March 29, 1999 - EXHIBIT 13.1 - 10-K: Annual report pursuant to Section 13 and 15(d) | Ball Corporation (BALL)

Exhibit 13.1

Consolidated Statement of Income
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 Statements of Changes in Shareholders' Equity and Comprehensive
Income 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 its controlled affiliates in which it holds a majority equity position
(collectively, Ball or the Company). Investments in 20 percent through 50
percent owned affiliated companies 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.
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.

Reclassifications
Certain prior year amounts have been reclassified in order to conform with the
current year presentation.

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. Translation gains and losses are
reported as a component of common shareholders' equity.

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, up to 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 recorded within the accompanying balance sheet and
related to the ESOP is reduced as the principal of the guaranteed ESOP notes is
amortized.

Earnings Per Share
Earnings per common share are computed by dividing the net earnings 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 attributable to common shareholders are adjusted for additional
ESOP contributions which would be required if the ESOP Preferred was converted
to common shares and exclude the tax benefit of deductible common dividends upon
the assumed conversion of the ESOP Preferred.

New Accounting Pronouncements
Effective January 1, 1998, Ball adopted Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income." See the
"Shareholders' Equity" note for information regarding SFAS No. 130. The company
also adopted SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information," and SFAS No. 132, "Employers' Disclosures about Pensions
and Other Postretirement Benefits," in 1998. See the "Business Segment
Information" note for information regarding SFAS No. 131 and the "Pension and
Other Postretirement and Postemployment Benefits" note for information regarding
SFAS No. 132.
During the fourth quarter of 1998, Ball adopted Statement of Position (SOP)
No. 98-5, "Reporting on the Costs of Start-Up Activities," in advance of its
required 1999 implementation date. SOP No. 98-5 requires that costs of start-up
activities and organizational costs, as defined, be expensed as incurred. In
accordance with this statement, the Company recorded an after-tax charge to
earnings of approximately $3.3 million (11 cents per share), retroactive to
January 1, 1998, representing the cumulative effect of this change in accounting
on prior years.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," essentially requires all derivatives to be recorded on the balance
sheet at fair value and establishes new accounting practices for hedge
instruments. The statement will be effective for Ball in 2000. The effect, if
any, of adopting this standard has not yet been determined.
SOP No. 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use," establishes new accounting and reporting standards
for the costs of computer software developed or obtained for internal use and is
effective for Ball in 1999. The effect, if any, of adopting this standard has
not yet been determined.

Business Segment Information
The Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information," during the fourth quarter of 1998. SFAS No. 131
establishes standards for reporting information about operating segments in
annual financial statements and requires 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. Ball's operations are organized along its
product lines and include two segments - the packaging segment and the aerospace
and technologies segment.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. Prior year segment information
has been restated to conform to the requirements of SFAS No. 131.

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 consolidated packaging operations are located in and
serve North America (the U.S. and Canada) and Asia, primarily the People's
Republic of China (PRC). Packaging operations in the U.S. have increased as a
result of the August 1998 acquisition of the North American beverage can
manufacturing business of Reynolds Metals Company. Operations in Asia have also
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 both
businesses are included within the packaging segment since their acquisition
dates. 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 "Acquisitions" and
"Headquarters Relocation, Plant Closures, Dispositions and Other Costs" notes
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 "Headquarters Relocation, Plant
Closures, Dispositions and Other Costs" note for information regarding
transactions affecting segment results.

(1) Refer to the "Headquarters Relocation, Plant Closures, Dispositions and
Other Costs" note.

Financial data segmented by geographic area is provided below.

Summary of Net Sales by Geographic Area

(1) Includes the Company's net sales in the PRC and Canada, intercompany
eliminations and other.

Summary of Long-lived Assets by Geographic Area

(1) Includes the Company's long-lived assets in Canada, intercompany
eliminations and other.

Major Customers
Packaging segment sales to PepsiCo, Inc., and affiliates represented
approximately 15 percent of consolidated net sales in 1998 and 12 percent of
consolidated net sales in 1997 and 1996. Sales to Coca-Cola and affiliates
represented 10 percent of consolidated net sales in 1998 and less than 10
percent in 1997 and 1996. Sales to Anheuser-Busch Companies, Inc., represented
less than 10 percent of consolidated net sales in 1998 and 1997 and
approximately 11 percent of consolidated net sales in 1996. Sales to all
bottlers of Pepsi-Cola and Coca-Cola branded beverages comprised approximately
40 percent of consolidated net sales in 1998 and 36 percent of consolidated net
sales in both 1997 and 1996. Sales to various U.S. government agencies by the
aerospace and technologies segment, either as a prime contractor or as a
subcontractor, represented approximately 11 percent, 14 percent and 15 percent
of consolidated net sales in 1998, 1997 and 1996, respectively.

Acquisitions

Metal Beverage Container Manufacturing Business
On August 10, 1998, Ball acquired substantially all the assets and assumed
certain liabilities of the North American beverage can manufacturing business of
Reynolds Metals Company (Acquisition) for approximately $745.4 million costs,
before a refundable incentive loan of $39.0 million, a preliminary working
capital adjustment of an additional $40.1 million and transaction costs. The
acquisition has been accounted for as a purchase, with its results included in
the Company's consolidated financial statements effective with the acquisition.
The assets acquired consisted largely of 16 plants in 12 states and Puerto
Rico, as well as a headquarters facility in Richmond, Virginia. During the
fourth quarter of 1998, the Company closed the Richmond facility and
consolidated the headquarters operations at the Company's offices near Denver,
Colorado. In addition, the Company announced that it intends to close two of the
acquired plants during the first quarter of 1999 and is developing plans for
further integration, including capacity consolidations and other cost saving
measures. As a result, the Company has initially provided $56.8 million in the
opening balance sheet as an estimate of the related costs of integration and
consolidation. Upon finalization of the plan, which is expected within 1999,
adjustments to the estimated costs, if any, will be reflected as a change in
goodwill.
As a part of the acquired asset valuation and purchase price allocation
process, approximately $388.4 million has been preliminarily assigned to
goodwill.

Following is a summary of the net assets acquired:

(dollars in millions)

Total assets $ 971.8
Less liabilities assumed:
Current liabilities 70.4
Long-term liabilities 115.9
-----------
Net assets acquired 785.5
Incentive loan 39.0
Transaction costs 13.9
-----------
Total consideration $ 838.4
===========

The following unaudited pro forma consolidated results of operations have
been prepared as if the Acquisition had occurred as of January 1, 1997. The pro
forma results are not necessarily indicative of the actual results that would
have occurred had the Acquisition been in effect for the periods presented, nor
are they necessarily indicative of the results that may be obtained in the
future:

Pro forma adjustments include increased interest expense related to
incremental borrowings used to finance the Acquisition, the amortization of
goodwill, decreased depreciation expense on plant and equipment based on
extended useful lives partially offset by increased fair values, and the
elimination of the extraordinary loss on early debt extinguishment. Pro forma
results exclude anticipated synergies.

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,
previously held by Lam Soon (Hong Kong) Limited and the general public, for
approximately $179.7 million. M.C. Packaging manufactures 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 purchase price allocation included provisions for
costs incurred in 1997 and 1998 for severance, relocation and other integration
and consolidation activities of approximately $2.0 million. As a part of the
acquired asset valuation and purchase price allocation process, approximately
$132.6 million has been assigned to goodwill.
Following is a summary of the net assets acquired:

(dollars in millions)

Total assets, including cash of $18.8 million $ 470.3
Less liabilities assumed:
Current liabilities (other than debt) 56.9
Total debt 198.0
Other long-term liabilities and minority interests 35.7
-----------
Net assets acquired $ 179.7
===========

The following unaudited pro forma consolidated results of operations have
been prepared as if the acquisition of M.C. Packaging had occurred as of January
1, 1996. The pro forma results are not necessarily indicative of the actual
results that would have occurred had the acquisition been in effect for the
period presented, nor are they necessarily indicative of the results that may be
obtained in the future:

(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.

In addition to increased interest expense related to incremental borrowings
used to finance the acquisition and the amortization of goodwill, pro forma
results include preacquisition charges of $6.2 million (20 cents per share),
after taxes and minority interests, in connection with preacquisition inventory,
accounts receivable and other items which management believed were at abnormally
high levels not anticipated in the future.
During 1998, FTB Packaging purchased substantially all of the remaining
direct and indirect minority interests in M.C. Packaging.

PET Container Assets
In the third quarter of 1997, the Company acquired certain PET container assets
for approximately $42.7 million from Brunswick Container Corporation, 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 "Headquarters Relocation, Plant Closures, Dispositions and
Other Costs" note for additional information regarding these plant closures.

Headquarters Relocation, Plant Closures, Dispositions and Other Costs
The following table summarizes the transaction gains and losses in connection
with the headquarters relocation, plant closures, dispositions and other charges
included in the consolidated statement of income.

(dollars in millions except per share amounts) Pretax Gain (Loss)
------------------------

1998
Headquarters relocation $(17.7)
Plant closings and other costs (56.2)
---------------
$(73.9)
===============

1997
Sale of investment in Datum $ 11.7
Plant closing (3.0)
Disposition and write-down of equity investments 0.3
---------------
$ 9.0
===============

1996
Sale of U.S. aerosol business $ (3.3)
Plant closings and other (17.7)
---------------
$(21.0)
===============

1998
In February 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 recorded a charge in 1998 of $17.7
million ($10.8 million after tax or 36 cents per share), primarily for
employee-related costs which were substantially paid by the end of the year.
In December 1998, the Company announced its intention to close, in the
early part of 1999, two of its plants located in the PRC and remove from service
manufacturing equipment at a third plant. The actions are being taken to address
current industry over capacity and uncertainty in the Asian financial markets
which has resulted in a decrease in exports of Company products from Hong Kong
to other Asian countries.
The Company's preliminary estimates include a $52.0 million largely
non-cash charge to write down equipment, goodwill and other assets to net
realizable values and $4.2 million of other costs. Fair value of the assets was
determined based on management estimates. Further adjustments, if any, to the
preliminary estimates will be reflected as an adjustment to current period
earnings. The total after-tax effect of the estimated plant closings and other
costs was a loss of $31.4 million ($1.03 per share).

1997
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. 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.
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 and 1996.
The net after-tax effect of the 1997 transactions was a gain of $5.0
million (16 cents per share).

1996
In the fourth quarter of 1996, Ball sold its U.S. aerosol container
manufacturing business, with net assets of approximately $47.6 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 have been completed.
In 1994, the Company formed EarthWatch, Incorporated (EarthWatch), which 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. During 1996, EarthWatch was reincorporated in Delaware as EarthWatch
Incorporated (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 through
1998. Ball has no commitments to provide further equity or debt financing to
EarthWatch beyond its investment to date, but continues to assess its options
with respect to EarthWatch. Ball Aerospace & Technologies Corp. has agreed to
produce satellites and instruments for EarthWatch.
The after-tax effect of the 1996 transactions was a loss of $24.7 million
(82 cents per share).

Discontinued Operations
In September 1995, the Company sold substantially all of the assets of Ball
Glass Container Corporation, 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. The net income attributable to
the business was reported as discontinued operations in 1996 and included
interest expense of $5.5 million. With the October 1996 sale, Ball no longer
participates in the glass packaging business.

Accounts Receivable
Accounts receivable are net of an allowance for doubtful accounts of $15.7
million and $12.2 million at December 31, 1998 and 1997, respectively.

Sale of Trade Accounts Receivable
A receivables sales agreement provides for the ongoing, revolving sale of a
designated pool of trade accounts receivable of Ball's U.S. packaging
businesses. In December 1998, the designated pool of receivables was increased
to provide for sales of up to $125 million from the previous amount of $75
million. Net funds received from the sale of the accounts receivable totaled
$122.5 million and $65.9 million at December 31, 1998 and 1997, respectively.
Fees incurred in connection with the sale of accounts receivable, which are
included in selling and administrative expenses, totaled $4.0 million in each of
1998 and 1997 and $3.7 million in 1996.

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 $76.1 million and $63.7 million at December 31,
1998 and 1997, respectively, and include unbilled amounts representing revenue
earned but not yet billable of $44.2 million and $28.0 million, respectively.
Approximately $10 million of unbilled receivables at December 31, 1998, is
expected to be collected after one year.

Inventories
Inventories at December 31 consisted of the following:

(dollars in millions) 1998 1997
------------- -------------
Raw materials and supplies $131.2 $184.9
Work in process and finished goods 352.6 228.4
============= =============
$483.8 $413.3
============= =============

Approximately 39 percent and 37 percent of total inventories at December
31, 1998 and 1997, respectively, were valued using LIFO accounting. Inventories
at December 31, 1998 and 1997, would have been $2.6 million and $9.9 million
higher, respectively, than the reported amounts if the FIFO method, which
approximates replacement cost, had been used for all inventories.

Property, Plant and Equipment
Property, plant and equipment at December 31 consisted of the following:

(dollars in millions) 1998 1997
------------ -------------

Land $ 62.2 $ 42.5
Buildings 410.5 330.5
Machinery and equipment 1,410.2 1,183.1
------------ -------------
1,882.9 1,556.1
Accumulated depreciation (708.5) (636.6)
------------ -------------
$ 1,174.4 $ 919.5
============ =============

Goodwill and Other Assets
The composition of other assets at December 31 was as follows:

(dollars in millions) 1998 1997
------------ -------------

Goodwill (1) $ 555.9 $ 194.8
Investments in affiliates 80.9 74.5
Other 158.0 103.2
------------ -------------
$ 794.8 $ 372.5
============ =============

(1) Goodwill is net of accumulated amortization of $28.9 million and $20.6
million at December 31, 1998 and 1997, respectively.

Company-Owned Life Insurance
The Company has purchased insurance on the lives of certain employees. Premiums
were approximately $6 million in each of three years ended December 31, 1998,
1997 and 1996. Amounts in the consolidated statement of cash flows represent net
cash flows from this program, including policy loans of approximately $11
million in 1998 and $10 million in each of 1997 and 1996 and partial withdrawals
of approximately $9 million in 1998 and $22 million in 1997.

Debt and Interest Costs
Short-term debt at December 31 consisted of the following:

(1) Facilities for FTB Packaging and affiliates in U.S. and Asian currencies.
Borrowings are without recourse to Ball Corporation.

(1) U.S. dollar denominated notes issued by FTB Packaging and subsidiaries.

In connection with the Acquisition in 1998, the Company refinanced
approximately $521.9 million of its existing debt and, as a result, recorded an
after-tax extraordinary charge from the early extinguishment of debt of
approximately $12.1 million (40 cents per share). The Acquisition and the
refinancing, including related costs, were financed with a placement of $300.0
million in 7.75% Senior Notes, $250.0 million in 8.25% Senior Subordinated Notes
and approximately $808.2 million from a Senior Credit Facility.
The Senior Notes, which are due August 1, 2006, are unsecured, rank senior
to the Company's subordinated debt and are guaranteed on a senior basis by
certain of the Company's domestic subsidiaries. The Senior Subordinated Notes,
which are due August 1, 2008, also are unsecured, rank subordinate to existing
and future senior debt of the Company and are guaranteed by certain of the
Company's domestic subsidiaries.
The Company offered to exchange the Senior Notes and Senior Subordinated
Notes. The offer expired on January 27, 1999, at which time all of the notes had
been exchanged. The terms of the new notes are substantially identical in all
respects (including principal amount, interest rate, maturity, ranking and
covenant restrictions) to the terms of the notes for which they were exchanged
except that the new notes are registered under the Securities Act of 1933, as
amended, and therefore are not subject to certain restrictions on transfer
except as described in the Prospectus for the Exchange Offer. The note
agreements provide that if the new notes are assigned investment grade ratings
and the Company is not in default, certain covenant restrictions will be
suspended.
The Senior Credit Facility is comprised of three separate facilities, two
term loans and a revolving credit facility. The first term loan (Term Loan A)
provided the Company with $350.0 million and matures in August 2004. The second
term loan (Term Loan B) provided the Company with $200.0 million and matures in
March 2006. Both term loans are payable in quarterly installments beginning in
March 1999. The revolving credit facility provides the Company with up to $650.0
million, of which $150.0 million is available for a period of 364 days,
renewable for another 364 days from the current termination date at the option
of the Company and participating lenders. The remainder matures in August 2004.
The Senior Credit Facility bears interest at variable rates, is guaranteed by
certain of the Company's domestic subsidiaries, and contains certain covenants
and restrictions including, among other things, restrictions on the incurrence
of additional indebtedness and the payment of dividends. Ball pays a facility
fee on the committed facilities. In addition, all amounts outstanding under the
Senior Credit Facility are secured by (1) a pledge of 100 percent of the stock
owned by the Company of its direct and indirect majority-owned domestic
subsidiaries and (2) a pledge of 65 percent of the stock owned by the Company of
certain foreign subsidiaries.
In Asia, FTB Packaging, including M.C. Packaging, had short-term
uncommitted credit facilities of approximately $198 million, of which $70.6
million was outstanding at December 31, 1998.
Fixed-term debt in the PRC at year end 1998 included approximately $48.2
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, 1998, are $56.2 million, $61.0 million, $73.4 million, $70.6 million and
$87.0 million for the years ending December 31, 1999 through 2003, respectively,
and $937.8 million thereafter.
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 $14.2 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 $70.8 million
were outstanding at December 31, 1998. Ball also has provided a completion
guarantee representing 50 percent of the $50.8 million of debt issued by the
Company's Brazilian joint venture to fund the construction of 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.
The Company was not in default of any loan agreement at December 31, 1998,
and has met all payment obligations. However, Latapack-Ball Embalagens Ltda.
(Latapack-Ball), the Company's 50 percent owned equity affiliate in Brazil, was
in noncompliance with certain financial ratio provisions, including current
ratio, under a fixed term loan agreement of which $50.8 million was outstanding
at year end. Latapack-Ball has requested a waiver from the lender in respect of
the noncompliance.

(1) Includes $5.5 million for 1996 allocated to discontinued operations.

Subsidiary Guarantees of Debt
The Senior Notes and the Senior Subordinated Notes issued in conjunction with
the Reynolds acquisition are guaranteed by certain of the Company's domestic,
wholly owned subsidiaries on a full, unconditional, and joint and several basis.
The following is summarized condensed consolidating financial information for
the Company, segregating the guarantor subsidiaries and non-guarantor
subsidiaries, as of December 31, 1998 and 1997 and for the years ended
December 31, 1998, 1997 and 1996 (in millions of dollars).

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,
collars and options to manage the Company's mix of floating and fixed-rate debt
between a minimum and maximum percentage, which is set by policy. The Company's
objective in managing its exposure to foreign currency fluctuations is to
protect foreign cash flow and reduce earnings volatility associated with foreign
exchange rate changes.
Unrealized losses on forward contracts under these agreements are recorded
in the balance sheet as other current liabilities. Realized gains/losses from
hedges are classified in the income statement consistent with accounting
treatment of the item being hedged. The Company accrues the differential for
interest rate swaps to be paid or received under these agreements as adjustments
to interest expense over the lives of the swaps. Gains and losses upon the early
termination of swap agreements are deferred in long-term liabilities and
amortized as an adjustment to interest expense over the remaining term of the
agreement.

Interest Rate Risk
Interest rate instruments held by the Company at December 31, 1998 and 1997,
included pay-floating, pay-fixed interest rate swaps, interest rate collars 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. Swap agreements expire in
one to eight years.
Interest rate swap agreements outstanding at December 31, 1998, had
notional amounts of $10 million at a floating rate and $528 million at a fixed
rate, or a net fixed position of $518 million. At December 31, 1997, these
agreements 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. Floating
rate agreements with notional amounts of $55 million at December 31, 1997,
included an interest rate floor. The Company also entered into an interest rate
collar agreement in 1998 with a notional amount of $100 million.
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, 1998 and
1997, taking into account any unrealized gains and losses on open contracts.

The provision for income tax expense (benefit) for continuing operations was as
follows:

The provision for income tax expense recorded within the consolidated
statement of income 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 1998 and
1997, the Company settled tax credit matters for years 1991 through 1995, and
recorded additional credits.
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 and liabilities at
December 31 were:

(dollars in millions) 1998 1997
------------- -------------
Deferred tax assets:
Deferred compensation $ (23.7) $ (21.8)
Accrued employee benefits (58.0) (34.8)
Plant closure costs (37.6) (7.8)
Other (58.0) (37.4)
------------- -------------
Total deferred tax assets (177.3) (101.8)
------------- -------------

Deferred tax liabilities:
Depreciation 114.9 99.8
Other 20.6 27.3
------------- -------------
Total deferred tax liabilities 135.5 127.1
------------- -------------

Net deferred tax (asset) liability $ (41.8) $ 25.3
============= =============

Net income tax payments were $20.5 million and $4.2 million for 1998 and
1997, respectively. In 1996, net income taxes refunded were $14.2 million.

Pension and Other Postretirement and Postemployment 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 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.
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.
An analysis of the change in benefit accruals for 1998 and 1997 follows:

Components of net periodic benefit cost were:

Weighted-average assumptions at December 31 were:

For measurement purposes at December 31, 1998, the U.S. and Canadian plans
utilized net health trend rates of 7 percent and 8.5 percent, respectively, for
pre-65 benefits and 6.7 percent and 8.5 percent, respectively, for post-65
benefits for 1999. Trend rates for U.S. plans were assumed to decrease to 4.5
percent by 2001 for pre-65 benefits and by 2003 for post-65 benefits and remain
at this level in subsequent years. Trend rates for Canadian plans for pre-65 and
post-65 benefits were assumed to decrease to 3.5 percent by 2004 and remain at
this level in subsequent years.
For pension plans, the net actuarial loss (gain) in excess of a 10 percent
corridor, the prior service cost and the transition asset are being amortized on
a straight-line basis from the date recognized over the average remaining
service period of active participants at the date established on a straight-line
basis. For other postretirement benefits, the 10 percent corridor on actuarial
gains and losses is not used and the amortization of gains and losses is over 10
years.
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were $133.3 million, $132.0 million and $92.1 million,
respectively, as of December 31, 1998.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plan. A one percentage point change in
assumed health care cost trend rates would increase or decrease the total of
service and interest cost by approximately $0.2 million and the postretirement
benefit obligation by approximately $2.0 million.
The additional minimum liability, less related intangible asset, was
recognized net of tax benefits as a component of shareholders' equity within
accumulated other comprehensive loss.
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.

Other Benefit Plans
Effective January 1, 1996, substantially all employees within the Company's
aerospace and technologies segment 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 $1.6 million, $4.1 million and $3.5
million in compensation expense in 1998, 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 through an
employer matching contribution. Cash contributions to the ESOP trust, including
preferred dividends, are used to service the ESOP debt and were $10.7 million in
1998 and $10.6 million in each of 1997 and 1996. Interest paid by the ESOP trust
for its borrowings was $3.3 million, $3.6 million and $4.2 million for 1998,
1997 and 1996, respectively.

Shareholders' Equity
At December 31, 1998, 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, 1998, 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 toward the purchase of the Company's common stock. Company
contributions for this plan were approximately $1.6 million in 1998, $1.5
million in 1997 and $1.6 million in 1996.

Accumulated Other Comprehensive Loss
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income," which requires the Company to report the changes in
shareholders' equity from all sources during the period other than those
resulting from investments by shareholders (i.e., issuance or repurchase of
common shares and dividends). Although adoption of this standard has not
resulted in any change to the historic basis of the determination of earnings or
shareholders' equity, the other comprehensive income components recorded under
generally accepted accounting principles and previously included under the
category "retained earnings" are displayed as "accumulated other comprehensive
loss" within the balance sheet. The composition of accumulated other
comprehensive loss is as follows:

(dollars in millions)
Accumulated
Foreign Minimum Other
Currency Pension Comprehensive
Translation Liability Loss
-------------- ------------ -----------------

December 31, 1995 $ (17.8) $ (7.8) $ (25.6)
1996 Change (0.5) 5.4 4.9
-------------- ------------- -----------------
December 31, 1996 (18.3) (2.4) (20.7)
1997 Change (2.6) 0.5 (2.1)
-------------- ------------- -----------------
December 31, 1997 (20.9) (1.9) (22.8)
1998 Change (7.7) (1.2) (8.9)
-------------- ------------- -----------------
December 31, 1998 $ (28.6) $ (3.1) $ (31.7)
============== ============= =================

The minimum pension liability component of other comprehensive income
(loss) is presented net of related tax expense (benefit) of $(0.4) million, $0.4
million and $3.6 million for the years ended December 31, 1998, 1997 and 1996,
respectively. No tax benefit has been provided on the foreign currency
translation loss component for any period as the undistributed earnings of the
Company's foreign investments will continue to be reinvested.

Stock Options and Restricted Shares
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
10 years from date of grant. Tier A options are exercisable in four equal
installments commencing one year from date of grant, with the exception of
certain Tier A options granted in 1998, which become exercisable after the
Company's common stock price reaches specified prices for 10 consecutive days,
or at the end of five years, whichever comes first. Tier B options vest at the
date of grant, and are exercisable after the Company's common stock price closes
at or above a target price of $50 per share for 10 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.
The Company also granted 130,000 shares of restricted stock to certain
management employees during 1998. Restrictions on these shares lapse in phases
based on the Company achieving certain standards of performance or at the end of
seven years, whichever comes first.

A summary of stock option activity for the years ended December 31 follows:

Additional information regarding options outstanding at December 31, 1998,
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 1998,
1997 and 1996 have estimated weighted average fair values, at the date of grant,
of $10.73 per share, $7.06 per share and $8.67 per share, respectively. Under
the same methodology, Tier B options granted during 1997 and 1996 have estimated
weighted average 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:

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 basic 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.

The following options have been excluded from the computation of the
diluted earnings per share calculation since they were anti-dilutive (i.e., the
exercise price exceeded the average common stock price for the year):

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 $23.7 million, $22.2
million and $18.1 million for the years 1998, 1997 and 1996, respectively.

Contingencies
The Company 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
Ball participates, its operations in developing markets outside the U.S.,
changing commodity prices for the materials used in the manufacture of its
products, and changing capital markets. Where practicable, the Company attempts
to reduce these risks and uncertainties through the establishment of risk
management policies and procedures, including, at times, the use of certain
derivative financial instruments.
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. Since that time, the Defense Contract Audit Agency (DCAA) has issued a
Draft Audit Report disallowing a portion of the Company's ESOP costs for 1994
through 1997 on the asserted basis that the Company's dividend contributions to
the ESOP do not constitute allowable deferred compensation. The Draft Audit
Report takes the position that the disallowance is not covered by the pending
decision by the ASBCA. While the outcome of the trial or the audit 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)

1998 Quarterly Information
In the first quarter, Ball announced that it would relocate its corporate
headquarters to Broomfield, Colorado. The relocation resulted in total charges
of $17.7 million which were recorded over the course of the year. The Company
acquired certain assets of the North American beverage can manufacturing
business of Reynolds Metals Company during the third quarter, which
significantly increased its metal beverage container operations in the U.S. In
connection with the Acquisition, the Company refinanced approximately $521.9
million of its debt and, as a result, recorded an after-tax extraordinary loss
from early debt extinguishment of approximately $12.1 million (40 cents per
share). In the fourth quarter, Ball announced its intention to close two of the
acquired plants as well as two plants in the PRC. In connection with the PRC
plant closures and related costs, the Company recorded a pre-tax charge of
approximately $56.2 million ($31.4 million after tax or $1.03 per share). The
closure of the acquired plants is being accounted for as part of the Acquisition
without a charge to earnings. Also during the fourth quarter, Ball adopted SOP
No. 98-5, "Reporting on the Costs of Start-Up Activities," in advance of its
required 1999 implementation date and, as a result, recorded an after-tax charge
to earnings of approximately $3.3 million (11 cents per share), retroactive to
January 1, 1998, representing the cumulative effect on prior years of this
change in accounting.

1997 Quarterly Information
The first quarter included a 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
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 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
"Headquarters Relocation, Plant Closures, Dispositions and Other Costs" note for
additional information.

(dollars in millions except per share amounts)

(1) Gross profit is shown after depreciation and amortization of $136.7 million
and $105.6 million for the years ended December 31, 1998 and 1997,
respectively.

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 the fourth quarter of 1998 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 judgments and
estimates.
In fulfilling its responsibility for the integrity of financial
information, management maintains and relies upon a system of internal control
which is designated 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 PricewaterhouseCoopers
LLP to review the scope and results of audit work, the adequacy of internal
controls and the quality of financial reporting. PricewaterhouseCoopers 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, of cash flows, of changes in shareholders'
equity and comprehensive income present fairly, in all material respects, the
financial position of Ball Corporation and its subsidiaries at December 31, 1998
and 1997, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1998, 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 audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in the Significant Accounting Policies note to the financial
statements, the Company adopted in 1998 Statement of Position 98-5, "Reporting
on the Costs of Start-up Activities."

PricewaterhouseCoopers LLP
Indianapolis, Indiana
January 27, 1999

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
Ball significantly increased its metal beverage container operations in the U.S.
in 1998 when it acquired substantially all of the assets of the North American
beverage container operations of Reynolds Metals Company. In connection with the
acquisition, the Company refinanced the majority of its outstanding debt, which
resulted in an extraordinary charge for the early extinguishment of debt. As
part of Ball's comprehensive program to improve profits, cash flows and
operating efficiencies, the Company announced that it intends to close two of
the acquired plants as well as two plants in the PRC. Also during 1998, the
Company relocated its corporate headquarters to an existing company-owned
building in Colorado.
International operations were expanded with the 1997 acquisition of M.C.
Packaging (Hong Kong) Limited (M.C. Packaging), the construction of metal
container plants in the PRC, and, through joint ventures, investments in metal
beverage container plants in Brazil and Thailand. Ball entered the polyethylene
terephthalate (PET) plastic container business, beginning in 1995 with the
construction of a pilot line and research and development center, and currently
operates four multi-line manufacturing facilities. During 1997 and 1996, the
Company consolidated operations within its North American metal packaging
business to reduce costs and increase efficiency, permanently discontinuing
manufacturing operations at three food container facilities and a Canadian metal
beverage container manufacturing facility and by eliminating certain
administrative positions within these lines of business. Ball also exited the
glass container business and sold a time and frequency measurement device
business and a U.S. aerosol can manufacturing business.

Acquisitions
On August 10, 1998, Ball acquired substantially all the assets and assumed
certain liabilities of the North American beverage can manufacturing business of
Reynolds Metals Company (Acquisition) for approximately $745.4 million, before a
refundable incentive loan of $39.0 million, a preliminary working capital
adjustment of an additional $40.1 million and transaction costs. With the
Acquisition, Ball became the largest metal beverage can producer in North
America with an estimated annual production capacity of 36 billion cans.
The assets acquired consisted largely of 16 plants in 12 states and Puerto
Rico, as well as a headquarters facility in Richmond, Virginia. During the
fourth quarter of 1998, the Company closed the Richmond facility and
consolidated the headquarters operations at the Company's offices near Denver,
Colorado. In addition, the Company announced that it intends to close two of the
acquired plants during the first quarter of 1999 and that it is developing plans
for further integration, including capacity consolidations and other cost saving
measures. As a result, the Company has initially provided $56.8 million in the
opening balance sheet as an estimate of the related costs of integration and
consolidation. Upon finalization of the plan, which is expected within 1999,
adjustments to the estimated costs, if any, will be reflected as a change in
goodwill. As a part of the acquired asset valuation and purchase price
allocation process, approximately $388.4 million has been preliminarily assigned
to goodwill.
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 approximately $179.7 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 the PRC. During 1998, FTB
Packaging purchased substantially all of the remaining direct and indirect
minority interests in M.C. Packaging. M.C. Packaging manufactures 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 the PRC. The acquisition was accounted for as a
purchase and the results of M.C. Packaging are included within the packaging
segment from the acquisition date in early 1997. As a part of the acquired asset
valuation and purchase price allocation process, approximately $132.6 million
has been assigned to goodwill.
In the third quarter of 1997, Ball acquired certain PET container
manufacturing assets from Brunswick Container Corporation 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 Transactions
In connection with the announcement in December 1998 to close two plants and
take other actions in the PRC, the Company recorded a pre-tax charge of $56.2
million($31.4 million after tax or $1.03 per share) as a preliminary estimate of
the related costs. Also during 1998, the Company relocated its corporate
headquarters to an existing company-owned building in Broomfield, Colorado,
resulting in a pre-tax charge of $17.7 million ($10.8 million after tax or 36
cents per share).
In the second quarter of 1997, the Company recorded a pretax charge of $3.0
million ($1.8 million after tax or six cents per share) for the closure of a
small PET container manufacturing facility.
In October 1996, the Company sold the net assets 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 a pretax
charge of $17.7 million ($11.0 million after tax or 37 cents per share) in 1996
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 this segment.
Ball sold its equity investment in Datum Inc. (Datum), a time and frequency
measurement device business, in the first half of 1997 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 in 1997 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 and 1996.
In 1994, the Company formed EarthWatch, Incorporated (EarthWatch), which 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. During 1996, EarthWatch was reincorporated in Delaware as EarthWatch
Incorporated (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 through
1998. Ball has no commitments to provide further equity or debt financing to
EarthWatch beyond its investment to date, but continues to assess its options
with respect to EarthWatch. Ball Aerospace & Technologies Corp. has agreed to
produce satellites and instruments for 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.

Consolidated Sales and Earnings
Ball's operations are organized along its product lines and include two segments
- - the packaging segment and the aerospace and technologies segment. The
following table summarizes the results of these two segments:

Packaging Segment
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 the PRC). Packaging operations
in the U.S. have increased as a result of the plants acquired in 1998.
Operations in Asia have also increased as a result of the early 1997 acquisition
of a controlling interest in M.C. Packaging.

North American Metal Beverage Containers
Sales for Ball's North American metal beverage container business, which
represented approximately 63 percent of segment sales in 1998, increased
significantly in comparison to 1997 and 1996. Excluding the effects of the
additional sales from the acquired plants, the increase over 1997 was
approximately 6.5 percent reflecting new customer commitments and strong soft
drink industry demand. Sales in 1997 decreased approximately 5.7 percent
compared to 1996 due partially to the lower cost of aluminum can sheet, which
was passed on to the customer through formula pricing, combined with a decrease
of approximately 3.5 percent in 1997 shipments compared to 1996. The decrease in
can shipments in 1997 reflected the reduction in Ball's metal beverage container
capacity as a result of discontinuing manufacturing at a Canadian facility and
the full year effects of converting a U.S. metal beverage container line to a
two-piece food container line. U.S. and Canadian industry shipments of metal
beverage containers increased an estimated 2.2 percent in 1998 and 1.6 percent
in 1997. 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, would have been approximately 34 percent (on a pro forma
basis assuming the inclusion of shipments from the acquired plants for a full
year) compared to 17 percent in both 1997 and 1996 (on a historical basis) based
on publicly available industry information.
Earnings attributable to North American metal beverage containers improved
in 1998 compared to 1997 and 1996. Excluding the effects of the acquired plants,
other factors contributing to the increase included lower inventory carrying
costs and reduced production costs coupled with the improved efficiencies
realized upon completion over the three year period of project work begun in
1995 to convert to smaller diameter ends and to lightweight cans and ends.

North American Metal Food Containers
North American metal food container sales, which comprised approximately 19
percent of 1998 segment sales, rose slightly compared to 1997. Excluding $36.6
million of sales in 1996 from the aerosol can business, sales in this product
line increased 2.3 percent in 1998 and 1.3 percent in 1997 over 1996. The
increases in 1998 and 1997, excluding aerosol can sales in 1996, were the result
of lower shipments to salmon can customers being offset by increased shipments
to customers for other food products. The increase in 1998 was realized despite
the overall downturn in industry shipments due to adverse crop conditions. 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 1998, 1997 and 1996, based on publicly available industry
information.
Operating earnings attributable to North American metal food containers
declined in 1998 compared to 1997. Earnings declined due in large part to
reduced salmon can volumes (primarily the result of a Canadian government
imposed ban on commercial salmon fishing) and the effects of a strike in a
Canadian facility. Comparing 1997 to 1996, earnings attributable to North
American metal food containers improved, due in part to the closure of a
higher-cost operating facility late in 1996, and to improved productivity and
quality.

North American PET Containers
Sales of PET containers have increased steadily over the three-year period. The
increase in 1998 included additional sales from new business acquired in the
third quarter of 1997 as well as higher production capacity due to the first
full year of operations of an East Coast plant. Sales in 1997 compared to 1996
reflect the start-up of two manufacturing facilities in 1997, plus the
additional sales from the new Brunswick business. In both 1998 and 1997, the
continued promotion of metal cans by major soft drink companies and lower than
forecasted sales by non-soft drink customers were reflected in lower than
expected sales for the business.
Improved operating results in 1998 were due to increased sales, the
elimination of costs incurred in 1997 related to start-up operations in the
Eastern United States and the Midwest, and a nonrecurring charge in 1997 from
the closure of a small PET container manufacturing facility.

International Packaging Operations
Sales within the international packaging businesses in 1998 were comprised of
the consolidated sales of FTB Packaging, including M.C. Packaging, and revenues
from royalties and technical services to licensees. Sales within the
international packaging operations declined in 1998 by approximately nine
percent after increasing significantly in 1997 compared to 1996. Sales within
the PRC have been negatively affected by a soft metal beverage container market
combined with lower pricing resulting from current industry over capacity. The
PRC market has also been affected by uncertainty in the Asian financial markets
which has resulted in a decrease in exports of Company products from Hong Kong
to other Asian countries. Earnings from consolidated international operations in
1998 reflect the impact of lower pricing and lower volumes. During the fourth
quarter of 1998, the Company announced that it will close two can plants in the
PRC, remove certain equipment from service and take other actions to reduce
costs and streamline operations. The Company's preliminary estimate of costs to
close the two plants and related actions resulted in a fourth quarter pretax
charge of $56.2 million ($31.4 million after tax or $1.03 per share).

Aerospace and Technologies Segment
The sales reduction in the aerospace and technologies segment from 1997 to 1998
reflects, in large part, temporarily reduced activity in connection with certain
government programs and the unusually strong demand in the first half of 1997
for certain telecommunications equipment and related products. Demand for those
products in 1998 returned to more normal levels. The operating earnings decrease
in 1998 reflected the effect of lower sales in 1998 and, by comparison, the
inclusion in the first half of 1997 of one-time early delivery incentives earned
in connection with telecommunications products.
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 reflected growth in several programs, as
well as the start-up of several 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.
Sales to the U.S. government, either as a prime contractor or as a
subcontractor, represented approximately 90 percent, 87 percent and 91 percent
of segment sales in 1998, 1997 and 1996, respectively. Within aerospace systems,
industry trends have not changed significantly, with Department of Defense and
NASA budgets remaining relatively flat. However, there is a growing worldwide
market for commercial space activities, and Ball believes there are significant
international opportunities in which the Company could participate.
Consolidation in the industry continues and there is strong competition for
business. Backlog for the aerospace and technologies segment at December 31,
1998 and 1997, was approximately $296 million and $267 million, respectively.
Year-to-year comparisons of backlog are not necessarily indicative of the trend
of future operations.

Interest and Taxes
Interest expense increased to $78.6 million in 1998, compared to $53.5 million
in 1997 and $33.3 million in 1996. The increase in total interest cost in 1998
compared to 1997 was largely attributable to the additional debt associated with
the Acquisition. The increase in total interest cost in 1997 compared to 1996
was primarily a result of the acquisition and consolidation of M.C. Packaging.
Ball's consolidated effective income tax rate was 32.2 percent in 1998,
compared to 37.2 percent in 1997 and 24.3 percent in 1996. The lower tax rate
for 1998 compared to 1997 is largely attributed to the settlement of various
issues with taxing authorities partially offset by the net tax effects of
foreign operations. The lower rate for 1996 compared to 1997 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 1998 and 1997, the
Company settled tax credit matters for years 1991 through 1995, and recorded
additional credits. 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.

Results of Equity Affiliates
Equity earnings in affiliates are largely attributable to equity investments in
the PRC, Thailand and Brazil. Equity in earnings of affiliates increased in 1998
to $5.6 million compared to equity in losses of $0.7 million in 1997. The
improved results in 1998 reflect the effects of the strengthening of the Thai
baht and reduced start-up costs compared to 1997 when operations of certain
affiliates in Brazil, Thailand and the PRC began.
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 in 1996. Ball's share of the net
earnings from other equity affiliates were $2.8 million in 1996, primarily from
Ball's Pacific Rim equity affiliates. In 1996, start-up operating costs
associated with new investments in Brazil and Thailand reduced earnings.

Other Items
Consolidated selling, product development and general and administrative
expenses were $136.5 million, $125.0 million and $81.0 million for 1998, 1997
and 1996, respectively. Higher consolidated general and administrative expenses
in 1998 compared to 1997 were due partially to the additional costs associated
with the acquired plants, including salaries and interim administrative support.
Also contributing to the increase were higher performance-based compensation
costs. Lower consolidated general and administrative expenses in 1996 compared
to 1997 were due, in large part, to lower performance-based compensation costs
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 early 1997, as well as those costs attributable
to other facilities in the PRC.
In connection with the Acquisition, the Company refinanced approximately
$521.9 million of its existing debt and, as a result, recorded a pre-tax charge
for early extinguishment of the debt of approximately $19.9 million ($12.1
million after tax or 40 cents per share).
Also, in 1998, the Company adopted SOP No. 98-5, "Reporting on the Costs of
Start-Up Activities," in advance of its required 1999 implementation date. SOP
No. 98-5 requires that costs of start-up activities and organizational costs, as
defined, be expensed as incurred. In accordance with this statement, the Company
recorded an after-tax charge to earnings of approximately $3.3 million (11 cents
per share), retroactive to January 1, 1998, representing the cumulative effect
of this change in accounting on prior years.
In October 1996, the Company sold its 42 percent investment in 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.

Financial Position, Liquidity and Capital Resources
Cash flow from continuing operations increased to $387.1 million in 1998
compared to $143.5 million in 1997 and $84.3 million in 1996. The increases in
1998 and 1997 resulted primarily from improved operating results within North
America and a reduction in the cash used for working capital.
Capital expenditures, excluding effects of business acquisitions and
dispositions, were $84.2 million, $97.7 million and $196.1 million in 1998, 1997
and 1996, respectively. Spending in 1998, 1997 and 1996 included approximately
$24 million, $16 million and $75 million, respectively, for Ball's PET container
business. Spending in 1997 also included amounts to complete two new metal
packaging plants in the PRC, as well as spending within M.C. Packaging. Capital
expenditures in 1996 included the conversion of metal beverage plant equipment
to meet 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. In 1999 total capital spending and
investments are anticipated to be approximately $155 million.
Premiums on company-owned life insurance were approximately $6 million for
each of the three years ended December 31, 1998, 1997 and 1996. Amounts in the
consolidated statement of cash flows represent net cash flows from this program,
including policy loans of approximately $11 million in 1998 and $10 million in
each of 1997 and 1996, and partial withdrawals from the cash value of the
policies of approximately $9 million in 1998 and $22 million in 1997.
Debt at December 31, 1998, increased $583.5 million to $1,356.6 million
from $773.1 million at year end 1997, while cash and temporary investments
increased from $25.5 million at year end 1997 to $34.0 million at December 31,
1998. The increase in debt was primarily due to the additional borrowings in
connection with the Acquisition. Consolidated debt-to-total capitalization
increased to 67.7 percent at December 31, 1998, from 53.0 percent at year end
1997.
In connection with the Acquisition, the Company refinanced approximately
$521.9 million of its existing debt and, as a result, recorded an extraordinary
charge from the early extinguishment of debt of approximately $12.1 million (40
cents per share), net of related income tax benefit. The acquisition and the
refinancing, including related costs, were financed with a placement of $300.0
million in 7.75% Senior Notes, $250.0 million in 8.25% Senior Subordinated Notes
and approximately $808.2 million from a Senior Credit Facility.
The Senior Notes, which are due August 1, 2006, are unsecured, rank senior
to the Company's subordinated debt and are guaranteed on a senior basis by
certain of the Company's domestic subsidiaries. The Senior Subordinated Notes,
which are due August 1, 2008, also are unsecured, rank subordinate to existing
and future senior debt of the Company and are guaranteed by certain of the
Company's domestic subsidiaries. Both note agreements contain certain covenants
and restrictions, including, among other things, restrictions on the incurrence
of additional indebtedness and the payment of dividends.
The Company offered to exchange the Senior Notes and Senior Subordinated
Notes. The offer expired on January 27, 1999, at which time all of the notes had
been exchanged. The terms of the new notes are substantially identical in all
respects (including principal amount, interest rate, maturity, ranking and
covenant restrictions) to the terms of the notes for which they were exchanged
except that the new notes are registered under the Securities Act of 1933, as
amended, and therefore are not subject to certain restrictions on transfer
except as described in the Prospectus for the Exchange Offer. The note
agreements provide that if the new notes are assigned investment grade ratings
and the Company is not in default, certain covenant restrictions will be
suspended.
The Senior Credit Facility is comprised of three separate facilities, two
term loans and a revolving credit facility. The first term loan provided the
Company with $350.0 million and matures in August 2004. The second term loan
provided the Company with $200.0 million and matures in March 2006. Both term
loans are payable in quarterly installments beginning in March 1999. The
revolving credit facility provides the Company with up to $650.0 million, of
which $150.0 million is available for a period of 364 days, renewable for
another 364 days from the current termination date at the option of the Company
and participating lenders. The remainder matures in August 2004. The Senior
Credit Facility bears interest at variable rates, is guaranteed by certain of
the Company's domestic subsidiaries and contains certain covenants and
restrictions including, among other things, restrictions on the incurrence of
additional indebtedness and the payment of dividends. In addition, all amounts
outstanding under the Senior Credit Facility are secured by (1) a pledge of 100
percent of the stock owned by the Company of its direct and indirect
majority-owned domestic subsidiaries and (2) a pledge of 65 percent of the stock
owned by the Company of certain foreign subsidiaries.
In Asia, FTB Packaging, including M.C. Packaging, had short-term
uncommitted credit facilities of approximately $198 million, of which $70.6
million was outstanding at December 31, 1998.
A receivables sales agreement provides for the ongoing, revolving sale of a
designated pool of trade accounts receivable of Ball's U.S. packaging
businesses. In December 1998, the designated pool of receivables was increased
to provide for sales of up to $125 million from the previous amount of $75
million. Net funds received from the sale of the accounts receivable totaled
$122.5 million and $65.9 million at December 31, 1998 and 1997, respectively.
Fees incurred in connection with the sale of accounts receivable, which are
included in general and administrative expenses, totaled $4.0 million in each of
1998 and 1997 and $3.7 million in 1996.
Cash dividends paid on common stock in 1998, 1997 and 1996 were 60 cents
per share each year.

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,
collars and options to manage the Company's mix of floating and fixed-rate debt
between a minimum and maximum percentage, which is set by policy. The Company's
objective in managing its exposure to foreign currency fluctuations is to
protect foreign cash flow and reduce earnings volatility associated with foreign
exchange rate changes.
Unrealized losses on forward contracts under these agreements are recorded
in the balance sheet as other current liabilities. Realized gains/losses from
hedges are classified in the income statement consistent with accounting
treatment of the item being hedged. The Company accrues the differential for
interest rate swaps to be paid or received under these agreements as adjustments
to interest expense over the lives of the swaps. Gains and losses upon the early
termination of swap agreements are deferred in long-term liabilities and
amortized as an adjustment to interest expense over the remaining term of the
agreement.
The Company has estimated its market risk exposure using sensitivity
analysis. Market risk exposure has been defined as the change in fair value of a
derivative instrument assuming a hypothetical 10 percent adverse change in
market prices or rates. The results of the sensitivity analyses are summarized
below. Actual changes in market prices or rates may differ from hypothetical
changes.

Interest Rate Risk
Interest rate instruments held by the Company at December 31, 1998 and 1997,
included pay-floating, pay-fixed interest rate swaps, interest rate collars 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. Swap agreements expire in
one to eight years.
Interest rate swap agreements outstanding at December 31, 1998, had
notional amounts of $10 million at a floating rate and $528 million at a fixed
rate, or a net fixed position of $518 million. At December 31, 1997, these
agreements 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. Floating
rate agreements with notional amounts of $55 million at December 31, 1997,
included an interest rate floor. The Company also entered into an interest rate
collar agreement in 1998 with a notional amount of $100 million.
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.
Based on the Company's interest rate exposure at December 31, 1998, assumed
floating rate debt levels throughout 1999 and the effects of derivative
instruments, a 10 percent change in interest rates could have an estimated $2
million impact on earnings over a one year period. Actual results may vary based
on actual changes in market prices and rates.
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, 1998 and
1997, taking into account any unrealized gains and losses on open contracts.

Exchange Rate Risk
The Company's foreign currency risk exposure results from fluctuating currency
exchange rates, primarily the strengthening of the U.S. dollar against the Hong
Kong dollar, Canadian dollar, Chinese renminbi, Thai baht and Brazilian real.
The Company faces currency exposure that arises from translating the results of
its global operations and maintaining U.S. dollar debt and payables. The Company
uses forward contracts to manage its foreign currency exposures and, as a
result, gains and losses on these derivative positions offset, in part, the
impact of currency fluctuations on the existing assets and liabilities. At
December 31, 1998, the notional amount of the Company's foreign exchange risk
management contracts, net of notional amounts of contracts with counterparties
against which the Company has the legal right of offset, was $100 million. The
fair value of these contracts as of December 31, 1998 was $(4.5) million.
Considering the Company's derivative financial instruments outstanding at
December 31, 1998, and the currency exposures, a hypothetical 10 percent
weakening in the exchange rates compared to the U.S. dollar could have an
estimated $3 million impact on earnings over a one year period. Actual changes
in market prices or rates may differ from hypothetical changes.
In January 1999, the Brazilian government changed its monetary policy,
causing the Brazilian real to devalue. At that time, the Company did not expect
that the after-tax effect of the currency devaluation would have a significant
impact on the Company's consolidated earnings. However, the Brazilian real
continues to be volatile and actual results may differ based on future events.
In early July 1997, the government of Thailand changed its monetary policy
to no longer peg the Thai baht to the U.S. dollar. As a result, the Company
recorded a loss of $3.2 million, or 11 cents per share, 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.

New Accounting Pronouncements
Effective January 1, 1998, Ball adopted Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income." See the
"Shareholders' Equity" note for information regarding SFAS No. 130. The company
also adopted SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information," and SFAS No. 132, "Employers' Disclosures about Pensions
and Other Postretirement Benefits," in 1998. See the "Business Segment
Information" note for information regarding SFAS No. 131 and the "Pension and
Other Postretirement and Postemployment Benefits" note for information regarding
SFAS No. 132.
During the fourth quarter of 1998, Ball adopted Statement of Position (SOP)
No. 98-5, "Reporting on the Costs of Start-Up Activities," in advance of its
required 1999 implementation date. SOP No. 98-5 requires that costs of start-up
activities and organizational costs, as defined, be expensed as incurred. In
accordance with this statement, the Company recorded an after-tax charge to
earnings of approximately $3.3 million (11 cents per share), retroactive to
January 1, 1998, representing the cumulative effect on prior years of this
change in accounting.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," essentially requires all derivatives to be recorded on the balance
sheet at fair value and establishes new accounting practices for hedge
instruments. The statement will be effective for Ball in 2000. The effect, if
any, of adopting this standard has not yet been determined. SOP No. 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use," establishes new accounting and reporting standards for the costs
of computer software developed or obtained for internal use and is effective for
Ball in 1999. The effect, if any, of adopting this standard has not yet been
determined.

Contingencies

Year 2000 Systems Review
Many computer systems and other equipment with embedded chips or processors use
only two digits to represent the year and, as a result, they may be unable to
process accurately certain data before, during or after the year 2000. As a
result, business and governmental entities are at risk for possible
miscalculations or system failures causing disruptions in their operations. This
is commonly known as the Year 2000 issue and can arise at any point in the
Company's supply, manufacturing, processing, distribution and financial chains.
Over the course of the past several years, systems installations, upgrades
and enhancements were performed by the Company in the ordinary course of
business with attention given to Year 2000 matters. As a result, when the formal
Year 2000 program was instituted in 1996, many of the Year 2000 matters
potentially affecting the Company had either been resolved or were near
resolution. The program currently in effect was instituted to make the remaining
software and systems Year 2000 compliant in time to minimize any significant
negative effects on operations and is divided into six major phases: (1) project
initiation, (2) awareness, (3) assessment, (4) remediation, (5) testing and (6)
contingency planning. The program covers information systems infrastructure,
financial and administrative systems, process control and manufacturing
operating systems and the compliance profiles of significant vendors, lenders
and customers. As of February, 1999, the Company estimated that the program was
80 to 90 percent complete with regard to critical systems and completion of the
entire project is on target for mid to late 1999. International operations, for
the most part, are following the U.S. program and international joint venture
operations are being assessed.
Because most of the Company's efforts were initiated to address specific
business requirements or to stay technologically current, it is difficult to
quantify costs incurred solely in conjunction with the Year 2000 project.
However, certain incremental costs of approximately $2 million have been
identified, including the purchase of software to manage the project, software
to check personal computer hardware and software compliance, and contractor
assistance. All such costs, and any future costs, are being funded through
operating cash flows.
Ball relies on third party suppliers for raw materials, water, utilities,
transportation, banking and other key services. The inability of principal
suppliers, including utilities, to be Year 2000 ready could result in delays in
product deliveries from such suppliers and disrupt the Company's ability to
supply its products. Ball's review program includes efforts to evaluate the
status of suppliers' and customers' efforts, including but not limited to
questionnaires, as a means of identifying risk. None of the suppliers contacted
to date have indicated any compliance issues. However, the replies indicate that
most suppliers, vendors and customers will not provide any assurance that they
will be Year 2000 compliant.
A worst-case scenario for the Company with respect to the Year 2000 issue
could be the failure of either a critical vendor or the Company's manufacturing
and information systems. Such failures could result in temporary production
outages and lost sales and profits.
The Company is developing contingency plans intended to mitigate the
possible disruption of business operations that may result from external third
party Year 2000 issues. Such plans may include accelerating raw material
delivery schedules, increasing finished good inventory levels, securing
alternate sources of supply, adjusting facility shut-down and start-up schedules
and other appropriate measures. The Company is currently prioritizing critical
systems and intends to have its contingency plans in place by the end of the
second quarter of 1999. The contingency plans and related cost estimates will be
refined as additional information becomes available.
Due to the general uncertainty inherent in the Year 2000 issue, resulting
in part from the uncertainty of the Year 2000 readiness of the third-party
suppliers and customers, the Company is unable to determine whether the
consequences of Year 2000 failures will have a material impact on the Company's
results of operations, liquidity or financial condition. However, the Company
believes that, with the recent implementation of new business systems and
completion of the program as scheduled, the possibility of significant
interruptions of normal operations should be reduced.
The discussion of the Company's efforts, and management's expectations,
relating to Year 2000 compliance contain forward-looking statements. The
Company's ability to achieve Year 2000 compliance and the level of associated
incremental costs could be adversely impacted by, among other things, the
availability and cost of programming and testing resources, the ability of
suppliers and customers to bring their systems into Year 2000 compliance, and
unanticipated problems identified in the ongoing compliance review.
The information contained herein regarding the Company's efforts to deal
with the Year 2000 problem apply to all of the Company's products and services.
Such statements are intended as Year 2000 Statements and Year 2000 Readiness
Disclosures and are subject to the Year 2000 Information Readiness Disclosure
Act.

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.,
changing commodity prices for the materials used in the manufacture of its
products, and changing capital markets. Where practicable, Ball attempts to
reduce these risks and uncertainties through the establishment of risk
management policies and procedures including, at times, the use of certain
derivative financial instruments.
The Company was not in default of any loan agreement at December 31, 1998,
and has met all payment obligations. However, Latapack-Ball Embalagens Ltda.
(Latapack-Ball), the Company's 50 percent owned equity affiliate in Brazil, was
in noncompliance with certain financial ratio provisions, including current
ratio, under a fixed term loan agreement of which $50.8 million was outstanding
at year end. Latapack-Ball has requested a waiver from the lender in respect of
the noncompliance.
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. Since that time, the Defense Contract
Audit Agency (DCAA) has issued a Draft Audit Report disallowing a portion of the
Company's ESOP costs for 1994 through 1997 on the asserted basis that the
Company's dividend contributions to the ESOP do not constitute allowable
deferred compensation. The Draft Audit Report takes the position that the
disallowance is not covered by the pending decision by the ASBCA. While the
outcome of the trial or the audit 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.
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; boycotts;
litigation involving antitrust, intellectual property, consumer and other
issues; 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 obtain adequate credit resources for foreseeable financing requirements of
the Company's businesses; the inability of the Company to achieve Year 2000
readiness; 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.

(1) Includes the effect of a change in 1995 to the LIFO method of accounting of
$17.1 million ($10.4 million after tax or 35 cents per share).
(2) See the notes to the Consolidated Financial Statements.
(3) Change in stock price plus dividend yield assuming reinvestment of
dividends.
(4) In 1995, the assumed conversion of preferred stock and exercise of stock
options resulted in a dilutive effect on continuing operations.
Accordingly, the diluted loss per share amounts are required to be used for
discontinued operations, resulting in a lower total loss per share than the
loss per common share.
(5) Includes amounts attributed to discontinued operations.

Quarterly Stock Prices and Dividends

Quarterly prices for the company's common stock, as reported on the composite
tape, and quarterly dividends in 1998 and 1997 were:

Form: 10-K

Documents

EXHIBIT 13.1