
8,042 |
||||||
Note: In accordance with applicable accounting standards, prior year amounts have been revised to account for final purchase accounting adjustments from the acquisition of Superior Multi-Packaging in the fourth quarter of 2012.
Consolidated Statements of Cash Flows (Condensed & Unaudited) (in millions)
|
||||||||||
Nine months ended September 30, |
2014 |
2013 |
||||||||
Cash flows from operating activities |
||||||||||
Net income |
$ |
439 |
$ |
349 |
||||||
Depreciation and amortization |
135 |
98 |
||||||||
Restructuring and other |
91 |
39 |
||||||||
Pension expense |
41 |
58 |
||||||||
Pension contributions |
( |
63) |
( |
63) |
||||||
Stock-based compensation |
18 |
17 |
||||||||
Working capital changes and other |
( |
652) |
( |
622) |
||||||
Net cash provided by/(used for) operating activities (A) |
9 |
( |
124) |
|||||||
Cash flows from investing activities |
||||||||||
Capital expenditures |
( |
212) |
( |
181) |
||||||
Purchase of business |
( |
733) |
||||||||
Insurance proceeds |
8 |
|||||||||
Proceeds from sale of assets and divestitures |
31 |
16 |
||||||||
Other |
2 |
( |
21) |
|||||||
Net cash used for investing activities |
( |
912) |
( |
178) |
||||||
Cash flows from financing activities |
||||||||||
Net change in debt |
790 |
549 |
||||||||
Purchase of noncontrolling interests |
( |
93) |
||||||||
Debt issue costs |
( |
41) |
||||||||
Dividends paid to noncontrolling interests |
( |
45) |
( |
65) |
||||||
Common stock repurchased |
( |
2) |
( |
300) |
||||||
Other, net |
( |
3) |
3 |
|||||||
Net cash provided by financing activities |
606 |
187 |
||||||||
Effect of exchange rate changes on cash and cash equivalents |
( |
12) |
1 |
|||||||
Net change in cash and cash equivalents |
( |
309) |
( |
114) |
||||||
Cash and cash equivalents at January 1 |
689 |
350 |
||||||||
Cash and cash equivalents at September 30 |
$ |
380 |
$ |
236 |
||||||
(A) Free cash flow is defined by the Company as net cash provided by/used for operating activities less capital expenditures and certain other items. A reconciliation from net cash provided by/used for operating activities to free cash flow for the three and nine months ended
Three Months Ended September 30, |
Nine Months Ended |
||||||
2014 |
2013 |
2014 |
2013 |
||||
Net cash provided by/(used for) operating activities |
$126 |
$127 |
$ 9 |
($124) |
|||
Premiums paid to retire debt early |
28 |
28 |
23 |
||||
Adjusted net cash provided by/(used for) operating activities |
154 |
127 |
37 |
( 101) |
|||
Capital expenditures |
( 63) |
( 57) |
( 212) |
( 181) |
|||
Insurance proceeds from Thailand flooding |
8 |
||||||
Free cash flow |
$ 91 |
$ 70 |
($175) |
($274) |
|||
SOURCE