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Published on January 31, 2008
January 31,
2008
PORTIONS
OF
THIS LETTER HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIAL
TREATMENT PURSUANT TO 17 C.F.R. § 200.83. THE OMISSIONS HAVE
BEEN
INDICATED
BY
ASTERISKS (“[*****]”) AND THE OMITTED TEXT HAS BEEN FILED
SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
Mr.
John Hartz
Senior
Assistant Chief
Accountant
Division
of Corporation
Finance
United
StatesSecurities and Exchange
Commission
Washington,
DC 20549-7010
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Re:
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Your
letter dated 12/28/07
regarding Ball
Corporation’s:
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Form
10-K for the Fiscal Year Ended
December 31, 2006
Filed
February 22,
2007
Form
10-Q for the Quarterly Period Ended
July 1, 2007
Filed
August 1, 2007
Form
10-Q for the Quarterly Period Ended
September 30, 2007
Filed
November 7,
2007
File
No. 001-7349
Dear
Mr. Hartz:
Ball
Corporation (the “Company”) submits
this letter in response to comments from the staff (the “Staff”) of the
Securities and Exchange Commission (the “Commission”) received by letter dated
December 28, 2007 relating to the above-referenced filings. The
company understands that the purpose of the review process is to assist the
Company in complying with the applicable disclosure requirements and to enhance
the overall disclosures in the filings the Company makes with the Commission
and, therefore, the Company welcomes the Staff’s input. For the
convenience of the Staff, each of the Staff’s comments has been reproduced below
in italics immediately prior to the Company’s response.
Form
10-K
for Fiscal Year Ended December 31, 2006
Note
3. Acquisitions, Alcan Packaging, page 51
Comment
#1 – We
note your
reference to third party experts and an independent valuation firm to assess
the
value of assets acquired in your acquisitions. While you are not required
to
make reference to these outside consulting services, when you do, you must
also
disclose the name of the outside consulting service. If you include or
incorporate by reference this disclosure into a 1933 Securities Act filing,
you
will also need to include the consent of the outside consulting service.
Refer
to Section 436(b) of Regulation C.
Confidential
Treatment
Requested by Ball Corporation for
Certain
Information
Contained Herein (Document No. [BC-0002])
Ball
Corporation
January
31, 2008
Page
2
We
now
understand the requirement to disclose the name of outside consulting services
if reference is made to them. We will do so in all future filings where the
use
of such third party services is discussed. We also understand that any direct
disclosure, or disclosure incorporated by reference, in any 1933 Securities
Act
filing will also require the inclusion of the consent of the outside consulting
service.
Note
4. Business Consolidation Activities, page 52
Comment
#2 –
With
regard to your 2006 business consolidation activities, please revise future
filings to include all of the disclosures required by paragraph 20 of
SFAS 146 and SAB Topic 5P4. Specifically, discuss the likely
effects of management’s plans on financial position, future operating results
and liquidity unless it is determined that a material effect is not reasonably
likely to occur. Your disclosure should also identify the periods in which
material cash outlays are anticipated, future restructuring or impairment
charges, the expected source of their funding and expected completion
date.
We
will take your comments into account
while preparing our disclosures regarding business consolidation activities
in
all future filings.
Form
10-Q
for the Quarterly Period Ended July 1, 2007
Comment
#3 –
We
note
the disclosures in the last paragraph on Page 4. Please revise your
Consolidated Statement of Shareholders’ Equity and Comprehensive Earnings in
future filings to show the effect of the adoption of SFAS 158 as an
adjustment of the ending balance of accumulated other comprehensive income
in
2006 as required by paragraph 16 of SFAS 158. Also revise page 73
of your 10-K in future filings, as appropriate.
Beginning
with our Form 10-K for
the fiscal year ended December 31, 2007, we will revise future filings to
show the appropriate effects of adopting FAS 158 in all applicable parts of
our filings.
Form
10-Q
for the Quarterly Period ended September 30, 2007
Note 5. Legal
Settlement, Property Insurance Gain and Business Consolidation Activities,
page 9
Comment
#4– Tell
us why you
classified the legal settlement of $85.6 million as a reduction of net
sales rather than as an operating expense. Refer to Rule 5-03 of Regulation
S-X.
In
determining the appropriate
classification for the legal settlement with Miller Brewing Company (Miller),
we
consulted the guidance in EITF 01-9, “Accounting for Consideration Given by a
Vendor to a Customer (including a Reseller of a Vendor’s Products).”
Paragraph 9 of EITF 01-9 states, “The Task Force reached a consensus
that cash consideration (including a sales incentive) given by a vendor to
a
customer is presumed to be a reduction of the selling prices of the vendor’s
products or services and, therefore, should be characterized as a reduction
of
revenue when recognized in the vendor’s income statement.” The first of the two
conditions listed below paragraph 9 was not met so the presumption was not
overcome. We also determined that the settlement with Miller met more of
the
characteristics of a settlement liability model than the sales incentive
model.
This was based on the fact that the settlement was negotiated with a single
customer who has a pre-
Confidential
Treatment
Requested by Ball Corporation for
Certain
Information
Contained Herein (Document No. [BC-0002])
Ball
Corporation
January
31, 2008
Page
3
existing
contract with Ball to purchase
future product through 2015. As Ball is the sole supplier of the customer’s
metal container requirements, the customer could not easily switch purchases
to
another vendor without a breach of the supply agreement with Ball, without
a
significant interruption to its business or without incurring significant
costs.
As discussed in further detail below, the settlement contained a future price
concession as well as a lump sum settlement payment. The customer’s claim was
comprised of various allegations that it had not been invoiced the correct
price
under the provisions of the supply agreement.
Although
we believe we complied with the
terms of the supply agreement, Ball decided to settle to avoid further costs
and
uncertainty. After consideration of EITF 01-9 and the nature of the customer
complaint, we determined that characterizing the settlement as a reduction
of
revenue is the appropriate classification.
Comment
#5– We
note the
$85.6 million settlement with Miller Brewing Company. We further note that
this amount is 156% and 26% of earnings before taxes for the three months
ended
and nine months ended September 30, 2007, respectively. Please provide us
with a detailed description of the underlying issues, including the origin
and
issues in dispute. Provide us with a timeline explaining to us the events
and
considerations you made to settle this matter.
On
May 10, 2007, Miller Brewing Company
(Miller) asserted that Ball had breached its long-term aluminum can supply
agreement with Miller. Miller asserted that Ball, among other things,
had breached contract provisions relating to the pricing of the aluminum
components of container costs. Ball denied Miller’s assertions and requested an
opportunity to respond.
On
June 1, 2007, Ball presented a
detailed and specific rebuttal of all of Miller’s assertions. During the
meeting, Ball agreed to provide further information which it did at a further
meeting on June 8. At the end of the June 8 meeting, most of the
contractual differences remained unresolved and no financial settlement,
or any
partial settlement, occurred. The parties met again in Milwaukee on
June 26, 2007 to continue good faith
negotiations, but once again the parties were unable to reach a resolution
of
the dispute. As the parties remained far apart, both Miller and Ball agreed
to
proceed to mediation under the terms of the supply agreement in an effort
to
resolve their differences. A mediator was appointed and the dispute was
scheduled for mediation on October 3 and 4, 2007.
On
August 1, 2007, Ball filed its Form
10-Q for the period ended July 1, 2007. In note 16 to the Unaudited Condensed
Consolidated Financial Statements, Ball disclosed the claim asserted by Miller
and that the parties were engaged in non-binding mediation under the supply
agreement. Based upon Ball’s response to Miller’s assertions, including advice
from counsel, Ball determined that it was not probable at that point in time
that a loss had been incurred, and therefore, no accrual was made. While
Ball
determined under FAS 5, Accounting for Contingencies, par. 8, that it was
not
probable a loss had been incurred, it concluded that it was reasonably possible
that a loss had been incurred as the dispute entered the mediation process,
or
the arbitration process should the parties fail to reach agreement during
mediation.
Based
upon the facts known at the time,
Ball determined that disclosure of the matter was appropriate under par.
10 of
FAS 5. Due to the broad nature of Miller’s claim and lack of adequate supporting
detail for the claimed damages, Ball determined that the amount of any potential
loss could not be reasonably estimated, nor could any range of potential
loss be
estimated, whether for purposes of any accrual or disclosure. The disclosure
of
a specific amount was not possible based upon the facts at the time. The
disclosure of the dispute with our largest brewery customer in the Form 10-Q
was
termed “sizable” which we determined adequately
Confidential
Treatment
Requested by Ball Corporation for
Certain
Information
Contained Herein (Document No. [BC-0002])
Ball
Corporation
January
31, 2008
Page
4
described
the situation at the time. In
Part II, Other Information, Item 1. Legal Proceedings, Ball made the same
disclosure as in note 16 and disclosed that it did not believe the matter
would
have a material adverse effect upon the liquidity, results of operations
or
financial condition of the company, based on the information available at
that
time. The Form 10-Q disclosure of this matter and our judgments
concerning FAS 5 were discussed with Ball’s Audit Committee prior to
filing.
From
August 8, 2007, when Ball received
Miller’s claim for purposes of the mediation, through September 26, 2007, both
parties exchanged documents required to be prepared for the mediation. The
content of these documents did not significantly vary from the prior positions
of the respective parties.
During
the course of the mediation, the
mediator convinced Ball of a heightened risk of exposure related to Miller’s
claims. In consideration of awareness of this exposure and the impact of
the
ongoing long-term contractual arrangement with Miller (and after authorization
by senior management), Ball made a settlement offer of a one time payment
of $70
million and a modest price reduction for the remaining term of the supply
agreement. The present value of the price reduction over the remaining term
of
the contract was $15.6 million. Ball accrued the full settlement and made
appropriate disclosures in its Form 8-K filed on October 10, 2007, as well
as in
its Form 10-Q filed for the period ended September 30, 2007.
* * * *
Consolidated
Sales and Earnings, page 22
Comment
#6– In
future filings,
please expand your discussion of results of operations to quantify the material
fluctuations within your segments. For example, we note the
following:
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·
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In
your discussion of sales
fluctuations for Metal Beverage Packaging, Europe/Asia, you disclose
that
segment sales were higher than in the prior period due largely
to strong
demand, market growth, higher sales volumes, higher pricing and
the
strength of the euro. You further disclose that offsetting these
favorable
trends was colder and wetter than normal summer weather in many
parts of
Europe.
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·
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In
your discussion of Plastic
Packaging, Americas,
you disclose segment sales were
down 3% compared to the third quarter of 2006, and 11% higher than
the
first nine months of 2006. Your disclosure states the segment sales
increase in the first nine months of 2007 was related to the March
2006
Alcan acquisition and the inclusion of the acquired U.S.Can
plastic pail business, as well
as higher PET sales volumes and prices compared to 2006. You further
disclose the segment sales decrease in the third quarter of 2007
was
attributable to lower bottle volumes, ’partially offset by higher prices
on existing business lines due to the pass through of resin cost
increases.
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These
are illustrative examples and are
not comprehensive. Please refer to SEC Release 33-8350, Commission Guidance
Regarding
Management’s Discussion and Analysis of Financial Condition and
Results of Operations and
revise your discussion throughout to provide greater depth of analysis, and
wherever possible, quantify the impact of individual
factors.
Confidential
Treatment
Requested by Ball Corporation for
Certain
Information
Contained Herein (Document No. [BC-0002])
Ball
Corporation
January
31, 2008
Page
5
We
recognize the request and need for
more depth in the analysis of our segments including the quantification of
material fluctuations. While, for example, quantification of specific elements
related to fluctuations in segment sales can be difficult, we will, where
possible and material, provide more quantification in our segment disclosures
in
future filings, beginning with our Form 10-K for the fiscal year ended
December 31, 2007.
As
requested in your letter, the company
hereby acknowledges our understanding that:
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·
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We
are responsible for the
adequacy and accuracy of the disclosure in our
filings;
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·
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Staff
comments or changes to
disclosures in response to staff comments do not foreclose the
Commission
from taking any action with respect to the filing;
and
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·
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We
may not assert staff comments
as a defense in any proceeding initiated by the Commission or any
person
under the federal securities laws of the United States.
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We
appreciate your comments and believe
we have adequately addressed them in our responses.
Sincerely,
/s/
Raymond
J. Seabrook
Raymond
J. Seabrook
Executive
Vice President and Chief
Financial Officer
Confidential
Treatment
Requested by Ball Corporation for
Certain
Information
Contained Herein (Document No. [BC-0002])