10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on November 15, 1995
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
(Mark one)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 1, 1995
---------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission file number 1-7349
BALL CORPORATION
State of Indiana 35-0160610
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 September 30, 1995
__________________ _________________________________
Common Stock,
without par value 30,216,393 shares
Ball Corporation and Subsidiaries
QUARTERLY REPORT ON FORM 10-Q
For the period ended October 1, 1995
INDEX
Page Number
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Unaudited Condensed Consolidated Statement of Income
for the three and nine month periods ended
October 1, 1995 and October 2, 1994 3
Unaudited Condensed Consolidated Balance Sheet at
October 1, 1995 and December 31, 1994 4
Unaudited Condensed Consolidated Statement of Cash
Flows for the nine month periods ended October 1,
1995 and October 2, 1994 5
Notes to Unaudited Condensed Consolidated Financial
Statements 6 - 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 12
PART II. OTHER INFORMATION 13 - 14
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 condensedconsolidated financial statements.
Ball Corporation and Subsidiaries
October 1, 1995
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Millions of dollars unless otherwise noted)
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.
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 January 1, 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) and $1.7 million in
the third quarter (6 cents per share) or $8.3 million year-to-date (27 cents per
share). The cumulative effect of this accounting change and the pro forma
effects on prior years' earnings are not determinable.
4. Net Loss on Dispositions of Business.
Ball Glass Container Corporation
On September 15, 1995, Ball Glass Container Corporation ("Ball Glass"), a wholly
owned subsidiary of the company, sold substantially all of its assets
(representing the company's glass food and beverage container manufacturing
business) to Ball-Foster Glass Container Corporation ("Ball-Foster"), a newly
formed Delaware limited liability company, for an aggregate purchase price of
approximately $323 million in cash, subject to adjustment in certain
circumstances.
In addition, Ball-Foster acquired substantially all of the assets of the Foster
Forbes glass division of American National Can Company, a subsidiary of
Pechiney, S.A., for an aggregate purchase price of $680 million in cash, subject
to adjustment in certain circumstances. The company indirectly owns 42 percent
of the interests of Ball-Foster while 58 percent of the ownership interests of
Ball-Foster are owned, indirectly, by Compagnie de Saint-Gobain, a French
corporation ("Saint-Gobain"). Financing for the acquisitions of the assets of
Ball Glass and Foster Forbes by Ball-Foster was provided through capital
contributions of Ball Glass and Saint-Gobain of $180.6 million and $249.4
million, respectively, and through a $400 million term loan facility and a $245
million revolving credit facility provided to Ball-Foster by Saint-Gobain. The
assets acquired by Ball-Foster had been used by Foster Forbes and Ball Glass in
the business of manufacturing glass food and beverage containers and are
expected to continue to be used in such business. Ball recorded a charge of
$77.8 million after tax ($2.58 per share) in the third quarter of 1995 in
connection with the sale of the assets of Ball Glass. The ultimate amount of the
charge may vary depending on the resolution of certain post-closing adjustments
and other matters relating to the transaction.
The company is accounting for its 42 percent interest in Ball-Foster under the
equity method of accounting. The following table illustrates the effects of the
above-mentioned transactions on a pro forma basis as though the transactions had
occurred at January 1, 1994. The unaudited pro forma 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, 1994.
Historical consolidated results of the company were adjusted to develop the
above pro forma information. Such pro forma adjustments included:
deconsolidation of the results of the company's glass food and beverage
container manufacturing business, adjustment of consolidated interest expense to
reflect the reduction of indebtedness from the assumed application of $141.9
million of net cash proceeds from the sale of the business to Ball-Foster,
adjustment of general and administrative expenses to expected recurring levels,
recording of the company's 42 percent interest in pro forma earnings of
Ball-Foster, and related tax effects of the foregoing adjustments. The $77.8
million nonrecurring net loss on disposition is not included in the above pro
forma results.
Efratom
The company sold its Efratom time and frequency measurement business 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.
5. Ball Packaging Products Holding, Inc. (Ball Canada).
The company previously reported that Onex Corporation ("Onex") filed a claim
against the company for the company's failure to purchase all of Onex's shares
of Ball Canada, a joint venture holding company owned 50 percent by the company
and 50 percent by Onex. Onex claimed that its "put" option entitled it to a
minimum value founded on Onex's original investment of approximately $30.0
million in respect of the shares owned by Onex in the holding company. The
company denied 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 believes that this
matter is now concluded without any 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 1,786,852 shares at October 1, 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 $760.7 million for the third quarter of 1995 increased
6.1 percent compared to the third quarter of 1994. For the nine month period
ended October 1, 1995, net sales increased 7.1 percent to $2.1 billion. The
increases in net sales primarily reflect higher sales in the metal beverage
container business and the aerospace and communications business. In addition,
sales from FTB Packaging Ltd., the company's Chinese metal packaging business,
of $15.8 million and $32.5 million for the third quarter and year to date
respectively, were consolidated for the first time in 1995. Sales in the glass
business declined for the three month and nine month periods due to the sale of
the glass manufacturing operations to Ball-Foster on September 15, 1995 as
described in detail below.
Consolidated operating earnings declined to $18.0 million for the nine months
ended October 1, 1995, compared to $124.6 million for 1994 primarily as a result
of the net loss on dispositions of $109.5 million. For the third quarter of
1995, the operating loss of $70.4 million was primarily a result of the $113.3
million pretax loss on the sale of the company's glass business. Before the loss
on the glass business disposition, consolidated operating earnings for the third
quarter of 1995 decreased 16.4 percent to $42.9 million from $51.3 million in
the third quarter of 1994 and include a pretax charge of $2.7 million for the
adoption of the last-in, first-out (LIFO) method of accounting for certain
inventories. The third quarter decrease results primarily from lower operating
earnings in the domestic metal container businesses.
Excluding the net loss on business dispositions, consolidated operating earnings
for the year-to-date period increased 2.3 percent to $127.5 million from the
comparable period in 1994 and include a $13.5 million 1995 pretax charge for
LIFO adoption. The year-to-date increase in operating earnings, excluding the
effects of business dispositions, was primarily due to improved Canadian and
aerospace and communications results.
Consolidated interest expense for the third quarter and nine month periods of
1995 was $10.2 million and $30.5 million, respectively, compared to $10.2
million and $31.3 million for the third quarter and nine 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.
The net loss of $57.3 million ($1.93 per share) and $19.1 million ($0.71 per
share) for the third quarter and year-to-date periods, respectively, reflects an
after-tax loss of $77.8 million ($2.58 per share) on the sale of the glass
business to Ball-Foster effective September 15, 1995. In conjunction with this
sale, the company acquired a 42 percent interest in Ball-Foster, which also
acquired the glass business of Foster Forbes. The year-to-date net loss also
reflects an after-tax gain of $7.7 million resulting from the sale of the
company's Efratom business 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. The quarter and year-to-date 1994 results include
pretax charges of $5.3 million ($3.3 million after-tax) and $8.6 million ($5.2
million after-tax) for costs associated with the early retirement of two former
officers and the foreclosure of certain assets of the visual imaging generating
business which was sold in May 1994.
BUSINESS SEGMENTS
Packaging
The packaging segment reported sales increases of 5.5 percent over 1994 for both
the third quarter and year-to-date periods of 1995 to $683.3 million and
$1,883.3 million, respectively. These increases are due primarily to increased
sales in the North American metal container business. In addition, as previously
noted, revenues from FTB Packaging Ltd., the company's Chinese metal packaging
business, were consolidated for the first time in 1995. Operating earnings
declined for the third quarter and year-to-date 1995 periods as a result of the
loss on the sale of the company's glass business and reduced earnings in the
domestic metal beverage and food container businesses, due in part to adoption
of the LIFO method of inventory accounting.
Metal Packaging
Within the packaging segment, sales in the metal packaging business improved
14.9 percent for the third quarter to $518.3 million and 10.4 percent for the
nine month period to $1,337.4 million. Year-to-date domestic metal beverage
container sales increased 14 percent as higher beverage can selling prices were
offset by lower unit volumes. Metal food container sales decreased 4.5 percent
for the third quarter of 1995 and 11.8 percent for the first nine months of 1995
as a result of lower shipments due to poor U.S. vegetable harvests. Metal
packaging sales also benefited from the aforementioned 1995 FTB Packaging Ltd.
sales, which were consolidated for the first time in 1995. Due primarily to
increased material costs, lower metal food can shipments and the LIFO inventory
effect, overall metal packaging and domestic metal beverage container operating
earnings declined 23 percent and 27 percent, respectively, for the third quarter
of 1995 compared to 1994 when inventories were valued under the FIFO method.
Metal packaging earnings for the nine month period declined 5 percent due
primarily to lower unit volumes and rising material costs for metal beverage
containers which have not been fully recovered in selling prices, the effect of
which was partially offset by improved Canadian results.
In May 1995, the company announced plans to build two beverage can plants in
China during 1996. The company will hold a majority interest in these new
operations through its subsidiary, 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 the Brazilian joint venture.
Glass Packaging
Sales in the glass business declined 16.2 percent and 4.9 percent, to $165.1
million and $545.9 million, respectively, during the three-month and nine-month
periods as a result of the sale of the glass manufacturing operations to
Ball-Foster on September 15. On September 15, 1995, the company and Compagnie de
Saint-Gobain formed a new jointly owned company in the U.S., Ball-Foster Glass
Container Co., which acquired 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. Ball-Foster is headquartered in Muncie,
Indiana. The company is accounting for its 42 percent interest in Ball-Foster
under the equity method. Excluding the $113.3 million pretax loss on the glass
sale, operating earnings increased 7 percent for the quarter and 14 percent
year-to-date due to the 1995 benefits derived 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.
PET Packaging
Costs incurred for the start-up of the new PET (polyethylene terephthalate)
plastic container business of $2.5 million and $4.7 million are included in
third quarter and year-to-date operating earnings, respectively.
The company plans to begin production of PET plastic containers in its southern
California plant by year end 1995. The company will begin supplying PET bottles
to a major soft drink customer in 1996 as part of a long-term agreement.
Construction has begun on additional plastic container plants with completion
scheduled for early 1996 at the Syracuse, New York site.
Aerospace and Communications
Sales of the aerospace and communications segment increased 12.2 percent to
$77.4 million for the third quarter and 22.0 percent to $238.2 year-to-date in
1995 compared to 1994. Operating results, which increased 91 percent
year-to-date, included an $8.0 million pretax charge recorded in the first
quarter of 1995 for estimated costs of winding down the VIGS business and the
pretax gain on the sale of the Efratom business during the first quarter of
1995. The 1994 third quarter operating results also reflect a $2.7 million
nonrecurring charge for the aforementioned foreclosure of certain VIGS assets.
Excluding these unusual items, 1995 year-to-date operating income increased 36
percent primarily due to new contracts awarded late in 1994 and cost benefits
associated with the company's restructuring plan. Third quarter 1995 recurring
operating results were slightly below the same period in 1994, due primarily to
the inclusion of Efratom's income in 1994. During 1995, the company has invested
an additional $17.9 million in Earthwatch, Inc., its new subsidiary, formed in
late 1994 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 $441 million compared to $322 million at December 31, 1994, and
$293 million at the end of the third quarter of 1994. Increased backlog reflects
new contracts awarded in 1995, including a $49 million contract from the
Aeronautical Systems Center at Wright-Patterson Air Force Base in Dayton, Ohio
awarded during the third quarter. The aerospace and communications segment,
formerly Ball Aerospace and Communications Group, was renamed to Ball Aerospace
& Technologies Corp. in August and is operating 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 nine months ended October 1, 1995, charges to the reserves were
$8.1 million and $15.8 million, respectively. Additionally, $14.8 million of
restructuring reserves identified for the closure of an additional Ball glass
facility were not utilized prior to the September 15 sale of the company's glass
business to Ball-Foster and were released in the third quarter of 1995. The
related income statement effect is reflected in the net loss on disposition.
Included in the current year charges are costs related to the disposal of the
VIGS product line of $4.2 million and costs associated with plant closings of
$11.6 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 provided by operations was $57.1 million for the first nine months of 1995
compared to $154.9 million for the same period in 1994. The decrease in cash
provided by operations is primarily due to increased working capital reflecting
higher receivables and inventory levels in 1995, excluding the effects of the
sale of the glass business. The current ratio was 1.3 at October 1, 1995
compared to 1.4 at December 31, 1994.
Total debt decreased by $69.4 million to $424.3 million at October 1, 1995, from
$493.7 million at December 31, 1994, resulting in a decrease in the
debt-to-total capitalization ratio to 41.5 percent at October 1, 1995, from 43.8
percent as of December 31, 1994. The decrease in debt reflects normal maturities
as well as a reduction in short-term debt and prepayments made with proceeds
from the sale of the glass business.
As of October 1, 1995, the company had committed revolving credit facilities of
$300.0 million with various banks consisting of a $150.0 million, five-year
facility and 364-day facilities which amounted to $150.0 million. Uncommitted
credit facilities from various banks of approximately $376.0 million with no
outstanding balance at October 1, 1995, and a Canadian dollar commercial paper
facility of approximately $85.0 million, of which $21.0 million was outstanding,
also were available.
The company anticipates total 1995 capital spending of approximately $205.0
million including significant amounts for emerging businesses such as domestic
plastics (PET). 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 company received proceeds of $322.5 million from the sale of the glass
business to Ball-Foster during the third quarter of 1995 and invested $180.6
million of these proceeds in Ball-Foster. The company holds a 42 percent
interest in Ball-Foster. Also during the third quarter of 1995, the company
borrowed $101.2 million from the accumulated net cash value of its company-owned
life insurance and used $14.4 million of the proceeds to pay premiums. A portion
of the remaining proceeds from these transactions was used to reduce short-term
debt and to finance capital improvements.
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
The company previously reported that Onex Corporation ("Onex") filed a claim
against the company for the company's failure to purchase all of Onex's shares
of Ball Packaging Products Holding, Inc. (Ball Canada), a joint venture holding
company owned 50 percent by the company and 50 percent by Onex. Onex claimed
that its "put" option entitled it to a minimum value founded on Onex's original
investment of approximately $30.0 million in respect of the shares owned by Onex
in the holding company. The company denied 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
believes that this matter is now concluded without any material adverse effect
upon the financial condition of the company.
Item 2. Changes in securities
There were no events required to be reported under Item 2 for the quarter ending
October 1, 1995.
Item 3. Defaults upon senior securities
There were no events required to be reported under Item 3 for the quarter ending
October 1, 1995.
Item 4. Submission of matters to a vote of security holders
There were no events required to be reported under Item 4 for the quarter ending
October 1, 1995.
Item 5. Other information
There were no events required to be reported under Item 5 for the quarter ending
October 1, 1995.
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
11.1 Statement Re: Computation of Earnings per Share
27.1 Financial Data Schedule for the Nine Months Ending
October 1, 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
Corporation, 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.
A Current Report on Form 8-K, filed September 29, 1995, announcing the
sale of the assets of Ball Glass Container Corporation, a wholly owned
subsidiary of the company, to Ball-Foster Glass Container Corporation
("Ball-Foster"), a newly formed Delaware limited liability company, on
September 15, 1995. Ball-Foster also acquired the assets of the Foster
Forbes glass division of American National Can Company. The company
indirectly owns 42 percent of Ball-Foster.
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: November 15, 1995
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Ball Corporation and Subsidiaries
QUARTERLY REPORT ON FORM 10-Q
October 1, 1995
EXHIBIT INDEX
Description Exhibit
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Statement Re: Computation of Earnings per Share EX-11.1
Financial Data Schedule for the Nine Months Ending
October 1, 1995 EX-27.1