1993 ANNUAL REPORT TO SHAREHOLDERS
Published on March 29, 1994
NOTE: The page numbering of the electronic format exhibit corresponds to
the page numbering of the typeset, paper format, version of
the Ball Corporation 1993 Annual Report to Shareholders.
FRONT COVER
Ball Corporation 1993 Annual Report
[Photograph #1] Description of Photograph #1: Photograph
of three types of packaging products
produced by the company; one glass
wine bottle, one metal food container
and one aluminum beverage container.
INSIDE FRONT COVER
About Ball Corporation
The company produces glass and metal packaging products, primarily for food and
beverages, and provides aerospace and communications products and services to
government and commercial customers.
Our Mission
To provide consistent customer value through competitive levels of technology,
quality and service, while maintaining high standards of integrity, ethical
conduct and social responsibility.
Our Objective
To maximize shareholder value.
About This Report
Long-time shareholders will note a change in this year's annual report. We
were able to reduce slightly the number of pages and we eliminated color
photography. As a result, this report costs less than half of what our average
annual report cost has been in recent years. Shareholders as well as employees
now receive our "Ball Line Quarterly" publication, which provides considerable
information on the company four times a year at a cost less than our previous
quarterly report and separate quarterly employee publication.
We hope you like these changes. Reducing costs wherever possible is important
to us. So is improving shareholder communications. In this case we are
attempting to do both.
[ Graph #1 ]
Caption: Net Sales (dollars in millions)
Description: A bar graph, vertically oriented, depicting consolidated net
sales for the years 1989 through 1993 inclusive. The graph is produced from
the following data points:
Net Sales
(dollars in millions)
1989 989.2
1990 1120.9
1991 2018.4
1992 2177.8
1993 2440.9
[ Graph #2 ]
Caption: Operating Earnings Before Restructuring and Unusual Items (dollars in
millions)
Description: A bar chart, vertically oriented, depicting operating earnings
before restructuring and unusual items for the years 1989 through 1993,
inclusive. The graph is produced from the following data points:
Operating Earnings Before
Restructuring and Unusual Items
(dollars in millions)
1989 39.9
1990 76.8
1991 143.6
1992 142.9
1993 108.9
[ Graph #3 ]
Caption: Cash Dividends Per Share of Common Stock (dollars)
Description: A bar chart, vertically oriented, depicting annual cash dividends
per share of common stock for the years 1989 through 1993, inclusive. The
graph is produced from the following data points:
Cash Dividends Per
Share of Common Stock
(dollars)
1989 1.10
1990 1.14
1991 1.18
1992 1.22
1993 1.24
[ Graph #4 ]
Caption: Closing Stock Price (dollars)
Description: A bar chart, vertically oriented, depicting the closing stock
price of the company's common stock on December 31 of the years 1989 through
1993, inclusive. The graph is produced from the following data points:
Closing Stock Price
(dollars)
1989 33.625
1990 26.875
1991 38.000
1992 35.375
1993 30.250
[ Graph #5 ]
Caption: Selling, General and Administrative Expenses (percentage of net
sales)
Legend: Warehousing; R&D (research and development), selling and advertising;
and G&A (general and administrative)
Description: A stacked bar chart, vertically oriented, depicting the
components of selling, general and administrative expenses, expressed as a
percentage of net sales, for the years 1989 through 1993, inclusive. The
graph is produced from the following data points:
Selling, General and Administrative Expenses
(percentage of net sales)
--------------------------------------------
R&D, Selling
Warehousing & Advertising G&A Total
----------- ------------- --- -----
1989 .3% .7% 4.4% 5.4%
1990 .2% .7% 5.1% 6.0%
1991 1.7% 1.0% 4.2% 6.9%
1992 2.1% 1.0% 4.0% 7.2%
1993 2.4% 1.0% 4.0% 7.3%
MESSAGE TO SHAREHOLDERS
Dear Ball Shareholder:
In this letter we will attempt to convey our optimism for the future of Ball
Corporation and our disappointment in its performance in 1993. Our optimism
springs from our business fundamentals, while our disappointment stems from our
financial results. Our 1993 performance simply was not acceptable, but thanks
to actions taken during the year we are optimistic regarding the years ahead.
In 1993 we restructured and focused the company in ways unparalleled in its
113-year history. We made a major acquisition and a major spin-off. We were
thrilled when an instrument for which we were the sole source contractor was
installed to correct the flawed optics of the Hubble Space Telescope. We were
saddened by the death of our former chairman, president and CEO, Richard M.
Ringoen.
We were frustrated by nagging start-up problems with a new glass furnace and by
labor problems that idled a customer's plant. We were disappointed when the
Canadian salmon run, although improved over 1992, was again below average. We
watched record floods ruin crops that otherwise would have been packed in our
containers. As if the wet start was not enough, the Upper Midwest was then hit
with one of the earliest frosts ever. The floods and frost combined to make
the 1993 Midwest fresh pack one of the poorest on record.
Through it all, we shipped record numbers of beverage cans and ends; we became
a major player in the North American food can industry; we consolidated metal
packaging businesses, glass manufacturing operations and aerospace divisions
into more cost-effective and efficient units; and we coped with an economy
that could be classified as anemic at best.
In summary, 1993 was a year with too few highs and too many lows. It was a
year of organizational realignment during which we took many of the steps -
including some very difficult ones - necessary to position ourselves for the
future. In this report, we will review the challenges we encountered during
the year and their impact on our performance. We will discuss some of the many
steps we have taken to improve the company. Most importantly, we will tell you
why we are optimistic about future performance.
We entered 1993 with two significant transactions already announced but still
to be completed. Those were the acquisition of Heekin Can, Inc. and the spin-
off of seven small divisions unrelated to our core businesses. Both events
occurred within two weeks of each other late in the first quarter. They were
actions consistent with our strategic intention to focus on large, core
businesses. Combined, they represented a considerable change in the makeup of
Ball Corporation and the nature of our business.
As one of the largest food can manufacturers in the Midwest, Heekin presented
one of the few opportunities available to us to become a significant player in
the metal food can market with a single acquisition. The integration of Heekin
and our Canadian food can operations made Ball the third largest supplier to
the combined U.S.-Canadian market for food cans.
Almost simultaneously with the Heekin acquisition, which was completed on March
19, came our spin-off of seven divisions into Alltrista Corporation. This
transaction, in the form of a tax-free distribution, gave Ball shareholders one
share of Alltrista stock for every four shares of Ball stock. Based on
Alltrista's stock price at the time of the spin-off, this represented a $4.25
per share stock dividend to Ball shareholders in 1993. That dividend, plus our
cash dividends in 1993, resulted in a total distribution to shareholders of
$5.49 per share.
[Photograph #2] Description of Photograph #2: Photograph
of Delmont A. Davis
Caption: Delmont A. Davis, President
and Chief Executive Officer
Our subsequent decision to reduce the first quarter 1994 dividend will provide
us added financial strength and greater flexibility to pursue additional growth
opportunities.
With Heekin added and Alltrista spun off as a totally independent publicly
traded company, a new Ball emerged. Nearly 90 percent of our sales are now
from packaging, and our non-packaging business is solely in aerospace and
communications. We believe this sharpened focus is better for Ball Corporation
and its shareholders. It allows the Alltrista businesses to compete unfettered
in the markets they serve, and it allows Ball to concentrate on fewer
businesses and those it understands best.
Managing Mature Businesses
We know how to manage mature businesses effectively, but understanding the
packaging and aerospace industries the way we do, we had no false illusions
that 1993 was going to be an easy year. It is always challenging when you
compete in mature industries faced with overcapacity, such as metal and glass
packaging, and in an industry coping with a diminishing federal defense budget
and shrinking markets, such as aerospace. The year went from challenging to
disappointing, primarily due to additional problems in our glass packaging
operation and certain parts of our aerospace business. We have taken necessary
steps to address the problems encountered.
In 1993 we continued the process of integrating the glass manufacturing
operations acquired from Kerr in 1992 into our glass business. Two former Kerr
plants were closed, and we expanded our Ruston, Louisiana, plant to meet
increased product demand and to complete the integration of the Kerr business.
Our Ruston start-up did not go as planned and had a significant negative effect
on our results. The good news is that by year end the Ruston plant was
operating near standard, and we feel the problems there are largely behind us.
The current problem in the glass container industry is one of too much
manufacturing capacity. Overcapacity in any low-growth market can lead to
pricing pressures. In 1993, it did just that. In response to this problem and
resulting competitive situation, in the fourth quarter we announced a $95
million pre-tax provision for restructuring. Approximately half of the
provision will be for plant rationalization in our glass container business,
including the closing of the Asheville, North Carolina, plant. In glass, as in
our other businesses, the restructuring charge reflects actions necessary to
reduce costs and improve performance. Our glass container operations should
improve significantly due to the restructuring and numerous other initiatives
taken in 1993.
When astronauts from the Space Shuttle Endeavour installed the Ball-built
COSTAR instrument on the Hubble Space Telescope in December, they provided a
thrilling highlight to an otherwise difficult year for our aerospace and
communications group. COSTAR is the sophisticated optics system designed to
correct Hubble's notorious blurred vision. Being selected on a sole source
basis to design and build it for NASA was an honor. Its success is a
testimony to NASA's decision and our technical expertise.
It is important to note that while the overall results of our aerospace and
communications group were affected negatively by a few significant problems
discussed below, two-thirds of the group's businesses performed well in 1993.
We remain an industry leader for time and frequency standards measurement. In
electro-optics, cryogenics and space instrumentation, we are also consistently
recognized as an industry leader. In order to take better advantage of our
strengths, our aerospace and communications group was reorganized from five
divisions to two during 1993. From its peak in the late 1980s, we have reduced
employment in the group by more than 25 percent. We took a $14 million charge
in the third quarter primarily to write off inventory associated with our all-
light-level television technology and our visual image generating system known
as VIGS.
VIGS was one of our problems in the aerospace and communications business.
Sales from this highly developmental product line more than doubled in 1993 and
should continue to grow in 1994. This is, however, essentially a start-up
business, and it operated at a loss in 1993. We have made management changes
involving the VIGS product line and can see sales developing over time to
provide the critical mass required to make the business viable. Its impact on
future results should be much smaller than 1993 as we continue to assess all of
our options with regard to this relatively small business unit.
A second problem in aerospace and communications was in our space systems
division, whose products include satellites and space platforms. There were
simply no satellite proposals to bid on in 1993, and Radarsat, which we
completed and shipped to Spar Aerospace Ltd. for the Canadian Space Agency, was
one of our few then-current satellite contracts. Combining operations from the
space systems, electro-optics and cryogenics, and systems engineering
businesses into a single division was part of our program to reduce costs and
address the changing markets we serve.
The aerospace and communications group also experienced a sharp reduction in
earnings from the communication systems unit, primarily from antenna sales.
Falling sales were due to order reductions for major military platforms and
commercial airlines. We have responded as rapidly as possible to this
reduction in business base through aggressive cost cutting and organizational
realignment.
Combining Metal Container Operations
One of our larger tasks for 1993 was the integration of three separate metal
container businesses into a single operation. We entered the year with a metal
beverage container business in the U.S. and a metal food and beverage container
business in Canada. In March we acquired Heekin Can. We immediately began
merging these three businesses and three cultures into a single, coordinated
operating organization, thereby realizing considerable economies. We closed
Heekin's former headquarters in Cincinnati and greatly reduced our Canadian
headquarters near Toronto. A single metal container operation headquarters
near Denver now provides the staff support functions for all of our can
manufacturing. The benefits of this consolidation are considerable. We will
begin to realize those benefits in 1994, and they should continue to be felt
for many years to come.
Our commitment to being a low-cost producer in the highly competitive metal
container industry led to the closing of our Montreal plant early in 1993 and
the consolidation of its business into the more cost-efficient Baie d'Urfe,
Quebec, plant. The benefit of these moves will begin to occur in 1994. Still,
our Canadian metal container business had a significantly improved 1993, which
came after several years of investment and necessary plant closings and
consolidations.
Our experience in Canada will serve us well as we assimilate our Heekin
acquisition. Near the end of 1993 we announced we would close a Heekin food
can plant in Augusta, Wisconsin, and relocate its business into our larger,
more efficient plant in Columbus, Ohio. We will continue to evaluate our metal
food can operations in order to reduce costs and achieve maximum efficiency and
capacity utilization.
Our metal beverage container plants all operated efficiently and at or near
capacity in 1993. The business performed well despite an extremely difficult
pricing environment. We provided a record number of aluminum cans and ends to
beer and soft drink customers in Canada and the U.S. We continued our
tradition of technology leadership by becoming the first in the industry to
supply cans manufactured using a patented "spin flow" process to reduce the
diameter of the can top. Spin flow technology was installed early in the year
in our Tampa, Florida, plant. By year end we were adding it in our
Williamsburg, Virginia, and Fairfield, California, plants.
We continued the investment necessary to keep our metal beverage container
plants at a state-of-the-art level. In 1993 we completed a major project to
upgrade our Fairfield plant after receiving a new long-term contract to supply
cans to the Anheuser-Busch brewery in Fairfield starting in 1994. Other
projects included the conversion from steel to aluminum of a beverage can line
in our Whitby, Ontario, plant. Our entire U.S.-Canadian beverage can system
now produces only aluminum cans.
Our technology leadership continues to provide us with many opportunities
internationally for metal container
[Photograph #3] Description of Photograph #2: Photograph
of Alvin Owsley
Caption: Alvin Owsley, Chairman of the Board
licensing agreements and joint ventures. Our Hong Kong joint venture company
completed the installation of a new beverage can line in Sanshui in the
People's Republic of China. We are now involved in five beverage can
manufacturing plants in China and one in Taiwan. Our original effort with
Guangzhou M.C. Packaging in China remains one of the most successful Sino-
foreign joint venture companies in that country. In 1986 it began producing
beverage cans and ends only. Today it manufactures a wide variety of rigid
packaging products for the rapidly growing Chinese market.
While growth has slowed in the U.S. beverage can market, the potential for
double-digit growth internationally remains high. We see the demand for our
manufacturing expertise expanding for metal beverage containers and extending
to glass and metal food containers. As a result, we are very positive about
our opportunities internationally.
For that matter, we are positive about the entire outlook for Ball Corporation.
The year 1993 was disappointing, but during it we took actions necessary to
position the company for the remainder of this century and into the next. A
noted futurist predicted in 1993 that we would see more change in the final
seven years of this century than we had seen in the first 93. Even if that
prediction turns out to be only partially right, it is obvious few companies
will be able to hold to the status quo and be successful. We recognize that
fact. As a result, we are conducting a thorough assessment of our businesses
and our strategic direction. Our goal is to continue to recognize and pursue
those business opportunities which will maximize shareholder value.
Ball Corporation today is a strikingly different company from the Ball
Corporation of only a few years ago. Since late 1990 we have acquired all of
what had been our glass container joint venture company, all of what had been
our Canadian can joint venture company, Kerr's commercial glass operations and
Heekin's can operations. We have sold one small, unrelated business. We have
spun off seven others to our shareholders. Due in large part to these actions,
sales have more than doubled while the general and administrative staff
necessary to support the businesses has been reduced by approximately 15
percent from pre-consolidation levels, and direct labor has been reduced by 12
percent. We continue to look for new ways to operate in the most efficient and
effective manner possible.
At the beginning of 1991 we had 57 facilities and participated in 10 distinct
businesses. Since that time we have acquired 15 plants in our core packaging
business. We have closed, sold or spun off 18 facilities and eight businesses.
Our process of change is not confined to a period of a few years. It will
continue. We do, however, fully expect positive results from the changes we
have already made and that these results should benefit our shareholders in
1994 and subsequent years.
Responding to the Challenge
We very much appreciate the confidence and loyalty of our shareholders and our
employees - in many cases they are one and the same - during these dynamic
times. We said good-bye to many wonderful employees and long-time friends when
we spun off Alltrista, and welcomed a similar number with the acquisition of
Heekin. For them it was a turbulent year, and it was a year of sacrifice for
all of our employees. As part of an intensified profit improvement program
started in 1993 and carrying through 1994, we froze salaries and hiring and
took many steps to curtail sharply our expenses and capital spending.
Employees responded to the challenge with many suggestions on profit
improvement, several of which have already been implemented. Shareholders also
sacrificed in January 1994 when we reduced our first quarter dividend from 31
cents to 15 cents.
We believe both employees and shareholders will benefit in the long term
through a stronger and healthier company which is better able to compete in its
markets. We thank all of our stakeholders, including customers, suppliers,
employees and shareholders, for the invaluable contributions they make to this
enterprise.
/s/ Alvin Owsley
Alvin Owsley
Chairman of the Board
/s/ Delmont A. Davis
Delmont A. Davis
President and Chief Executive Officer
COMPANY PROFILE
Note: The two following pages are facing pages in the printed version of the
1993 Annual Report to Shareholders and should be viewed side-by-side. The
left-facing page contains two columns, the first being photographs of
representative company products and the second column is headed, "Products and
Services." The right-facing page has the column headings, "Markets Served,"
"Customers" and "Competitors." Both pages are divided horizontally into the
following four sections: "Metal Beverage Containers," "Metal Food Containers
and Specialty Products," "Glass Containers" and "Aerospace and Communications."
Products and Services
---------------------
Metal Beverage Containers
- -------------------------
[Photograph #4] Aluminum beverage cans
and easy-open can ends
Description of Photograph #4: Photograph
of undecorated, aluminum beverage
containers with attached easy-open,
stay-on-tab can ends.
Metal Food Containers and Specialty Products
- -------------------------------------------
[Photograph #5] 3-piece and 2-piece steel
food cans and food can
Description of Photograph #5: ends; aerosol cans; metal
Photograph of assorted slitting, sheeting,
undecorated, 3-piece and coating and lithography
2-piece metal food containers
with attached food can ends and
undecorated metal aerosol cans.
Glass Containers
- ----------------
[Photograph #6] Glass food, juice,
wine and liquor
Description of Photograph #6: bottles and jars
Photograph of assorted,
unlabeled glass food, juice,
wine and liquor bottles
and jars.
Aerospace and Communications
- ----------------------------
[Photograph #7] Spacecraft and space systems;
scientific and defense
Description of Photograph #7: instrumentation; military video;
Photograph of the Hubble Space government and commercial
Telescope berthed in the Shuttle antennas; time and frequency
Endeavour's cargo bay. standard devices;
electro-optic devices;
cryogenic systems; systems
engineering; imaging products
Markets Served Customers Competitors
- ------------------------ -------------------------- -----------------
Metal Beverage Containers
- -------------------------
Brewers; soft drink Anheuser-Busch; American National
fillers; new age Coca-Cola; Can; Crown Cork &
beverages Dr. Pepper; Seal; Metal
HPI Beverages; Molson Container Corp.;
Northern Country Beverages; Reynolds Metals
Pepsi-Cola; Royal Crown;
Seven-Up; Stroh
Metal Food Containers and Specialty Products
- -------------------------------------------
Food processing of Aerosol Systems; American National
vegetables, meats, Allen Canning; Can; Crown Cork &
seafoods, soups, British Columbia Seal; Silgan;
pastas and pet foods; Packers; Bush U.S. Can
household products; Brothers; Campbell
personal care products Soup; Colgate-
Palmolive; Nabisco
Brands; Sprayon Products
Glass Containers
- ----------------
Food processing; Brown-Forman; Anchor Glass;
wine and champagne; Clorox Co.; Foster-Forbes;
distilled spirits; CPC International; Owens-Illinois
brewers; cosmetics Heublein; Jim Beam;
Kraft General Foods;
Nestle Foods; Ocean Spray;
Robert Mondavi; Sebastiani;
Tree Top
Aerospace and Communications
- ----------------------------
Observing systems; AT&T; Boeing; General Boeing; General
satellite systems; Dynamics; Lockheed; Martin Dynamics; Lockheed;
command, control, Marietta; McDonnell Honeywell; Hughes;
communication and Douglas; Motorola; Loral; Martin
intelligence; NASA; Northrop; Raytheon; Marietta; McDonnell
government technical Rockwell; Spar Aerospace; Douglas; Motorola;
services; simulators; U.S. Dept. of Defense NEC; Northrop;
telecommunication Raytheon; Rockwell;
switching equipment Texas Instruments;
TRW
- ----------------------
Please note: These are brief descriptions and not complete lists.
IN MEMORIAM
May 15, 1926 - July 4, 1993
Richard M. Ringoen passed away on the Fourth of July. He was our friend as
well as the former chairman, president and chief executive officer of Ball
Corporation and was a member of our board of directors. Because he left an
indelible mark on Ball Corporation, and because he was loved and is now missed,
the following resolution was passed at the July 1993 meeting of the board of
directors:
"Whereas, the directors of Ball Corporation wish to acknowledge their gratitude
for the many contributions which benefited the corporation and its
shareholders, directors, officers and employees, made by their esteemed
colleague, Richard M. Ringoen, who served the corporation since March 1970 - as
a director since April 1975, as chief executive officer from January 1981 to
April 1991 and as chairman of the board from April 1986 to April 1991 - and to
record their regret and sorrow at his death on July 4, 1993; and
"Whereas, Richard M. Ringoen served Ball Corporation with dedication and
distinction, and gave tirelessly of his time and totally of his talents to lead
the corporation and its family of employees to new heights of growth and
achievement; and
"Whereas, his humor, enthusiasm, vigor, generosity, spiritual strength,
guidance and ability to bring out the best in his fellow men will be long
remembered - and greatly missed.
"Now, therefore be it resolved, that the board of directors of Ball Corporation
hereby formally acknowledges its appreciation for the invaluable contributions
of Richard M. Ringoen, and hereby records in its minutes its loss by the
passing from this life of a man so respected among those who were privileged to
have been on his team.
"Be it further resolved, that this resolution be spread upon the minutes of
this meeting of the board of directors in recognition of the outstanding
service and achievements of Richard M. Ringoen, and as a lasting expression of
the corporation's respect to his memory."
[Photograph #8] Description of Photograph #8: Photograph
of Richard M. Ringoen and
facsimile signature.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
Management's discussion and analysis should be read in conjunction with
the consolidated financial statements and the accompanying notes.
In 1993, the company continued its strategic focus on core packaging and
aerospace businesses through a number of actions designed to enhance the
company's competitive position and profitability. These included the spin-off
of the businesses making up Alltrista Corporation (Alltrista) to common
shareholders, the acquisition of Heekin Can, Inc. (Heekin) and a number of
initiatives to restructure continuing operations, all of which are more fully
described below and in the accompanying consolidated financial statements.
CONSOLIDATED RESULTS
Consolidated net sales in 1993 increased to $2.4 billion from $2.2 billion in
1992 and $2.0 billion in 1991 due primarily to the net sales of Heekin, which
were included from the March 19, 1993, date of acquisition, and, in 1992, to
the first full-year consolidation of Ball Packaging Products Canada, Inc.'s
(Ball Canada) net sales, as well as the sales from the Kerr commercial glass
business acquired in late February 1992.
Consolidated 1993 operating earnings of $3.1 million declined from the 1992
level of $142.9 million as a result of restructuring and other charges recorded
in the third and fourth quarters. Before consideration of the restructuring
and other charges, 1993 business segment operating results were approximately
24 percent less than comparable 1992 business segment operating earnings.
Consolidated operating earnings in 1992 were marginally below 1991 levels due
to lower results within the glass packaging and aerospace and communications
businesses, partially offset by higher metal packaging earnings.
Interest expense of continuing operations increased to $45.9 million in 1993
from $37.2 million in 1992 and $35.0 million in 1991. The 1993 increase was
due to a higher volume of borrowings, a result primarily of the assumed Heekin
indebtedness and the full year effect of higher fixed-rate long-term debt
borrowed late in 1992, offset partially by lower rates on interest-sensitive
borrowings. The increase in 1992 interest expense compared to 1991 was due to
increased 1992 borrowings to finance the acquired glass business and the Series
C Preferred Stock redemption, as well as higher rates in the fourth quarter as
the company refinanced its short-term borrowings with higher fixed-rate long-
term debt. Interest expense in 1991 benefited from a reduction in borrowings
concurrent with the September 1991 sale of common stock. Interest capitalized
amounted to $1.7 million, $1.0 million and $1.3 million in 1993, 1992 and 1991,
respectively.
The company's consolidated effective income tax rates were 41.2 percent, 37.3
percent and 37.9 percent in 1993, 1992 and 1991, respectively. The greatest
factor contributing to the year-to-year changes in the effective income tax
rates has been the varying levels of earnings and losses given that the amounts
of nontaxable income and nondeductible expense have remained relatively
constant over the three-year period. Also, the one percent increase in the
federal income tax rate enacted in 1993 contributed to the higher effective
rate for that year.
Equity in earnings of packaging affiliates of $1.3 million and $0.6 million in
1993 and 1992 represents the company's share of earnings of Pacific Rim joint
ventures. The 1991 loss of $0.8 million includes $1.6 million from the
company's 50 percent interest in the net loss of Ball Canada for the period
from January 1, 1991, through the April 19, 1991, acquisition date.
Net income from Alltrista was $2.1 million, $6.2 million and $3.6 million in
1993, 1992 and 1991, respectively. Alltrista 1993 net income represents the
earnings of that business through the date of the spin-off to company
shareholders. The 1992 increase, which includes a $4.9 million pretax charge
($3.0 million after tax or $0.12 per share) for costs associated with the
consolidation of the plastic packaging business into one facility, was due
primarily to higher earnings within the zinc products, consumer products and
plastic packaging businesses.
[ Graph #6 ]
Caption: Current Ratio
Description: A bar chart, vertically oriented, depicting the current ratio on
December 31 of the years 1989 through 1993, inclusive. The graph is produced
from the following data points:
Current Ratio
1989 1.59
1990 1.61
1991 1.33
1992 1.72
1993 1.53
The net loss attributable to common shareholders in 1993 of $68.3 million was
the result of the aforementioned restructuring and other charges, lower segment
operating earnings and a net charge of $34.7 million for the cumulative effect
on prior years of adopting new accounting standards for postretirement and
postemployment benefits. Earnings attributable to common shareholders
increased 14.0 percent to $63.7 million in 1992 from $55.9 million in 1991.
The 1992 increase is due to higher net income as well as reduced dividends on
the Series C Preferred Stock, which was redeemed in January 1992. Earnings
attributable to common shareholders in 1991 reflect a full year's dividends on
the Series C Preferred Stock compared to less than one month in 1992.
The 1993 net loss of $2.38 per share of common stock includes a loss of $1.24
per share from continuing operations and a charge of $1.21 per share in
connection with the changes in accounting principles. Per share results for
1993 were also affected by the additional common shares issued to acquire
Heekin. Earnings per common share from 1992 continuing operations of $2.21
declined from 1991 earnings per share of $2.26, reflecting the net dilutive
effect of the 3.2 million common shares sold in a public offering in September
1991. In 1993, the loss per share on a fully diluted basis is the same as the
net loss per common share because the assumed exercise of stock options and
conversion of preferred stock would have been antidilutive. Fully diluted
earnings per share from continuing operations were $2.09 and $2.11 for 1992 and
1991, respectively.
RESTRUCTURING AND OTHER CHARGES
In the company's major packaging markets, excess manufacturing capacity and
severe pricing pressures have been significant competitive challenges in recent
years. Although domestic metal beverage container operations have operated at
or near capacity, such has not been the case in the metal food and glass
container businesses, including the Heekin business acquired in 1993. More
recently, reductions in federal defense expenditures and other attempts to curb
the federal budget deficit have created similar market dynamics in the
aerospace and defense industry as the number of new contract bidding
opportunities has declined and existing programs have been curtailed or
delayed.
In order to adapt the company's manufacturing capabilities and administrative
organizations to meet foreseeable requirements of its packaging and aerospace
markets, management developed plans to restructure the company's businesses.
These plans involve plant closures to consolidate manufacturing activities into
fewer, more efficient facilities, principally in the glass and metal food
container businesses, and administrative consolidations in the glass, metal
packaging and aerospace and communications businesses. In addition to the
restructuring plans, decisions were made during the year to discontinue two
aerospace and communications segment product lines.
The financial impact of these plans was recognized through restructuring and
other charges recorded in the third and fourth quarters of 1993 in the
aggregate amount of $108.7 million ($66.3 million after tax or $2.31 per
share), of which $76.7 million pertains to the packaging segment, $29.1 million
pertains to the aerospace and communications segment and $2.9 million relates
to certain corporate actions, including a $1.6 million charge for transaction
costs in connection with a pending foreign joint venture which management had
determined not to pursue at that time.
Within the packaging segment, $66.3 million of the pretax charge represents the
estimated cost of consolidating manufacturing facilities, including recognition
of estimated net realizable values that are less than book amounts of property,
plant and equipment, employment costs such as severance benefits and pension
curtailment losses, and incremental costs associated with the phaseout of
facilities to be closed, among which is the Asheville, North Carolina, glass
container plant. The remainder of the packaging charge includes the cost of
consolidating administrative functions in the metal packaging businesses and
losses on machinery and equipment which are being replaced as a result of
industry-wide changes in beverage container packaging specifications.
[ Graph #7 ]
Caption: Debt-to-Total Capitalization (percentage)
Description: A bar chart, vertically oriented, depicting the debt-to-total
capitalization ratio on December 31 of the years 1989 through 1993, inclusive.
The graph is produced from the following data points:
Debt-to-Total Capitalization
(percentage)
1989 45.3
1990 50.9
1991 43.6
1992 49.8
1993 52.6
The benefits expected to accrue from the packaging segment restructuring plans
include the ability to operate fewer manufacturing facilities at higher
utilization levels with lower fixed cost, and reduced general and
administrative expenses in the metal packaging operations. In the case of
Ball-InCon Glass Packaging Corp.'s (Ball-InCon) glass container manufacturing
plants, management anticipates that postrestructuring annual utilization rates
will return to historical levels of at least 90 percent. This compares with a
rate of 86 percent in 1993, which was attributable to a number of negative
factors described below, and 90 percent in each of 1992 and 1991.
In the aerospace and communications segment, the pretax charge includes $9.7
million provided for the anticipated costs of administrative consolidations of
the Colorado operations and group headquarters, and $19.4 million of costs
associated with the disposition of the visual image generation systems (VIGS)
and all-light-level television (ALLTV) product lines, which includes write-
downs of inventory and fixed assets to net realizable values and incremental
costs of phasing out the VIGS product line. Of the $19.4 million provided for
discontinued product lines, $14.0 million was recorded in the third quarter to
recognize lower net realizable values of VIGS and ALLTV assets. The VIGS
product, which remains in a developmental stage, has continued to incur
operating losses despite encouraging increases in sales. Because efforts to
find a viable market for the ALLTV product line have been unsuccessful, sales
efforts have been terminated, and the product inventory has been disposed.
Among the benefits anticipated from the aerospace and communications segment
plans are the elimination of VIGS operating losses subsequent to its
disposition (which amounted to $5.7 million and $6.3 million in 1993 and 1992,
respectively) and a more competitive overhead cost structure resulting from
consolidation of the Colorado division and group operations into fewer, less
costly facilities and savings from reduced compensation costs.
Of the total restructuring and other charges recorded in 1993, asset write-offs
and write-downs to net realizable values, which do not impact future cash flows
apart from related tax benefits, amounted to $52.5 million pretax. The
remaining $56.2 million includes $50.1 million representing future pretax cash
outflows expected to be incurred largely in the latter part of 1994 and in
1995. On an after-tax basis, net cash outflows would be approximately $12.9
million, which includes the tax benefits to be realized upon the ultimate
disposition of assets. The exact timing of those cash outflows is dependent
upon the pace of facility consolidation. Funding of certain costs, such as
pensions of terminated employees, will occur over an extended period of time.
Management believes that cash flow from operations, supplemented, if necessary,
from existing credit resources, will be sufficient to fund the net cash
outflows associated with the restructuring and other actions outlined above.
In addition to the plans cited above, management has taken a number of steps to
improve profitability, which include a company-wide freeze on compensation of
most salaried employees, strict controls over hiring, reductions of
discretionary spending and stringent controls over capital spending to assure
that only the most attractive capital projects are funded. Moreover, the
quarterly cash dividend on common stock was reduced, in the first quarter of
1994, to $0.15 per share from the previous quarter's $0.31 per share in order
to improve the corporation's financial flexibility. While these initiatives
had little impact on 1993 results, they are expected to contribute to improved
performance in 1994 and subsequent years.
The Heekin acquisition also afforded a number of opportunities to achieve
greater cost economies through consolidation of the headquarters of Heekin,
Ball Canada and domestic metal beverage container operations into a single,
combined metal packaging management group based in Westminster, Colorado. This
group began implementation in 1993 of common financial and manufacturing
management systems throughout the U.S. and Canadian metal packaging operations,
and the consolidation of metal food container manufacturing capabilities. The
Heekin purchase price allocation to acquired assets and assumed liabilities
included provision for the consolidation of facilities and other costs of
integration, including the announced closing of the Augusta, Wisconsin, plant.
While management has no further plans for restructuring of operations beyond
those included in the $108.7 million 1993 provision, the company's businesses
and competitive posture are continually evaluated for the purpose of improving
financial performance. Accordingly, there can be no assurance that all of the
anticipated benefits of restructuring will be fully realized or that further
restructuring or other measures will not become necessary in future years. See
the note, Restructuring and Other Charges, in the accompanying Notes to
Consolidated Financial Statements for further information.
SPIN-OFF
On April 2, 1993, the company completed the spin-off of seven diversified
businesses by means of a distribution of
100 percent of the common stock of Alltrista, a then wholly-owned subsidiary,
to holders of company common stock. The distributed net assets of Alltrista
included the following businesses: the consumer products division; the zinc
products division; the metal decorating and services division; the industrial
systems division; and the plastics products businesses, consisting of Unimark
plastics, industrial plastics and plastic packaging. Following the
distribution, Alltrista operated as an independent, publicly-owned corporation.
Accordingly, the net assets and results of operations of the Alltrista
businesses have been classified separately from continuing operations in the
accompanying consolidated financial statements. Additional information
regarding the spin-off can be found in the accompanying Notes to Consolidated
Financial Statements.
CHANGES IN ACCOUNTING PRINCIPLES
Effective January 1, 1993, the company adopted the provisions of Statements of
Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," and SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." SFAS No. 106 requires that the
company's estimated postretirement benefit obligations be accrued by the dates
at which participants attain eligibility for the benefits. Similarly, SFAS No.
112 mandates accrual accounting for postemployment benefits.
In connection with the adoption of SFAS No. 106, the company elected immediate
recognition of the previously unrecognized transition obligation through a non-
cash, pretax charge to earnings as of January 1, 1993, in the amount of $46.0
million ($28.5 million after tax or $0.99 per share), which represents the
cumulative effect on prior years of the change in accounting. The incremental
postretirement benefit expense included in 1993 results of continuing
operations was approximately $3.7 million ($2.3 million after tax or $0.08 per
share), excluding the cumulative effect of adoption.
The company's early adoption of SFAS No. 112 for postemployment benefits
resulted in a non-cash, pretax charge of $10.0 million ($6.2 million after tax
or $0.22 per share) to recognize the cumulative effect on prior years.
Excluding the cumulative effect of adoption, neither the annual cost nor
incremental impact on after-tax earnings was significant.
The company adopted prospectively, from January 1, 1993, SFAS No. 109,
"Accounting for Income Taxes." Previously, income tax accounting followed the
provisions of SFAS No. 96, a predecessor income tax accounting standard adopted
in 1988. Because the effects of the two standards are similar in the company's
circumstances, adoption of SFAS No. 109 had no effect upon the 1993 provision
for income tax benefit or net loss before the cumulative effect of changes in
accounting principles.
BUSINESS SEGMENTS
Packaging
Packaging segment net sales represented 89.0 percent of 1993 consolidated net
sales and increased to nearly $2.2 billion compared to $1.9 billion and $1.7
billion in 1992 and 1991, respectively. The 1993 increase was due primarily to
the inclusion of Heekin sales of $270.9 million from the acquisition date.
Segment operating earnings were $28.9 million, $121.2 million and $115.5
million for 1993, 1992 and 1991, respectively. Before consideration of
restructuring and other charges, 1993 operating results were $105.6 million.
Metal packaging sales in 1993 increased 26.8 percent to $1.5 billion as a
result of the Heekin sales and higher domestic sales of beverage containers.
While Ball Canada's sales were higher in local currency, they did not
contribute to the sales increase due to the declining value of the Canadian
dollar. Metal packaging 1993 operating earnings declined due primarily to
restructuring and other charges of $25.3 million. Before such charges,
earnings increased due to the positive contribution of Heekin and improved Ball
Canada earnings, offset partially by domestic beverage container results which
declined despite higher sales.
In 1992, sales and earnings of total metal beverage and food containers and
ends increased over 1991 amounts. These improvements reflect the inclusion of
a full year's results for Ball Canada in 1992 and improved performance in
domestic metal beverage container operations.
[ Graph #8 ]
Caption: Capital Spending (dollars in millions)
Description: A bar chart, vertically oriented, depicting the consolidated
amounts of capital spending for the years 1989 through 1993, inclusive. The
graph is produced from the following data points:
Capital Spending
(dollars in millions)
1989 40.4
1990 20.7
1991 87.3
1992 110.2
1993 140.9
Domestic and Canadian metal beverage can and end sales in 1993 increased
modestly as a result of higher unit volumes which more than offset reduced
selling prices. In Canada, beverage container sales and unit volumes increased
reflecting improved demand for soft drink containers and relatively stable
volumes of beer containers, demand for which continues to be affected by
Ontario environmental taxes. Despite increases in domestic sales, operating
results of the metal beverage container business declined as the beneficial
effects of higher volumes and lower raw material prices were more than offset
by reduced selling prices and higher spending. Outside warehousing expenses
increased due to the higher levels of inventory carried until the fourth
quarter and high-cost warehousing situations in several market areas.
Consolidated North American sales of metal beverage cans and ends for 1992 were
essentially at 1991 levels as a result of lower sales domestically, offset by
the additional sales of Ball Canada for a full year in 1992. The decline in
domestic metal beverage can and end sales was attributable to reduced pricing,
despite a modest increase in can and end shipments. However, domestic
operating earnings increased due to lower aluminum prices, productivity gains
and savings realized as additional lines were converted to utilize lower-gauge
aluminum. Canadian beverage can and end sales in 1992 were negatively impacted
by the environmental tax levy of 10 cents (in Canadian dollars) per can of beer
sold in Ontario. Ball Canada's total shipments declined in 1992, with
shipments to the beer industry substantially lower partially offset by
increased shipments of containers to the soft drink market.
Metal food and specialty container sales more than doubled in 1993 with the
addition of the Heekin business. Operating earnings also increased due to
improved Canadian results, as well as the Heekin contribution. Canadian
results reflect the benefit of past productivity investments, prior
restructuring activities, including the midyear completion of the Quebec food
container manufacturing consolidation, and an improved salmon catch in British
Columbia after a very poor 1992 catch. While Heekin made a positive
contribution in 1993, poor weather and flooding throughout the Midwest and
erosion of selling prices reduced its results as compared with Heekin's
historical, pre-acquisition performance.
Canadian metal food packaging sales declined in 1992 compared to 1991 sales for
the full year on both lower prices and volumes. Lower shipments were
attributed to a substantially reduced salmon pack in 1992, the third smallest
on record, and lower than historical packs in traditional vegetable products.
Ball-InCon's results in 1993 were disappointing, as sales declined $17.1
million to $698.7 million, and, after restructuring and other charges of $51.4
million, the glass container business recorded a loss. Before consideration of
the restructuring charge, the business was profitable. However, operating
earnings declined substantially. Contributing factors to the 1993 performance
included quality and product qualification difficulties with certain customer
accounts, a labor disruption at a key customer, the difficult start-up of
expanded manufacturing facilities in Ruston, Louisiana, and increased spending
related to quality problems, freight and warehousing. Reduced unit volumes and
lower capacity utilization also were significant negative factors which
resulted from lower demand by certain customers in the core food packaging
segment and extended shutdowns at the end of the year to reduce inventories.
Glass packaging sales increased 22.7 percent in 1992 to $715.8 million,
compared to $583.2 million in 1991, due to the inclusion of the additional
sales resulting from the acquired Kerr commercial glass business. Operating
earnings in 1992 declined slightly from 1991, primarily as a result of lower
margins resulting from highly competitive industry pricing and lower current
margins on a new contract in advance of facility reconfiguration, partially
offset by the positive contribution to earnings by the former Kerr business.
Aerospace and communications
Net sales in the aerospace and communications business segment declined 10.4
percent in 1993 to $268.3 million. Including restructuring and other charges
of $29.1 million, the segment recorded a loss from 1993 operations. Excluding
the effect of the restructuring and other charges, operating earnings declined
85 percent to $3.3 million. The impact of reduced federal defense spending was
reflected in lower sales by the Colorado operations, which declined by 17
percent. Revenues of the time and frequency business and systems engineering
business both improved.
Operating earnings in 1993 of two Colorado business units, space systems and
communications systems, were affected by an inability, due to the lower sales,
to fully recover indirect overhead, despite ongoing efforts to reduce costs.
Notwithstanding lower sales and earnings, the electro-optics and cryogenics
business performed well
in a difficult environment. The Efratom division's time and frequency device
business recorded 10 percent higher earnings on a similar percentage
improvement in revenue. The systems engineering business also improved on the
strength of higher sales and lower overhead costs. The VIGS business operated
at a loss.
Aerospace and communications segment sales for 1992 increased to $299.5 million
from $296.8 million in 1991. However, segment operating earnings for 1992
declined to $21.7 million from $28.1 million in 1991. Two principal factors
affected the 1992 results: lower sales at the Efratom division, due to a
cellular communications customer's reconfiguration of product requirements, and
the losses incurred by the VIGS business unit.
Contracts with the federal government represented approximately 77 percent and
80 percent of segment sales in 1993 and 1992, respectively. Backlog of the
aerospace and communications businesses was approximately $305 million at the
end of 1993 versus $317 million at December 31, 1992. The backlog at December
31, 1993, is comprised primarily of orders for cryogenics, space and earth
sciences instruments and equipment. While the company continues its emphasis
on commercialization of non-military aerospace programs and selected defense
technologies, and expansion of sales to civilian agencies such as NASA,
competition for the aerospace and communications segment businesses is likely
to remain intense as federal spending in many of the served market areas
declines and major defense contractors seek to enter the company's markets.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
Excluding the one-time, beneficial effect of the sale of $66.5 million of trade
accounts receivable, cash flow from 1993 operating activities was essentially
unchanged from 1992 as the additional Heekin operating cash flow was offset by
reduced operating performance, principally in the glass container and aerospace
and communications operations. Operating cash flow in 1992 of $117.0 million
decreased compared to 1991, as the metal packaging business increased inventory
to meet contractual and expected 1993 requirements.
Working capital at December 31, 1993, excluding short-term debt and the current
portion of long-term debt, was $364.8 million, an increase of $14.9 million
from the 1992 year end, reflecting the additional Heekin working capital,
offset partially by lower domestic beverage container inventories and the sale
of trade accounts receivable. Although Ball-InCon carried relatively high
levels of inventory throughout most of the year, its year-end working capital
investment was equivalent to the year-earlier amount. The working capital
ratio was 1.53 and 1.72 at December 31, 1993 and 1992, respectively.
Capital expenditures in 1993 of $140.9 million were primarily for productivity
improvements and selected capacity expansion in the glass and metal beverage
container businesses. Major projects included conversions of metal beverage
plant equipment to new industry container specifications, expansion of the
Fairfield, California, plant to accommodate additional business under a new
long-term contract, completion of the Ruston, Louisiana, glass container plant
expansion and the Quebec food container manufacturing consolidation, and a
number of furnace rebuilds in various glass container plants.
Property, plant and equipment expenditures amounted to $110.2 million in 1992
compared to $87.3 million in 1991. Spending in 1992 was concentrated in the
packaging segment and included completion of a fourth aluminum beverage can
line in Saratoga Springs, New York, consolidation of Quebec food container
operations, and expansion of the Ruston, Louisiana, glass manufacturing
facility, as well as normal expenditures for upgrades of glass forming
equipment and furnace rebuilds. In 1991, spending included amounts
attributable to Ball-InCon, Ball Canada and expenditures for the additional can
line at Saratoga Springs. In addition, spending within metal packaging
included programs to improve productivity and the completion of the conversion
of the remaining domestic steel can line to aluminum. Upgrades of glass
forming equipment and furnace rebuilds comprised a significant portion of 1991
glass
[ Graph #9 ]
Caption: Depreciation (dollars in millions)
Description: A bar chart, vertically oriented, depicting the consolidated
amounts of depreciation for the years 1989 through 1993, inclusive. The graph
is produced from the following data points:
Depreciation
(dollars in millions)
1989 40.7
1990 43.3
1991 88.4
1992 98.7
1993 110.0
packaging spending. In 1994, capital spending of approximately $144 million is
anticipated.
The investment in company-owned life insurance is used to fund various employee
benefit programs. Cash investments of $17.7 million, $18.3 million and $18.2
million were made in 1993, 1992 and 1991, respectively. In 1993, $37.2 million
was borrowed from the net cash value of one policy. A further investment of
approximately $18.0 million is expected in 1994.
During 1993, the company took advantage of low prevailing interest rates by
prepaying $20.0 million of serial notes, and by refinancing $108.8 million of
Heekin indebtedness and $17.0 million of industrial development revenue bonds.
At December 31, 1993, aggregate indebtedness had increased by $20.7 million
from the year earlier to $637.2 million. The higher level of debt was due, in
part, to the $121.9 million of assumed Heekin indebtedness offset by $75.0
million of long-term debt assumed by Alltrista. The consolidated debt-to-total
capitalization ratio was 52.6 percent and 49.8 percent at December 31, 1993 and
1992, respectively. The increased ratio resulted from the combined effects of
restructuring and other charges and the cumulative effects of changes in
accounting principles recorded in 1993, both of which had the effect of
reducing consolidated shareholders' equity.
The company redeemed the Series C Preferred Stock on January 7, 1992, for $50.3
million, resulting in an estimated after-tax savings of $3.0 million, or $0.12
per share. In the last half of 1992, the company borrowed approximately $214
million of fixed-rate, long-term debt, the proceeds of which were used to repay
floating-rate, short-term debt. Short-term debt had increased primarily due to
financing the acquisition of the Kerr assets, the redemption of the Series C
Preferred Stock and the increase in working capital. In addition, the company
amended the revolving credit agreement for $115 million due to expire in April
1993, increasing the facility to $140 million and extending the term.
Cash dividends paid on common stock in 1993 were $1.24 per share. In the first
quarter of 1994, the quarterly common dividend was reduced to $0.15 per share
from $0.31 per share in order to improve the company's financial flexibility
and access to capital. Management believes that, absent a major business
dislocation, existing credit resources will be adequate to meet foreseeable
financing requirements of the company's businesses.
OTHER
The Environmental Protection Agency has 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
does not indicate that these matters will have a material, adverse effect upon
financial condition, results of operations, capital expenditures or competitive
position of the company.
The company's former joint venture partner, Onex Corporation (Onex), has
demanded that the company purchase the shares held by Onex in a joint venture
holding company through which the partners held their investment in Ball Canada
prior to the company's acquisition of 100 percent ownership. Management
believes that Onex's demand represents approximately $28.7 million. The
company's position is that it has no obligation to purchase any shares from
Onex or to pay Onex any amount for such shares. The company believes that it
has meritorious defenses against Onex's demand. The matter will result likely
in arbitration or litigation, although, because of the uncertainties inherent
in those processes, the company is unable to predict the outcome of any such
arbitration or litigation. See the note, Contingencies, in the accompanying
Notes to Consolidated Financial Statements for further information with respect
to this matter.
The United States economy and the company have experienced minor general
inflation during the past several years. Management believes that evaluation
of the company's performance during the periods covered by these consolidated
financial statements should be based upon historical financial statements.
Continuing emphasis on productivity improvement programs, the ongoing profit
improvement programs and controlled capital spending for facilities and
equipment are management actions that are designed to maximize cash flow and
have offset, in large part, any adverse effects of inflation.
1993 FINANCIAL REVIEW
REPORT OF MANAGEMENT ON FINANCIAL STATEMENTS
Management of Ball Corporation is responsible for the preparation and fair
presentation of the consolidated financial statements included in this annual
report to shareholders. The financial statements have been prepared in
conformity with generally accepted accounting principles and, necessarily,
include certain amounts based on management's informed judgments and estimates.
Financial information appearing elsewhere in this annual report is consistent
with the financial statements.
Management is responsible for maintaining an adequate system of internal
control which is designed to provide reasonable assurance that assets are
safeguarded from unauthorized use or disposition, that transactions are
executed in accordance with management's authorization and that transactions
are properly recorded to permit the preparation of reliable financial
statements. To assure the continuing effectiveness of the system of internal
control and to maintain a climate in which such controls can be effective,
management establishes and communicates appropriate written policies and
procedures; carefully selects, trains and develops qualified personnel;
maintains an organizational structure that provides clearly defined lines of
responsibility, appropriate delegation of authority and segregation of duties;
and maintains a continuous program of internal audits with appropriate
management follow-up. Company policies concerning use of corporate assets and
conflicts of interest, which require employees to maintain the highest ethical
and legal standards in their conduct of the company's business, are important
elements of the internal control system.
The board of directors oversees management's administration of company
financial reporting practices, internal controls and the preparation of the
consolidated financial statements through its audit committee which is composed
entirely of outside directors. The audit committee meets periodically with
representatives of management, internal audit and Price Waterhouse to review
the scope and results of audit work, the adequacy of internal controls and the
quality of financial reporting. Price Waterhouse and internal audit have
direct access to the audit committee, and the opportunity to meet the committee
without management present, to assure a free discussion of the results of their
work and audit findings.
/s/ D. A. Davis /s/ R. David Hoover
- ------------------------------------- -------------------------------
Delmont A. Davis R. David Hoover
President and Chief Executive Officer Senior Vice President and Chief
Financial Officer
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
Ball Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of (loss) income, of cash flows and of changes in
shareholders' equity present fairly, in all material respects, the financial
position of Ball Corporation and its subsidiaries at December 31, 1993 and
1992, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1993, in conformity with generally
accepted accounting principles. 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 generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit 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 the opinion expressed above.
As discussed in the Taxes on Income and Other Postretirement and Postemployment
Benefits notes to consolidated financial statements, the company adopted
Statements of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," and No. 112, "Employers' Accounting for Postemployment Benefits,"
effective January 1, 1993.
/s/ Price Waterhouse
Indianapolis, Indiana
January 25, 1994
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Ball Corporation and Subsidiaries
SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Ball Corporation
and majority-owned subsidiaries. Investments in 20 percent- through 50
percent-owned affiliated companies are included under the equity method where
the company exercises significant influence over operating and financial
affairs. Otherwise, investments are included at cost. Differences between the
carrying amounts of equity investments and the company's interest in underlying
net assets are amortized over periods benefited. All significant intercompany
transactions are eliminated.
The results of operations and net assets of the businesses contributed to
Alltrista Corporation, formerly a wholly-owned subsidiary, have been segregated
from continuing operations and are captioned as "Alltrista operations." See
the note, Spin-Off, for more information regarding this transaction. All
amounts included in the Notes to Consolidated Financial Statements pertain to
continuing operations except where otherwise noted.
Foreign Currency Translation
Foreign currency financial statements of foreign operations where the local
currency is the functional currency are translated using period-end exchange
rates for assets and liabilities and average exchange rates during each period
for results of operations and cash flows.
Temporary Investments
Temporary investments are considered cash equivalents if original maturities
are three months or less.
Revenue Recognition
Sales and earnings are recognized primarily upon shipment of products, except
in the case of long-term government contracts for which revenue is recognized
under the percentage of completion method. Certain of these contracts provide
for fixed and incentive fees which are recorded as they are earned or when
incentive amounts become determinable. Provisions for estimated contract
losses are made in the period that such losses are determined.
Inventories
Inventories are stated at the lower of cost or market, cost being determined
primarily on the first-in, first-out method.
Depreciation and Amortization
Depreciation is provided on the straight-line method in amounts sufficient to
amortize the cost of the properties over their estimated useful lives
(buildings - 30 to 50 years; machinery and equipment - 5 to 10 years).
Goodwill is amortized over the periods benefited, generally 40 years.
Taxes on Income
The company adopted prospectively, from January 1, 1993, Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
Previously, income tax accounting followed the provisions of SFAS No. 96, a
predecessor standard adopted in 1988, the effects of which are similar in the
company's circumstances to those of the new standard. Accordingly, adoption of
SFAS No. 109 had no effect upon the 1993 provision for income tax benefit or
net loss before the cumulative effect of changes in accounting principles.
Under SFAS No. 109, 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.
Pension Benefits
Pension expense is determined under the provisions of SFAS No. 87, "Employers'
Accounting for Pensions." The cost of pension benefits, including prior
service cost, is recognized over the estimated service periods of employees
based upon respective pension plan benefit provisions.
Other Postretirement and Postemployment Benefits
Effective January 1, 1993, the company adopted the provisions of SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions," and
SFAS No. 112, "Employers' Accounting for Postemployment Benefits."
Postretirement benefit costs subsequent to the change in accounting principles
are accrued on an actuarial basis over the period from the date of hire to the
date of full eligibility for employees and covered dependents who are expected
to qualify for such benefits. Postemployment benefits are accrued when it is
determined that a liability has been incurred. Previously, most postretirement
and postemployment benefit costs were recognized as claims were paid or
incurred.
Employee Stock Ownership Plan
The company records the cost of its Employee Stock Ownership Plan (ESOP) using
the shares allocated transitional method prescribed by the Financial Accounting
Standards Board's Emerging Issues Task Force, under which the annual pretax
cost of the ESOP, including preferred dividends, approximates program funding.
Compensation and interest components of ESOP cost are included in net income;
preferred dividends, net of related tax benefits, are shown as a reduction from
net income. Unearned compensation-ESOP will be reduced as the principal of the
guaranteed ESOP notes is amortized.
Earnings Per Share of Common Stock
Earnings per share computations are based upon net (loss) earnings attributable
to common shareholders and the weighted average number of common shares
outstanding each year. Fully diluted earnings per share computations assume
that the Series B ESOP Convertible Preferred Stock was converted into
additional outstanding common shares and that outstanding dilutive stock
options were exercised. In the fully diluted computation, net (loss) earnings
attributable to common shareholders is adjusted for additional ESOP
contributions which would be required if the Series B ESOP Convertible
Preferred Stock was converted to common shares. The fully diluted loss per
share in 1993 is the same as the net loss per common share because the assumed
exercise of stock options and conversion of preferred stock would have been
anti-dilutive.
Under SFAS No. 96, the tax benefits of deductible cash dividends on Series B
ESOP Preferred Stock were included in, and reduced, the provision for taxes on
income. In conjunction with the adoption of SFAS No. 109, preferred dividends
and related tax benefits have been reported as a single caption below net
income. Prior years' results have been restated to classify the tax benefit of
the Series B ESOP Preferred Stock dividends on a basis consistent with the 1993
presentation. The reclassification of this tax benefit had no effect upon the
previously reported amounts of net earnings attributable to common shareholders
or earnings per common share. Fully diluted earnings per share amounts have
been restated to exclude the tax benefit of deductible common dividends upon
the assumed conversion of the Series B ESOP Preferred Stock.
RESTRUCTURING AND OTHER CHARGES
In late 1993, plans were developed to undertake a number of restructuring
actions which include elimination of excess manufacturing capacity through
plant closures and consolidations, administrative consolidations and the
discontinuance of two aerospace and communications segment product lines. In
connection therewith, pretax restructuring and other charges were recorded in
the third and fourth quarters of $14.0 million and $94.7 million, respectively,
for an aggregate charge to annual results of operations of $108.7 million
($66.3 million after tax or $2.31 per share). A summary of these charges by
business segment and nature of the amounts provided appears below:
Employment costs and termination benefits include the effects of work force
reductions and packaging segment pension curtailment losses of $14.2 million.
Other charges include incremental costs associated with the planned phaseout of
facilities to be closed and discontinued product lines. At December 31, 1993,
unexpended restructuring and other reserves included in the consolidated
balance sheet consisted of the following: $11.7 million in salaries, wages and
accrued employee benefits; $19.6 million in other current liabilities; $12.1
million in employee benefit obligations; and $10.4 million in restructuring and
other noncurrent liabilities.
SPIN-OFF
On March 23, 1993, the company's board of directors declared a dividend and
approved the distribution of 100 percent of the stock of Alltrista Corporation
(Alltrista), then a wholly-owned subsidiary of the company, to the holders of
company common stock of record on April 2, 1993. Shareholders received one
share of Alltrista common stock for each four shares of Ball common stock held
on that date. Immediately prior to the distribution date, the company
contributed the net assets of the following businesses to Alltrista: consumer
products, zinc products, metal decorating and services, industrial systems, and
the plastics products businesses (comprised of Unimark plastics, industrial
plastics and plastic packaging). The dividend distribution of $34.5 million
represents the net assets contributed of $32.2 million, which included bank
indebtedness of $75.0 million, along with transaction costs of $2.3 million.
Following the distribution, Alltrista operated as an independent, publicly-
owned corporation.
Further information regarding the composition of the net assets of the
Alltrista operations is provided below:
Following is summary income statement data for the Alltrista operations through
the date of distribution:
Interest expense allocated to net income from Alltrista operations was based on
assumed indebtedness of $75.0 million and Ball Corporation's weighted average
interest rate for general borrowings. Debt specifically identified with the
company's other operations was excluded in determining the weighted average
interest rate. Alltrista net income includes allocated general and
administrative expenses related to the Alltrista businesses of $1.2 million,
$4.7 million and $4.2 million for 1993, 1992 and 1991, respectively.
In July 1992, the company acquired the remaining interest in its joint venture
company, Plastic Packaging Products Co., for consideration of $6.5 million. In
connection with the acquisition and plans to consolidate the operations into
one facility, the company recorded a $4.9 million charge ($3.0 million after
tax or $0.12 per share) in the second quarter of 1992, which is included in net
income of Alltrista operations.
BUSINESS SEGMENT INFORMATION
The company has two reportable business segments: packaging, and aerospace and
communications. Packaging, the principal business segment, was expanded during
the three-year reporting period with the acquisitions of Ball Packaging
Products Canada, Inc. (Ball Canada), the commercial glass assets of Kerr Group,
Inc. (Kerr) and Heekin Can, Inc. (Heekin), described in the note, Acquisitions.
The results of these acquired businesses are included in the packaging segment
information below from their respective acquisition dates. Ball Canada,
formerly a joint venture business, was accounted for under the equity method of
accounting prior to the acquisition of 100 percent ownership. The packaging
segment is comprised of the following operations:
Metal - manufacture of metal beverage and food containers and ends.
Glass - manufacture of glass containers, primarily for use in the commercial
packaging of food, juice, wine and liquor.
The aerospace and communications segment is comprised principally of the
following businesses: electro-optics and cryogenics; communication systems;
space systems; time and frequency devices; imaging products; and systems
engineering.
Packaging segment sales to Anheuser-Busch Companies, Inc. represented
approximately 11 percent of consolidated sales in 1993 and 14 percent of
consolidated sales in each of 1992 and 1991. Sales to each of Pepsi-Cola
Company and The Coca-Cola Company and their affiliates were 10 percent of
consolidated net sales in 1993 and less than 10 percent of consolidated sales
in 1992 and 1991. Sales to all bottlers of Pepsi-Cola and Coca-Cola branded
beverages comprised approximately 22 percent, 20 percent and 23 percent of
consolidated sales in 1993, 1992 and 1991, respectively. Sales to various
United States government agencies by the aerospace and communications segment
represented approximately 8 percent, 11 percent and 12 percent of consolidated
sales in 1993, 1992 and 1991, respectively.
The company's major customers and principal facilities are located within the
United States and Canada. Financial information by geographic area is provided
below. Inter-area sales from the U.S. were primarily to Canada and are
generally priced with reference to prevailing market prices.
ACQUISITIONS
Heekin Can, Inc.
On March 19, 1993, the company acquired Heekin through a tax-free exchange of
shares accounted for as a purchase. Heekin is a manufacturer of metal food,
pet food and aerosol containers with 1992 sales of $355.0 million. Each
outstanding share of common stock of Heekin was exchanged for 0.769 shares of
common stock of the company. The consideration amounted to approximately
$91.3 million, consisting of 2,514,630 newly-issued shares of the company's
common stock which were exchanged for 3,270,000 issued and outstanding shares
of Heekin common stock valued at $27.00 per share, and transaction costs of
approximately $3.0 million. In connection with the acquisition, Ball also
assumed $121.9 million of Heekin indebtedness, of which $108.8 million was
refinanced following the acquisition. The purchase price has been assigned,
based, in part, upon fair values determined by management, to acquired assets
and assumed liabilities, including goodwill of $47.0 million.
A summary of the non-cash investing and financing activity related to the
Heekin acquisition follows:
The following table illustrates the effects of the acquisition on a pro forma
basis as though it had occurred at January 1, 1993. The unaudited pro forma
combined financial information presented below is provided for informational
purposes only and does not purport to be indicative of the future results or
what the results of operations would have been had the acquisition been
effected on January 1, 1993.
Pro forma adjustments include incremental depreciation and amortization
relating to the allocation of the purchase price to property, plant and
equipment and goodwill, adjustment to employee benefit plan costs, principally
to reflect accounting practices and assumptions used by Ball Corporation to
record pension and postretirement benefit expense, reduction in interest
expense to reflect the effect of refinancing Heekin indebtedness at lower rates
available to Ball Corporation, and related tax effects.
Kerr Group, Inc. Commercial Glass Assets
On February 28, 1992, the company acquired certain assets of the commercial
glass manufacturing operations of Kerr Group, Inc. for $68.4 million. Assets
acquired included inventory and machinery and equipment and certain
manufacturing facilities. The excess of the purchase price over the net book
value of the assets acquired and liabilities assumed has been assigned to long-
term assets, including goodwill of $9.7 million, and is being amortized to
expense over periods corresponding to the useful lives of property, plant and
equipment and, in the case of goodwill, over 40 years.
Ball Packaging Products Canada, Inc.
In December 1988, the company acquired a 50 percent indirect equity interest in
Onex Packaging Inc., a Canadian packaging manufacturer, for cash of $32.9
million. The Canadian company operated until April 19, 1991, as a joint
venture under the name Ball Packaging Products Canada, Inc. Due to a number of
factors, Ball Canada was unable to remain in compliance with certain of its
financial covenants during the latter half of 1990 and did not make scheduled
December 1990 and January 1991 debt service payments. In late March 1991, at
the request of its term lenders, Ball Canada was placed into receivership by
the Ontario Court of Justice. In early April 1991, the company concluded a
definitive agreement with Ball Canada's term lenders to purchase their debt,
with a face amount of approximately $171.4 million, and security interests in
the Canadian company, including all outstanding common stock of Ball Canada,
for $111.2 million, including transaction costs. The transaction, which has
been treated as a purchase business combination, closed on April 19, 1991, at
which time Ball Canada became a wholly-owned subsidiary of the company.
ACCOUNTS RECEIVABLE
Sale of Trade Accounts Receivable
In September 1993, the company entered into an agreement with a financial
institution whereby the company can sell on an ongoing basis up to $75.0
million of an undivided interest in a designated pool of packaging trade
accounts receivable. The agreement expires in one year with options to extend
the arrangement to September 1997. Under the terms of the agreement, the
ongoing costs pertaining to this program are based on the purchaser's cost of
issuing commercial paper plus a fixed rate. The company has retained
substantially the same credit risk as if the receivables had not been sold.
At December 31, 1993, receivables carried in the balance sheet were reduced by
$66.5 million of net cash proceeds from the sale of trade receivables.
Receivables in Connection with Long-term Contracts
Accounts receivable under long-term contracts were $63.5 million and $71.9
million at December 31, 1993 and 1992, respectively, and include unbilled
amounts representing revenue earned but not yet billable of $22.7 million and
$25.6 million, respectively. Approximately $8.2 million of unbilled
receivables at December 31, 1993, is expected to be collected after one year.
OTHER ASSETS
The composition of other assets at December 31, 1993 and 1992, was as follows:
The company has purchased insurance on the lives of certain groups of
employees. The company's net cash investment was $17.7 million, $18.3 million
and $18.2 million in each of 1993, 1992 and 1991, respectively, and is
reflected in the increase in net cash surrender value for the respective years.
In 1993, $37.2 million was borrowed from the accumulated net cash value of one
policy. The policies have been issued by Great-West Life Assurance Company and
The Hartford Life Insurance Company.
DEBT AND INTEREST COSTS
Short-term Debt
At December 31, 1993, the company had uncommitted short-term facilities
available of approximately $356 million from various banks to provide funding
sources at competitive interest rates. The company also had a Canadian
commercial paper facility which provided additional short-term funds of up to
approximately $90.0 million. At December 31, 1993, short-term debt outstanding
consisted of $38.9 million in commercial paper and $35.7 million under
uncommitted short-term facilities.
Long-term Debt
Long-term debt at December 31, 1993 and 1992, consisted of the following:
The company's bank credit agreements provide for total committed funds of $280
million at December 31, 1993. One agreement, scheduled to expire in April
1996, provides for funds of $140 million with interest based upon prime
borrowing rates, money market rates or a fixed increment over the London
Interbank Offered Rate (LIBOR), and requires commitment fees on the unused
balance. This agreement may be canceled by the company with five days' notice
and extended to April 1997 at the company's option. Remaining agreements, in
amounts not exceeding $35.0 million, are scheduled to expire on various dates
from March 1994 with interest generally based on prime borrowing rates, money
market rates or a fixed increment over LIBOR. The company is required to pay
commitment fees on unused facilities.
The note, bank credit and industrial development revenue bond agreements and
guaranteed ESOP notes contain similar restrictions relating to dividends,
investments, working capital requirements, guarantees and other borrowings. If
financed with borrowings, the company had approximately $60.0 million available
for payment of dividends and certain investments under these agreements at
December 31, 1993.
ESOP debt represents borrowings by the trust for the company-sponsored ESOP
which have been irrevocably guaranteed by the company.
Maturities of fixed long-term debt obligations excluding the bank credit
agreements are $60.5 million, $50.6 million, $56.5 million and $68.5 million
for the years ending December 31, 1995 through 1998, respectively.
A summary of total interest cost paid and accrued follows:
Based on the borrowing rates currently available to the company for loans with
similar terms and maturities, the fair value of long-term debt is approximately
$614.6 million, compared to the face value of $562.6 million at December 31,
1993. The company uses derivative financial instruments to hedge interest rate
exposure and to reduce the cost of fixed-rate borrowings. At December 31,
1993, there were outstanding two interest rate swap agreements based on
notional principal amounting to $30.0 million and expiring in July and August
1995 which involve the exchange of fixed and floating interest rates. The fair
market value of the interest rate swap agreements at December 31, 1993, was
approximately $0.6 million. The notional principal amount represents the
basis for computing amounts due under the agreements and does not represent an
exposure to credit risk. Although these instruments involve varying degrees of
credit and interest rate risk, the counter parties to the agreements are major
financial institutions which are expected to perform fully under the terms of
the agreements.
As of December 31, 1993, $28.1 million of letters of credit were open,
principally to provide security under insurance arrangements.
LEASES
Noncancellable operating leases in effect at December 31, 1993, require rental
payments of $20.8 million, $13.7 million, $8.7 million, $5.9 million and $3.5
million for the years 1994 through 1998, respectively, and $20.4 million for
years thereafter. Lease expense for all operating leases was $33.2 million,
$26.3 million and $22.0 million in 1993, 1992 and 1991, respectively.
TAXES ON INCOME
The amounts of (loss) income from continuing operations before income taxes by
national jurisdiction follow:
The provision for income taxes for continuing operations was comprised as
follows:
The company recognized additional 1993 tax expense of approximately $0.8
million representing the cumulative effect on prior years of the increase in
the corporate federal income tax rate from 34 percent to 35 percent.
The reconciliation of the statutory U.S. income tax rate to the effective
income tax rate is as follows:
Provision is not made for additional U.S. or foreign taxes on undistributed
earnings of certain international operations where such earnings will continue
to be reinvested. It is not practicable to estimate the additional taxes,
including applicable foreign withholding taxes, that might become payable upon
the eventual remittance of foreign earnings for which no provision has been
made.
Significant components of deferred tax (assets) liabilities follow:
At December 31, 1993, domestic regular net operating losses for federal income
tax purposes of approximately $6.5 million were available. The net operating
losses will expire in 2008 if not used by then. Additionally, domestic
alternative minimum tax credit carryforwards of approximately $4.8 million were
available for federal tax purposes, which may be used indefinitely to reduce
regular federal income taxes. A foreign subsidiary had approximately $2.0
million of investment tax credit carryforwards that will expire in the years
1994 through 1997.
Total income tax payments, including amounts accrued in prior years, were $34.7
million, $53.5 million and $39.3 million for 1993, 1992 and 1991, respectively.
PENSION BENEFITS
The company's noncontributory pension plans cover substantially all U.S. and
hourly Canadian employees meeting certain eligibility requirements. The
defined benefit plans for salaried employees provide pension benefits based on
employee compensation and years of service. Plans for hourly employees provide
benefits based on fixed rates for each year of service. The company's policy
is to fund the plans on a current basis to the extent deductible under existing
tax laws and regulations and in amounts sufficient to satisfy statutory funding
requirements. Plan assets consist primarily of fixed-income securities and
common stocks.
The composition of pension expense for salaried and hourly employee pension
plans follows:
Net curtailment losses of $12.3 million were recognized in conjunction with the
decision to restructure certain packaging operations and in connection with the
Alltrista spin-off.
The funded status of the plans at December 31, 1993 and 1992, was as follows:
Where two discount rates are provided in the table above, the higher rate in
each case pertains to the company's foreign pension plans. A portion of the
foreign benefit obligation of approximately $20.0 million has been funded with
a dedicated securities portfolio. The discount rate and expected long-term
rate of return used for this obligation and related asset portfolio was 8.75%.
In accordance with the provisions of SFAS No. 87, an additional minimum
liability of $42.3 million was recorded at December 31, 1993, and $13.2 million
was recorded at December 31, 1992, for plans having unfunded accumulated
benefit obligations. The 1992 amount was wholly offset by an intangible asset
of equal amount which represents unrecognized prior service cost. The 1993
additional minimum liability was offset partially by a $29.6 million intangible
asset. The remainder, $7.8 million, net of tax, was recognized at December 31,
1993, as a reduction to shareholders' equity. The 1993 charge to equity and
increase in net periodic pension cost were due primarily to benefit increases
granted to the majority of Ball-InCon hourly employees as well as the lower
discount rate and long-term rate of return assumptions used in 1993.
OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
The company and its subsidiaries sponsor various defined benefit and defined
contribution postretirement benefit plans which provide retirement health care
and life insurance benefits to substantially all employees. In addition,
employees may become eligible, upon termination of active employment prior to
retirement, for long-term disability, medical and life insurance continuation
and other postemployment benefits. All of the company-sponsored plans are
unfunded and, with the exception of life insurance benefits, are self-insured.
Effective January 1, 1993, the company adopted two new accounting standards for
these benefit costs, SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," and SFAS No. 112, "Employers' Accounting for
Postemployment Benefits." SFAS No. 106 requires that the company's estimated
postretirement benefit obligations be accrued by the dates at which
participants attain eligibility for the benefits. Similarly, SFAS No. 112
mandates accrual accounting for postemployment benefits.
Postretirement Medical and Life Insurance Benefits
Postretirement health care benefits are provided to substantially all of the
company's domestic non-union, certain salaried and Canadian union employees.
In Canada, the company provides supplemental medical and other benefits in
conjunction with the Canadian national health care plan. Most domestic
salaried employees who retired prior to 1990 are covered by noncontributory
defined benefit medical plans with capped lifetime benefits. Employees who
retired during 1991 and 1992 are covered by similar contributory plans. U.S.
employees retiring after January 1, 1993, are provided a fixed subsidy by the
company toward each retiree's future purchase of medical insurance. Life
insurance benefits are noncontributory. Most employees not covered by company
plans are covered by collective bargaining agreements under which the company
contributes to multiemployer health and welfare plans. The company has no
commitments to increase monetary benefits provided by any of the postretirement
benefit plans.
In connection with the adoption of SFAS No. 106, the company elected immediate
recognition of the previously unrecognized transition obligation through a
pretax, non-cash charge to earnings as of January 1, 1993, in the amount of
$46.0 million ($28.5 million after tax). Since Heekin had adopted SFAS No. 106
prior to being acquired, its obligation for postretirement benefits was assumed
by the company and was not included in the cumulative effect of adopting the
new accounting standard. The accumulated postretirement benefit obligation
(APBO) represents, at the date of adoption, the full liability for
postretirement benefits expected to be paid with respect to retirees and a pro
rata portion of the benefits expected to be paid with respect to active
employees.
Net periodic postretirement benefit cost for continuing operations in 1993
included the following components:
The incremental expense for continuing operations in 1993 resulting from
adoption of SFAS No. 106 was approximately $3.7 million ($2.3 million after tax
or $0.08 per share), excluding the effect of the transition obligation which
was recognized as the cumulative effect on prior years of the change in
accounting. A one percentage point increase in the health care cost trend rate
would increase the APBO as of December 31, 1993, by $5.4 million. The impact
of a one percentage point increase in the health care trend rate on the sum of
the service and interest costs in 1993 would have been an increase of
$0.9 million. Postretirement benefit expense in 1993 was $6.8 million
(including $3.7 million due to the application of SFAS No. 106) and
approximately $2.3 million and $1.9 million in 1992 and 1991, respectively.
Contributions to multiemployer plans were $3.8 million, $2.8 million and
$2.1 million in 1993, 1992 and 1991, respectively.
The status of the company's unfunded postretirement benefit obligation at
December 31, 1993, follows:
The discount rates used to measure the APBO were 8.5 percent for U.S. plans and
9.0 percent for Canadian plans as of January 1, 1993, and 7.5 percent and 8.0
percent, respectively, at December 31, 1993. The assumed health care cost
trend rates used in measuring the APBO were 12.0 percent and 8.4 percent for
domestic pre-Medicare and post-Medicare benefits, respectively, and 12.0
percent for Canadian plans. The trend rates decline to 5.0 percent after the
year 2003.
Other Postemployment Benefits
The company elected early adoption of SFAS No. 112 and, effective January 1,
1993, recorded a non-cash, pretax charge of $10.0 million ($6.2 million after
tax) to recognize the cumulative effect on prior years. Excluding the
cumulative effect on prior years, neither the annual cost nor incremental
impact on after-tax earnings was significant. Future expense levels are
dependent upon actual claim experience, but are not expected to be material.
Other Benefit Plans
Substantially all domestic salaried employees and certain domestic non-union
hourly employees who participate in the company's 401(k) salary conversion plan
and meet certain eligibility requirements automatically participate in the
company's ESOP. Cash contributions to the ESOP trust, including preferred
dividends, are used to service the ESOP debt and were $8.8 million, $8.3
million and $7.7 million for 1993, 1992 and 1991, respectively. Total interest
paid by the ESOP trust for its borrowings was $5.4 million, $5.7 million and
$5.8 million for 1993, 1992 and 1991, respectively.
The company maintains Voluntary Employee Beneficiary Association (VEBA) trusts
to fund payment of certain medical, dental, disability and life insurance
benefits under various company plans for substantially all active and retired
domestic employees. Company contributions to the VEBA trusts included in
prepaid expenses were zero and $17.3 million at December 31, 1993 and 1992,
respectively.
SHAREHOLDERS' EQUITY
At December 31, 1993, the company had 120 million shares of common stock and 15
million shares of preferred stock authorized, both without par value.
Preferred stock includes 600,000 authorized but unissued shares designated as
Series A Junior Participating Preferred Stock and 2,100,000 authorized shares
designated as Series B ESOP Convertible Preferred Stock (Series B ESOP
Preferred). There were 1,870,085 shares of Series B ESOP Preferred outstanding
at December 31, 1993. On September 25, 1991, the company issued 3,162,500
shares of common stock in a public offering for net proceeds of $104.2 million.
The Series B ESOP Preferred Stock has a stated value and liquidation preference
of $36.75 per share and cumulative annual dividends of $2.76 per share. Each
share is convertible into not less than one share of common stock. The Series
B ESOP Preferred shares are entitled to 1.3 votes per share and are voted with
common shares as a single class upon matters submitted to a vote of the
corporation's shareholders. Effective April 2, 1993, the conversion price and
conversion ratio of the Series B ESOP Preferred were adjusted in accordance
with the anti-dilution provisions of the security to give effect to, among
other things, the dividend of Alltrista common stock to holders of company
common stock. The conversion price was adjusted to $31.813 per share, from
$36.75 per share, and the conversion ratio was adjusted to 1.1552 shares of
Ball Corporation Common Stock for each share of Series B ESOP Preferred. The
adjustments to the conversion price and conversion ratio had no impact on the
stated value and liquidation preference of $36.75 per share.
On January 7, 1992, the company redeemed, for $50.3 million, all 503 shares of
the Series C Preferred Stock issued on November 30, 1990, in connection with
the purchase of the remaining 50 percent interest in Ball-InCon.
Under the company's Shareholder Rights Plan, adopted in 1986, one Preferred
Stock Purchase Right is attached to each outstanding share of common stock of
the company. If a person or group acquires 20 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 common stock of the company
at a 50 percent discount. The rights expire in 1996, are redeemable by the
company at a redemption price of $.05 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 the
company's board of directors. The rights would not interfere with any merger
or other business combinations approved by the board of directors.
Common shares were reserved at December 31, 1993, for future issuance under the
employee stock purchase, stock option, dividend reinvestment and restricted
stock plans, as well as to meet conversion requirements of the Series B ESOP
Preferred Stock.
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. Company contributions for this plan were $2.0 million, $1.7 million
and $1.3 million in 1993, 1992 and 1991, respectively.
The company has several stock option plans under which options to purchase
shares of common stock have been granted to officers and key employees of the
company and its subsidiaries at not less than the market value of the stock at
the date of grant. Payment must be 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 exercise date. Options terminate ten years from date of grant and
are exercisable in four equal installments commencing one year from date of
grant. Several option plans provide for, among other things, the discretionary
grant of stock appreciation rights in tandem with options and certain anti-
dilution provisions. Effective April 2, 1993, in conjunction with the dividend
of Alltrista common stock to holders of the company's common stock, the company
adjusted the number and exercise price of options outstanding as of that date
in accordance with the anti-dilution provisions of the plans.
A summary of stock option activity for the years ended December 31, 1993 and
1992, follows:
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 amounted to $15.7 million,
$14.6 million and $12.1 million for the years 1993, 1992 and 1991,
respectively.
CONTINGENCIES
Environmental
The Environmental Protection Agency has 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
does not indicate that these matters will have a material, adverse effect upon
financial condition, results of operations, capital expenditures or competitive
position of the company.
Litigation
Prior to the acquisition on April 19, 1991, of the lenders' position in the
term debt and 100 percent ownership of Ball Canada, the company had owned
indirectly 50 percent of Ball Canada through a joint venture holding company
owned equally with Onex Corporation (Onex). The 1988 Joint Venture Agreement
had included a provision under which Onex, beginning in late 1993, could "put"
to the company all of its equity in the holding company at a price based upon
the holding company's fair value. Onex has since claimed that its "put" option
entitled it to a minimum value founded on Onex's original investment of
approximately $22.0 million. On December 9, 1993, Onex served notice on the
company that Onex was exercising its alleged right under the Joint Venture
Agreement to require the company to purchase all of the holding company shares
owned or controlled by Onex, directly or indirectly, for an amount including
"approximately $38 million" in respect of the Class A-2 Preference Shares
owned by Onex in the holding company. Although the matter is not free
from doubt, such "$38 million" appears to be expressed in Canadian dollars and
would represent approximately $28.7 million at year-end exchange rates. The
company's position is that it has no obligation to purchase any shares from
Onex or to pay Onex any amount for such shares, since, among other things, the
Joint Venture Agreement, which included the "put" option, is terminated.
On January 24, 1994, the Ontario Court (General Division Commercial List)
ordered that Onex's August 1993 Application for Rectification to reform the
Joint Venture Agreement document be stayed, and the Court referred the parties
to arbitration on the matter. Under date of January 31, 1994, Onex provided a
Notice of Appeal of the Court's order. The company is opposing the appeal but
is unable to predict its outcome. The company believes that the matter will
result likely in arbitration or possibly in other litigation instituted against
it by Onex. The company believes that it has meritorious defenses against
Onex's claims, although, because of the uncertainties inherent in the
arbitration or litigation process, it is unable to predict the outcome of any
such arbitration or other litigation.
Earnings per share calculations for each quarter are based on the weighted
average number of shares outstanding for each period, and the sum of the
quarterly amounts may not necessarily equal the annual earnings per share
amount.
BOARD OF DIRECTORS
[Photograph #9] Description of Photograph #9:
Photograph of Alvin Owsley.
Alvin Owsley, 68, is chairman of the board. He was elected a director in 1967
and is a member of the audit, executive compensation and nominating committees.
He is a retired senior partner in the law firm of Baker & Botts, Houston.
[Photograph #10] Description of Photograph #10:
Photograph of Delmont A. Davis.
Delmont A. Davis, 58, is president and chief executive officer and a member of
the executive and finance committees. He joined the company in 1969. He held
vice president positions from 1974 to 1989; was elected a director and
president and chief operating officer in 1989; and was named president and
chief executive officer in 1991. He is also a director of Cooper Tire & Rubber
Company, Findlay, Ohio; and TRINOVA Corporation, Maumee, Ohio.
[Photograph #11] Description of Photograph #11:
Photograph of Howard M. Dean.
Howard M. Dean, 56, was elected a director in 1984 and is a member of the
audit, executive and finance committees. He is chairman of the board and chief
executive officer of Dean Foods Company, Franklin Park, Illinois. He is also a
director of Nalco Chemical Company, Naperville, Illinois; and Yellow Freight
System, Inc., Overland Park, Kansas.
[Photograph #12] Description of Photograph #12:
Photograph of Richard M. Gillett.
Richard M. Gillett, 70, was elected a director in 1979 and is a member of the
executive, executive compensation and finance committees. He is a retired
chairman of the board, Old Kent Financial Corporation, Grand Rapids, Michigan.
He is also a director of Ameritech, Chicago; Foremost Corporation of America,
Grand Rapids; and CMS Energy Corporation, Jackson, Michigan.
[Photograph #13] Description of Photograph #13:
Photograph of John T. Hackett.
John T. Hackett, 61, was elected a director in January 1994. He is managing
general partner of CID Equity Partners, Indianapolis. He is also a director of
Irwin Financial Corporation, Columbus, Indiana; Meridian Insurance Group,
Inc., Indianapolis; and Wabash National Corporation, Lafayette, Indiana.
[Photograph #14] Description of Photograph #14:
Photograph of John F. Lehman.
John F. Lehman, 51, was elected a director in 1987 and is a member of the audit
and finance committees. He is chairman of J. F. Lehman & Company, New York,
and chairman of the board, Sperry Marine Inc., Charlottesville, Virginia. He
is a director of Westland Group, PLC, London; and ISO Inc., New York. He
served as Secretary of the Navy from 1981 to 1987.
[Photograph #15] Description of Photograph #15:
Photograph of Delbert C. Staley.
Delbert C. Staley, 69, was elected a director in 1977 and is a member of the
executive, executive compensation and nominating committees. He is a retired
chairman of the board and chief executive officer of NYNEX Corporation, New
York. He is also a director of The Bank of New York Company, Inc., and its
subsidiary, The Bank of New York; AlliedSignal Inc., Morristown, New Jersey;
Dean Foods Company, Franklin Park, Illinois; Digital Equipment Corporation,
Maynard, Massachusetts; and Polaroid Corporation, Cambridge, Massachusetts.
[Photograph #16] Description of Photograph #16:
Photograph of W. Thomas Stephens.
W. Thomas Stephens, 51, was elected a director in 1992 and is a member of the
audit and finance committees. He is chairman, president and chief executive
officer of Manville Corporation, Denver. He was elected president and chief
executive officer of Manville in 1986. He is also a director of Riverwood
International, Atlanta; and Public Service Company of Colorado, Denver.
[Photograph #17] Description of Photograph #17:
Photograph of William P. Stiritz.
William P. Stiritz, 59, was elected a director in 1983 and is a member of the
audit, executive compensation and nominating committees. He is chairman,
president and chief executive officer of Ralston Purina Company, St. Louis. He
is also a director of Angelica Corporation; Boatman's Bancshares, Inc.;
Reinsurance Group of America, Inc.; and May Department Stores Company, all of
St. Louis.
DIRECTORS EMERITUS AND COMPANY OFFICERS
DIRECTORS EMERITUS
Edmund F. Ball Chairman of the Executive Committee Emeritus;
retired Chairman, President and Chief Executive
Officer
John W. Fisher Chairman of the Board Emeritus; retired Chairman,
President and Chief Executive Officer
COMPANY OFFICERS
Delmont A. Davis* President and Chief Executive Officer (25)
Richard E. Durbin Vice President, Information Services (13)
Duane E. Emerson* Senior Vice President, Administration (20)
Larry T. Gillam Vice President, Corporate Facilities and Support
Services (17)
John A. Haas* Group Vice President; President, Metal Food
Container and Specialty Products Group (29)
Donovan B. Hicks* Group Vice President; President, Aerospace and
Communications Group (32)
R. David Hoover* Senior Vice President and Chief Financial Officer
(23)
Donald C. Lewis Assistant Corporate Secretary and Associate General
Counsel (19)
William A. Lincoln* Executive Vice President, Metal Container
Operations; President and Chief Executive Officer,
Ball Packaging Products Canada, Inc. (24)
H. Ray Looney* Group Vice President; President and Chief Executive
Officer, Ball-InCon Glass Packaging Corp. (22)
Elizabeth A. Overmyer Assistant Corporate Secretary (19)
Albert R. Schlesinger Vice President and Controller (17)
Raymond J. Seabrook Vice President and Treasurer (9)
David B. Sheldon* Group Vice President; President, Metal Beverage
Container Group (27)
George A. Sissel* Senior Vice President, Corporate Affairs; Corporate
Secretary and General Counsel (23)
Harold L. Sohn Vice President, Corporate Relations (17)
Charles E. Wild Vice President, Corporate Compliance (29)
* Member of the Management Committee
( ) Years of service with Ball Corporation
ITEMS OF INTEREST TO SHAREHOLDERS
Quarterly Stock Prices and Dividends
Quarterly sales prices for the company's common stock, as reported on the
composite tape, and quarterly dividends in 1993 and 1992 were:
Dividend Reinvestment and Voluntary Stock Purchase Plan
A dividend reinvestment and voluntary stock purchase plan for Ball Corporation
shareholders permits purchase of the company's common stock without payment of
a brokerage commission or service charge. Participants in this plan may have
cash dividends on their shares automatically reinvested at a five percent
discount and, if they choose, invest by making optional cash payments.
Additional information on the plan is available by writing First Chicago Trust
Company of New York, Dividend Reinvestment Plans, P.O. Box 13531, Newark, New
Jersey 07188-0001. The toll-free number is 1-800-446-2617.
Annual Meeting
The annual meeting of Ball Corporation shareholders will be held at 9 a.m.
(EST) on Tuesday, April 26, 1994, at the Horizon Convention Center, 401 South
High Street, Muncie, Indiana.
Annual Report on Form 10-K
Copies of the Annual Report on Form 10-K for 1993, filed by the company with
the United States Securities and Exchange Commission, may be obtained by
shareholders without charge by writing to Elizabeth A. Overmyer, Assistant
Corporate Secretary, Ball Corporation, P.O. Box 2407, Muncie, Indiana 47307-
0407.
Transfer Agents
First Chicago Trust Company of New York
P.O. Box 2500
Jersey City, New Jersey 07303-2500
American National Trust and Investment Management Company*
110 East Main Street
Muncie, Indiana 47305
Registrars
First Chicago Trust Company of New York
P.O. Box 2500
Jersey City, New Jersey 07303-2500
First Merchants Bank*
200 East Jackson Street
Muncie, Indiana 47305
Equal Opportunity
Ball Corporation is an equal opportunity employer.
*for Employee Stock Purchase Plan
INSIDE BACK COVER
Blank
BACK COVER
[Company Logo]
Ball Corporation
345 South High Street
Muncie, Indiana 47307-0407
(317) 747-6100
APPENDIX - LISTING OF GRAPHIC AND IMAGE MATERIAL CONTAINED IN THE PRINTED 1993
ANNUAL REPORT TO SHAREHOLDERS
NOTE: Headings indicate the sections in the body of this electronic format
1993 Annual Report to Shareholders in which the graphic and image
material listed below appears along with, where applicable, further
descriptions of such material.
FRONT COVER
Photograph # 1 Description: Photograph of three types of packaging products
produced by the company; one glass wine bottle, one metal
food container and one aluminum beverage container.
MESSAGE TO SHAREHOLDERS
Photograph # 2 Description: Photograph of Delmont A. Davis
Caption: Delmont A. Davis, President and Chief Executive
Officer
Photograph # 3 Description: Photograph of Alvin Owsley
Caption: Alvin Owsley, Chairman of the Board
COMPANY PROFILE
Photograph # 4 Aluminum beverage cans and easy-open can ends
Photograph # 5 Description: Photograph of assorted undecorated, 3-piece and
2-piece metal food containers with attached food can ends
and undecorated metal aerosol cans.
Photograph # 6 Description: Photograph of assorted, unlabeled glass food,
juice, wine and liquor bottles and jars.
Photograph # 7 Description: Photograph of the Hubble Space Telescope
berthed in the Shuttle Endeavour's cargo bay.
IN MEMORIAM
Photograph # 8 Description: Photograph of Richard M. Ringoen and facsimile
signature.
BOARD OF DIRECTORS
Photograph # 9 Description: Photograph of Alvin Owsley.
Photograph #10 Description: Photograph of Delmont A. Davis.
Photograph #11 Description: Photograph of Howard M. Dean.
Photograph #12 Description: Photograph of Richard M. Gillett.
Photograph #13 Description: Photograph of John T. Hackett.
Photograph #14 Description: Photograph of John F. Lehman.
Photograph #15 Description: Photograph of Delbert C. Staley.
Photograph #16 Description: Photograph of W. Thomas Stephens.
Photograph #17 Description: Photograph of William P. Stiritz.
INSIDE FRONT COVER
Graph #1 Caption: Net Sales (dollars in millions)
Description: A bar graph, vertically oriented, depicting
consolidated net sales for the years 1989 through 1993
inclusive.
Graph #2 Caption: Operating Earnings Before Restructuring and Unusual
Items (dollars in millions)
Description: A bar chart, vertically oriented, depicting
operating earnings before restructuring and unusual items
for the years 1989 through 1993, inclusive.
Graph #3 Caption: Cash Dividends Per Share of Common Stock (dollars)
Description: A bar chart, vertically oriented, depicting
annual cash dividends per share of common stock for the
years 1989 through 1993, inclusive.
Graph #4 Caption: Closing Stock Price (dollars)
Description: A bar chart, vertically oriented, depicting the
closing stock price of the company's common stock on
December 31 of the years 1989 through 1993, inclusive.
Graph #5 Caption: Selling, General and Administrative Expenses
(percentage of net sales)
Legend: Warehousing; R&D (research and development), selling
and advertising; and G&A (general and administrative)
Description: A stacked bar chart, vertically oriented,
depicting the components of selling, general and
administrative expenses, expressed as a percentage of net
sales, for the years 1989 through 1993, inclusive.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
Graph #6 Caption: Current Ratio
Description: A bar chart, vertically oriented, depicting the
current ratio on December 31 of the years 1989 through
1993, inclusive.
Graph #7 Caption: Debt-to-Total Capitalization (percentage)
Description: A bar chart, vertically oriented, depicting the
debt-to-total capitalization ratio on December 31 of the
years 1989 through 1993, inclusive.
Graph #8 Caption: Capital Spending (dollars in millions)
Description: A bar chart, vertically oriented, depicting the
consolidated amounts of capital spending for the years 1989
through 1993, inclusive.
Graph #9 Caption: Depreciation (dollars in millions)
Description: A bar chart, vertically oriented, depicting the
consolidated amounts of depreciation for the years 1989
through 1993, inclusive.