EXHIBIT 13.1
Published on March 31, 1998
Exhibit 13.1
1997 Annual Report
2
Consolidated Financial Statements
6
Notes to Consolidated Financial Statements
30
Report of Management on Financial Statements
Report of Independent Accountants
31
Management's Discussion and Analysis
of Financial Condition and Results of Operations
40
Five-Year Review of Selected Financial Data
Consolidated Statement of Income (Loss)
Ball Corporation and Subsidiaries
The accompanying notes are an integral part of the consolidated financial
statements.
Consolidated Balance Sheet
Ball Corporation and Subsidiaries
The accompanying notes are an integral part of the consolidated financial
statements.
Consolidated Statement of Cash Flows
Ball Corporation and Subsidiaries
The accompanying notes are an integral part of the consolidated financial
statements.
Consolidated Statement of Changes in Shareholders' Equity
Ball Corporation and Subsidiaries
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 and Basis of Presentation
The consolidated financial statements include the accounts of Ball Corporation
and majority-owned subsidiaries (collectively, Ball or the Company). 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 Ball 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. Significant intercompany
transactions are eliminated. The results of subsidiaries and equity affiliates
in Asia and South America are reflected in the consolidated financial statements
on a one month lag. There were no significant events which occurred subsequent
to November 30, 1997, which were required to be reflected in the accompanying
financial statements. Certain amounts for 1996 and 1995 have been reclassified
to conform to the 1997 presentation.
In October 1996, the Company sold its 42 percent interest in Ball-Foster
Glass Container Co., L.L.C. (Ball-Foster), a company formed in 1995, to
Compagnie de Saint-Gobain (Saint-Gobain). With this sale, Ball no longer
participates in the manufacture or sale of glass containers. Accordingly, the
accompanying consolidated financial statements and notes segregate the financial
effects of the glass business as discontinued operations. See the note,
"Discontinued Operations," for more information regarding this transaction.
Amounts included in the notes to consolidated financial statements pertain to
continuing operations, except where otherwise noted.
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
contingencies at the date of the financial statements, and reported amounts of
revenues and expenses during the reporting period. Future events could affect
these estimates.
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.
Revenue Recognition
Sales and earnings are recognized primarily upon shipment of products, except in
the case of long-term contracts within the aerospace and technologies segment
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, is made in the period that such
losses are determined.
Temporary Investments
Temporary investments are considered cash equivalents if original maturities are
three months or less.
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. If a financial instrument no longer
qualifies as an effective hedge, the instrument is recorded at fair market
value.
Inventories
Inventories are stated at the lower of cost or market. The cost for certain U.S.
metal beverage container inventories and substantially all inventories within
the U.S. metal food container business is determined using the last-in,
first-out (LIFO) method of accounting. 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, 40 years. The Company evaluates long-lived
assets, including goodwill and other intangibles, based on fair values or
undiscounted cash flows whenever significant events or changes in circumstances
occur which indicate the carrying amount may not be recoverable.
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.
Employee Stock Ownership Plan
Ball 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 recorded within the accompanying balance
sheet is reduced as the principal of the guaranteed ESOP notes is amortized.
Earnings Per Share
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings per Share," effective December 31, 1997. Under SFAS No. 128, Ball is
required to present both earnings per common share and diluted earnings per
share amounts. Earnings per common share are computed by dividing the net
earnings (loss) attributable to common shareholders by the weighted average
number of common shares outstanding for the period. Diluted earnings per share
reflect the potential dilution that could occur if the Series B ESOP Convertible
Preferred Stock (ESOP Preferred) was converted into additional outstanding
common shares and outstanding dilutive stock options were exercised. In the
diluted computation, net earnings (loss) attributable to common shareholders are
adjusted for additional ESOP contributions which would be required if the ESOP
Preferred was converted to common shares and excludes the tax benefit of
deductible common dividends upon the assumed conversion of the ESOP Preferred.
Adoption of the new standard, which requires restatement of previously disclosed
amounts, had no effect on previously disclosed earnings per common share amounts
and had an insignificant effect on previously disclosed diluted earnings per
share amounts.
In 1995, the assumed conversion of the ESOP Preferred and exercise of stock
options resulted in a dilutive effect on continuing operations. Accordingly, the
diluted weighted average share amounts are required to be used for discontinued
operations, resulting in a lower total diluted loss per share than the total
loss per common share.
New Accounting Pronouncements
SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosure
about Segments of an Enterprise and Related Information," were issued in June
1997 and will be effective for the Company in 1998. SFAS No. 130 requires that
all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. Adoption of
this standard will not affect the presentation of the traditional statement of
income. SFAS No. 131 establishes standards for reporting information about
operating segments in annual financial statements and requires reporting of
selected information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related disclosures
about products and services, geographic areas and major customers. The Company
is evaluating this standard to determine the impact, if any, on its segment
reporting.
Business Segment Information
The Company has two business segments: packaging, and aerospace and
technologies.
Packaging
The packaging segment includes the businesses that manufacture metal and PET
(polyethylene terephthalate) containers, primarily for use in beverage and food
packaging. The Company's packaging operations are located in and serve North
America (the U.S. and Canada) and Asia (primarily China). Packaging operations
in Asia have increased as a result of the early 1997 acquisition of a
controlling interest in M.C. Packaging (Hong Kong) Limited (M.C. Packaging). The
results of that business are included within the packaging segment since its
acquisition date. Ball also has investments in packaging companies in Brazil and
Thailand which are accounted for under the equity method, and, accordingly,
those results are not included in segment earnings or assets. See the notes,
"Acquisitions" and "Dispositions and Other," for additional information
regarding these and other transactions affecting segment results.
Aerospace and Technologies
The aerospace and technologies segment includes: the aerospace systems division,
comprised of civil space systems, technology operations, defense systems,
commercial space operations and systems engineering; and the telecommunication
products division, comprised of advanced antenna and video systems and
communication and video products. See the note, "Dispositions and Other," for
information regarding transactions affecting segment results.
Major Customers
Packaging segment sales to PepsiCo, Inc., and affiliates represented
approximately 12 percent of consolidated net sales in 1997 and 1996, and less
than 10 percent of consolidated net sales in 1995. Sales to Anheuser-Busch
Companies, Inc., represented less than 10 percent of consolidated net sales in
1997 and approximately 11 percent and 14 percent of consolidated net sales in
1996 and 1995, respectively. Sales to all bottlers of Pepsi-Cola and Coca-Cola
branded beverages comprised approximately 36 percent of consolidated net sales
in both 1997 and 1996 and 32 percent of consolidated net sales in 1995. Sales to
various U.S. government agencies by the aerospace and technologies segment,
either as a prime contractor or as a subcontractor, represented approximately 14
percent, 15 percent and 13 percent of consolidated net sales in 1997, 1996 and
1995, respectively.
Financial data segmented by geographic area is provided below.
Acquisitions
M.C. Packaging (Hong Kong) Limited
In early 1997, Ball, through its majority-owned subsidiary, FTB Packaging
Limited (FTB Packaging), acquired approximately 75 percent of M.C. Packaging
(Hong Kong) Limited (M.C. Packaging), previously held by Lam Soon (Hong Kong)
Limited and the general public for a total purchase price of approximately $179
million. M.C. Packaging produces two-piece aluminum beverage containers,
three-piece steel beverage and food containers, aerosol cans, plastic packaging,
metal crowns and printed and coated metal.
The acquisition has been accounted for as a purchase, with M.C. Packaging's
results included in the Company's consolidated financial statements effective
with the acquisition. The preliminary purchase price allocation included
provisions for costs incurred in 1997, or expected to be incurred, for
severance, relocation and other restructuring activities of approximately $7.3
million. In 1997, approximately $1.9 million was charged against these reserves,
primarily related to employee termination costs. To the extent that the actual
costs to complete these activities are different from the estimated amounts
provided, the change will be reflected as an adjustment to goodwill. The excess
of the purchase price over the net book value of assets acquired and liabilities
assumed has been preliminarily assigned to long-term assets, including goodwill
of $122.3 million, and is being amortized to expense over the periods benefited.
Following is a summary of the net assets acquired:
(dollars in millions)
Total assets, including cash of $18.8 million $487.3
Less liabilities assumed:
Current liabilities (other than debt) 63.3
Total debt 198.0
Other long-term liabilities and minority interests 47.2
-------------
Net assets acquired $178.8
=============
The following table illustrates the effects of the acquisition on a pro
forma basis for the year ended 1996 as though it had occurred at January 1,
1996.
(dollars in millions except per share amounts) 1996 (2)
---------------
Net sales $ 2,366.4
Net income 1.1
Net loss attributable to common shareholders (1.8)
Loss per common share (1) (0.06)
(1) The effect of assuming conversion of the ESOP Preferred shares would be
anti-dilutive. Accordingly, the diluted loss per share is the same as the
loss per common share.
(2) All amounts reflect continuing operations only.
The unaudited pro forma financial information 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, 1996. In addition to increased interest expense related to
incremental borrowings used to finance the acquisition and the amortization of
goodwill, pro forma results include charges of $6.2 million after taxes and
minority interests, or 20 cents per share, in connection with preacquisition
inventory, accounts receivable and other items which management believes to be
at abnormally high levels not anticipated in the future.
PET Container Assets
In the third quarter of 1997, the Company acquired certain PET container assets
for a purchase price of approximately $42.7 million from Brunswick Container
Corporation (Brunswick), including goodwill and other intangible assets of
approximately $28.3 million. In connection with the acquisition, the Company
began operating a new plant in Delran, New Jersey, to supply a large East Coast
bottler of soft drinks and other customers, and closed small manufacturing
facilities in Pennsylvania and Virginia. See the note, "Dispositions and Other,"
for additional information regarding these plant closures.
Dispositions and Other
The following table summarizes the gains and losses in connection with
dispositions and other charges included in the consolidated statement of income
(loss) during the three years ended December 31, 1997.
1997 Items
In the first half of 1997, the Company sold its interest in the common stock of
Datum Inc. (Datum), for approximately $26.2 million, recording a pretax gain of
$11.7 million. Ball acquired its interest in Datum in connection with the 1995
disposition of its Efratom time and frequency measurement devices business (see
1995 items). The Company owned approximately 32 percent of Datum. Ball's share
of Datum's earnings under the equity method of accounting were $0.5 million and
$0.3 million in 1997 and 1995, respectively, and a loss of $0.2 million in 1996.
In the second quarter of 1997, the Company recorded a pretax charge of $3.0
million to close a small PET container manufacturing plant in connection with
the acquisition of certain PET container manufacturing assets. Operations ceased
during that quarter. A second plant, acquired from Brunswick, was closed in
early 1998.
In the fourth quarter of 1997, Ball disposed of or wrote down to estimated
net realizable value certain equity investments, resulting in a net pretax gain
of $0.3 million. The Company's equity in the net earnings of these affiliates
was not significant in 1997, 1996 and 1995.
1996 Items
In the fourth quarter of 1996, Ball sold its U.S. aerosol container
manufacturing business, with net assets of approximately $47.5 million,
including $6.0 million of goodwill, for $44.3 million, comprised of cash and a
$3.0 million note, recording a pretax loss of $3.3 million.
In late 1996, the Company closed a metal food container manufacturing
facility and discontinued the manufacture of metal beverage containers at
another facility. Ball recorded a pretax charge of $14.9 million consisting of
$9.4 million to write down assets to net realizable value and $5.5 million for
employee termination costs, benefits and other direct costs. In addition, in the
first quarter of 1996, Ball recorded a charge of $2.8 million for employee
termination costs, primarily related to the metal packaging business.
Curtailment activities were substantially completed during 1997.
In 1994, the Company formed EarthWatch, Incorporated (EarthWatch), and in
1995 acquired WorldView, Inc., to commercialize certain proprietary technologies
by serving the market for satellite-based remote sensing images of the Earth.
Through December 31, 1995, the Company invested approximately $21 million in
EarthWatch. As of December 31, 1996, EarthWatch had experienced extended product
development and deployment delays and expected to incur significant product
development losses into the future, exceeding Ball's investment. Although Ball
was a 49 percent equity owner of EarthWatch at year end 1996, and had contracted
to design satellites for that company, the remaining carrying value of the
investment was written to zero. Accordingly, Ball recorded a pretax charge of
$15.0 million ($9.3 million after tax or 31 cents per share), in the fourth
quarter of 1996 which is reflected as a part of equity in losses of affiliates.
EarthWatch continued to incur losses throughout 1997. Ball has no commitments to
provide further equity or debt financing to EarthWatch beyond its investment to
date. Subject to certain conditions, Ball has agreed to produce satellites for
Earth Watch. At year end 1997, Ball owned approximately 48 percent of the voting
stock in EarthWatch.
1995 Items
During 1994, the Company concluded a study which explored strategic alternatives
for the aerospace and technologies business. A decision was made to retain the
core aerospace and technologies business, but to sell its Efratom business.
Efratom was sold in March 1995 to Datum for cash of $15.0 million and
approximately 1.3 million shares, or approximately 32 percent, of Datum common
stock with a market value at the date of the sale of $14.0 million. Ball
recorded a pretax gain of $11.8 million in connection with this sale.
In late 1995, the metal packaging business recorded a pretax charge of
$10.9 million as a result of the curtailment of certain manufacturing capacity
and write-down of certain unproductive manufacturing equipment to net realizable
value. 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
direct costs. Curtailment activities were substantially completed during 1996.
In addition, a charge of $8.0 million was recorded in 1995 for costs
associated with the 1993 decision to exit the visual image generating systems
business. All significant business activities associated with the exit were
completed in early 1997.
Subsequent Event
On February 4, 1998, Ball announced that it would relocate its corporate
headquarters to an existing company-owned building in Broomfield, Colorado. In
connection with the relocation, the Company expects to record in 1998 a charge
estimated to be approximately $20 million pretax, primarily for employee related
costs and the write-down of certain assets to net realizable values. This move
is expected to be largely completed by the end of 1998.
Discontinued Operations
In September 1995, the Company sold substantially all of the assets of Ball
Glass Container Corporation (Ball Glass), a wholly owned subsidiary of Ball, to
Ball-Foster for approximately $323 million in cash. Concurrent with this
transaction, the Company acquired a 42 percent interest in Ball-Foster for
$180.6 million. The remaining 58 percent interest was acquired for $249.4
million by Saint-Gobain. Ball-Foster also acquired substantially all of the
assets of Foster-Forbes, a unit of American National Can Company.
In October 1996, the Company sold its interest in Ball-Foster to
Saint-Gobain for $190 million in cash and received an additional $15 million in
cash in final settlement of the 1995 transaction. With the October 1996 sale,
Ball no longer participates in the glass business.
The following table provides summary income statement data related to the
discontinued glass business:
Interest expense allocated to the glass business was based on the average
net assets of the glass business and Ball's weighted average interest rate for
general borrowings. Debt specifically identified with the Company's other
operations was excluded in determining the weighted average interest rate. The
net loss attributable to discontinued operations in 1995 included allocated
general and administrative expenses directly related to the glass business of
approximately $5.7 million.
Accounts Receivable
Accounts receivable are net of an allowance for doubtful accounts of $12.2
million and $5.1 million at December 31, 1997 and 1996, respectively.
Sale of Trade Accounts Receivable
In December 1997, Ball Capital Corp., a wholly owned subsidiary of Ball, entered
into a receivables sale agreement which provides for the ongoing, revolving sale
of up to $75.0 million of a designated pool of trade accounts receivable of
Ball's domestic packaging businesses. The current agreement expires in December
1998. Accounts receivable sold under this agreement and a similar agreement in
the prior year totaled $65.9 million and $66.5 million at December 31, 1997 and
1996, respectively. Fees incurred in connection with the sale of accounts
receivable in 1997, 1996 and 1995, and which are included in general and
administrative expenses, totaled $4.0 million, $3.7 million and $4.3 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 $63.7 million and $60.4 million at December 31,
1997 and 1996, respectively, and include unbilled amounts representing revenue
earned but not yet billable of $28.0 million and $15.4 million, respectively.
Approximately $9.3 million of unbilled receivables at December 31, 1997, is
expected to be collected after one year.
Inventories
Inventories at December 31 consisted of the following:
Approximately 67 percent of total U.S. product inventories at December 31,
1997 and 1996, were valued using LIFO accounting. Inventories at December 31,
1997 and 1996, would have been $9.9 million and $10.1 million higher,
respectively, than the reported amounts if the FIFO method, which approximates
replacement cost, had been used for all inventories.
Other Assets
The composition of other assets at December 31 was as follows:
Company-Owned Life Insurance
The Company has purchased insurance on the lives of certain employees. Premiums
were approximately $6 million in each of 1997 and 1996 and $20 million in 1995.
Amounts in the consolidated statement of cash flows represent net cash flows
from this program, including policy loans of approximately $10 million in each
of 1997 and 1996 and $113 million in 1995, and partial withdrawals of
approximately $22 million in 1997. Legislation enacted in 1996 limits the amount
of interest on policy loans which can be deducted for federal income tax
purposes. The limits affect insurance programs initiated after June 1986, and
phase-in over a three-year period. As a result of the new legislation, the
Company was unable to deduct certain amounts of its policy loan interest in
1996, resulting in higher income tax expense of approximately $1.5 million (five
cents per share). As a result of actions taken by Ball in 1996, the new
legislation did not have a significant impact on 1997 results.
Debt and Interest Costs
Short-term debt at December 31 consisted of the following:
Long-term debt at December 31 consisted of the following:
In the U.S., Ball had committed revolving credit agreements at December 31,
1997, totaling $280 million consisting of a five-year facility expiring July
2002 for $150 million and 364-day facilities for $130 million. The revolving
credit agreements provide for various borrowing rates, including borrowing rates
based on the London Interbank Offered Rate (LIBOR). The Canadian dollar
commercial paper facility provides for committed short-term funds of
approximately $84 million. The Company also has short-term uncommitted credit
facilities in the U.S. of approximately $326 million, and, in Asia, FTB
Packaging, including M.C. Packaging, had short-term uncommitted credit
facilities of approximately $250 million at December 31, 1997. Ball pays a
facility fee on the committed facilities.
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 6.71 percent and maturities from 1997 through 2008. Fixed-term debt in
China at year end 1997 included approximately $57.2 million of floating rate
notes issued by M.C. Packaging and its consolidated affiliates, and a floating
rate note issued by FTB Packaging's Beijing affiliate. Maturities of all fixed
long-term debt obligations outstanding at December 31, 1997, are $62.8 million,
$59.2 million, $35.2 million and $19.5 million for the years ending December 31,
1999 through 2002, respectively.
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. At year end, FTB Packaging, including M.C.
Packaging, had outstanding letters of credit and guarantees of unconsolidated
affiliate debt of approximately $14.1 million. Ball also issues letters of
credit in the ordinary course of business to secure liabilities recorded in
connection with the Company's deferred compensation program, industrial
development revenue bonds and insurance arrangements, of which $72.5 million
were outstanding at December 31, 1997. Ball Corporation also has provided a
completion guarantee representing 50 percent of the $54 million of debt issued
by the Company's Brazilian joint venture to fund the construction of the
facilities. ESOP debt represents borrowings by the trust for the Ball-sponsored
ESOP which have been irrevocably guaranteed by the Company.
The U.S. note agreements, bank credit agreement, ESOP debt guarantee and
industrial development revenue bond agreements contain certain restrictions
relating to dividends, investments, guarantees and other borrowings. Under the
most restrictive covenant, approximately $166 million was available for payment
of dividends and purchases of treasury stock at December 31, 1997.
The Company was not in default of any loan agreement at December 31, 1997,
and has met all payment obligations. M.C. Packaging was, however, in
noncompliance with certain financial ratio provisions, including interest
coverage and current ratio, under a fixed term loan agreement of which $37.5
million was outstanding at year end. The lender granted M.C. Packaging an
unspecified period to present a revised, comprehensive financing structure for
its business. Management believes that M.C. Packaging has made significant
progress towards concluding an alternative, longer term financing arrangement
satisfactory to all parties and that although such an arrangement has
substantially been concluded, a definitive agreement has not yet been executed.
Management also believes that existing credit resources will be adequate to meet
foreseeable financing requirements. Ball Corporation does not guarantee any debt
obligations of M.C. Packaging.
A summary of total interest cost paid and accrued follows:
(dollars in millions) 1997 1996 1995
------------- ------------- -------------
Interest costs $57.9 $39.9 $29.2
Amounts capitalized (4.4) (6.6) (3.5)
------------- ------------- -------------
Interest expense 53.5 33.3 25.7
============= ============= =============
Interest paid during year (1) $53.9 $37.3 $42.6
============= ============= =============
(1) Includes $5.5 million and $12.1 million for 1996 and 1995, respectively,
allocated to discontinued operations.
Financial and Derivative Instruments and Risk Management
The Company is subject to various risks and uncertainties due to the competitive
nature of the industries in which Ball participates, its operations in
developing markets outside the U.S., changing commodity prices and changing
capital markets.
Policies and Procedures
In the ordinary course of business, the Company employs established risk
management policies and procedures to reduce its exposure to commodity price
changes, changes in interest rates and fluctuations in foreign currencies. The
Company's objective in managing its exposure to commodity price changes is to
limit the impact of commodity price changes on earnings and cash flow through
arrangements with suppliers and, at times, through the use of certain derivative
instruments designated as hedges. The Company's objective in managing its
exposure to interest rate changes is to limit the impact of interest rate
changes on earnings and cash flow and to lower its overall borrowing costs. To
achieve these objectives, the Company primarily uses interest rate swaps and
options to manage the Company's mix of floating and fixed-rate debt. The
Company's objective in managing its exposure to foreign currency fluctuations is
to reduce cash flow and earnings volatility associated with foreign exchange
rate changes. The Company generally does not use derivative instruments for
trading purposes.
Interest Rate Risk
Interest rate instruments held by the Company at December 31, 1997 and 1996,
included pay-floating and pay-fixed swaps and swaption contracts. Pay-fixed
swaps effectively convert floating rate obligations to fixed rate instruments.
Pay-floating swaps effectively convert fixed-rate obligations to variable rate
instruments. The differential exchanged with counter parties between fixed rate
and floating rate interest amounts are recorded as an adjustment to interest
expense. Gains or losses arising from the termination of interest rate swaps,
which have not been significant, are deferred and amortized over the original
contract terms. If an interest rate swap would no longer qualify as an effective
hedge, Ball records the instrument at fair market value and the financial impact
is reflected in earnings. Swap agreements expire in one to eight years.
Interest rate swap agreements outstanding at December 31, 1997, had
notional amounts of $145 million at a floating rate and $326 million at a fixed
rate, or a net fixed-rate position of $181 million. At December 31, 1996, these
agreements had notional amounts of $110 million at a floating rate and $81
million at fixed rate, or a net floating-rate position of $29 million. Floating
rate agreements with notional amounts of $55 million and $50 million at December
31, 1997 and 1996, included an interest rate floor.
The related notional amounts of interest rate swaps and options serve as
the basis for computing the cash flow 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 non-derivative 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 Ball
would pay or receive upon termination of the contracts at December 31, 1997 and
1996, taking into account any unrealized gains or losses on open contracts.
Exchange Rate Risk
In 1997, the Company recognized its share of exchange losses, comprised
primarily of the unrealized loss attributable to approximately $23 million of
U.S. dollar denominated debt held by its 40 percent equity affiliate in
Thailand. The charge of $3.2 million, or 11 cents per share, resulted from a
change in monetary policy by the government of Thailand in early July 1997, to
no longer peg the Thai baht to the U.S. dollar. Through November 30, 1997, the
Thai baht depreciated significantly versus the U.S. dollar, and continues to be
volatile. The Company also has U.S. dollar denominated debt in China
(approximately $205 million included in Ball's consolidated balance sheet and
approximately $45 million issued by equity affiliates at year end). The
Company's 50 percent owned affiliate in Brazil had approximately $72 million of
U.S. dollar denominated debt at year end. In addition, Ball has other U.S.
dollar denominated assets and liabilities outside the U.S. which are subject to
exchange rate fluctuations.
Leases
The Company leases warehousing and manufacturing space and certain manufacturing
equipment, primarily within the packaging segment, and office space, primarily
within its aerospace and technologies business. Under certain of these lease
arrangements, Ball has the option to purchase the leased facilities and
equipment for a total purchase price at the end of the lease term of
approximately $96.3 million. If the Company elects not to purchase the
equipment, and does not enter into a new lease arrangement, Ball has guaranteed
the lessors a minimum residual value of approximately $77.2 million, and may
incur other incremental costs to discontinue or relocate the business activities
associated with these leased assets. These agreements contain certain
restrictions relating to dividends, investments and borrowings consistent with
the Company's bank credit agreements. Total noncancellable operating leases in
effect at December 31, 1997, require rental payments of $29.2 million, $25.8
million, $20.9 million, $15.3 million and $2.7 million for the years 1998
through 2002, respectively, and $15.4 million for all years thereafter. Lease
expense for all operating leases was $34.7 million, $28.9 million and $18.1
million in 1997, 1996 and 1995, respectively.
Taxes on Income
The amounts of income from continuing operations before income taxes by national
jurisdiction follow:
The provision for income tax expense recorded within the consolidated
statement of income (loss) differs from the amount of income tax expense
determined by applying the U.S. statutory federal income tax rate to pretax
income from continuing operations as a result of the following:
In connection with a routine examination of its federal income tax return,
the Internal Revenue Service concurred with the Company's position on
recognition of research and development tax credits. As a result, the Company
received a refund in 1996 of a portion of prior years' tax payments. In 1997,
the Company settled tax credit matters for years 1991 and 1992, and recorded an
additional credit.
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 significant components of deferred tax (assets) liabilities at December 31
were:
(dollars in millions) 1997 1996
------------- -------------
Deferred tax assets:
Deferred compensation $(21.8) $ (21.4)
Accrued employee benefits (34.8) (36.0)
Estimated plant closure costs (7.8) (9.7)
Other (37.4) (39.5)
------------- -------------
Total deferred tax assets (101.8) (106.6)
------------- -------------
Deferred tax liabilities:
Depreciation 99.8 90.9
Other 27.3 19.4
------------- -------------
Total deferred tax liabilities 127.1 110.3
------------- -------------
Net deferred tax liabilities $ 25.3 $ 3.7
============= =============
Net income tax payments were $4.2 million and $26.5 million for 1997 and
1995, respectively. In 1996, net income taxes refunded were $14.2 million.
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. In addition, the plan covering salaried
employees in Canada includes a defined contribution feature. Plans for hourly
employees provide benefits based on fixed rates for each year of service. Ball'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 common stocks and fixed
income securities.
The funded status of the plans at December 31 follows:
The higher discount rate in 1996 pertains to Ball's Canadian pension plans.
The additional minimum liability was partially offset by an intangible asset of
approximately $2.0 million and $5.1 million in 1997 and 1996, respectively. The
remainder, net of tax benefits, was recognized as a component of shareholders'
equity.
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, excluding
curtailments and settlements, follows:
Settlement and curtailment costs in 1996 included a pretax gain of $1.9
million in connection with the settlement of hourly glass pension liabilities
with Ball-Foster, recorded as a part of discontinued operations, and a pretax
loss of $3.3 million recorded in connection with the sale of the aerosol
business. In 1995, a net curtailment loss of $18.6 million was included as part
of the net loss on the 1995 Ball Glass transaction.
Other Postretirement and Postemployment Benefits
The Company sponsors various defined benefit and defined contribution
postretirement health care and life insurance plans for substantially all U.S.
and Canadian employees. Employees may also 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 Ball-sponsored
plans are unfunded and, with the exception of life insurance benefits, are
self-insured.
Postretirement Medical and Life Insurance Benefits
Postretirement health care benefits are provided to substantially all of Ball's
U.S. and Canadian employees. In Canada, the Company provides supplemental
medical and other benefits in conjunction with Canadian Provincial health care
plans. Most U.S. salaried employees who retired prior to 1993 are covered by
noncontributory defined benefit medical plans with capped lifetime benefits.
Ball 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. Life insurance benefits are noncontributory.
Ball has no commitments to increase benefits provided by any of the
postretirement benefit plans.
The status of the Company's unfunded postretirement benefit obligation at
December 31 follows:
Curtailment and settlement gains amounting to $8.4 million in each of 1996
and 1995 in connection with the sale of the aerosol business and glass business,
respectively, are reflected as a part of the respective transaction. The Company
amortizes unrecognized actuarial gains and losses to expense over 10 years. Net
periodic postretirement benefit cost, excluding curtailments and settlements,
was comprised of the following components:
The health care cost trend rates used to calculate the APBO are assumed to
decline to 5.0 percent after the year 2003. A one percentage point increase in
these rates would increase the APBO by $2.9 million at December 31, 1997, and
would not have significantly changed the service and interest components of net
periodic postretirement benefit cost in 1997.
Other Benefit Plans
Effective January 1, 1996, substantially all employees within the Company's
aerospace and technologies business who participate in Ball's 401(k) salary
conversion plan receive a performance-based matching cash contribution of up to
four percent of base salary. Ball recorded $4.1 million and $3.5 million in
compensation expense in 1997 and 1996, respectively, related to this match. In
addition, substantially all U.S. salaried employees and certain U.S. nonunion
hourly employees who participate in Ball's 401(k) salary conversion plan
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
$10.6 million in each of 1997 and 1996 and $10.2 million in 1995. Interest paid
by the ESOP trust for its borrowings was $3.6 million, $4.2 million and $4.7
million for 1997, 1996 and 1995, respectively.
Shareholders' Equity
At December 31, 1997, 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 (ESOP Preferred).
The ESOP Preferred has a stated value and liquidation preference of $36.75
per share and cumulative annual dividends of $2.76 per share. The 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 Ball's shareholders. Each ESOP
Preferred share has a guaranteed value of $36.75 and is convertible into 1.1552
shares of Ball Corporation common stock.
Under the Company's successor Shareholder Rights Plan, effective August
1997, one Preferred Stock Purchase Right (Right) is attached to each outstanding
share of Ball Corporation common stock. Subject to adjustment, each Right
entitles the registered holder to purchase from the Company one one-thousandth
of a share of Series A Junior Participating Preferred Stock of the Company at an
exercise price of $130 per Right. If a person or group acquires 15 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 Ball
Corporation common stock at a 50 percent discount. The Rights, which expire in
2006, are redeemable by the Company at a redemption price of one cent 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 Ball's board of directors. The Rights would not
interfere with any merger or other business combinations approved by the board
of directors.
Common shares were reserved at December 31, 1997, 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 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 approximately $1.5
million in 1997 and $1.6 million in each of 1996 and 1995.
Stock Options
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 Ball
at the market value of the stock at the date of grant. Payment must be made 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 date exercised. Options terminate
ten years from date of grant. Tier A options are exercisable in four equal
installments commencing one year from date of grant. Tier B options vest at the
date of grant, and are exercisable after the Company's common stock price closes
at or above $50 per share for ten consecutive days. The target stock price is
adjusted based on a compounded annual growth rate of 7.5 percent for individuals
retiring prior to the expiration of the options.
A summary of stock option activity for the years ended December 31 follows:
Additional information regarding options outstanding at December 31, 1997,
follows:
These options cannot be traded in any equity market. However, based on the
Black-Scholes option pricing model, adapted for use in valuing compensatory
stock options in accordance with SFAS No. 123, Tier A options granted in 1997
and 1996 have estimated weighted fair values, at the date of grant, of $7.06 per
share and $8.67 per share, respectively. Under the same methodology, Tier B
options granted during 1997 and 1996 have estimated fair values, at the date of
grant, of $8.54 per share and $8.56 per share, respectively. The actual value an
employee may realize will depend on the excess of the stock price over the
exercise price on the date the option is exercised. Consequently, there is no
assurance that the value realized by an employee will be at or near the value
estimated. The fair values were estimated using the following weighted average
assumptions:
1997 Grants 1996 Grants
---------------- ----------------
Expected dividend yield 2.33% 2.33%
Expected stock price volatility 23.32% 24.26%
Risk-free interest rate 6.75% 6.77%
Expected life of options 5.12 years 6.96 years
Ball accounts for its stock-based employee compensation programs using the
intrinsic value method prescribed by APB Opinion No. 25, "Accounting for Stock
Issued to Employees." If Ball had elected to recognize compensation based upon
the calculated fair value of the options granted after 1994, pro forma net
income and earnings per share would have been:
Earnings per Share
The following table provides additional information on the computation of
earnings per share amounts from continuing operations.
Options outstanding during each of the three years which were anti-dilutive
(i.e., the exercise price exceeded the average common stock price during the
year) have been excluded from the computation of the diluted earnings per share.
For 1997, approximately 328,000 options outstanding at year end were excluded
from the computation. Of these options approximately 194,000 options had an
exercise price of $35.625 and expire in 2005 and 128,000 options had an exercise
price of $32.00 and expire in 2003. Options outstanding at December 31, 1996,
which were excluded from the computation totaled approximately 565,000,
comprised principally of 141,000 options with an exercise price of $29.35
expiring in 2002, 151,000 options with an exercise price of $32.00 expiring in
2003, and 219,000 options with an exercise price of $35.625 expiring in 2005.
The remaining anti-dilutive options expire at various dates through 2004 and
have a weighted average exercise price of $29.936 per share. For 1995,
anti-dilutive options outstanding totaled approximately 256,000, comprised
primarily of 242,000 options expiring in 2005 at an exercise price of $35.625.
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 $22.2 million, $18.1
million and $13.4 million for the years 1997, 1996 and 1995, respectively.
Contingencies
The U.S. government is disputing the Company's claim to recoverability (by means
of allocation to government contracts) of reimbursed costs associated with
Ball's ESOP for fiscal years 1989 through 1995, as well as the corresponding
prospective costs accrued after 1995. The government will not reimburse the
Company for disputed ESOP expenses incurred or accrued after 1995. A deferred
payment agreement for the costs reimbursed through 1995 was entered into between
the government and Ball. On October 10, 1995, the Company filed its complaint
before the Armed Services Board of Contract Appeals (ASBCA) seeking final
adjudication of this matter. Trial before the ASBCA was conducted in January
1997. While the outcome of the trial is not yet known, the Company's information
at this time does not indicate that this matter will have a material, adverse
effect upon financial condition, results of operations or competitive position
of the Company.
From time to time, the Company is subject to routine litigation incidental
to its business. Additionally, the U.S. Environmental Protection Agency has
designated Ball 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.
Quarterly Results of Operations (Unaudited)
1997 Quarterly Information
The first quarter included a pretax gain of $1.2 million ($0.7 million
after tax or two cents per share) for shares of Datum sold in the first quarter.
An additional pretax gain of $10.5 million ($6.4 million after tax or 21 cents
per share) was recorded in the second quarter for the sale of the remaining
Datum shares. The second quarter also included a $3.0 million pretax charge
($1.8 million after tax or six cents per share) for the closure of a small PET
container manufacturing facility. The Company also recorded research and
development tax credits in the first and second quarters of $1.7 million (five
cents per share) and $0.8 million (three cents per share), respectively. In the
fourth quarter, Ball disposed of or wrote down to estimated net realizable value
certain equity investments resulting in a net pretax gain of $0.3 million. See
the note, "Dispositions and Other," for additional information.
1996 Quarterly Information
Results included a first quarter charge of $2.8 million ($1.7 million after tax
or six cents per share) for employee termination costs primarily within the
metal packaging business.
As described in the note, "Taxes on Income," in 1996 Ball received a refund
in connection with research and development tax credits attributable to prior
years. Further, as a result of legislation enacted in the third quarter of 1996,
Ball was required to exclude from deductible expenses a portion of the interest
incurred in connection with its company-owned life insurance program,
retroactive to January 1, 1996. The net effect of these tax matters was an
increase in net income from continuing operations in the third quarter of $4.3
million (14 cents per share).
Fourth quarter charges of $18.2 million ($13.7 million after tax or 45
cents per share) included the loss on the sale of the aerosol business,
provision for the closure of a metal food can manufacturing facility, and
write-down to net realizable value of certain metal beverage container
manufacturing equipment removed from service. In addition, the Company recorded
an after-tax charge of $9.3 million (31 cents per share) in the fourth quarter
related to Ball's investment in EarthWatch. See the note, "Dispositions and
Other," for further information.
Discontinued operations included a 1996 fourth quarter pretax gain of $24.1
million ($13.2 million after tax or 43 cents per share) for the sale of the
Company's investment in Ball-Foster. See the note, "Discontinued Operations,"
for further information.
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. The
diluted loss per share in fourth quarter of 1996 is the same as the net loss per
common share because the assumed exercise of stock options and conversion of the
ESOP Preferred stock would have been antidilutive for continuing operations.
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 informed
judgments and estimates.
Future events could affect these judgements and estimates.
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 in all
material respects. 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, Company 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 Company
internal audit have direct access to the audit committee, and the opportunity to
meet the committee without management present, to assure a free discussion of
the results of their work and audit findings.
George A. Sissel R. David Hoover
Chairman and Chief Executive Officer Vice Chairman 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 income (loss), 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, 1997 and 1996,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1997, 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.
Price Waterhouse LLP
Indianapolis, Indiana
January 28, 1998, except as to the note, "Subsequent Event," which is as of
February 4, 1998
Quarterly Stock Prices and Dividends
Quarterly prices for the company's common stock, as reported on the composite
tape, and quarterly dividends in 1997 and 1996 were:
Five-Year Review of Selected Financial Data
Ball Corporation and Subsidiaries
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. Ball Corporation
and subsidiaries are referred to collectively as "Ball" or the "Company" in the
following discussion and analysis.
Overview
Over the three-year reporting period, the Company has taken several actions
which affect the comparability of the accompanying financial statements. Ball
has significantly expanded its presence in international markets with the 1997
acquisition of M.C. Packaging (Hong Kong) Limited (M.C. Packaging), the
construction of metal container plants in the People's Republic of China
(China), and, through joint ventures, metal beverage container plants in Brazil
and Thailand. Ball entered the polyethylene terephthalate (PET) plastic
container market, beginning in 1995 with the construction of a pilot line and
research and development center, and currently operates four multi-line
manufacturing facilities. The Company also consolidated operations within its
North American metal packaging business to reduce costs and increase efficiency,
by closing or selling three food container operations and related facilities,
including selling a U.S. aerosol can business; discontinuing the manufacture of
metal beverage containers at one facility in Canada; and, eliminating certain
administrative positions within these lines of business. Ball exited the glass
container business and sold a time and frequency measurement device business.
On February 4, 1998, Ball announced that it would relocate its corporate
headquarters to an existing company-owned building in Broomfield, Colorado. In
connection with the relocation, the Company expects to record in 1998 a charge
estimated to be approximately $20 million pretax, primarily for employee related
costs and the write-down of certain assets to net realizable values. This move
is expected to be largely completed by the end of 1998.
Acquisitions
During 1997, the Company acquired approximately 75 percent of M.C. Packaging
through Ball's Hong Kong-based subsidiary, FTB Packaging Limited (FTB
Packaging), for a total purchase price of approximately $179 million in cash.
M.C. Packaging, with net sales of approximately $149 million included in Ball's
1997 consolidated results, operates 13 manufacturing facilities in China,
including four equity affiliates. Products manufactured by M.C. Packaging
include two-piece aluminum beverage containers, three-piece steel beverage and
food containers, aerosol cans, plastic packaging, metal crowns and printed and
coated metal. With this acquisition, Ball estimates that it supplies over 50
percent of the metal beverage containers used in China. The acquisition was
accounted for as a purchase and the results of M.C. Packaging included within
the packaging segment from the acquisition date in early 1997. The excess of the
purchase price of approximately $122.3 million was determined based on
preliminary fair values of assets acquired and liabilities assumed in the
acquisition.
In the third quarter of 1997, Ball acquired certain PET container
manufacturing assets from Brunswick Container Corporation (Brunswick) for cash
of approximately $42.7 million. In connection with this acquisition, the Company
obtained long-term agreements to supply a large East Coast bottler of soft
drinks.
Dispositions and Other
Following is a summary of the financial effects of dispositions and other
charges by business segment.
Packaging
In the second quarter of 1997, the Company recorded a pretax charge of $3.0
million ($1.8 million or six cents per share) for the closure of a small PET
container manufacturing facility. In addition, in January 1998 the Company
closed, as anticipated, a facility acquired as part of the 1997 acquisition and
will be relocating certain equipment during 1998 from that facility to Ball's
larger PET container facilities.
In October 1996, the Company sold net assets of approximately $47.5
million, including $6.0 million of goodwill, of a U.S. aerosol can manufacturing
business for cash of $41.3 million and a $3.0 million note. In connection with
this sale, the Company recognized a loss of $3.3 million ($4.4 million after
tax, including the effect of non-deductible goodwill, or 14 cents per share).
The aerosol business was included in consolidated results and within the
packaging segment through the date of sale. Ball also recorded pretax charges of
$17.7 million ($11.0 million after tax or 37 cents per share) and $10.9 million
($6.6 million after tax or 22 cents per share) in 1996 and 1995, respectively,
in connection with actions to consolidate its metal packaging operations,
including costs to close facilities, write-down assets to net realizable value
and eliminate certain administrative positions within these businesses.
Aerospace and Technologies
In the first quarter of 1995, upon conclusion of a study by the Company to
explore its strategic alternatives relative to its aerospace and technologies
business, Ball sold its Efratom time and frequency devices business to Datum
Inc. (Datum) for cash of $15.0 million and 1.3 million shares, or approximately
32 percent, of Datum common stock. The Company recorded a gain of $11.8 million
($7.7 million after tax or 25 cents per share) on this transaction. The 1995
gain was partially offset by a pretax charge of $8.0 million ($4.9 million after
tax or 16 cents per share) for costs in connection with the decision to exit the
visual image generating systems business in 1993.
Corporate
Corporate dispositions and other in 1997 include the sale of Ball's investment
in Datum in the first half for cash of approximately $26.2 million, resulting in
a pretax gain of $11.7 million ($7.1 million after tax or 23 cents per share).
Ball's share of Datum's earnings under the equity method of accounting were $0.5
million and $0.3 million in 1997 and 1995, respectively, and a loss of $0.2
million in 1996.
In the fourth quarter of 1997, Ball disposed of or wrote down to estimated
net realizable value certain equity investments, resulting in a net pretax gain
of $0.3 million. The Company's equity in the net earnings of these affiliates
was not significant in 1997, 1996 and 1995.
Other
In 1994, the Company formed EarthWatch, Incorporated (EarthWatch), and in 1995
acquired WorldView, Inc., to commercialize certain proprietary technologies by
serving the market for satellite-based remote sensing images of the Earth.
Through December 31, 1995, the Company invested approximately $21 million in
EarthWatch. As of December 31, 1996, EarthWatch had experienced extended product
development and deployment delays and expected to incur significant product
development losses into the future, exceeding Ball's investment. Although Ball
was a 49 percent equity owner of EarthWatch at year end 1996, and had contracted
to design satellites for that company, the remaining carrying value of the
investment was written to zero. Accordingly, Ball recorded a pretax charge of
$15.0 million ($9.3 million after tax or 31 cents per share), in the fourth
quarter of 1996 which is reflected as a part of equity in losses of affiliates.
EarthWatch continued to incur losses throughout 1997. Ball has no commitments to
provide further equity or debt financing to EarthWatch beyond its investment to
date. Subject to certain conditions, Ball has agreed to produce satellites for
EarthWatch. At year end 1997, Ball owned approximately 48 percent of the voting
stock in EarthWatch.
In 1996, the Company sold its 42 percent interest in Ball-Foster Glass
Container Co., L.L.C. (Ball-Foster), exiting the glass packaging business.
Ball-Foster was formed in 1995 from the glass businesses acquired from Ball and
Foster-Forbes, a division of American National Can Company. The financial
effects of these transactions, as well as the results of the glass business,
have been segregated in the accompanying financial statements as discontinued
operations. See "Discontinued Operations" for additional information regarding
these transactions.
Sales and Earnings
Consolidated net sales in 1997 increased more than nine percent to $2.4 billion
compared to 1996. The increase reflects M.C. Packaging's sales since the
acquisition, as well as increased sales of PET containers and from the aerospace
and technologies segment. Consolidated net sales of $2.2 billion in 1996
increased 6.8 percent compared to 1995 net sales of $2.0 billion, reflecting
sales of the Company's newly established PET container business, as well as
increased sales in the metal packaging business and the aerospace and
technologies segment.
Consolidated operating earnings increased to $139.3 million, compared to
$68.0 million in 1996, reflecting improved results in both the packaging and the
aerospace and technologies businesses. Consolidated operating earnings of $68.0
million in 1996 decreased 41.3 percent compared to 1995 earnings of $115.8
million. The decrease in 1996 reflects lower packaging segment earnings,
including $21.0 million related to dispositions and other charges discussed
above. Similar charges of $3.0 million and $7.1 million were recorded in 1997
and 1995, respectively.
Consolidated general and administrative expenses were $119.2 million, $77.2
million, and $83.3 million for 1997, 1996 and 1995, respectively. Lower
consolidated general and administrative expenses in 1996 compared to 1997 were
due, in large part, to lower incentive compensation expense based upon 1996
operating performance, coupled with higher income in 1996 from the temporary
investment of proceeds from dispositions, including that of the glass business.
Consolidated general and administrative expenses in 1997 include the operating
costs of M.C. Packaging, which was acquired in 1997, as well as those costs
attributable to other new facilities in China.
Corporate expenses were $11.9 million, $5.1 million and $13.2 million for
1997, 1996 and 1995, respectively. The lower corporate expenses in 1996 compared
to 1997 and 1995 were due, in part, to income from short-term temporary
investments, attributable to the proceeds from business dispositions, and lower
operating costs, including incentive compensation.
Packaging Segment
Packaging segment sales were $2.0 billion, $1.8 billion and $1.7 billion for
1997, 1996 and 1995, respectively. Segment sales included net sales of metal
containers of $1.8 billion in 1997, an increase of 2.9 percent compared to 1996
as a result of the acquisition of M.C. Packaging and the consolidation of that
company's sales, partially offset by a decrease in sales of the Company's North
American metal packaging businesses of approximately 5.8 percent. Ball's sales
of PET containers in the U.S. increased to $153.0 million in 1997 from $56.3
million in 1996. The increase in packaging sales when comparing 1996 to 1995 was
primarily attributable to those from the new PET container business, as well as
a 6.0 percent increase in North American metal food container sales and
increased sales within the international metal packaging businesses.
Segment earnings of $105.3 million in 1997 reflect improved operating
results in all product lines compared to 1996. Segment earnings declined in 1996
to $36.6 million from $84.7 million in 1995. Excluding the effects of
dispositions and other charges, segment earnings were $108.3 million, $57.6
million and $95.6 million for 1997, 1996 and 1995, respectively.
North American Metal Beverage Containers
Sales of Ball's North American metal beverage container business, which
represented approximately 56 percent of segment sales in 1997, decreased
approximately 5.7 percent in 1997 compared to 1996 and 6.0 percent compared to
1995. The decrease in 1997 sales compared to 1996 reflects the lower cost of
aluminum can sheet, which is generally passed on through formula pricing to the
customer, and a decrease of approximately 3.5 percent in 1997 shipments compared
to 1996. The decrease in can shipments reflects the reduction in Ball's metal
beverage capacity as a result of discontinuing manufacture at one Canadian
facility and the full year effects of converting a U.S. metal beverage container
line to two-piece food containers. In 1996, lower selling prices offset an 11
percent increase in can unit shipments. U.S. and Canadian industry shipments of
metal beverage containers increased an estimated 1.6 percent in 1997 and
slightly more than one percent in 1996. The Company estimates that its North
American metal beverage container shipments, as a percentage of total U.S. and
Canadian shipments for metal beverage containers, was approximately 17 percent
in 1997 and 1996, and 16 percent in 1995.
Despite lower sales in 1997, earnings attributable to North American metal
beverage containers improved, increasing 55 percent compared to 1996, and 3.6
percent compared to 1995, before dispositions and other charges of $8.1 million
and $3.8 million in 1996 and 1995, respectively. The improvement in 1997 is
largely attributable to the completion of project work begun in 1995 to convert
to smaller diameter ends and to lightweight cans and ends, corresponding higher
productivity and the impact of higher cost aluminum contracted for in 1995,
which was not passed on to customers in 1996. The lower earnings for the North
American metal beverage container business in 1996 compared to 1995 were due to
the higher cost aluminum contracted for in late 1995 and lower aluminum scrap
selling prices, both of which resulted in higher cost of sales. Production
inefficiencies in early 1996 while converting to the smaller diameter end and
implementing the use of a lower gauge metal also contributed to lower results.
North American Metal Food Containers
North American metal food container sales, which comprised approximately 24
percent of 1997 segment sales, declined approximately 5.9 percent in 1997
compared to 1996, which included $36.6 million of aerosol can sales. Excluding
aerosol in 1996, can sales in this product line increased 1.3 percent in 1997,
with lower shipments to salmon can customers offset by increased shipments to
customers for other food products. Comparing 1996 to 1995, North American metal
food container sales increased as a result of an 11 percent increase in the
Company's shipments, as well as marginally improved pricing. The increase in
1996 shipments compared to 1995 reflects, in part, depressed shipments of
vegetable and pet food cans in 1995. Ball estimates that its North American
metal food container shipments were approximately 14 percent of total U.S. and
Canadian metal food container shipments in 1997 and 1996, based on available
industry information.
Operating earnings attributable to North American metal food containers,
before dispositions and other charges, continue to improve with increases of 76
and 47 percent in 1997 and 1996, respectively. Dispositions and other charges
related to North American metal food containers totaled $20.0 million in 1996
and 1995. The improvement in 1997 compared to 1996 was attributed in part to the
closure of a higher-cost operating facility late in 1996, and to improved
productivity and quality, reflected in a reduction in provisions for customer
claims. The 1996 improvement in earnings was primarily due to the increased
sales volumes.
North American PET Containers
The increase in the Company's sales of PET containers to $153.0 million in 1997
compared to $56.3 million in 1996 reflects the start-up of two manufacturing
facilities in 1997, plus the additional sales from the new business acquired
from Brunswick in the third quarter of 1997. However, sales in both 1997 and
1996 were below anticipated levels. In 1997, continued promotion of metal cans
by major soft drink companies and lower than forecasted sales by other customers
were reflected in the lower than expected sales. Sales in 1996 were affected in
part by lower resin prices and lower than expected requirements of a key
customer.
Although the PET container business continued to operate at a loss in 1997,
the loss was substantially lower than that incurred in 1996. PET resin prices
increased during 1997, and the increases were, in large part, passed on to
customers. Recruiting and training costs, and under-utilized labor during the
start-up of the new facilities in all years, contributed to the operating
losses. Production efficiencies in the plants which started up operations prior
to 1997 improved, but were negatively affected by the lower sales volumes.
International Packaging Operations
Sales within the international packaging businesses in 1997 were comprised of
the consolidated sales of FTB Packaging, including M.C. Packaging for
approximately 11 months of 1997, and revenues from technical services to
licensees. Excluding sales of M.C. Packaging, sales in 1997 increased nearly 24
percent in 1997 compared to 1996 due to the inclusion of a full year's sales of
two new metal beverage container facilities. Sales within China have been
negatively affected by a soft metal beverage container market combined with
lower pricing resulting from current industry over capacity. The current
supply/demand imbalance in the industry is expected to be relatively short term
as per capita consumption in China, substantially below the U.S. and other more
developed countries, increases. In the interim, Ball has elected to delay
start-up of two facilities originally expected to become operational in 1998.
The Chinese market also has been affected by turmoil in the Asian financial
markets which has resulted in a decrease in exports of Company products from
China to other Asian countries. Earnings from consolidated international
operations in 1997 reflect the impact of consolidating M.C. Packaging and lower
pricing. In comparing 1996 to 1995, earnings were lower in 1996, due, in part,
to start-up operating costs from three new manufacturing facilities in China.
Aerospace and Technologies Segment
Aerospace and technologies segment operating results in 1995 included a pretax
gain of $11.8 million on the sale of the Efratom business, and a charge of $8.0
million to exit the visual image generating business. In the following
discussion of aerospace and technologies segment results, the effect of these
dispositions and other charges is excluded to facilitate comparison.
Segment sales were $398.7 million, $362.3 million and $315.8 million for
1997, 1996 and 1995, respectively, representing annual increases of 10.0 percent
and 14.7 percent for 1997 and 1996, respectively. Segment operating earnings
were $34.0 million, $31.4 million and $27.3 million in 1997, 1996 and 1995,
respectively, representing annual increases of 8.3 percent and 15.0 percent for
1997 and 1996, respectively.
Sales and earnings for 1997 increased compared to 1996 in both the
aerospace systems division and telecommunications products division. The higher
sales and earnings in aerospace systems reflect growth in three programs, as
well as the start-up of three new programs and award fees for the successful
1997 launch of second generation replacement instruments for the Hubble Space
Telescope. Within telecommunications, earnings increased significantly, in part
due to a one-time early delivery incentive earned related to one contract, and
increased fixed cost coverage related to the increased production volume.
Comparing 1996 and 1995, the increase in earnings is primarily attributable to
the increase in sales, partially offset by costs related to one now completed
fixed price contract.
Sales to the U.S. government, either as a prime contractor or as a
subcontractor, represented approximately 87 percent, 91 percent and 86 percent
of segment sales in 1997, 1996 and 1995, respectively. Within aerospace systems,
industry trends have not changed significantly, with a declining budget for the
Department of Defense and a flat NASA budget. However, there is a growing
worldwide market for commercial space activities, in which Ball believes there
are significant international opportunities in which the Company could
participate. Consolidation in the industry continues so that competition for
business remains intense. Backlog for the aerospace and technologies segment at
December 31, 1997 and 1996, was approximately $267 million and $337 million,
respectively. Year-to-year comparisons of backlog are not necessarily indicative
of the trend of future operations.
Interest and Taxes
Interest expense for continuing operations increased to $53.5 million in 1997,
compared to $33.3 million in 1996 and $25.7 million in 1995. Interest
capitalized amounted to $4.4 million, $6.6 million and $3.5 million for 1997,
1996 and 1995, respectively, and, interest expense allocated to discontinued
operations for 1996 and 1995 was $5.5 million and $12.1 million, respectively.
The increase in total interest cost in 1997 compared to 1996 was primarily a
result of the acquisition and consolidation of M.C. Packaging. The increase in
1996 compared to 1995 reflects the higher levels of borrowing for the first nine
months of 1996, including the issue of $150 million in fixed-rate term debt,
partially offset by generally lower interest rates on interest-sensitive
borrowings.
Ball's consolidated effective income tax rate was 37.2 percent in 1997,
compared to 24.3 percent in 1996 and 34.4 percent in 1995. The lower rate for
1996 compared to 1997 and 1995 was primarily attributable to the effect of a
1996 refund for tax credits recognized by the Company after the Internal Revenue
Service concurred with Ball's position regarding creditable cost of research and
development. In 1997, Ball recorded an additional tax credit upon settlement for
years 1991 and 1992, although lower than that recorded in 1996. The benefit of
the 1996 tax credits was partially offset by the effect of a tax/book investment
basis difference related to the sale of the aerosol business and approximately
$1.5 million due to a change in tax legislation which limited the amount of
deductible interest on policy loans. As a result of actions taken by the
Company, this new legislation did not, nor is it expected to, have a significant
impact on 1997 results and beyond.
Results of Equity Affiliates
Equity in losses of affiliates of $0.7 million in 1997 included charges of $3.2
million after tax (11 cents per share) for the Company's share of primarily
unrealized currency exchange losses incurred by its 40 percent owned Thai
venture. As a result of a change in the monetary policy by the government of
Thailand in early July 1997, the Thai baht depreciated significantly versus the
U.S. dollar. The unrealized exchange loss was largely a result of the U.S.
dollar denominated debt held by the Thai company. See, "Other," for additional
discussion of Ball's foreign currency exposure. In addition to the Thai exchange
loss, Ball's share of its equity affiliates' results reflect the impact of the
soft market in China for metal beverage containers. The manufacturing facilities
of the Company's Thai venture and the 50-percent owned Brazilian venture both
began production in 1997, and have experienced good manufacturing performance.
Equity in losses of affiliates in 1996 of $9.5 million included a charge of
$15.0 million ($9.3 million after tax or 31 cents per share) to write to zero
the Company's investment in EarthWatch. In addition, the Company's share of
EarthWatch's operating losses were $3.0 million and $1.3 million in 1996 and
1995, respectively. Ball's share of the net earnings from other equity
affiliates were $2.8 million and $4.3 million in 1996 and 1995, respectively,
and were primarily from Ball's Pacific Rim equity affiliates. In 1996, start-up
operating costs associated with new investments in Brazil and Thailand reduced
earnings.
Earnings from Continuing Operations
Net income from continuing operations was $58.3 million, $13.1 million and $51.9
million in 1997, 1996 and 1995, respectively. The increase in 1997 compared to
1996 was due to improved operating results, including aggregate net after-tax
gains of $5.0 million, or 16 cents per share, for the sale of certain
investments, net of plant closing costs and investment write-downs. The decrease
in 1996 compared to 1995 was due to lower operating results, including aggregate
net after-tax charges of $20.4 million, or 68 cents per share, for plant
closures, asset write-downs (including EarthWatch), employee termination costs,
tax matters and the sale of the aerosol business. Net income from continuing
operations in 1995 included aggregate after-tax charges of $3.8 million for
dispositions, plant closures and asset write-downs. Earnings per share from
continuing operations were $1.84, 34 cents and $1.63, in 1997, 1996 and 1995,
respectively.
Discontinued Operations
In October 1996, the Company sold its 42 percent investment in Ball-Foster Glass
Container Co., L.L.C. (Ball-Foster) to Compagnie de Saint Gobain (Saint-Gobain)
for $190 million in cash, exiting the glass packaging business. Ball-Foster was
formed in September 1995 with Saint-Gobain, acquiring the assets of Ball Glass
Container Corporation (Ball Glass), a wholly owned subsidiary of Ball, for
approximately $338 million in cash, and those of Foster-Forbes. Concurrent with
the sale of Ball Glass to Ball-Foster, Ball acquired its 42 percent investment
in Ball-Foster for $180.6 million in cash. The financial effects of these
transactions, as well as the results of the glass business, have been segregated
in the accompanying financial statements as discontinued operations.
Earnings from discontinued operations in 1996 of $11.1 million, or 36 cents
per share, were comprised primarily of the net gain of $24.1 million ($13.2
million after tax or 43 cents per share) resulting from the sale of Ball's
remaining interest in Ball-Foster. The loss of $111.1 million ($76.7 million
after tax or $2.55 per share) resulting from the sale of the Ball Glass assets
to Ball-Foster was included as a part of 1995 results from discontinued
operations.
Financial Position, Liquidity and Capital Resources
Cash flow from continuing operations in 1997 increased to $143.5 million
compared to $84.3 million in 1996 and $32.9 million in 1995. The increase in
1997 resulted primarily from the improved operating results within North America
and a reduction in the cash used for working capital. In 1996, cash used for
working capital was $52.6 million lower than in 1995, more than offsetting the
effects of lower operating results. At December 31, 1997, working capital
(excluding cash and debt) was $341.8 million, an increase of $80.2 million
compared to $261.6 million at the 1996 year end, due largely to the acquisition
and consolidation of M.C. Packaging.
Capital expenditures were $97.7 million, $196.1 million and $178.9 million
in 1997, 1996 and 1995, respectively. Spending in 1997, 1996 and 1995 included
approximately $16 million, $75 million and $70 million, respectively, for Ball's
PET container business. Spending in 1997 also included amounts to complete the
two new metal packaging plants in China, as well as spending within M.C.
Packaging. Capital expenditures in 1996 and 1995 include the conversion of metal
beverage plant equipment to meet industry specifications for smaller diameter
ends. Other capital projects in 1996 included the conversion of a metal beverage
container line to the manufacture of two-piece metal food containers and a
technology upgrade related to the manufacture of salmon cans in Canada. Other
spending in 1995 included productivity improvement programs in several of the
metal packaging facilities.
Investments in and advances to affiliates were $11.2 million, $27.7 million
and $55.2 million for 1997, 1996 and 1995, respectively. Investments in 1997
included $6.5 million for a ten percent indirect ownership in a new can venture
in Russia, plus additional investments in Brazil and Thailand, net of
approximately $7.6 million of cash received from equity affiliates. Spending in
1996 included investments in Brazil and Thailand for construction of metal
beverage container facilities. Investments in 1995 include $20.9 million for
EarthWatch and approximately $31 million primarily for new majority-owned metal
container plants in China.
In 1998 total capital spending and investments are anticipated to be
approximately $100 million, which is below forecasted depreciation levels. In
addition, as has been publicly announced, the Company is currently in
negotiations with Reynolds Metals Company to purchase certain of its metal
beverage container manufacturing assets.
Premiums on company-owned life insurance were approximately $6 million in
each of 1997 and 1996 and $20 million in 1995. Amounts in the consolidated
statement of cash flows represent net cash flows from this program, including
policy loans of approximately $10 million in each of 1997 and 1996 and $113
million in 1995, and partial withdrawals from the cash value of the policies of
approximately $22 million in 1997. Legislation enacted in 1996 limits the amount
of interest on policy loans which can be deducted for federal income tax
purposes. The limits affect insurance programs initiated after June 1986, and
phase-in over a three-year period. As a result of the new legislation, the
provision for taxes on income for 1996 increased by approximately $1.5 million
(five cents per share). As a result of actions taken by Ball in 1996, the new
legislation did not have a significant impact on 1997 results, nor is further
significant impact expected.
Debt at December 31, 1997, increased $190.2 million to $773.1 million from
$582.9 million at year end 1996, while cash and temporary investments decreased
from $169.2 million at year end 1996 to $25.5 million at December 31, 1997. The
increase in debt, and decrease in cash, was due primarily to the acquisition of
M.C. Packaging, including the consolidation of M.C. Packaging's debt.
Consolidated debt-to-total capitalization increased to 53.0 percent at December
31, 1997, from 48.8 percent at year end 1996.
In January 1996 Ball issued long-term, senior, unsecured notes with a
weighted average interest rate of 6.71 percent to several insurance companies
for an aggregate amount of $150 million to secure lower cost, fixed-rate
financing.
In the U.S., Ball had committed revolving credit agreements at December 31,
1997, totaling $280 million consisting of a five-year facility expiring July
2002 for $150 million and 364-day facilities for $130 million. The revolving
credit agreements provide for various borrowing rates, including borrowing rates
based on the London Interbank Offered Rate (LIBOR). The Canadian dollar
commercial paper facility provides for committed short-term funds of
approximately $84 million. The Company also has short-term uncommitted credit
facilities in the U.S. of approximately $326 million, and, in Asia, FTB
Packaging, including M.C. Packaging, had short-term uncommitted credit
facilities of approximately $250 million at December 31, 1997.
Cash dividends paid on common stock in 1997, 1996 and 1995 were 60 cents
per share each year.
New Accounting Pronouncements
Statements of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," and SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information," were issued in June 1997 and will be
effective for the Company in 1998. SFAS No. 130 requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. Adoption of this standard
will not affect the presentation of the traditional statement of income. SFAS
No. 131 establishes standards for reporting information about operating segments
in annual financial statements and requires reporting of selected information
about operating segments in interim financial reports issued to shareholders. It
also establishes standards for related disclosures about products and services,
geographic areas and major customers. The Company is evaluating this standard to
determine the impact, if any, on its segment reporting.
Other
Ball is subject to various risks and uncertainties in the ordinary course of
business due, in part, to the 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 practicable, Ball attempts to reduce these
risks and uncertainties.
As mentioned earlier, in 1997, the Company recognized its share of exchange
losses, comprised primarily of the unrealized loss attributable to approximately
$23 million of U.S. dollar denominated debt held by its 40 percent equity
affiliate in Thailand. The charge of $3.2 million, or 11 cents per share,
resulted from a change in monetary policy by the government of Thailand in early
July 1997, to no longer peg the Thai baht to the U.S. dollar. Through November
30, 1997, the Thai baht depreciated significantly versus the U.S. dollar, and
continues to be volatile. The Company also has U.S. dollar denominated debt in
China (approximately $205 million included in Ball's consolidated balance sheet
and approximately $45 million issued by equity affiliates at year end). The
Company's 50 percent owned affiliate in Brazil had approximately $72 million of
U.S. dollar denominated debt at year end. In addition, Ball has other U.S.
dollar denominated assets and liabilities outside the U.S. which are subject to
exchange rate fluctuations.
The Company was not in default of any loan agreement at December 31, 1997,
and has met all payment obligations. M.C. Packaging was, however, in
noncompliance with certain financial ratio provisions, including interest
coverage and current ratio, under a fixed term loan agreement of which $37.5
million was outstanding at year end. The lender granted M.C. Packaging an
unspecified period to present a revised, comprehensive financing structure for
its business. Management believes that M.C. Packaging has made significant
progress towards concluding an alternative, longer term financing arrangement
satisfactory to all parties and that although such an arrangement has
substantially been concluded, a definitive agreement has not yet been executed.
Management also believes that existing credit resources will be adequate to meet
forseeable financing requirements. Ball Corporation does not guarantee any debt
obligations of M.C. Packaging.
The U.S. government is disputing the Company's claim to recoverability (by
means of allocation to government contracts) of reimbursed costs associated with
Ball's Employee Stock Ownership Plan (ESOP) for fiscal years 1989 through 1995,
as well as the corresponding prospective costs accrued after 1995. The
government will not reimburse the Company for disputed ESOP expenses incurred or
accrued after 1995. A deferred payment agreement for the costs reimbursed
through 1996 was entered into between the government and Ball. On October 10,
1995, the Company filed its complaint before the Armed Services Board of
Contract Appeals (ASBCA) seeking final adjudication of this matter. Trial before
the ASBCA was conducted in January 1997. While the outcome of the trial is not
yet known, the Company's information at this time does not indicate that this
matter will have a material, adverse effect upon financial condition, results of
operations or competitive position of the Company.
From time to time, the Company is subject to routine litigation incidental
to its business. Additionally, the U.S. Environmental Protection Agency has
designated Ball 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.
As is commonly known, there is a potential issue facing companies regarding
the ability of information systems to accommodate the year 2000. Ball is
evaluating its information systems and believes that all critical systems can,
or will be able to, accommodate the coming century, without material adverse
effect on the Company's financial condition, results of operations, capital
spending or competitive position.
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 contingencies at the date of the financial statements, and
reported amounts of revenues and expenses during the reporting period. Future
events could affect these estimates.
The U.S. economy and the Company have experienced minor general inflation
during the past several years. Management believes that evaluation of Ball's
performance during the periods covered by these consolidated financial
statements should be based upon historical financial statements.
Forward-Looking Statements
The Company has made certain forward-looking statements in this annual report
relating to market growth, increases in market shares, total shareholder return,
improved earnings, positive cash flow, technology upgrades and international
market expansion, among others. These forward-looking statements represent the
Company's goals and are based on certain assumptions and estimates regarding the
worldwide economy, specific industry technological innovations, industry
competitive activity, interest rates, capital expenditures, pricing, currency
movements, product introductions, and the development of certain domestic and
international markets. Some factors that could cause the Company's actual
results or outcomes to differ materially from those discussed in the
forward-looking statements include, but are not limited to, fluctuation in
customer growth and demand; the weather; fuel costs and availability; regulatory
action; federal and state legislation; interest rates; labor strikes;
maintenance and capital expenditures; local economic conditions; the
authorization and control over the availability of government contracts and the
nature and continuation of those contracts and related services provided
thereunder; the success or lack of success of the satellite launches and
business of EarthWatch; the devaluation of international currencies; the ability
to refinance M.C. Packaging and to obtain adequate credit resources for
foreseeable financing requirements of the Company's businesses; and, the ability
of the Company to acquire other businesses. If the Company's assumptions and
estimates are incorrect, or if it is unable to achieve its goals, then the
Company's actual performance could vary materially from those goals expressed or
implied in the forward-looking statements.