10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on August 15, 1995
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 2, 1995
Commission file number 1-7349
BALL CORPORATION
State of Indiana 35-0160610
345 South High Street, P.O. Box 2407
Muncie, IN 47307-0407
317/747-6100
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes [X]
No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at June 30, 1995
____________ _______________________________
Common Stock,
without par value 30,070,020 shares
Ball Corporation and Subsidiaries
QUARTERLY REPORT ON FORM 10-Q
For the period ended July 2, 1995
INDEX
Page Number
-----------
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Unaudited Condensed Consolidated Statement of Income
for the three and six month periods ended July 2,
1995 and July 3, 1994 3
Unaudited Condensed Consolidated Balance Sheet at
July 2, 1995 and December 31, 1994 4
Unaudited Condensed Consolidated Statement of Cash
Flows for the six month periods ended July 2, 1995
and July 3, 1994 5
Notes to Unaudited Condensed Consolidated Financial
Statements 6 - 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 10
PART II. OTHER INFORMATION 11 - 12
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
See accompanying notes to unaudited condensed consolidated financial statements.
See accompanying notes to unaudited condensed consolidated financial statements.
See accompanying notes to unaudited condensed consolidated financial statements.
Ball Corporation and Subsidiaries
July 2, 1995
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. General.
The accompanying unaudited condensed consolidated financial statements have been
prepared by the company without audit. Certain information and footnote
disclosures, including significant accounting policies, normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. However, the company believes that
the financial statements reflect all adjustments which are necessary for a fair
statement of the results for the interim period. Results of operations for the
periods shown are not necessarily indicative of results for the year,
particularly in view of some seasonality in packaging operations. It is
suggested that these unaudited condensed consolidated financial statements and
accompanying notes be read in conjunction with the consolidated financial
statements and the notes thereto included in the company's latest annual report.
2. Reclassifications.
Certain prior year amounts have been reclassified in order to conform with the
1995 presentation. The first quarter 1995 income statement has been restated to
reflect the adoption of LIFO retroactively to January 1, 1995.
3. Change in Accounting Principle.
During the second quarter of 1995, the company adopted the last-in, first-out
(LIFO) method of accounting for the aluminum component of its domestic beverage
container inventories. Prior to the adoption of LIFO, these inventories were
valued on a first-in, first-out (FIFO) basis. This change in accounting
principle was applied retroactively to the beginning of 1995. Significant cost
increases in aluminum are anticipated and therefore, management believes the
LIFO method results in a better matching of current costs with current revenue.
The effect of this change was to reduce net income by $3.3 million in each of
the first and second quarters of 1995 (11 cents per share) or $6.6 million
year-to-date (22 cents per share). The cumulative effect of this accounting
change and the pro forma effects on prior years' earnings are not determinable.
4. Net Gain on Dispositions of Businesses.
The company sold its Efratom time and frequency measurement division to Datum
Inc. on March 17, 1995, for cash of $15.0 million and 1,277,778 shares of Datum
common stock with a value of $14.0 million at the date of the sale. In
conjunction with the sale of Efratom, the company recorded an after-tax gain of
$7.7 million. This gain was partially offset by a $4.9 million after-tax charge
recorded in the first quarter of 1995 related to the wind down of the visual
image generation systems business. The Statement of Cash Flows excludes the
noncash transaction for the disposition of the Efratom division to Datum Inc.
5. Ball Packaging Products Canada, Inc. (Ball Canada).
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 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 $30.0
million in respect of the Class A-2 Preference Shares owned by Onex in the
holding company. The company denied that it had any obligation to pay Onex for
such shares. Onex pursued its claim in arbitration before the International
Chamber of Commerce. A hearing was held on May 30, 1995. On August 1, 1995, the
arbitral tribunal rejected Onex's claim and found in favor of the company. Based
upon the information available to the company at the present time, the company
does not believe that this matter will have a material adverse effect upon the
financial condition of the company.
6. Shareholders' Equity.
Issued and outstanding shares of the Series B ESOP Convertible Preferred Stock
(ESOP Preferred) were 1,808,371 shares at July 2, 1995, and 1,827,973 shares at
December 31, 1994.
7. Contingencies.
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.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Consolidated net sales of $755.2 million for the second quarter of 1995
increased 11.6 percent compared to the second quarter of 1994. For the six month
period ended July 2, 1995, net sales increased 7.7 percent to $1.4 billion. The
increases in net sales primarily reflect higher sales in the metal beverage
container business, the aerospace and communications segment and the glass
business. In addition, sales from FTB Packaging Ltd., the company's Chinese
metal packaging business, were consolidated for the first time in 1995.
Consolidated operating earnings for the second quarter of 1995 increased 9.3
percent to $47.1 million from $43.1 million in the second quarter of 1994 and
include a pretax charge of $5.4 million for the adoption of the last-in,
first-out (LIFO) method of accounting for certain inventories. For the
year-to-date period, consolidated operating earnings increased 12.4 percent to
$80.5 million from the comparable period in 1994 and include a $10.8 million
pretax charge for LIFO adoption. The quarter-to-date and year-to-date increases
in operating earnings were due to improved Canadian metal container and
aerospace and communications results, as well as improved results for the
commercial glass business. FTB Packaging Ltd. also reported positive earnings in
1995.
Consolidated interest expense for the second quarter and six month periods of
1995 was $10.7 million and $20.3 million, respectively, compared to $10.7
million and $21.1 million for the second quarter and six month periods of 1994.
The year-to-date decrease was attributable to a reduction in the average level
of borrowings partially offset by the impact of higher rates on
interest-sensitive borrowings.
Net income increased 27.3 percent and 37.9 percent for the second quarter and
year-to-date periods, respectively, while earnings per share increased to 70
cents per share for the second quarter from 55 cents in 1994. The improved
results are primarily due to the aforementioned factors and include an after-tax
gain of $7.7 million resulting from the sale of the company's Efratom division
during the first quarter of 1995 net of a $4.9 million after-tax charge related
to the wind down of the visual image generation systems (VIGS) business. In
conjunction with the sale of the Efratom division, the company received cash of
$15.0 million as well as 1,277,778 shares of Datum Inc. common stock valued at
$14.0 million at the date of the sale. The second quarter and year-to-date 1994
results include a one-time, pretax charge of $3.2 million ($1.9 million after
tax or seven cents per share) for costs associated with the early retirement of
two former officers.
Business Segments
The packaging segment reported sales increases of 9.8 percent and 5.5 percent
for the second quarter and year-to-date periods of 1995, respectively, relative
to the year earlier due primarily to increased sales in the metal beverage
container business as well as the glass business. In addition, revenues from FTB
Packaging Ltd., the company's Chinese metal packaging business, were
consolidated for the first time in 1995. Operating earnings improved for the
second quarter and six month periods of 1995 as a result of improved results in
the commercial glass container business and Canadian metal packaging business.
FTB reported positive earnings for the second quarter and year-to-date periods
in 1995. Sales and operating earnings of the metal food container business were
less than the 1994 second quarter and year-to-date amounts.
Within the packaging segment, sales in the metal container business improved
13.5 percent for the second quarter and 7.8 percent for the six month period.
Domestic metal beverage container sales increased despite lower unit volumes due
to higher beverage can selling prices and sales from FTB Packaging Ltd. which
were consolidated for the first time in 1995. As a result of the adoption of
LIFO in the second quarter of 1995, domestic metal beverage container operating
earnings declined for the three month period compared to 1994 when inventories
were valued under the FIFO method. Earnings for the six month period were
unchanged compared to the same period in 1994. Excluding the impact of the LIFO
adoption, earnings improved in the domestic metal beverage container business
for the quarter and year-to-date periods reflecting increased sales and
productivity improvements. Metal food container sales decreased for the second
quarter of 1995 and the first six months of 1995 as a result of lower shipments
due to poor vegetable harvests. In May 1995, the company announced plans to
build two beverage can plants in China during 1996 through FTB Packaging Ltd. In
addition, the company announced in June 1995 its plans to form a joint venture
company with BBM Participacoes S.A. to manufacture aluminum beverage containers
in Brazil. Ball will have a 50 percent interest in this new company.
The glass business reported increased sales of 2.0 percent for the second
quarter and 1.0 percent for the year-to-date period due to a price increase
effective March 1, 1995, to largely offset cost increases for corrugated and
solid fiber paper and a price increase for wine products effective June 1, 1995,
partially offset by lower unit volumes. Operating earnings increased for the
quarter and year-to-date periods due to improved sales, the effects of which
more than offset the increases in freight and warehousing costs and increased
costs for corrugated and solid fiber paper. The glass business also benefited
from the reconfiguration of its plants during 1994 which included the shutdown
of its glass manufacturing plants in Okmulgee, Oklahoma, and Asheville, North
Carolina, and the capacity increase of three other glass plants. The company
completed the rebuild of two glass furnaces during the first quarter of 1995
while six furnace rebuilds were completed during the first quarter of 1994. On
June 26, 1995, the company announced its agreement with Compagnie de
Saint-Gobain to form a new jointly-owned company in the U.S. which will acquire
the glass manufacturing operations of both Ball Glass Container Corporation and
the Foster-Forbes glass operations of American National Can, a unit of Pechiney,
S.A. The new company will be named Ball-Foster Glass Container Co. and will be
headquartered in Muncie, Indiana. This transaction is expected to occur prior to
December 31, 1995.
The company has announced its plans to open a plant in southern California to
produce PET (polyethylene terephthalate) plastic containers. This plant should
be in operation near the end of 1995. The company will begin supplying PET
bottles to Pepsi-Cola Company in 1996 as part of a long-term agreement. In
addition, the company plans to begin construction on a second plastic container
plant in early 1996 in New York state. The plastics division's headquarters are
in Atlanta, Georgia, where a research and development center is currently under
construction.
Sales of the aerospace and communications segment increased 29.1 percent for the
second quarter and 27.3 percent year-to-date in 1995 compared to 1994 resulting
in increased operating results despite an $8.0 million pretax charge recorded in
the first quarter of 1995 for estimated costs of winding down the VIGS business
and the sale of the Efratom division during the first quarter of 1995. This
improvement was primarily due to new contracts awarded in 1994 and cost benefits
associated with the company's restructuring plan. In April 1995, the company
completed the sale of its Efratom time and frequency measurement division to
Datum Inc. During the second quarter of 1995, the company invested an additional
$7.5 million in Earthwatch, Inc., its new subsidiary formed in late 1994.
Earthwatch and WorldView Imaging Corporation merged during the first quarter of
1995 to serve the market for satellite-based remote sensing of the earth.
Backlog for the aerospace and communications segment at the quarter end was
approximately $477 million compared to $322 million at December 31, 1994, and
$266.0 million at the end of the second quarter of 1994. Increased backlog
reflects a new contract awarded in 1995. The aerospace and communications
segment, formally Ball Aerospace and Communications Group, was renamed to Ball
Aerospace & Technologies Corp. in July and will operate as a subsidiary.
RESTRUCTURING AND OTHER RESERVES
In 1993 the company recorded aggregate restructuring and other reserves of
$108.7 million pretax. The amounts provided included $52.5 million pretax for
asset write-offs and write-downs to net realizable values and $35.9 million for
employee costs and termination benefits and pension curtailment losses. Charges
to the reserve were $19.6 million in 1993 and $30.3 million in 1994. For the
three months and six months ended July 2, 1995, charges to the reserves were
$2.2 million and $7.8 million, respectively. Included in the current year
charges are costs related to the disposal of the visual imaging product line of
$3.0 million and costs associated with plant closings of $4.7 million.
Additional reserves related to the VIGS unit of $4.0 million and $8.0 million
were recorded in 1994 and the first quarter of 1995, respectively.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash used by operations was $69.6 million for the first six months of 1995
compared to cash provided from operations of $36.3 million for the same period
in 1994. The change in cash from operations is primarily due to increased
working capital reflecting higher receivables and inventory levels in 1995. The
current ratio was 1.5 at July 2, 1995 compared to 1.4 at December 31, 1994.
Total debt increased by $161.7 million to $655.4 million at July 2, 1995, from
$493.7 million at December 31, 1994, resulting in an increase in the
debt-to-total capitalization ratio to 49.4 percent at July 2, 1995, from 43.8
percent as of December 31, 1994. Increased debt was used to finance higher
capital expenditures and increased working capital requirements.
As of July 2, 1995, the company had committed revolving credit facilities of
$300.0 million with various banks consisting of a $150.0 million, three-year
facility and 364-day facilities which amounted to $150.0 million. On July 19,
1995, the three-year facility was amended to a new five-year agreement at more
favorable rates. Uncommitted credit facilities from various banks of
approximately $446.0 million, of which $218.0 million was outstanding, and a
Canadian dollar commercial paper facility of approximately $85.0 million, of
which $27.0 million was outstanding, also were available.
The company anticipates total 1995 capital spending of approximately $235.0
million including significant amounts for emerging businesses such as domestic
plastics (PET) and metal packaging in China. Spending in existing businesses is
concentrated within the packaging segment in part to complete the conversion of
metal beverage equipment to new industry specifications.
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.
PART II. OTHER INFORMATION
Item 1. Legal proceedings
There were no events required to be reported under Item 1 for the quarter ending
July 2, 1995.
Item 2. Changes in securities
There were no events required to be reported under Item 2 for the quarter ending
July 2, 1995.
Item 3. Defaults upon senior securities
There were no events required to be reported under Item 3 for the quarter ending
July 2, 1995.
Item 4. Submission of matters to a vote of security holders
The Company held the Annual Meeting of Shareholders on April 26, 1995. Matters
voted upon by proxy were: the election of three directors for three-year terms
expiring in 1998; and, the ratification of the appointment of Price Waterhouse
as independent accountants in 1995. The results of the vote are as follows:
Item 5. Other information
There were no events required to be reported under Item 5 for the quarter ending
July 2, 1995.
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
11.1 Statement Re: Computation of Earnings per Share
18.1 Letter Re: Change in Accounting Principles
27.1 Financial Data Schedule for the Six Months Ending
July 2, 1995
27.2 Financial Data Schedule Restated for the Three Months
Ending April 2, 1995
(b) Reports on Form 8-K
A Current Report on Form 8-K, dated June 26, 1995, filed July 6, 1995,
announcing an agreement between Ball Corporation and Compagnie de
Saint-Gobain to form a new jointly-owned company in the U.S. which will
acquire the glass manufacturing operations of both Ball Glass Container
Co., a wholly owned subsidiary of Ball Corporation, and the
Foster-Forbes glass operations of American National Can, a unit of
Pechiney, S.A.
A Current Report on Form 8-K, filed August 10, 1995, announcing the
receipt of the decision received by the company on August 7, 1995, of
an arbitration award from an arbitration tribunal of the International
Chamber of Commerce. The arbitration decision was issued in favor of
the company in a dispute between the company and Onex Corporation of
Toronto. The ruling related to a 1988 joint venture agreement between
the company and Onex. Onex had sought approximately $30.0 million from
Ball with respect to shares Onex held in the former joint venture. The
arbitral tribunal rejected Onex's claim.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Ball Corporation
(Registrant)
By: /s/ R. David Hoover
----------------------------
R. David Hoover
Executive Vice President and
Chief Financial Officer
Date: August 15, 1995
----------------------------
Ball Corporation and Subsidiaries
QUARTERLY REPORT ON FORM 10-Q
July 2, 1995
EXHIBIT INDEX
Description Exhibit
----------- -------
Statement Re: Computation of Earnings per Share EX-11.1
Letter Re: Change in Accounting Principles EX-18.1
Financial Data Schedule for the Six Months Ending July 2, 1995 EX-27.1
Financial Data Schedule for the Three Months Ending April 2, 1995 EX-27.2