10-K: Annual report pursuant to Section 13 and 15(d)
Published on February 22, 2006
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D. C. 20549
FORM
10-K
( X ) ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For
the
fiscal year ended December 31, 2005
( ) TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For
the
transition period from ________________ to ________________
Commission
File Number 1-7349
Ball
Corporation
State
of
Indiana 35-0160610
10
Longs
Peak Drive, P.O. Box 5000
Broomfield,
Colorado 80021-2510
Registrant’s
telephone number, including area code: (303) 469-3131
Securities
registered pursuant to Section 12(b) of the Act:
|
Title
of each class
|
Name
of each exchange
on
which registered
|
|||
|
Common
Stock, without par value
|
New
York Stock Exchange, Inc.
Chicago
Stock Exchange, Inc.
Pacific
Exchange, Inc.
|
Securities
registered pursuant to Section 12(g) of the Act: NONE
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act.
YES [X] NO [ ]
Indicate
by check mark if the registrant is not required to file reports pursuant
to
Section 13 or Section 15(d) of the Act.
YES [ ] NO [X]
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO
[ ]
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
|
Large
accelerated filer [X]
|
Accelerated
filer [ ]
|
Non-accelerated
filer [ ]
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act).
YES [ ] NO [X]
The
aggregate market value of voting stock held by non-affiliates of the registrant
was $3,881 million based upon the closing market price and common shares
outstanding as of July 3, 2005.
Number
of
shares outstanding as of the latest practicable date.
|
Class
|
Outstanding
at February 3, 2006
|
|||
|
Common
Stock, without par value
|
104,286,147
|
DOCUMENTS
INCORPORATED BY REFERENCE
1. Proxy
statement to be filed with the Commission within 120 days after
December 31, 2005, to the extent indicated in
Part III.
PART
I
Item
1. Business
Ball
Corporation was organized in 1880 and incorporated in Indiana in 1922. Its
principal executive offices are located at 10 Longs Peak Drive, Broomfield,
Colorado 80021-2510. The terms "Ball," "the company," "we" and "our" as
used herein refer to Ball Corporation and its consolidated
subsidiaries.
Ball
is a
manufacturer of metal and plastic packaging, primarily for beverages and foods,
and a supplier of aerospace and other technologies and services to government
and commercial customers.
Information
Pertaining to the Business of the Company
The
company has determined that it has five reportable segments organized along
a
combination of product lines and geographic areas: (1) North American
metal beverage packaging, (2) North American metal food packaging,
(3) North American plastic packaging, (4) international packaging and
(5) aerospace and technologies. Prior periods required to be shown in this
Annual Report on Form 10-K (Annual Report) have been conformed to the
current presentation.
A
substantial part of our North American and international packaging sales are
made directly to companies in packaged beverage and food businesses, including
SABMiller and bottlers of Pepsi-Cola and Coca-Cola branded beverages and their
affiliates that utilize consolidated purchasing groups. Sales to SABMiller
plc
and PepsiCo, Inc., represented 11 percent and 10 percent of Ball’s
consolidated net sales, respectively, for the year ended December 31, 2005.
Additional details about sales to major customers are included in Note 2 to
the consolidated financial statements, which can be found in Item 8 of this
Annual Report (“Financial Statements and Supplementary Data”).
North
American Packaging Segments
Our
principal business in North America is the manufacture and sale of aluminum,
steel and polyethylene terephthalate (PET) containers, primarily for beverages
and foods. Packaging products are sold in highly competitive markets, primarily
based on quality, service and price. The North American packaging business
is
capital intensive, requiring significant investment in machinery and equipment.
Profitability is sensitive to selling prices, production volumes, labor,
transportation, utility and warehousing costs, as well as the availability
and
price of raw materials, such as aluminum, steel, plastic resin and other direct
materials. These raw materials are generally available from several sources
and
we have secured what we consider to be adequate supplies and are not
experiencing any shortages. We believe we have limited our exposure related
to
changes in the costs of aluminum, steel and plastic resin as a result of
(1) the inclusion of provisions in most aluminum container sales contracts
to pass through aluminum cost changes, as well as the use of derivative
instruments, (2) the inclusion of provisions in certain steel container
sales contracts to pass through steel cost changes and the existence of certain
other steel container sales contracts that incorporate annually negotiated
metal
costs and (3) the inclusion of provisions in substantially all plastic container
sales contracts to pass through resin cost changes. In 2004 and 2005 we were
able to pass through the majority of steel surcharges levied by producers and
continually attempt to reduce manufacturing and other material costs as much
as
possible. While raw materials and energy sources, such as natural gas and
electricity, may from time to time be in short supply or unavailable due to
external factors, and the pass through of steel costs to our customers may
be
limited in some instances, we cannot predict the timing or effects, if any,
of
such occurrences on future operations.
Research
and development (R&D) efforts in the North American packaging segments are
directed toward the development of new sizes and types of metal and plastic
beverage and food containers, as well as new uses for the current containers.
Other research and development efforts in these segments seek to improve
manufacturing efficiencies. During 2004 we completed our expansion of the Ball
Technology and Innovation Center located near Denver, Colorado. All of our
North
American R&D activities are now conducted in that facility.
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North
American Metal Beverage Packaging
North
American metal beverage packaging represents Ball’s largest segment, accounting
for 42 percent of consolidated net sales in 2005. Decorated two-piece
aluminum beverage cans are produced at 16 manufacturing facilities in the
U.S. and one each in Canada and Puerto Rico. Can ends are produced within four
of the U.S. facilities, as well as in a fifth facility that manufactures only
ends. Metal beverage containers are primarily sold under multi-year supply
contracts to fillers of carbonated soft drinks, beer, energy drinks and other
beverages. Sales volumes of metal beverage containers in North America tend
to
be highest during the period from April through September.
Through
Rocky Mountain Metal Container, LLC, a 50/50 joint venture, which is accounted
for as an equity investment, Ball and Coors Brewing Company (Coors), a wholly
owned subsidiary of Molson Coors Brewing Company, operate beverage can and
end manufacturing facilities in Golden, Colorado. The joint venture supplies
Coors with beverage cans and ends for its Golden, Colorado, and Memphis,
Tennessee, breweries and supplies ends to its Shenandoah, Virginia, filling
location. Ball receives management fees and technology licensing fees under
agreements with the joint venture. In addition to beverage containers supplied
to Coors from the joint venture, Ball supplies, from its own facilities,
substantially all of Coors’ metal container requirements for its Shenandoah,
Virginia, filling location, as well as other containers not manufactured by
the
joint venture.
Based
on
publicly available industry information, we estimate that our North American
metal beverage container shipments in 2005 of approximately 32 billion cans
were approximately 31 percent of total U.S. and Canadian shipments of metal
beverage containers. Three producers manufacture substantially all of the
remaining metal beverage containers. Two of these producers and three other
independent producers also manufacture metal beverage containers in Mexico.
Available information indicates that North American metal beverage container
shipments have been relatively flat during the past several years.
Beverage
container production capacity in the U.S., Canada and Mexico exceeds demand.
In
order to more closely balance capacity and demand within our business, from
time
to time we consolidate our can and end manufacturing capacity into fewer, more
efficient facilities. We also attempt to efficiently match capacity with the
changes in customer demand for our packaging products. To that end, during
the
second quarter of 2005 we completed the conversion of a beverage can
manufacturing line in our Golden, Colorado, plant from the production of
12-ounce beverage cans to 24-ounce beverage cans. In the fourth quarter of
2005 we began the conversion of a line in our Monticello, Indiana, plant from
12-ounce can manufacturing to a line capable of producing beverage cans in
sizes
up to 16 ounces. The Monticello conversion was substantially completed
during January 2006. During 2005 Ball commenced a project to upgrade and
streamline its North American beverage can end manufacturing capabilities,
a
project expected to result in productivity improvements and reduced
manufacturing costs. In connection with these activities, the company recorded
a
pretax charge of $19.3 million ($11.7 million after tax) in the third
quarter of 2005. We have installed the first production module in this
multi-year project and the second and third modules are in the installation
phase. The project is expected to be completed in 2007.
The
aluminum beverage container continues to compete aggressively with other
packaging materials in the beer and carbonated soft drink industries. The glass
bottle has shown resilience in the packaged beer industry, while carbonated
soft
drink and beer industry use of PET containers has grown. In Canada, metal
beverage containers have captured significantly lower percentages of the
packaged beverage industry than in the U.S., particularly in the packaged beer
industry.
North
American Metal Food Packaging
In
addition to metal beverage containers, Ball produces two-piece and three-piece
steel food containers for packaging vegetables, fruit, soups, meat, seafood,
nutritional products, pet food and other products. These containers are
manufactured in 11 plants in the U.S. and Canada and sold primarily to food
processors in North America. In 2005 metal food container sales comprised
14 percent of consolidated net sales. Sales volumes of metal food
containers in North America tend to be highest from June through October as
a
result of seasonal vegetable and salmon packs. Approximately 32 billion
steel food containers were shipped in the U.S. and Canada in 2005, approximately
20 percent of which we estimate were shipped by Ball.
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In
2005
the company recorded a pretax charge of $4.6 million ($3.1 million
after tax) related to a reduction in the work force in a metal food container
plant in Ontario, Canada. Also in 2005, the company recorded a pretax charge
of
$6.6 million ($4.4 million after tax) for the closure of a three-piece
food can manufacturing plant in Quebec, Canada. The Quebec plant was closed
and
ceased operations in the third quarter of 2005 and an agreement has been reached
to sell the land and building.
On
March 17, 2004, Ball acquired ConAgra Grocery Products Company’s (ConAgra)
interest in Ball Western Can Company LLC (Ball Western Can) located in Oakdale,
California, and entered into a multi-year supply contract with ConAgra Foods,
Inc. Prior to the acquisition, Ball Western Can was a 50/50 joint venture
between Ball and ConAgra and was accounted for under the equity method of
accounting. The acquisition of Ball Western Can added approximately one billion
units of annual capacity.
Competitors
in the metal food container product line include two national and a few regional
suppliers and self manufacturers. Several producers in Mexico also manufacture
steel food containers. Steel food containers also compete with other packaging
materials in the food industry including glass, aluminum, plastic, paper and
the
stand-up pouch. As a result, demand for this product line may be affected during
the next few years and we must increasingly focus on product innovation and
cost
reduction. Service, quality and price are among the key competitive
factors.
North
American Plastic Packaging
PET
containers represented 8 percent of consolidated net sales in 2005. Demand
for containers made of PET has increased in the beverage and food markets,
with
improved barrier technologies and other advances. This growth in demand should
continue, assuming adequate supplies of resin continue to be available. While
PET beverage containers compete against metal, glass and paper, the historical
increase in the sales of PET containers has come primarily at the expense of
glass containers and through new market introductions. We estimate our 2005
shipments of more than 5 billion plastic containers to be approximately
9 percent of total U.S. and Canadian PET container shipments.
The
company operates five PET facilities in the U.S. Competition in the PET
container industry includes several national and regional suppliers and self
manufacturers. Service, quality and price are important competitive factors.
The
ability to produce customized, differentiated plastic containers is becoming
a
key competitive factor.
Most
of
Ball’s PET containers are sold under long-term contracts to suppliers of bottled
water and carbonated soft drinks, including bottlers of Pepsi-Cola branded
beverages and their affiliates that utilize consolidated purchasing groups.
Our
plastic beer containers are being produced for several of our customers and
we
are manufacturing plastic containers for the single serve juice and
wine markets. Our line of Heat-Tek(TM) PET plastic bottles for hot-filled
beverages, such as sports drinks and juices, includes sizes from 8 ounces to
64
ounces.
International
Packaging
The
international packaging segment, which accounted for 24 percent of Ball’s
consolidated net sales in 2005, consists
of 10 beverage can plants and two beverage can end plants in Europe, as
well as operations in the People’s Republic of China (PRC). Of the
12 European plants, four are located in Germany, three in the United
Kingdom, two in France and one each in the Netherlands, Poland and Serbia.
In
total the European plants produced approximately 12 billion cans in 2005,
with approximately 50 percent of those being produced from steel and
50 percent from aluminum. Six of the can plants use aluminum and four use
steel.
Ball
Packaging Europe is the second largest metal beverage container producer in
Europe, with an estimated 29 percent of European shipments, and produces
two-piece beverage cans and can ends for producers of beer, carbonated soft
drinks, mineral water, fruit juices, energy drinks and other
beverages. Ball Packaging Europe is the largest metal beverage container
manufacturer in Germany, France and the Benelux countries and the second largest
metal beverage container manufacturer in the United Kingdom and Poland. Near
the
end of the second quarter of 2005, Ball completed the construction of a new
aluminum beverage can manufacturing plant in Belgrade, Serbia, to serve the
growing demand for beverage cans in southern and eastern
Europe.
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As
in
North America, the metal beverage container continues to compete aggressively
with other packaging materials used by the European beer and carbonated soft
drink industries. The glass bottle is heavily utilized in the packaged beer
industry, while the PET container is increasingly utilized in the carbonated
soft drink, juice and mineral water industries.
Due
to
political and legal uncertainties in Germany, no nationwide system for returning
beverage containers was in place at the time a mandatory deposit was imposed
in
January 2003 and nearly all retailers stopped carrying beverages in
non-refillable containers. During 2003 and 2004, we responded to the resulting
lower demand for beverage cans by reducing production at our German plants,
implementing aggressive cost reduction measures and increasing exports from
Germany to other countries in the region served by Ball Packaging Europe. We
also closed a plant in the United Kingdom, shut down a production line in
Germany, delayed capital investment projects in France and Poland and converted
one of our steel can production lines in Germany to aluminum in order to
facilitate additional can exports from Germany. In 2004 the German parliament
adopted a new packaging ordinance, imposing a 25 eurocent deposit on all one-way
glass, PET and metal containers for water, beer and carbonated soft drinks.
As
of May 1, 2006, all retailers must redeem all returned one-way containers as
long as they sell such containers. Major retailers in Germany have begun the
process of implementing a returnable system for one-way containers since they,
along with fillers, now appear to accept the deposit as permanent. The
retailers and the filling and packaging industries have formed a committee
to
design a nationwide recollection system and several retailers have begun to
order reverse vending machines in order to meet the May 1, 2006,
deadline.
The
European beverage can business is capital intensive, requiring significant
investments in machinery and equipment. Profitability is sensitive to selling
prices, foreign exchange rates, transportation costs, production volumes, labor
and the costs and availability of certain raw materials, such as aluminum and
steel. The European aluminum and steel industries are highly consolidated with
three steel suppliers and three aluminum suppliers providing 95 percent of
European requirements. Material supply contracts are generally for a period
of
one year, although Ball Packaging Europe has negotiated some longer term
agreements. Aluminum is purchased primarily in U.S. dollars while the functional
currencies of Ball Packaging Europe and its subsidiaries are non-U.S. dollars.
This inherently results in a foreign exchange rate risk, which the company
minimizes through the use of derivative contracts. In addition, purchase and
sales contracts include fixed price, floating and pass-through pricing
arrangements.
R&D
efforts in Europe are directed toward the development of new sizes and types
of
metal containers, as well as new uses for the current containers. Other research
and development objectives in this segment include improving manufacturing
efficiencies. The European R&D activities are conducted in a technical
center located in Bonn, Germany.
Through
Ball Asia Pacific Limited, we are one of the largest beverage can manufacturers
in the PRC and believe that our facilities are among the most modern in that
country. Capacity grew rapidly in the PRC in the late 1990s, resulting in a
supply/demand imbalance to which we responded by rationalizing capacity. Demand
growth has resumed in the past few years with projected annual growth expected
to be in the 5 to 10 percent range in the near term. Ball is also
undertaking selected capacity increases in its existing facilities in order
to
participate in the projected growth. Our current operations include the
manufacture of aluminum cans and ends in three plants and high-density plastic
containers in two plants. Sales in the PRC represented 3 percent of
consolidated net sales. We also participate in three joint ventures that
manufacture aluminum cans and ends in Brazil and in the PRC. In the fourth
quarter of 2004, we recorded an allowance for doubtful accounts in respect
of a
receivable of a 35 percent owned joint venture in the PRC. In the first quarter
of 2005, the remaining carrying value of the company’s investment in this joint
venture was written off.
For
more
information on Ball’s international operations, see Item 2, Properties, and
Exhibit 21, Subsidiary List.
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Aerospace
and Technologies
The
aerospace and technologies segment includes defense operations, civil space
systems and commercial space operations. The defense operations business unit
includes defense systems, systems engineering services, advanced antenna and
video systems and electro-optics and cryogenic systems and components. Sales
in
the aerospace and technologies segment accounted for 12 percent of consolidated
net sales in 2005.
The
majority of the aerospace and technologies business involves work under
contracts, generally from one to five years in duration, as a prime contractor
or subcontractor for the National Aeronautics and Space Administration (NASA),
the U.S. Department of Defense (DoD) and other U.S. government agencies.
Contracts funded by the various agencies of the federal government represented
87 percent of segment sales in 2005. Geopolitical events and executive and
legislative branch priorities have yielded considerable growth opportunities
in
areas matching our core capabilities. However, there is strong competition
for
new business.
Civil
space systems, defense systems and commercial space operations include hardware,
software and services sold primarily to U.S. customers, with emphasis on space
science and exploration, environmental and Earth sciences, and defense and
intelligence applications. Major contractual activities frequently involve
the
design, manufacture and testing of satellites, remote sensors and ground station
control hardware and software, as well as related services such as launch
vehicle integration and satellite operations.
Other
hardware activities include: target identification, warning and attitude control
systems and components; cryogenic systems for reactant storage, and sensor
cooling devices using either closed-cycle mechanical refrigerators or open-cycle
solid and liquid cryogens; star trackers, which are general-purpose stellar
attitude sensors; and fast-steering mirrors. Additionally, the aerospace and
technologies segment provides diversified technical services and products to
government agencies, prime contractors and commercial organizations for a broad
range of information warfare, electronic warfare, avionics, intelligence,
training and space systems needs.
Backlog
in the aerospace and technologies segment was $761 million and $694 million
at
December 31, 2005 and 2004, respectively, and consists of the aggregate contract
value of firm orders, excluding amounts previously recognized as revenue. The
2005 backlog includes $458 million expected to be recognized in revenues during
2006, with the remainder expected to be recognized in revenues thereafter.
Unfunded amounts included in backlog for certain firm government orders which
are subject to annual funding were $500 million and $393 million at
December 31, 2005 and 2004, respectively. Year-to-year comparisons of
backlog are not necessarily indicative of the trend of future operations.
The
company’s aerospace and technologies segment has contracts with the U.S.
government or its contractors which have standard termination provisions. The
government retains the right to terminate contracts at its convenience. However,
if contracts are terminated in this manner, Ball is entitled to reimbursement
for allowable costs and profits on authorized work performed through the date
of
termination. U.S. government contracts are also subject to reduction or
modification in the event of changes in government requirements or budgetary
constraints.
Patents
In
the
opinion of the company, none of its active patents is essential to the
successful operation of its business as a whole.
Research
and Development
Note 18,
"Research and Development," in the consolidated financial statements within
Item
8 of this report, contains information on company research and development
activity. Additional information is also included in Item 2, “Properties,”
below.
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Environment
Aluminum,
steel and PET containers are recyclable, and significant amounts of used
containers are being diverted from the solid waste stream and recycled. Using
the most recent data available, in 2004 approximately 51 percent of
aluminum containers, 62 percent of steel containers and 22 percent of
the PET containers sold in the U.S. were recycled.
Recycling
rates vary throughout Europe, but generally average 60 percent for aluminum
and steel containers, which exceeds the European Union’s goal of 50 percent
recycling for metals. Due in part to the intrinsic value of aluminum and steel,
metal packaging recycling rates in Europe compare favorably to those of other
packaging materials.
Compliance
with federal, state and local laws relating to protection of the environment
has
not had a material, adverse effect upon the capital expenditures, earnings
or
competitive position of the company. As more fully described under Item 3,
Legal
Proceedings, the U.S. Environmental Protection Agency and various state
environmental agencies have designated the company as a potentially responsible
party, along with numerous other companies, for the cleanup of several hazardous
waste sites. However, the company’s information at this time indicates that
these matters will not have a material adverse effect upon the liquidity,
results of operations or financial condition of the company.
Legislation
which would prohibit, tax or restrict the sale or use of certain types of
containers, and would require diversion of solid wastes such as packaging
materials from disposal in landfills, has been or may be introduced anywhere
we
operate. While container legislation has been adopted in some jurisdictions,
similar legislation has been defeated in public referenda and legislative bodies
in numerous others. The company anticipates that continuing efforts will be
made
to consider and adopt such legislation in many jurisdictions in the future.
If
such legislation were widely adopted, it potentially could have a material
adverse effect on the business of the company, as well as on the container
manufacturing industry generally, in view of the company’s substantial global
sales and investment in metal and PET container manufacturing. However, the
packages we produce are widely used and perform well in U.S. states and Canadian
provinces that have deposit systems.
Employees
At
the
end of December 2005 the company employed 13,100 people worldwide,
including 9,000 employees in the U.S. and 4,100 in other countries. There
are an additional 1,000 employees employed in unconsolidated joint ventures
in which Ball participates. Approximately one-third of Ball's North American
packaging plant employees are unionized and most of our European plant employees
are union workers. Collective bargaining agreements with various unions in
the
U.S. have terms of three to five years and those in Europe have terms of one
to
two years. The agreements expire at regular intervals and are customarily
renewed in the ordinary course after bargaining between union and company
representatives. The company believes that its employee relations are good
and
that its training, education and retention practices assist in enhancing
employee satisfaction levels.
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Where
to Find More Information
Ball
Corporation is subject to the reporting and other information requirements
of
the Securities Exchange Act of 1934, as amended (Exchange Act). Reports and
other information filed with the Securities and Exchange Commission (SEC)
pursuant to the Exchange Act may be inspected and copied at the public reference
facility maintained by the SEC in Washington, D.C. The SEC maintains a website
at www.sec.gov containing our reports, proxy materials, information statements
and other items.
The
company also maintains a website at www.ball.com on which it provides a link
to
access Ball’s SEC reports free of charge.
The
company has established written Ball Corporation Corporate Governance
Guidelines; a Ball Corporation Executive Officers and Board of Directors
Business Ethics Statement; a Business Ethics booklet; and Ball Corporation
Audit
Committee, Nominating/Corporate Governance Committee, Human Resources Committee
and Finance Committee charters. These documents are set forth on the company’s
website at www.ball.com under the section “Investors,” under the subsection
“Financial Information,” and under the link “Corporate Governance.” A copy may
also be obtained upon request from the company’s corporate
secretary.
The
company intends to post on its website the nature of any amendments to the
company’s codes of ethics that apply to executive officers and directors,
including the chief executive officer, chief financial officer or controller,
and the nature of any waiver or implied waiver from any code of ethics granted
by the company to any executive officer or director. The posting will appear
on
the company’s website at www.ball.com under the section “Investors,” under the
subsection “Financial Information,” and under the link “Corporate
Governance.”
Item
1A. Risk Factors
Any
of
the following risks could materially and adversely affect our business,
financial condition or results of operations.
The
loss of a key customer could have a significant negative impact on our
sales.
While
we
have diversified our customer base, we do sell a majority of our packaging
products to relatively few major beverage and packaged food companies, some
of
which operate in North America, Europe and Asia.
Although
approximately 70 percent of our customer contracts are long-term, these
contracts are terminable under certain circumstances, such as our failure to
meet quality or volume requirements. Because we depend on relatively few major
customers, our business, financial condition or results of operations could
be
adversely affected by the loss of any of these customers, a reduction in the
purchasing levels of these customers, a strike or work stoppage by a significant
number of these customers' employees or an adverse change in the terms of the
supply agreements with these customers.
The
primary customers for our aerospace work are U.S. government agencies or their
prime contractors. These sales represented approximately 11 percent of
Ball's consolidated 2005 net sales. Our contracts with these customers are
subject to, among other things, the following risks:
| · |
unilateral
termination for convenience by the
customers;
|
| · |
reduction
or modification in the scope of the contracts due to changes in the
customer's requirements or budgetary
constraints;
|
| · |
under
fixed-price contracts, increased or unexpected costs causing losses
or
reduced profits; and
|
| · |
under
cost reimbursement contracts, unallowable costs causing losses or
reduced
profits.
|
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We
face competitive risks from many sources that may negatively impact our
profitability.
Competition
within the packaging industry is intense. Increases in productivity, combined
with surplus capacity in the industry, have maintained competitive pricing
pressures. The principal methods of competition in the general packaging
industry are price, service and quality. Some of our competitors may have
greater financial, technical and marketing resources. Our current or potential
competitors may offer products at a lower price or products that are deemed
superior to ours.
We
are subject to competition from alternative products which could result in
lower
profits and reduced cash flows.
The
metal
beverage can is subject to significant competition from substitute products,
particularly plastic carbonated soft drink bottles made from PET, single serve
beer bottles, and containers made of glass, cardboard or other materials.
Competition from plastic carbonated soft drink bottles is particularly intense
in the United States and the United Kingdom. There can be no assurance that
we
will successfully compete against alternative beverage containers which could
result in a reduction in our profits or cash flow.
We
have a narrow product range and our business would suffer if usage of our
products decreased.
For
the
12 months ended December 31, 2005, 42 percent of our consolidated net
sales were from the sale of metal beverage cans, and we expect to derive a
significant portion of our future revenues from the sale of metal beverage
cans.
We sell no PET bottles in Europe. Our business would suffer if the use of metal
beverage cans decreased. Accordingly, broad acceptance by consumers of aluminum
and steel cans for a wide variety of beverages is critical to our future
success. If demand for glass and PET bottles increases relative to cans, or
the
demand for aluminum and steel cans does not develop as expected, our business,
financial condition or results of operations could be materially adversely
affected.
Our
business, financial condition and results of operations are subject to risks
resulting from increased international operations.
We
derived 24 percent of our total net sales from outside of North America in
the year ended December 31, 2005. The increased scope of international
operations may lead to more volatile financial results and make it more
difficult for us to manage our business. Reasons for this include, but are
not
limited to, the following:
| · |
political
and economic instability in foreign
markets;
|
| · |
foreign
governments' restrictive trade
policies;
|
| · |
the
imposition of duties, taxes or government
royalties;
|
| · |
foreign
exchange rate risks;
|
| · |
difficulties
in enforcement of contractual obligations and intellectual property
rights; and
|
| · |
the
geographic, time zone, language and cultural differences between
personnel
in different areas of the world.
|
Any
of
these factors could materially adversely affect our business, financial
condition or results of operations.
We
are exposed to exchange rate fluctuations.
For
the
12 months ended December 31, 2005, 72 percent of our net sales were
attributable to operations with U.S. dollars as their functional currency,
and
28 percent of our net sales were attributable to operations having other
functional currencies, with 12 percent
of net
sales attributable to the euro.
Our
reporting currency is the U.S. dollar. Historically, Ball's foreign operations,
including assets and liabilities and revenues and expenses, have been
denominated in various currencies other than the U.S. dollar, and we expect
that
our foreign operations will continue to be so denominated. As a result, the
U.S.
dollar value of Ball's foreign operations have varied, and will continue
to
vary, with exchange rate fluctuations. In this respect, historically Ball
has
been primarily exposed to fluctuations in the exchange rate of the euro,
British
pound, Canadian dollar, Polish zloty, Chinese renminbi, Brazilian real and
Serbian dinar.
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A
decrease in the value of any of these currencies, especially the euro, relative
to the U.S. dollar could reduce our profits from foreign operations and the
value of the net assets of our foreign operations when reported in U.S. dollars
in our financial statements. This could have a material adverse effect on our
business, financial condition or results of operations as reported in U.S.
dollars.
In
addition, fluctuations in currencies relative to currencies in which the
earnings are generated may make it more difficult to perform period-to-period
comparisons of our reported results of operations. For purposes of accounting,
the assets and liabilities of our foreign operations, where the local currency
is the functional currency, are translated using period-end exchange rates,
and
the revenues and expenses of our foreign operations are translated using average
exchange rates during each period. Translation gains and losses are reported
in
accumulated other comprehensive loss as a component of shareholders'
equity.
We
actively manage our exposure to foreign currency fluctuations in order to
mitigate the effect of foreign cash flow and reduce earnings volatility
associated with foreign exchange rate changes. We primarily use forward
contracts and options to manage our foreign currency exposures and, as a result,
we experience gains and losses on these derivative positions offset, in part,
by
the impact of currency fluctuations on existing assets and liabilities.
Our
business, operating results and financial condition are subject to particular
risks in certain regions of the world.
We
may
experience an operating loss in one or more regions of the world for one or
more
periods, which could have a material adverse effect on our business, operating
results or financial condition. Moreover, overcapacity, which often leads to
lower prices, exists in a number of regions, including Asia and Latin America,
and may persist even if demand grows. Our ability to manage such operational
fluctuations and to maintain adequate long-term strategies in the face of such
developments will be critical to our continued growth and
profitability.
If
we fail to retain key management and personnel we may be unable to implement
our
key objectives.
We
believe that our future success depends, in large part, on our experienced
management team. Losing the services of key members of our management team
could
make it difficult for us to manage our business and meet our
objectives.
Decreases
in our ability to apply new technology and know-how may affect our
competitiveness.
Our
success depends in part on our ability to improve production processes and
services. We must also introduce new products and services to meet changing
customer needs. If we are unable to implement better production processes or
to
develop new products, we may not be able to remain competitive with other
manufacturers. As a result, our business, financial condition or results of
operations could be adversely affected.
Bad
weather and climate changes may result in lower
sales.
We
manufacture packaging products primarily for beverages and foods. Unseasonably
cool weather can reduce demand for certain beverages packaged in our containers.
In addition, poor weather conditions or changes in climate that reduce crop
yields of fruits and vegetables can adversely affect demand for our food
containers, creating potentially adverse effects on our
business.
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We
are vulnerable to fluctuations in the supply and price of raw
materials.
We
purchase aluminum, steel, plastic resin and other raw materials and packaging
supplies from several sources. While all such materials are available from
numerous independent suppliers, raw materials are subject to fluctuations in
price attributable to a number of factors, including general economic
conditions, the demand by other industries for the same raw materials and the
availability of complementary and substitute materials. Although we enter into
commodities purchase agreements from time to time and use derivative instruments
to hedge our risk, we cannot ensure that our current suppliers of raw materials
will be able to supply us with sufficient quantities or at reasonable prices.
Increases in raw material costs could have a material adverse effect on our
business, financial condition or results of operations. Because our North
American contracts often pass raw material costs directly on to the customer,
increasing raw materials costs may not impact our near-term profitability but
could decrease our sales volume over time. In Europe, our contracts do not
typically allow us to pass on increased raw material costs and we regularly
use
derivative agreements to manage this risk; however, our hedging procedures
may
be insufficient and our results could be materially impacted if materials costs
increase suddenly in Europe.
Prolonged
work stoppages at plants with union employees could jeopardize our financial
position.
As
of
December 31, 2005, approximately one-third of our employees in North America
and
most of our employees in Europe were covered by one or more collective
bargaining agreements. These collective bargaining agreements have staggered
expirations over the next three years. Although we consider our employee
relations to be generally good, a prolonged work stoppage or strike at any
facility with union employees could have a material adverse effect on our
business, financial condition or results of operations. In addition, we cannot
assure you that upon the expiration of existing collective bargaining agreements
new agreements will be reached without union action or that any such new
agreements will be on terms satisfactory to us.
Our
business is subject to substantial environmental remediation and compliance
costs.
Our
operations are subject to federal, state and local laws and regulations relating
to environmental hazards, such as emissions to air, discharges to water, the
handling and disposal of hazardous and solid wastes and the cleanup of hazardous
substances. The U.S. Environmental Protection Agency has designated us, along
with numerous other companies, as a potentially responsible party for the
cleanup of several hazardous waste sites. Based on available information, we
do
not believe that any costs incurred in connection with such sites will have
a
material adverse effect on our financial condition, results of operations,
capital expenditures or competitive position.
If
we were required to write down all or part of our goodwill, our net earnings
and
net worth could be materially adversely affected.
We
have
$1,258.6 million of net goodwill recorded on our consolidated balance sheet
as of December 31, 2005. We are required to periodically determine if our
goodwill has become impaired, in which case we would write down the impaired
portion of our goodwill. If we were required to write down all or part of our
goodwill, our net earnings and net worth could be materially adversely
affected.
If
the investments in Ball's pension plans do not perform as expected, we may
have
to contribute additional amounts to the plans, which would otherwise be
available to cover operating expenses.
Ball
maintains noncontributory, defined benefit pension plans covering substantially
all of its U.S. employees, which we fund based on certain actuarial assumptions.
The plans' assets consist primarily of common stocks and fixed income
securities. If the investments in the plan do not perform at expected levels,
then we will have to contribute additional funds to ensure that the program
will
be able to pay out benefits as scheduled. Such an increase in funding could
result in a decrease in our available cash flow and net earnings and the
recognition of such an increase could result in a reduction to our shareholders'
equity. We recorded an increase in our minimum pension liability in the fourth
quarter of 2005 largely as a reduction in the assumed discount rate. This
increase in pension liability was reflected as an increase in other liabilities
and a corresponding decrease in stockholders' equity.
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Our
significant debt could adversely affect our financial health and prevent us
from
fulfilling our obligations under the notes.
We
have a
significant amount of debt. On December 31, 2005, we had total debt of
$1,589.7 million. Our ratio of earnings to fixed charges as of that date
was 3.4 times (see Exhibit 12 attached to this Annual Report). Our high
level of debt could have important consequences, including the
following:
| · |
use
of a large portion of our cash flow to pay principal and interest
on our
notes, the new credit facilities and our other debt, which will reduce
the
availability of our cash flow to fund working capital, capital
expenditures, research and development expenditures and other business
activities;
|
| · |
increase
our vulnerability to general adverse economic and industry
conditions;
|
| · |
limit
our flexibility in planning for, or reacting to, changes in our business
and the industry in which we
operate;
|
| · |
restrict
us from making strategic acquisitions or exploiting business
opportunities;
|
| · |
place
us at a competitive disadvantage compared to our competitors that
have
less debt;
|
| · |
limit
our ability to make capital expenditures in order to maintain our
manufacturing plants in good working order and repair;
and
|
| · |
limit,
along with the financial and other restrictive covenants in our debt,
among other things, our ability to borrow additional funds, dispose
of
assets or pay cash dividends.
|
In
addition, a substantial portion of our debt bears interest at variable rates.
If
market interest rates increase, variable-rate debt will create higher debt
service requirements, which would adversely affect our cash flow. While we
sometimes enter into agreements limiting our exposure, any such agreements
may
not offer complete protection from this risk.
We
will require a significant amount of cash to service our debt. Our ability
to
generate cash depends on many factors beyond our
control.
Our
ability to make payments on and to refinance our debt, including the notes,
and
to fund planned capital expenditures and research and development efforts,
will
depend on our ability to generate cash in the future. This is subject to general
economic, financial, competitive, legislative, regulatory and other factors
that
may be beyond our control.
Based
on
our current level of operations, we believe our cash flow from operations,
available cash and available borrowings under our new credit facilities, will
be
adequate to meet our future liquidity needs for the next several years barring
any unforeseen circumstances which are beyond our control.
We
cannot
assure you, however, that our business will generate sufficient cash flow from
operations or that future borrowings will be available to us under our new
credit facilities or otherwise in an amount sufficient to enable us to pay
our
debt, including the notes, or to fund our other liquidity needs. We may need
to
refinance all or a portion of our debt, including the notes, on or before
maturity. We cannot assure you that we will be able to refinance any of our
debt, including our new credit facilities and our senior notes, on commercially
reasonable terms or at all.
Item
1B. Unresolved Staff Comments
There
were no matters required to be reported under this item.
Page
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97
|
Item
2.
|
Properties
|
The
company’s properties described below are well maintained, are considered
adequate and are being utilized for their intended purposes.
Ball’s
corporate headquarters and the Ball Aerospace & Technologies Corp. offices
are located in Broomfield, Colorado. The Colorado-based operations of the
aerospace and technologies business occupy a variety of company-owned and leased
facilities in Broomfield, Boulder and Westminster, which together aggregate
1.4 million square feet of office, laboratory, research and
development, engineering and test and manufacturing space. During 2005 the
company commenced construction on additional facilities adjacent to existing
facilities in Boulder and Westminster. Other aerospace and technologies
operations carry on business in company-owned and leased facilities in Georgia,
New Mexico, Ohio, Virginia, Washington and Australia.
The
offices of the company’s North American packaging operations are in Westminster,
Colorado, and the offices for the European packaging operations are in Ratingen,
Germany. Also located in Westminster is the Ball Technology and Innovation
Center, which serves as a research and development facility for the North
American metal packaging and plastic container operations. The European
Technical Centre, which serves as a research and development facility for the
European beverage can manufacturing operations, is located in Bonn,
Germany.
Information
regarding the approximate size of the manufacturing locations for significant
packaging operations, which are owned or leased by the company, is set forth
below. Facilities in the process of being shut down have been excluded from
the
list. Where certain locations include multiple facilities, the total approximate
size for the location is noted. In addition to the facilities listed, the
company leases other warehousing space.
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12 of
97
|
Approximate
|
|
|
Floor
Space in
|
|
|
Plant
Location
|
Square
Feet
|
Metal
packaging manufacturing facilities:
North
America
|
Springdale,
Arkansas
|
286,000
|
|
Richmond,
British Columbia
|
194,000
|
|
Fairfield,
California
|
340,000
|
|
Oakdale,
California
|
370,000
|
|
Torrance,
California
|
478,000
|
|
Golden,
Colorado
|
500,000
|
|
Tampa,
Florida
|
275,000
|
|
Kapolei,
Hawaii
|
132,000
|
|
Monticello,
Indiana
|
356,000
|
|
Kansas
City, Missouri
|
400,000
|
|
Saratoga
Springs, New York
|
358,000
|
|
Wallkill,
New York
|
317,000
|
|
Reidsville,
North Carolina
|
287,000
|
|
Columbus,
Ohio
|
305,000
|
|
Findlay,
Ohio*
|
733,000
|
|
Burlington,
Ontario
|
308,000
|
|
Whitby,
Ontario*
|
200,000
|
|
Guayama,
Puerto Rico
|
230,000
|
|
Chestnut
Hill, Tennessee
|
315,000
|
|
Conroe,
Texas
|
275,000
|
|
Fort
Worth, Texas
|
328,000
|
|
Bristol,
Virginia
|
241,000
|
|
Williamsburg,
Virginia
|
400,000
|
|
Kent,
Washington
|
166,000
|
|
Weirton,
West Virginia (leased)
|
120,000
|
|
DeForest,
Wisconsin
|
360,000
|
|
Milwaukee,
Wisconsin*
|
397,000
|
Europe
|
Bierne,
France
|
263,000
|
|
La
Ciotat, France
|
393,000
|
|
Braunschweig,
Germany
|
258,000
|
|
Hassloch,
Germany
|
283,000
|
|
Hermsdorf,
Germany
|
269,000
|
|
Weissenthurm,
Germany
|
260,000
|
|
Oss,
The Netherlands
|
231,000
|
|
Radomsko,
Poland
|
309,000
|
|
Belgrade,
Serbia
|
352,000
|
|
Deeside,
U.K.
|
109,000
|
|
Rugby,
U.K.
|
175,000
|
|
Wrexham,
U.K.
|
222,000
|
Asia
|
Beijing,
PRC
|
303,000
|
|
Hubei
(Wuhan), PRC
|
237,000
|
|
Shenzhen,
PRC
|
404,000
|
*
Includes both metal beverage container and metal food container manufacturing
operations.
Page
13 of
97
|
Approximate
|
|
|
Floor
Space in
|
|
|
Plant
Location
|
Square
Feet
|
Plastic
packaging manufacturing facilities:
North
America
|
Chino,
California (leased)
|
578,000
|
|
Ames,
Iowa (including leased warehouse space)
|
840,000
|
|
Delran,
New Jersey
|
450,000
|
|
Baldwinsville,
New York (leased)
|
508,000
|
|
Watertown,
Wisconsin
|
111,000
|
Asia
|
Zhongfu,
PRC (leased) (Tianjin)
|
52,000
|
|
Hemei,
PRC (Taicang)
|
47,000
|
In
addition to the consolidated manufacturing facilities, the company has ownership
interests of 50 percent or less in packaging affiliates located primarily
in the U.S., PRC and Brazil.
Item
3. Legal
Proceedings
North
America
As
previously reported, the U.S. Environmental Protection Agency (USEPA) considers
the company a Potentially Responsible Party (PRP) with respect to the Lowry
Landfill site located east of Denver, Colorado. On June 12, 1992, the
company was served with a lawsuit filed by the City and County of Denver
(Denver) and Waste Management of Colorado, Inc., seeking contributions from
the
company and approximately 38 other companies. The company filed its answer
denying the allegations of the complaint. On July 8, 1992, the company was
served with a third-party complaint filed by S.W. Shattuck Chemical Company,
Inc., seeking contribution from the company and other companies for the costs
associated with cleaning up the Lowry Landfill. The company denied the
allegations of the complaints.
In
July
1992 the company entered into a settlement and indemnification agreement with
Chemical Waste Management, Inc., and Waste Management of Colorado, Inc.
(collectively Waste Management) and Denver pursuant to which Waste Management
and Denver dismissed their lawsuit against the company and Waste Management
agreed to defend, indemnify and hold harmless the company from claims and
lawsuits brought by governmental agencies and other parties relating to actions
seeking contributions or remedial costs from the company for the cleanup of
the
site. Several other companies, which are defendants in the above-referenced
lawsuits, had already entered into the settlement and indemnification agreement
with Waste Management and Denver. Waste Management, Inc., has agreed to
guarantee the obligations for Chemical Waste Management, Inc., and Waste
Management of Colorado, Inc. Waste Management and Denver may seek additional
payments from the company if the response costs related to the site exceed
$319 million. In 2003 Waste Management, Inc., indicated that the cost of
the site might exceed $319 million in 2030, approximately three years
before the projected completion of the project. The company might also be
responsible for payments (based on 1992 dollars) for any additional wastes
which
may have been disposed of by the company at the site but which are identified
after the execution of the settlement agreement. While remediating the site,
contaminants were encountered which could add an additional cleanup cost of
approximately $10 million. This additional cleanup cost could, in turn, add
approximately $1 million to total site costs for the PRP
group.
At
this
time, there are no Lowry Landfill actions in which the company is actively
involved. Based on the information available to the company at this time, the
company does not believe that this matter will have a material adverse effect
upon the liquidity, results of operations or financial condition of the
company.
The
company previously reported that, on August 1, 1997, the USEPA sent notice
of potential liability to 19 PRPs concerning past activities at one or more
of the four Rocky Flats parcels (including land owned by Precision Chemicals
now
owned by Great Western Inorganics) at the Rocky Flats Industrial Park site
(RFIP) located in Jefferson County, Colorado. The RFIP site also includes the
American Ecological Recycling and Research
Page
14 of
97
Company (AERRCO)
site and a site owned by Thoro Products Company. Based upon sampling at the
site
in 1996, the USEPA determined that additional site work would be required to
determine the extent of contamination and the possible cleanup of the site.
In
1996 the USEPA requested that the PRPs perform certain site work. On
December 19, 1997, the USEPA issued an Administrative Order on Consent
(AOC) to conduct engineering estimates and cost analyses. The company has funded
approximately $70,000 toward these costs. The PRPs have negotiated an
agreement and the company contributed $5,000 as an initial group
contribution. The company has agreed to pay 12 percent of the costs of
cleanup at the AERRCO site and a percentage of the cleanup costs on the Thoro
site. On January 8, 2003, and October 9, 2003, the company made
additional payments of $97,200 each (total $194,400) toward the cost of cleanup.
The company paid $35,355 in 2004 toward the cleanup. The air sparge and
soil vapor extraction system was installed at a total cost of $1.1 million
and was placed in operation in May 2005. Based on the information, or lack
thereof, available to the company at the present time, the company does not
believe that this matter will have a material adverse effect upon the liquidity,
results of operations or financial condition of the company.
As
previously reported, in October 2001 representatives of Vauxmont Intermountain
Communities (Vauxmont) notified six of the PRPs at the AERRCO site, including
the company (AERRCO PRPs), that hazardous materials might have contaminated
property owned by Vauxmont. The AERRCO site is contained within the RFIP site.
Vauxmont also alleges that it lost $7 million on a contract with a home
developer for the purchase of a portion of the land. Vauxmont representatives
requested that the AERRCO PRPs study any contamination to the Vauxmont real
estate. The AERRCO PRPs agreed to undertake such a study and sought the USEPA’s
final approval. The sampling results were made available to all parties. No
further claims have been made against the company by Vauxmont to date. Based
on
the information, or lack thereof, available to the company at the present time,
the company does not believe that this matter will have a material adverse
effect upon the liquidity, results of operations or financial condition of
the
company.
As
previously reported, during July 1992, the company received information that
it
had been named a PRP with respect to the Solvents Recovery of New England Site
(SRSNE) located in Southington, Connecticut. According to the information
received, it is alleged that the company contributed approximately
0.08816 percent of the waste contributed to the site on a volumetric basis.
The PRP group has been involved in negotiations with the USEPA regarding the
remediation of the site. The company has paid approximately $17,500 toward
site investigation and remediation efforts. The PRP group spent $15 million
through the end of 2001. Approximately $1.5 million more was spent to
complete a Remedial Investigation and Feasibility Study and pay for
remediation work through 2003. As of December 2001, projected remediation cost
estimates for a bioremediation and enhanced oxidation system ranged from
$20 million to $30 million. The PRP group offered a $5.5 million
settlement to resolve the USEPA claim of $16 million for past costs at the
SRSNE site. PRP/USEPA negotiations to resolve the past cost claims from the
USEPA have not been resolved and are not being actively pursued by the PRP
group. A natural resources damage claim of approximately $3 million is
anticipated. USEPA gave final approval for a $29 million remediation plan for
the site on October 11, 2005. The company will be responsible for
approximately 0.00109 percent of the future site costs. Based on the
information, or lack thereof, available to the company at the present time,
the
company does not believe that this matter will have a material adverse effect
upon the liquidity, results of operations or financial condition of the
company.
On
December 30, 2002, the company received a 104(e) letter from the USEPA
pursuant to the Comprehensive Environmental Response Compensation and Liability
Act (CERCLA) requesting answers to certain questions regarding the waste
disposal practices of Heekin Can Company and the relationship between the
company and Heekin Can Company. Region 5 of the USEPA is involved in the cleanup
of the Jackson Brothers Paint Company site, which consists of four, and possibly
five, sites in and around Laurel, Indiana. The Jackson Brothers Paint Company
apparently disposed of drums of waste in those sites during the 1960s and 1970s.
The USEPA has alleged that some of the waste that has been uncovered was sent
to
the sites from the Cincinnati plant operated by Heekin Can Company. The Indiana
Department of Environmental Management referred this matter to the USEPA for
removal of the drums and cleanup. At the present time there are an undetermined
number of drums at one or more of the sites that have been initially identified
by the USEPA as originating from Heekin Can Company. The USEPA has sent 104(e)
letters to seven PRPs including Heekin Can Company. On January 30, 2003,
the company responded to the request for information pursuant to
Section 104(e) of CERCLA. The USEPA has initially estimated cleanup costs
to be between $4 million and $5 million. Based on the information, or
lack thereof, available to the company at the present time, the company does
not
believe that this matter will have a material adverse effect upon the liquidity,
results of operations or financial condition of the company.
Page
15 of
97
As
previously reported, on October 6, 2005, Ball Metal Beverage Container
Corp. (BMBCC), a wholly owned subsidiary of the company, was served with an
amended complaint filed by Crown Packaging Technology, Inc. et. al.
(Crown), in the U.S. District Court for the Southern District of Ohio, Western
Division at Dayton, Ohio. The complaint alleges that the manufacture, sale
and
use of certain ends by BMBCC and its customers infringes certain claims of
Crown’s U.S. patents. The complaint seeks unspecified monetary damages, fees,
and declaratory and injunctive relief. BMBCC has formally denied the allegations
of the complaint. Based on the information available to the company at the
present time, the company does not believe that this matter will have a material
adverse effect upon the liquidity, results of operations or financial condition
of the company.
On
November 21, 2005, Ball Plastic Container Corp. (BPCC), a wholly owned
subsidiary of the company, was served with a complaint filed by Constar
International Inc. (Constar) in the U.S. District Court for the Western District
of Wisconsin. The complaint alleges that the manufacture and sale of plastic
bottles having oxygen barrier properties infringes certain claims of a Constar
U.S. patent. Constar also sued Honeywell International Inc., the supplier of
the
oxygen barrier material to BPCC. The complaint seeks monetary damages, fees
and
declaratory and injunctive relief. BPCC has formally denied the allegations
of
the complaint. Based on the information available to the company at the present
time, the company does not believe that this matter will have a material adverse
effect upon the liquidity, results of operations or the financial condition
of
the company.
Europe
Ball
Packaging Europe (BPE), together with other plaintiffs, is contesting in federal
and state administrative courts the enactment of a mandatory deposit for
non-refillable containers based on the German Packaging Regulation
(Verpackungsverordnung). The proceedings in the State Administrative Court
are
still active in two states (Bavaria and Hamburg), and the proceedings in the
other states have been declared inactive or have been retracted. The Federal
Constitutional Court in Karsruhe (Bundesverfassungsgericht) has denied the
motions of the plaintiffs for judgment. At the federal level, a proceeding
with
the Administrative Court in Berlin (Verwaltungsgericht Berlin) is still pending.
BPE filed a motion for an expedited procedure with the objective of reinstating
the suspensive effect of the procedure. The Administrative Court has denied
the
motion. BPE has filed an appeal against this decision with the Higher
Administrative Court in Berlin (Oberverwaltungsgericht Berlin), which also
denied the motion. The potential financial risk of legal fees, which BPE may
incur in connection with the procedures set out above, amounts to approximately
€280,000 and has been accrued by BPE. The European Court of Justice has issued
a
judgment that confirmed that the German deposit legislation violated, among
other European Union (EU) regulations, the principle of free trade of goods
within the EU and disadvantaged the importers of beverages versus German
beverage producers. Following this judgment, two German law firms have suggested
that importers of beverages and possibly even local beverage producers may
be
able to market beverages in Germany without mandatory deposit until a
Germany-wide functioning return system is implemented. The German government
does not share this point of view and has indicated that it will continue to
apply the mandatory deposit regulations.
In
December 2004 the German government passed new legislation that imposes a
mandatory deposit of 25 eurocents on nonrefillable containers in respect of
all beverages except milk, wine, fruit juices and certain alcoholic beverages.
Beverages in beverage carton packaging are also excluded from the deposit.
The
legislation required that the so-called “island solutions” are to be terminated
after an interim period of 12 months after the legislation takes effect.
The new legislation came into force in May 2005. Island solutions therefore
will
no longer be permissible as of May 1, 2006. The relevant industries,
including BPE and its competitors, are currently setting up a Germany-wide
return system planned to be operational in or about May 2006. Based upon the
information, or lack thereof, available to the company at the present time,
the
company does not believe that this matter will have a material adverse effect
upon the liquidity, results of operations or financial condition of the
company.
|
Item
4.
|
Submission
of Matters to Vote of Security
Holders
|
There
were no matters submitted to the security holders during the fourth quarter
of
2005.
Page
16 of
97
Part
II
|
Item
5.
|
Market
for the Registrant’s Common Stock and Related Stockholder
Matters
|
Ball
Corporation common stock (BLL) is traded on the New York, Chicago and Pacific
Stock Exchanges. There were 5,523 common shareholders of record on
February 3, 2006.
Common
Stock Repurchases
The
following table summarizes the company’s repurchases of its common stock during
the quarter ended December 31, 2005.
Purchases
of Securities
|
($
in millions)
|
Total
Number of Shares Purchased
|
Average
Price
Paid
per Share
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans or
Programs
|
Maximum
Number
of
Shares that May Yet Be Purchased Under the Plans
or Programs(b)
|
|||||||||
|
October 3
to October 30, 2005
|
1,111,484
|
$
|
36.67
|
1,111,484
|
12,000,000
|
||||||||
|
October 31
to November 27, 2005
|
3,502
|
$
|
38.83
|
3,502
|
11,996,498
|
||||||||
|
November 28
to December 31, 2005
|
1,504
|
$
|
40.03
|
1,504
|
11,994,994
|
||||||||
|
Total
|
1,116,490
|
(a)
|
$
|
36.68
|
1,116,490
|
||||||||
|
(a)
|
Includes
open market purchases and/or shares retained by the company to settle
employee withholding tax
liabilities.
|
|
(b)
|
The
company has an ongoing repurchase program for which shares are authorized
from time to time by Ball’s board of directors. On October 26, 2005,
the board authorized the repurchase of up to 12 million shares of the
company’s common stock. This most recent repurchase authorization replaced
all previous authorizations.
|
Quarterly
Stock Prices and Dividends
Quarterly
prices for the company's common stock, as reported on the New York Stock
Exchange composite tape, and quarterly dividends in 2005 and 2004 (on a calendar
quarter basis) were:
|
2005
|
2004
|
||||||||||||||||||||||||
|
4th
|
3rd
|
2nd
|
1st
|
4th
|
3rd
|
2nd
|
1st
|
||||||||||||||||||
|
Quarter
|
Quarter
|
Quarter
|
Quarter
|
Quarter
|
Quarter(a)
|
Quarter(a)
|
Quarter(a)
|
||||||||||||||||||
|
High
|
$
|
41.95
|
$
|
39.78
|
$
|
42.70
|
$
|
46.45
|
$
|
45.20
|
$
|
38.30
|
$
|
36.23
|
$
|
34.43
|
|||||||||
|
Low
|
35.06
|
35.25
|
35.80
|
39.65
|
35.81
|
34.12
|
30.20
|
28.255
|
|||||||||||||||||
|
Dividends
per share
|
0.10
|
0.10
|
0.10
|
0.10
|
0.10
|
0.10
|
0.075
|
0.075
|
|||||||||||||||||
(a) Amounts
have been retroactively adjusted for a two-for-one stock split, which was
effected on August 23, 2004.
Page
17 of
97
|
Item
6.
|
Selected
Financial Data
|
Five-Year
Review of Selected Financial Data
Ball
Corporation and Subsidiaries
|
($
in millions, except per share amounts)
|
2005
|
2004
|
2003
|
2002
|
2001
|
|||||||||||
|
Net
sales
|
$
|
5,751.2
|
$
|
5,440.2
|
$
|
4,977.0
|
$
|
3,858.9
|
$
|
3,686.1
|
||||||
|
Net
earnings (loss) (1)
|
261.5
|
295.6
|
229.9
|
156.1
|
(99.2
|
)
|
||||||||||
|
Preferred
dividends, net of tax
|
–
|
–
|
–
|
–
|
(2.0
|
)
|
||||||||||
|
Earnings
(loss) attributable to common shareholders (1)
|
$
|
261.5
|
$
|
295.6
|
$
|
229.9
|
$
|
156.1
|
$
|
(101.2
|
)
|
|||||
|
Return
on average common shareholders’ equity
|
27.2
|
%
|
31.2
|
%
|
35.4
|
%
|
31.3
|
%
|
(17.7
|
)%
|
||||||
|
Basic
earnings (loss) per share (1)
(2)
|
$
|
2.43
|
$
|
2.67
|
$
|
2.06
|
$
|
1.39
|
$
|
(0.92
|
)
|
|||||
|
Weighted
average common shares outstanding (000s) (2)
|
107,758
|
110,846
|
111,710
|
112,634
|
109,759
|
|||||||||||
|
Diluted
earnings (loss) per share (1)
(2)
|
$
|
2.38
|
$
|
2.60
|
$
|
2.01
|
$
|
1.36
|
$
|
(0.92
|
)
|
|||||
|
Diluted
weighted average common shares outstanding (000s) (2)
|
109,732
|
113,790
|
114,275
|
115,076
|
109,759
|
|||||||||||
|
Property,
plant and equipment additions
|
$
|
291.7
|
$
|
196.0
|
$
|
137.2
|
$
|
158.4
|
$
|
68.5
|
||||||
|
Depreciation
and amortization
|
$
|
213.5
|
$
|
215.1
|
$
|
205.5
|
$
|
149.2
|
$
|
152.5
|
||||||
|
Total
assets
|
$
|
4,343.4
|
$
|
4,477.7
|
$
|
4,069.6
|
$
|
4,132.4
|
$
|
2,313.6
|
||||||
|
Total
interest bearing debt and capital lease obligations
|
$
|
1,589.7
|
$
|
1,660.7
|
$
|
1,686.9
|
$
|
1,981.0
|
$
|
1,064.1
|
||||||
|
Common
shareholders’ equity
|
$
|
835.3
|
$
|
1,086.6
|
$
|
807.8
|
$
|
492.9
|
$
|
504.1
|
||||||
|
Market
capitalization (3)
|
$
|
4,138.8
|
$
|
4,956.2
|
$
|
3,359.1
|
$
|
2,904.8
|
$
|
2,043.8
|
||||||
|
Net
debt to market capitalization (3)
|
36.9
|
%
|
29.5
|
%
|
49.1
|
%
|
59.3
|
%
|
48.0
|
%
|
||||||
|
Cash
dividends per share (2)
|
$
|
0.40
|
$
|
0.35
|
$
|
0.24
|
$
|
0.18
|
$
|
0.15
|
||||||
|
Book
value per share (2)
|
$
|
8.02
|
$
|
9.64
|
$
|
7.17
|
$
|
4.35
|
$
|
4.36
|
||||||
|
Market
value per share (2)
|
$
|
39.72
|
$
|
43.98
|
$
|
29.785
|
$
|
25.595
|
$
|
17.675
|
||||||
|
Annual
return to common shareholders (4)
|
(8.8
|
)%
|
48.8
|
%
|
17.4
|
%
|
46.0
|
%
|
55.3
|
%
|
||||||
|
Working
capital
|
$
|
49.8
|
$
|
249.3
|
$
|
62.4
|
$
|
155.6
|
$
|
218.8
|
||||||
|
Current
ratio
|
1.04
|
1.25
|
1.07
|
1.15
|
1.38
|
|||||||||||
|
(1)
|
Includes
business consolidation activities and other items affecting comparability
between years of pretax expense of $21.2 million in 2005, pretax
income of $15.2 million, $3.7 million and $2.3 million in
2004, 2003 and 2002, respectively, and pretax expense of
$271.2 million in 2001. Also includes $19.3 million,
$15.2 million and $5.2 million of debt refinancing costs in
2005, 2003 and 2002, respectively, reported as interest expense.
Additional details about the 2005, 2004 and 2003 items are available
in
Notes 4, 9 and 11 to the consolidated financial statements within
Item 8 of this report.
|
|
(2)
|
Amounts
have been retroactively restated for two-for-one stock splits, which
were
effected on August 23, 2004, and February 22,
2002.
|
|
(3)
|
Market
capitalization is defined as the number of common shares outstanding
at
year end, multiplied by the year-end closing price of Ball common
stock.
Net debt is total debt less cash and cash
equivalents.
|
|
(4)
|
Change
in stock price plus dividend yield assuming reinvestment of all dividends
paid.
|
Page
18 of
97
Item
7. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
Management’s
discussion and analysis should be read in conjunction with the consolidated
financial statements and accompanying notes. Ball Corporation and its
subsidiaries are referred to collectively as “Ball” or “the company” or “we” and
“our” in the following discussion and analysis.
BUSINESS
OVERVIEW
Ball
Corporation is one of the world’s leading suppliers of metal and plastic
packaging to the beverage and food industries. Our packaging products are
produced for a variety of end uses and are currently manufactured in
49 plants around the world. We also supply aerospace and other technologies
and services to governmental and commercial customers.
We
sell
our packaging products primarily to major beverage and food producers with
which
we have developed long-term customer relationships. This is evidenced by our
high customer retention and our large number of long-term supply contracts.
While we have diversified our customer base, we do sell a majority of our
packaging products to relatively few major beverage and food companies in North
America, Europe and the People’s Republic of China (PRC), as do our equity joint
ventures in Brazil, the U.S. and the PRC. We also purchase raw materials from
relatively few suppliers. Because of our customer and supplier concentration,
our business, financial condition and results of operations could be adversely
affected by the loss of a major customer or supplier or a material change in
a
supply agreement with a major customer or supplier, although our long-term
relationships and contracts mitigate these risks.
In
the
rigid packaging industry, sales and earnings can be improved by reducing costs,
developing new products, expanding volume and increasing pricing where possible.
We are in the early stages of a project to upgrade and streamline our North
American beverage can end manufacturing capabilities, a project that will result
in productivity gains and cost reductions. While the U.S. and Canadian beverage
container manufacturing industry is relatively mature, the European, PRC and
Brazilian beverage can markets are growing (excluding the effects of the German
mandatory deposit discussed in Note 21 to the consolidated financial
statements) and are expected to continue to grow. We are capitalizing on the
European growth by continuing to reconfigure some of our European can
manufacturing lines and by opening in 2005 a new beverage can manufacturing
plant in Belgrade, Serbia.
Ball’s
consolidated earnings are exposed to foreign exchange rate fluctuations. We
attempt to mitigate this exposure through the use of derivative financial
instruments, as discussed in the “Financial Instruments and Risk Management”
sections (within Item 7A and Item 8, Note 16, of this report).
As
part
of our packaging strategy, we are focused on developing and marketing new and
existing products that meet the ever-expanding needs of our beverage and food
customers. These innovations include new shapes, sizes, opening features and
other functional benefits of both metal and plastic packaging. This packaging
development activity helps us maintain and expand our supply positions with
major beverage and food customers.
The
primary customers for the products and services provided by our aerospace and
technologies segment are U.S. government agencies or their prime contractors.
It
is possible that federal budget reductions and priorities, or changes in agency
budgets, could limit future funding and new contract awards or prolong contract
performance.
We
recognize sales under long-term contracts in the aerospace and technologies
segment using the cost-to-cost, percentage of completion method of accounting.
Our present contract mix consists of approximately two-thirds cost-plus
contracts, which are billed at our costs plus an agreed upon profit component,
and approximately one-third fixed price contracts. We include time and
material contracts in the fixed price category because such contracts typically
provide for the sale of engineering labor at fixed hourly rates. Throughout
the
period of contract performance, we regularly reevaluate and, if necessary,
revise our estimates of total contract revenue, total contract cost and progress
toward completion. Because of contract payment schedules, limitations on funding
and other contract terms, our sales and accounts receivable for this segment
include amounts that have been earned but not yet billed.
Page
19 of
97
Management
uses various measures to evaluate company performance. The primary financial
measures we use are earnings before interest and taxes (EBIT), earnings before
interest, taxes, depreciation and amortization (EBITDA), diluted earnings per
share, economic value added (operating earnings after tax, as defined by the
company, less a capital charge based on invested capital times our cost of
capital), operating cash flow and free cash flow (generally defined by the
company as cash flow from operating activities less capital expenditures).
These
financial measures may be adjusted at times for items that affect comparability
between periods. Nonfinancial measures in the packaging segments include
production spoilage rates, quality control measures, safety statistics and
production and shipment volumes. Additional measures used to evaluate
performance in the aerospace and technologies segment include contract revenue
realization, award and incentive fees realized, proposal win rates and backlog
(including awarded, contracted and funded backlog).
We
recognize that attracting and retaining quality employees is critically
important to the success of Ball and, because of this, we strive to pay
employees competitively and encourage their prudent ownership of the company’s
common stock. For most management employees, a meaningful portion of
compensation is at risk as an incentive, dependent upon economic value added
operating performance. For more senior positions, more compensation is at risk.
Through our employee stock purchase plan and 401(k) plan, which matches employee
contributions with Ball common stock, many employees, regardless of
organizational level, have opportunities to participate as Ball
shareholders.
CONSOLIDATED
SALES AND EARNINGS
The
company has determined that it has five reportable segments organized
along a combination of product lines and geographic areas - North
American metal beverage packaging, North American metal food packaging, North
American plastic packaging, international packaging and aerospace and
technologies. Prior periods have been conformed to the current presentation.
We
also have investments in companies in the U.S., the PRC and Brazil, which are
accounted for using the equity method of accounting, and accordingly, their
results are not included in segment sales or earnings.
North
American Metal Beverage Packaging
The
North
American metal beverage packaging segment consists of operations located in
the
U.S., Canada and Puerto Rico, which manufacture metal container products used
primarily in beverage packing. This segment accounted for 42 percent of
consolidated net sales in 2005 (43 percent in 2004). Sales were slightly
higher in 2005 than in 2004 as lower 2005 sales volumes were offset by higher
aluminum prices passed through to our customers. Metal beverage container
volumes in 2005 were 2.5 percent below the previous year’s levels as a
result of poor weather in the first quarter, temporary volume reductions and
general softness in the beer and carbonated soft drink markets. Net changes
in
contracted volumes are expected to result in the restoration of the reduced
2005 volumes during 2006 and beyond. Sales were 3 percent higher in
2004 than in 2003. Contributing to the increase were the pass through of
aluminum price increases and higher volumes in our specialty can products,
partially offset by declines in standard 12-ounce can volumes. Sales in 2004
improved over 2003 due to the $28 million acquisition in March 2003 of
Metal Packaging International, Inc., a small producer of metal beverage can
ends. Based on publicly available information, we estimate that our shipments
of
metal beverage containers were approximately 31 percent of total U.S. and
Canadian shipments in 2005.
We
continue to focus efforts on the growing custom beverage can business, which
includes cans of different shapes, diameters and fill volumes, and cans with
added functional attributes for new products and product line extensions. The
conversion of a manufacturing line in our Golden, Colorado, plant from 12-ounce
to 24-ounce cans was completed in the second quarter of 2005. We also announced
plans to convert a line in our Monticello, Indiana, plant from 12-ounce can
manufacturing to a line capable of producing beverage cans in sizes up to
16 ounces. This conversion was substantially completed in
January 2006.
Earnings
in the segment were $229.8 million in 2005 compared to $279.1 million
in 2004 and $250.8 million in 2003. The third quarter of 2005 included a
pretax charge of $19.3 million ($11.7 million after tax) related to a
project to significantly upgrade and streamline our North American beverage
can
end manufacturing capabilities. The charge included the write off of obsolete
equipment spare parts and tooling, as well as employee termination costs. Over
time, this capital project is expected to result in productivity improvements
and reduced manufacturing costs.
Page
20 of
97
We
have
installed the first production module in this multi-year project and the second
and third modules are in the installation phase. The project is expected to
be
completed in 2007.
Also
contributing to lower segment earnings in 2005 were higher freight costs from
fuel surcharges, higher other direct material and utility costs and a
$9 million increase in cost of sales due to rising raw material costs under
the LIFO (last-in-first-out) method of accounting. Energy, freight and other
direct material costs were $32 million higher in 2005 than in 2004,
partially offset by efficiency gains, cost controls and lower selling, general
and administrative costs in 2005. While pricing pressures continue on our raw
materials, other direct materials, and freight and utility costs, we continue
to
work with both customers and suppliers to maintain our volumes, as well as
preserve our margins.
The
improvement in segment earnings in 2004 versus 2003 was the result of higher
sales and production volumes, improved product mix and cost reduction programs.
Partially offsetting these 2004 earnings improvements was an increase in cost
of
sales due to rising raw material costs under the LIFO (last-in-first-out) method
of accounting. In the fourth quarter of 2003, a gain of $1.6 million was
recorded in connection with the sale of a metal beverage container facility
that
was shut down in December 2001.
North
American Metal Food Packaging
The
North
American metal food packaging segment consists of operations located in the
U.S.
and Canada, which manufacture metal container products used primarily in food
packaging. Segment sales in 2005 comprised 14 percent of consolidated net
sales (14 percent in 2004) and were 6 percent higher than 2004 sales.
Sales in 2005 reflected higher prices from the pass through of higher raw
material costs. Sales volumes were flat compared to 2004 levels including,
in
the first quarter of 2005, the inclusion of a full quarter’s results from our
Oakdale, California, facility which was acquired in March 2004 (discussed
below). Sales were higher in 2004 than in 2003 due primarily to the acquisition
of the Oakdale, California, facility, higher selling prices as a result of
the
pass through of raw material costs and some pre-buying by customers in the
fourth quarter of 2004 ahead of expected 2005 steel price increases. During
2004
and 2005, we were able to pass through the majority of the steel price increases
and surcharges levied by steel producers. We estimate our 2005 shipments of
6.7 billion cans to be approximately 20 percent of total U.S. and
Canadian metal food container shipments, based on publicly available trade
information.
On
March
17, 2004, we acquired ConAgra Grocery Products Company’s (ConAgra) interest in
Ball Western Can Company LLC (Ball Western Can) for $30 million. Ball
Western Can, located in Oakdale, California, was established in 2000 as a 50/50
joint venture between Ball and ConAgra and, prior to the acquisition, was
accounted for by Ball using the equity method of accounting. Ball and ConAgra’s
parent company, ConAgra Foods Inc., signed a long-term agreement under which
Ball provides metal food containers to ConAgra food packing locations in
California. The acquisition of Ball Western Can added approximately one billion
units of annual capacity.
Segment
earnings were $11.6 million in 2005 compared to $44.3 million in 2004
and $19.8 million in 2003. The fourth quarter of 2005 included a pretax
charge of $4.6 million ($3.1 million after tax) for pension, severance
and other employee benefit costs related to a reduction in force in our
Burlington, Ontario, plant. The second quarter of 2005 included a pretax charge
of $8.8 million ($5.9 million after tax) for the closure of a
three-piece food can manufacturing plant in Quebec. This action was taken to
better match capacity to demand. The Quebec plant was closed and ceased
operations in the third quarter of 2005 and an agreement has been reached to
sell the land and building, which resulted in the second quarter charge being
offset by a $2.2 million gain ($1.5 million after tax) in the fourth
quarter to adjust the Quebec plant to net realizable value.
Also
contributing to lower segment earnings in 2005 were higher freight costs from
fuel surcharges, higher other direct material and utility costs and an
$8.5 million increase in cost of sales due to rising raw material costs
under the LIFO (last-in-first-out) method of accounting. Energy, freight and
other direct material costs were $16 million higher in 2005 than in 2004,
partially offset by efficiency gains, cost controls and lower selling, general
and administrative costs in 2005. While pricing pressures continue on all of
our
raw materials, other direct materials, and freight and utility costs, we
continue to work with both customers and suppliers to maintain our volumes,
as
well as preserve our margins.
Page
21 of
97
The
improvement in earnings in 2004 versus 2003 was the result of strong fourth
quarter 2004 food can sales, higher production volumes, improved product mix
and
cost reduction programs. In addition, 2003 earnings were negatively impacted
by
$11 million of start-up costs associated with a new two-piece food can
manufacturing line in Milwaukee. Partially offsetting these 2004 earnings
improvements was an increase in cost of sales due to rising raw material costs
under the LIFO (last-in-first-out) method of accounting. In the first quarter
of
2003, a net charge of $1.4 million was booked to record the costs of
closing a metal food container plant offset by a gain from the sale of a
previously closed plant.
North
American Plastic Packaging
The
North
American plastic packaging segment consists of operations located in the U.S.
which manufacture polyethylene terephthalate (PET) plastic container products
used mainly in beverage packaging. Segment sales in 2005 comprised
8 percent of consolidated sales (7 percent in 2004) and increased
22 percent compared to 2004. The sales increase was related to the pass
through to our customers of higher resin prices, as well as 7.5 percent
higher sales volumes in 2005 compared to 2004, related to higher demand for
barrier and heat-set containers that provide longer shelf-life for products,
combined with strong demand for plastic water bottles. Sales in 2004 were
7 percent higher than in 2003, primarily as a result of several new preform
sales contracts secured during 2004 and the pass through of raw material price
increases. Carbonated soft drink and water sales volumes in 2004 were lower
than
expected primarily due to reduced demand on the East Coast, resulting from
competitive pressures, and a delay in the commencement of a new customer supply
opportunity on the West Coast. Although only a small percentage of our total
volume, juice, sports drinks and beer container sales increased in 2005 and
are
expected to grow considerably in the future as more focus is given to these
specialty markets and the development of our Heat-Tek(TM) business. We estimate
our 2005 shipments of more than 5 billion bottles to be approximately
9 percent of total U.S. and Canadian PET container shipments.
Segment
earnings were $17.4 million in 2005 compared to $11.6 million in 2004
and $12.3 million in 2003. The improvement in earnings in 2005 was the
result of higher sales and production volumes and growth in specialty products.
Partially offsetting these improvements in 2005 were higher utility costs.
Segment earnings in 2004 and 2003 included $2 million and
$2.7 million, respectively, of costs associated with the relocation of the
plastics offices and research and development facility from Atlanta, Georgia,
to
Colorado. Earnings in 2004 were also negatively impacted by continued pricing
pressures on commodity plastic containers for carbonated soft drink customers.
Segment earnings in 2004 also included a gain of $0.7 million as costs related
to the shut down and relocation of the Atlanta plastics offices were less than
expected.
International
Packaging
International
packaging includes the production and sale of metal beverage container products
manufactured and sold in Europe and Asia as well as plastic containers
manufactured and sold in Asia. This segment accounted for 24 percent of
consolidated net sales in 2005 (23 percent in 2004).
Ball
Packaging Europe, which represents an estimated 29 percent of the total
European metal beverage container manufacturing capacity, has manufacturing
plants located in Germany, the United Kingdom, France, the Netherlands, Poland
and Serbia. European sales were 7 percent higher in 2005 than in 2004
primarily as a result of an 8.5 percent increase in sales volumes. The
continued weak demand in Germany, as a result of the mandatory deposit
legislation previously reported on, is being offset by stronger demand elsewhere
in Europe, including southern and eastern Europe. Sales in 2005 were adversely
affected by unseasonably cool, wet weather in parts of Europe. European sales
were 10 percent higher in 2004 than in 2003 as a result of a stronger euro,
higher selling prices and successful export programs from the German plants
to
other European countries.
In
response to increased demand for custom cans in Europe, a steel can
manufacturing line in the Netherlands was converted to aluminum custom cans
during the first quarter of 2005. The construction of a new beverage can plant
in Belgrade, Serbia, was completed near the end of the second quarter of 2005
to
serve the growing demand for beverage cans in southern and eastern Europe.
The
plant became fully operational during the third quarter of 2005. The Serbian
plant was constructed to accommodate a second can production line and a can
end
manufacturing module for future growth. In the first quarter of 2004, a steel
can manufacturing line in Germany was converted to the production of aluminum
cans and, in the first quarter of 2003, one German can manufacturing line was
idled.
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Sales
in
the PRC in 2005 increased 21 percent over 2004 levels, which were
18 percent higher than in 2003. The increases were largely the result of
higher volumes. The overall beverage can market in the PRC was also strong
throughout 2005 with expectations of continued growth into 2006. We expect
demand for aluminum beverage cans to grow in the coming years, as both
multinational and Chinese beverage fillers expand their markets.
International
packaging segment earnings of $181.8 million in 2005 decreased
8 percent compared to 2004 earnings of $198 million. The fourth
quarter of 2005 included a $9.3 million gain primarily resulting from the
final settlement of all tax obligations related to liquidated China operations
for amounts less than originally estimated. First quarter 2005 segment earnings
included a $3.4 million expense for the write off of the remaining carrying
value of an equity investment in the PRC. Earnings in 2004 included income
of
$13.7 million related to the realization of proceeds on assets in the PRC
being in excess of amounts previously estimated, and costs of liquidation being
less than anticipated in a business consolidation charge taken in 2001.
Higher
material, energy and transportation costs, as well as second and third quarter
start up costs related to a line conversion in the Netherlands and the new
Serbia plant had a negative effect on 2005 segment earnings. Partially
offsetting these higher costs were lower selling, general and administrative
costs. Earnings improved in 2004 compared to 2003 due to a stronger euro and
higher profit margins in both Europe and the PRC due in large part to
operational cost reduction programs. Segment earnings in 2004 were also improved
over 2003 by the nonrecurrence of purchase accounting adjustments which
increased Ball Packaging Europe’s cost of sales in 2003. The stronger euro
improved our net earnings per diluted share by $0.08 in 2004 compared to
2003.
During
the fourth quarter of 2004, Sanshui Jianlibao FTB Packaging Limited (Sanshui
JFP), a 35 percent owned PRC joint venture, experienced a greater than customary
seasonal production slowdown caused by cash flow difficulties. After discussions
with representatives of the local Chinese government, which had temporarily
taken control of our joint venture partner’s business, we recorded an allowance
for doubtful accounts in respect of Sanshui JFP’s receivable from the joint
venture partner. Our share of the bad debt provision amounted to
$15.2 million and is included in the 2004 consolidated statement of
earnings as equity in results of affiliates. Information learned late in the
first quarter of 2005 led the company to record expense of $3.4 million to
write off the remaining carrying value of this investment.
In
June 2001 we announced a plan to exit the general line metal can business
in the PRC and reduce our PRC beverage can manufacturing capacity by closing
two
plants. A $237.7 million pretax charge ($185 million after tax and
minority interest impact) was recorded in connection with this reorganization.
We recorded earnings of $9.3 million during 2005, $13.7 million in
2004 and $3.3 million in 2003 as restructuring activities were completed,
resulting in realization on assets in excess of amounts previously estimated,
as
well as costs incurred being less than estimated, including settlement of tax
matters. All costs and transactions related to the PRC restructuring have been
concluded.
Aerospace
and Technologies
Aerospace
and technologies segment sales represented 12 percent of 2005 consolidated
net sales (12 percent in 2004) and were 6 percent higher than in 2004.
Sales in 2004 were 22 percent higher than in 2003. The progressively higher
sales resulted from a combination of newly awarded contracts and additions
to
previously awarded contracts. The aerospace and technologies business won a
number of large, strategic contracts and delivered a great deal of sophisticated
space and defense instrumentation throughout the three-year period. Earnings
of
$54.7 million in 2005 were 12 percent higher compared to 2004 despite
an expense of $3.8 million in the first quarter of 2005 for the write down
to net realizable value of an equity investment in an aerospace company. This
investment was sold in October 2005 for approximately its carrying value.
The improvement in earnings was primarily the result of higher sales and
improved program performance. Net earnings decreased in 2004 by 2 percent
compared to 2003 largely due to increased pension costs and higher costs
incurred on certain cost-plus contracts without corresponding additional fees
as
these contracts reached completion. In addition, 2003 margins included
$8 million due to successfully achieving milestones in two key
programs.
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On
July 4, 2005, the Deep Impact spacecraft accomplished its goal of
collecting data from comet Tempel 1, 83 million miles from Earth,
using an impactor spacecraft to strike the comet and recording the results
of
the impact with a flyby spacecraft. The Deep Impact mission has provided
groundbreaking scientific information regarding the origins of the solar system.
Some of the segment’s other high-profile contracts include: WorldView, an
advanced commercial remote sensing satellite; the James Webb Space Telescope,
a
successor to the Hubble Space Telescope; the Space-Based Space Surveillance
System, which will detect and track space objects such as satellites and orbital
debris; NPOESS, the next-generation satellite weather monitoring system; and
a
number of antennas for the Joint Strike Fighter.
Sales
to
the U.S. government, either directly as a prime contractor or indirectly as
a
subcontractor, represented 87 percent of segment sales in 2005,
82 percent in 2004 and 96 percent of segment sales in 2003.
The
percentage representing U.S. government sales has decreased compared to 2003
due
to growing revenues related to the WorldView contract. Contracted
backlog for the aerospace and technologies segment at December 31, 2005 and
2004, was $761 million and $694 million, respectively. Year-to-year
comparisons of backlog are not necessarily indicative of the trend of future
operations.
For
additional information regarding the company’s segments, see the summary of
business segment information in Note 2 accompanying the consolidated financial
statements within Item 8 of this report. The charges recorded for business
consolidation activities were based on estimates by Ball management, actuaries
and other independent parties and were developed from information available
at
the time. If actual outcomes vary from the estimates, the differences will
be
reflected in current period earnings in the consolidated statement of earnings
and identified as business consolidation gains and losses. Additional details
about our business consolidation activities and associated costs are provided
in
Note 4 accompanying the consolidated financial statements within
Item 8 of this report.
Selling
and Administrative Expenses
Selling
and administrative expenses were $231.6 million, $267.9 million and
$234.2 million for 2005, 2004 and 2003, respectively. Expenses in 2005 were
lower in all areas of the company due largely to lower employee compensation
and
benefit costs, including the company’s deposit share program and
economic-value-added based incentive compensation plans. In addition, foreign
currency hedging gains were higher in 2005 than in 2004. These lower costs
were
partially offset by higher pension costs, higher accounts receivable
securitization fees and the write down of the PRC and aerospace equity
investments in the first quarter of 2005. The increase in 2004 compared to
2003
was due to higher costs related to the company’s deposit share program, higher
pension and incentive costs, costs associated with Sarbanes-Oxley compliance
in
2004, higher research and development costs, the effects of foreign exchange
rates and growth in our aerospace and technologies segment. In 2005 we reduced
our U.S. pension plan discount rate from 6.25 percent to 6 percent,
resulting in $5.4 million higher U.S. pension expense for the year compared
to 2004, most of which was included in cost of sales. In 2004 we also reduced
our U.S. pension plan discount rate from 6.75 percent to 6.25 percent,
resulting in $8.3 million higher U.S. pension expense for the year compared
to 2003.
For
the
U.S. pension plans, we intend to maintain our current return on asset assumption
at 8.5 percent for 2006 while further reducing the discount rate assumption
to 5.75 percent. Based on these assumptions, U.S. pension expense for 2006
is anticipated to increase $10.5 million compared to 2005, most of which
will be included in cost of sales. Pension expense in Europe and Canada combined
is expected to be slightly lower than the 2005 expense. A reduction of the
plan
asset return assumption by one quarter of a percentage point would result in
additional expense of approximately $1.9 million while a quarter of a
percentage point reduction in the discount rate would result in approximately
$3.8 million of additional expense. Additional information regarding the
company’s pension plans is provided in Note 13 accompanying the
consolidated financial statements within Item 8 of this report.
On
October 26, 2005, Ball’s board of directors approved the accelerated
vesting of the out-of-the-money, unvested nonqualified stock options granted
in
April 2005. The acceleration affects approximately 665,000 options
granted to approximately 290 employees at an exercise price of $39.74. The
accelerated vesting of these nonqualified options will allow the company to
eliminate approximately $5 million of pretax expense (approximately
$3 million after tax) over the next four years.
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Interest
and Taxes
Consolidated
interest expense was $116.4 million in 2005, including debt refinancing
costs of $19.3 million; $103.7 million in 2004 and $141.1 million
in 2003, including debt refinancing costs of $15.2 million. The
progressively lower expense was due to lower average borrowings and higher
capitalized interest. The debt refinancing costs in 2005 of $19.3 million
were costs associated with the refinancing of the company’s senior credit
facilities and the redemption in the last half of 2005 of the company’s
7.75% senior notes, which were due in August 2006. The debt refinancing
costs in 2003 of $15.2 million were associated with the early redemption of
the company’s 8.25% senior subordinated notes in August 2003.
Ball’s
consolidated effective income tax rate for 2005 was 28.7 percent compared
to 32 percent in 2004 and 31.3 percent in 2003. The decrease in
the effective tax rate is primarily due to the net tax benefit recorded on
the
repatriation of foreign earnings under the American Jobs Creation Act of 2004
(Jobs Act), the tax benefit on business consolidation costs applied at the
marginal tax rate, increased research and development tax credits and the
manufacturing deduction effective in 2005 under the Jobs Act. (Further details
of the amounts repatriated under the Jobs Act are available in Note 12
accompanying the consolidated financial statements within Item 8 of this
report.) These benefits were somewhat offset by the fact that no tax benefit
was
provided in respect of the equity investment write downs in the first quarter
of
2005. The $3.8 million write down of the aerospace investment is not tax
deductible while the realization of tax deductibility of the $3.4 million
PRC write down, which will be a capital loss, is not reasonably assured as
the
company does not have, nor does it anticipate, any capital gains to offset
the
capital losses.
Ball’s
consolidated effective income tax rate for 2004 was 32 percent compared to
31.3 percent in 2003. The overall 2004 effective rate was slightly higher,
primarily due to higher North American earnings than in 2003, but continues
to
reflect a low consolidated European income tax rate due to lower profits in
Germany, reflecting the impact of the refundable mandatory deposit on
non-refillable containers imposed on January 1, 2003, and a tax holiday in
Poland. Germany has the highest tax rate of the European countries in which
Ball
has operations.
In
connection with the Internal Revenue Service’s (IRS) examination of Ball’s
consolidated income tax returns for the tax years 2000 through 2003, the IRS
has
proposed to disallow Ball’s deductions of interest expense incurred on loans
under a company-owned life insurance plan that has been in place for more than
19 years. Ball believes that its interest deductions will be sustained as
filed and, therefore, no provision for loss has been accrued. The IRS’s proposed
adjustments would result in an increase in taxable income for the years 1999
through 2003 of $46.7 million and a corresponding increase in taxable
income for subsequent tax years 2004 and 2005 in the amount of
$20.2 million with a corresponding increase in tax expense of
$26.4 million plus any related penalties and interest expense. The
examination reports for the 2000 to 2003 examination have been forwarded to
the
appeals division of the IRS, and no further action has taken place to change
Ball’s position.
Results
of Equity Affiliates
Equity
in
the earnings of affiliates in 2005 is primarily attributable to our
50 percent ownership in packaging investments in North America and Brazil.
Earnings in 2004 included the results of a minority-owned aerospace business,
which was sold in October 2005, and a $15.2 million loss representing
Ball’s share of a provision for doubtful accounts related to its 35 percent
owned interest in Sanshui JFP (discussed above in “International Packaging”).
After consideration of the PRC loss, earnings were $15.5 million in 2005
compared to $15.8 million in 2004 and $11.3 million in 2003. The
higher earnings since 2003 were primarily due to improved results in our
packaging joint ventures in Brazil and North America.
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Subsequent
Event
On
February 14, 2006, the company entered into a definitive merger agreement
in which Ball will acquire U.S. Can Corporation’s (U.S. Can) U.S. and
Argentinean operations for 1.1 million shares of Ball common stock and
the assumption of $550 million of U.S. Can’s debt. The transaction is
expected to close by the end of the first quarter 2006. U.S. Can is the largest
manufacturer of aerosol cans in the U.S. and also manufactures paint cans,
plastic containers and custom and specialty cans in 10 plants in the U.S.
Aerosol cans are also produced in the two manufacturing plants in Argentina.
U.S. Can’s U.S. and Argentinean operations had sales of approximately
$600 million (unaudited) in 2005. Upon closing the acquisition of U.S. Can,
the company intends to refinance $550 million of existing U.S. Can debt at
significantly lower interest rates. The refinancing will be completed with
Ball’s issuance of a new series of senior notes and an increase in bank debt
under the new senior credit facilities put in place in the fourth quarter of
2005.
CRITICAL
AND SIGNIFICANT ACCOUNTING POLICIES AND NEW ACCOUNTING
PRONOUNCEMENTS
For
information regarding the company’s critical and significant policies, as well
as recent accounting pronouncements, see Note 1 to the consolidated
financial statements within Item 8 of this report.
FINANCIAL
CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash
Flows and Capital Expenditures
Cash
flows from operating activities were $558.8 million in 2005 compared to
$535.9 million in 2004 and $364 million in 2003. The lower amount
generated in 2003 included $138.3 million for the payment in
January 2003 of an accrued withholding tax obligation related to the
acquisition of Ball Packaging Europe (further discussed below) which was funded
by the seller at the time of closing by the inclusion of €131 million of
additional cash.
Management
internally uses a free cash flow measure: (1) to evaluate the company’s
operating results, (2) for planning purposes, (3) to evaluate
strategic investments and (4) to evaluate the company’s ability to incur and
service debt. Free cash flow is not a defined term under U.S. generally accepted
accounting principles and it should not be inferred that the entire free cash
flow amount is available for discretionary expenditures. The company defines
free cash flow as cash flow from operating activities less additions to
property, plant and equipment (capital spending). Free cash flow is typically
derived directly from the company’s cash flow statements; however, it may be
adjusted for items that affect comparability between periods. An example of
such
an item excluded in 2003 is the $138.3 million withholding tax payment
liability assumed in the acquisition of Ball Packaging Europe in
December 2002 (discussed above). We believe this is not a comparable free
cash flow outflow of the company as it was funded by the seller.
Based
on
this, our consolidated free cash flow is summarized as follows:
|
($
in millions)
|
2005
|
2004
|
2003
|
|||||||
|
Cash
flows from operating activities
|
$
|
558.8
|
$
|
535.9
|
$
|
364.0
|
||||
|
Add
back withholding tax payment related to the acquisition of Ball
Packaging Europe
|
–
|
–
|
138.3
|
|||||||
|
Capital
spending
|
(291.7
|
)
|
(196.0
|
)
|
(137.2
|
)
|
||||
|
Free
cash flow
|
$
|
267.1
|
$
|
339.9
|
$
|
365.1
|
||||
Cash
flows from operating activities in 2005 were
negatively impacted by higher cash taxes. This resulted in a decrease in the
deferred income taxes payable of $58.5 million in 2005 compared to an
estimated increase in deferred taxes of $42.8 million in 2004. The primary
causes of the increase in current income taxes and decrease in deferred income
taxes are the reduction in 2005 of tax-deductible pension costs versus 2004,
the
impact in 2005 of the repatriation of foreign earnings and a reduction of tax
versus book depreciation expense as tax depreciation was accelerated in prior
years, primarily due to bonus tax depreciation permitted in the tax laws after
September 11, 2001. Cash flows from operating activities were positively
affected in 2005 by lower accounts receivable, higher accounts payable and
lower
pension contributions.
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Cash
flow
in 2004 compared to 2003 included higher earnings and higher accounts payable,
offset by higher accounts receivable and inventories, as well as higher pension
plan contributions. Inventories and accounts payable were higher due to
increased purchases of raw materials and accounts receivable were higher
partially as a result of strong December food can sales.
Based
on
information currently available, we estimate cash flows from operating
activities for 2006 to be approximately $550 million, capital spending to
be approximately $300 million and free cash flow to be in the
$250 million range. Capital
spending of $291.7 million in 2005 was above depreciation and amortization
expense of $213.5 million as we invested capital in our best performing
operations, including projects to increase custom can capabilities, improve
beverage can end making productivity, convert lines from steel to aluminum
in
Europe and complete a new beverage can manufacturing plant in Belgrade, Serbia,
as well as expenditures in the aerospace and technologies segment.
Debt
Facilities and Refinancing
Interest-bearing
debt at December 31, 2005, decreased $71 million to
$1,589.7 million from $1,660.7 million at December 31, 2004. This
decrease includes $358.1 million for net repurchases of common stock and
$291.7 million of capital spending, partially offset by the effects of the
lower euro exchange rate and operating cash flow.
On
October 13, 2005, Ball refinanced its senior secured credit facilities. The
new senior secured facilities extend debt maturities at lower interest rate
spreads and provide Ball with additional borrowing capacity for future growth.
During the third and fourth quarters of 2005, Ball redeemed its 7.75% senior
notes due August 2006 primarily through the drawdown of funds under the new
credit facilities. The refinancing and redemption resulted in a pretax debt
refinancing charge of $19.3 million ($12.3 million after tax) to
reflect the call premium associated with the senior notes and the write off
of
unamortized debt issuance costs.
The
new
senior credit facilities, which currently bear interest at variable rates and
are due in October 2011, are comprised of the following:
(1) ₤85 million Term A Loan; (2) €350 million Term B Loan;
(3) C$165 million Term C Loan; (4) a multi-currency
long-term revolving credit facility which provides the company with up to the
equivalent of $715 million; and (5) a Canadian long-term revolving
credit facility which provides the company with up to the equivalent of
$35 million. At December 31, 2005, $547 million was available
under the multi-currency revolving credit facility. The company also had
$267 million of short-term uncommitted credit facilities available at the
end of the year, of which $106.8 million was outstanding.
During
the first quarter of 2004, Ball repaid €31 million ($38 million) of
its previous euro denominated Term Loan B and reduced the interest rate by
50 basis points. During the fourth quarter of 2003, Ball repaid
$160 million of its previous U.S. dollar denominated Term Loan B and
€25 million of its previous euro denominated Term Loan B. At the time
of the early repayment, the interest rate on the U.S. portion of the Term
Loan B was reduced by 50 basis points. Interest expense during the
first quarter of 2004 and the fourth quarter of 2003 included $0.5 million
and $2.9 million, respectively, for the write off of the unamortized
financing costs associated with the repaid loans.
On
August 8, 2003, Ball refinanced 8.25% Senior Subordinated Notes due in
2008 through the private placement of $250 million of 6.875% Senior Notes
due in 2012 issued at a price of 102% (effective yield to maturity of
6.58 percent). In connection with the refinancing of the higher interest
debt, in the third quarter of 2003 a pretax charge of $15.2 million was
recorded as interest expense, which consisted of the payment of a
$10.3 million call premium and the write off of $4.9 million of
unamortized financing costs.
The
company has a receivables sales agreement that provides for the ongoing,
revolving sale of a designated pool of trade accounts receivable of Ball’s North
American packaging operations, up to $225 million as of December 31,
2005 ($200 million as of December 31, 2004). The agreement qualifies
as off-balance sheet financing under the provisions of Statement of Financial
Accounting Standards No. 140. Net funds received from the sale
of the accounts receivable totaled $210 million and $174.7 million at
December 31, 2005 and 2004, respectively, and are reflected as a reduction
of accounts receivable in the consolidated balance sheets.
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97
The company was not in default of any loan agreement at December 31, 2005, and has met all payment obligations. The U.S. note agreements, bank credit agreement and industrial development revenue bond agreements contain certain restrictions relating to dividends, investments, financial ratios, guarantees and the incurrence of additional indebtedness.
Additional
details about the company’s receivables sales agreement and debt are available
in Notes 5 and 11, respectively, accompanying the consolidated financial
statements within Item 8 of this report.
Other
Liquidity Items
Cash
payments required for long-term debt maturities, rental payments under
noncancellable operating leases and purchasing obligations in effect at
December 31, 2005, are summarized in the following table:
|
Payments
Due By Period
|
||||||||||||||||
|
($
in millions)
|
Total
|
Less
than 1 Year
|
1-3
Years
|
3-5
Years
|
More
than 5 Years
|
|||||||||||
|
Long-term
debt
|
$
|
1,472.4
|
$
|
7.7
|
$
|
105.1
|
$
|
290.4
|
$
|
1,069.2
|
||||||
|
Capital
lease obligations
|
6.7
|
1.8
|
2.4
|
0.5
|
2.0
|
|||||||||||
|
Operating
leases
|
198.0
|
45.8
|
60.6
|
34.8
|
56.8
|
|||||||||||
|
Purchase
obligations (a)
|
7,385.4
|
2,193.8
|
2,902.6
|
1,910.7
|
378.3
|
|||||||||||
|
Total
payments on contractual obligations
|
$
|
9,062.5
|
$
|
2,249.1
|
$
|
3,070.7
|
$
|
2,236.4
|
$
|
1,506.3
|
||||||
|
(a)
|
The
company’s purchase obligations include contracted amounts for aluminum,
steel, plastic resin and other direct materials. Also included are
commitments for purchases of natural gas and electricity, aerospace
and
technologies contracts and other less significant items. In cases
where
variable prices and/or usage are involved, management’s best estimates
have been used. Depending on the circumstances, early termination
of the
contracts may not result in penalties and, therefore, actual payments
could vary significantly.
|
Contributions
to the company’s defined benefit pension plans, not including the unfunded
German plans, are expected to be $49 million in 2006. This estimate may
change based on plan asset performance. Benefit payments related to these plans
are expected to be $43 million, $46 million, $48 million,
$51 million and $54 million for the years ending December 31, 2006
through 2010, respectively, and $318 million thereafter. Payments to
participants in the unfunded German plans are expected to be $22 million,
$22 million, $23 million, $24 million and $24 million for
the years 2006 through 2010, respectively, and a total of $131 million
thereafter.
We
increased our share repurchase program in 2005 to $358.1 million, net of
issuances, compared to $50 million net repurchases in 2004. On
January 31, 2005, in a privately negotiated stock repurchase transaction,
Ball entered into a forward purchase agreement to repurchase 3 million of
its common shares at an initial price of $42.72 per share using cash on hand
and
available borrowings. The price per share was subject to a price adjustment
based on a weighted average price calculation for the period between the initial
purchase date and the settlement date. The company completed its purchase of
the
3 million shares at an average price of $41.63 per share and obtained
delivery of the shares in early May 2005.
On
October 26, 2005, the board of directors authorized the repurchase of up to
12 million shares of Ball common stock. This most recent repurchase
authorization replaced the previous authorization of up to 12 million
shares approved in July 2004, under which approximately 1 million
shares remained at October 26, 2005.
Annual
cash dividends paid on common stock were
40 cents per share in 2005, 35 cents per share in 2004 and
24 cents per share in 2003. Total dividends paid were $42.5 million in
2005, $38.9 million in 2004 and $26.8 million in 2003.
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97
Contingencies
The
company is subject to various risks and uncertainties in the ordinary course
of
business due, in part, to the competitive nature of the industries in which
we
participate, our operations in developing markets outside the U.S., changing
commodity prices for the materials used in the manufacture of our products
and
changing capital markets. Where practicable, we attempt to reduce these risks
and uncertainties through the establishment of risk management policies and
procedures, including, at times, the use of derivative financial instruments
as
explained in Item 7A of this report.
From
time
to time, the company is subject to routine litigation incident to its business.
Additionally, the U.S. Environmental Protection Agency has designated Ball
as a
potentially responsible party, along with numerous other companies, for the
cleanup of several hazardous waste sites. Our information at this time does
not
indicate that these matters will have a material adverse effect upon the
liquidity, results of operations or financial condition of the
company.
Due
to
political and legal uncertainties in Germany, no nationwide system for returning
beverage containers was in place at the time a mandatory deposit was imposed
in
January 2003 and nearly all retailers stopped carrying beverages in
non-refillable containers. During 2003 and 2004, we responded to the resulting
lower demand for beverage cans by reducing production at our German plants,
implementing aggressive cost reduction measures and increasing exports from
Germany to other countries in the region served by Ball Packaging Europe. We
also closed a plant in the United Kingdom, shut down a production line in
Germany, delayed capital investment projects in France and Poland and converted
one of our steel can production lines in Germany to aluminum in order to
facilitate additional can exports from Germany. In 2004 the German
parliament adopted a new packaging ordinance, imposing a 25 eurocent deposit
on
all one-way glass, PET and metal containers for water, beer and carbonated
soft
drinks. As of May 1, 2006, all retailers must redeem all returned one-way
containers as long as they sell such containers. Major retailers in Germany
have
begun the process of implementing a returnable system for one-way containers
since they, along with fillers, now appear to accept the deposit as permanent.
The retailers and the filling and packaging industries have formed a
committee to design a nationwide recollection system and several retailers
have
begun to order reverse vending machines in order to meet the May 1, 2006,
deadline.
The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the reported amounts of assets and liabilities, the disclosure of
contingencies at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Future events could affect
these estimates. See Note 1 to the consolidated financial statements
(within Item 8 of this report) for a summary of the company’s critical and
significant accounting policies.
The
U.S.
and European economies and the company have experienced minor general inflation
during the past several years. Management believes that evaluation of Ball’s
performance during the periods covered by these consolidated financial
statements should be based upon historical financial
statements.
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Forward-Looking
Statements
The
company has made or implied certain forward-looking statements in this report
which are made as of the end of the time frame covered by this report. These
forward-looking statements represent the company’s goals, and results could vary
materially from those expressed or implied. From time to time we also provide
oral or written forward-looking statements in other materials we release to
the
public. As time passes, the relevance and accuracy of forward-looking statements
may change. Some factors that could cause the company’s actual results or
outcomes to differ materially from those discussed in the forward-looking
statements include, but are not limited to: fluctuation in customer and consumer
growth and demand; loss of one or more major customers or changes to contracts
with one or more customers; insufficient production capacity; overcapacity
in
foreign and domestic metal and plastic container industry production facilities
and its impact on pricing and financial results; failure to achieve anticipated
productivity improvements or production cost reductions, including those
associated with capital expenditures such as our beverage can end project;
changes in climate and weather; fruit, vegetable and fishing yields; power
and
natural resource costs; difficulty in obtaining supplies and energy, such as
gas
and electric power; availability and cost of raw materials, as well as the
recent significant increases in resin, steel, aluminum and energy costs, and
the
ability or inability to include or pass on to customers changes in raw material
costs; changes in the pricing of the company’s products and services;
competition in pricing and the possible decrease in, or loss of, sales resulting
therefrom; insufficient or reduced cash flow; transportation costs; the number
and timing of the purchases of the company’s common shares; regulatory action or
federal and state legislation including mandated corporate governance and
financial reporting laws; the German mandatory deposit or other restrictive
packaging legislation such as recycling laws; interest rates affecting our
debt;
labor strikes; increases and trends in various employee benefits and labor
costs, including pension, medical and health care costs; rates of return
projected and earned on assets and discount rates used to measure future
obligations and expenses of the company’s defined benefit retirement plans;
boycotts; antitrust, intellectual property, consumer and other litigation;
maintenance and capital expenditures; goodwill impairment; the effect of LIFO
accounting on earnings; changes in generally accepted accounting principles
or
their interpretation; local economic conditions; the authorization, funding,
availability and returns of contracts for the aerospace and technologies segment
and the nature and continuation of those contracts and related services provided
thereunder; delays, extensions and technical uncertainties, as well as schedules
of performance associated with such segment contracts; international business
and market risks such as the devaluation or revaluation of certain currencies
and the activities of foreign subsidiaries; international business risks
(including foreign exchange rates and activities of foreign subsidiaries) in
Europe and particularly in developing countries such as the PRC and Brazil;
changes in the foreign exchange rates of the U.S. dollar against the European
euro, British pound, Polish zloty, Serbian dinar, Hong Kong dollar, Canadian
dollar, Chinese renminbi and Brazilian real, and in the foreign exchange rate
of
the European euro against the British pound, Polish zloty and Serbian dinar;
terrorist activity or war that disrupts the company’s production or supply;
regulatory action or laws including tax, environmental and workplace safety;
technological developments and innovations; successful or unsuccessful
acquisitions, joint ventures or divestitures and the integration activities
associated therewith; changes to unaudited results due to statutory audits
of
our financial statements or management’s evaluation of the company’s internal
controls over financial reporting; and loss contingencies related to income
and
other tax matters, including those arising from audits performed by U.S. and
foreign tax authorities. If the company is unable to achieve its goals, then
the
company’s actual performance could vary materially from those goals expressed or
implied in the forward-looking statements. The company currently does not intend
to publicly update forward-looking statements except as it deems necessary
in
quarterly or annual earnings reports. You are advised, however, to consult
any
further disclosures we make on related subjects in our 10-K, 10-Q and 8-K
reports to the Securities and Exchange Commission.
Page
30 of
97
|
Item
7A.
|
Quantitative and Qualitative Disclosures About Market
Risk
|
Financial
Instruments and Risk Management
In
the
ordinary course of business, we employ established risk management policies
and
procedures to reduce our exposure to fluctuations in commodity prices, interest
rates, foreign currencies and prices of the company’s common stock in regard to
common share repurchases. Although the instruments utilized involve varying
degrees of credit, market and interest risk, the counterparties to the
agreements are expected to perform fully under the terms of the
agreements.
We
have
estimated our market risk exposure using sensitivity analysis. Market risk
exposure has been defined as the changes in fair value of derivative
instruments, financial instruments and commodity positions. To test the
sensitivity of our market risk exposure, we have estimated the changes in fair
value of market risk sensitive instruments assuming a hypothetical
10 percent adverse change in market prices or rates. The results of the
sensitivity analysis are summarized below.
Commodity
Price Risk
We
manage
our commodity price risk in connection with market price fluctuations of
aluminum primarily by entering into container sales contracts, which generally
include aluminum-based pricing terms that consider price fluctuations under
our
commercial supply contracts for aluminum purchases. Such terms generally include
a fixed price or an upper limit to the aluminum component pricing. This matched
pricing affects most of our North American metal beverage container net sales.
We also, at times, use certain derivative instruments such as option and forward
contracts as cash flow and fair value hedges of commodity price risk where
there
is not a pass-through arrangement in the sales contract.
Our
North
American plastic container sales contracts include provisions to pass through
resin cost changes. As a result, we believe we have minimal, if any, exposure
related to changes in the cost of plastic resin. Most North American food
container sales contracts either include provisions permitting us to pass
through some or all steel cost changes we incur or incorporate annually
negotiated steel costs. In 2005 and 2004 we were able to pass through the
majority of steel surcharges to our customers.
In
Europe
and Asia the company manages aluminum and steel raw material commodity price
risks through annual and long-term contracts for the purchase of the materials,
as well as certain sales of containers, that reduce the company's exposure
to
fluctuations in commodity prices within the current year. These purchase and
sales contracts include fixed price, floating and pass-through pricing
arrangements. The company also uses forward and option contracts as cash flow
hedges to minimize the company’s exposure to significant price changes for those
sales contracts where there is not a pass-through arrangement.
Considering
the effects of derivative instruments, the market’s ability to accept price
increases and the company’s commodity price exposures, a hypothetical
10 percent adverse change in the company’s metal prices could result in an
estimated $5.2 million after-tax reduction of net earnings over a one-year
period. Additionally, if foreign currency exchange rates were to change
adversely by 10 percent, we estimate there could be an $11.7 million
after-tax reduction of net earnings over a one-year period for foreign currency
exposures on the metal. Actual results may vary based on actual changes in
market prices and rates. Sensitivity to foreign currency exposures related
to
metal increased over prior years due to an increase in metal purchases and
related payables at our foreign operations, which are subject to foreign
currency fluctuations.
The
company is also exposed to fluctuations in prices for utilities such as natural
gas and electricity. A hypothetical 10 percent increase in our utility
prices could result in an estimated $7.3 million after-tax reduction of net
earnings over a one-year period. Actual results may vary based on actual changes
in market prices and rates.
Page
31 of
97
Interest
Rate Risk
Our
objective in managing exposure to interest rate changes is to limit the impact
of interest rate changes on earnings and cash flows and to lower our overall
borrowing costs. To achieve these objectives, we use a variety of interest
rate
swaps and options to manage our mix of floating and fixed-rate debt. Interest
rate instruments held by the company at December 31, 2005 and 2004, included
pay-fixed and pay-floating interest rate swaps. Pay-fixed swaps effectively
convert variable rate obligations to fixed rate instruments. The majority of
the
pay-floating swaps, which effectively convert fixed-rate obligations to variable
rate instruments, are fair value hedges.
Based
on
our interest rate exposure at December 31, 2005, assumed floating rate debt
levels throughout 2006 and the effects of derivative instruments, a 100 basis
point increase in interest rates could result in an estimated $5.2 million
after-tax reduction of net earnings over a one-year period. Actual results
may
vary based on actual changes in market prices and rates and the timing of these
changes.
Foreign
Currency Exchange Rate Risk
Our
objective in managing exposure to foreign currency fluctuations is to protect
foreign cash flows and earnings associated with foreign exchange rate changes
through the use of cash flow hedges. In addition, we manage foreign earnings
translation volatility through the use of foreign currency options. Our foreign
currency translation risk results from the European euro, British pound,
Canadian dollar, Polish zloty, Chinese renminbi, Brazilian real and Serbian
dinar. We face currency exposures in our global operations as a result of
purchasing raw materials in U.S. dollars and, to a lesser extent, in other
currencies. Sales contracts are negotiated with customers to reflect cost
changes and, where there is not a foreign exchange pass-through arrangement,
the
company uses forward and option contracts to manage foreign currency
exposures.
Considering
the company’s derivative financial instruments outstanding at December 31,
2005, and the currency exposures, a hypothetical 10 percent reduction in
foreign currency exchange rates compared to the U.S. dollar could result in
an
estimated $19.4 million after-tax reduction of net earnings over a one-year
period. This amount includes the $11.7 million currency exposure discussed
above in the “Commodity Price Risk” section. This hypothetical adverse change in
foreign currency exchange rates would also reduce our forecasted average debt
balance by $63 million. Actual changes in market prices or rates may differ
from hypothetical changes. Sensitivity to foreign currency exposures related
to
metal increased over prior years due to an increase in metal purchases and
related payables at our foreign operations, which are subject to foreign
currency fluctuations.
Page
32 of
97
|
Item
8.
|
Financial
Statements and Supplementary
Data
|
Report
of Independent Registered Public Accounting Firm
To the
Board
of Directors and Shareholders of Ball Corporation:
We
have
completed integrated audits of Ball Corporation’s 2005 and 2004
consolidated financial statements and of its internal control over financial
reporting as of December 31, 2005, and an audit of its 2003 consolidated
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Our opinions, based on our audits,
are presented below.
Consolidated
financial statements
In
our
opinion, the accompanying consolidated financial statements listed in the index
appearing under Item 15(a)(1) present fairly, in all material respects, the
financial position of Ball Corporation and its subsidiaries at December 31,
2005
and 2004, and the results of their operations and their cash flows for each
of
the three years in the period ended December 31, 2005 in
conformity with accounting principles generally accepted in the United States
of
America. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements
in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit
to
obtain reasonable assurance about whether the financial statements are free
of
material misstatement. An audit of financial statements includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
Internal
control over financial reporting
Also,
in
our opinion, management’s assessment, included in Management's Report on
Internal Control Over Financial Reporting appearing in Item 9A, that the Company
maintained effective internal control over financial reporting as of December
31, 2005 based on criteria established in Internal
Control – Integrated
Framework
issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO),
is fairly stated, in all material respects, based on those criteria.
Furthermore, in our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2005,
based on criteria established in Internal
Control –
Integrated Framework
issued
by the COSO. The Company’s management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our responsibility
is to express opinions on management’s assessment and on the effectiveness
of the Company’s internal control over financial reporting based on our audit.
We conducted our audit of internal control over financial reporting in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit
to
obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. An audit of
internal control over financial reporting includes obtaining an understanding
of
internal control over financial reporting, evaluating management’s assessment,
testing and evaluating the design and operating effectiveness of internal
control, and performing such other procedures as we consider necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinions.
Page
33 of
97
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (i) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures
of
the company are being made only in accordance with authorizations of management
and directors of the company; and (iii) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use,
or
disposition of the company’s assets that could have a material effect on the
financial statements.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
/s/
PricewaterhouseCoopers LLP
PricewaterhouseCoopers
LLP
Denver,
Colorado
February 22,
2006
Page
34 of
97
Consolidated
Statements of Earnings
Ball
Corporation and Subsidiaries
|
Years
ended December 31,
|
|||||||||
|
($
in millions, except per share amounts)
|
2005
|
2004
|
2003
|
||||||
|
Net
sales
|
$
|
5,751.2
|
$
|
5,440.2
|
$
|
4,977.0
|
|||
|
Costs
and expenses
|
|||||||||
|
Cost
of sales (excluding depreciation and amortization)
|
4,822.4
|
4,433.5
|
4,080.2
|
||||||
|
Depreciation
and amortization (Notes 7 and 9)
|
213.5
|
215.1
|
205.5
|
||||||
|
Business
consolidation costs (gains) (Note 4)
|
21.2
|
(15.2
|
)
|
(3.7
|
)
|
||||
|
Selling,
general and administrative
|
231.6
|
267.9
|
234.2
|
||||||
|
5,288.7
|
4,901.3
|
4,516.2
|
|||||||
|
Earnings
before interest and taxes
|
462.5
|
538.9
|
460.8
|
||||||
|
Interest
expense (Note 11)
|
|||||||||
|
Interest
expense before debt refinancing costs
|
97.1
|
103.7
|
125.9
|
||||||
|
Debt
refinancing costs
|
19.3
|
–
|
15.2
|
||||||
|
Total
interest expense
|
116.4
|
103.7
|
141.1
|
||||||
|
Earnings
before taxes
|
346.1
|
435.2
|
319.7
|
||||||
|
Tax
provision (Note 12)
|
(99.3
|
)
|
(139.2
|
)
|
(100.1
|
)
|
|||
|
Minority
interests
|
(0.8
|
)
|
(1.0
|
)
|
(1.0
|
)
|
|||
|
Equity
in results of affiliates (Note 9)
|
15.5
|
0.6
|
11.3
|
||||||
|
Net
earnings
|
$
|
261.5
|
$
|
295.6
|
$
|
229.9
|
|||
|
Earnings
per share (Notes 14 and 15):
|
|||||||||
|
Basic
|
$
|
2.43
|
$
|
2.67
|
$
|
2.06
|
(a)
|
||
|
Diluted
|
$
|
2.38
|
$
|
2.60
|
$
|
2.01
|
(a)
|
||
|
Weighted
average shares outstanding (000s)
(Note 15):
|
|||||||||
|
Basic
|
107,758
|
110,846
|
111,710
|
(a)
|
|||||
|
Diluted
|
109,732
|
113,790
|
114,275
|
(a)
|
|||||
|
Cash
dividends declared and paid, per share
|
$
|
0.40
|
$
|
0.35
|
$
|
0.24
|
(a)
|
||
|
(a)
|
Per
share and share amounts have been retroactively restated for the
two-for-one stock split discussed in Note
14.
|
The
accompanying notes are an integral part of the consolidated financial
statements.
Page
35 of
97
Consolidated
Balance Sheets
Ball
Corporation and Subsidiaries
|
December
31,
|
||||||
|
($
in millions)
|
2005
|
2004
|
||||
|
Assets
|
||||||
|
Current
assets
|
||||||
|
Cash
and cash equivalents
|
$
|
61.0
|
$
|
198.7
|
||
|
Receivables,
net (Note 5)
|
376.6
|
346.8
|
||||
|
Inventories,
net (Note 6)
|
670.3
|
629.5
|
||||
|
Deferred
taxes and prepaid expenses
|
117.9
|
70.6
|
||||
|
Total
current assets
|
1,225.8
|
1,245.6
|
||||
|
Property,
plant and equipment, net (Note 7)
|
1,556.6
|
1,532.4
|
||||
|
Goodwill
(Notes 3, 4 and 8)
|
1,258.6
|
1,410.0
|
||||
|
Intangibles
and other assets, net (Note 9)
|
302.4
|
289.7
|
||||
|
Total
Assets
|
$
|
4,343.4
|
$
|
4,477.7
|
||
|
Liabilities
and Shareholders’ Equity
|
||||||
|
Current
liabilities
|
||||||
|
Short-term
debt and current portion of long-term debt (Note 11)
|
$
|
116.4
|
$
|
123.0
|
||
|
Accounts
payable
|
552.4
|
453.0
|
||||
|
Accrued
employee costs
|
198.4
|
222.2
|
||||
|
Income
taxes payable
|
127.5
|
80.4
|
||||
|
Other
current liabilities (Note 16)
|
181.3
|
117.7
|
||||
|
Total
current liabilities
|
1,176.0
|
996.3
|
||||
|
Long-term
debt (Note 11)
|
1,473.3
|
1,537.7
|
||||
|
Employee
benefit obligations (Note 13)
|
784.2
|
734.3
|
||||
|
Deferred
taxes and other liabilities
|
69.5
|
116.4
|
||||
|
Total
liabilities
|
3,503.0
|
3,384.7
|
||||
|
Contingencies
(Note 21)
|
||||||
|
Minority
interests
|
5.1
|
6.4
|
||||
|
Shareholders’
equity (Note 14)
|
||||||
|
Common
stock (158,382,813 shares issued - 2005;
157,506,545
shares issued - 2004)
|
633.6
|
610.8
|
||||
|
Retained
earnings
|
1,227.9
|
1,007.5
|
||||
|
Accumulated
other comprehensive earnings (loss)
|
(100.7
|
)
|
33.2
|
|||
|
Treasury
stock, at cost (54,182,655 shares - 2005; 44,815,138
shares - 2004)
|
(925.5
|
)
|
(564.9
|
)
|
||
|
Total
shareholders’ equity
|
835.3
|
1,086.6
|
||||
|
Total
Liabilities and Shareholders’ Equity
|
$
|
4,343.4
|
$
|
4,477.7
|
||
The
accompanying notes are an integral part of the consolidated financial
statements.
Page
36 of
97
Consolidated
Statements of Cash Flows
Ball
Corporation and Subsidiaries
|
Years
ended December 31,
|
|||||||||
|
($
in millions)
|
2005
|
2004
|
2003
|
||||||
|
Cash
Flows from Operating Activities
|
|||||||||
|
Net
earnings
|
$
|
261.5
|
$
|
295.6
|
$
|
229.9
|
|||
|
Adjustments
to reconcile net earnings to cash provided by operating
activities:
|
|||||||||
|
Depreciation
and amortization
|
213.5
|
215.1
|
205.5
|
||||||
|
Business
consolidation costs (gains)
|
19.0
|
(15.2
|
)
|
(3.3
|
)
|
||||
|
Deferred
taxes
|
(58.5
|
)
|
42.8
|
17.8
|
|||||
|
Contributions
to defined benefit pension plans
|
(17.1
|
)
|
(60.6
|
)
|
(34.1
|
)
|
|||
|
Debt
prepayment costs
|
6.6
|
– |
10.3
|
||||||
|
Noncash
write off of deferred financing costs
|
12.7
|
0.5
|
7.8
|
||||||
|
Other,
net
|
15.5
|
50.6
|
29.2
|
||||||
|
Working
capital changes, excluding effects of
acquisitions:
|
|||||||||
|
Receivables
|
(32.8
|
)
|
(81.3
|
)
|
55.6
|
||||
|
Inventories
|
(54.2
|
)
|
(49.3
|
)
|
38.5
|
||||
|
Accounts
payable
|
113.2
|
87.1
|
(112.6
|
)
|
|||||
|
Accrued
employee costs
|
(17.2
|
)
|
39.9
|
32.8
|
|||||
|
Income
taxes payable
|
51.2
|
18.1
|
46.1
|
||||||
|
Withholding
taxes related to European acquisition (Note 3)
|
–
|
–
|
(138.3
|
)
|
|||||
|
Other,
net
|
45.4
|
(7.4
|
)
|
(21.2
|
)
|
||||
|
Cash
provided by operating activities
|
558.8
|
535.9
|
364.0
|
||||||
|
Cash
Flows from Investing Activities
|
|||||||||
|
Additions
to property, plant and equipment
|
(291.7
|
)
|
(196.0
|
)
|
(137.2
|
)
|
|||
|
Business
acquisitions, net of cash acquired (Note 3)
|
−
|
(17.2
|
)
|
(28.0
|
)
|
||||
|
Purchase
price adjustments, net
|
–
|
–
|
39.8
|
||||||
|
Other,
net
|
1.7
|
3.6
|
1.6
|
||||||
|
Cash
used in investing activities
|
(290.0
|
)
|
(209.6
|
)
|
(123.8
|
)
|
|||
|
Cash
Flows from Financing Activities
|
|||||||||
|
Long-term
borrowings
|
882.8
|
26.3
|
5.3
|
||||||
|
Repayments
of long-term borrowings
|
(949.7
|
)
|
(107.2
|
)
|
(367.4
|
)
|
|||
|
Change
in short-term borrowings
|
68.4
|
2.6
|
(31.6
|
)
|
|||||
|
Debt
prepayment costs
|
(6.6
|
)
|
–
|
(10.3
|
)
|
||||
|
Debt
issuance costs
|
(4.8
|
)
|
–
|
(5.2
|
)
|
||||
|
Proceeds
from issuance of common stock
|
35.6
|
35.3
|
35.5
|
||||||
|
Acquisitions
of treasury stock
|
(393.7
|
)
|
(85.3
|
)
|
(63.4
|
)
|
|||
|
Common
dividends
|
(42.5
|
)
|
(38.9
|
)
|
(26.8
|
)
|
|||
|
Other,
net
|
(0.2
|
)
|
(0.9
|
)
|
–
|
||||
|
Cash
used in financing activities
|
(410.7
|
)
|
(168.1
|
)
|
(463.9
|
)
|
|||
|
Effect
of exchange rate changes on cash
|
4.2
|
4.0
|
1.0
|
||||||
|
Change
in cash and cash equivalents
|
(137.7
|
)
|
162.2
|
(222.7
|
)
|
||||
|
Cash
and Cash Equivalents - Beginning of Year
|
198.7
|
36.5
|
259.2
|
||||||
|
Cash
and Cash Equivalents - End of Year
|
$
|
61.0
|
$
|
198.7
|
$
|
36.5
|
|||
The
accompanying notes are an integral part of the consolidated financial
statements.
Page
37 of
97
Consolidated
Statements of Shareholders’ Equity and Comprehensive
Earnings
Ball
Corporation and Subsidiaries
|
($
in millions, except share amounts)
|
Years
ended December 31,
|
||||||||
|
2005
|
2004
|
2003
|
|||||||
|
Number
of Common Shares Outstanding (a)
(000s)
|
|||||||||
|
Balance,
beginning of year
|
157,506
|
155,885
|
154,402
|
||||||
|
Shares
issued for stock options and other stock plans, net of shares
exchanged
|
877
|
1,621
|
1,483
|
||||||
|
Balance,
end of year
|
158,383
|
157,506
|
155,885
|
||||||
|
Number
of Treasury Shares Outstanding (a)
(000s)
|
|
||||||||
|
Balance,
beginning of year
|
(44,815
|
)
|
(43,106
|
)
|
(40,910
|
)
|
|||
|
Shares
purchased, net of shares reissued
|
(9,368
|
)
|
(1,709
|
)
|
(2,196
|
)
|
|||
|
Balance,
end of year
|
(54,183
|
)
|
(44,815
|
)
|
(43,106
|
)
|
|||
|
Common
Stock
|
|||||||||
|
Balance,
beginning of year
|
$
|
610.8
|
$
|
567.3
|
$
|
530.8
|
|||
|
Shares
issued for stock options and other stock plans, net of shares
exchanged
|
15.5
|
29.8
|
28.8
|
||||||
|
Tax
benefit from option exercises
|
7.3
|
13.7
|
7.7
|
||||||
|
Balance,
end of year
|
$
|
633.6
|
$
|
610.8
|
$
|
567.3
|
|||
|
Retained
Earnings
|
|||||||||
|
Balance,
beginning of year
|
$
|
1,007.5
|
$
|
748.8
|
$
|
545.7
|
|||
|
Net
earnings
|
261.5
|
295.6
|
229.9
|
||||||
|
Common
dividends, net of tax benefits
|
(41.1
|
)
|
(36.9
|
)
|
(26.8
|
)
|
|||
|
Balance,
end of year
|
$
|
1,227.9
|
$
|
1,007.5
|
$
|
748.8
|
|||
|
Accumulated
Other Comprehensive Earnings (Loss) (Note 14)
|
|||||||||
|
Balance,
beginning of year
|
$
|
33.2
|
$
|
(1.4
|
)
|
$
|
(138.3
|
)
|
|
|
Foreign
currency translation adjustment
|
(74.3
|
)
|
68.2
|
103.6
|
|||||
|
Change
in minimum pension liability, net of tax
|
(43.6
|
)
|
(33.2
|
)
|
11.8
|
||||
|
Effective
financial derivatives, net of tax
|
(16.0
|
)
|
(0.4
|
)
|
21.5
|
||||
|
Net
other comprehensive earnings adjustments
|
(133.9
|
)
|
34.6
|
136.9
|
|||||
|
Accumulated
other comprehensive earnings (loss)
|
$
|
(100.7
|
)
|
$
|
33.2
|
$
|
(1.4
|
)
|
|
|
Treasury
Stock
|
|||||||||
|
Balance,
beginning of year
|
$
|
(564.9
|
)
|
$
|
(506.9
|
)
|
$
|
(445.3
|
)
|
|
Shares
purchased, net of shares reissued
|
(360.6
|
)
|
(58.0
|
)
|
(61.6
|
)
|
|||
|
Balance,
end of year
|
$
|
(925.5
|
)
|
$
|
(564.9
|
)
|
$
|
(506.9
|
)
|
|
Comprehensive
Earnings
|
|||||||||
|
Net
earnings
|
$
|
261.5
|
$
|
295.6
|
$
|
229.9
|
|||
|
Net
other comprehensive earnings adjustments (see details
above)
|
(133.9
|
)
|
34.6
|
136.9
|
|||||
|
Comprehensive
earnings
|
$
|
127.6
|
$
|
330.2
|
$
|
366.8
|
|||
|
(a)
|
Share
amounts have been retroactively restated for the two-for-one stock
split
discussed in Note 14.
|
The
accompanying notes are an integral part of the consolidated financial
statements.
Page
38 of
97
Notes
to Consolidated Financial Statements
Ball
Corporation and Subsidiaries
1.
Critical and Significant Accounting Policies
In
the
application of accounting principles generally accepted in the United States
of
America, management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities, disclosure of contingencies
and
reported amounts of revenues and expenses. These estimates are based on
historical experience and various other assumptions believed to be reasonable
under the circumstances. Actual results could differ from these estimates under
different assumptions or conditions.
Critical
Accounting Policies
The
company considers certain accounting policies to be critical, as their
application requires management’s best judgment in making estimates about the
effect of matters that are inherently uncertain. Following is a discussion
of
the accounting policies we consider critical to our consolidated financial
statements.
Revenue
Recognition in the Aerospace and Technologies Segment
Sales
under long-term contracts in the aerospace and technologies segment are
recognized under the cost-to-cost, percentage-of-completion method. This
business segment sells using two types of long-term sales contracts – cost-plus
sales
contracts, which represent approximately two-thirds of sales, and fixed
price sales contracts which account for the remainder. A cost-plus sales
contract is an agreement to perform the contract for cost plus an agreed upon
profit component, whereas fixed price sales contracts are completed for a fixed
price or involve the sale of engineering labor at fixed rates per hour.
Cost-plus sales contracts can have different types of fee arrangements,
including fixed fee, cost, schedule and performance incentive fees, award fees
or a combination thereof.
During
initial periods of sales contract performance, our estimates of base, incentive
and other fees are established at a conservative estimate of profit over the
period of contract performance. Throughout the period of contract performance,
we regularly reevaluate and, if necessary, revise our estimates of total
contract revenue, total contract cost and extent of progress toward completion.
Provision for estimated contract losses, if any, is made in the period that
such
losses are determined to be probable. Because of sales contract payment
schedules, limitations on funding and contract terms, our sales and accounts
receivable generally include amounts that have been earned but not yet billed.
As a prime U.S. government contractor or subcontractor, the aerospace and
technologies segment is subject to a high degree of regulation, financial review
and oversight by the U.S. government.
Goodwill
and Other Intangible Assets
We
evaluate the carrying value of goodwill annually, and we evaluate our other
intangible assets whenever there is evidence that certain events or changes
in
circumstances indicate that the carrying amount of these assets may not be
recoverable. Goodwill is tested for impairment using a fair value approach,
using discounted cash flows to establish fair values. We recognize an impairment
charge for any amount by which the carrying amount of goodwill exceeds its
fair
value. When available and as appropriate, we use comparative market multiples
to
corroborate discounted cash flow results. When a business within a reporting
unit is disposed of, goodwill is allocated to the gain or loss on disposition
using the relative fair value methodology.
We
amortize the cost of other intangibles over their estimated useful lives unless
such lives are deemed indefinite. Amortizable intangible assets are tested
for
impairment based on undiscounted cash flows and, if impaired, written down
to
fair value based on either discounted cash flows or appraised values. Intangible
assets with indefinite lives are tested annually for impairment and written
down
to fair value as required.
Page
39 of
97
Notes
to Consolidated Financial Statements
Ball
Corporation and Subsidiaries
1.
Critical and Significant Accounting Policies (continued)
Defined
Benefit Pension Plans and Other Employee Benefits
The
company has defined benefit plans that cover the majority of its employees,
including those at Ball Packaging Europe. We also have postretirement plans
that
provide medical benefits and life insurance for retirees and eligible
dependents. The accounting for these plans is subject to the guidance provided
in Statement of Financial Accounting Standards (SFAS) No. 87, "Employers’
Accounting for Pensions," and SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions." Both of these statements require
that management make certain assumptions relating to the long-term rate of
return on plan assets, discount rates used to measure future obligations and
expenses, salary scale inflation rates, health care cost trend rates and other
assumptions. We believe that the accounting estimates related to our pension
and
postretirement plans are critical accounting estimates because they are highly
susceptible to change from period to period based on the performance of plan
assets, actuarial valuations, market conditions and contracted benefit changes.
The selection of assumptions is based on historical trends and known economic
and market conditions at the time of valuation. However, actual results may
differ substantially from these assumptions.
Pension
plan liabilities are revalued annually based on updated assumptions and
information about the individuals covered by the plan. For pension plans,
accumulated gains and losses in excess of a 10 percent corridor, the prior
service cost and the transition asset are amortized on a straight-line basis
from the date recognized over the average remaining service period of active
participants. For other postemployment benefits, the 10 percent corridor is
not used.
In
addition to defined benefit and postretirement plans, the company maintains
reserves for employee medical claims, up to our insurance stop-loss limit,
and
workers’ compensation claims. These are regularly evaluated and revised, as
needed, based on a variety of information including historical experience,
third
party actuarial estimates and current employee statistics.
Taxes
on Income
Deferred
tax assets, including operating loss, capital loss and tax credit carry
forwards, are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that any portion of these tax attributes
will not be realized. In addition, from time to time, management must assess
the
need to accrue or disclose a possible loss contingency for proposed adjustments
from various federal, state and foreign tax authorities that regularly audit
the
company in the normal course of business. In making these assessments,
management must often analyze complex tax laws of multiple jurisdictions,
including many foreign jurisdictions.
Deferred
income taxes reflect the future tax consequences of differences between the
tax
bases of assets and liabilities and their financial reporting amounts at each
balance sheet date, based upon enacted income tax laws and tax rates. Income
tax
expense or benefit is provided based on earnings reported in the financial
statements. The provision for income tax expense or benefit differs from the
amounts of income taxes currently payable because certain items of income and
expense included in the consolidated financial statements are recognized in
different time periods by taxing authorities.
Page
40 of
97
Notes
to Consolidated Financial Statements
Ball
Corporation and Subsidiaries
1.
Critical and Significant Accounting Policies (continued)
Business
Consolidation Costs
The
company estimates its liabilities for business consolidation activities by
accumulating detailed estimates of costs and asset sales proceeds, if any,
for
each business consolidation initiative. This includes the estimated costs of
employee severance, pension and related benefits, impairment of property and
equipment and other assets, including estimates of realizable value, contract
termination payments for leases, contractual obligations and any other
qualifying costs related to the exit plan. These estimated costs are grouped
by
specific projects within the overall exit plan and are then monitored on a
monthly basis. Such disclosures represent management's best estimates, but
require assumptions about the plans that may change over time. Changes in
estimates for individual locations are evaluated periodically to determine
if a
change in estimate is required for the overall restructuring plan. Subsequent
changes to the original estimates are included in current period earnings and
identified as business consolidation gains or losses.
Significant
Accounting Policies
Principles
of Consolidation and Basis of Presentation
The
consolidated financial statements include the accounts of Ball Corporation
and
its controlled subsidiaries (collectively, Ball, the company, we or our). Equity
investments in which we exercise significant influence, but do not control
and
are not the primary beneficiary, are accounted for using the equity method
of
accounting. Investments in which we do not exercise significant influence over
the investee are accounted for using the cost method of accounting. Intercompany
transactions are eliminated.
Cash
Equivalents
Cash
equivalents have original maturities of three months or less.
Inventories
Inventories
are stated at the lower of cost or market. The cost of the aluminum component
of
U.S. metal beverage container inventories and substantially all inventories
within the U.S. metal food container business are determined using the
last-in, first-out (LIFO) method of accounting. The cost of remaining
inventories is determined using the first-in, first-out (FIFO) average cost
method of accounting.
Depreciation
and Amortization
Property,
plant and equipment are carried at the cost of acquisition or construction
and depreciated over the estimated useful lives of the assets. Depreciation
and
amortization are provided using the straight-line method in amounts sufficient
to amortize the cost of the assets over their estimated useful lives (buildings
and improvements - 15 to 40 years; machinery and equipment - 5 to
15 years; other intangible assets - 7.3 years, weighted
average).
Deferred
financing costs are amortized over the life of the related loan facility and
are
reported as part of interest expense. When debt is repaid prior to its maturity
date, the write-off of the remaining unamortized deferred financing costs is
also reported as interest expense.
Page
41 of
97
Notes
to Consolidated Financial Statements
Ball
Corporation and Subsidiaries
1.
Critical and Significant Accounting Policies (continued)
Environmental
Reserves
We
estimate the liability related to environmental matters based on, among other
factors, the degree of probability of an unfavorable outcome and the ability
to
make a reasonable estimate of the amount of loss. We record our best estimate
of
a loss when the loss is considered probable. As additional information becomes
available, we assess the potential liability related to our pending matters
and
revise our estimates.
Revenue
Recognition in the Packaging Segments
Sales
of
products in the packaging segments are recognized when delivery has occurred
and
title has transferred, there is persuasive evidence of an agreement or
arrangement, the price is fixed and determinable, and collection is reasonably
assured.
Stock-Based
Compensation
Ball
has
a variety of restricted stock and stock option plans. With the exception of
the
company’s deposit share program, which through 2005 has been accounted for as a
variable plan and is discussed in Note 14, the compensation cost associated
with
restricted stock grants has been calculated using the fair value at the date
of
grant and amortized over the restriction period. Expense related to stock
options has been calculated using the intrinsic value method under the
guidelines of Accounting Principles Board (APB) Opinion No. 25, and has
therefore not been included in the consolidated statements of earnings. Ball’s
earnings as reported include after-tax stock-based compensation of
$6.6 million, $12.5 million and $7.6 million for the years ended
December 31, 2005, 2004 and 2003, respectively. If the fair value based
method had been used, after-tax stock-based compensation would have been
$8.7 million in 2005, $9.3 million in 2004 and $8.8 million in
2003, and diluted earnings per share would have been lower by $0.02 in 2005,
higher by $0.03 in 2004 and lower by $0.01 in 2003. Further details regarding
the expense calculated under the fair value based method are provided in
Note 14. Effective January 1, 2006, the company adopted
SFAS No. 123 (revised 2004), “Share-Based Payment” (see the discussion
of this new standard in the “New Accounting Pronouncements”
section).
Foreign
Currency Translation
Assets
and liabilities of foreign operations are translated using period-end exchange
rates, and revenues and expenses are translated using average exchange rates
during each period. Translation gains and losses are reported in accumulated
other comprehensive earnings as a component of shareholders’
equity.
Derivative
Financial Instruments
The
company uses derivative financial instruments for the purpose of hedging
exposures to fluctuations in interest rates, foreign currency exchange rates,
product sales, raw materials purchasing and common share repurchases. The
company’s derivative instruments are recorded in the consolidated balance sheets
at fair value. For a derivative designated as a fair value hedge of a recognized
asset or liability, the gain or loss is recognized in earnings in the period
of
change together with the offsetting loss or gain on the hedged item attributable
to the risk being hedged. For a derivative designated as a cash flow hedge,
or a
derivative designated as a fair value hedge of a firm commitment not yet
recorded on the balance sheet, the effective portion of the derivative's gain
or
loss is initially reported as a component of accumulated other comprehensive
earnings and subsequently reclassified into earnings when the forecasted
transaction affects earnings. The ineffective portion of the gain or loss
associated with all hedges is reported in earnings immediately.
Page
42 of
97
Notes
to Consolidated Financial Statements
Ball
Corporation and Subsidiaries
1.
Critical and Significant Accounting Policies (continued)
Realized
gains and losses from hedges are classified in the income statement consistent
with the accounting treatment of the item being hedged. Gains and losses upon
the early termination of effective derivative contracts are deferred in
accumulated other comprehensive earnings and amortized to earnings in the same
period as the originally hedged items affect earnings.
Reclassifications
Certain
prior year amounts have been reclassified in order to conform to the current
year presentation.
New
Accounting Pronouncements
In
May 2005 the Financial Accounting Standards Board (FASB) issued SFAS
No. 154, “Accounting Changes and Error Corrections - a Replacement of APB
Opinion No. 20 and FASB Statement No. 3.” The new standard
changes the requirements for the accounting for and reporting of a change in
accounting principle and applies to all such voluntary changes. The previous
accounting required that most changes in accounting principle be recognized
in
net earnings by including a cumulative effect of the change in the period of
the
change. SFAS No. 154, which will be effective for Ball beginning
January 1, 2006, requires retroactive application to prior periods’
financial statements.
In
December 2004 the FASB issued SFAS No. 123 (revised 2004),
“Share-Based Payment.” SFAS No. 123 (revised 2004) is a revision
of SFAS No. 123, “Accounting for Stock-Based Compensation,” and
supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.”
The new standard, which will be effective for Ball beginning January 1,
2006, establishes accounting standards for transactions in which an entity
exchanges its equity instruments for goods or services, including stock option
and restricted stock grants. On March 29, 2005, the Securities and Exchange
Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 107, which
summarizes the views of the SEC staff regarding the interaction between SFAS
No.
123 (revised 2004) and certain SEC rules and regulations and provides the SEC
staff’s views regarding the valuation of share-based payment arrangements for
public companies. Upon adoption of SFAS No. 123 (revised 2004), Ball
anticipates using the modified prospective transition method and, at least
initially, the Black-Scholes valuation model. The incremental expense associated
with the adoption of SFAS No. 123 (revised 2004) for unvested stock
option and deposit share program restricted stock grants existing at
December 31, 2005, is expected to be insignificant. Actual 2006 expense
will vary based on additional grants made during 2006.
In
November 2004 the FASB issued SFAS No. 151, “Inventory Costs - an
amendment of ARB No. 43, Chapter 4.” SFAS No. 151 requires abnormal
amounts of idle facility expense, freight, handling costs and wasted material
(spoilage) to be recognized as current-period charges. It also requires that
the
allocation of fixed production overheads to the costs of conversion be based
on
the normal capacity of the production facilities. SFAS No. 151 will be
effective for inventory costs incurred by Ball beginning on January 1,
2006. Ball believes that the potential future impact, if any, of
SFAS No. 151 will not be significant to its consolidated financial
statements.
Page
43 of
97
Notes
to Consolidated Financial Statements
Ball
Corporation and Subsidiaries
2.
Business Segment Information
The
company has determined that it has five reportable segments organized
along a combination of product lines and geographic areas - North
American metal beverage packaging, North American metal food packaging, North
American plastic packaging, international packaging and aerospace and
technologies. Prior periods have been conformed to the current presentation.
We
also have investments in the packaging segments that are accounted for under
the
equity method of accounting, and, accordingly, those results are not included
in
segment sales or earnings. The accounting policies of the segments are the
same
as those described in the summary of critical and significant accounting
policies (Note 1). See also Notes 3 and 4 for information regarding
transactions affecting segment results.
North
American Metal Beverage Packaging
The
North
American metal beverage packaging segment consists of operations in the U.S.,
Canada and Puerto Rico, which manufacture metal containers primarily for use
in
beverage packaging.
North
American Metal Food Packaging
The
North
American metal food packaging segment consists of operations in the U.S. and
Canada, which manufacture metal containers primarily for use in food packaging.
North
American Plastic Packaging
The
North
American plastic packaging segment consists of operations in the U.S. which
manufacture polyethylene terephthalate (PET) plastic containers primarily for
use in beverage packaging.
International
Packaging
International
packaging, with operations in several countries in Europe and the PRC, includes
the manufacture and sale of metal beverage container products in Europe and
Asia, as well as plastic containers in Asia.
Aerospace
and Technologies
Aerospace
and technologies includes the manufacture and sale of aerospace and other
related products and services used primarily in the defense, civil space and
commercial space industries.
Major
Customers
Following
is a summary of Ball’s major customers and their respective percentages of
consolidated sales for the years ended December 31:
|
2005
|
2004
|
2003
|
|||||||
|
SABMiller
plc
|
11
|
%
|
11
|
%
|
12
|
%
|
|||
|
PepsiCo,
Inc. and affiliates
|
10
|
%
|
9
|
%
|
10
|
%
|
|||
|
All
bottlers of Pepsi-Cola or Coca-Cola branded beverages
|
27
|
%
|
28
|
%
|
29
|
%
|
|||
|
U.S.
government agencies and their prime contractors
|
11
|
%
|
10
|
%
|
10
|
%
|
|||
Page
44 of
97
Notes
to Consolidated Financial Statements
Ball
Corporation and Subsidiaries
2.
Business Segment Information (continued)
Summary
of Net Sales by Geographic Area
|
($
in millions)
|
|||||||||
|
U.S.
|
Other
(a)
|
Consolidated
|
|||||||
|
2005
|
$
|
4,133.3
|
$
|
1,617.9
|
$
|
5,751.2
|
|||
|
2004
|
3,898.9
|
1,541.3
|
5,440.2
|
||||||
|
2003
|
3,567.8
|
1,409.2
|
4,977.0
|
||||||
Summary
of Long-Lived Assets by Geographic Area (b)
|
($
in millions)
|
||||||||||||
|
U.S.
|
Germany
|
Other
(c)
|
Consolidated
|
|||||||||
|
2005
|
$
|
1,856.1
|
$
|
1,099.7
|
$
|
161.8
|
$
|
3,117.6
|
||||
|
2004
|
2,077.0
|
1,286.7
|
(131.6
|
)
|
3,232.1
|
|||||||
|
2003
|
2,002.3
|
1,207.6
|
(63.8
|
)
|
3,146.1
|
|||||||
|
(a)
|
Includes
the company’s net sales in the PRC, Canada and certain European countries
(none of which was significant), intercompany eliminations and
other.
|
|
(b)
|
Long-lived
assets primarily consist of property, plant and equipment, goodwill
and
other intangible assets.
|
|
(c)
|
Includes
the company’s long-lived assets in the PRC, Canada and certain European
countries, not including Germany (none of which was significant),
intercompany eliminations and
other.
|
Page
45 of
97
Notes
to Consolidated Financial Statements
Ball
Corporation and Subsidiaries
2.
Business Segment Information (continued)
Summary
of Business by Segment
|
($
in millions)
|
2005
|
2004
|
2003
|
||||||
|
Net
Sales
|
|||||||||
|
North
American metal beverage packaging
|
$
|
2,390.4
|
$
|
2,360.6
|
$
|
2,292.2
|
|||
|
North
American metal food packaging
|
824.0
|
777.5
|
646.2
|
||||||
|
North
American plastic packaging
|
487.5
|
401.0
|
376.0
|
||||||
|
International
packaging
|
1,354.5
|
1,248.1
|
1,127.7
|
||||||
|
Aerospace
and technologies
|
694.8
|
653.0
|
534.9
|
||||||
|
Net
sales
|
$
|
5,751.2
|
$
|
5,440.2
|
$
|
4,977.0
|
|||
|
Consolidated
Earnings
|
|||||||||
|
North
American metal beverage packaging (a)
|
$
|
229.8
|
$
|
279.1
|
$
|
250.8
|
|||
|
North
American metal food packaging (a)
|
11.6
|
44.3
|
19.8
|
||||||
|
North
American plastic packaging (a)
|
17.4
|
11.6
|
12.3
|
||||||
|
International
packaging (a)
|
181.8
|
198.0
|
158.6
|
||||||
|
Aerospace
and technologies (a)
|
54.7
|
48.7
|
49.5
|
||||||
|
Segment
earnings before interest and taxes
|
495.3
|
581.7
|
491.0
|
||||||
|
Corporate
undistributed expenses
|
(32.8
|
)
|
(42.8
|
)
|
(30.2
|
)
|
|||
|
Earnings
before interest and taxes
|
462.5
|
538.9
|
460.8
|
||||||
|
Interest
expense (b)
|
(116.4
|
)
|
(103.7
|
)
|
(141.1
|
)
|
|||
|
Tax
provision
|
(99.3
|
)
|
(139.2
|
)
|
(100.1
|
)
|
|||
|
Minority
interests
|
(0.8
|
)
|
(1.0
|
)
|
(1.0
|
)
|
|||
|
Equity
in results of affiliates (Note 9)
|
15.5
|
0.6
|
11.3
|
||||||
|
Net
earnings
|
$
|
261.5
|
$
|
295.6
|
$
|
229.9
|
|||
|
Depreciation
and Amortization
|
|||||||||
|
North
American metal beverage packaging
|
$
|
69.0
|
$
|
68.4
|
$
|
72.2
|
|||
|
North
American metal food packaging
|
16.3
|
15.6
|
14.2
|
||||||
|
North
American plastic packaging
|
36.8
|
40.0
|
41.1
|
||||||
|
International
packaging
|
73.4
|
74.2
|
62.5
|
||||||
|
Aerospace
and technologies
|
14.9
|
14.6
|
12.9
|
||||||
|
Segment
depreciation and amortization
|
210.4
|
212.8
|
202.9
|
||||||
|
Corporate
|
3.1
|
2.3
|
2.6
|
||||||
|
Depreciation
and amortization
|
$
|
213.5
|
$
|
215.1
|
$
|
205.5
|
|||
|
December
31,
|
||||||
|
2005
|
2004
|
|||||
|
Total
Assets
|
||||||
|
North
American metal beverage packaging
|
$
|
1,664.4
|
$
|
1,861.1
|
||
|
North
American metal food packaging
|
445.1
|
429.8
|
||||
|
North
American plastic packaging
|
320.9
|
306.9
|
||||
|
International
packaging
|
2,122.6
|
2,255.8
|
||||
|
Aerospace
and technologies
|
253.1
|
210.3
|
||||
|
Segment
eliminations
|
(537.5
|
)
|
(767.3
|
)
|
||
|
Segment
assets
|
4,268.6
|
4,296.6
|
||||
|
Corporate
assets, net of eliminations
|
74.8
|
181.1
|
||||
|
Total
assets
|
$
|
4,343.4
|
$
|
4,477.7
|
||
Page
46 of
97
Notes
to Consolidated Financial Statements
Ball
Corporation and Subsidiaries
2.
Business Segment Information (continued)
|
($
in millions)
|
2005
|
2004
|
2003
|
||||||
|
Investments
in Affiliates
|
|||||||||
|
North
American metal beverage packaging
|
$
|
9.5
|
$
|
7.7
|
$
|
5.0
|
|||
|
North
American metal food packaging
|
−
|
−
|
0.8
|
||||||
|
International
packaging
|
48.4
|
50.0
|
64.2
|
||||||
|
Aerospace
and technologies
|
7.5
|
25.4
|
22.8
|
||||||
|
Investments
in affiliates
|
$
|
65.4
|
$
|
83.1
|
$
|
92.8
|
|||
|
Property,
Plant and Equipment Additions
|
|||||||||
|
North
American metal beverage packaging
|
$
|
109.9
|
$
|
57.0
|
$
|
38.5
|
|||
|
North
American metal food packaging
|
16.8
|
14.3
|
28.6
|
||||||
|
North
American plastic packaging
|
27.6
|
19.2
|
23.6
|
||||||
|
International
packaging
|
97.9
|
73.9
|
22.1
|
||||||
|
Aerospace
and technologies
|
33.1
|
24.0
|
19.2
|
||||||
|
Segment
property, plant and equipment additions
|
285.3
|
188.4
|
132.0
|
||||||
|
Corporate
|
6.4
|
7.6
|
5.2
|
||||||
|
Property,
plant and equipment additions
|
$
|
291.7
|
$
|
196.0
|
$
|
137.2
|
|||
|
(a)
|
Includes
the following business consolidation gains (costs) discussed in
Note 4:
|
|
($
in millions)
|
2005
|
2004
|
2003
|
||||||
|
North
American metal beverage packaging
|
$
|
(19.3
|
)
|
$
|
−
|
$
|
1.6
|
||
|
North
American metal food packaging
|
(11.2
|
)
|
0.4
|
(1.4
|
)
|
||||
|
North
American plastic packaging
|
−
|
0.7
|
−
|
||||||
|
International
packaging
|
9.3
|
13.7
|
3.3
|
||||||
|
Aerospace
and technologies
|
−
|
0.4
|
0.2
|
||||||
|
$
|
(21.2
|
)
|
$
|
15.2
|
$
|
3.7
|
|||
|
(b)
|
Includes
$19.3 million and $15.2 million of debt refinancing costs in
2005 and 2003, respectively.
|
3.
Acquisitions
Ball
Western Can Company (Ball Western Can)
On
March 17, 2004, Ball acquired ConAgra Grocery Products Company’s (ConAgra)
interest in Ball Western Can for $30 million. Ball Western Can, located in
Oakdale, California, was established in 2000 as a 50/50 joint venture between
Ball and ConAgra and, prior to the acquisition, was accounted for by Ball using
the equity method of accounting. The acquisition has been accounted for as
a
purchase, and accordingly, its results have been consolidated in our financial
statements from the acquisition date. Contemporaneous with the acquisition,
Ball
and ConAgra’s parent company, ConAgra Foods Inc., entered into a long-term
agreement under which Ball provides metal food containers to ConAgra
manufacturing locations in California. The acquisition of Ball Western Can
was
not significant to the company.
Metal
Packaging International (MPI)
On
March 11, 2003, Ball acquired MPI, a manufacturer of ends for aluminum
beverage cans, for $28 million. MPI produced just over 2 billion ends
per year, primarily for carbonated soft drink companies, and had sales of
$42 million in 2002. The MPI plant was closed during the second quarter of
2003 and sold in October 2004, with its manufacturing volumes being
consolidated into other Ball facilities. The acquisition of MPI was not
significant to the company.
Page
47 of
97
Notes
to Consolidated Financial Statements
Ball
Corporation and Subsidiaries
4.
Business Consolidation Activities
Following
is a summary of business consolidation (costs) and gains included in the
consolidated statements of earnings for the years ended December 31, 2005,
2004 and 2003:
|
($
in millions)
|
2005
|
2004
|
2003
|
||||||
|
North
American metal beverage packaging
|
$
|
(19.3
|
)
|
$
|
−
|
$
|
1.6
|
||
|
North
American metal food packaging
|
(11.2
|
)
|
0.4
|
(1.4
|
)
|
||||
|
North
American plastic packaging
|
−
|
0.7
|
−
|
||||||
|
International
packaging
|
9.3
|
13.7
|
3.3
|
||||||
|
Aerospace
and technologies
|
−
|
0.4
|
0.2
|
||||||
|
$
|
(21.2
|
)
|
$
|
15.2
|
$
|
3.7
|
|||
2005
North
American Metal Beverage Packaging
The
company announced in July 2005 the commencement of a project to upgrade and
streamline its North American beverage can end manufacturing capabilities.
The
project is expected to be completed in 2007 and will result in productivity
gains and cost reductions. A pretax charge of $19.3 million
($11.7 million after tax) was recorded in the third quarter of 2005 in
connection with this project. The pretax charge includes $11.7 million for
employee severance, pension and other employee benefit costs, $1.6 million
for decommissioning costs and $6 million for the write off of obsolete
equipment spare parts and tooling. Payments made in 2005 were
insignificant.
North
American Metal Food Packaging
The
fourth quarter of 2005 included a pretax charge of $4.6 million
($3.1 million after tax) for pension, severance and other employee benefit
costs related to a reduction in force in our Burlington, Ontario, plant.
Payments made in 2005 were insignificant.
A
pretax
charge of $8.8 million ($5.9 million after tax) was recorded in the
second quarter of 2005 in connection with the closure of a three-piece food
can
manufacturing plant in Quebec, Canada. The Quebec plant was closed and ceased
operations in the third quarter of 2005 and an agreement has been reached to
sell the land and building which resulted in the second quarter charge being
offset by a $2.2 million gain ($1.5 million after tax) in the fourth
quarter to adjust the Quebec plant to net realizable value. At December 31,
2005, the resulting reserve had been reduced by $1.9 million of cash
payments made. The pretax charge, net of the offsetting gain, included
$3.2 million for employee severance, pension and other employee benefit
costs and $3.4 million for decommissioning cost and the write-down to net
realizable value of fixed assets and other costs. When all assets are disposed
of, management expects the plant closure to result in a net cash inflow. A
total
of 77 employees were terminated in connection with the
closure.
Page
48 of
97
Notes
to Consolidated Financial Statements
Ball
Corporation and Subsidiaries
4.
Business Consolidation Activities (continued)
The
following table summarizes the activity in the 2005 North American business
consolidation activities:
|
($
in millions)
|
Fixed
Assets/
Spare
Parts
|
Pension
Costs
|
Employee
Costs
|
Other
|
Total
|
||||||||||
|
C Charge
(earnings) to North American segments:
|
|||||||||||||||
|
Second
quarter 2005
|
$
|
4.8
|
$
|
0.5
|
$
|
2.6
|
$
|
0.9
|
$
|
8.8
|
|||||
|
Third
quarter 2005
|
6.0
|
4.7
|
7.0
|
1.6
|
19.3
|
||||||||||
|
Fourth
quarter 2005
|
(2.2
|
)
|
2.7
|
1.9
|
–
|
2.4
|
|||||||||
|
PaPayments
|
–
|
–
|
(1.7
|
)
|
(0.5
|
)
|
(2.2
|
)
|
|||||||
|
DiDisposal
of spare parts
|
(1.4
|
)
|
–
|
–
|
–
|
(1.4
|
)
|
||||||||
|
TrTransfers
to assets and liabilities to reflect estimated realizable values and
foreign exchange effects
|
(1.6
|
)
|
(7.9
|
)
|
0.2
|
–
|
(9.3
|
)
|
|||||||
|
Balance
at December 31, 2005
|
$
|
5.6
|
$
|
–
|
$
|
10.0
|
$
|
2.0
|
$
|
17.6
|
|||||
The
remaining carrying value of fixed assets remaining for sale in connection with
the 2005 North American business consolidation activities was $5.3 million
at December 31, 2005.
International
Packaging
The
company recorded $9.3 million of earnings in 2005, primarily related to the
final settlement of tax obligations, and an adjustment to reclassify an asset
to
be put in service previously held for sale, related to a $237.7 million business
consolidation charge taken in the second quarter of 2001. Tax clearances from
the applicable authorities were required during the formal liquidation process.
These matters have been concluded.
2004
North
American Metal Food Packaging
In
the
fourth quarter of 2004, a gain of $0.4 million was recorded, as costs were
less than estimated for the 2003 closure of a metal food container plant.
North
American Plastic Packaging
In
the
third quarter, earnings of $0.7 million were recorded as costs related to the
shut down and relocation of the Atlanta plastics offices and research and
development (R&D) facility were less than expected. The office relocation
was completed during 2003 and the R&D facility relocation was completed in
2004.
International
Packaging
The
company recorded $13.7 million of earnings in 2004, primarily related to
the realization of assets in the PRC in excess of amounts previously estimated,
and costs of consolidation and liquidation less than anticipated, related to
a
$237.7 million business consolidation charge taken in the second quarter of
2001.
Aerospace
and Technologies
Earnings
of $0.4 million were recorded in the fourth quarter of 2004 for exit costs
that
were no longer required due to the sale of a product line whose operations
ceased in 2001.
Page
49 of
97
Notes
to Consolidated Financial Statements
Ball
Corporation and Subsidiaries
4.
Business Consolidation Activities (continued)
2003
North
American Metal Beverage
A
gain of
$1.6 million was recorded in the fourth quarter in connection with the sale,
and
the completion of the consolidation activities, related to a metal beverage
container plant closed in December 2001.
North
American Metal Food
In
the
first quarter Ball announced plans to close a metal food container plant to
address decreased demand for three-piece welded cans. In connection with the
closure, a charge of $1.9 million was recorded, partially offset by a
$0.5 million gain on the sale of a Canadian plant that was included in a
business consolidation charge taken in 2000. The $1.9 million charge
included $0.8 million for employee severance and benefit costs and
$1.1 million for decommissioning costs and an impairment charge on fixed
assets.
International
Packaging
Ball
Packaging Europe closed its plant in Runcorn, England, at the end of December
2003. The cost of the plant closure, along with costs associated with a line
conversion and a line shut down at other plants, estimated to be
€11.9 million in total, was accounted for in the opening acquisition
balance sheet. These costs included €8.7 million for employee termination
costs and €3.2 million for decommissioning costs, of which €10.5 million
was paid and €0.6 million was reversed to goodwill as costs were less than
initially estimated. The remaining balance of €0.8 million is for early
retirement benefits to be paid under local law in future periods. There are
no
remaining assets held for sale at December 31, 2005.
The
company recorded $3.3 million of earnings in 2003, primarily related to the
realization of assets in the PRC in excess of amounts previously estimated,
and
costs of consolidation and liquidation less than anticipated, related to a
$237.7 million business consolidation charge taken in the second quarter of
2001.
Aerospace
and Technologies
Earnings
of $0.2 million in the third quarter of 2003 for exit costs that were no
longer required due to the sale of a product line whose operations ceased in
2001.
5.
Accounts Receivable
Accounts
receivable are net of an allowance for doubtful accounts of $13.4 million
at December 31, 2005, and $17.1 million at December 31,
2004.
A
receivables sales agreement provides for the ongoing, revolving sale of a
designated pool of trade accounts receivable of Ball’s North American packaging
operations of up to $225 million (increased during the third quarter of
2005 from the previous limit of $200 million). The agreement qualifies as
off-balance sheet financing under the provisions of SFAS No. 140. Net
funds received from the sale of the accounts receivable totaled
$210 million and $174.7 million at December 31, 2005 and 2004,
respectively, and are reflected as a reduction of accounts receivable in the
consolidated balance sheets. Fees incurred in connection with the sale of
accounts receivable, which are reported as part of selling, general and
administrative expenses, totaled $7.7 million in 2005, $3.2 million in
2004 and $2.5 million in 2003.
Page
50 of
97
Notes
to Consolidated Financial Statements
Ball
Corporation and Subsidiaries
5.
Accounts Receivable (continued)
Net
accounts receivable under long-term contracts, due primarily from agencies
of
the U.S. government and their prime contractors, were $121.7 million and
$85.8 million at December 31, 2005 and 2004, respectively, and
included $70.8 million and $60.6 million, respectively, representing
the recognized sales value of performance that had not been billed and were
not
yet billable to customers. The average length of the long-term contracts is
three years and the average length remaining on those contracts at
December 31, 2005, was 12 months. Approximately $3 million of
unbilled receivables at December 31, 2005, is expected to be collected
after one year and is related to customary fees and cost withholdings that
will
be paid upon milestone or contract completions, as well as final overhead rate
settlements.
6.
Inventories
|
December
31,
|
||||||
|
($
in millions)
|
2005
|
2004
|
||||
|
Raw
materials and supplies
|
$
|
277.4
|
$
|
256.5
|
||
|
Work
in process and finished goods
|
392.9
|
373.0
|
||||
|
$
|
670.3
|
$
|
629.5
|
|||
Approximately
34 percent and 32 percent of total inventories at
December 31, 2005 and 2004, respectively, were valued using the LIFO
method of accounting. Inventories at December 31, 2005 and 2004, would
have been $29.6 million and $12.1 million higher, respectively, than
the reported amounts if the FIFO method of accounting, which approximates
replacement cost, had been used for those inventories.
7.
Property, Plant and Equipment
|
December
31,
|
||||||
|
($
in millions)
|
2005
|
2004
|
||||
|
Land
|
$
|
81.1
|
$
|
81.7
|
||
|
Buildings
|
804.3
|
735.4
|
||||
|
Machinery
and equipment
|
2,268.0
|
2,157.4
|
||||
|
3,153.4
|
2,974.5
|
|||||
|
Accumulated
depreciation
|
(1,596.8
|
)
|
(1,442.1
|
)
|
||
|
$
|
1,556.6
|
$
|
1,532.4
|
|||
Property,
plant and equipment are stated at historical cost. Depreciation expense amounted
to $202.1 million, $202.8 million and $193 million for the years
ended December 31, 2005, 2004 and 2003, respectively. The change in the net
property, plant and equipment balance during 2005 is the result of capital
spending offset by depreciation and changes in foreign currency exchange
rates.
During
2003 the company entered into capital leases totaling $6.7 million. The
acquisitions of equipment under these capital leases were noncash transactions
and, accordingly, have been excluded from the consolidated statement of cash
flows.
Page
51 of
97
Notes
to Consolidated Financial Statements
Ball
Corporation and Subsidiaries
8.
Goodwill
|
($
in millions)
|
North
American
Metal
Beverage
Packaging
|
North
American
Metal
Food
Packaging
|
North
American
Plastic
Packaging
|
International
Packaging
|
Total
|
||||||||||
|
Balance
at December 31, 2004
|
$
|
298.2
|
$
|
28.2
|
$
|
31.8
|
$
|
1,051.8
|
$
|
1,410.0
|
|||||
|
Purchase
accounting and other adjustments
|
(9.5
|
)
|
–
|
1.4
|
(4.0
|
)
|
(12.1
|
)
|
|||||||
|
Effects
of foreign currency exchange rates
|
(9.3
|
)
|
–
|
–
|
(130.0
|
)
|
(139.3
|
)
|
|||||||
|
Balance
at December 31, 2005
|
$
|
279.4
|
$
|
28.2
|
$
|
33.2
|
$
|
917.8
|
$
|
1,258.6
|
|||||
In
accordance with SFAS No. 142, goodwill is tested annually for
impairment. There was no impairment of goodwill in 2005, 2004 or 2003. The
decrease in goodwill due to purchase accounting adjustments primarily relates
to
the reduction of the remaining goodwill associated with the deferred taxes
on
foreign earnings that decreased as a result of the repatriation of the foreign
earnings (see Note 12).
9.
Intangibles and Other Assets
|
December
31,
|
||||||
|
($
in millions)
|
2005
|
2004
|
||||
|
Intangibles
and Other Assets:
|
||||||
|
Investments
in affiliates
|
$
|
65.4
|
$
|
83.1
|
||
|
Prepaid
pension and related intangible asset
|
42.3
|
48.0
|
||||
|
Other
intangibles (net of accumulated amortization of $52.6 and $44
at December 31, 2005 and 2004, respectively)
|
43.1
|
58.2
|
||||
|
Deferred
tax asset
|
40.7
|
–
|
||||
|
Other
|
110.9
|
100.4
|
||||
|
$
|
302.4
|
$
|
289.7
|
|||
Total
amortization expense of other intangible assets amounted to $11.4 million,
$12.3 million and $12.5 million for the years ended December 31,
2005, 2004 and 2003, respectively. Based on intangible assets and foreign
currency exchange rates as of December 31, 2005, total annual intangible asset
amortization expense is expected to be between $9.7 million and
$11.1 million in each of the years 2006 through 2009 and $1.1 million
in 2010.
In
the
first quarter of 2005, selling, general and administrative expenses included
$3.8 million for the write down to net realizable value of an equity
investment in an aerospace company. The remaining carrying amount of
$14 million was reclassified to other current assets and was sold in
October 2005 for $7 million cash and a $7.2 million
interest-bearing note due April 2007. Also included in the first quarter of
2005 was an expense of $3.4 million for the full write off of a PRC equity
investment in a joint venture. In the fourth quarter of 2004, the company
recorded a $15.2 million equity earnings loss from the same joint venture
related to a bad debt provision. Information learned late in the first quarter
of 2005 led the company to conclude that it does not expect to recover the
remaining carrying value of this investment.
Page
52 of
97
Notes
to Consolidated Financial Statements
Ball
Corporation and Subsidiaries
10.
Leases
The
company leases warehousing and manufacturing space and certain equipment,
primarily within the packaging segments, and office and technical space,
primarily within the aerospace and technologies segment. During 2005 and 2003
we
entered into leases which qualify as operating leases for book purposes and
capital leases for tax purposes. Under these lease arrangements, Ball has the
option to purchase the leased equipment at the end of the lease term, or if
we
elect not to do so, to compensate the lessors for the difference between the
guaranteed minimum residual values totaling $16.3 million and the fair
market value of the assets, if less. Certain of the company’s leases in effect
at December 31, 2005, include renewal options and/or escalation clauses for
adjusting lease expense based on various factors.
Total
noncancellable operating leases in effect at December 31, 2005, require rental
payments of $45.8 million, $35.3 million, $25.3 million,
$19.4 million and $15.4 million for the years 2006 through 2010,
respectively, and $56.8 million combined for all years thereafter. Lease
expense for all operating leases was $74 million, $71.3 million and
$64.8 million in 2005, 2004 and 2003, respectively.
Page
53 of
97
Notes
to Consolidated Financial Statements
Ball
Corporation and Subsidiaries
11.
Debt and Interest Costs
Short-term
debt at December 31, 2005, includes $106.8 million outstanding under
uncommitted bank facilities totaling $267 million. At December 31,
2004, $43.7 million was outstanding under uncommitted bank facilities
totaling $234 million. The weighted average interest rate of the
outstanding short-term facilities was 3.9 percent at December 31,
2005, and 3.26 percent at December 31, 2004.
Long-term
debt at December 31 consisted of the following:
|
2005
|
2004
|
||||||||||||
|
(in
millions)
|
In
Local
Currency
|
In
U.S. $
|
In
Local
Currency
|
In
U.S. $
|
|||||||||
|
Notes
Payable
|
|||||||||||||
|
7.75%
Senior Notes, due August 2006
|
$
|
−
|
$
|
−
|
$
|
300.0
|
$
|
300.0
|
|||||
|
6.875%
Senior Notes, due December 2012 (excluding issue premium of $3.8 in
2005 and $4.3 in 2004)
|
$
|
550.0
|
550.0
|
$
|
550.0
|
550.0
|
|||||||
|
Senior
Credit Facilities
|
|||||||||||||
|
Term
A Loan, British sterling denominated, due October 2011 (2005 -
5.502%)
|
₤ |
85.0
|
146.2
|
−
|
−
|
||||||||
|
Term
B Loan, euro denominated, due October 2011 (2005 -
3.184%)
|
€ |
350.0
|
414.4
|
−
|
−
|
||||||||
|
Term
C Loan, Canadian dollar denominated, due October 2011 (2005 - 4.155%
to 4.255%)
|
C$ |
165.0
|
141.9
|
−
|
−
|
||||||||
|
U.S.
dollar multi-currency revolver borrowings, due October 2011
(2005 - 5.243% to 5.476%)
|
$
|
60.0
|
60.0
|
−
|
−
|
||||||||
|
Euro
multi-currency revolver borrowings, due October 2011
(2005 - 3.293% to 3.305%)
|
€ |
50.0
|
59.2
|
−
|
−
|
||||||||
|
British
sterling multi-currency revolver borrowings, due October 2011
(2005 - 5.495%)
|
₤ |
22.0
|
37.9
|
−
|
−
|
||||||||
|
Canadian
dollar multi-currency revolver borrowings, due October 2011
(2005 - 3.975% to 4.265%)
|
C$ |
14.0
|
12.0
|
−
|
−
|
||||||||
|
Former
Senior Credit Facilities
|
|||||||||||||
|
Term
Loan A, euro denominated, due December 2007 (2004 -
3.93%)
|
−
|
−
|
€ |
72.0
|
97.7
|
||||||||
|
Term
Loan A, British sterling denominated, due December 2007 (2004 -
6.64%)
|
−
|
−
|
₤ |
47.4
|
90.9
|
||||||||
|
Term
Loan B, euro denominated, due December 2009 (2004 - 4.18%)
|
−
|
−
|
€ |
232.7
|
315.6
|
||||||||
|
Term
Loan B, U.S. dollar denominated, due December 2009 (2004 -
4.31%)
|
−
|
−
|
$
|
185.0
|
185.0
|
||||||||
|
European
Bank for Reconstruction and Development Loans
|
|||||||||||||
|
Floating
rates due June 2009 (2005 - 3.727%;
2004 - 3.63%)
|
€ |
20.0
|
23.7
|
€ |
20.0
|
27.1
|
|||||||
|
Industrial
Development Revenue Bonds
|
|||||||||||||
|
Floating
rates due through 2011 (2005 - 3.57% to 3.58%; 2004 -
2%)
|
$
|
16.0
|
16.0
|
$
|
24.0
|
24.0
|
|||||||
|
Other
|
Various
|
21.6
|
Various
|
26.7
|
|||||||||
|
1,482.9
|
1,617.0
|
||||||||||||
|
Less:
Current portion of long-term debt
|
(9.6
|
)
|
(79.3
|
)
|
|||||||||
|
$
|
1,473.3
|
$
|
1,537.7
|
||||||||||
Page
54 of
97
Notes
to Consolidated Financial Statements
Ball
Corporation and Subsidiaries
11.
Debt and Interest Costs (continued)
2005
On
October 13, 2005, Ball refinanced its senior secured credit
facilities. The new senior secured credit facilities extend debt maturities
at
lower interest rate spreads and provide Ball with additional borrowing capacity
for future growth. During the third and fourth quarters of 2005, Ball redeemed
its 7.75% senior notes due in August 2006. The refinancing and senior note
redemptions resulted in a debt refinancing charge of $19.3 million
($12.3 million after tax) for the related call premium and unamortized debt
issuance costs.
The
new
senior credit facilities bear interest at variable rates and also include
(1) a multi-currency, long-term revolving credit facility which provides
the company with up to the equivalent of $715 million and (2) a
Canadian long-term revolving credit facility which provides the company with
up
to the equivalent of $35 million. Both revolving credit facilities expire
in October 2011. At December 31, 2005, taking into account outstanding
letters of credit, $547 million was available under the revolving credit
facilities.
Maturities
of all long-term debt obligations outstanding at December 31, 2005, are
$9.5 million, $32.2 million, $75.3 million, $85.2 million
and $205.7 million for the years ending December 31, 2006 through 2010,
respectively, and $1,071.2 million thereafter. Ball provides letters of
credit in the ordinary course of business to secure liabilities recorded in
connection with industrial development revenue bonds and certain self-insurance
arrangements. Letters of credit outstanding at December 31, 2005 and 2004,
were
$34 million and $43 million, respectively.
The
notes
payable and senior credit facilities are guaranteed on a full, unconditional
and
joint and several basis by certain of the company’s domestic wholly owned
subsidiaries. Certain foreign denominated tranches of the senior credit
facilities are similarly guaranteed by certain of the company’s wholly owned
foreign subsidiaries. Note 19 contains further details as well as
condensed, consolidating financial information for the company, segregating
the
guarantor subsidiaries and non-guarantor subsidiaries.
The
company was not in default of any loan agreement at December 31, 2005, and
has
met all debt payment obligations. The U.S. note agreements, bank credit
agreement and industrial development revenue bond agreements contain certain
restrictions relating to dividend payments, share repurchases, investments,
financial ratios, guarantees and the incurrence of additional indebtedness.
2004
During
the first quarter of 2004, Ball repaid €31 million ($38 million) of
its previous euro denominated Term Loan B and reduced the interest rate by
50 basis points. Interest expense during the first quarter of 2004 included
$0.5 million for the write off of the unamortized financing costs
associated with the repaid loans.
2003
On
August 8, 2003, Ball refinanced 8.25% Senior Subordinated Notes due in
2008 through the placement of $250 million of 6.875% Senior Notes due in
2012 issued at a price of 102% (effective yield to maturity of
6.58 percent). In connection with the refinancing of the higher interest
debt, in the third quarter of 2003 a pretax charge of $15.2 million was
recorded as interest expense, which consisted of the payment of a
$10.3 million call premium and the write off of $4.9 million of
unamortized financing costs. During the fourth quarter of 2003, Ball repaid
$160 million of its previous U.S. dollar denominated Term Loan B and
€25 million of the euro denominated Term Loan B. At the time of the
early repayment, the interest rate on the U.S. portion of the Term Loan B
was reduced by 50 basis points. Interest expense during the fourth quarter
of 2003 included $2.9 million for the write off of the unamortized
financing costs associated with the repaid loans.
Page
55 of
97
Notes
to Consolidated Financial Statements
Ball
Corporation and Subsidiaries
11.
Debt and Interest Costs (continued)
A
summary
of total interest cost paid and accrued follows:
|
($
in millions)
|
2005
|
2004
|
2003
|
||||||
|
Interest
costs before refinancing costs
|
$
|
102.4
|
$
|
105.8
|
$
|
129.0
|
|||
|
Debt
refinancing costs
|
19.3
|
−
|
15.2
|
||||||
|
Total
interest costs
|
121.7
|
105.8
|
144.2
|
||||||
|
Amounts
capitalized
|
(5.3
|
)
|
(2.1
|
)
|
(3.1
|
)
|
|||
|
Interest
expense
|
$
|
116.4
|
$
|
103.7
|
$
|
141.1
|
|||
|
Interest
paid during the year (a)
|
$
|
138.5
|
|
$
|
102.6
|
$
|
139.2
|
||
|
(a)
|
Includes
$6.6 million and $10.3 million of call premiums in 2005 and
2003, respectively, paid in connection with the redemption of the
company’s senior and senior subordinated notes.
|
12.
Taxes on Income
The
amount of earnings before income taxes is:
|
($
in millions)
|
2005
|
2004
|
2003
|
||||||
|
U.S.
|
$
|
191.0
|
$
|
254.8
|
$
|
187.8
|
|||
|
Foreign
|
155.1
|
180.4
|
131.9
|
||||||
|
$
|
346.1
|
$
|
435.2
|
$
|
319.7
|
||||
The
provision for income tax expense is:
|
($
in millions)
|
2005
|
2004
|
2003
|
||||||
|
Current
|
|||||||||
|
U.S.
|
$
|
75.0
|
$
|
45.2
|
$
|
35.5
|
|||
|
State
and local
|
15.3
|
10.6
|
7.9
|
||||||
|
Foreign
|
51.5
|
40.6
|
38.9
|
||||||
|
Repatriation
of foreign earnings
|
16.0
|
−
|
−
|
||||||
|
Total
current
|
157.8
|
96.4
|
82.3
|
||||||
|
Deferred
|
|||||||||
|
U.S.
|
(18.4
|
)
|
41.2
|
22.9
|
|||||
|
State
and local
|
(3.6
|
)
|
4.5
|
2.7
|
|||||
|
Foreign
|
(17.3
|
)
|
(2.9
|
)
|
(7.8
|
)
|
|||
|
Repatriation
of foreign earnings
|
(19.2
|
)
|
−
|
−
|
|||||
|
Total
deferred
|
(58.5
|
)
|
42.8
|
17.8
|
|||||
|
Provision
for income taxes
|
$
|
99.3
|
$
|
139.2
|
$
|
100.1
|
|||
Page
56 of
97
Notes
to Consolidated Financial Statements
Ball
Corporation and Subsidiaries
12.
Taxes on Income (continued)
The
income tax provision recorded within the consolidated statements of earnings
differs from the provision determined by applying the U.S. statutory tax rate
to
pretax earnings as a result of the following:
|
($
($ in millions)
|
2005
|
2004
|
2003
|
||||||
|
StStatutory
U.S. federal income tax
|
$
|
121.1
|
$
|
152.3
|
$
|
111.9
|
|||
|
InIncrease
(decrease) due to:
|
|||||||||
|
Foreign
tax holiday
|
(5.6
|
)
|
(7.0
|
)
|
(8.4
|
)
|
|||
|
Company-owned
life insurance
|
(3.2
|
)
|
(3.5
|
)
|
(4.8
|
)
|
|||
|
Tax
rate differences
|
(3.1
|
)
|
(7.9
|
)
|
(5.5
|
)
|
|||
|
Research
and development tax credits
|
(10.6
|
)
|
(3.7
|
)
|
(1.5
|
)
|
|||
|
Manufacturing
deduction
|
(2.9
|
)
|
−
|
−
|
|||||
|
State
and local taxes, net
|
7.6
|
9.4
|
6.9
|
||||||
|
Equity
investment write downs
|
2.5
|
−
|
−
|
||||||
|
Repatriation
of foreign earnings
|
(3.2
|
)
|
−
|
−
|
|||||
|
Other,
net
|
(3.3
|
)
|
(0.4
|
)
|
1.5
|
||||
|
PrProvision
for taxes
|
$
|
99.3
|
$
|
139.2
|
$
|
100.1
|
|||
|
EfEffective
tax rate expressed as a percentage
of pretax earnings
|
28.7
|
%
|
32.0
|
%
|
31.3
|
%
|
|||
In
1995
Ball Packaging Europe’s Polish subsidiary was granted a tax holiday. Under the
terms of the holiday, an exemption was granted on manufacturing earnings for
up
to €39.5 million of income tax. At December 31, 2005, the remaining
tax holiday available to reduce future Polish tax liability was
€5.5 million. In 2005 Ball Packaging Europe’s Serbian subsidiary was
granted a tax holiday. Under the terms of the holiday, the earnings of this
subsidiary will be exempt from income taxation for a period of 10 years
beginning with the first year the Serbian subsidiary has taxable earnings.
Net
income tax payments were $99 million, $72.6 million and
$28.4 million for 2005, 2004 and 2003, respectively.
Page
57 of
97
Notes
to Consolidated Financial Statements
Ball
Corporation and Subsidiaries
12.
Taxes on Income (continued)
The
significant components of deferred tax assets and liabilities at December 31
were:
|
($
in millions)
|
2005
|
2004
|
||||
|
Deferred
tax assets:
|
||||||
|
Deferred
compensation
|
$
|
(56.2
|
)
|
$
|
(51.7
|
)
|
|
Accrued
employee benefits
|
(90.6
|
)
|
(73.9
|
)
|
||
|
Plant
closure costs
|
(18.3
|
)
|
(15.6
|
)
|
||
|
Accrued
pensions
|
(92.0
|
)
|
(54.5
|
)
|
||
|
Unrealized
losses from forward purchase contracts
|
(10.1
|
)
|
−
|
|||
|
Alternative
minimum tax credits
|
−
|
(7.0
|
)
|
|||
|
Net
operating losses
|
(14.8
|
)
|
(13.1
|
)
|
||
|
Foreign
tax credits
|
(5.8
|
)
|
−
|
|||
|
Other
|
(33.1
|
)
|
(47.8
|
)
|
||
|
Total
deferred tax assets
|
(320.9
|
)
|
(263.6
|
)
|
||
|
Valuation
allowance
|
8.6
|
5.4
|
||||
|
Net
deferred tax assets
|
(312.3
|
)
|
(258.2
|
)
|
||
|
Deferred
tax liabilities:
|
||||||
|
Depreciation
|
229.5
|
277.8
|
||||
|
Goodwill
and other intangible assets
|
45.5
|
42.9
|
||||
|
Other
|
20.5
|
26.2
|
||||
|
Total
deferred tax liabilities
|
295.5
|
346.9
|
||||
|
Net
deferred tax liability (asset)
|
$
|
(16.8
|
)
|
$
|
88.7
|
|
The
change in deferred taxes during 2005 is primarily attributable to book
depreciation exceeding tax depreciation, a reduction in cash pension payments
and the effects of foreign currency exchange rates.
At
December 31, 2005, Ball Packaging Europe and subsidiaries had net operating
loss carryforwards, with no expiration date, of $52 million with a related
tax benefit of $14.8 million. Due to the uncertainty of ultimate
realization, that benefit has been offset by a valuation allowance of
$4.8 million. Any realization of the valuation allowance will be recognized
as a reduction in goodwill. At December 31, 2005, the company has foreign
tax credit carryforwards in the amount of $5.8 million; however, due to the
uncertainty of realization of the entire credit, a valuation allowance of
$3.8 million has been applied to reduce the carrying value to $2
million.
On
October 22, 2004, the American Jobs Creation Act of 2004 (Jobs Act) was
signed into law. The Jobs Act provides certain domestic companies a temporary
opportunity to repatriate previously undistributed earnings of controlled
foreign subsidiaries at a reduced federal tax rate, approximating
5.25 percent. The reduced rate is achieved via an 85 percent dividends
received deduction on earnings repatriated during a one-year period on or before
December 31, 2005. To qualify for the deduction, the repatriated earnings must
be reinvested in the United States pursuant to one or more domestic reinvestment
plans approved, in advance of distribution, by the company's chief executive
officer (CEO) and subsequently approved by the company's board of directors.
Certain other criteria in the Jobs Act were satisfied as well.
Page
58 of
97
Notes
to Consolidated Financial Statements
Ball
Corporation and Subsidiaries
12.
Taxes on Income (continued)
In
July
2005 the company’s CEO approved a foreign dividend and capital distribution plan
that included the repatriation of undistributed earnings of certain of its
foreign subsidiaries during the third and fourth quarters of 2005. The
applicable domestic reinvestment plans were approved by the CEO, in advance
of
distributions, and subsequently approved by the board of directors as required
under the Jobs Act. Under the plan, the distribution was $488.4 million, of
which approximately $320.3 million is taxable and subject to the provisions
of
the Jobs Act. The company recorded a current tax payable of $16 million that
was
more than offset by the release of $19.2 million of accrued taxes on prior
year
unremitted foreign earnings, resulting in a net decrease in tax expense of
$3.2
million.
Notwithstanding
the 2005 distribution pursuant to the Jobs Act, management’s intention is to
indefinitely reinvest foreign earnings. Subsequent to the aforementioned Jobs
Act distribution, substantially all of the previously undistributed earnings
of
Ball’s controlled foreign corporations have been distributed; therefore, no
deferred tax provision would be required at December 31, 2005.
As
previously reported in the company’s 2004 Annual Report on Form 10-K, in
connection with the Internal Revenue Service’s examination of Ball’s
consolidated income tax returns for the tax years 2000 through 2003, the IRS
has
proposed to disallow Ball’s deductions of interest expense incurred on loans
under a company-owned life insurance plan that has been in place for more than
19 years. Ball believes that its interest deductions will be sustained as
filed and, therefore, no provision for loss has been accrued. The IRS’s proposed
adjustments would result in an increase in taxable income for the years 1999
through 2003 of $46.7 million and a corresponding increase in taxable
income for subsequent tax years 2004 and 2005 in the amount of
$20.2 million with a corresponding increase in aggregate tax expense of
$26.4 million plus any related interest expense and penalties. The
examination reports for the 2000 to 2003 examinations have been forwarded to
the
appeals division of the IRS, and no further action has taken place to change
Ball’s position.
13.
Employee Benefit Obligations
|
December
31,
|
||||||
|
($
in millions)
|
2005
|
2004
|
||||
|
Total
defined benefit pension liability
|
$
|
529.9
|
$
|
488.5
|
||
|
Less
current portion
|
(39.2
|
)
|
(29.9
|
)
|
||
|
Long-term
defined benefit pension liability
|
490.7
|
458.6
|
||||
|
Retiree
medical and other postemployment benefits
|
141.1
|
133.8
|
||||
|
Deferred
compensation
|
130.4
|
117.6
|
||||
|
Other
|
22.0
|
24.3
|
||||
|
$
|
784.2
|
$
|
734.3
|
|||
The
company's pension plans cover substantially all U.S., Canadian and European
employees meeting certain eligibility requirements. The defined benefit plans
for salaried employees, as well as those for hourly employees in Germany and
the
United Kingdom, provide pension benefits based on employee compensation and
years of service. Plans for North American hourly employees provide benefits
based on fixed rates for each year of service. The German plans are not funded
but the company maintains book reserves and annual additions to the reserves
are
generally tax deductible. With the exception of the German plans, our policy
is
to fund the plans on a current basis to the extent deductible under existing
tax
laws and regulations and in amounts at least sufficient to satisfy statutory
funding requirements. We also have defined benefit pension obligations in France
and Austria, the assets and liabilities of which are
insignificant.
Page
59 of
97
Notes
to Consolidated Financial Statements
Ball
Corporation and Subsidiaries
13.
Employment Benefit Obligations (continued)
Defined
Benefit Pension Plans
An
analysis of the change in benefit accruals for 2005 and 2004
follows:
|
($
in millions)
|
2005
|
2004
|
||||||||||||||||
|
U.S.
|
Foreign
|
Total
|
U.S.
|
Foreign
|
Total
|
|||||||||||||
|
Change
in benefit obligation:
|
||||||||||||||||||
|
Benefit
obligation at prior year end
|
$
|
683.9
|
$
|
601.5
|
$
|
1,285.4
|
$
|
612.8
|
$
|
543.9
|
$
|
1,156.7
|
||||||
|
Service
cost
|
24.2
|
8.4
|
32.6
|
22.1
|
8.6
|
30.7
|
||||||||||||
|
Interest
cost
|
40.1
|
28.1
|
68.2
|
37.8
|
28.8
|
66.6
|
||||||||||||
|
Benefits
paid
|
(30.5
|
)
|
(31.4
|
)
|
(61.9
|
)
|
(28.9
|
)
|
(31.6
|
)
|
(60.5
|
)
|
||||||
|
Net
actuarial loss
|
56.9
|
42.1
|
99.0
|
24.9
|
14.2
|
39.1
|
||||||||||||
|
Effect
of exchange rates
|
−
|
(57.5
|
)
|
(57.5
|
)
|
−
|
43.8
|
43.8
|
||||||||||
|
Plan
amendments and other
|
3.4
|
2.4
|
5.8
|
15.2
|
(6.2
|
)
|
9.0
|
|||||||||||
|
Benefit
obligation at year end
|
778.0
|
593.6
|
1,371.6
|
683.9
|
601.5
|
1,285.4
|
||||||||||||
|
Change
in plan assets:
|
||||||||||||||||||
|
Fair
value of assets at prior year end
|
558.8
|
197.6
|
756.4
|
488.0
|
158.4
|
646.4
|
||||||||||||
|
Actual
return on plan assets
|
35.9
|
20.8
|
56.7
|
57.1
|
16.4
|
73.5
|
||||||||||||
|
Employer
contributions
|
6.4
|
10.7
|
17.1
|
42.6
|
18.0
|
60.6
|
||||||||||||
|
Contributions
to unfunded German plans(a)
|
−
|
21.6
|
21.6
|
−
|
21.0
|
21.0
|
||||||||||||
|
Benefits
paid
|
(30.5
|
)
|
(31.4
|
)
|
(61.9
|
)
|
(28.9
|
)
|
(31.6
|
)
|
(60.5
|
)
|
||||||
|
Effect
of exchange rates
|
−
|
(7.5
|
)
|
(7.5
|
)
|
−
|
13.9
|
13.9
|
||||||||||
|
Other
|
−
|
1.9
|
1.9
|
−
|
1.5
|
1.5
|
||||||||||||
|
Fair
value of assets at end of year
|
570.6
|
213.7
|
784.3
|
558.8
|
197.6
|
756.4
|
||||||||||||
|
Funded
status
|
(207.4
|
)
|
(379.9
|
)(a)
|
(587.3
|
)
|
(125.1
|
)
|
(403.9
|
)(a)
|
(529.0
|
)
|
||||||
|
Unrecognized
net actuarial loss
|
272.5
|
75.7
|
348.2
|
220.6
|
42.2
|
262.8
|
||||||||||||
|
Unrecognized
prior service cost
|
40.4
|
(4.5
|
)
|
35.9
|
41.9
|
(2.8
|
)
|
39.1
|
||||||||||
|
Prepaid
(accrued) benefit cost
|
$
|
105.5
|
$
|
(308.7
|
)
|
$
|
(203.2
|
)
|
$
|
137.4
|
$
|
(364.5
|
)
|
$
|
(227.1
|
)
|
||
|
(a)
|
The
German plans are unfunded and the liability is included in the company’s
balance sheet. Benefits are paid directly by the company to the
participants. The German plans represented $324.8 million and
$353.6 million of the total unfunded status at December 31, 2005
and 2004, respectively. The decrease from 2004 to 2005 is partially
the
result of changes in foreign currency exchange
rates.
|
Page
60 of
97
Notes
to Consolidated Financial Statements
Ball
Corporation and Subsidiaries
13.
Employee Benefit Obligations (continued)
Amounts
recognized in the balance sheet at December 31 consisted of:
|
2005
|
2004
|
|||||||||||||||||
|
($
in millions)
|
U.S.
|
Foreign
|
Total
|
U.S.
|
Foreign
|
Total
|
||||||||||||
|
Prepaid
benefit cost
|
$
|
−
|
$
|
−
|
$
|
−
|
$
|
−
|
$
|
1.3
|
$
|
1.3
|
||||||
|
Accrued
benefit liability
|
(148.5
|
)
|
(381.4
|
)
|
(529.9
|
)
|
(74.3
|
)
|
(414.2
|
)
|
(488.5
|
)
|
||||||
|
Intangible
asset
|
40.4
|
1.9
|
42.3
|
41.9
|
4.8
|
46.7
|
||||||||||||
|
Deferred
tax benefit associated with accumulated other comprehensive
loss
|
84.3
|
25.2
|
109.5
|
67.0
|
15.2
|
82.2
|
||||||||||||
|
Accumulated
other comprehensive loss, net of tax
|
129.3
|
40.6
|
169.9
|
102.8
|
23.5
|
126.3
|
||||||||||||
|
Foreign
currency translation
|
−
|
5.0
|
5.0
|
−
|
4.9
|
4.9
|
||||||||||||
|
Net
amount recognized
|
$
|
105.5
|
$
|
(308.7
|
)
|
$
|
(203.2
|
)
|
$
|
137.4
|
$
|
(364.5
|
)
|
$
|
(227.1
|
)
|
||
The
accumulated benefit obligation for all U.S. defined benefit pension plans was
$719.1 million and $633.1 million at December 31, 2005 and 2004,
respectively. The accumulated benefit obligation for all foreign defined benefit
pension plans was $559.5 million and $561.5 million at
December 31, 2005 and 2004, respectively. Following is the information for
defined benefit plans with an accumulated benefit obligation in excess of plan
assets at December 31:
|
2005
|
2004
|
||||||||||||||||
|
($
in millions)
|
U.S.
|
Foreign
|
Total
|
U.S.
|
Foreign
|
Total
|
|||||||||||
|
Projected
benefit obligation
|
$
|
778.0
|
$
|
593.6
|
$
|
1,371.6
|
$
|
683.9
|
$
|
571.1
|
$
|
1,255.0
|
|||||
|
Accumulated
benefit obligation
|
719.1
|
559.5
|
1,278.6
|
633.1
|
531.1
|
1,164.2
|
|||||||||||
|
Fair
value of plan assets
|
570.6
|
213.7
|
(a)
|
784.3
|
558.8
|
166.3
|
(a)
|
725.1
|
|||||||||
(a) The
German plans are unfunded and, therefore, there are no fair value of plan assets
associated with them. The unfunded status of those plans was $324.8 million
and $353.6 million at December 31, 2005 and 2004,
respectively.
Components
of net periodic benefit cost were:
|
2005
|
2004
|
2003
|
|||||||||||||||||||||||||
|
($
in millions)
|
U.S.
|
Foreign
|
Total
|
U.S.
|
Foreign
|
Total
|
U.S.
|
Foreign
|
Total
|
||||||||||||||||||
|
Service
cost
|
$
|
24.2
|
$
|
8.4
|
$
|
32.6
|
$
|
22.1
|
$
|
8.6
|
$
|
30.7
|
$
|
18.8
|
$
|
7.7
|
$
|
26.5
|
|||||||||
|
Interest
cost
|
40.1
|
28.1
|
68.2
|
37.8
|
28.8
|
66.6
|
36.3
|
26.0
|
62.3
|
||||||||||||||||||
|
Expected
return on plan assets
|
(46.2
|
)
|
(14.7
|
)
|
(60.9
|
)
|
(43.8
|
)
|
(12.8
|
)
|
(56.6
|
)
|
(42.4
|
)
|
(10.1
|
)
|
(52.5
|
)
|
|||||||||
|
Amortization
of prior service cost
|
4.8
|
(0.1
|
)
|
4.7
|
4.0
|
−
|
4.0
|
2.9
|
0.1
|
3.0
|
|||||||||||||||||
|
Recognized
net actuarial loss
|
15.5
|
2.3
|
17.8
|
12.9
|
1.3
|
14.2
|
9.1
|
1.0
|
10.1
|
||||||||||||||||||
|
Curtailment
loss
|
−
|
3.0
|
3.0
|
−
|
−
|
−
|
−
|
−
|
−
|
||||||||||||||||||
|
Subtotal
|
38.4
|
27.0
|
65.4
|
33.0
|
25.9
|
58.9
|
24.7
|
24.7
|
49.4
|
||||||||||||||||||
|
Non-company
sponsored plan
|
1.0
|
−
|
1.0
|
0.3
|
−
|
0.3
|
−
|
−
|
−
|
||||||||||||||||||
|
Net
periodic benefit cost
|
$
|
39.4
|
$
|
27.0
|
$
|
66.4
|
$
|
33.3
|
$
|
25.9
|
$
|
59.2
|
$
|
24.7
|
$
|
24.7
|
$
|
49.4
|
|||||||||
Page
61 of
97
Notes
to Consolidated Financial Statements
Ball
Corporation and Subsidiaries
13.
Employee Benefit Obligations (continued)
Weighted
average assumptions used to determine benefit obligations for the North American
plans at December 31 were:
|
U.S.
|
Canada
|
|||||||||||||||||
|
2005
|
2004
|
2003
|
2005
|
2004
|
2003
|
|||||||||||||
|
Discount
rate
|
5.75
|
%
|
6.00
|
%
|
6.25
|
%
|
5.00
|
%
|
5.75
|
%
|
6.20
|
%
|
||||||
|
Rate
of compensation increase
|
3.33
|
%
|
3.33
|
%
|
3.33
|
%
|
3.50
|
%
|
2.75
|
%
|
3.50
|
%
|
||||||
Weighted
average assumptions used to determine benefit obligations for the European
plans
at December 31 were:
|
United
Kingdom
|
Germany
|
|||||||||||||||||
|
2005
|
2004
|
2003
|
2005
|
2004
|
2003
|
|||||||||||||
|
Discount
rate
|
4.90
|
%
|
5.50
|
%
|
5.50
|
%
|
4.01
|
%
|
4.76
|
%
|
5.25
|
%
|
||||||
|
Rate
of compensation increase
|
4.00
|
%
|
4.00
|
%
|
4.00
|
%
|
2.75
|
%
|
2.75
|
%
|
3.00
|
%
|
||||||
|
Pension
increase
|
2.50
|
%
|
2.50
|
%
|
2.50
|
%
|
1.75
|
%
|
1.75
|
%
|
2.00
|
%
|
||||||
The
discount and compensation increase rates used above to determine the benefit
obligations at December 31, 2005, will be used to determine net periodic
benefit cost for 2006.
Weighted
average assumptions used to determine net periodic benefit cost for the North
American plans for the years ended December 31 were:
|
U.S.
|
Canada
|
|||||||||||||||||
|
2005
|
2004
|
2003
|
2005
|
2004
|
2003
|
|||||||||||||
|
Discount
rate
|
6.00
|
%
|
6.25
|
%
|
6.75
|
%
|
5.75
|
%
|
6.20
|
%
|
6.37
|
%
|
||||||
|
Rate
of compensation increase
|
3.33
|
%
|
3.33
|
%
|
3.33
|
%
|
3.50
|
%
|
3.50
|
%
|
3.50
|
%
|
||||||
|
Expected
long-term rate of return on assets
|
8.50
|
%
|
8.50
|
%
|
8.50
|
%
|
7.65
|
%
|
7.64
|
%
|
7.69
|
%
|
||||||
Weighted
average assumptions used to determine net periodic benefit cost for the European
plans for the years ended December 31 were:
|
United
Kingdom
|
Germany
|
|||||||||||||||||
|
2005
|
2004
|
2003
|
2005
|
2004
|
2003
|
|||||||||||||
|
Discount
rate
|
5.50
|
%
|
5.50
|
%
|
5.50
|
%
|
4.76
|
%
|
5.25
|
%
|
5.50
|
%
|
||||||
|
Rate
of compensation increase
|
4.00
|
%
|
4.00
|
%
|
4.00
|
%
|
2.75
|
%
|
3.00
|
%
|
3.25
|
%
|
||||||
|
Pension
increase
|
2.50
|
%
|
2.50
|
%
|
2.50
|
%
|
1.75
|
%
|
2.00
|
%
|
2.00
|
%
|
||||||
|
Expected
long-term rate of return on assets
|
7.00
|
%
|
7.00
|
%
|
7.00
|
%
|
N/A
|
N/A
|
N/A
|
|||||||||
Current
financial accounting standards require that the discount rates used to calculate
the actuarial present value of pension and other postretirement benefit
obligations reflect the time value of money as of the measurement date of
the benefit obligation and reflect the rates of return currently available
on
high quality fixed income securities whose cash flows (via coupons and
maturities) match the timing and amount of future benefit payments of the plan.
In addition, changes in the discount rate assumption should reflect changes
in
the general level of interest rates.
Page
62 of
97
Notes
to Consolidated Financial Statements
Ball
Corporation and Subsidiaries
13.
Employee Benefit Obligations (continued)
In
selecting the U.S. discount rate for December 31, 2005, several benchmarks
were considered to provide guidance. These benchmarks included Moody's
long-term corporate bond yield for Aa bonds and the Citigroup Pension
Liability Index. In addition, the expected cash flows from the plans were
modeled relative to the Citigroup Pension Discount Curve and matched to cash
flows from a portfolio of bonds rated Aa or better. In Canada the markets
for locally denominated high-quality, longer term corporate bonds are relatively
thin. As a result, the approach taken in Canada is to use yield curve spot
rates
to discount the respective benefit cash flows and to compute the underlying
constant bond yield equivalent. The Canadian discount rate at December 31,
2005, was selected based on a review of the expected benefit payments for each
of the Canadian defined benefit plans over the next 60 years and then
discounting the resulting cash flows to the measurement date using the AA
corporate bond spot rates to determine the equivalent level discount rate.
In
the United Kingdom and Germany, the company and its actuarial consultants
considered the applicable iBoxx 15+ year AA corporate bond yields for the
respective markets and determined a rate in line with those expectations. In
all
countries, the discount rates selected for December 31, 2005, were based on
the range of values obtained from cash flow specific methods, together with
the changes in the general level of interest rates reflected by the
benchmarks.
The
assumption related to the expected long-term rate of return on plan assets
reflects the average rate of earnings expected on the funds invested to provide
for the benefits over the life of the plans. The assumption is based upon Ball’s
pension plan asset allocations, investment strategies and the views of
investment managers and other large pension plan sponsors. Some reliance was
placed on historical asset returns of our plans. An asset-return generation
model was used to project future asset returns using simulation and asset class
correlation. The analysis includes expected future risk premiums,
forward-looking return expectations derived from the yield on long-term bonds
and the price earnings ratios of major stock market indexes, expected inflation
and real risk-free interest rate assumptions, and the fund’s expected asset
allocation.
The
expected long-term rates of return on assets are calculated by applying the
expected rate of return to a market related value of plan assets at the
beginning of the year, adjusted for the weighted average expected contributions
and benefit payments. For the North American plans, the market related value
of
plan assets used to calculate expected return was $662.4 million for 2005,
$604.4 million for 2004 and $570.4 million for 2003.
Included
in other comprehensive earnings, net of related tax effect, were increases
in
the minimum liability of $43.6 million and $33.2 million in 2005 and
2004, respectively, and a decrease of $11.8 million in 2003.
For
pension plans, accumulated gains and losses in excess of a 10 percent
corridor and the prior service cost are being amortized over the average
remaining service period of active participants.
Defined
Benefit Pension Plan Assets
Investment
policies and strategies for the plan assets in the U.S., Canada and the United
Kingdom are established by pension investment committees and include the
following common themes: (1) to provide for long-term growth of principal income
without undue exposure to risk; (2) to minimize contributions to the plans;
(3)
to minimize and stabilize pension expense; and (4) to achieve a rate of return
which is above the market average for each asset class over the long term.
The
pension investment committees are required to regularly, but no less frequently
than once annually, review asset mix and asset performance, as well as the
performance of the investment managers. Based on their reviews, which are
generally conducted quarterly, investment policies and strategies are revised
as
appropriate.
Page
63 of
97
Notes
to Consolidated Financial Statements
Ball
Corporation and Subsidiaries
13.
Employee Benefit Obligations (continued)
Target
asset allocations in the U.S. and Canada are set using a minimum and maximum
range for each asset category as a percent of the total funds market value.
Assets contributed to the United Kingdom plans are invested using established
percentages. Following are the target asset allocations established as of
December 31, 2005:
|
U.S.
|
Canada
|
United
Kingdom
|
|||||||
|
Cash
and cash equivalents
|
0-10
|
%
|
0-10
|
%
|
–
|
||||
|
Equity
securities
|
40-75
|
%(a)
|
50-75
|
%(c)
|
82
|
%(d)
|
|||
|
Fixed
income securities
|
25-60
|
%(b)
|
25-45
|
%
|
18
|
%
|
|||
|
Alternative
investments
|
0-15
|
%
|
–
|
–
|
|||||
|
(a)
|
Equity
securities may consist of: (1) up to 35 percent large cap
equities; (2) up to 15 percent mid cap equities; (3) up to
15 percent small cap equities; (4) up to 35 percent foreign
equities; and (5) up to 10 percent other
equities.
|
|
(b)
|
Debt
securities may include up to 10 percent high yield non-investment
grade bonds and up to 15 percent international
bonds.
|
|
(c)
|
May
include between 15 percent and 35 percent non-Canadian equity
securities and must remain within the Canadian tax law for foreign
property limits.
|
|
(d)
|
Equity
securities must consist of United Kingdom securities and up to
29 percent foreign
securities.
|
The
actual weighted average asset allocations for Ball’s defined benefit pension
plans, which are within the established targets for each country, were as
follows at December 31:
|
2005
|
2004
|
|||||
|
C
Cash and cash equivalents
|
1
|
%
|
1
|
%
|
||
|
Equity
securities
|
62
|
%
|
66
|
%
|
||
|
Fixed
income securities
|
32
|
%
|
31
|
%
|
||
|
Other
|
5
|
%
|
2
|
%
|
||
|
100
|
%
|
100
|
%
|
|||
Contributions
to the company’s defined benefit pension plans, not including the unfunded
German plans, are expected to be $49 million in 2006. This estimate may
change based on plan asset performance. Benefit payments related to these plans
are expected to be $43 million, $46 million, $48 million,
$51 million and $54 million for the years ending December 31, 2006
through 2010, respectively, and $318 million thereafter. Payments to
participants in the unfunded German plans are expected to be $22 million in
2006, $22 million, $23 million, $24 million and $24 million
in the years 2006 through 2010, respectively, and a total of $131 million
thereafter.
Other
Postemployment Benefits
The
company sponsors defined benefit and defined contribution postretirement health
care and life insurance plans for substantially all U.S. and Canadian employees.
Employees may also qualify for long-term disability, medical and life insurance
continuation and other postemployment benefits upon termination of active
employment prior to retirement. All of the Ball-sponsored postretirement health
care and life insurance plans are unfunded and, with the exception of life
insurance benefits, are self-insured.
In
Canada, the company provides supplemental medical and other benefits in
conjunction with Canadian provincial health care plans. Most U.S. salaried
employees who retired prior to 1993 are covered by noncontributory defined
benefit medical plans with capped lifetime benefits. Ball provides a fixed
subsidy toward each retiree's future purchase of medical insurance for U.S.
salaried and substantially all nonunion hourly employees retiring after January
1, 1993. Life insurance benefits are noncontributory. Ball has no commitments
to
increase benefits provided by any of the postemployment benefit
plans.
Page
64 of
97
Notes
to Consolidated Financial Statements
Ball
Corporation and Subsidiaries
13.
Employee Benefit Obligations (continued)
An
analysis of the change in other postretirement benefit accruals for 2005 and
2004 follows:
|
($
in millions)
|
2005
|
2004
|
||||
|
C
Change in benefit obligation:
|
||||||
|
Benefit
obligation at prior year end
|
$
|
170.8
|
$
|
162.6
|
||
|
Service
cost
|
2.6
|
2.7
|
||||
|
Interest
cost
|
9.7
|
9.7
|
||||
|
Benefits
paid
|
(9.9
|
)
|
(9.5
|
)
|
||
|
Net
actuarial loss (gain)
|
2.0
|
(5.0
|
)
|
|||
|
Plan
amendment
|
–
|
8.5
|
||||
|
Effect
of foreign exchange rates
|
0.8
|
1.8
|
||||
|
Benefit
obligation at year end
|
176.0
|
170.8
|
||||
|
C
Change in plan assets:
|
||||||
|
Fair
value of assets at prior year end
|
–
|
–
|
||||
|
Employer
contributions
|
9.9
|
9.5
|
||||
|
Benefits
paid
|
(9.9
|
)
|
(9.5
|
)
|
||
|
Fair
value of assets at end of year
|
–
|
–
|
||||
|
F
Funded status
|
(176.0
|
)
|
(170.8
|
)
|
||
|
U Unrecognized
net actuarial loss
|
32.8
|
32.8
|
||||
|
U
Unrecognized prior service cost
|
8.5
|
10.0
|
||||
|
A
Accrued benefit cost
|
$
|
(134.7
|
)
|
$
|
(128.0
|
)
|
Components
of net periodic benefit cost were:
|
($
in millions)
|
2005
|
2004
|
2003
|
|||||
|
Service
cost
|
$
|
2.6
|
$
|
2.7
|
$
|
2.1
|
||
|
Interest
cost
|
9.7
|
9.7
|
9.0
|
|||||
|
Amortization
of prior service cost
|
1.5
|
1.5
|
0.4
|
|||||
|
Recognized
net actuarial loss
|
2.3
|
2.7
|
2.0
|
|||||
|
Net
periodic benefit cost
|
$
|
16.1
|
$
|
16.6
|
$
|
13.5
|
||
The
assumptions used for the determination of benefit obligations and net periodic
benefit cost were the same as used for the U.S. and Canadian defined benefit
pension plans. For other postemployment benefits, accumulated gains and losses,
the prior service cost and the transition asset are being amortized over the
average remaining service period of active participants.
For
the
U.S. health care plans at December 31, 2005, a 10 percent health care
cost trend rate was used for pre-65 and post-65 benefits, and trend rates were
assumed to decrease by 1 percent per year until 2011 when they reach
5 percent and remain level thereafter. For the Canadian plans, a
10 percent health care cost trend rate was used, which was assumed to
decrease in one-half percent increments to 5 percent by 2016 and remain at
that level in subsequent years.
Health
care cost trend rates can have an effect on the amounts reported for the health
care plan. A one-percentage point change in assumed health care cost trend
rates
would increase or decrease the total of service and interest cost by
approximately $0.5 million and the postemployment benefit obligation by
approximately $8 million to $9 million.
Page
65 of
97
Notes
to Consolidated Financial Statements
Ball
Corporation and Subsidiaries
13.
Employee Benefit Obligations (continued)
Other
Benefit Plans
The
company matches employee contributions to the 401(k) plan with shares of Ball
common stock, up to 50 percent of up to 6 percent of a participant’s
annual salary. The expense associated with the company match amounted to
$14.3 million, $13 million and $11.7 million for 2005, 2004 and
2003, respectively.
In
addition, substantially all employees within the company’s aerospace and
technologies segment who participate in Ball’s 401(k) plan receive a
performance-based matching cash contribution of up to 4 percent of base
salary. The company recognized $6.3 million, $4.8 million and
$6 million of additional compensation expense related to this program for
the years 2005, 2004 and 2003, respectively.
In
2005
the company’s 401(k) plan matching contributions could not exceed $7,000 per
employee due to the 401(k) aggregate limit on employee contributions of
$14,000.
14.
Shareholders’ Equity
At
December 31, 2005, the company had 550 million shares of common stock and
15 million shares of preferred stock authorized, both without par value.
Preferred stock includes 120,000 authorized but unissued shares designated
as
Series A Junior Participating Preferred Stock.
On
January 31, 2005, in a privately negotiated stock repurchase transaction,
Ball entered into a forward purchase agreement to repurchase 3 million of
its common shares at an initial price of $42.72 per share using cash on hand
and
available borrowings. The price per share was subject to a price adjustment
based on a weighted average price calculation for the period between the initial
purchase date and the settlement date. The company previously reported in its
Annual Report on Form 10-K for the year ended December 31, 2004, within
Item 7, “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” and Item 8, “Financial Statements and Supplementary
Data,” that the purchase of the 3 million shares occurred on
January 31, 2005, with the immediate reduction of Ball’s outstanding
shares. The reduction of shares was reflected in the number of outstanding
shares disclosed on the cover page of the Form 10-K. Subsequent to the
close of the first quarter, the company, upon further review of the transaction,
concluded that the shares purchased under the contract should not reduce the
outstanding shares, nor affect earnings per share, until actual delivery of
the
shares to the company. The company completed its purchase of the 3 million
shares at an average price of $41.63 per share and obtained delivery of the
shares in early May 2005.
On
October 26, 2005, the board of directors authorized the repurchase of up to
12 million shares of Ball common stock. This most recent repurchase
authorization replaced the previous authorization of up to 12 million
shares approved in July 2004, under which approximately 1 million
shares remained at October 26, 2005.
On
July
28, 2004, the company’s board of directors declared a two-for-one split of
Ball’s common stock. The stock split was effective August 23, 2004, for all
shareholders of record on August 4, 2004. As a result of the stock split, all
amounts prior to the split related to earnings, options and outstanding shares
have been retroactively restated as if the split had occurred as of
January 1, 2003.
Page
66 of
97
Notes
to Consolidated Financial Statements
Ball
Corporation and Subsidiaries
14.
Shareholders’ Equity (continued)
Under
the
company's successor Shareholder Rights Plan, one Preferred Stock Purchase Right
(Right) is attached to each outstanding share of Ball Corporation common stock.
Subject to adjustment, each Right entitles the registered holder to purchase
from the company one one-thousandth of a share of Series A Junior Participating
Preferred Stock at an exercise price of $130 per Right. If a person or group
acquires 15 percent or more of the company's outstanding common stock (or
upon occurrence of certain other events), the Rights (other than those held
by
the acquiring person) become exercisable and generally entitle the holder to
purchase shares of Ball Corporation common stock at a 50 percent discount.
The
Rights, which expire in 2006, are redeemable by the company at a redemption
price of one cent per Right and trade with the common stock. Exercise of such
Rights would cause substantial dilution to a person or group attempting to
acquire control of the company without the approval of Ball's board of
directors. The Rights would not interfere with any merger or other business
combinations approved by the board of directors.
As
a
result of the company’s stock split, which was distributed on August 23,
2004, the rights attaching to the shares (pursuant to the Rights agreement
dated
January 24, 1996) automatically split so that one-quarter of a right
attached to each share of Ball Corporation common stock outstanding upon the
effective date of the stock split. Ball previously split the company’s common
stock on February 22, 2002.
In
connection with the employee stock purchase plan, the company contributes
20 percent of up to $500 of each participating employee’s monthly payroll
deduction toward the purchase of Ball Corporation common stock. Company
contributions for this plan were $3.2 million in 2005, $2.7 million in
2004 and $2.5 million in 2003.
Accumulated
Other Comprehensive Earnings (Loss)
The
activity related to accumulated other comprehensive earnings (loss) was as
follows:
|
($
in millions)
|
Foreign
Currency
Translation
|
Minimum
Pension
Liability,
Net
of Tax
|
Effective
Financial
Derivatives,
Net
of Tax
|
Accumulated
Other
Comprehensive Earnings (Loss)
|
||||||||
|
December
31, 2002
|
$
|
(22.9
|
)
|
$
|
(104.9
|
)
|
$
|
(10.5
|
)
|
$
|
(138.3
|
)
|
|
2003
change
|
103.6
|
11.8
|
21.5
|
136.9
|
||||||||
|
December
31, 2003
|
80.7
|
(93.1
|
)
|
11.0
|
(1.4
|
)
|
||||||
|
2004
change
|
68.2
|
(33.2
|
)
|
(0.4
|
)
|
34.6
|
||||||
|
December
31, 2004
|
148.9
|
(126.3
|
)
|
10.6
|
33.2
|
|||||||
|
2005
change
|
(74.3
|
)
|
(43.6
|
)
|
(16.0
|
)
|
(133.9
|
)
|
||||
|
December
31, 2005
|
$
|
74.6
|
$
|
(169.9
|
)
|
$
|
(5.4
|
)
|
$
|
(100.7
|
)
|
|
Notwithstanding
the 2005 distribution pursuant to the Jobs Act, management’s intention is to
indefinitely reinvest foreign earnings. Therefore, no taxes have been provided
on the foreign currency translation component for any period. The change in
the
minimum pension liability is presented net of related tax benefit of
$27.3 million for 2005, related tax benefit of $20.8 million for 2004
and related tax expense of $7.7 million for 2003.
Stock
Options and Restricted Shares
The
company has several stock option plans under which options to purchase shares
of
common stock have been granted to officers and key employees at the market
value
of the stock at the date of grant. Payment must be made at the time of exercise
in cash or with shares of stock owned by the option holder, which are valued
at
fair market value on the date exercised. Options issued through
December 31, 2005, terminate 10 years from date of grant. Commencing one
year from date of grant, options vest in four equal annual
amounts.
Page
67 of
97
Notes
to Consolidated Financial Statements
Ball
Corporation and Subsidiaries
14.
Shareholders’ Equity (continued)
On
October 26, 2005, Ball’s board of directors approved the acceleration of
the out-of-the-money, unvested nonqualified stock options grants in
April 2005. The acceleration affects approximately 665,000 options
granted to approximately 290 employees at an exercise price of $39.74. The
accelerated vesting of these nonqualified options will allow the company to
eliminate approximately $5 million of pretax expense (approximately
$3 million after tax) over the next four years.
Ball
adopted a deposit share program in March 2001 that, by matching purchased
shares with restricted shares, encourages certain senior management employees
and outside directors to invest in Ball stock. In general, restrictions on
the
matching shares lapse at the end of four years from date of grant, or earlier
if
established share ownership guidelines are met, assuming the qualifying
purchased shares are not sold or transferred prior to that time. This plan
is
currently accounted for as a variable plan where compensation expense is
recorded based upon the current market price of the company’s common stock until
restrictions lapse. The company recorded $7.3 million, $17.5 million
and $10.5 million of expense in connection with this program in 2005, 2004
and 2003, respectively. The variances in expense recorded are the result of
the
timing and vesting of the share grants, as well as the higher price of Ball
stock. The deposit share program was amended and restated in April 2004 and
further awards have been made.
Prior
to
passage of the Sarbanes-Oxley Act of 2002 (the Act), Ball guaranteed loans
made
by a third party bank to certain participants in the deposit share program,
of
which $1.6 million remained outstanding at December 31, 2005. In the
event of a participant default, Ball would pursue payment from the participant.
The Act provides that companies may no longer guarantee such loans for its
executive officers. In accordance with the provisions of the Act, the company
has not and will not guarantee any additional loans to its executive
officers.
A
summary
of stock option activity for the years ended December 31 follows (retroactively
restated for the two-for-one stock split):
|
2005
|
2004
|
2003
|
||||||||||||||||
|
Number
of Shares
|
Weighted
Average Exercise
Price
|
Number
of Shares
|
Weighted
Average Exercise
Price
|
Number
of Shares
|
Weighted
Average Exercise
Price
|
|||||||||||||
|
Outstanding,
beginning of year
|
4,832,207
|
$
|
17.84
|
5,862,006
|
$
|
14.70
|
6,417,494
|
$
|
12.28
|
|||||||||
|
Exercised
|
(654,130
|
)
|
12.16
|
(1,441,745
|
)
|
10.78
|
(1,163,302
|
)
|
9.85
|
|||||||||
|
Granted
|
712,250
|
39.74
|
518,900
|
34.06
|
754,400
|
27.60
|
||||||||||||
|
Canceled
|
(78,725
|
)
|
28.24
|
(106,954
|
)
|
19.60
|
(146,586
|
)
|
13.77
|
|||||||||
|
Outstanding,
end of year
|
4,811,602
|
21.68
|
4,832,207
|
17.84
|
5,862,006
|
14.70
|
||||||||||||
|
Exercisable,
end of year
|
3,846,157
|
19.67
|
2,919,057
|
13.08
|
3,226,326
|
10.99
|
||||||||||||
|
Reserved
for future grants
|
7,051,104
|
|
1,568,780
|
|
2,341,840
|
|
||||||||||||
Additional
information regarding options outstanding at December 31, 2005,
follows:
|
Exercise
Price Range
|
|||||||||||||||
|
$6.09-$8.98
|
$10.61-$13.78
|
$23.75-$28.16
|
$32.80-$39.74
|
Total
|
|||||||||||
|
Number
of options outstanding
|
753,028
|
1,393,683
|
1,467,716
|
1,197,175
|
4,811,602
|
||||||||||
|
Weighted
average exercise price
|
$
|
8.33
|
$
|
11.45
|
$
|
25.41
|
$
|
37.42
|
$
|
21.68
|
|||||
|
Weighted
average remaining life
|
3.31
years
|
4.55
years
|
6.67
years
|
8.92
years
|
6.12
years
|
||||||||||
|
Number
of shares exercisable
|
753,028
|
1,393,683
|
911,691
|
787,755
|
3,846,157
|
||||||||||
|
Weighted
average exercise price
|
$
|
8.33
|
$
|
11.45
|
$
|
25.04
|
$
|
38.84
|
$
|
19.67
|
|||||
Page
68 of
97
Notes
to Consolidated Financial Statements
Ball
Corporation and Subsidiaries
14.
Shareholders’ Equity (continued)
These
options cannot be traded in any equity market. However, based on the
Black-Scholes option pricing model, adapted for use in valuing compensatory
stock options in accordance with SFAS No. 123, options granted in 2005, 2004
and
2003 have estimated weighted average fair values at the date of grant of $11.65
per share, $10.24 per share and $8.63 per share, respectively. The actual
value an employee may realize will depend on the excess of the stock price
over
the exercise price on the date the option is exercised. Consequently, there
is
no assurance that the value realized by an employee will be at or near the
value
estimated. The fair values were estimated using the following weighted average
assumptions:
|
2005
Grants
|
2004
Grants
|
2003
Grants
|
|||||||
|
Expected
dividend yield
|
1.01
|
%
|
1.17
|
%
|
0.84
|
%
|
|||
|
Expected
stock price volatility
|
30.09
|
%
|
32.78
|
%
|
35.38
|
%
|
|||
|
Risk-free
interest rate
|
3.89
|
%
|
3.45
|
%
|
2.87
|
%
|
|||
|
Expected
life of options
|
4.75
|
years |
4.75
|
years |
4.75
|
years | |||
Through
December 31, 2005, Ball has accounted for its stock-based employee
compensation programs using the intrinsic value method prescribed by APB Opinion
No. 25, “Accounting for Stock Issued to Employees.” If we had elected to
recognize compensation in accordance with SFAS No. 123, pro forma net
earnings and earnings per share would have been:
|
Years
ended December 31,
|
|||||||||
|
($
in millions, except per share amounts)
|
2005
|
2004
|
2003
|
||||||
|
Stock-based
compensation as reported, net of tax
|
$
|
6.6
|
$
|
12.5
|
$
|
7.6
|
|||
|
Pro
forma effect of fair value based method
|
2.1
|
(3.2
|
)
|
1.2
|
|||||
|
Pro
forma stock-based compensation
|
$
|
8.7
|
$
|
9.3
|
$
|
8.8
|
|||
|
Net
earnings as reported
|
$
|
261.5
|
$
|
295.6
|
$
|
229.9
|
|||
|
Pro
forma effect of fair value based method
|
(2.1
|
)
|
3.2
|
(1.2
|
)
|
||||
|
Pro
forma net earnings
|
$
|
259.4
|
$
|
298.8
|
$
|
228.7
|
|||
|
Basic
earnings per share as reported
|
$
|
2.43
|
$
|
2.67
|
$
|
2.06
|
(a)
|
||
|
Pro
forma basic earnings per share
|
2.41
|
2.70
|
2.05
|
(a)
|
|||||
|
Diluted
earnings per share as reported
|
$
|
2.38
|
$
|
2.60
|
$
|
2.01
|
(a)
|
||
|
Pro
forma diluted earnings per share
|
2.36
|
2.63
|
2.00
|
(a)
|
|||||
|
(a)
|
Per
share amounts have been retroactively restated for the two-for-one
stock
split effected August 23,
2004.
|
Effective
January 1, 2006, Ball adopted SFAS No. 123 (revised 2004), “Share
Based Payment,” which is a revision of SFAS No. 123 and supersedes
APB Opinion No. 25. The new standard establishes accounting
standards for transactions in which an entity exchanges its equity instruments
for goods or services, including stock option and restricted stock grants.
On
March 29, 2005, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 107, which summarizes the views of the SEC
staff regarding the interaction between SFAS No. 123 (revised 2004) and certain
SEC rules and regulations and provides the SEC staff’s views regarding the
valuation of share-based payment arrangements for public companies. The major
differences for Ball in 2006 and future years includes (1) the fact that
there will be expense recorded in the consolidated statement of earnings for
the
fair value of option grants and (2) the deposit share program will no
longer be a variable plan that is marked to current market value each month
(the
original fair value at date of grant will be used to determine the expense).
Upon adoption, Ball has chosen to use the modified prospective transition method
and, at least initially, the Black-Scholes valuation model.
Page
69 of
97
Notes
to Consolidated Financial Statements
Ball
Corporation and Subsidiaries
15.
Earnings Per Share
The
following table provides additional information on the computation of earnings
per share amounts. Share and per share information have been retroactively
restated for the two-for-one stock splits discussed in Note 14.
|
Years
ended December 31,
|
|||||||||
|
($
in millions, except per share amounts)
|
2005
|
2004
|
2003
|
||||||
|
Diluted
Earnings per Share:
|
|||||||||
|
Net
earnings
|
$
|
261.5
|
$
|
295.6
|
$
|
229.9
|
|||
|
Weighted
average common shares (000s)
|
107,758
|
110,846
|
111,710
|
||||||
|
Dilutive
effect of stock options and restricted shares
|
1,974
|
2,944
|
2,565
|
||||||
|
Weighted
average shares applicable to diluted earnings per share
|
109,732
|
113,790
|
114,275
|
||||||
|
Diluted
earnings per share
|
$
|
2.38
|
$
|
2.60
|
$
|
2.01
|
|||
Certain
options have been excluded from the computation of the diluted earnings per
share calculation since they were anti-dilutive (i.e., the exercise price
exceeded the average closing market price of common stock for the year). A
total
of 709,250 options at an exercise price of $39.74 and 639,400 options at an
exercise price of $28.155 were excluded for the years ended December 31,
2005 and 2003, respectively. There were no anti-dilutive options for the year
ended December 31, 2004.
16.
Financial Instruments and Risk Management
Policies
and Procedures
In
the
ordinary course of business, we employ established risk management policies
and
procedures to reduce our exposure to commodity price changes, changes in
interest rates, fluctuations in foreign currencies and fluctuations in prices
of
the company’s common stock in regard to common share repurchases. Although the
instruments utilized involve varying degrees of credit, market and interest
risk, the counterparties are expected to perform fully under the terms of the
agreements.
Commodity
Price Risk
We
manage
our North American commodity price risk in connection with market price
fluctuations of aluminum primarily by entering into container sales contracts,
which include aluminum-based pricing terms that consider price fluctuations
under our commercial supply contracts for aluminum purchases. The terms include
a fixed price or an upper limit to the aluminum component pricing. This matched
pricing affects most of our North American metal beverage container net sales.
We also, at times, use certain derivative instruments such as option and forward
contracts as cash flow and fair value hedges of commodity price risk where
there
is not a pass-through arrangement in the sales contract.
North
American plastic container sales contracts include provisions to pass through
resin cost changes. As a result, we believe we have minimal, if any, exposure
related to changes in the cost of plastic resin. Most North American food
container sales contracts either include provisions permitting us to pass
through some or all steel cost changes we incur or incorporate annually
negotiated steel costs. In 2005 and 2004, we were able to pass through to our
customers the majority of steel surcharges.
Page
70 of
97
Notes
to Consolidated Financial Statements
Ball
Corporation and Subsidiaries
16.
Financial Instruments and Risk Management (continued)
In
Europe
and Asia, the company manages the aluminum and steel raw commodity price risks
through annual and long-term contracts for the purchase of the materials, as
well as certain sales of containers, that reduce the company’s exposure to
fluctuations in commodity prices within the current year. These purchase and
sales contracts include fixed price, floating and pass through pricing
arrangements. The company additionally uses forward and option contracts as
cash
flow hedges to manage future aluminum price risk and foreign exchange exposures
for those sales contracts where there is not a pass through arrangement to
minimize the company’s exposure to significant price changes.
At
December 31, 2005, the company had aluminum forward contracts with notional
amounts of $406.1 million hedging its aluminum exposure. Cash flow and fair
value hedges related to forecasted transactions and firm commitments expire
within the next three years. Included
in shareholders’ equity at December 31, 2005, within accumulated other
comprehensive loss, is a net loss of $5.5 million associated with these
contracts, of which a net loss of $19.8 million is expected to be
recognized in the consolidated statement of earnings during 2006. All of the
loss on these derivative contracts will be offset by higher revenue from sales
contracts. The consolidated balance sheet at December 31, 2005, includes
$36.6 million in prepaid expenses and $72.9 million in other current
liabilities related to unrealized gains/losses on unsettled derivative
contracts. At December 31, 2004, the company had aluminum forward and
option contracts with notional amounts of $303.4 million hedging its
aluminum exposure.
Interest
Rate Risk
Our
objective in managing our exposure to interest rate changes is to limit the
impact of interest rate changes on earnings and cash flows and to lower our
overall borrowing costs. To achieve these objectives, we use a variety of
interest rate swaps, collars and options to manage our mix of floating and
fixed-rate debt. Interest rate instruments held by the company at
December 31, 2005, included pay-floating and pay-fixed interest rate swaps.
Pay-fixed swaps effectively convert variable rate obligations to fixed rate
instruments. Swap agreements expire at various times up to 11 years.
At
December 31, 2005, the company had outstanding interest rate swap
agreements in Europe of €50 million paying fixed rates. Approximately
€0.1 million of net loss associated with these contracts is included in
accumulated other comprehensive loss at December 31, 2005. The amount
expected to be recognized in the consolidated statement of earnings during
the
next 12 months is insignificant. In conjunction with the debt refinancing
and the retirement of the senior notes during the fourth quarter of 2005 (see
Note 11), the company recognized approximately $1 million of net gain
related to the termination or deselection of hedges that had been included
in
accumulated other comprehensive loss. At December 31, 2004, the company had
interest rate swap agreements with notional amounts of $220 million paying
floating rates and $120 million paying fixed rates, or a net floating
position of $100 million. In addition, at December 31, 2004, the
company had an interest rate cap on Eurolibor interest rates with a notional
amount of €50 million, the fair value of which was
insignificant.
The
fair
value of all non-derivative financial instruments approximates their carrying
amounts with the exception of long-term debt. Rates currently available to
the
company for loans with similar terms and maturities are used to estimate the
fair value of long-term debt based on discounted cash flows. The fair value
of
derivatives generally reflects the estimated amounts that we would pay or
receive upon termination of the contracts at December 31, 2005, taking into
account any unrealized gains and losses on open contracts.
|
2005
|
2004
|
||||||||||
|
Carrying
|
Fair
|
Carrying
|
Fair
|
||||||||
|
($
in millions)
|
Amount
|
Value
|
Amount
|
Value
|
|||||||
|
Long-term
debt, including current portion
|
$
|
1,482.9
|
$
|
1,496.6
|
$
|
1,617.0
|
$
|
1,673.8
|
|||
|
Unrealized
loss on derivative contracts
|
–
|
(0.1
|
)
|
–
|
–
|
||||||
Page
71 of
97
Notes
to Consolidated Financial Statements
Ball
Corporation and Subsidiaries
16.
Financial Instruments and Risk Management (continued)
Foreign
Currency Exchange Rate Risk
Our
objective in managing exposure to foreign currency fluctuations is to protect
foreign cash flows and earnings associated with foreign currency exchange rate
changes through the use of cash flow hedges. In addition, we manage foreign
earnings translation volatility through the use of foreign currency options.
Our
foreign currency translation risk results from the European euro, British pound,
Canadian dollar, Polish zloty, Serbian dinar, Brazilian real and Chinese
renminbi. We face currency exposures in our global operations as a result of
purchasing raw materials in U.S. dollars and, to a lesser extent, in other
currencies. Sales contracts are negotiated with customers to reflect cost
changes and, where there is not a foreign exchange pass-through arrangement,
the
company uses forward and option contracts to manage foreign currency exposures.
Contracts outstanding at December 31, 2005, expire within the next three years
and there are no amounts included in accumulated other comprehensive loss
related to these contracts.
17.
Quarterly Results of Operations (Unaudited)
The
company’s fiscal years end on December 31 and the fiscal quarters generally
end on the Sunday nearest the calendar quarter end.
2005
Quarterly Information
The
second quarter of 2005 included a pretax charge of $8.8 million for the
closure of a three-piece food can manufacturing plant in Quebec, Canada.
The
third quarter of 2005 included a pretax charge of $19.3 million related to
the commencement of a project to upgrade and streamline its North American
beverage can end manufacturing capabilities. Included in the fourth quarter
of
2005 was a pretax charge of $4.6 million for costs associated with a
reduction in the work force in a metal food container plant in Ontario, Canada,
which was partially offset by a $2.2 million gain to adjust the net
realizable value of the Quebec plant closed in the second quarter of 2005.
Also
included in the third and fourth quarters were $1.3 million and
$18 million of debt refinancing charges related to the refinancing of
Ball’s senior secured credit facilities and redemption of the company’s senior
notes due August 2006. Other than these items, fluctuations in sales and
earnings for the quarters in 2005 reflected the number of days in each fiscal
quarter, as well as the normal seasonality of the business.
2004
Quarterly Information
The
third
and fourth quarters of 2004 included earnings of $6.7 million and
$8.5 million, respectively, related to business consolidation activities
for which proceeds on assets were higher than originally estimated and costs
of
completion were less than anticipated. The fourth quarter also included a
$15.2 million loss pertaining to an allowance for doubtful accounts related
to a minority-owned PRC joint venture. Other than these items, fluctuations
in
sales and earnings for the quarters in 2004 reflected the number of days
in each
fiscal quarter, as well as the normal seasonality of the
business.
Page
72 of
97
Notes
to Consolidated Financial Statements
Ball
Corporation and Subsidiaries
17.
Quarterly Results of Operations (Unaudited)
(continued)
|
($
in millions, except per share amounts)
|
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
Total
|
|||||||||
|
2005
|
||||||||||||||
|
Net
sales
|
$
|
1,324.1
|
$
|
1,552.0
|
$
|
1,583.9
|
$
|
1,291.2
|
$
|
5,751.2
|
||||
|
Gross
profit (a)
|
179.9
|
202.5
|
206.5
|
150.6
|
739.5
|
|||||||||
|
Net
earnings
|
$
|
58.6
|
$
|
79.0
|
$
|
79.3
|
$
|
44.6
|
$
|
261.5
|
||||
|
Basic
earnings per share
|
$
|
0.52
|
$
|
0.72
|
$
|
0.74
|
$
|
0.43
|
$
|
2.43
|
||||
|
Diluted
earnings per share
|
$
|
0.51
|
$
|
0.71
|
$
|
0.73
|
$
|
0.42
|
$
|
2.38
|
||||
|
2004
|
||||||||||||||
|
Net
sales
|
$
|
1,231.5
|
$
|
1,467.2
|
$
|
1,478.7
|
$
|
1,262.8
|
$
|
5,440.2
|
||||
|
Gross
profit (a)
|
171.1
|
228.2
|
231.4
|
185.0
|
815.7
|
|||||||||
|
Net
earnings
|
$
|
46.8
|
$
|
90.7
|
$
|
101.7
|
$
|
56.4
|
$
|
295.6
|
||||
|
Basic
earnings per share
|
$
|
0.42
|
(b) |
$
|
0.82
|
(b) |
$
|
0.92
|
$
|
0.51
|
$
|
2.67
|
||
|
Diluted
earnings per share
|
$
|
0.41
|
(b) |
$
|
0.80
|
(b) |
$
|
0.90
|
$
|
0.50
|
$
|
2.60
|
||
|
(a)
|
Gross
profit is shown after depreciation and amortization related to cost
of
sales of $189.3 million and $191 million for the years ended
December 31, 2005 and 2004,
respectively.
|
|
(b)
|
Per
share amounts have been retroactively adjusted for the two-for-one
stock
split discussed in
Note 14.
|
Earnings
per share calculations for each quarter are based on the weighted average shares
outstanding for that period. As a result, the sum of the quarterly amounts
may
not equal the annual earnings per share amount.
Notes
to Consolidated Financial Statements
Ball
Corporation and Subsidiaries
18.
Research and Development
Research
and development costs are expensed as incurred in connection with the company’s
internal programs for the development of products and processes. Costs incurred
in connection with these programs, the majority of which are included in
cost of
sales, amounted to $24.6 million, $25.5 million and $20.5 million
for the years ended December 31, 2005, 2004 and 2003,
respectively.
19.
Subsidiary Guarantees of Debt
As
discussed in Note 11, the company’s notes payable and senior credit
facilities are guaranteed on a full, unconditional and joint and several
basis
by certain of the company’s domestic wholly owned subsidiaries. Certain foreign
denominated tranches of the senior credit facilities are similarly guaranteed
by
certain of the company’s wholly owned foreign subsidiaries. The senior credit
facilities are secured by: (1) a pledge of 100 percent of the stock owned
by the company in its material direct and indirect majority-owned domestic
subsidiaries and (2) a pledge of the company’s stock, owned directly or
indirectly, of certain foreign subsidiaries, which equals 65 percent of the
stock of each such foreign subsidiary. The following is condensed, consolidating
financial information for the company, segregating the guarantor subsidiaries
and non-guarantor subsidiaries, as of December 31, 2005 and 2004, and for
the
years ended December 31, 2005, 2004 and 2003 (in millions of dollars).
Separate financial statements for the guarantor subsidiaries and the
non-guarantor subsidiaries are not presented because management has determined
that such financial statements would not be material to
investors.
Page
73 of
97
|
CONSOLIDATED
BALANCE SHEET
|
|||||||||||||||
|
December
31, 2005
|
|||||||||||||||
| ($ in millions) |
Ball
|
Guarantor
|
Non-Guarantor
|
Eliminating
|
Consolidated
|
||||||||||
|
Corporation
|
Subsidiaries
|
Subsidiaries
|
Adjustments
|
Total
|
|||||||||||
|
ASSETS
|
|||||||||||||||
|
Current
assets
|
|||||||||||||||
|
Cash
and cash equivalents
|
$
|
8.0
|
$
|
1.7
|
$
|
51.3
|
$
|
–
|
$
|
61.0
|
|||||
|
Receivables,
net
|
0.8
|
166.0
|
209.8
|
–
|
376.6
|
||||||||||
|
Inventories,
net
|
–
|
439.4
|
230.9
|
–
|
670.3
|
||||||||||
|
Deferred
taxes and prepaid expenses
|
340.0
|
193.0
|
55.6
|
(470.7
|
)
|
117.9
|
|||||||||
|
Total
current assets
|
348.8
|
800.1
|
547.6
|
(470.7
|
)
|
1,225.8
|
|||||||||
|
Property,
plant and equipment, at cost
|
45.7
|
2,081.9
|
1,025.8
|
–
|
3,153.4
|
||||||||||
|
Accumulated
depreciation
|
(17.0
|
)
|
(1,237.0
|
)
|
(342.8
|
)
|
–
|
(1,596.8
|
)
|
||||||
|
Total
property, plant and equipment, net
|
28.7
|
844.9
|
683.0
|
–
|
1,556.6
|
||||||||||
|
Investment
in subsidiaries
|
1,988.6
|
453.8
|
88.4
|
(2,530.8
|
)
|
–
|
|||||||||
|
Investment
in affiliates
|
1.4
|
17.0
|
47.0
|
–
|
65.4
|
||||||||||
|
Goodwill,
net
|
–
|
340.8
|
917.8
|
–
|
1,258.6
|
||||||||||
|
Intangibles
and other assets
|
118.3
|
62.3
|
56.4
|
–
|
237.0
|
||||||||||
|
$
|
2,485.8
|
$
|
2,518.9
|
$
|
2,340.2
|
$
|
(3,001.5
|
)
|
$
|
4,343.4
|
|||||
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|||||||||||||||
|
Current
liabilities
|
|||||||||||||||
|
Short-term
debt and current portion of long-term debt
|
$
|
29.1
|
$
|
3.3
|
$
|
84.0
|
$
|
–
|
$
|
116.4
|
|||||
|
Accounts
payable
|
59.5
|
305.3
|
187.6
|
–
|
552.4
|
||||||||||
|
Accrued
employee costs
|
15.8
|
154.7
|
27.9
|
–
|
198.4
|
||||||||||
|
Income
taxes payable
|
–
|
507.1
|
91.1
|
(470.7
|
)
|
127.5
|
|||||||||
|
Other
current liabilities
|
18.9
|
111.4
|
51.0
|
–
|
181.3
|
||||||||||
|
Total
current liabilities
|
123.3
|
1,081.8
|
441.6
|
(470.7
|
)
|
1,176.0
|
|||||||||
|
Long-term
debt
|
600.2
|
20.8
|
852.3
|
–
|
1,473.3
|
||||||||||
|
Intercompany
borrowings
|
792.9
|
(110.0
|
)
|
16.0
|
(698.9
|
)
|
–
|
||||||||
|
Employee
benefit obligations
|
164.7
|
218.6
|
400.9
|
–
|
784.2
|
||||||||||
|
Deferred
taxes and other liabilities
|
(30.6
|
) |
45.1
|
55.0
|
–
|
69.5
|
|||||||||
|
Total
liabilities
|
1,650.5
|
1,256.3
|
1,765.8
|
(1,169.6
|
)
|
3,503.0
|
|||||||||
|
Minority
interests
|
–
|
–
|
5.1
|
–
|
5.1
|
||||||||||
|
Shareholders’
equity
|
|||||||||||||||
|
Convertible
preferred stock
|
–
|
–
|
179.6
|
(179.6
|
)
|
–
|
|||||||||
|
Preferred
shareholders’ equity
|
–
|
–
|
179.6
|
(179.6
|
)
|
–
|
|||||||||
|
Common
stock
|
633.6
|
804.5
|
487.0
|
(1,291.5
|
)
|
633.6
|
|||||||||
|
Retained
earnings
|
1,227.9
|
649.8
|
(119.1
|
)
|
(530.7
|
)
|
1,227.9
|
||||||||
|
Accumulated
other comprehensive earnings (loss)
|
(100.7
|
)
|
(191.7
|
)
|
21.8
|
169.9
|
(100.7
|
)
|
|||||||
|
Treasury
stock, at cost
|
(925.5
|
)
|
–
|
–
|
–
|
(925.5
|
)
|
||||||||
|
Common
shareholders’ equity
|
835.3
|
1,262.6
|
389.7
|
(1,652.3
|
)
|
835.3
|
|||||||||
|
Total
shareholders’ equity
|
835.3
|
1,262.6
|
569.3
|
(1,831.9
|
)
|
835.3
|
|||||||||
|
$
|
2,485.8
|
$
|
2,518.9
|
$
|
2,340.2
|
$
|
(3,001.5
|
)
|
$
|
4,343.4
|
|||||
Page
74 of
97
|
CONSOLIDATED
BALANCE SHEET
|
|||||||||||||||
|
December
31, 2004
|
|||||||||||||||
| ($ in millions) |
Ball
|
Guarantor
|
Non-Guarantor
|
Eliminating
|
Consolidated
|
||||||||||
|
Corporation
|
Subsidiaries
|
Subsidiaries
|
Adjustments
|
Total
|
|||||||||||
|
ASSETS
|
|||||||||||||||
|
Current
assets
|
|||||||||||||||
|
Cash
and cash equivalents
|
$
|
113.8
|
$
|
0.6
|
$
|
84.3
|
$
|
–
|
$
|
198.7
|
|||||
|
Receivables,
net
|
0.5
|
87.0
|
259.3
|
–
|
346.8
|
||||||||||
|
Inventories,
net
|
–
|
402.8
|
226.7
|
–
|
629.5
|
||||||||||
|
Deferred
taxes and prepaid expenses
|
323.2
|
167.6
|
17.8
|
(438.0
|
)
|
70.6
|
|||||||||
|
Total
current assets
|
437.5
|
658.0
|
588.1
|
(438.0
|
)
|
1,245.6
|
|||||||||
|
Property,
plant and equipment, at cost
|
39.3
|
1,932.4
|
1,002.8
|
–
|
2,974.5
|
||||||||||
|
Accumulated
depreciation
|
(14.2
|
)
|
(1,140.2
|
)
|
(287.7
|
)
|
–
|
(1,442.1
|
)
|
||||||
|
Total property, plant and equipment, net
|
25.1
|
792.2
|
715.1
|
–
|
1,532.4
|
||||||||||
|
Investment
in subsidiaries
|
1,995.9
|
680.1
|
9.8
|
(2,685.8
|
)
|
–
|
|||||||||
|
Investment
in affiliates
|
2.8
|
32.9
|
47.4
|
–
|
83.1
|
||||||||||
|
Goodwill,
net
|
–
|
338.1
|
1,071.9
|
–
|
1,410.0
|
||||||||||
|
Intangibles
and other assets
|
74.6
|
53.8
|
78.2
|
–
|
206.6
|
||||||||||
|
$
|
2,535.9
|
$
|
2,555.1
|
$
|
2,510.5
|
$
|
(3,123.8
|
)
|
$
|
4,477.7
|
|||||
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|||||||||||||||
|
Current
liabilities
|
|||||||||||||||
|
Short-term
debt and current portion of long-term debt
|
$
|
9.8
|
$
|
3.3
|
$
|
109.9
|
$
|
–
|
$
|
123.0
|
|||||
|
Accounts
payable
|
55.2
|
218.5
|
179.3
|
–
|
453.0
|
||||||||||
|
Accrued
employee costs
|
15.6
|
168.7
|
37.9
|
–
|
222.2
|
||||||||||
|
Income
taxes payable
|
–
|
450.9
|
67.7
|
(438.2
|
)
|
80.4
|
|||||||||
|
Other
current liabilities
|
31.9
|
30.3
|
55.5
|
–
|
117.7
|
||||||||||
|
Total
current liabilities
|
112.5
|
871.7
|
450.3
|
(438.2
|
)
|
996.3
|
|||||||||
|
Long-term
debt
|
1,045.2
|
22.7
|
469.8
|
–
|
1,537.7
|
||||||||||
|
Intercompany
borrowings
|
165.8
|
382.6
|
150.5
|
(698.9
|
)
|
–
|
|||||||||
|
Employee
benefit obligations
|
144.1
|
150.8
|
439.4
|
–
|
734.3
|
||||||||||
|
Deferred
taxes and other liabilities
|
(18.3
|
)
|
21.1
|
113.6
|
–
|
116.4
|
|||||||||
|
Total
liabilities
|
1,449.3
|
1,448.9
|
1,623.6
|
(1,137.1
|
)
|
3,384.7
|
|||||||||
|
Minority
interests
|
–
|
–
|
6.4
|
–
|
6.4
|
||||||||||
|
Shareholders’
equity
|
|||||||||||||||
|
Convertible
preferred stock
|
–
|
–
|
179.6
|
(179.6
|
)
|
–
|
|||||||||
|
Preferred
shareholders’ equity
|
–
|
–
|
179.6
|
(179.6
|
)
|
–
|
|||||||||
|
Common
stock
|
610.8
|
726.0
|
681.1
|
(1,407.1
|
)
|
610.8
|
|||||||||
|
Retained
earnings
|
1,007.5
|
524.2
|
(124.2
|
)
|
(400.0
|
)
|
1,007.5
|
||||||||
|
Accumulated
other comprehensive earnings (loss)
|
33.2
|
(144.0
|
)
|
144.0
|
–
|
33.2
|
|||||||||
|
Treasury
stock, at cost
|
(564.9
|
)
|
–
|
–
|
–
|
(564.9
|
)
|
||||||||
|
Common
shareholders’ equity
|
1,086.6
|
1,106.2
|
700.9
|
(1,807.1
|
)
|
1,086.6
|
|||||||||
|
Total
shareholders’ equity
|
1,086.6
|
1,106.2
|
880.5
|
(1,986.7
|
)
|
1,086.6
|
|||||||||
|
$
|
2,535.9
|
$
|
2,555.1
|
$
|
2,510.5
|
$
|
(3,123.8
|
)
|
$
|
4,477.7
|
|||||
Page
75 of
97
|
CONSOLIDATED
STATEMENT OF EARNINGS
|
|||||||||||||||
|
For
the Year Ended December 31, 2005
|
|||||||||||||||
| ($ in millions) |
Ball
|
Guarantor
|
Non-Guarantor
|
Eliminating
|
Consolidated
|
||||||||||
|
Corporation
|
Subsidiaries
|
Subsidiaries
|
Adjustments
|
Total
|
|||||||||||
|
Net
sales
|
$
|
–
|
$
|
4,396.7
|
$
|
1,582.5
|
$
|
(228.0
|
)
|
$
|
5,751.2
|
||||
|
Costs
and expenses
|
|||||||||||||||
|
Cost
of sales (excluding depreciation and amortization)
|
–
|
3,798.6
|
1,251.8
|
(228.0
|
)
|
4,822.4
|
|||||||||
|
Depreciation
and amortization
|
3.1
|
129.2
|
81.2
|
–
|
213.5
|
||||||||||
|
Business
consolidation costs
|
–
|
19.3
|
1.9
|
–
|
21.2
|
||||||||||
|
Selling,
general and administrative
|
15.5
|
147.7
|
68.4
|
–
|
231.6
|
||||||||||
|
Interest
expense
|
38.5
|
35.8
|
42.1
|
–
|
116.4
|
||||||||||
|
Equity
in earnings of subsidiaries
|
(252.4
|
)
|
–
|
–
|
252.4
|
–
|
|||||||||
|
Corporate
allocations
|
(74.5
|
)
|
67.4
|
7.1
|
–
|
–
|
|||||||||
|
(269.8
|
)
|
4,198.0
|
1,452.5
|
24.4
|
5,405.1
|
||||||||||
|
Earnings
(loss) before taxes
|
269.8
|
198.7
|
130.0
|
(252.4
|
)
|
346.1
|
|||||||||
|
Tax
provision
|
(8.3
|
)
|
(75.8
|
)
|
(15.2
|
)
|
–
|
(99.3
|
)
|
||||||
|
Minority
interests
|
–
|
–
|
(0.8
|
)
|
–
|
(0.8
|
)
|
||||||||
|
Equity
in results of affiliates
|
–
|
2.7
|
12.8
|
–
|
15.5
|
||||||||||
|
Net
earnings (loss)
|
$
|
261.5
|
$
|
125.6
|
$
|
126.8
|
$
|
(252.4
|
)
|
$
|
261.5
|
||||
|
CONSOLIDATED
STATEMENT OF EARNINGS
|
|||||||||||||||
|
For
the Year Ended December 31, 2004
|
|||||||||||||||
| ($ in millions) |
Ball
|
Guarantor
|
Non-Guarantor
|
Eliminating
|
Consolidated
|
||||||||||
|
Corporation
|
Subsidiaries
|
Subsidiaries
|
Adjustments
|
Total
|
|||||||||||
|
Net
sales
|
$
|
–
|
$
|
4,192.1
|
$
|
1,512.5
|
$
|
(264.4
|
)
|
$
|
5,440.2
|
||||
|
Costs
and expenses
|
|||||||||||||||
|
Cost
of sales (excluding depreciation and amortization)
|
–
|
3,547.4
|
1,150.5
|
(264.4
|
)
|
4,433.5
|
|||||||||
|
Depreciation
and amortization
|
2.3
|
130.6
|
82.2
|
–
|
215.1
|
||||||||||
|
Business
consolidation gains
|
–
|
(1.5
|
)
|
(13.7
|
)
|
–
|
(15.2
|
)
|
|||||||
|
Selling,
general and administrative
|
43.1
|
154.6
|
70.2
|
–
|
267.9
|
||||||||||
|
Interest
expense
|
10.7
|
51.9
|
41.1
|
–
|
103.7
|
||||||||||
|
Equity
in earnings of subsidiaries
|
(278.3
|
)
|
–
|
–
|
278.3
|
–
|
|||||||||
|
Corporate
allocations
|
(72.4
|
)
|
65.4
|
7.0
|
–
|
–
|
|||||||||
|
(294.6
|
)
|
3,948.4
|
1,337.3
|
13.9
|
5,005.0
|
||||||||||
|
Earnings
(loss) before taxes
|
294.6
|
243.7
|
175.2
|
(278.3
|
)
|
435.2
|
|||||||||
|
Tax
provision
|
1.0
|
(102.5
|
)
|
(37.7
|
)
|
–
|
(139.2
|
)
|
|||||||
|
Minority
interests
|
–
|
–
|
(1.0
|
)
|
–
|
(1.0
|
)
|
||||||||
|
Equity
in results of affiliates
|
–
|
3.9
|
(3.3
|
)
|
–
|
0.6
|
|||||||||
|
Net
earnings (loss)
|
$
|
295.6
|
$
|
145.1
|
$
|
133.2
|
$
|
(278.3
|
)
|
$
|
295.6
|
||||
Page
76 of
97
|
CONSOLIDATED
STATEMENT OF EARNINGS
|
||||||||||||||||
|
For
the Year Ended December 31, 2003
|
||||||||||||||||
| ($ in millions) |
Ball
|
Guarantor
|
Non-Guarantor
|
Eliminating
|
Consolidated
|
|||||||||||
|
Corporation
|
Subsidiaries
|
Subsidiaries
|
Adjustments
|
Total
|
||||||||||||
|
Net
sales
|
$
|
–
|
$
|
3,849.3
|
$
|
1,378.5
|
$
|
(250.8
|
)
|
$
|
4,977.0
|
|||||
|
Costs
and expenses
|
||||||||||||||||
|
Cost
of sales (excluding depreciation and amortization)
|
–
|
3,272.0
|
1,059.0
|
(250.8
|
)
|
4,080.2
|
||||||||||
|
Depreciation
and amortization
|
2.6
|
131.4
|
71.5
|
–
|
205.5
|
|||||||||||
|
Business
consolidation (gains) costs
|
–
|
0.1
|
(3.8
|
)
|
–
|
(3.7
|
)
|
|||||||||
|
Selling,
general and administrative
|
30.0
|
129.2
|
75.0
|
–
|
234.2
|
|||||||||||
|
Interest
expense
|
48.7
|
47.1
|
45.3
|
–
|
141.1
|
|||||||||||
|
Equity
in earnings of subsidiaries
|
(242.0
|
)
|
–
|
–
|
242.0
|
–
|
||||||||||
|
Corporate
allocations
|
(63.1
|
)
|
57.2
|
5.9
|
–
|
–
|
||||||||||
|
(223.8
|
)
|
3,637.0
|
1,252.9
|
(8.8
|
)
|
4,657.3
|
||||||||||
|
Earnings
(loss) before taxes
|
223.8
|
212.3
|
125.6
|
(242.0
|
)
|
319.7
|
||||||||||
|
Tax
provision
|
6.1
|
(75.1
|
)
|
(31.1
|
)
|
–
|
(100.1
|
)
|
||||||||
|
Minority
interests
|
–
|
–
|
(1.0
|
)
|
–
|
(1.0
|
)
|
|||||||||
|
Equity
in results of affiliates
|
–
|
1.4
|
9.9
|
–
|
11.3
|
|||||||||||
|
Net
earnings (loss)
|
$
|
229.9
|
$
|
138.6
|
$
|
103.4
|
$
|
(242.0
|
)
|
$
|
229.9
|
|||||
Page
77 of
97
|
CONSOLIDATED
STATEMENT OF CASH FLOWS
|
|||||||||||||||
|
For
the Year Ended December 31, 2005
|
|||||||||||||||
| ($ in millions) |
Ball
|
Guarantor
|
Non-Guarantor
|
Eliminating
|
Consolidated
|
||||||||||
|
Corporation
|
Subsidiaries
|
Subsidiaries
|
Adjustments
|
Total
|
|||||||||||
|
Cash
flows from operating activities
|
|||||||||||||||
|
Net
earnings (loss)
|
$
|
261.5
|
$
|
125.6
|
$
|
126.8
|
$
|
(252.4
|
)
|
$
|
261.5
|
||||
|
Adjustments
to reconcile net earnings to cash provided by operating
activities:
|
|||||||||||||||
|
Depreciation
and amortization
|
3.1
|
129.2
|
81.2
|
–
|
213.5
|
||||||||||
|
Business
consolidation costs (gains)
|
–
|
19.1
|
(0.1
|
) |
–
|
19.0
|
|||||||||
|
Deferred
taxes
|
(11.3
|
)
|
(10.7
|
)
|
(36.5
|
)
|
–
|
(58.5
|
)
|
||||||
|
Contributions
to defined benefit pension plans
|
–
|
(6.4
|
)
|
(10.7
|
)
|
–
|
(17.1
|
)
|
|||||||
|
Equity
earnings of subsidiaries
|
(252.4
|
)
|
–
|
–
|
252.4
|
–
|
|||||||||
|
Other,
net
|
30.0
|
(2.0
|
)
|
6.8
|
–
|
34.8
|
|||||||||
|
Working
capital changes
|
(40.8
|
)
|
100.8
|
45.6
|
–
|
105.6
|
|||||||||
|
Cash
provided by (used in) operating activities
|
(9.9
|
)
|
355.6
|
213.1
|
–
|
558.8
|
|||||||||
|
Cash
flows from investing activities
|
|||||||||||||||
|
Additions
to property, plant and equipment
|
(6.4
|
)
|
(182.9
|
)
|
(102.4
|
)
|
–
|
(291.7
|
)
|
||||||
|
Investments
in and advances to affiliates
|
734.1
|
(179.9
|
)
|
(554.2
|
)
|
–
|
–
|
||||||||
|
Other,
net
|
(9.5
|
)
|
11.3
|
(0.1
|
)
|
–
|
1.7
|
||||||||
|
Cash
provided by (used in) investing activities
|
718.2
|
(351.5
|
)
|
(656.7
|
)
|
–
|
(290.0
|
)
|
|||||||
|
Cash
flows from financing activities
|
|||||||||||||||
|
Long-term
borrowings
|
60.0
|
0.4
|
822.4
|
–
|
882.8
|
||||||||||
|
Repayments
of long-term borrowings
|
(493.0
|
)
|
(3.4
|
)
|
(453.3
|
)
|
–
|
(949.7
|
)
|
||||||
|
Change
in short-term borrowings
|
29.0
|
–
|
39.4
|
–
|
68.4
|
||||||||||
|
Proceeds
from issuance of common stock
|
35.6
|
–
|
–
|
–
|
35.6
|
||||||||||
|
Acquisitions
of treasury stock
|
(393.7
|
)
|
–
|
–
|
–
|
(393.7
|
)
|
||||||||
|
Common
dividends
|
(42.5
|
)
|
–
|
–
|
–
|
(42.5
|
)
|
||||||||
|
Other,
net
|
(9.5
|
)
|
–
|
(2.1
|
)
|
–
|
(11.6
|
)
|
|||||||
|
Cash
provided by (used in) financing activities
|
(814.1
|
)
|
(3.0
|
)
|
406.4
|
–
|
(410.7
|
)
|
|||||||
|
Effect
of exchange rate changes on cash
|
–
|
–
|
4.2
|
–
|
4.2
|
||||||||||
|
Change
in cash and cash equivalents
|
(105.8
|
)
|
1.1
|
(33.0
|
)
|
–
|
(137.7
|
)
|
|||||||
|
Cash
and cash equivalents -
beginning of year
|
113.8
|
0.6
|
84.3
|
–
|
198.7
|
||||||||||
|
Cash
and cash equivalents -
end of year
|
$
|
8.0
|
$
|
1.7
|
$
|
51.3
|
$
|
–
|
$
|
61.0
|
|||||
Page
78 of
97
|
CONSOLIDATED
STATEMENT OF CASH FLOWS
|
|||||||||||||||
|
For
the Year Ended December 31, 2004
|
|||||||||||||||
| ($ in millions) |
Ball
|
Guarantor
|
Non-Guarantor
|
Eliminating
|
Consolidated
|
||||||||||
|
Corporation
|
Subsidiaries
|
Subsidiaries
|
Adjustments
|
Total
|
|||||||||||
|
Cash
flows from operating activities
|
|||||||||||||||
|
Net
earnings (loss)
|
$
|
295.6
|
$
|
145.1
|
$
|
133.2
|
$
|
(278.3
|
)
|
$
|
295.6
|
||||
|
Adjustments
to reconcile net earnings to cash provided by operating
activities:
|
|||||||||||||||
|
Depreciation
and amortization
|
2.3
|
130.6
|
82.2
|
–
|
215.1
|
||||||||||
|
Business
consolidation gains
|
–
|
(1.5
|
)
|
(13.7
|
)
|
–
|
(15.2
|
)
|
|||||||
|
Deferred
taxes
|
16.7
|
26.9
|
(0.8
|
)
|
–
|
42.8
|
|||||||||
|
Contributions
to defined benefit pension plans
|
(21.4
|
)
|
(21.2
|
)
|
(18.0
|
)
|
–
|
(60.6
|
)
|
||||||
|
Equity
earnings of subsidiaries
|
(278.3
|
)
|
–
|
–
|
278.3
|
–
|
|||||||||
|
Other,
net
|
42.9
|
(7.6
|
)
|
15.8
|
–
|
51.1
|
|||||||||
|
Working
capital changes
|
(33.4
|
)
|
152.0
|
(111.5
|
)
|
–
|
7.1
|
||||||||
|
Cash
provided by operating activities
|
24.4
|
424.3
|
87.2
|
–
|
535.9
|
||||||||||
|
Cash
flows from investing activities
|
|||||||||||||||
|
Additions
to property, plant and equipment
|
(7.6
|
)
|
(111.1
|
)
|
(77.3
|
)
|
–
|
(196.0
|
)
|
||||||
|
Business
acquisitions, net of cash acquired
|
–
|
(17.0
|
)
|
(0.2
|
)
|
–
|
(17.2
|
)
|
|||||||
|
Investments
in and advances to affiliates
|
187.8
|
(296.9
|
)
|
109.1
|
–
|
–
|
|||||||||
|
Other,
net
|
(8.5
|
)
|
4.8
|
7.3
|
–
|
3.6
|
|||||||||
|
Cash
provided by (used in) investing activities
|
171.7
|
(420.2
|
)
|
38.9
|
–
|
(209.6
|
)
|
||||||||
|
Cash
flows from financing activities
|
|||||||||||||||
|
Long-term
borrowings
|
–
|
–
|
26.3
|
–
|
26.3
|
||||||||||
|
Repayments
of long-term borrowings
|
(1.9
|
)
|
(4.4
|
)
|
(100.9
|
)
|
–
|
(107.2
|
)
|
||||||
|
Change
in short-term borrowings
|
–
|
–
|
2.6
|
–
|
2.6
|
||||||||||
|
Proceeds
from issuance of common stock
|
35.3
|
–
|
–
|
–
|
35.3
|
||||||||||
|
Acquisitions
of treasury stock
|
(85.3
|
)
|
–
|
–
|
–
|
(85.3
|
)
|
||||||||
|
Common
dividends
|
(38.9
|
)
|
–
|
–
|
–
|
(38.9
|
)
|
||||||||
|
Other,
net
|
(0.3
|
)
|
–
|
(0.6
|
)
|
–
|
(0.9
|
)
|
|||||||
|
Cash
used in financing activities
|
(91.1
|
)
|
(4.4
|
)
|
(72.6
|
)
|
–
|
(168.1
|
)
|
||||||
|
Effect
of exchange rate changes on cash
|
–
|
–
|
4.0
|
–
|
4.0
|
||||||||||
|
Change
in cash and cash equivalents
|
105.0
|
(0.3
|
)
|
57.5
|
–
|
162.2
|
|||||||||
|
Cash
and cash equivalents -
beginning of year
|
8.8
|
0.9
|
26.8
|
–
|
36.5
|
||||||||||
|
Cash
and cash equivalents -
end of year
|
$
|
113.8
|
$
|
0.6
|
$
|
84.3
|
$
|
–
|
$
|
198.7
|
|||||
Page 79
of 97
|
CONSOLIDATED
STATEMENT OF CASH FLOWS
|
|||||||||||||||
|
For
the Year Ended December 31, 2003
|
|||||||||||||||
| ($ in millions) |
Ball
|
Guarantor
|
Non-Guarantor
|
Eliminating
|
Consolidated
|
||||||||||
|
Corporation
|
Subsidiaries
|
Subsidiaries
|
Adjustments
|
Total
|
|||||||||||
|
Cash
flows from operating activities
|
|||||||||||||||
|
Net
earnings (loss)
|
$
|
229.9
|
$
|
138.6
|
$
|
103.4
|
$
|
(242.0
|
)
|
$
|
229.9
|
||||
|
Adjustments
to reconcile net earnings to cash provided by operating
activities:
|
|||||||||||||||
|
Depreciation
and amortization
|
2.6
|
131.4
|
71.5
|
–
|
205.5
|
||||||||||
|
Business
consolidation gains
|
–
|
–
|
(3.3
|
)
|
–
|
(3.3
|
)
|
||||||||
|
Deferred
taxes
|
(7.0
|
)
|
32.6
|
(7.8
|
)
|
–
|
17.8
|
||||||||
|
Contributions
to defined benefit pension plans
|
(5.8
|
)
|
(20.2
|
)
|
(8.1
|
)
|
–
|
(34.1
|
)
|
||||||
|
Equity
earnings of subsidiaries
|
(242.0
|
)
|
–
|
–
|
242.0
|
–
|
|||||||||
|
Other,
net
|
27.8
|
2.2
|
7.0
|
–
|
37.0
|
||||||||||
|
Debt
refinancing costs
|
10.3
|
–
|
–
|
–
|
10.3
|
||||||||||
|
Withholding
tax payment related to European acquisition
|
–
|
–
|
(138.3
|
)
|
–
|
(138.3
|
)
|
||||||||
|
Working
capital changes
|
(5.3
|
)
|
46.2
|
(1.7
|
)
|
–
|
39.2
|
||||||||
|
Cash
provided by operating activities
|
10.5
|
330.8
|
22.7
|
–
|
364.0
|
||||||||||
|
Cash
flows from investing activities
|
|||||||||||||||
|
Additions
to property, plant and equipment
|
(5.2
|
)
|
(108.2
|
)
|
(23.8
|
)
|
–
|
(137.2
|
)
|
||||||
|
Business
acquisitions, net of cash acquired
|
–
|
(28.0
|
)
|
–
|
–
|
(28.0
|
)
|
||||||||
|
Purchase
price adjustments
|
–
|
–
|
39.8
|
–
|
39.8
|
||||||||||
|
Investments
in and advances to affiliates
|
295.0
|
(199.0
|
)
|
(96.0
|
)
|
–
|
–
|
||||||||
|
Other,
net
|
(9.6
|
)
|
5.0
|
6.2
|
–
|
1.6
|
|||||||||
|
Cash
provided by (used in) investing activities
|
280.2
|
(330.2
|
)
|
(73.8
|
)
|
–
|
(123.8
|
)
|
|||||||
|
Cash
flows from financing activities
|
|||||||||||||||
|
Long-term
borrowings
|
4.8
|
–
|
0.5
|
–
|
5.3
|
||||||||||
|
Repayments
of long-term borrowings
|
(264.1
|
)
|
–
|
(103.3
|
)
|
–
|
(367.4
|
)
|
|||||||
|
Change
in short-term borrowings
|
–
|
–
|
(31.6
|
)
|
–
|
(31.6
|
)
|
||||||||
|
Debt
prepayment costs
|
(10.3
|
)
|
–
|
–
|
–
|
(10.3
|
)
|
||||||||
|
Debt
issuance costs
|
(5.2
|
)
|
–
|
–
|
–
|
(5.2
|
)
|
||||||||
|
Proceeds
from issuance of common stock
|
35.5
|
–
|
–
|
–
|
35.5
|
||||||||||
|
Acquisitions
of treasury stock
|
(63.4
|
)
|
–
|
–
|
–
|
(63.4
|
)
|
||||||||
|
Common
dividends
|
(26.8
|
)
|
–
|
–
|
–
|
(26.8
|
)
|
||||||||
|
Cash
used in financing activities
|
(329.5
|
)
|
–
|
(134.4
|
)
|
–
|
(463.9
|
)
|
|||||||
|
Effect
of exchange rate changes on cash
|
–
|
–
|
1.0
|
–
|
1.0
|
||||||||||
|
Change
in cash and cash equivalents
|
(38.8
|
)
|
0.6
|
(184.5
|
)
|
–
|
(222.7
|
)
|
|||||||
|
Cash
and cash equivalents -
beginning of year
|
47.6
|
0.3
|
211.3
|
–
|
259.2
|
||||||||||
|
Cash
and cash equivalents -
end of year
|
$
|
8.8
|
$
|
0.9
|
$
|
26.8
|
$
|
–
|
$
|
36.5
|
|||||
Page
80 of
97
Notes
to Consolidated Financial Statements
Ball
Corporation and Subsidiaries
20.
Subsequent Event
On
February 14, 2006, the company entered into a definitive merger agreement
in which Ball will acquire U.S. Can Corporation’s (U.S. Can) U.S. and
Argentinean operations for 1.1 million shares of Ball common stock and
the assumption of $550 million of U.S. Can’s debt. The transaction is
expected to close by the end of the first quarter 2006. U.S. Can is the largest
manufacturer of aerosol cans in the U.S. and also manufactures paint cans,
plastic containers and custom and specialty cans in 10 plants in the U.S.
Aerosol cans are also produced in the two manufacturing plants in Argentina.
U.S. Can’s U.S. and Argentinean operations had sales of approximately
$600 million (unaudited) in 2005. Upon closing the acquisition of U.S. Can,
the company intends to refinance $550 million of existing U.S. Can debt at
significantly lower interest rates. The refinancing will be completed with
Ball’s issuance of a new series of senior notes and an increase in bank debt
under the new senior credit facilities put in place in the fourth quarter of
2005.
21. Contingencies
The
company is subject to various risks and uncertainties in the ordinary course
of
business due, in part, to the competitive nature of the industries in which
we
participate, our operations in developing markets, changing commodity prices
for
the materials used in the manufacture of our products and changing capital
markets. Where practicable, we attempt to reduce these risks and uncertainties
through the establishment of risk management policies and procedures, including,
at times, the use of certain derivative financial instruments.
From
time
to time, the company is subject to routine litigation incident to its business.
Additionally, the U.S. Environmental Protection Agency has designated Ball
as a
potentially responsible party, along with numerous other companies, for the
cleanup of several hazardous waste sites. Our information at this time does
not
indicate that these matters will have a material adverse effect upon the
liquidity, results of operations or financial condition of the
company.
Due
to
political and legal uncertainties in Germany, no nationwide system for returning
beverage containers was in place at the time a mandatory deposit was imposed
in
January 2003 and nearly all retailers stopped carrying beverages in
non-refillable containers. During 2003 and 2004, we responded to the resulting
lower demand for beverage cans by reducing production at our German plants,
implementing aggressive cost reduction measures and increasing exports from
Germany to other countries in the region served by Ball Packaging Europe. We
also closed a plant in the United Kingdom, shut down a production line in
Germany, delayed capital investment projects in France and Poland and converted
one of our steel can production lines in Germany to aluminum in order to
facilitate additional can exports from Germany. In 2004 the German
parliament adopted a new packaging ordinance, imposing a 25 eurocent deposit
on
all one-way glass, PET and metal containers for water, beer and carbonated
soft
drinks. As of May 1, 2006, all retailers must redeem all returned one-way
containers as long as they sell such containers. Major retailers in Germany
have
begun the process of implementing a returnable system for one-way containers
since they, along with fillers, now appear to accept the deposit as permanent.
The retailers and the filling and packaging industries have formed a committee
to design a nationwide recollection system and several retailers have begun
to
order reverse vending machines in order to meet the May 1, 2006,
deadline.
Page
81 of
97
Notes
to Consolidated Financial Statements
Ball
Corporation and Subsidiaries
22.
Indemnifications and Guarantees
During
the normal course of business, the company or the appropriate consolidated
direct or indirect subsidiaries have made certain indemnities, commitments
and
guarantees under which the specified entity may be required to make payments
in
relation to certain transactions. These indemnities, commitments and guarantees
include indemnities to the customers of the subsidiaries in connection with
the
sales of their packaging and aerospace products and services, guarantees to
suppliers of direct or indirect subsidiaries of the company guaranteeing the
performance of the respective entity under a purchase agreement, indemnities
for
liabilities associated with the infringement of third party patents, trademarks
or copyrights under various types of agreements, indemnities to various lessors
in connection with facility, equipment, furniture, and other personal property
leases for certain claims arising from such leases, indemnities pursuant to
agreements relating to certain joint ventures, indemnities in connection with
the sale of businesses or substantially all of the assets and specified
liabilities of businesses, and indemnities to directors, officers and employees
of the company to the extent permitted under the laws of the State of Indiana
and the United States of America. The duration of these indemnities, commitments
and guarantees varies, and in certain cases, is indefinite. In addition, the
majority of these indemnities, commitments and guarantees do not provide for
any
limitation on the maximum potential future payments the company could be
obligated to make. As such, the company is unable to reasonably estimate its
potential exposure under these items. The company has not recorded any liability
for these indemnities, commitments and guarantees in the accompanying
consolidated balance sheets. The company does, however, accrue for payments
under promissory notes and other evidences of incurred indebtedness and for
losses for any known contingent liability, including those that may arise from
indemnifications, commitments and guarantees, when future payment is both
reasonably determinable and probable. Finally, the company carries specific
and
general liability insurance policies and has obtained indemnities, commitments
and guarantees from third party purchasers, sellers and other contracting
parties, which the company believes would, in many circumstances, provide
recourse to any claims arising from these indemnifications, commitments and
guarantees.
The
company’s senior notes and senior credit facilities are guaranteed on a full,
unconditional and joint and several basis by certain of the company’s wholly
owned domestic subsidiaries. Certain foreign denominated tranches of the senior
credit facilities are similarly guaranteed by certain of the company’s wholly
owned foreign subsidiaries. These guarantees are required in support of the
notes and credit facilities referred to above, are co-terminous with the terms
of the respective note indentures and credit agreement and would require
performance upon certain events of default referred to in the respective
guarantees. The maximum potential amounts which could be required to be paid
under the guarantees are essentially equal to the then outstanding principal
and
interest under the respective notes and credit agreement, or under the
applicable tranche. The company is not in default under the above notes or
credit facilities.
Ball
Capital Corp. II is a separate, wholly owned corporate entity created for the
purchase of receivables from certain of the company’s wholly owned subsidiaries.
Ball Capital Corp. II’s assets will be available first and foremost to satisfy
the claims of its creditors. The company has provided an undertaking to Ball
Capital Corp. II in support of the sale of receivables to a commercial lender
or
lenders which would require performance upon certain events of default referred
to in the undertaking. The maximum potential amount which could be paid is
equal
to the outstanding amounts due under the accounts receivable financing (see
Note 5). The company, the appropriate subsidiaries and Ball Capital Corp.
II are not in default under the above credit arrangement.
From
time
to time, the company is subject to claims arising in the ordinary course of
business. In the opinion of management, no such matter, individually or in
the
aggregate, exists which is expected to have a material adverse effect on the
company’s consolidated results of operations, financial position or cash
flows.
Page
82 of
97
Item
9. Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
There
were no matters required to be reported under this item.
Item
9A. Controls
and Procedures
Evaluation
of Disclosure Controls and Procedures
We
have
established disclosure controls and procedures to ensure that material
information relating to the company, including its consolidated subsidiaries,
is
made known to the officers who certify the company’s financial reports and to
other members of senior management and the board of directors.
Based
on
their evaluation as of December 31, 2005, the chief executive officer and
chief financial officer of the company have concluded that the company’s
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934) are effective to ensure that the
information required to be disclosed by the company in the reports that it
files
or submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in SEC rules and
forms.
Management’s
Report on Internal Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act
Rule 13a-15(f). Under the supervision and with the participation of our
management, including our chief executive officer and chief financial officer,
we conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the framework in “Internal Control - Integrated
Framework” issued
by
the Committee of Sponsoring Organizations of the Treadway Commission. Based
on
our evaluation under the framework in “Internal Control - Integrated Framework,”
our management concluded that our internal control over financial reporting
was
effective as of December 31, 2005. Our management’s assessment of the
effectiveness of our internal control over financial reporting as of
December 31, 2005, has been audited by PricewaterhouseCoopers LLP, an
independent registered public accounting firm, as stated in their report which
is included in Item 8, “Financial Statements and Supplementary
Data.”
Changes
in Internal Control
The
company is in the process of migrating the North American metal beverage
manufacturing and inventory system from a legacy system to a fully integrated
business system (the new system). To date, we have converted four metal beverage
plants to the new system and the migrations will continue into 2006 and 2007.
The migration involved changes in systems that included internal controls.
We
have reviewed the new system and the controls affected by the implementation
of
the new system and made appropriate changes to affected internal controls.
The
controls as modified are appropriate and operating effectively. There were
no
other changes in our internal control over financial reporting during the year
ended December 31, 2005, that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
Item
9B. Other Information
There
were no matters required to be reported under this item.
Page
83 of
97
Part
III
Item
10. Directors and Executive Officers of the
Registrant
The
executive officers of the company as of December 31, 2005, were as
follows:
|
1.
|
R.
David Hoover, 60, Chairman, President and Chief Executive Officer
since
April 2002 and a director since 1996. Mr. Hoover was President and
Chief Executive Officer from January 2001 until April 2002 and Vice
Chairman, President and Chief Operating Officer from April 2000 to
January 2001; Vice Chairman, President and Chief Financial Officer
from January 2000 to April 2000; Vice Chairman and Chief Financial
Officer, 1998-2000; Executive Vice President and Chief Financial
Officer,
1997-1998; Executive Vice President, Chief Financial Officer and
Treasurer, 1996-1997; Executive Vice President and Chief Financial
Officer, 1995-1996; Senior Vice President and Chief Financial Officer,
1992-1995; Vice President and Treasurer, 1988-1992; Assistant Treasurer,
1987-1988; Vice President, Finance and Administration, Technical
Products,
1985-1987; Vice President, Finance and Administration, Management
Services
Division, 1983-1985.
|
|
2.
|
Raymond
J. Seabrook, 54, Senior Vice President and Chief Financial Officer
since
April 2000; Senior Vice President, Finance, April 1998 to April 2000;
Vice
President, Planning and Control, 1996-1998; Vice President and Treasurer,
1992-1996; Senior Vice President and Chief Financial Officer, Ball
Packaging Products Canada, Inc.,
1988-1992.
|
|
3.
|
John
R. Friedery, 49, Senior Vice President and Chief Operating Officer,
North
American Packaging, since January 2004; President, Metal Beverage
Container, 2000 to January 2004; Senior Vice President,
Manufacturing, 1998-2000; Vice President, Manufacturing, 1996-1998;
Plant
Manager, 1993-1996; Assistant Plant Manager, 1992-1993; Administrative
Manager, 1991-1992; General Supervisor, 1989-1991; Production Supervisor,
1988-1989.
|
|
4.
|
Hanno
C. Fiedler, 60, Director since December 2002; Executive Vice
President, Ball Corporation and Chairman and Chief Executive Officer
of
Ball’s European packaging business, December 2002 to
December 2005. Mr. Fiedler was Chairman of the Board of Management of
Schmalbach-Lubeca AG from January 1996 until December 2002 and, prior
to that, headed the European activities of TRW Inc. Steering and
Suspension Systems.
|
|
5.
|
John
A. Hayes, 40, Vice President, Ball Corporation, and Executive Vice
President of Ball’s European packaging business since July 2005; Vice
President, Corporate Strategy, Marketing and Development,
January 2003 to July 2005; Vice President, Corporate Planning
and Development, April 2000 to January 2003; Senior Director,
Corporate Planning and Development, February 1999 to April 2000;
Vice
President, Mergers and Acquisitions/Corporate Finance, Lehman Brothers,
Chicago, Illinois, April 1993 to February
1999.
|
|
6.
|
Charles
E. Baker, 48, Vice President, General Counsel and Assistant Corporate
Secretary since April 2004; Associate General Counsel, 1999 to
April 2004; Senior Director, Business Development, 1995-1999;
Director, Corporate Compliance, 1994-1997; Director, Business Development,
1993-1995.
|
|
7.
|
Harold
L. Sohn, 59, Vice President, Corporate Relations, since March 1993;
Director, Industry Affairs, Packaging Products,
1988-1993.
|
|
8.
|
David
A. Westerlund, 55, Senior Vice President, Administration, since April
1998
and Corporate Secretary since December 2002; Vice President,
Administration, 1997-1998; Vice President, Human Resources, 1994-1997;
Senior Director, Corporate Human Resources, July 1994-December 1994;
Vice
President, Human Resources and Administration, Ball Glass Container
Corporation, 1988-1994; Vice President, Human Resources, Ball-InCon
Glass
Packaging Corp., 1987-1988.
|
|
9.
|
Scott
C. Morrison, 43, Vice President and Treasurer since April 2002;
Treasurer, September 2000 to April 2002; Managing
Director/Senior Banker of Corporate Banking, Bank One, Indianapolis,
Indiana, 1995 to August 2000.
|
|
10.
|
Douglas
K. Bradford, 48, Vice President and Controller since April 2003;
Controller since April 2002; Assistant Controller, May 1998 to
April 2002; Senior Director, Tax Administration, January 1995 to
May 1998; Director, Tax Administration, July 1989 to
January 1995.
|
Page
84 of
97
Other
information required by Item 10 appearing under the caption "Director Nominees
and Continuing Directors" and "Section 16(a) Beneficial Ownership Reporting
Compliance," of the company’s proxy statement to be filed pursuant to Regulation
14A within 120 days after December 31, 2005, is incorporated herein by
reference.
Item 11. Executive Compensation
The
following table sets forth information concerning the annual and long-term
compensation for services in all capacities to the corporation of the chief
executive officer and of the next four most highly compensated executive
officers of the corporation (Named Executive Officers) in office on
December 31, 2005:
SUMMARY
COMPENSATION TABLE
|
Long-Term
Compensation
|
||||||||||||||||||||||||
|
Annual
Compensation
|
Awards
|
Payouts
|
||||||||||||||||||||||
| Restricted | Securities | |||||||||||||||||||||||
|
Name
and Principal
|
Other
Annual
|
Stock
|
Underlying
|
LTIP
(3)
|
All Other
|
|||||||||||||||||||
|
Position
|
Year
|
Salary
|
Bonus (1)
|
Compensation
|
Awards (2)
|
Options
|
Payouts
|
Compensation(4) (5)
|
||||||||||||||||
|
R. David
Hoover
|
2005
|
$
|
900,000
|
$
|
1,002,181
|
$
|
1,660,950
|
$
|
1,698,969
|
$
|
135,659
|
|||||||||||||
|
Chairman,
President and
|
2004
|
$
|
820,000
|
$
|
1,755,809
|
$
|
2,912,280
|
$
|
1,604,980
|
$
|
117,306
|
|||||||||||||
|
Chief
Executive Officer
|
2003
|
$
|
792,105
|
$
|
1,469,701
|
$
|
1,126,200
|
$
|
1,436,256
|
$
|
113,773
|
|||||||||||||
|
Hanno C.
Fiedler (6)
|
2005
|
€ |
500,000
|
€ |
289,394
|
$
|
924,840
|
€ |
692,863
|
€ |
960
|
|||||||||||||
|
Executive
Vice President
|
2004
|
€ |
450,000
|
€ |
579,482
|
€ |
568,294
|
€ |
960
|
|||||||||||||||
|
Ball
Corporation and
|
2003
|
€ |
400,000
|
€ |
529,013
|
$
|
1,040,800
|
€ |
403,754
|
|||||||||||||||
|
Chairman
and Chief Executive
|
||||||||||||||||||||||||
|
Officer,
Ball Packaging Europe
|
||||||||||||||||||||||||
|
John R.
Friedery
|
2005
|
$
|
390,000
|
$
|
332,945
|
$
|
432,120
|
$
|
354,298
|
$
|
39,980
|
|||||||||||||
|
Senior
Vice President,
|
2004
|
$
|
375,000
|
$
|
521,007
|
$
|
696,825
|
$
|
417,611
|
$
|
38,676
|
|||||||||||||
|
Ball
Corporation and
|
||||||||||||||||||||||||
|
Chief
Operating Officer,
|
||||||||||||||||||||||||
|
North
American Packaging
|
||||||||||||||||||||||||
|
Raymond J.
Seabrook
|
2005
|
$
|
358,500
|
$
|
281,606
|
$
|
387,555
|
$
|
440,424
|
$
|
65,511
|
|||||||||||||
|
Senior
Vice President and
|
2004
|
$
|
342,500
|
$
|
514,211
|
$
|
620,920
|
$
|
437,791
|
$
|
61,686
|
|||||||||||||
|
Chief
Financial Officer
|
2003
|
$
|
327,500
|
$
|
439,952
|
$
|
98,869
|
$
|
225,240
|
$
|
409,866
|
$
|
59,900
|
|||||||||||
|
David A.
Westerlund
|
2005
|
$
|
320,000
|
$
|
250,785
|
$
|
387,555
|
$
|
389,889
|
$
|
64,499
|
|||||||||||||
|
Senior
Vice President,
|
2004
|
$
|
305,000
|
$
|
457,075
|
$
|
620,920
|
$
|
383,769
|
$
|
60,769
|
|||||||||||||
|
Administration,
and Corporate
|
2003
|
$
|
290,000
|
$
|
359,488
|
$
|
225,240
|
$
|
354,986
|
$
|
57,701
|
|||||||||||||
|
Secretary
|
||||||||||||||||||||||||
|
(1)
|
As
noted in the Report of the Human Resources Committee, Ball Corporation
uses the term Incentive Compensation rather than Bonus. Also noted
in the
Report of the Human Resources Committee is the performance level
of the
corporation and each of the operating units in relation to incentive
targets and the resulting impact on the “Bonus” amounts shown
above.
|
|
(2)
|
In
2005 “Restricted Stock Awards” for all Named Executive Officers except Mr.
Fiedler were awarded pursuant to the Deposit Share Program. Mr.
Fiedler was awarded pursuant to the 2005 Stock and Cash Incentive
Program.
|
Mr. Hoover
held restricted shares valued at $7,189,320 as of December 31, 2005.
Restrictions will lapse on 67,200 shares in 2006, 48,700 shares in 2007 and
47,100 shares in 2008. Dividend equivalents are paid on these
shares.
Mr. Fiedler
held restricted shares valued at $2,462,640 as of December 31, 2005.
Restrictions will lapse on 40,750 shares in 2006, 6,450 shares in 2007 and
6,450
shares in 2008.
Mr. Friedery
held restricted shares valued at $2,073,384 as of December 31, 2005.
Restrictions will lapse on 20,900 shares in 2006, 13,300 shares in 2007 and
13,200 shares in 2008. Dividend equivalents are paid on these
shares.
Mr. Seabrook
held restricted shares valued at $1,330,620 as of December 31, 2005.
Restrictions will lapse on 7,700 shares in 2006, 10,850 shares in 2007 and
10,750 shares in 2008. Dividend equivalents are paid on these
shares.
Mr. Westerlund
held restricted shares valued at $1,866,840 as of December 31, 2005.
Restrictions will lapse on 21,200 shares in 2006, 10,850 shares in 2007 and
10,750 shares in 2008. Dividend equivalents are paid on these
shares.
|
(3)
|
In
2005 the amounts shown in “LTIP Payouts” consist of the
following:
|
Mr. Hoover—LTCIP
$1,316,198; Acquisition-Related, Special Incentive Plan $382,771.
Mr. Fiedler—LTCIP
€371,250;
Acquisition-Related, Special Incentive Plan €321,613.
Mr. Friedery—LTCIP
$276,312; Acquisition-Related, Special Incentive Plan $77,986.
Mr. Seabrook—LTCIP
$288,263; Acquisition-Related, Special Incentive Plan $152,161.
Mr. Westerlund—LTCIP
$254,015; Acquisition-Related, Special Incentive Plan $135,874.
|
(4)
|
Compensation
deferred prior to 2001 under predecessor deferred compensation plans
accrues interest at rates ranging from Moody’s Corporate Bond rate to
Moody’s plus 5%. Above market interest is shown for each individual in
the
“All Other Compensation” column.
|
|
(5)
|
The
amounts shown in the “All Other Compensation” column for 2005 consist of
the following:
|
Mr. Hoover—above-market
interest on deferred compensation account, $101,942; company contribution to
401(k) Plan, $6,300; company contribution to Employee Stock Purchase Plan,
$1,200; executive disability premiums, $2,633; company match pursuant to 2005
Deferred Compensation Company Stock Plan, $20,000; personal use of company
airplane, $3,584.
Mr. Fiedler—company
contribution to Employee Stock Purchase Plan €960.
Mr. Friedery—above-market
interest on deferred compensation account, $11,015; company contribution to
401(k) Plan, $6,300; company contribution to Employee
Stock Purchase Plan, $1,200; executive disability premiums, $1,465; company
match pursuant to 2005 Deferred Compensation Company Stock Plan,
$20,000.
Page
85 of
97
Mr. Seabrook—above-market
interest on deferred compensation account, $36,222; company contribution
to
401(k) Plan, $6,300; company contribution to Employee Stock Purchase Plan,
$1,200; executive disability premiums, $1,789; company match pursuant to
2005
Deferred Compensation Company Stock Plan, $20,000.
Mr. Westerlund—above-market
interest on deferred compensation account, $35,294; company contribution to
401(k) Plan, $6,300; company contribution to Employee Stock Purchase Plan,
$1,200; executive disability premiums, $1,705; company match pursuant to 2005
Deferred Compensation Company Stock Plan, $20,000.
|
(6)
|
Mr. Fiedler
is paid in euros, except stock awards which are U.S. dollar denominated.
On December 31, 2005, the exchange rate was 1 euro = 1.184 U.S.
dollars.
|
Long-Term
Incentive Compensation
Stock
Option Grants and Exercises
The
following tables present certain information for the Named Executive Officers
relating to stock option grants and exercises during 2005 and, in addition,
information relating to the valuation of unexercised stock options:
STOCK OPTION GRANTS IN 2005
|
Percentage
of
|
|||||||||||||||
|
Total
Options
|
|||||||||||||||
|
Granted
to
|
|||||||||||||||
|
Name
|
Options
Granted (1)
|
Employees
in
Fiscal
2005
|
Exercise
Price
(per
share)
|
Expiration
Date
|
Grant
Date
Present
Value (2)
|
||||||||||
|
R. David
Hoover
|
82,000
|
11.51
|
%
|
39.74
|
April
27, 2015
|
$
|
955,300
|
||||||||
|
Hanno C.
Fiedler
|
0
|
–
|
N/A
|
N/A
|
N/A
|
||||||||||
|
John R.
Friedery
|
22,000
|
3.09
|
%
|
39.74
|
April
27, 2015
|
$
|
256,300
|
||||||||
|
Raymond J.
Seabrook
|
19,500
|
2.74
|
%
|
39.74
|
April
27, 2015
|
$
|
227,175
|
||||||||
|
David A.
Westerlund
|
19,500
|
2.74
|
%
|
39.74
|
April
27, 2015
|
$
|
227,175
|
||||||||
|
(1)
|
Stock
options were granted on April 27, 2005, and were exercisable
beginning one year after the grant and each year thereafter in
25 percent increments. Effective October 26, 2005, the options
became fully exercisable as a result of an acceleration of
vesting.
|
|
(2)
|
Stock
options with an expiration date of April 27, 2015, have an estimated
value, at date of grant, of $11.65 per share based on the Black-Scholes
option-pricing model adapted for use in valuing employee stock options.
The estimated values under the Black-Scholes model are based on weighted
average assumptions of volatility of 30.09 percent, a risk-free rate
of return of 3.89 percent, a dividend yield of 1.01 percent, an
expected option term of 4.75 years, and no adjustment for the risk of
forfeiture. The actual value, if any, an executive may realize will
depend
on the excess of the stock price over the exercise price on the date
the
option is exercised. Consequently, there is no assurance the value
realized by an executive will be at or near the value estimated by
the
Black-Scholes model.
|
AGGREGATED
STOCK OPTION EXERCISES IN 2005
AND
FISCAL YEAR-END OPTION VALUES
|
Number
of Unexercised
|
Value
of Unexercised
|
|||||||||||||||||
|
Shares
|
Options
Held at
|
In-the-Money
Options at
|
||||||||||||||||
|
Acquired
|
Value
|
December 31,
2005
|
December 31,
2005(1)
|
|||||||||||||||
|
Name
|
on
Exercise
|
Realized
|
Exercisable
|
Unexercisable
|
Exercisable
|
Unexercisable
|
||||||||||||
|
R. David
Hoover
|
102,560
|
$
|
3,025,310
|
677,944
|
75,000
|
$
|
15,181,469
|
$
|
1,065,824
|
|||||||||
|
Hanno C.
Fiedler
|
–
|
–
|
10,000
|
10,000
|
$
|
154,200
|
$
|
154,200
|
||||||||||
|
John R.
Friedery
|
28,656
|
$
|
747,277
|
68,344
|
17,000
|
$
|
841,365
|
$
|
236,295
|
|||||||||
|
Raymond J.
Seabrook
|
16,000
|
$
|
490,483
|
220,772
|
18,000
|
$
|
5,617,957
|
$
|
252,270
|
|||||||||
|
David A.
Westerlund
|
18,000
|
$
|
598,560
|
249,500
|
18,000
|
$
|
6,388,382
|
$
|
252,270
|
|||||||||
|
(1)
|
Based
on the closing price on the New York Stock Exchange—Composite
Transactions of the corporation’s common stock on December 31, 2005,
of $39.72.
|
Page
86 of
97
Long-Term
Cash Incentive
The
following tables present information for the Named Executive Officers concerning
the long-term cash incentive programs and, in addition, information relating
to
the estimated future payouts.
LONG-TERM
CASH INCENTIVE PLAN—AWARDS IN LAST FISCAL YEAR
|
Number
of
|
Performance
Period
|
Estimated
Future Payouts (2)
|
||||||||||||||
|
Name
|
Units (1)
|
Until
Maturation
|
Threshold
|
Target
|
Maximum
|
|||||||||||
|
R. David
Hoover
|
0
|
1/1/04-12/31/06
|
$
|
361,629
|
$
|
723,258
|
$
|
1,446,517
|
||||||||
|
Hanno C.
Fiedler (3)
|
0
|
1/1/04-12/31/06
|
€
|
62,700
|
€
|
130,625
|
€
|
261,250
|
||||||||
|
John R.
Friedery
|
0
|
1/1/04-12/31/06
|
$
|
76,778
|
$
|
159,954
|
$
|
319,908
|
||||||||
|
Raymond J.
Seabrook
|
0
|
1/1/04-12/31/06
|
$
|
73,542
|
$
|
153,213
|
$
|
306,425
|
||||||||
|
David A.
Westerlund
|
0
|
1/1/04-12/31/06
|
$
|
65,758
|
$
|
136,997
|
$
|
273,994
|
||||||||
|
(1)
|
Participants
are not awarded a number of units. Awards are expressed as a percentage
of
average annual salary and “bonus” at target during the performance period.
However, Named Executive Officers whose Ball Corporation stock holdings
are below the established guidelines will receive up to one-half
of their
award in Ball Corporation Restricted
Stock.
|
|
(2)
|
Estimated
future payouts (“earned awards”) are based on Ball Corporation’s total
shareholder return performance; i.e., stock price appreciation plus
dividends, over three-year performance cycles which begin at the
start of
each calendar year, relative to the total shareholder return of companies
listed on the S&P Global Industry Classification Standard (“GICS”)
which has replaced the S&P Industrials
index.
|
|
(3)
|
Mr. Fiedler
retired at the end of 2005. Estimated future payouts for the performance
period are prorated based on his service through
2005.
|
Retirement
Plans
The
following table, for purposes of illustration, indicates the amounts of annual
retirement income which would be payable in 2006 to the Named Executive
Officers, except Mr. Fiedler, at normal retirement age 65. The calculation
of retirement benefits under the plans generally is based upon average earnings
(base salary only) for the highest five consecutive years of the ten years
preceding retirement.
PENSION
PLAN TABLE
|
Years
of Service
|
|||||||||||||||
|
Average
Annual Earnings
|
15
|
20
|
25
|
30
|
35
|
||||||||||
|
$ 250,000
|
$
|
52,598
|
$
|
70,130
|
$
|
87,663
|
$
|
105,196
|
$
|
122,728
|
|||||
|
300,000
|
63,848
|
85,130
|
106,413
|
127,696
|
148,978
|
||||||||||
|
350,000
|
75,098
|
100,130
|
125,163
|
150,196
|
175,228
|
||||||||||
|
400,000
|
86,348
|
115,130
|
143,913
|
172,696
|
201,478
|
||||||||||
|
450,000
|
97,598
|
130,130
|
162,663
|
195,196
|
227,728
|
||||||||||
|
500,000
|
108,848
|
145,130
|
181,413
|
217,696
|
253,978
|
||||||||||
|
550,000
|
120,098
|
160,130
|
200,163
|
240,196
|
280,228
|
||||||||||
|
600,000
|
131,348
|
175,130
|
218,913
|
262,696
|
306,478
|
||||||||||
|
650,000
|
142,598
|
190,130
|
237,663
|
285,196
|
332,728
|
||||||||||
|
700,000
|
153,848
|
205,130
|
256,413
|
307,696
|
358,978
|
||||||||||
|
750,000
|
165,098
|
220,130
|
275,163
|
330,196
|
385,228
|
||||||||||
|
800,000
|
176,348
|
235,130
|
293,913
|
352,696
|
411,478
|
||||||||||
The
corporation’s qualified United States salaried
retirement plans provide defined benefits determined by base salary and years
of
service. The corporation has also adopted a nonqualified Supplemental Executive
Retirement Plan that provides benefits otherwise not payable under the qualified
pension plan to the extent that the Internal Revenue Code of 1986, as amended
(the “Code”), limits the pension to which an executive would be entitled under
the qualified pension plan. The benefit amounts shown in the preceding table
reflect the amount payable as a straight life annuity and include amounts
payable under the Supplemental Executive Retirement Plan. On November 30,
2003, the corporation terminated the Split-Dollar Life Insurance Plan that
provided a portion of the nonqualified
pension benefit. Mr. Seabrook elected a cash distribution from this plan
that will reduce his retirement benefit.
Page
87 of
97
Average
annual earnings used under the pension formula to calculate benefits together
with years of benefit service, as of December 31, 2005, for the Named
Executive Officers are: R. David Hoover, $777,421 (35.54 years);
John R. Friedery, $312,500 (17.33 years); Raymond J.
Seabrook, $327,200 (13.21 years); and David A. Westerlund,
$289,800 (30.32 years) offset by benefits received from a prior
employer.
Mr. Fiedler’s
retirement income benefits are provided by a pension agreement that is part
of
his employment agreement. The agreement provides a benefit of 60 percent of
his last gross base salary provided he is employed on the earlier of
December 31, 2005, or reaches age 60 and retires in good standing from
the corporation. Mr. Fiedler retired as an employee of the corporation at
the end of 2005 and his retirement benefit is €300,000 per year based on
his 2005 salary of €500,000.
Termination
of Employment and Change-in-Control Arrangements
The
corporation maintains revocable, funded grantor trusts, which, in the event
a
change in control of the corporation occurs, would become irrevocable with
funds
thereunder to be available to apply to the corporation’s obligations under its
deferred compensation plans covering key employees, including the Named
Executive Officers, except Mr. Fiedler. Under the trusts, a “change in
control” can occur by virtue, in general terms, of an acquisition by any person
of 40 percent or more of the corporation’s voting shares; a merger in which
shareholders of the corporation before the merger own less than 60 percent
of the corporation’s common stock after the merger; shareholder approval of a
plan to sell or dispose of substantially all of the assets of the corporation;
a
change of a majority of the corporation’s board within a 12-month period unless
approved by two-thirds of the directors in office at the beginning of such
period; a threatened change in control deemed to exist if there is an agreement
which would
result in a change in control or public announcement of intentions to cause
a
change in control; and by the adoption by the board of a resolution to the
effect that a change or threatened change in control has occurred for purposes
of the trusts. For amounts deferred on or after January 1, 2005, the
definition of “change in control” has the meaning set forth in Section 409A
of the Code, or any Treasury Department regulations or guidance. The trusts
were
funded as of December 31, 2005, with approximately $57.0 million of
net equity of corporate-owned life insurance policies on the lives of various
employees, including participants in the plans, and 1,037,890 shares of the
corporation’s common stock and cash equivalents valued at $41.3 million
($39.72 per share) at the close of business on December 31, 2005, to
support approximately $171.6 million of current deferred compensation
account balances of the beneficiaries of the trusts in the event of a change
in
control. The corporation has borrowing capacity to fully fund the trusts in
advance of a change in control and is required to do so prior to a change in
control. If the funds set aside in the trusts would be insufficient to pay
amounts due the beneficiaries, then the corporation would remain obligated
to
pay those amounts. In the event of the insolvency of the corporation, the funds
in the trusts would be available to satisfy the claims of the creditors of
the
corporation. The trusts were not established in response to any effort to
acquire control of the corporation, and the board is not aware of any such
effort.
The
corporation intends to establish separate revocable, funded grantor trusts
in
2006 which adopt the definition of “change in control” as set forth in the
Treasury Department’s guidance and any regulations issued under
Section 409A of the Code.
The
corporation has change-in-control severance agreements with certain key
employees, including the Named Executive Officers, except Mr. Fiedler. The
agreements are effective on a year-to-year basis and would provide severance
benefits in the event of both a change in control of the corporation and
an
actual or constructive termination of employment within two years after a
change
in control. Under the agreements, a “change in control” can occur by virtue, in
general terms, of an acquisition by any person of 30 percent or more of the
corporation’s voting shares; a merger in which the shareholders of the
corporation before the merger own 50 percent or less of the corporation’s
voting shares after the merger; shareholder approval of a plan of liquidation
or
a plan to sell or dispose of substantially all of the assets of the corporation;
and if, during any two-year period, directors at the beginning of the period
fail to constitute a majority of the board. “Actual termination” is any
termination other than by death or disability, by the corporation for cause,
or
by the executive, other than for constructive termination. “Constructive
termination” means, in general terms, any significant reduction in duties,
compensation or benefits or change of office location from those in effect
immediately prior to the change in control, unless agreed to by the executive.
The severance benefits payable, in addition to base salary and incentive
compensation accrued through
Page
88 of
97
the
date
of termination, shall include two times current annual base salary and target
incentive compensation; the bargain element value of then-outstanding stock
options; the present value of the amount by which pension payments would
have
been larger had the executive accumulated two additional years of benefit
service; two years of life, disability, accident and health benefits;
outplacement services; and legal fees and expenses reasonably incurred in
enforcing the agreements. In the event such benefits, together with other
benefits paid because of a change in control, would be subject to the excise
tax
imposed under Section 280G of the Code, the corporation would reimburse the
executive for such excise taxes paid, together with taxes incurred as a result
of such reimbursement. The agreements were not entered into in response to
any
effort to acquire control of the corporation, and the board is not aware
of any
such effort.
The
corporation has severance benefit agreements with certain key employees,
including the Named Executive Officers, except Mr. Fiedler. The agreements
provide severance benefits in the event of an actual or constructive termination
of employment. “Actual termination” is any termination other than by death or
disability, by the corporation for cause, or by the executive, other than for
constructive termination. “Constructive termination” means, in general terms,
any significant reduction in compensation or benefits, unless agreed to by
the
executive. The severance benefits payable, in addition to base salary and
incentive compensation accrued through the date of termination, include two
times current annual salary and target incentive compensation for
Mr. Hoover and one and one-half times current annual salary and target
incentive compensation for Messrs. Friedery, Seabrook and Westerlund; the
present value of the amount by which pension payments would have been larger
had
the executive accumulated two additional years of benefit service for
Mr. Hoover and one and one-half years of benefit service for
Messrs. Friedery, Seabrook and Westerlund; two years of life, disability,
accident and health benefits for Mr. Hoover and one and one-half years of
life, disability, accident and health benefits for Messrs. Friedery,
Seabrook and Westerlund; outplacement services; and legal fees and expenses
reasonably incurred in enforcing the agreements. Upon
the
occurrence of a change in control as defined in the change-in-control severance
agreements, the executive is entitled to the greater of each of the benefits
provided in this agreement and each of the benefits provided in the
change-in-control severance agreement, including reimbursement for excise taxes
which may be incurred as a result of such payments.
The
corporation entered into an employment agreement with Mr. Fiedler
negotiated in connection with the acquisition of Schmalbach-Lubeca AG and
effective from December 19, 2002, through December 31, 2005. That
agreement has expired and Mr. Fiedler retired as an employee of the
corporation at the end of 2005.
Directors’
Compensation
Directors
who are not employees of the corporation receive as compensation a total
target
annual retainer composed of a $30,000 annual fixed retainer, plus an annual
incentive retainer based upon the corporation’s actual operating performance for
each fiscal (calendar) year. The annual incentive retainer is calculated
in
accordance with the corporation’s performance-based incentive compensation plan
at a rate of 50 percent of the director’s annual fixed retainer. Both
annual retainers are paid 50 percent in cash and 50 percent in
restricted stock. The restrictions on the stock will lapse upon the director
ceasing to serve as a director for any reason other than voluntary resignation,
in which case the restrictions will not lapse and the director will forfeit
the
shares. For federal income tax purposes, the value of the shares will be
taxable
to the recipient as compensation income in an amount equal to the fair market
value of the corporation’s common stock on the date the restrictions lapse.
There has been no retirement plan for directors since 1997.
Nonemployee
directors also receive a fee of $1,500 for attending each board meeting, a
fee of $1,250 for attending one or more committee meetings held on any one
day and a fee of $1,250 per quarter for serving as a chair of a board
committee and a per diem allowance of $750 for special assignments.
Directors who are also employees of the corporation receive no additional
compensation for their service on the board or on any board committee.
Nonemployee directors may elect to defer the payment of a portion or all
of
their directors’ fees or retainers into the 2005 Deferred Compensation Plan for
Directors or a portion or all of their directors’ annual incentive retainer into
the 2005 Deferred Compensation Company Stock Plan. These plans replace the
directors’ prior deferred compensation plans for fees and retainers earned prior
to 2005. Amounts deferred or transferred into the 2005 Deferred Compensation
Company Stock Plan receive a 20 percent company match with a maximum match
of $20,000 per year. Amounts deferred, transferred or credited to this plan
will be represented in the participant’s account as stock units, with each unit
having the value equivalent to one share of Ball Corporation common stock.
All
distributions of accounts will be made in the form of Ball common stock
following termination of each director’s service. Amounts deferred to the 2005
Page 89
of 97
Deferred
Compensation Plan for Directors are “invested” among various investment funds
available under the Plan. A participant’s amounts are not actually
invested in the investment funds for the account, but the return on a
participant’s account is determined as if the amounts were notionally invested
in those funds.
Each
nonemployee director will receive a 4,000-share restricted stock award upon
reelection for a three-year term. Each newly eligible nonemployee director
will
receive a 4,000-share restricted stock award upon election or appointment for
an
initial term (except initial terms of less than one year), and upon reelection
for a three-year term. The restrictions against disposal of the stock will
lapse
upon the termination of the director’s service to the corporation as a director,
for whatever reason other than voluntary resignation during a term, in which
case the restrictions will not lapse and the director will forfeit the shares.
For federal income tax purposes, the value of the stock will be taxable to
the
director as compensation income in an amount equal to the fair market value
of
the common stock on the date the restrictions lapse. Messrs. Smart, Solso
and Taylor each received a 4,000-share restricted stock award upon reelection
as
directors on April 27, 2005, under the terms of the 2005 Stock and Cash
Incentive Plan. The corporation has established a 10,000 share stock ownership
guideline for each non-management director.
In
2001
the corporation implemented a Deposit Share Program for its nonemployee
directors. The program is intended to increase share ownership by directors
who
must make additional investments in the corporation’s common stock to
participate in the program. Under this program, each director receives one
share
of restricted stock for every share acquired by the director. Restricted
stock
is granted pursuant to the shareholder approved Ball Corporation 2005 Stock
and
Cash Incentive Plan or its successor. Under the terms of the Deposit Share
Program for Directors, which was amended and restated in April 2004, future
awards have share acquisition periods and restricted stock lapse provisions
established at the time of the award. On January 26, 2005, Mr. Smart
was granted the opportunity to participate in the program up to a maximum
of
6,000 shares that must be acquired during a two-year period beginning on
the
grant date. No other deposit share grants were made to nonemployee directors
pursuant to the Amended and Restated Deposit Share Program during
2005.
Other
information required by Item 11 appearing under the caption "Executive
Compensation" in the company’s proxy statement, to be filed pursuant to
Regulation 14A within 120 days after December 31, 2005, is incorporated
herein by reference.
Item
12. Security
Ownership of Certain Beneficial Owners and Management
The
information required by Item 12 appearing under the caption "Voting Securities
and Principal Shareholders," in the company’s proxy statement to be filed
pursuant to Regulation 14A within 120 days after December 31, 2005, is
incorporated herein by reference.
Securities
authorized for issuance under equity compensation plans are summarized
below:
|
Equity
Compensation Plan Information
|
||||||||||
|
Plan
category
|
Number
of Securities to be Issued Upon Exercise of Outstanding Options,
Warrants
and Rights
(a)
|
Weighted-average
Exercise Price of Outstanding Options, Warrants and Rights
(b)
|
Number
of Securities Remaining Available for Future Issuance Under Equity
Compensation Plans (Excluding Securities Reflected in Column
(a)
(c)
|
|||||||
|
Equity
compensation plans approved by security holders
|
4,811,602
|
$
|
21.68
|
7,051,104
|
||||||
|
Equity
compensation plans not approved by security holders
|
–
|
–
|
–
|
|||||||
|
Total
|
4,811,602
|
$
|
21.68
|
7,051,104
|
||||||
Page
90 of
97
Item
13. Certain
Relationships and Related Transactions
The
information required by Item 13 appearing under the caption "Ratification of
the
Appointment of Independent Registered Public Accounting Firm," in the company’s
proxy statement to be filed pursuant to Regulation 14A within 120 days
after December 31, 2005, is incorporated herein by reference.
Item
14. Principal
Accountant Fees and Services
The
information required by Item 14 appearing under the caption "Certain Committees
of the Board," in the company’s proxy statement to be filed pursuant to
Regulation 14A within 120 days after December 31, 2005, is
incorporated herein by reference.
Part
IV
Item
15. Exhibits,
Financial Statement Schedules
(a) (1)
Financial
Statements:
The
following documents are included in Part II, Item 8:
Report
of
independent registered public accounting firm
Consolidated
statements of earnings - Years ended December 31, 2005, 2004 and
2003
Consolidated
balance sheets - December 31, 2005 and 2004
Consolidated
statements of cash flows - Years ended December 31, 2005, 2004 and
2003
Consolidated
statements of shareholders’ equity
and comprehensive earnings - Years ended December 31, 2005, 2004 and
2003
Notes
to
consolidated financial statements
(2)
Financial
Statement Schedules:
Financial
statement schedules have been omitted as they are either not applicable,
are
considered insignificant or the required information is included in the
consolidated financial statements or notes thereto.
(3) Exhibits:
See
the
Index to Exhibits which appears at the end of this document and which is
incorporated by reference herein.
Page
91 of
97
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by
the undersigned, thereunto duly authorized.
|
BALL
CORPORATION
(Registrant)
By:
/s/ R. David Hoover
R.
David Hoover
Chairman,
President and Chief Executive Officer
February
22, 2006
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
|
(1)
|
Principal
Executive Officer:
|
||
|
/s/
R. David Hoover
|
Chairman,
President and Chief Executive Officer
|
||
|
R.
David Hoover
|
February
22, 2006
|
||
|
(2)
|
Principal
Financial Accounting Officer:
|
||
|
/s/
Raymond J. Seabrook
|
Sr.
Vice President and Chief Financial Officer
|
||
|
Raymond
J. Seabrook
|
February
22, 2006
|
||
|
(3)
|
Controller:
|
||
|
/s/
Douglas K. Bradford
|
Vice
President and Controller
|
||
|
Douglas
K. Bradford
|
February
22, 2006
|
||
|
(4)
|
A
Majority of the Board of Directors:
|
||
|
/s/
Howard M. Dean
|
*
|
Director
|
|
|
Howard
M. Dean
|
February
22, 2006
|
||
|
/s/
Hanno C. Fiedler
|
*
|
Director
|
|
|
Hanno
C. Fiedler
|
February
22, 2006
|
||
|
/s/
R. David Hoover
|
*
|
Chairman
of the Board and Director
|
|
|
R.
David Hoover
|
February
22, 2006
|
||
|
/s/
John F. Lehman
|
*
|
Director
|
|
|
John
F. Lehman
|
February
22, 2006
|
||
|
/s/
Jan Nicholson
|
*
|
Director
|
|
|
Jan
Nicholson
|
February
22, 2006
|
||
|
/s/
George A. Sissel
|
*
|
Director
|
|
|
George
A. Sissel
|
February
22, 2006
|
||
|
/s/
George M. Smart
|
*
|
Director
|
|
|
George
M. Smart
|
February
22, 2006
|
Page
92 of
97
|
/s/
Theodore M. Solso
|
*
|
Director
|
|
|
Theodore
M. Solso
|
February
22, 2006
|
||
|
/s/
Stuart A. Taylor II
|
*
|
Director
|
|
|
Stuart
A. Taylor II
|
February
22, 2006
|
||
|
/s/
Erik H. van der Kaay
|
*
|
Director
|
|
|
Erik
H. van der Kaay
|
February
22, 2006
|
*By
R.
David Hoover as Attorney-in-Fact pursuant to a Limited Power of Attorney
executed by the directors listed above, which Power of Attorney has been filed
with the Securities and Exchange Commission.
|
By:
/s/ R. David Hoover
R.
David Hoover
As
Attorney-in-Fact
February
22, 2006
|
Page
93 of
97
Ball
Corporation and Subsidiaries
Annual
Report on Form 10-K
For
the year ended December 31, 2005
Index
to Exhibits
|
Exhibit
|
|
|
Number
|
Description
of Exhibit
|
|
2.1
|
Share
Sale and Transfer Agreement dated August 29/30, 2002, among
Schmalbach-Lubeca Holding GmbH, AV Packaging GmbH, Ball Pan-European
Holdings, Inc. and Ball Corporation (filed by incorporation by reference
to Ball Corporation’s Quarterly Report on Form 10-Q for the quarter
ended September 29, 2002) filed November 14, 2002.
|
|
2.2
|
Amendment
Agreement, dated December 18, 2002, among Schmalbach-Lubeca Holding
GmbH, AV Packaging GmbH, Ball Pan-European Holdings, Inc., Ball
Corporation and Ball (Germany) Acquisition GmbH, amending the Share
Sale
and Transfer Agreement, dated August 29/30, 2002, among
Schmalbach-Lubeca Holding GmbH, AV Packaging GmbH, Ball Pan-European
Holdings, Inc. and Ball Corporation (filed by incorporation by reference
to the Current Report on Form 8-K, dated December 19, 2002)
filed December 31, 2002.
|
|
3.i
|
Amended
Articles of Incorporation as of June 24, 2005. (filed by
incorporation by reference to the Quarterly Report on Form 10-Q dated
July 3, 2005) filed August 9, 2005.
|
|
3.ii
|
Bylaws
of Ball Corporation as amended January 25, 2005 (filed by
incorporation by reference to the Annual Report on Form 10-K dated
December 31, 2004) filed February 23, 2005.
|
|
4.1
|
Dividend
distribution payable to shareholders of record on August 4, 1996, of
one preferred stock purchase right for each outstanding share of
common
stock under the Rights Agreement dated as of July 24, 1996, between
the company and The First Chicago Trust company of New York (filed
by
incorporation by reference to the Form 8-A Registration Statement,
No. 1-7349, dated August 1, 1996, and filed August 2, 1996,
and to the company's Form 8-K Report dated February 13, 1996,
and filed February 14, 1996).
|
|
4.2(a)
|
Registration
Rights Agreement, dated as of December 19, 2002, by and among Ball
Corporation, Lehman Brothers, Inc., Deutsche Bank Securities Inc.,
Banc of
America Securities LLC, Banc One Capital Markets, Inc., BNP Paribas
Securities Corp., Dresdner Kleinwort Wasserstein-Grantchester, Inc.,
McDonald Investments Inc., Sun Trust Capital Markets, Inc. and Wells
Fargo
Brokerage Services, LLC and certain subsidiary guarantors of Ball
Corporation (filed by incorporation by reference to Exhibit 4.1 of
the
Current Report on Form 8-K, dated December 19, 2002) filed
December 31, 2002.
|
|
4.2(b)
|
Senior
Note Indenture, dated as of December 19, 2002, by and among Ball
Corporation, certain subsidiary guarantors of Ball Corporation and
The
Bank of New York, as Trustee (filed by incorporation by reference
to the
Current Report on Form 8-K dated December 19, 2002) filed
December 31, 2002.
|
|
10.1
|
1988
Restricted Stock Plan and 1988 Stock Option and Stock Appreciation
Rights
Plan (filed by incorporation by reference to the Form S-8
Registration Statement, No. 33-21506) filed April 27, 1988.
|
|
10.2
|
Ball
Corporation Deferred Incentive Compensation Plan (filed by incorporation
by reference to the Annual Report on Form 10-K for the year ended
December 31, 1987) filed March 25, 1988.
|
|
10.3
|
Ball
Corporation 1986 Deferred Compensation Plan, as amended July 1, 1994
(filed by incorporation by reference to the Quarterly Report on
Form 10-Q for the quarter ended July 3, 1994) filed
August 17, 1994.
|
Page
94 of
97
|
Exhibit
|
|
|
Number
|
Description
of Exhibit
|
|
10.4
|
Ball
Corporation 1988 Deferred Compensation Plan, as amended July 1, 1994
(filed by incorporation by reference to the Quarterly Report on
Form 10-Q for the quarter ended July 3, 1994) filed
August 17, 1994.
|
|
10.5
|
Ball
Corporation 1989 Deferred Compensation Plan, as amended July 1, 1994
(filed by incorporation by reference to the Quarterly Report on
Form 10-Q for the quarter ended July 3, 1994) filed
August 17, 1994.
|
|
10.6
|
Amended
and Restated Form of Severance Benefit Agreement which exists between
the
company and its executive officers, effective as of August 1, 1994,
and as amended on January 24, 1996 (filed by incorporation by
reference to the Quarterly Report on Form 10-Q for the quarter ended
March 22, 1996) filed May 15, 1996.
|
|
10.7
|
Ball
Corporation 1986 Deferred Compensation Plan for Directors, as amended
October 27, 1987 (filed by incorporation by reference to the Annual
Report on Form 10-K for the year ended December 31, 1990) filed
April 1, 1991.
|
|
10.8
|
1991
Restricted Stock Plan for Nonemployee Directors of Ball Corporation
(filed
by incorporation by reference to the Form S-8 Registration Statement,
No. 33-40199) filed April 26, 1991.
|
|
10.9
|
Ball
Corporation Economic Value Added Incentive Compensation Plan dated
January 1, 1994 (filed by incorporation by reference to the Annual
Report on Form 10-K for the year ended December 31, 1994) filed
March 29, 1995.
|
|
10.10
|
Ball
Corporation 1997 Stock Incentive Plan (filed by incorporation by
reference
to the Form S-8 Registration Statement, No. 333-26361) filed
May 1, 1997.
|
|
10.11
|
1993
Stock Option Plan (filed by incorporation by reference to the
Form S-8 Registration Statement, No. 33-61986) filed
April 30, 1993.
|
|
10.12
|
Ball
Corporation Supplemental Executive Retirement Plan (filed by incorporation
by reference to the Quarterly Report on Form 10-Q for the quarter
ended October 2, 1994) filed November 15, 1994.
|
|
10.13
|
Ball
Corporation Long-Term Cash Incentive Plan, dated October 25, 1994,
amended and restated effective January 1, 2003 (filed by
incorporation by reference to the Annual Report on Form 10-K for the
year ended December 31, 2003) filed March 12, 2004.
|
|
10.14(a)
|
Ball
Corporation Merger Related, Special Incentive Plan for Operating
Executives which provides for Restricted Stock grant in which the
five
named executive officers participate and which grants are referred
to in
the Executive Compensation section of the Ball Corporation Proxy
Statement
dated March 15, 1999. (The form of the restricted grants was filed
March
29, 1999.)
|
|
10.14(b)
|
Ball
Corporation Merger Related, Special Incentive Plan for Operating
Executives which provides for certain cash incentive payments based
upon
the attainment of certain performance criteria. (The form of the
plan was
filed March 29, 1999.)
|
|
10.15
|
Amended
and Restated Form of Severance Agreement (Change of Control Agreement)
which exists between the company and its executive officers. (Filed
herewith.)
|
|
10.16
|
Ball
Corporation 2000 Deferred Compensation Company Stock Plan (filed by
incorporation by reference to the Annual Report on Form 10-K for the
year ended December 31, 2001) filed March 28, 2002.
|
|
10.17
|
Ball
Corporation Deposit Share Program, as amended. This plan is referred
to in
Item 11, the Executive Compensation section of this Form 10-K (filed
by incorporation by reference to the Quarterly Report on Form 10-Q
for the quarter ended July 4, 2004) filed August 11,
2004.
|
Page
95 of
97
|
Exhibit
|
|
|
Number
|
Description
of Exhibit
|
|
10.18
|
Ball
Corporation Directors Deposit Share Program, as amended. This plan
is
referred to in Item 11, the Executive Compensation section of this
Form 10-K (filed by incorporation by reference to the Quarterly
Report on Form 10-Q for the quarter ended July 4, 2004) filed
August 11, 2004.
|
|
10.19
|
Acquisition
Related, Special Incentive Plan for selected executives and senior
managers which provides for cash incentive payments based upon the
attainment of certain performance criteria (filed by incorporation
by
reference to the Annual Report on Form 10-K for the year ended
December 31, 2002) filed March 27, 2003.
|
|
10.20
|
Ball
Corporation 2005 Deferred Compensation Plan, effective January 1,
2005 (filed by incorporation by reference to the Current Report on
Form 8-K dated December 23, 2005) filed December 23,
2005.
|
|
10.21
|
Ball
Corporation 2005 Deferred Compensation Company Stock Plan, effective
January 1, 2005 (filed by incorporation by reference to the Current
Report on Form 8-K dated December 23, 2005) filed
December 23, 2005.
|
|
10.22
|
Ball
Corporation 2005 Deferred Compensation Plan for Directors, effective
January 1, 2005 (filed by incorporation by reference to the Current
Report on Form 8-K dated December 23, 2005) filed
December 23, 2005.
|
|
10.23
|
Credit
agreement dated October 13, 2005, among Ball Corporation, Ball
European Holdings S.ar.l., Ball Packaging Products Canada Corp.
and each
Other Subsidiary Borrower, Deutsche Bank AG, New York Branch, as
a Lender,
Administrative Agent and Collateral Agent and The Bank of Nova
Scotia, as
the Canadian Administrative Agent (filed by incorporation by reference
to
the Current Report on Form 8-K dated October 17, 2005) filed
October 17, 2005.
|
|
10.24
|
Subsidiary
Guaranty Agreement dated as of October 13, 2005, among certain
Domestic subsidiaries listed therein as Guarantors, and Deutsche
Bank AG,
New York Branch, as Administrative Agent (filed by incorporation
by
reference to the Current Report on Form 8-K dated October 17,
2005) filed October 17, 2005.
|
|
11
|
Statement
re: Computation of Earnings Per Share (filed by incorporation by
reference
to the notes to the consolidated financial statements in Item 8,
"Financial
Statements and Supplementary Data").
|
|
12
|
Statement
re: Computation of Ratio of Earnings to Fixed Charges. (Filed
herewith.)
|
|
14
|
Ball
Corporation Executive Officers and Board of Directors Business
Ethics
Statement. (Filed herewith.)
|
|
18
|
Letter
re: Change in Accounting Principles regarding change in pension
plan
valuation measurement date (filed by incorporation by reference
to the
Annual Report on Form 10-K for the year ended December 31, 2002)
filed March 27, 2003.
|
|
21
|
List
of Subsidiaries of Ball Corporation. (Filed herewith.)
|
|
23
|
Consent
of Independent Registered Public Accounting Firm. (Filed
herewith.)
|
|
24
|
Limited
Power of Attorney. (Filed herewith.)
|
|
31
|
Certifications
pursuant to Rule 13a-14(a) or Rule 15d-14(a), by R. David Hoover,
Chairman
of the Board, President and Chief Executive Officer of Ball Corporation,
and by Raymond J. Seabrook, Senior Vice President and Chief Financial
Officer of Ball Corporation. (Filed
herewith.)
|
Page
96 of
97
|
Exhibit
|
|
|
Number
|
Description
of Exhibit
|
|
32
|
Certifications
pursuant to Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of
Chapter
63 of Title 18 of the United States Code, by R. David Hoover, Chairman
of
the Board, President and Chief Executive Officer of Ball Corporation,
and
by Raymond J. Seabrook, Senior Vice President and Chief Financial
Officer
of Ball Corporation. (Furnished herewith.)
|
|
99.1
|
Specimen
Certificate of Common Stock (filed by incorporation by reference
to the
Annual Report on Form 10-K for the year ended December 31, 1979)
filed March 24, 1980.
|
|
99.2
|
Cautionary
statement for purposes of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, as amended. (Filed
herewith.)
|
Page
97 of
97