Packaging

Crown Holdings Announces Fourth Quarter 2010 Results

Wednesday 02. February 2011 - Crown Holdings, Inc. (NYSE: CCK) today announced its financial results for the fourth quarter and year ended December 31, 2010.

Fourth Quarter Highlights
— Income Per Diluted Share of $0.28
— Income Per Diluted Share Before Certain Items improved 56% to $0.42 from
$0.27
— Gross profit increased 15%; Segment income up 29%
— Global beverage can sales unit volumes rose 13%; food can volumes up 5%
Fourth Quarter Results
Net sales in the fourth quarter were $1,949 million compared to $1,917 million in the fourth quarter of 2009. The increase was primarily driven by higher global sales unit volumes offset by $45 million of unfavorable foreign currency translation.
Fourth quarter gross profit grew 15.2% to $288 million over the $250 million in the 2009 fourth quarter, reflecting increased global sales unit volumes, cost reductions and improved productivity, more than offsetting $6 million from unfavorable foreign currency translation. Gross profit as a percentage of net sales expanded to 14.8% from 13.0% in the fourth quarter of 2009.
Selling and administrative expense was $104 million in the fourth quarter compared to $107 million in the prior year, and includes a reduction of $2 million from foreign currency translation.
Segment income (a non-GAAP measure defined by the Company as gross profit less selling and administrative expense) grew to $184 million in the 2010 fourth quarter, an increase of 28.7% over the $143 million reported for the same period in 2009. The improvement in 2010 was primarily due to increased sales unit volumes and productivity improvements, partially offset by unfavorable foreign currency translation of $4 million. Segment income improved to 9.4% of net sales in the 2010 fourth quarter up from 7.5% in the fourth quarter last year.
Commenting on the quarter, John W. Conway, Chairman and Chief Executive Officer, stated, “We are pleased to report that Crown’s improved performance for the quarter and 2010 demonstrates the ability of the Company to stay focused on world class operating excellence and strict cost controls and to leverage our international manufacturing footprint, all while executing an aggressive expansion program to meet demand in many of the fastest growing markets across the globe. Our operations continued to perform well driven by global beverage can volumes increasing 13% and global food can volumes improving 5% in the fourth quarter. Performance improvement accelerated in the fourth quarter in emerging markets reflecting growing demand and increasing output from recent capacity additions.”
Interest expense in the fourth quarter was $56 million, compared to $58 million in the fourth quarter of 2009, primarily reflecting lower average debt outstanding during the period.
The Company recorded a charge in the fourth quarter of 2010 of $31 million ($21 million, net of tax, or $0.13 per diluted share) to increase its asbestos litigation reserve. In the 2009 fourth quarter, the Company recorded a charge of $55 million ($36 million, net of tax, or $0.22 per diluted share) to increase its asbestos reserve. Asbestos-related payments totaled $27 million in 2010 compared to $26 million in 2009, and the Company expects 2011 payments to be similar to prior years’ levels.
In the fourth quarter of 2010, the Company recorded a $22 million provision for income taxes compared to a $64 million benefit in the fourth quarter of 2009. The 2009 net benefit of $64 million included benefits of $73 million to reduce valuation allowances in the U.S. and Germany. The Company paid taxes, net of refunds, of $102 million and $73 million in 2010 and 2009, respectively.
Net income attributable to Crown Holdings in the fourth quarter was $45 million, or $0.28 per diluted share, compared to $81 million, or $0.50 per diluted share in the fourth quarter of 2009. Net income per diluted share before certain items improved 55.6% to $0.42 from $0.27 in 2009.
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.
Full Year Results
Net sales for 2010 were $7,941 million compared to $7,938 million in 2009 reflecting higher global sales unit volumes which offset the pass-through of lower raw material costs and $42 million in unfavorable foreign currency translation. Approximately 72% of net sales were generated outside the U.S. in both 2010 and 2009.
Gross profit for 2010 improved to $1,250 million, or 15.7% of net sales, compared to $1,193 million, or 15.0% of net sales in 2009. The increase reflects global sales unit volume growth and productivity improvements, more than offsetting the 2009 inventory repricing gains that did not recur in 2010 and $12 million of unfavorable foreign currency translation.
Selling and administrative expense for the year was $360 million compared to $381 million for 2009. The decrease in 2010 expense includes a benefit of $20 million ($20 million, net of tax, or $0.12 per diluted share) from the settlement of a legal dispute unrelated to the Company’s ongoing operations, and $4 million from foreign currency translation.
Segment income in 2010 was $890 million compared to $812 million in 2009. The 2010 increase includes the settlement benefit of $20 million referred to above (which is included in corporate and other unallocated items in the Segment Information table below), the benefits of higher global sales unit volumes, cost reductions and increased productivity. These factors more than offset 2009 inventory repricing gains which did not recur in 2010 and $8 million of unfavorable foreign currency translation. Excluding the $20 million settlement benefit, segment income increased 7.1% to $870 million or 11.0% of net sales in 2010 compared to 10.2% of net sales in the same 2009 period.
Interest expense declined by $44 million in 2010 to $203 million from $247 million for the same period last year reflecting the impact of lower average debt outstanding.
Net income attributable to Crown Holdings was $324 million, or $2.00 per diluted share, compared to $334 million, or $2.06 per diluted share, in 2009. Net income per diluted share before certain items increased 11.4% to $2.24 over the $2.01 last year.
“To enhance shareholder value, we used the strong cash flow generated from operations to repurchase approximately 8 million Company common shares and to buy out joint venture partners’ interests in several operations. The Company also increased its financial flexibility with a larger and extended credit facility and extended its long-term debt maturity profile while lowering overall average borrowing costs with two successful bond refinancings, one in the 2011 first quarter,” Mr. Conway said.
Net debt (a non-GAAP measure defined by the Company as total debt less cash) was $246 million higher at December 31, 2010 than at December 31, 2009, primarily due to a change in accounting for accounts receivables securitization which increased reported net debt. In 2010, the Company generated $508 million of free cash flow (a non-GAAP measure) which was utilized to repurchase $255 million of Company common stock and to acquire partners’ interests in joint ventures for $169 million.
Due to a change in accounting guidance, the Company’s current receivables securitization facilities are now accounted for as securitized borrowings and $208 million was included in the total debt of $3,048 million at December 31, 2010 as presented below. This change in accounting also affected the Company’s reported cash flow from operations in 2010 as the cash received from the securitizations is now reported as financing activities instead of operating activities. In accordance with the new guidance, prior period amounts have not been restated.
Debt and cash amounts were:
December September December September
31, 30, 31, 30,
——— ———- ——— ———-
2010 2010 2009 2009
—- —- —- —-
Total debt $3,048 $3,229 $2,798 $3,225
Cash 463 415 459 438
— — — —
Net debt $2,585 $2,814 $2,339 $2,787
====== ====== ====== ======
Receivables
securitization not $0 $0 $232 $322
included in total debt
above === === ==== ====
———————-
In January 2011, the Company issued $700 million principal amount of 6.25% senior unsecured notes due 2021 and will use a portion of the proceeds to redeem its $600 million principal amount of 7.75% senior unsecured notes due 2015. The Company expects to record a loss on early extinguishment of debt of approximately $33 million (approximately $20 million, net of tax, or $0.13 per diluted share) in the first quarter of 2011 for premiums paid and the write-off of deferred financing fees.
Outlook
“We expect a busy and promising 2011. Our expansion projects are on schedule and budget with three new plants and four new line additions at existing plants expected to be commercialized during the year in exciting growth markets around the world. We have also announced four new plants scheduled to begin production during 2012. As we look out over the next five years, we believe new growth opportunities will continue to arise. In pursuing these opportunities, we remain committed to conservative deployment of capital by growing with our customers to meet long term demand in promising emerging markets,” Mr. Conway stated.
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). In addition, the information presented regarding net income before certain items and income before certain items per diluted share does not conform to GAAP and includes 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 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 net debt is a useful measure of the Company’s debt levels and that net income before certain items can be used to evaluate the Company’s operations. Segment income, free cash flow, net debt and net income before certain items are derived from the Company’s Consolidated Statements of Operations and Cash Flows and Consolidated Balance Sheets, as applicable, and reconciliations to segment income, free cash flow, net debt and net income before certain items can be found within this release.