EXHIBIT 13.1
Published on April 1, 1996
Exhibit 13.1
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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 1995 and 1994 were:
The accompanying notes are an integral part of the consolidated financial
statements.
The accompanying notes are an integral part of the consolidated financial
statements.
The accompanying notes are an integral part of the consolidated financial
statements.
The accompanying notes are an integral part of the consolidated financial
statements.
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, and majority-owned affiliates where control is
temporary, 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. Certain amounts for prior years have been reclassified from amounts
originally reported to conform to the 1995 presentation.
The 1993 results of operations 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. Provision for estimated contract losses, if any,
are made in the period that such losses are determined.
Inventories
Inventories are stated at the lower of cost or market. The cost for
substantially all inventories within the U.S. metal food container business is
determined using the last-in, first-out (LIFO) method of accounting. Effective
January 1, 1995, the company adopted the LIFO method for determining the cost of
certain U.S. metal beverage container inventories. The cost for remaining
inventories is determined using the first-in, first-out (FIFO) 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
- - - 15 to 40 years; machinery and equipment - 5 to 10 years). Goodwill is
amortized over the periods benefited, generally 40 years.
Taxes on Income
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.
Financial Instruments
Accrual accounting is applied for financial instruments classified as hedges.
Costs of hedging instruments are deferred as a cost adjustment, or deferred and
amortized as a yield adjustment over the term of the hedging agreement. Gains
and losses on early terminations of derivative financial instruments related to
debt are deferred and amortized as yield adjustments. Deferred gains and losses
related to exchange rate forwards are recognized as cost adjustments of the
related purchase or sale transaction.
Employee Stock Ownership Plan
The company records the cost of its Employee Stock Ownership Plan (ESOP) using
the shares allocated transitional method 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 and excludes the tax benefit of deductible common dividends upon
the assumed conversion of the Series B ESOP Preferred Stock. The fully diluted
loss per share in 1995 and 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 antidilutive.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
reported amounts of revenues and expenses during the reporting period. Future
events could affect these estimates.
New Accounting Pronouncements
The Financial Accounting Standards Board issued Statements of Financial
Accounting Standards (SFAS) No. 121, "Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," and SFAS No. 123,
"Accounting for Stock-Based Compensation," which are effective for the company
beginning in 1996. SFAS No. 121 requires a review for impairment of long-lived
assets and certain identifiable intangibles used in the business whenever events
or changes in circumstances indicate that the carrying amounts may not be
recoverable. The statement also requires that long-lived assets and certain
identifiable intangibles which are held for disposition should be reported at
the lower of carrying amount or fair value less cost to sell. The company has
not yet determined the impact, if any, of adopting this statement.
SFAS No. 123 establishes financial accounting and reporting standards for
stock-based employee compensation plans. SFAS No. 123 also defines a fair
value-based method of accounting for employee stock options and encourages,
though does not require, companies to adopt that method of accounting for all
employee stock compensation plans. The company will continue to account for its
stock-based employee compensation programs as prescribed by existing generally
accepted accounting principles.
Business Segment Information
The company has two business segments: packaging, and aerospace and
technologies.
Within the packaging segment, the company sold the commercial glass
packaging business in September 1995 to Ball-Foster Glass Container Co., L.L.C.
(Ball-Foster) in which the company owns a 42-percent interest. The loss recorded
in connection with the sale is included as part of operating earnings, as are
the results of that business through the date of sale. The company accounts for
its interest in Ball-Foster under the equity method of accounting. Accordingly,
results of the glass business are not consolidated subsequent to the transaction
date. Effective January 1, 1995, the company consolidated the results of FTB
Packaging, Ltd. (FTB Packaging), the company's Hong Kong-based metal packaging
subsidiary. Also in 1995, the company entered the PET (polyethylene
terephthalate) plastic container business. Costs incurred in connection with the
start-up of that business are included in packaging segment results. In March
1993 the company acquired Heekin Can, Inc. (Heekin), a metal food container and
specialty products business, which is included in the consolidated results from
its acquisition date. Further information regarding the sale of the glass
business and acquisition of Heekin is provided in the notes, "Dispositions" and
"Acquisitions." The packaging segment includes the data for the following
operations:
Metal - manufacture of metal beverage and food containers, container ends
and specialty products.
Glass - manufacture of glass containers, primarily for use in the
commercial packaging of food, juice, wine and liquor.
Plastic - manufacture of PET plastic containers, primarily for use in
beverage and food packaging.
With regard to the aerospace and technologies segment (formerly aerospace
and communications), the company sold its Efratom time and frequency measurement
business in March 1995. The gain recorded in connection with the sale is
included as part of the aerospace and technologies segment operating earnings,
as are the results of that business through the date of sale. The aerospace and
technologies segment includes the following operations: the aerospace systems
division, comprised of electro-optics and cryogenics, space systems and systems
engineering; and the telecommunication products division.
Packaging segment sales to Anheuser-Busch Companies, Inc. represented
approximately 11 percent of consolidated net sales in each of 1995, 1994 and
1993. Sales to each of the Pepsi-Cola Company and The Coca-Cola Company and
their affiliates represented approximately 10 percent of consolidated net sales
in 1993. Sales to all bottlers of Pepsi-Cola and Coca-Cola branded beverages
comprised approximately 25 percent, 21 percent and 22 percent of consolidated
net sales in 1995, 1994 and 1993, respectively. Sales to various U.S. government
agencies by the aerospace and technologies segment represented approximately 10
percent of consolidated net sales in 1995 and approximately 8 percent of
consolidated net sales in each of 1994 and 1993.
Dispositions
Ball Glass
On September 15, 1995, the company sold substantially all of the assets Ball
Glass Container Corporation (Ball Glass), a wholly-owned subsidiary of the
company, to Ball-Foster Glass Container Co., L.L.C. (Ball-Foster) for
approximately $323 million in cash. The company acquired a 42-percent interest
in Ball-Foster for $180.6 million, which is included in investments in
affiliates in the Consolidated Balance Sheet. The remaining 58-percent interest
was acquired for $249.4 million by Compagnie de Saint-Gobain (Saint-Gobain).
Ball-Foster also acquired substantially all of the assets of Foster-Forbes, a
unit of American National Can Company, for approximately $680 million in cash.
Ball-Foster's acquisition financing was secured and guaranteed by Saint-Gobain.
The agreement between the company and Saint-Gobain includes provisions
allowing the company to sell its interest in Ball-Foster to Saint-Gobain
initially during a three-year period beginning in 1998 at a price based upon
prior year's earnings, and, similarly, for Saint-Gobain to purchase the
company's interests during certain periods in 2001 or 2002.
The company recorded a charge of $111.1 million ($76.7 million after tax or
$2.55 per share) in 1995 in connection with the sale of the assets of Ball
Glass. The final determination of the loss realized may vary from the amount
recorded in 1995 depending on the resolution of certain post-closing adjustments
as provided in the agreement of sale. In addition, in order to achieve, in part,
the benefits anticipated from combining the glass businesses within Ball-Foster,
it may become necessary to rationalize plants or equipment, or to eliminate
redundant systems or processes, resulting in charges against earnings. The
components, timing and amounts of the charges, if any, are uncertain at this
time.
The following table illustrates the company's unaudited pro forma
consolidated results as though the sale of the glass business and investment in
Ball-Foster had occurred at January 1, 1995. These unaudited pro forma
consolidated results include the company's 42-percent interest in pro forma
earnings of Ball-Foster; adjust interest expense to reflect the reduction of
indebtedness from the assumed application of the proceeds from the sale, net of
the company's investment in Ball-Foster; adjust general and administrative
expenses to expected recurring levels; and, recognize related tax effects of the
foregoing adjustments. The after tax loss of $76.7 million recorded in 1995 upon
disposition is also excluded from the unaudited pro forma results. The unaudited
pro forma data 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 transactions been effected on January 1, 1995.
(dollars in millions except per share amounts)
Net sales $2,045.8
Cost of sales 1,836.6
Net income 54.7
Net earnings attributable to common shareholders $ 51.6
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Earnings per share of common stock $ 1.72
Fully diluted earnings per share $ 1.62
Preliminary unaudited summary financial information of Ball-Foster, for the
period from September 15, 1995, including a preliminary allocation of the
purchase price, based on estimated fair values of assets acquired and
liabilities assumed, follows:
(dollars in millions)
Period ended December 31, 1995
Net sales $ 354.9
Cost of sales 328.9
Net loss reported by Ball-Foster (5.4)
Net loss attributable to Ball Corporation (2.3)
Net loss after taxes included in equity in earnings of affiliates $ (1.3)
At December 31, 1995
Current assets $ 431.4
Noncurrent assets 827.6
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Total assets 1,259.0
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Current liabilities 196.5
Noncurrent liabilities 621.1
Minority interest 16.8
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Total liabilities and minority interest 834.4
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Net assets 424.6
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Ball's net investment at December 31, 1995 $ 178.3
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Efratom
In March 1995 the company sold its Efratom time and frequency measurement
business to Datum Inc. (Datum) for cash of $15.0 million and approximately 1.3
million shares of Datum common stock with a market value of $14.0 million at the
date of the sale. In conjunction with the sale of Efratom, the company recorded
a gain of $11.8 million ($7.7 million after tax or 25 cents per share). The
company records its 32-percent share of Datum's earnings under the equity
method; the investment is included in investments in affiliates in the
Consolidated Balance Sheet.
Spin-Off
In March 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. The dividend distribution of $34.5 million represented the net assets 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.
Alltrista's 1993 net sales and net income were $67.4 million and $2.1
million, respectively, through the date of distribution. Alltrista's net income
included interest expense allocated based on assumed indebtedness of $75.0
million at Ball Corporation's weighted average interest rate for general
borrowings, and allocated general and administrative expenses of $1.2 million.
Acquisition
In March 1993 the company acquired Heekin Can, Inc., a manufacturer of metal
food, pet food and aerosol containers, through a tax-free exchange of shares
accounted for as a purchase. 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, the company 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 upon estimated fair values, to acquired assets of
$326.8 million, including goodwill of $47.0 million, and assumed liabilities of
$235.5 million.
Accounts Receivable
Sale of Trade Accounts Receivable
In September 1993, as an alternative source of competitively priced financing,
the company entered into an agreement to sell, on a revolving basis without
recourse, an undivided percentage ownership interest in a designated pool of up
to $75.0 million of packaging trade accounts receivable. The current agreement
expires in December 1996 and includes an optional one year extension. The
company's retained credit exposure on receivables sold is limited to $8.5
million.
At December 31, 1995 and 1994, the $66.5 million of trade receivables sold
was reflected as a reduction of accounts receivable in the accompanying
Consolidated Balance Sheet. Costs of the program are based on certain variable
interest indices and are included in the caption, "general and administrative
expenses." Costs recorded in 1995, 1994 and 1993 amounted to $4.3 million, $3.0
million and $.6 million, respectively.
Accounts Receivable in Connection with Long-Term Contracts
Net accounts receivable under long-term contracts, due primarily from agencies
of the U.S. government, were $59.9 million and $47.6 million at December 31,
1995 and 1994, respectively, and include gross unbilled amounts representing
revenue earned but not yet billable of $24.9 million and $12.4 million,
respectively. Approximately $6.7 million of gross unbilled receivables at
December 31, 1995, is expected to be collected after one year.
Inventories
Inventories at December 31 consisted of the following:
(dollars in millions) 1995 1994
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Raw materials and supplies $ 82.8 $132.3
Work in process and finished goods 235.7 281.7
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$318.5 $414.0
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Effective January 1, 1995, the company adopted the LIFO method of
accounting for determining the cost of certain U.S. metal beverage container
inventories as a preferable method for matching the cost of the products sold
with the revenues generated. The impact of this change in accounting was an
increase in cost of sales and corresponding decrease in operating earnings of
$17.1 million ($10.4 million after tax or 35 cents per share). The company is
unable to determine the cumulative impact of this change on prior periods.
With the adoption of LIFO accounting for U.S. metal beverage container
inventories, approximately 75 percent of total U.S. product inventories at
December 31, 1995, were valued using this method. Inventories, at December 31,
1995, would have been $17.1 million higher than the reported amounts if the FIFO
method, which approximates replacement cost, had been used for all inventories.
Company-Owned Life Insurance
The company has purchased insurance on the lives of certain groups of employees.
Premiums have been approximately $20 million annually. Amounts in the
Consolidated Statement of Cash Flows represent net cash flows from this program
including policy loans of $113.2 million, $23.4 million and $37.2 million in
1995, 1994 and 1993, respectively. Loans outstanding of $233.0 million and
$120.7 million at December 31, 1995 and 1994, respectively, are reflected as a
reduction in the net cash value in the Consolidated Balance Sheet. The policies
are issued by Great-West Life Assurance Company and The Hartford Life Insurance
Company. Federal budget proposals currently under consideration by Congress
include legislation which may limit, to varying degrees, the amount of interest
on policy loans which could be deducted for federal income tax purposes. The
company is monitoring the proposed legislation closely and reviewing options
available should the legislation be enacted.
Restructuring and Other Charges
Capacity Reductions
In late 1995, as part of the company's ongoing assessment of industry trends and
conditions upon its packaging business, a decision was made to curtail certain
manufacturing capacity and write down certain unproductive manufacturing
equipment to net realizable value resulting in a charge of $10.9 million ($6.6
million after tax or 22 cents per share) in the fourth quarter of 1995. The
charge included $7.5 million for asset write-downs to net realizable value and
$3.4 million for employment termination costs, benefits and other costs. The
estimated net future pretax cash outflows related to this charge is $.7 million.
The curtailments are expected to be completed during 1996.
1993 Restructuring Plan
In 1993 plans were developed to undertake a number of actions which included
elimination of excess manufacturing capacity through plant closures and
consolidations, administrative consolidations and the discontinuance of two
aerospace and technologies segment product lines. In connection with these
plans, pretax restructuring and other charges were recorded of $108.7 million
($66.3 million after tax or $2.31 per share) in the third and fourth quarters of
1993. A summary of these charges by business segment follows:
Employment termination costs and benefits include the effects of work force
reductions and packaging segment pension curtailment losses of $14.2 million.
Other includes incremental costs associated with the phaseout and disposal of
facilities and discontinued product lines.
Additional charges were recorded in 1995 and 1994 for costs associated with
the 1993 decision to exit the visual image generating systems (VIGS) business.
Total charges included in restructuring and other for the VIGS business were
$8.0 million, $4.0 million and $10.2 million in 1995, 1994 and 1993,
respectively.
Amounts related to the 1993 restructuring plan included in the Consolidated
Balance Sheet at December 31 and the changes in those reserves follow:
Property, plant and equipment and inventory are classified in the
respective asset categories at net realizable value within the Consolidated
Balance Sheet. Employment costs and termination benefits due to work force
reductions are reflected in current liabilities. Of the total restructuring and
other reserves outstanding at December 31, 1995, $10.8 million will not impact
future cash flows apart from related tax benefits. The balance of the reserves,
$11.2 million, represents future pretax cash outflows, which are expected to be
expended in 1996.
Debt and Interest Costs
Short-Term Debt
The following table summarizes short-term financing facilities and the related
amounts outstanding at December 31:
Long-Term Debt
Long-term debt at December 31 consisted of the following:
In January 1996 the company issued long-term senior unsecured notes to
several insurance companies for $150 million with a weighted average interest
rate of 6.7 percent, and maturities from 1997 through 2008. The maturities
related to these notes for the years ending December 31, 1997 through 2000, are
$2.9 million each year. Maturities of fixed long-term debt obligations
outstanding at December 31, 1995, are $57.0 million, $46.0 million, $51.0
million and $50.6 million for the years ending December 31, 1997 through 2000,
respectively.
The company had revolving credit agreements at December 31, 1995, totaling
$300 million consisting of a five-year facility for $150 million and 364-day
facilities of $150 million in the aggregate. The revolving credit agreements
provide for various borrowing rates including borrowing rates based on the
London Interbank Offered Rate (LIBOR). The company pays a facility fee on the
committed 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.
Under the most restrictive covenant in any agreement, approximately $94 million
was available for payment of dividends and purchases of treasury stock at
December 31, 1995.
ESOP debt represents borrowings by the trust for the company-sponsored ESOP
which have been irrevocably guaranteed by the company. Letters of credit are
issued in the ordinary course of business by Ball Corporation of which $31.8
million were outstanding at December 31, 1995, primarily in connection with
insurance arrangements. In addition, FTB Packaging issues letters of credit in
the ordinary course of business in connection with supplier arrangements and
provides guarantees to secure bank financing for its affiliates in the People's
Republic of China. At year end, FTB Packaging had outstanding letters of credit
and guarantees of approximately $16.0 million and $31.0 million, respectively.
A summary of total interest cost paid and accrued follows:
(dollars in millions) 1995 1994 1993
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Interest costs $41.3 $43.2 $47.6
Amounts capitalized (3.5) (2.2) (1.7)
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Interest expense 37.8 41.0 45.9
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Gross amount paid during year $42.6 $37.6 $47.1
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Financial and Derivative Instruments and Risk Management
In the ordinary course of business, the company is subject to various risks and
uncertainties due, in part, to the highly competitive nature of the industries
in which the company participates, its operations in developing markets outside
the U.S., volatile costs of commodity materials used in the manufacture of its
products, and changing capital markets. Where possible and practicable, the
company attempts to minimize these risks and uncertainties.
The company uses various techniques to minimize its exposure to significant
changes in the cost of commodity materials, primarily aluminum, through
arrangements with suppliers and, at times, through the use of certain derivative
instruments, designated as hedges. Financial derivatives, including interest
rate swaps and options and forward exchange contracts, are used when
circumstances warrant to manage the company's interest rate and foreign exchange
exposure. Interest rate derivatives are used principally to manage the company's
mix of floating- and fixed-rate debt within parameters that are consistent with
its long-term financial strategy. Derivative instruments generally are not held
for trading purposes.
Under interest rate swap agreements, the company agrees to exchange with
the counter parties the difference between the fixed-rate and floating-rate
interest amounts calculated on the notional amounts. Interest rate swap
agreements outstanding at December 31, 1995, had notional amounts of $117
million at a fixed rate and $25 million at a floating rate, or a net fixed-rate
position of $92 million. Fixed-rate agreements with notional amounts of $50
million included an interest rate floor. These swap agreements effectively
change the rate upon which interest expense is determined from a floating rate
to a fixed rate of interest. Interest rate swap agreements had notional amounts
of $75 million at a fixed rate and $109 million at a floating rate, or a net
floating-rate position of $34 million at December 31, 1994.
The related notional amounts of interest rate swaps and options serve as
the basis for computing the cash flow due under these agreements but do not
represent the company's exposure through its use of these instruments. Although
these instruments involve varying degrees of credit and interest risk, the
counter parties to the agreements involve financial institutions which are
expected to perform fully under the terms of the agreements.
The fair value of all nonderivative financial instruments approximates
their carrying amounts with the exception of long-term debt. Rates currently
available to the company for loans with similar terms and maturities are used to
estimate the fair value of long-term debt based on discounted cash flows. The
fair value of derivatives generally reflects the estimated amounts that the
company would pay or receive upon termination of the contracts at December 31,
taking into account any unrealized gains or losses of open contracts.
Leases
Noncancellable operating leases in effect at December 31, 1995, require rental
payments of $16.0 million, $12.6 million, $7.9 million, $6.0 million and $4.2
million for the years 1996 through 2000, respectively, and $18.2 million for
years thereafter. Lease expense for all operating leases was $33.4 million,
$36.2 million and $33.2 million in 1995, 1994 and 1993, respectively.
Taxes on Income
The amounts of (loss) income from continuing operations before income taxes by
national jurisdiction follow:
(dollars in millions) 1995 1994 1993
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Domestic $(32.1) $104.6 $(44.1)
Foreign 16.3 15.2 (7.3)
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$(15.8) $119.8 $(51.4)
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The provision for income tax (benefit) expense for continuing operations
was comprised as follows:
(dollars in millions) 1995 1994 1993
------------- ------------- -------------
Current
U.S. $ 8.2 $29.2 $19.2
State and local 3.8 6.9 0.8
Foreign 2.2 0.9 0.6
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Total current 14.2 37.0 20.6
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Deferred
U.S. (13.6) 2.4 (33.8)
State and local (4.5) (0.5) (5.2)
Foreign 3.8 5.8 (2.8)
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Total deferred (14.3) 7.7 (41.8)
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Total provision for income taxes $ (0.1) $44.7 $(21.2)
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Provision is not made for additional U.S. or foreign taxes on undistributed
earnings of controlled foreign corporations 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 the foreign earnings for which no provision has been
made.
The provision for income tax (benefit) recorded within the Consolidated
Statement of (Loss) Income differs from the amount of income tax (benefit)
determined by applying the U.S. statutory federal income tax rate to pretax
(loss) income from continuing operations as a result of the following:
The significant components of deferred tax (assets) liabilities at December 31
were:
(dollars in millions) 1995 1994
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Deferred tax assets:
Deferred compensation $(18.9) $(17.7)
Accrued employee benefits (39.2) (43.3)
Restructuring and other reserves (18.5) (25.3)
Other (36.0) (31.2)
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Total deferred tax assets (112.6) (117.5)
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Deferred tax liabilities:
Depreciation 97.7 120.5
Other 12.6 16.9
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Total deferred tax liabilities 110.3 137.4
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Net deferred tax (assets) liabilities $ (2.3) $ 19.9
============= =============
Total income tax payments, including amounts accrued in prior years, were
$26.5 million, $18.5 million and $34.7 million for 1995, 1994 and 1993,
respectively.
Pension Benefits
The company's noncontributory pension plans cover substantially all U.S. and
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 cost of pension benefits, including prior service cost, is recognized
over the estimated service periods of employees based upon respective pension
plan benefit provisions. The composition of pension expense for salaried and
hourly employee pension plans, excluding curtailments and settlements, follows:
A net curtailment loss of $18.6 million was recognized in conjunction with
the sale of the glass business in 1995 and was included as part of the
transaction loss. A net curtailment and settlement loss of $12.3 million was
recognized in 1993 in conjunction with the decision to close certain packaging
operations and in connection with the Alltrista spin-off.
The funded status of the plans at December 31 follows:
Where two discount rates are provided in the table above, the higher rate
in each case pertains to the company's Canadian pension plans.
The additional minimum liability for plans having unfunded accumulated
benefit obligations was $17.7 million and $39.1 million at December 31, 1995 and
1994, respectively. The 1995 and 1994 additional minimum liabilities were
partially offset by intangible assets of $5.0 million and $28.4 million,
respectively. The remainder, $7.8 million in 1995 and $6.7 million in 1994, net
of tax benefits, was recognized as a component of shareholders' equity.
Other Postretirement and Postemployment Benefits
The company sponsors 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
qualify for long-term disability, medical and life insurance continuation and
other postemployment benefits upon termination of active employment prior to
retirement. All of the company-sponsored plans are unfunded and, with the
exception of life insurance benefits, are self-insured.
Effective January 1, 1993, the company adopted two 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." Under SFAS No. 106, postretirement benefits 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. Similarly, SFAS No. 112 requires accrual accounting
so that other postemployment benefits are accrued when it is determined that a
liability has been incurred.
Postretirement Medical and Life Insurance Benefits
Postretirement health care benefits are provided to substantially all of the
company's U.S. and Canadian employees. In Canada, the company provides
supplemental medical and other benefits in conjunction with the Canadian
national health care plan. Most U.S. salaried employees who retired prior to
1993 are covered by noncontributory defined benefit medical plans with capped
lifetime benefits. The company provides a fixed subsidy toward each retiree's
future purchase of medical insurance for U.S. salaried and substantially all
nonunion hourly employees retiring after January 1, 1993. Hourly employees
within the U.S. metal food container business are covered by noncontributory
defined benefit medical plans with caps on the annual cost per capita to the
company. Life insurance benefits are noncontributory. The company has no
commitments to increase monetary benefits provided by any of the postretirement
benefit plans.
Contributions to multi-employer health and welfare plans, which are not
included in periodic postretirement benefit cost, were $3.0 million in 1995 for
the period through September 15, $4.0 million in 1994 and $3.8 million in 1993,
and were related to union employees within the glass business.
In connection with the adoption of SFAS No. 106, the company elected
immediate recognition of the previously unrecognized transition obligation
through a pretax, noncash 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 fully
eligible active employees, and a pro rata portion of the benefits expected to be
paid with respect to active employees not yet fully eligible.
The company recorded curtailment and settlement gains in 1995 in connection
with the sale of the glass business of $8.4 million which is included in the net
loss on the disposition. Net periodic postretirement benefit cost, excluding
curtailments and settlements, included the following components:
The health care cost trend rates used to value the APBO are assumed to
decline to 5.0 percent after the year 2002. A one percentage point increase in
these rates would increase the APBO by $5.1 million at December 31, 1995, and
would have increased the service and interest components of net periodic
postretirement benefit cost by $.5 million in 1995.
The status of the company's unfunded postretirement benefit obligation at
December 31 follows:
Other Postemployment Benefits
Effective January 1, 1993, the company adopted SFAS No. 112 and recorded a
pretax charge of $10.0 million ($6.2 million after tax) to recognize the
cumulative effect on prior years. The annual charge in connection with related
benefits was $2.6 million, $2.2 million and $2.1 million in 1995, 1994 and 1993,
respectively.
Other Benefit Plans
Substantially all U.S. salaried employees and certain U.S. nonunion hourly
employees who participate in the company's 401(k) salary conversion plan and
meet 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 $10.2 million, $9.5 million and $8.8 million for
1995, 1994 and 1993, respectively. Total interest paid by the ESOP trust for its
borrowings was $4.7 million, $5.1 million and $5.4 million for 1995, 1994 and
1993, respectively.
Shareholders' Equity
At December 31, 1995, 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 1,786,852 shares of Series B ESOP Preferred outstanding at December 31,
1995.
The Series B ESOP Preferred has a stated value and liquidation preference
of $36.75 per share and cumulative annual dividends of $2.76 per share. 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
company's shareholders. Effective April 2, 1993, in accordance with the
antidilution provisions, the conversion price of the Series B ESOP Preferred was
adjusted to $31.813 per share from $36.75 per share and the conversion ratio was
adjusted to 1.1552 shares of company common stock for each share of Series B
ESOP Preferred. These adjustments had no impact on the stated value and
liquidation preference of $36.75 per share.
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, which expire in August 1996, are
redeemable by the company at a redemption price of five cents 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. In January 1996 the board of directors adopted a new shareholder
rights plan effective upon termination of the current plan in August 1996. The
new plan is similar to the existing plan, with the exception that under the new
plan, the percentage of the company's outstanding common stock acquired by a
person or group which cause the rights to become exercisable is reduced to 15
percent, and the redemption price is reduced to one cent per right. The new plan
expires in the year 2006.
Common shares were reserved at December 31, 1995, 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.
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 $1.8 million in each
of 1995 and 1994, and $2.0 million in 1993.
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 antidilution
provisions.
A summary of stock option activity for the years ended December 31 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 $13.4 million, $12.5
million and $15.7 million for the years 1995, 1994 and 1993, respectively.
Contingencies
On July 27, 1994, Onex Corporation (Onex) initiated arbitration before the
International Chamber of Commerce, alleging that the company was in breach of a
joint venture agreement dated September 15, 1988. Onex's demand represented a
claim against the company for approximately $30 million. The company denied the
allegations of Onex's complaint. On August 1, 1995, the Arbitral Tribunal
decided the case in favor of Ball Corporation. The parties had previously agreed
to be bound by the decision of the Tribunal.
From time to time, the company is subject to routine litigation incidental
to its business. Additionally, the U.S. 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.
Earnings per share calculations for each quarter are based on the weighted
average shares outstanding for that period. As a result, the sum of the
quarterly amounts may not equal the annual earnings per share amount.
Report of Management on Financial Statements
The consolidated financial statements contained in this annual report to
shareholders are the responsibility of management. These financial statements
have been prepared in conformity with generally accepted accounting principles
and, necessarily, include certain amounts based on management's best judgments
and estimates. Financial information appearing elsewhere in this annual report
is consistent with the financial statements.
In fulfilling its responsibility for the integrity of financial
information, management maintains and relies upon a 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 LLP to review
the scope and results of audit work, the adequacy of internal controls and the
quality of financial reporting. Price Waterhouse LLP and internal auditors 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/ George A. Sissel /s/ R. David Hoover
President and Chief Executive Officer Executive 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, 1995 and 1994,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1995, 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 Inventories note to consolidated financial statements,
the company changed its method of determining the cost of certain inventories
from first-in, first-out to the last-in, first-out method effective January 1,
1995. In addition, as discussed in the Other Postretirement and Postemployment
Benefits note to consolidated financial statements, the company adopted
Statements of Financial Accounting Standards 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 LLP
Indianapolis, Indiana
January 23, 1996
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Ball Corporation and Subsidiaries
Management's discussion and analysis should be read in conjunction with the
consolidated financial statements and the accompanying notes.
Overview
The company took a number of actions during the three-year reporting period
toward achieving its strategic objectives. In summary, those objectives are: to
maintain the company's leadership as a low-cost, high-quality North American
beverage can manufacturer; position the mature North American rigid packaging
businesses to yield significant earnings and positive cash flow; establish the
company in the PET plastic container market; expand the company's international
packaging presence; and capitalize on the world-class capabilities of the
company's aerospace and technologies subsidiary. These actions have changed the
core business and, in certain respects, have affected comparability of financial
information.
As a result of consolidation within the highly competitive, mature domestic
glass packaging industry, coupled with capital requirements to aggressively
participate in higher growth packaging markets, the company in 1995 formed a
strategic alliance with Compagnie de Saint-Gobain (Saint-Gobain), to create a
new U.S. glass company, Ball-Foster Glass Container Co., L.L.C. (Ball-Foster).
Ball-Foster acquired the glass businesses of both the company and Foster-Forbes,
a unit of American National Can Company. Ball-Foster, as the second largest
domestic glass producer, has the potential to realize economies necessary to
compete effectively. The company acquired a 42-percent interest in Ball-Foster
for $180.6 million. The remaining 58-percent interest was acquired by
Saint-Gobain for $249.4 million. Ball-Foster's acquisition financing was secured
and guaranteed by Saint-Gobain. The sale of the company's glass manufacturing
operations to Ball-Foster, for approximately $323 million, resulted in a pretax
charge to earnings of $111.1 million ($76.7 million after tax or $2.55 per
share) which is included in the results of the packaging segment. The final
determination of the loss realized may vary from the amount recorded in 1995
depending on the resolution of certain post-closing adjustments as provided in
the agreement of sale. The company accounts for its 42-percent interest in
Ball-Foster under the equity method. For the initial period of operation from
September 15, 1995 through December 31, 1995, Ball-Foster reported sales of
$354.9 million and a loss in which the company's equity interest was $1.3
million after tax.
In 1994 the company announced that it would enter the PET (polyethylene
terephthalate) plastic container market. By late in the fourth quarter of 1995,
construction of a pilot line and research and development center and a
multi-line manufacturing facility, with full production anticipated by the
second quarter of 1996, were completed. Two additional multi-line manufacturing
facilities were under construction. Pretax costs of $7.8 million relating to the
start-up of this business are included in the operating earnings of the
packaging segment.
During 1994 and 1995, the company increased its equity ownership in FTB
Packaging, Ltd. (FTB Packaging), its Hong Kong-based metal packaging subsidiary,
to approximately 92 percent. FTB Packaging has been included on a consolidated
basis within the packaging segment effective January 1995. The company's
investments in the People's Republic of China (PRC) are held principally by FTB
Packaging.
In 1994 the company concluded a study to explore strategic alternatives for
the aerospace and technologies business (formerly aerospace and communications).
A decision was made to retain the core aerospace and technologies business, but
to sell the Efratom time and frequency measurement business. Efratom was sold in
March 1995 at a gain of $11.8 million ($7.7 million after tax or 25 cents per
share) to Datum Inc. (Datum) for cash of $15.0 million and approximately 1.3
million shares, or 32 percent, of Datum common stock. Efratom was included in
consolidated results and in the aerospace and technologies segment through the
date of sale. The gain was partially offset by a pretax charge of $8.0 million
for costs in connection with the wind-down of the visual image generating
systems (VIGS) business.
In 1994 the company and WorldView, Inc. formed EarthWatch, Inc.
(EarthWatch) to commercialize certain proprietary technologies by serving the
market for satellite-based remote sensing of the Earth. The company accounts for
its interest in EarthWatch under the equity method.
With the significant industry-wide increase in aluminum can sheet prices in
1995, the company elected to change its method of accounting for certain U.S.
metal beverage container inventories effective January 1 from first-in,
first-out (FIFO) to last-in, first-out (LIFO). This accounting change increased
cost of sales, and correspondingly decreased 1995 operating earnings, by $17.1
million ($10.4 million after tax or 35 cents per share).
During the fourth quarter of 1995, the company recorded a pretax charge of
$10.9 million ($6.6 million after tax or 22 cents per share) as a result of a
decision to reduce excess capacity within the metal packaging segment, including
the closure of a metal slitting and coating facility which supported the metal
food and specialty products business and the write-down of underutilized metal
beverage container end manufacturing equipment to net realizable value.
In March 1993 the company acquired Heekin Can, Inc. (Heekin), a
manufacturer of metal food, pet food and aerosol containers, for approximately
$91.3 million, consisting of approximately 2.5 million newly issued shares of
Ball Corporation common stock plus transaction costs. The company also assumed
$121.9 million of Heekin indebtedness, of which $108.8 million was refinanced
following the acquisition. In April 1993 the spin-off of seven diversified
businesses was effected through a distribution of 100 percent of the common
stock of Alltrista Corporation (Alltrista). The results of Heekin are
consolidated within the packaging segment from its acquisition date. The results
of Alltrista operations are presented as discontinued operations through the
date of spin-off.
Further, the company recorded a charge of $108.7 million in 1993 ($66.3
million after tax or $2.31 per share) as a result of a plan to align
manufacturing capacity and administrative organizations to compete effectively
in the company's industries and markets, of which $76.7 million pertained to the
packaging segment, $29.1 million pertained to the aerospace and technologies
segment and $2.9 million related to certain administrative decisions.
Consolidated Results
Consolidated net sales of $2.6 billion for 1995 were essentially at 1994 levels,
which reflects a reduction in net sales due to the dispositions of the company's
glass packaging operations and the Efratom time and frequency measurement
business, the effects of which were substantially offset by increased sales in
the North American metal beverage container and the aerospace and technologies
businesses, as well as the consolidation of FTB Packaging. Consolidated net
sales in 1994 increased to $2.6 billion from $2.4 billion in 1993 due primarily
to the full-year effects of Heekin in 1994 and improved sales in the commercial
glass container and North American metal beverage container businesses.
Consolidated 1995 operating earnings of $31.2 million declined from $171.1
million in 1994. The 1995 earnings include a net pretax charge of $118.2 million
($80.5 million after tax or $2.68 per share) in connection with business
dispositions and capacity reductions. Before consideration of dispositions,
restructuring and other charges in both years, consolidated operating earnings
were 14.7 percent lower than comparable 1994 results, primarily due to the
effects of the change to the LIFO method of accounting and costs associated with
the start-up of the PET plastic container business.
Consolidated 1994 operating earnings of $171.1 million increased from $3.1
million in 1993, which included restructuring and other charges of $105.8
million. The 1994 earnings also reflect improved operating performance in both
the packaging and the aerospace and technologies segments. The 1994 results
include a charge of $4.0 million related to the September 1994 foreclosure of
certain assets of the VIGS business, which had been sold in May.
Interest expense decreased in 1995 to $37.8 million compared to $41.0
million in 1994 and $45.9 million in 1993. The beneficial effects of generally
lower interest-sensitive borrowings, prepayment of higher fixed-rate term debt,
and higher interest capitalization in connection with increased capital spending
were partially offset by higher interest rates on interest-sensitive U.S. and
Canadian borrowings and the interest on FTB Packaging borrowings in 1995.
Comparing 1994 to 1993, the decrease in interest expense was due to lower
borrowings, offset partially by higher rates on interest-sensitive borrowings.
Interest capitalized amounted to $3.5 million, $2.2 million and $1.7 million in
1995, 1994 and 1993, respectively.
The company's consolidated effective income tax rate was 0.6 percent in
1995, compared to 37.3 percent and 41.2 percent in 1994 and 1993, respectively.
The changes in the effective income tax rates are due to the taxable
characteristics of the charges for dispositions, restructuring and other
included in pretax (loss) income. Excluding the effects of these items from
pretax income and taxes provided on income, the effective income tax rate would
have been approximately 37 percent in each of the last three years.
Equity in earnings of affiliates for 1995 of $1.7 million is comprised
primarily of the earnings of FTB Packaging's PRC equity affiliates, partially
offset by the company's share of the development stage loss of EarthWatch and
the operating loss of Ball-Foster for the period subsequent to September 15,
1995. Equity in earnings of affiliates of $2.5 million and $1.3 million in 1994
and 1993, respectively, represent the company's share of earnings of Pacific Rim
joint ventures including FTB Packaging prior to its consolidation in 1995.
The net loss attributable to common shareholders was $21.7 million in 1995,
compared to net earnings of $69.8 million in 1994 and a net loss of $68.3
million in 1993. The lower results in 1995 were primarily a result of the lower
consolidated operating earnings, which included the net loss on dispositions,
restructuring and other charges, and the effect of adopting LIFO accounting. The
increase in 1994 compared to 1993 was the result of improved performance in 1994
and, in 1993, the combined effects of the restructuring and other charges,
unsatisfactory operating performance and the cumulative effect of changes in
accounting for postretirement and postemployment benefits.
The loss per share of common stock for 1995 was 72 cents, compared to net
earnings of $2.35 per share in 1994 and a net loss of $2.38 per share in 1993.
The 1993 per share amount reflects a loss of $1.24 from continuing operations
and a charge of $1.21 in connection with the cumulative effects of the changes
in accounting principles. Fully diluted earnings per share from continuing
operations was $2.20 in 1994. In 1995 and 1993, the loss per share on a fully
diluted basis was the same as the net loss per common share because the assumed
exercise of stock options and conversion of preferred stock would have reduced
the loss per share.
Business Segments
Packaging
Packaging segment net sales were $2.3 billion in each of 1995 and 1994, and $2.2
billion in 1993. Packaging sales in 1995 compared to 1994 reflect a decrease due
to the sale of the commercial glass business substantially offset by increased
North American metal beverage container sales, as well as the consolidation of
FTB Packaging's sales. Comparing 1994 to 1993, the increase in 1994 was due
primarily to the inclusion of Heekin sales for the full period in 1994 and
increased sales of commercial glass and metal beverage containers. Segment
operating earnings for 1995 were $.1 million after reduction for a $122.0
million charge related to the sale of the glass business and capacity reductions
in metal packaging. In 1994 and 1993, segment operating earnings were $152.0
million and $28.9 million, respectively. Before consideration of the effects of
dispositions, restructuring and other charges, and the effects of adopting the
LIFO method of accounting, segment earnings were $139.2 million, $152.0 million
and $105.6 million for 1995, 1994 and 1993, respectively.
Metal Packaging
- - ---------------
Net sales for metal packaging increased 9.9 percent in 1995 to $1.7 billion from
$1.6 billion in 1994. The increase was due primarily to a 10.6 percent increase
in North American metal beverage container sales as higher selling prices for
metal beverage containers, the result of an unprecedented industry-wide increase
in aluminum can sheet cost, more than offset the impact of lower sales volumes.
North American metal beverage can industry shipments in 1995 declined an
estimated 5 percent. The company's North American metal beverage container
shipments declined approximately 8 percent compared to 1994 as soft drink
industry promotions of products packaged in aluminum cans declined following the
aluminum can sheet price increase. Significant can shipments in the fourth
quarter of 1994 to customers anticipating the 1995 price increase and the
effects of a protracted strike, since settled, at a customer facility, also
contributed to lower 1995 can shipments. Sales of metal food and specialty
products declined approximately 4 percent in 1995 compared to 1994 as unit
volumes declined approximately 8 percent, due in part to a poor vegetable
harvest, lower shipments to the pet food industry and continued competitive
pricing pressures.
Metal packaging operating earnings for 1995 declined 22.9 percent compared
to 1994. The decrease was due primarily to the adoption of LIFO accounting for
certain U.S. beverage can inventories and the charge for capacity reductions.
Within metal packaging, however, on a basis comparable to 1994, operating
earnings in the North American metal beverage container business in 1995
increased approximately 5 percent due to the favorable FIFO cost/price
relationship of 1994 inventories sold in 1995, coupled with productivity gains.
The North American metal food container and specialty products business had
significantly lower earnings, due, in large part, to reduced sales volumes and
competitive industry pricing. Metal packaging operating earnings in 1995 also
included FTB Packaging operating earnings of $4.7 million.
Comparing 1994 and 1993, metal packaging sales increased 7.4 percent to
$1.6 billion from $1.5 billion, primarily due to the full-year consolidation of
Heekin sales and improved sales volumes of both beverage and food containers.
Shortages of glass and plastic beverage containers contributed to increased
volumes in the metal segment of the industry, though selling prices of both
beverage and food containers declined in 1994, reflecting the competitive
environment in which the company operates.
Operating earnings in 1994 increased compared to 1993, primarily due to
higher sales in the North American beverage container business which also
achieved unit cost reductions as a result of higher volumes, productivity gain
programs, reduced freight and warehousing expenses and significantly higher
prices for the sale of aluminum process scrap. Within the metal food container
business, operating earnings decreased slightly despite higher shipments and
work force reductions, reflecting some volume disruption and overtime due to
restructuring of manufacturing facilities. In addition, a fire in a major steel
supplier's mill resulted in inefficiencies, high spoilage and dislocation of
business. The company completed the sale of its metal decorating and coating
facility in Alsip, Illinois, and closed its Augusta, Wisconsin, metal food
container plant in 1994. These actions did not impact significantly the
company's financial position or results of operations.
Glass Packaging
- - ---------------
Before the sale of the glass business to Ball-Foster on September 15, 1995,
glass sales included in 1995 consolidated results were $545.9 million compared
to $750.6 million included for the full year of 1994. Excluding the $111.1
million charge ($76.7 million after tax or $2.55 per share) recorded in
connection with the sale of the glass business, operating earnings declined
year-over-year; though for comparable nine-month periods, the glass business
reported increased 1995 operating earnings due to the benefits realized from the
reconfiguration of its plants during 1994, including the closure of two glass
manufacturing facilities.
Glass sales in 1994 increased 7.4 percent to $750.6 million, reflecting
higher unit volumes in food and wine products. Overall pricing increased only
slightly reflecting the competitive nature of the industry. Earnings improved
substantially over 1993, excluding the effect of the 1993 restructuring charge.
The strong performance in 1994 was attributable to increased sales, higher plant
utilization rates, increased productivity and labor efficiency. Total plant
utilization for all glass facilities increased from 86 percent in 1993 to 92
percent in 1994 as a result of increased demand and consolidating capacity.
Aerospace and Technologies
Aerospace and technologies segment 1995 net sales and operating earnings
increased 17.8 percent and 62.8 percent, respectively, compared to 1994,
including the gain from the sale of Efratom partially offset by a charge for
additional costs to wind down the VIGS business in 1995. Excluding the results
of Efratom and the effects of dispositions, restructuring and other charges in
both years, 1995 net sales and operating earnings increased 32.4 percent and
33.7 percent, respectively. Both the aerospace systems division and the
telecommunication products division (excluding Efratom's results in both years)
reported improvement. The improvements were due primarily to a significant new
multi-year contract awarded late in 1994, the completion of two contracts for
second generation instruments for the Hubble Space Telescope and cost benefits
associated with the company's 1993 restructuring plan.
Net sales in the aerospace and technologies business segment of $268.0
million in 1994 decreased less than one percent from 1993, which included $6.2
million from the VIGS unit. Sales improved in both the telecommunication
products division and the aerospace systems division, reflecting increased sales
by Efratom and new contracts awarded in 1994.
Operating earnings in 1994, excluding the effect of the restructuring and
other charges and losses in the VIGS unit in 1993, improved in both divisions
over 1993 as a result of increased sales and improved margins resulting from
cost reduction actions, primarily in the telecommunication products division. In
September 1994 the company foreclosed on its security interest with regard to
certain assets of the VIGS unit which had been sold in May. As a result of the
foreclosure, the related assets were returned to the company. The $4.0 million
pretax charge recorded in 1994 for estimated costs related to this foreclosure
is included in operating earnings for the aerospace and technologies segment.
Contracts with the federal government represented approximately 86 percent
and 78 percent of segment sales in 1995 and 1994, respectively. Backlog for the
aerospace and technologies segment at December 31, 1995 and 1994, was
approximately $420 million and $322 million, respectively.
Financial Position, Liquidity and Capital Resources
Cash flow from operations in 1995 of $47.9 million decreased from $240.7 million
in 1994. Cash used for working capital included that ordinarily required in the
operation of the glass business through September 15, when that business was
sold, compared to 1994, which included the reduction in working capital, and
corresponding cash inflows, normal for that business in the fourth quarter. In
addition, metal packaging inventories increased in 1995 from unusually low
levels at year end 1994. In 1994 cash flow from operations was more than double
the $120.2 million in 1993, excluding the effects of the sale of $66.5 million
of trade accounts receivable. The increased cash flow from operations in 1994
reflected higher annual operating earnings and significantly improved fourth
quarter performance.
Working capital at December 31, 1995, excluding short-term debt and the
current portion of long-term debt, was $250.2 million, a decrease of $64.9
million from the 1994 year end. The decrease was due largely to the sale of the
glass business, partially offset by increased inventories within the metal
packaging business and the impact of consolidating FTB Packaging. The current
ratio was 1.19 and 1.40 at December 31, 1995 and 1994, respectively.
Capital expenditures of $206.2 million in 1995 included approximately $70
million for the company's new PET plastic container business. Spending also
included amounts for the conversion of metal beverage plant equipment to meet
new industry container specifications for smaller diameter ends and the new
8-ounce container. The conversion program is expected to be substantially
completed in 1996. Other investing activities included $180.6 million for the
company's 42-percent interest in Ball-Foster, $20.9 million in connection with
the formation of EarthWatch and approximately $31 million, primarily for new
metal beverage container plants in Beijing and Wuhan, PRC, and a metal food
container plant in Ningbo, PRC. The company will hold a majority interest in
these PRC ventures through its subsidiary, FTB Packaging. The new facilities are
expected to be operational in 1996.
Capital expenditures of $94.5 million in 1994 were primarily for the
conversions of metal beverage plant equipment to smaller diameter ends,
expansion of warehouse space for metal beverage containers, furnace rebuilds and
capacity optimization at certain glass container plants, and productivity
improvement programs in several of the metal food container plants. Capital
expenditures amounted to $140.9 million in 1993 and were primarily for the
conversion to smaller diameter ends, upgrading of the Fairfield, California,
plant to accommodate additional business, completion of the Ruston, Louisiana,
glass container plant expansion and the Quebec food container manufacturing
consolidation, and a number of furnace rebuilds in glass container plants.
In 1996 total capital spending and investments are anticipated to be within
a range from $230 million to $280 million, including additional spending within
the PET plastic container business; completion of the metal beverage and food
container facilities within the new PRC ventures; the company's Brazil and
Thailand joint ventures; and the conversion of a metal beverage container line
to produce two-piece drawn and ironed (D&I) metal food cans.
Premiums on company-owned life insurance were approximately $20 million
annually. Amounts in the Consolidated Statement of Cash Flows represent net cash
flows from this program including policy loans of $113.2 million, $23.4 million
and $37.2 million in 1995, 1994 and 1993, respectively. Loans outstanding of
$233.0 million and $120.7 million at December 31, 1995 and 1994, respectively,
are reflected as a reduction in the net cash value in the Consolidated Balance
Sheet. Federal budget proposals currently being considered by Congress include
legislation which may limit, to varying degrees, the amount of interest on
policy loans which could be deducted for federal income tax purposes. The
company is monitoring the proposed legislation closely and reviewing options
available should the new legislation be enacted.
Indebtedness at December 31, 1995, decreased $18.3 million to $475.4
million from $493.7 million at the end of 1994. Proceeds received from the sale
of the glass and Efratom businesses, the net cash received from the
company-owned life insurance program and net positive operating cash flows were
primarily used to reduce debt and finance capital spending and other investment.
Consolidated debt-to-total capitalization increased to 44.7 percent at year end
1995 from 43.8 percent at year end 1994. The increase in the ratio, despite the
lower debt, reflects reduced equity, attributable to the net loss for the year.
The company has revolving credit facilities of $300 million consisting of a
five-year facility for $150 million and 364-day facilities for an additional
$150 million. In January 1996 the company issued long-term senior unsecured
notes to several insurance companies for an aggregate amount of $150 million
with a weighted average interest rate of 6.7 percent to secure lower cost,
fixed-rate financing. This debt matures from 1997 through 2008.
Cash dividends paid on common stock in 1995 and 1994 were 60 cents per
share. The common dividend was reduced in 1994 from $1.24 paid in 1993 to
facilitate financing for growth opportunities and to improve financial
flexibility. Management believes that existing credit resources will be adequate
to meet foreseeable financing requirements of the company's businesses.
Restructuring and Other Charges
Capacity Reductions
- - -------------------
In late 1995, the company decided that in 1996 it would close the Pittsburgh,
Pennsylvania, facility which supplied metal slitting and coating services to the
company's metal food and specialty container business, and to write-down
underutilized metal beverage container end manufacturing equipment at two
Canadian facilities. Included as a reduction in the packaging segments operating
earnings was a charge of $10.9 million ($6.6 million after tax or 22 cents per
share) in the fourth quarter of 1995 for these actions. The charge included $7.5
million of asset write-downs to net realizable value and $3.4 million for
employment termination costs, benefits and other costs.
1993 Restructuring Plan
- - -----------------------
In late 1993, plans were developed to adapt the company's manufacturing
capabilities and administrative organizations to meet foreseeable requirements
of its packaging and aerospace markets. These plans included plant closures to
consolidate manufacturing activities into fewer, more efficient facilities,
principally in the glass and metal packaging businesses, and administrative
consolidations in the glass, metal packaging, and aerospace and technologies
businesses. In addition to the restructuring plans, decisions were made during
1993 to discontinue two aerospace and technologies segment product lines.
Restructuring and other charges recorded in 1993 totaled $108.7 million
($66.3 million after tax or $2.31 per share). Of this total, $76.7 million
pertained to the packaging segment, $29.1 million pertained to the aerospace and
technologies segment and $2.9 million related 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.
Within the packaging segment, $66.3 million represented the estimated cost
of consolidating manufacturing facilities, including recognition of estimated
net realizable values 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. During 1994 the
company's glass container plants in Asheville, North Carolina, and Okmulgee,
Oklahoma, were closed as part of this plan. The company began to benefit from
operating fewer manufacturing facilities in 1994 as fixed costs declined and the
annual plant utilization rate for the glass container business increased from 86
percent in 1993 to 92 percent in 1994. In conjunction with the sale of the glass
business in 1995, $14.8 million provided in 1993 and identified for the closure
of an additional glass container facility was released as a part of the net loss
on the disposition of the glass business. The remaining $16.8 million at
December 31, 1995, is adequate to complete the disposition of the retained glass
assets and the consolidation of certain metal packaging operations.
Other charges in 1993 within the packaging segment of $10.4 million were
largely for the write-off of machinery and equipment as a result of
industry-wide changes in beverage container specifications. These reserves were
fully utilized at December 31, 1995.
Costs of $19.4 million associated with the disposition of the VIGS and
all-light-level television (ALLTV) product lines were included in the aerospace
and technologies segment in 1993. In May 1994 the company sold certain assets of
the VIGS unit, but foreclosed on its security interest in the assets in
September 1994. As a result of the foreclosure, the assets were returned to the
company. Additional charges of $8.0 million and $4.0 million were recorded in
1995 and 1994, respectively, for costs associated with the foreclosure and
wind-down of the VIGS business. The remaining $5.2 million at December 31, 1995,
is adequate to complete unresolved matters. Costs of $9.7 million for segment
administrative consolidations were part of the reserve in 1993, all of which has
been utilized at December 31, 1995.
At December 31, 1995, restructuring and other reserves related to the 1993
restructuring plan included in the Consolidated Balance Sheet totaled $22.0
million of which $10.8 million will not impact future cash flows apart from
related tax benefits. The remaining $11.2 million represents future pretax cash
outflows, the majority of which is expected to be incurred in 1996. The exact
timing of those cash outflows is dependent upon the pace of facility
consolidation.
The company's businesses and competitive posture are evaluated continually
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. In addition, in order to achieve, in part, the
benefits anticipated from combining the glass businesses within Ball-Foster, it
may become necessary to rationalize plants or equipment, or to eliminate
redundant systems or processes, resulting in charges against earnings. The
components, timing and amounts of the charges, if any, are uncertain at this
time.
Other
Cumulative Effect of Changes in Accounting
- - ------------------------------------------
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 requires 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 pretax charge to earnings as of January 1, 1993, in the amount of
$46.0 million ($28.5 million after tax or 99 cents per share), which represents
the cumulative effect on prior years of the change in accounting. The company's
early adoption of SFAS No. 112 for postemployment benefits resulted in a pretax
charge of $10.0 million ($6.2 million after tax or 22 cents per share) to
recognize the cumulative effect on prior years.
New Accounting Pronouncements
- - -----------------------------
The Financial Accounting Standards Board issued SFAS No. 121, "Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
and SFAS No. 123, "Accounting for Stock-Based Compensation," which are effective
for the company beginning in 1996. SFAS No. 121 requires a review for impairment
of long-lived assets and certain identifiable intangibles used in the business
whenever events or changes in circumstances indicate that the carrying amounts
may not be recoverable. The statement also requires that long-lived assets and
certain identifiable intangibles which are held for disposition should be
reported at the lower of carrying amount or fair value less cost to sell. The
company has not yet determined the impact, if any, of adopting this statement.
SFAS No. 123 establishes financial accounting and reporting standards for
stock-based employee compensation plans. SFAS No. 123 also defines a fair
value-based method of accounting for employee stock options and encourages,
though does not require, companies to adopt that method of accounting for all
employee stock compensation plans. The company will continue to account for its
stock-based employee compensation programs as prescribed by existing generally
accepted accounting principles.
Inflation, Risks, Uncertainties and the Use of Estimates
- - --------------------------------------------------------
The U.S. 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.
In the ordinary course of business, the company is subject to various risks
and uncertainties due, in part, to the highly competitive nature of the
industries in which the company participates, its operations in developing
markets outside the U.S., volatile costs of commodity materials used in the
manufacture of its products, and changing capital markets. Where possible and
practicable, the company attempts to minimize these risks and uncertainties.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and reported amounts of revenues and expenses during the reporting
period. Future events could affect these estimates.
Litigation
- - ----------
On July 27, 1994, Onex Corporation (Onex) initiated arbitration before the
International Chamber of Commerce, alleging that the company was in breach of a
joint venture agreement dated September 15, 1988. Onex's demand represented a
claim against the company for approximately $30 million. The company denied the
allegations of Onex's complaint. On August 1, 1995, the Arbitral Tribunal
decided the case in favor of Ball Corporation. The parties had previously agreed
to be bound by the decision of the Tribunal.
From time to time, the company is subject to routine litigation incidental
to its business. Additionally, the U.S. 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.