Business News

Crown Holdings Announces 2008 Fourth Quarter and Full Year Results

Tuesday 03. February 2009 - Crown Holdings, Inc. (NYSE: CCK) today announced its financial results for the fourth quarter and year ended December 31, 2008.

2008 Highlights

— Net sales grew 7.5% to $8.3 billion
— Gross profit improved 19% to $1.2 billion
— Segment income rose 28.7% to $826 million

Fourth Quarter Results


Net sales in the fourth quarter were $1,877 million compared to $1,871 million in the fourth quarter of 2007. Excluding the impact of $166 million in unfavorable currency translation, net sales grew 9.2% in the fourth quarter of 2008 over the fourth quarter of 2007. The increase in net sales reflects sales unit volume growth in both global beverage cans and food cans and the pass-through of higher raw material costs. For the full year 2008, currency adjusted sales growth was $396 million, of which more than 43% occurred in the fourth quarter.

Fourth quarter gross profit rose 10.3% to $236 million over the $214 million in the 2007 fourth quarter. As a percentage of net sales, gross profit improved to 12.6% in the fourth quarter over the 11.4% in the same quarter last year. Growth in beverage and food can sales unit volumes and ongoing efficiency improvements offset unfavorable foreign currency translation of $25 million.

Selling and administrative expense in the fourth quarter was $87 million compared to $100 million in last year’s fourth quarter reflecting foreign currency translation of $9 million.

Segment income (a non-GAAP measure defined by the Company as gross profit less selling and administrative expense) grew to $149 million in the fourth quarter, up $35 million or 30.7% over the $114 million in the 2007 fourth quarter. Foreign currency translation decreased segment income by $16 million in the fourth quarter of 2008 compared to the same period last year. Segment income as a percentage of net sales expanded 180 basis points to 7.9% in the fourth quarter of 2008 over 6.1% in the fourth quarter of 2007.

Commenting on the results, John W. Conway, Chairman and Chief Executive Officer, stated, “We are pleased to report that our overall operating performance in the fourth quarter and for the full year of 2008 was outstanding. We experienced a 5% unit volume increase in our global beverage can sales during the fourth quarter and 4% for the year. These increases were generated by our businesses in the developing markets of Brazil, the Middle East and Asia, which continue to grow. In the United States, our fourth quarter beverage can volumes were equivalent to those of the same period last year despite industry volumes being down 4%. Equally important, our fourth quarter global food can unit volumes were up more than 2%. Looking ahead, we continue to believe that our product mix and the geographic markets in which we operate around the world position Crown for growth in 2009. Further, we remain committed to generating cash and increasing return on investment.”

Interest expense in the fourth quarter was $70 million compared to $86 million in the fourth quarter of 2007. The decrease reflects the impact of lower average net debt outstanding, lower average borrowing rates and foreign currency translation of $6 million.

The Company recorded a loss on the translation of foreign currency exposures in the fourth quarter of $25 million ($20 million, net of tax, or $0.12 per diluted share) compared to a charge of $1 million ($2 million, net of tax, or $0.01 per diluted share) in the fourth quarter of 2007. For the full year, translation of foreign currency exposures resulted in a loss of $39 million ($31 million, net of tax, or $0.19 per diluted share) compared to gains from translation of $12 million ($10 million, net of tax, or $0.06 per diluted share) for 2007. Of the $25 million translation loss in the 2008 fourth quarter, $14 million ($11 million, net of tax, or $0.07 per diluted share) relates to unfavorable currency translation on intercompany debt (Canadian dollar/U.S. Dollar) and balance sheet translation for affiliates in countries where the functional currency is not the home country currency (Brazil, Colombia, Turkey).

The Company recorded a charge in the fourth quarter of $25 million ($15 million, net of tax, or $0.09 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 $239 million. At December 31, 2007, the reported range was $201 million to $243 million. After the $25 million charge, the Company’s recorded liability at December 31, 2008 was $201 million, the same as at December 31, 2007. Asbestos-related payments totaled $25 million in 2008 compared to $26 million in 2007. Cases filed against the Company declined to 3,100 in 2008 from 3,600 in 2007.

In the fourth quarter of 2008, the Company recorded a restructuring charge of $17 million ($17 million, net of tax, or $0.10 per diluted share) primarily related to the previously announced closures of two plants in Montreal, Canada. For 2008, restructuring charges totaled $21 million ($19 million, net of tax, or $0.12 per diluted share). 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 recorded $20 million ($17 million, net of tax, or $0.10 per diluted share) in restructuring charges.

The Company recorded a provision for asset impairments of $6 million ($6 million, net of tax, or $0.04 per diluted share) in the fourth quarter of 2008. In the 2007 fourth quarter, the Company recorded a non-cash asset impairment charge of $114 million ($114 million, net of tax, or $0.70 per diluted share) primarily to write-down the carrying value of goodwill. For the full year of 2007, 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 provision for income taxes in the fourth quarter of 2008 was a benefit of $1 million compared to a benefit of $462 million in the same 2007 period. 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 $462 million ($2.84 per diluted share) was recorded for the reversal of previously established valuation allowances. The reversal of the valuation allowance had no impact on taxes paid.

In the fourth quarter of 2008, the Company recorded a net loss of $14 million, or $0.09 per diluted share, compared to net income of $326 million, or $2.00 per diluted share, in the fourth quarter of 2007.

The following table reconciles net (loss)/income as reported to net income before the items described above.

Three Months Twelve Months
Ended December 31, Ended December 31,
——————- ——————-
2008 2007 2008 2007
—- —- —- —-
Net (loss)/income as reported ($14) $326 $226 $528
Items, net of tax:
Provision for asbestos 15 29 15 29
Provision for restructuring 17 5 19 17
Provision for asset
impairments/loss on sales
of assets 6 114 9 103
Loss from early extinguishments
of debt 2
Intercompany debt and balance
sheet translation 11 17
Income taxes (462) (5) (462)

Net income before the above items $35 $12 $283 $215
(Loss)/income per diluted common
share as reported ($0.09) $2.00 $1.39 $3.19
Income per diluted common share
before the above items $0.22 $0.07 $1.74 $1.30




Net income before the above items and income per diluted common share before the above items are non-GAAP measures.

Full Year Results

For 2008, net sales rose to $8,305 million, up 7.5% over the $7,727 million in 2007. The increase reflects foreign currency translation of $182 million, sales unit volume growth in beverage and food cans and the pass-through of higher raw material costs in the form of higher selling prices. Approximately 74% of net sales were from outside the United States in 2008 compared to 73% in 2007.

Gross profit for the year grew 19.0% to $1,222 million, or 14.7% of net sales, over the $1,027 million, or 13.3% of net sales for 2007. The improvement was driven by beverage and food can sales unit volume growth, increased operating efficiencies and foreign currency translation of $27 million.

Selling and administrative expense for 2008 was $396 million compared to $385 million in 2007 and includes $6 million from foreign currency translation.

Segment income in 2008 increased 28.7% to $826 million over the $642 million in 2007. Foreign currency translation increased segment income by $21 million in 2008 compared to 2007. Segment income as a percentage of net sales expanded to 9.9% in 2008 over 8.3% in 2007.

Interest expense was $302 million in 2008 compared to $318 million in 2007. The decrease reflects lower average net debt outstanding and lower average borrowing rates during the year which offset currency translation of $4 million.

The provision for income taxes for 2008 was $112 million, for an effective rate of 25.3%, compared to a benefit of $400 million in 2007. Included within the provision for income taxes for 2008 was a $5 million tax credit for a change in UK law related to depreciation on buildings.

For 2008, the Company reported net income of $226 million, or $1.39 per diluted share, compared to net income of $528 million, or $3.19 per diluted share in 2007.

Net debt (a non-GAAP measure defined by the Company as total debt less cash) decreased by $460 million from September 30, 2008 primarily as a result of the reduction in working capital during the fourth quarter. Net debt at December 31, 2008 was $2,741 million, $239 million lower than the December 31, 2007 level. The reduction in net debt reflects $422 million in net cash provided by operating activities for 2008 which more than offset $174 million of capital expenditures and $35 million for common share repurchases (representing approximately 2 million shares).

Debt and cash amounts were:

December 31, September 30, December 31, September 30,
2008 2008 2007 2007
—- —- —- —-
Total debt $3,337 $3,533 $3,437 $3,763
Cash 596 332 457 348
—— — — —
Net debt $2,741 $3,201 $2,980 $3,415
====== ====== ====== ======

Receivables
securitization $234 $308 $272 $328
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At December 31, 2008, the Company had no borrowings under its revolving credit facility and the Company has no significant maturities of long-term debt until 2011.

Net cash provided by operating activities in 2008 was $422 million compared to $509 million in 2007. Free cash flow (a non-GAAP measure defined by the Company as net cash provided by operating activities less capital expenditures) was $248 million in 2008 compared to $353 million in 2007. The decline in free cash flow was primarily due to an increase in accounts receivable which consumed $110 million of cash in 2008 compared to generating cash of $68 million in 2007. The increase in accounts receivable was the result of stronger than expected sales unit volumes in the fourth quarter and lower securitization of receivables.

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 above regarding net income before certain items 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. 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.