10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on May 8, 2015
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2015
Commission file number 1-7349
BALL CORPORATION
|
State of Indiana (State or other jurisdiction of incorporation or organization) |
|
35-0160610 (I.R.S. Employer Identification No.) |
|
10 Longs Peak Drive, P.O. Box 5000 |
|
|
|
Broomfield, CO 80021-2510 (Address of registrants principal executive office) |
|
80021-2510 (Zip Code) |
Registrants telephone number, including area code: 303/469-3131
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer x |
|
Accelerated filer o |
|
Non-accelerated filer o |
|
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.
|
Class |
|
Outstanding at April 27, 2015 |
|
Common Stock, without par value |
|
137,856,946 shares |
Ball Corporation
QUARTERLY REPORT ON FORM 10-Q
For the period ended March 31, 2015
BALL CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
|
|
|
Three Months Ended March 31, |
| ||||
|
($ in millions, except per share amounts) |
|
2015 |
|
2014 |
| ||
|
|
|
|
|
|
| ||
|
Net sales |
|
$ |
1,923.1 |
|
$ |
2,006.8 |
|
|
|
|
|
|
|
| ||
|
Costs and expenses |
|
|
|
|
| ||
|
Cost of sales (excluding depreciation and amortization) |
|
(1,560.9 |
) |
(1,612.9 |
) | ||
|
Depreciation and amortization |
|
(68.3 |
) |
(68.8 |
) | ||
|
Selling, general and administrative |
|
(116.0 |
) |
(107.7 |
) | ||
|
Business consolidation and other activities |
|
(52.0 |
) |
|
| ||
|
|
|
(1,797.2 |
) |
(1,789.4 |
) | ||
|
|
|
|
|
|
| ||
|
Earnings before interest and taxes |
|
125.9 |
|
217.4 |
| ||
|
|
|
|
|
|
| ||
|
Interest expense |
|
(38.5 |
) |
(40.2 |
) | ||
|
Debt refinancing and other costs |
|
(59.9 |
) |
(33.1 |
) | ||
|
Total interest expense |
|
(98.4 |
) |
(73.3 |
) | ||
|
|
|
|
|
|
| ||
|
Earnings before taxes |
|
27.5 |
|
144.1 |
| ||
|
Tax provision |
|
(0.5 |
) |
(39.6 |
) | ||
|
Equity in results of affiliates, net of tax |
|
0.5 |
|
0.4 |
| ||
|
Net earnings |
|
27.5 |
|
104.9 |
| ||
|
Less net earnings attributable to noncontrolling interests |
|
(6.8 |
) |
(11.4 |
) | ||
|
Net earnings attributable to Ball Corporation |
|
$ |
20.7 |
|
$ |
93.5 |
|
|
|
|
|
|
|
| ||
|
Earnings per share: |
|
|
|
|
| ||
|
Basic |
|
$ |
0.15 |
|
$ |
0.67 |
|
|
Diluted |
|
$ |
0.15 |
|
$ |
0.65 |
|
|
|
|
|
|
|
| ||
|
Weighted average shares outstanding (000s): |
|
|
|
|
| ||
|
Basic |
|
137,086 |
|
140,405 |
| ||
|
Diluted |
|
141,076 |
|
144,058 |
| ||
See accompanying notes to the unaudited condensed consolidated financial statements.
BALL CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
|
|
|
Three Months Ended March 31, |
| ||||
|
($ in millions) |
|
2015 |
|
2014 |
| ||
|
|
|
|
|
|
| ||
|
Net earnings |
|
$ |
27.5 |
|
$ |
104.9 |
|
|
|
|
|
|
|
| ||
|
Other comprehensive earnings (loss): |
|
|
|
|
| ||
|
Foreign currency translation adjustment |
|
(139.2 |
) |
(23.5 |
) | ||
|
Pension and other postretirement benefits (a) |
|
19.1 |
|
5.1 |
| ||
|
Effective financial derivatives (b) |
|
(0.5 |
) |
2.6 |
| ||
|
Total other comprehensive earnings (loss) |
|
(120.6 |
) |
(15.8 |
) | ||
|
|
|
|
|
|
| ||
|
Total comprehensive earnings (loss) |
|
(93.1 |
) |
89.1 |
| ||
|
Less comprehensive (earnings) loss attributable to noncontrolling interests |
|
(6.3 |
) |
(11.4 |
) | ||
|
Comprehensive earnings (loss) attributable to Ball Corporation |
|
$ |
(99.4 |
) |
$ |
77.7 |
|
(a) Net of tax (expense) benefit of $(4.4) million and $(3.1) million for the three months ended March 31, 2015 and 2014, respectively.
(b) Net of tax (expense) benefit of $0.6 million and $(1.3) million for the three months ended March 31, 2015 and 2014, respectively.
See accompanying notes to the unaudited condensed consolidated financial statements.
BALL CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
March 31, |
|
December 31, |
| ||
|
($ in millions) |
|
2015 |
|
2014 |
| ||
|
|
|
|
|
|
| ||
|
Assets |
|
|
|
|
| ||
|
Current assets |
|
|
|
|
| ||
|
Cash and cash equivalents |
|
$ |
228.8 |
|
$ |
191.4 |
|
|
Receivables, net |
|
1,043.7 |
|
957.1 |
| ||
|
Inventories, net |
|
1,033.2 |
|
1,016.7 |
| ||
|
Deferred taxes and other current assets |
|
162.2 |
|
148.3 |
| ||
|
Total current assets |
|
2,467.9 |
|
2,313.5 |
| ||
|
Noncurrent assets |
|
|
|
|
| ||
|
Property, plant and equipment, net |
|
2,423.6 |
|
2,430.7 |
| ||
|
Goodwill |
|
2,177.8 |
|
2,254.5 |
| ||
|
Intangibles and other assets, net |
|
591.2 |
|
572.3 |
| ||
|
Total assets |
|
$ |
7,660.5 |
|
$ |
7,571.0 |
|
|
|
|
|
|
|
| ||
|
Liabilities and Shareholders Equity |
|
|
|
|
| ||
|
Current liabilities |
|
|
|
|
| ||
|
Short-term debt and current portion of long-term debt |
|
$ |
344.7 |
|
$ |
175.1 |
|
|
Accounts payable |
|
1,271.2 |
|
1,340.0 |
| ||
|
Accrued employee costs |
|
180.1 |
|
269.9 |
| ||
|
Other current liabilities |
|
243.3 |
|
221.8 |
| ||
|
Total current liabilities |
|
2,039.3 |
|
2,006.8 |
| ||
|
Noncurrent liabilities |
|
|
|
|
| ||
|
Long-term debt |
|
3,152.1 |
|
2,993.8 |
| ||
|
Employee benefit obligations |
|
1,132.3 |
|
1,178.3 |
| ||
|
Deferred taxes and other liabilities |
|
183.4 |
|
152.5 |
| ||
|
Total liabilities |
|
6,507.1 |
|
6,331.4 |
| ||
|
|
|
|
|
|
| ||
|
Shareholders equity |
|
|
|
|
| ||
|
Common stock (332,277,560 shares issued - 2015; 331,618,306 shares issued - 2014) |
|
1,149.8 |
|
1,131.3 |
| ||
|
Retained earnings |
|
4,349.8 |
|
4,346.9 |
| ||
|
Accumulated other comprehensive earnings (loss) |
|
(642.1 |
) |
(522.1 |
) | ||
|
Treasury stock, at cost (194,484,539 shares - 2015; 194,652,028 shares - 2014) |
|
(3,916.8 |
) |
(3,923.0 |
) | ||
|
Total Ball Corporation shareholders equity |
|
940.7 |
|
1,033.1 |
| ||
|
Noncontrolling interests |
|
212.7 |
|
206.5 |
| ||
|
Total shareholders equity |
|
1,153.4 |
|
1,239.6 |
| ||
|
Total liabilities and shareholders equity |
|
$ |
7,660.5 |
|
$ |
7,571.0 |
|
See accompanying notes to the unaudited condensed consolidated financial statements.
BALL CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
Three Months Ended March 31, |
| ||||
|
($ in millions) |
|
2015 |
|
2014 |
| ||
|
|
|
|
|
|
| ||
|
Cash Flows from Operating Activities |
|
|
|
|
| ||
|
Net earnings |
|
$ |
27.5 |
|
$ |
104.9 |
|
|
Adjustments to reconcile net earnings to cash provided by (used in) continuing operating activities: |
|
|
|
|
| ||
|
Depreciation and amortization |
|
68.3 |
|
68.8 |
| ||
|
Business consolidation and other activities |
|
52.0 |
|
|
| ||
|
Deferred tax provision |
|
(24.7 |
) |
2.6 |
| ||
|
Other, net |
|
10.0 |
|
(10.5 |
) | ||
|
Changes in working capital components |
|
(313.6 |
) |
(302.0 |
) | ||
|
Cash provided by (used in) operating activities |
|
(180.5 |
) |
(136.2 |
) | ||
|
Cash Flows from Investing Activities |
|
|
|
|
| ||
|
Capital expenditures |
|
(105.5 |
) |
(61.4 |
) | ||
|
Business acquisitions |
|
(29.1 |
) |
|
| ||
|
Other, net |
|
14.1 |
|
6.3 |
| ||
|
Cash provided by (used in) investing activities |
|
(120.5 |
) |
(55.1 |
) | ||
|
Cash Flows from Financing Activities |
|
|
|
|
| ||
|
Long-term borrowings |
|
1,275.0 |
|
375.1 |
| ||
|
Repayments of long-term borrowings |
|
(1,087.8 |
) |
(513.4 |
) | ||
|
Net change in short-term borrowings |
|
171.1 |
|
299.5 |
| ||
|
Proceeds from issuances of common stock |
|
9.2 |
|
9.3 |
| ||
|
Acquisitions of treasury stock |
|
(3.2 |
) |
(202.8 |
) | ||
|
Common dividends |
|
(18.2 |
) |
(18.6 |
) | ||
|
Other, net |
|
(18.7 |
) |
5.8 |
| ||
|
Cash provided by (used in) financing activities |
|
327.4 |
|
(45.1 |
) | ||
|
|
|
|
|
|
| ||
|
Effect of exchange rate changes on cash |
|
11.0 |
|
(4.2 |
) | ||
|
|
|
|
|
|
| ||
|
Change in cash and cash equivalents |
|
37.4 |
|
(240.6 |
) | ||
|
Cash and cash equivalents - beginning of period |
|
191.4 |
|
416.0 |
| ||
|
Cash and cash equivalents - end of period |
|
$ |
228.8 |
|
$ |
175.4 |
|
See accompanying notes to the unaudited condensed consolidated financial statements.
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Ball Corporation and its controlled affiliates, including its consolidated variable interest entities (collectively Ball, the company, we or our), and have been prepared by the company. Certain information and footnote disclosures, including critical and significant accounting policies normally included in financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted for this quarterly presentation.
Results of operations for the periods shown are not necessarily indicative of results for the year, particularly in view of the seasonality in the packaging segments and the irregularity of contract revenues in the aerospace and technologies segment. These unaudited condensed consolidated financial statements and accompanying notes should be read in conjunction with the consolidated financial statements and the notes thereto included in the companys Annual Report on Form 10-K filed on February 20, 2015, pursuant to Section 13 of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2014 (annual report).
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires Balls management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting periods. These estimates are based on historical experience and various assumptions believed to be reasonable under the circumstances. Balls management evaluates these estimates on an ongoing basis and adjusts or revises the estimates as circumstances change. As future events and their impacts cannot be determined with precision, actual results may differ from these estimates. In the opinion of management, the financial statements reflect all adjustments necessary to fairly state the results of the periods presented.
Certain prior period amounts have been reclassified in order to conform to the current period presentation.
2. Accounting Pronouncements
Recently Adopted Accounting Standards
In April 2014, accounting guidance was issued to change the criteria for reporting discontinued operations. Under the new guidance, only disposals of components of an entity that represent strategic shifts that have, or will have, a major effect on an entitys operations should be reported as discontinued operations in the financial statements. The new guidance also requires expanded disclosures for discontinued operations, as well as disclosures about the financial effects of significant disposals that do not qualify for discontinued operations. The guidance was effective for Ball on January 1, 2015, and did not have a material effect on the companys unaudited condensed consolidated financial statements.
New Accounting Guidance
In April 2015, amendments to existing accounting guidance were issued to provide explicit guidance related to a customers accounting for fees paid in a cloud computing arrangement. Under the guidance, cloud computing arrangements that include a software license would be accounted for consistent with the acquisition of other software licenses. Conversely, cloud computing arrangements that do not include a software license would be accounted for as a service contract. The guidance will be effective for Ball on January 1, 2016, and early adoption is permitted. The guidance is not expected to have a material effect on the companys consolidated financial statements.
In April 2015, accounting guidance was issued to change the balance sheet presentation for debt issuance costs. Under the new guidance, debt issuance costs related to a recognized debt liability would be presented as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts, rather than as a deferred charge. The guidance does not affect the recognition and measurement of debt issuance costs; hence, amortization of debt issuance costs would continue to be reported as interest expense. Early adoption is permitted, and the company is currently assessing whether to early adopt. The guidance will be effective for Ball retrospectively on January 1, 2016, and is not expected to have a material effect on the companys consolidated financial statements.
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
2. Accounting Pronouncements (continued)
In February 2015, amendments to existing accounting guidance were issued that modify the analysis companies must perform in order to determine whether a legal entity should be consolidated. The new guidance includes modifications related to: 1) limited partnerships and similar legal entities, 2) evaluating fees paid to a decision maker or service provider as a variable interest, 3) the effect of fee arrangements on the primary beneficiary, 4) the effect of related parties on the primary beneficiary and 5) certain investment funds. The guidance will be effective for Ball on January 1, 2016, and early adoption is permitted. The company is currently assessing the impact that the adoption of this standard will have on its consolidated financial statements.
In August 2014, accounting guidance was issued to define managements responsibility to evaluate whether there is substantial doubt about an entitys ability to continue as a going concern and to provide related footnote disclosure in certain circumstances. Under the new guidance, management is required to evaluate, at each annual and interim reporting period, whether there are conditions or events that raise substantial doubt about the entitys ability to continue as a going concern within one year after the date the financial statements are issued and to provide related disclosures. The guidance will be effective for Ball on January 1, 2017, and is not expected to have a material effect on the companys consolidated financial statements.
In May 2014, the FASB and International Accounting Standards Board jointly issued new revenue recognition guidance which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The new guidance contains a more robust framework for addressing revenue issues and is intended to remove inconsistencies in existing guidance and improve comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets. The guidance will supersede the majority of current revenue recognition guidance, including industry-specific guidance. The guidance will be effective for Ball on January 1, 2017, and early adoption is not permitted for the company. Entities have the option of using either a full retrospective or modified retrospective approach for the adoption of the standard. The company is currently assessing the impact that the adoption of this standard will have on its consolidated financial statements.
3. Business Segment Information
Balls operations are organized and reviewed by management along its product lines and geographical areas and presented in the four reportable segments discussed below.
Metal beverage packaging, Americas and Asia: Consists of the metal beverage packaging, Americas, operations in the U.S., Canada and Brazil, and the metal beverage packaging, Asia, operations in the Peoples Republic of China (PRC). The Americas and Asia segments have been aggregated based on similar economic and qualitative characteristics. The operations in this reporting segment manufacture and sell metal beverage containers.
Metal beverage packaging, Europe: Consists of operations in several countries in Europe, which manufacture and sell metal beverage containers.
Metal food and household products packaging: Consists of operations in the U.S., Europe, Canada, Mexico and Argentina, which manufacture and sell steel food, aerosol, paint, general line and decorative specialty containers, as well as extruded aluminum beverage and aerosol containers and aluminum slugs.
Aerospace and technologies: Consists of the manufacture and sale of aerospace and other related products and the providing of services used in the defense, civil space and commercial space industries.
The accounting policies of the segments are the same as those in the unaudited condensed consolidated financial statements. A discussion of the companys critical and significant accounting policies can be found in Balls annual report. The company also has investments in companies in the U.S. and Vietnam, which are accounted for under the equity method of accounting and, accordingly, those results are not included in segment sales or earnings.
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
3. Business Segment Information (continued)
Summary of Business by Segment
|
|
|
Three Months Ended March 31, |
| ||||
|
($ in millions) |
|
2015 |
|
2014 |
| ||
|
|
|
|
|
|
| ||
|
Net sales |
|
|
|
|
| ||
|
Metal beverage packaging, Americas & Asia |
|
$ |
1,023.0 |
|
$ |
997.6 |
|
|
Metal beverage packaging, Europe |
|
379.2 |
|
450.2 |
| ||
|
Metal food & household products packaging |
|
308.3 |
|
341.1 |
| ||
|
Aerospace & technologies |
|
214.8 |
|
220.7 |
| ||
|
Corporate and intercompany eliminations |
|
(2.2 |
) |
(2.8 |
) | ||
|
Net sales |
|
1,923.1 |
|
2,006.8 |
| ||
|
|
|
|
|
|
| ||
|
Net earnings |
|
|
|
|
| ||
|
Metal beverage packaging, Americas & Asia |
|
$ |
125.0 |
|
$ |
125.1 |
|
|
Business consolidation and other activities |
|
(2.3 |
) |
4.8 |
| ||
|
Total metal beverage packaging Americas & Asia |
|
122.7 |
|
129.9 |
| ||
|
|
|
|
|
|
| ||
|
Metal beverage packaging, Europe |
|
28.9 |
|
55.5 |
| ||
|
Business consolidation and other activities |
|
(2.0 |
) |
(1.2 |
) | ||
|
Total metal beverage packaging, Europe |
|
26.9 |
|
54.3 |
| ||
|
|
|
|
|
|
| ||
|
Metal food & household products packaging |
|
30.2 |
|
36.3 |
| ||
|
Business consolidation and other activities |
|
(0.2 |
) |
(3.1 |
) | ||
|
Total metal food & household products packaging |
|
30.0 |
|
33.2 |
| ||
|
|
|
|
|
|
| ||
|
Aerospace & technologies |
|
20.0 |
|
24.1 |
| ||
|
Business consolidation and other activities |
|
0.7 |
|
|
| ||
|
Total aerospace & technologies |
|
20.7 |
|
24.1 |
| ||
|
|
|
|
|
|
| ||
|
Segment earnings before interest and taxes |
|
200.3 |
|
241.5 |
| ||
|
|
|
|
|
|
| ||
|
Undistributed corporate expenses and intercompany eliminations, net |
|
(26.2 |
) |
(23.6 |
) | ||
|
Business consolidation and other activities |
|
(48.2 |
) |
(0.5 |
) | ||
|
Total undistributed corporate expenses and intercompany eliminations, net |
|
(74.4 |
) |
(24.1 |
) | ||
|
|
|
|
|
|
| ||
|
Earnings before interest and taxes |
|
125.9 |
|
217.4 |
| ||
|
|
|
|
|
|
| ||
|
Interest expense |
|
(38.5 |
) |
(40.2 |
) | ||
|
Debt refinancing and other costs |
|
(59.9 |
) |
(33.1 |
) | ||
|
Total interest expense |
|
(98.4 |
) |
(73.3 |
) | ||
|
Tax provision |
|
(0.5 |
) |
(39.6 |
) | ||
|
Equity in results of affiliates, net of tax |
|
0.5 |
|
0.4 |
| ||
|
Net earnings |
|
27.5 |
|
104.9 |
| ||
|
Less net earnings attributable to noncontrolling interests |
|
(6.8 |
) |
(11.4 |
) | ||
|
Net earnings attibutable to Ball Corporation |
|
$ |
20.7 |
|
$ |
93.5 |
|
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
3. Business Segment Information (continued)
|
|
|
March 31, |
|
December 31, |
| ||
|
($ in millions) |
|
2015 |
|
2014 |
| ||
|
|
|
|
|
|
| ||
|
Total Assets |
|
|
|
|
| ||
|
Metal beverage packaging, Americas & Asia |
|
$ |
3,555.8 |
|
$ |
3,422.8 |
|
|
Metal beverage packaging, Europe |
|
2,216.9 |
|
2,274.5 |
| ||
|
Metal food & household products packaging |
|
1,632.1 |
|
1,508.1 |
| ||
|
Aerospace & technologies |
|
399.4 |
|
411.6 |
| ||
|
Segment assets |
|
7,804.2 |
|
7,617.0 |
| ||
|
Corporate assets, net of eliminations |
|
(143.7 |
) |
(46.0 |
) | ||
|
Total assets |
|
$ |
7,660.5 |
|
$ |
7,571.0 |
|
4. Acquisitions
Rexam PLC (Rexam)
On February 19, 2015, the company and Rexam PLC (Rexam) announced the terms of a recommended offer by the company to acquire all of the outstanding shares of Rexam in a cash and stock transaction. Under the terms of the offer, for each Rexam share, Rexam shareholders will receive 407 pence in cash and 0.04568 shares of the company. The transaction values Rexam at 610 pence per share based on the companys 90-day volume weighted average stock price as of February 17, 2015, and an exchange rate of US$1.54: £1 on that date representing an equity value of £4.3 billion ($6.6 billion). The actual value of the transaction will be determined based on the exchange rate and the companys stock price at the time of the closing of the transaction. As described below, the company has entered into collar and option contracts to partially mitigate its currency exchange risk with regard to the cash component of the purchase price.
By way of compensation for any loss suffered by Rexam in connection with the preparation and negotiation of the offer, the Co-operation Agreement and any other document relating to the acquisition, Ball has undertaken in the Co-operation Agreement that, on the occurrence of a break payment event Ball will pay or procure the payment to Rexam of an amount in cash in British pounds. The amount of the break payment varies from £43 million, £129 million to £302 million based on the break payment event and only one break payment would be required.
Both Ball and Rexams boards of directors unanimously support the transaction and the transaction is subject to approvals from each companys shareholders and regulatory approvals. It is expected that the necessary clearances will be obtained and the offer will be completed in the first half of 2016.
Long-term Debt
In February 2015, the company entered into a new $3 billion revolving credit facility to replace its existing $1 billion revolver credit facility, repay its $92.9 million Term C loan, repay the outstanding balance on the existing revolving credit facility, redeem the 2020 and 2021 senior notes and repay the existing private placement debt of Rexam upon closing of the announced, proposed acquisition of Rexam. Also in February 2015, the company entered into a £3.3 billion unsecured, committed bridge loan agreement, pursuant to which lending institutions have agreed, subject to limited conditions, to provide the financing necessary to pay the cash portion of the consideration payable to Rexams shareholders upon consummation of the announced, proposed acquisition of Rexam along with related fees and expenses. See Note 11 for further details related to these transactions.
Currency Exchange Rate and Interest Rate Risks
During the first quarter of 2015, the company entered into collar and option contracts to partially mitigate its currency exchange rate risk from February 19, 2015, through the expected closing date of the announced, proposed acquisition of Rexam, with an aggregate notional amount of approximately £2.1 billion ($3.1 billion). These contracts were not designated as hedges, and therefore, changes in the fair value of these contracts are recorded in the unaudited condensed consolidated statement of earnings in business consolidation and other activities.
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
4. Acquisitions (continued)
In addition, the company entered into interest rate swaps to minimize its interest rate exposure associated with anticipated debt issuances in connection with the announced, proposed acquisition, with an aggregate notional amount of approximately $75 million. These contracts were not designated as hedges; therefore, changes in the fair value of these interest swap contracts are recorded in the unaudited condensed consolidated statements of earnings in debt refinancing and other costs, a component of total interest expense.
Subsequent to the first quarter, the company entered into additional interest rate swap contracts to hedge against rising U.S. and European interest rates with aggregate notional amounts of approximately $25 million and 950 million, respectively. In addition, the company entered into interest rate option contracts to hedge negative Euribor rates with an aggregate notional amount of 750 million.
For further details related to the aforementioned currency exchange rate and interest rate risks, see Notes 5 and 16.
Sonoco Products Company (Sonoco)
In February 2015, the company acquired Sonocos metal end and closure manufacturing facilities in Canton, Ohio, and entered into a long-term supply agreement with Sonoco in exchange for total cash of $29.1 million paid at closing, $11.0 million of contingent cash consideration and $27.8 million of contingent noncash consideration. The facilities manufacture multiple-sized closures for the metal food container market, including high quality steel and aluminum easy-open ends. The financial results of Sonoco have been included in our metal food and household products packaging segment from the date of acquisition. The acquisition is not material to the company.
5. Business Consolidation and Other Activities
Following is a summary of business consolidation and other activity (charges)/income included in the unaudited condensed consolidated statements of earnings:
|
|
|
Three Months Ended March 31, |
| ||||
|
($ in millions) |
|
2015 |
|
2014 |
| ||
|
|
|
|
|
|
| ||
|
Metal beverage packaging, Americas & Asia |
|
$ |
(2.3 |
) |
$ |
4.8 |
|
|
Metal beverage packaging, Europe |
|
(2.0 |
) |
(1.2 |
) | ||
|
Metal food & household products packaging |
|
(0.2 |
) |
(3.1 |
) | ||
|
Aerospace & technologies |
|
0.7 |
|
|
| ||
|
Corporate and other |
|
(48.2 |
) |
(0.5 |
) | ||
|
|
|
$ |
(52.0 |
) |
$ |
|
|
2015
Metal Beverage Packaging, Americas and Asia
During the first quarter, the company recorded charges of $2.3 million related to business reorganization activities in the companys metal beverage packaging, Asia, operations, and for ongoing costs related to previously closed facilities.
Metal Beverage Packaging, Europe
During the first quarter, the company recorded charges of $1.3 million related to headcount reductions, cost-out initiatives and the relocation of the companys European headquarters from Germany to Switzerland, as well as additional tax expense of $1.7 million related to this relocation. The quarter also included charges of $0.7 million for business reorganization activities.
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
5. Business Consolidation Activities (continued)
Metal Food and Household Products Packaging, and Aerospace and Technologies
The company recorded charges net charges of $0.5 million for insignificant activities.
Corporate
During the first quarter, the company recorded charges of $20.2 million for professional services and other costs associated with the proposed acquisition of Rexam announced in February 2015. In addition, the company recognized losses of $27.7 million associated with its collar and option contracts entered into to reduce its exposure to currency exchange rate changes in connection with the British pound denominated cash portion of the announced, proposed acquisition of Rexam, further discussed in Note 16. Other charges in the quarter included $0.3 million for insignificant activities.
2014
Metal Beverage Packaging, Americas and Asia
During the first quarter, the company received and recorded compensation of $5.0 million for the reimbursement of severance costs incurred in connection with the companys closure and relocation of the Shenzhen manufacturing facility in 2013. Also during the first quarter, the company sold its plastic motor oil container and pail manufacturing business in the PRC and recorded a gain of $0.8 million in connection with the sale. Other charges in the quarter included $1.0 million related to previously closed facilities.
Metal Food and Household Products Packaging
During the fourth quarter of 2013, the company announced plans to close its Danville, Illinois, steel aerosol packaging facility in the second half of 2014. Charges of $2.0 million were recorded during the first quarter in connection with the pending closure. The first quarter also included charges of $1.1 million for other insignificant activities.
Metal Beverage Packaging, Europe, and Corporate
The company recorded charges of $1.2 million for headcount reductions, cost-out initiatives and the relocation of the companys European headquarters from Germany to Switzerland, as well as additional tax expense of $2.1 million related to this relocation. The quarter also included charges of $0.5 million for other insignificant activities.
Following is a summary by segment of the activity in the business consolidation reserves:
|
($ in millions) |
|
Metal Food & Packaging |
|
Metal Beverage Europe |
|
Total |
| |||
|
|
|
|
|
|
|
|
| |||
|
Balance at December 31, 2014 |
|
$ |
5.1 |
|
$ |
0.9 |
|
$ |
6.0 |
|
|
(Gains) charges in earnings |
|
0.2 |
|
1.2 |
|
1.4 |
| |||
|
Cash payments and other activity |
|
(3.0 |
) |
(0.1 |
) |
(3.1 |
) | |||
|
Balance at March 31, 2015 |
|
$ |
2.3 |
|
$ |
2.0 |
|
$ |
4.3 |
|
The carrying value of assets held for sale in connection with facility closures was $11.7 million at March 31, 2015, and at December 31, 2014.
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
6. Receivables
|
|
|
March 31, |
|
December 31, |
| ||
|
($ in millions) |
|
2015 |
|
2014 |
| ||
|
|
|
|
|
|
| ||
|
Trade accounts receivable |
|
$ |
907.4 |
|
$ |
800.0 |
|
|
Less allowance for doubtful accounts |
|
(6.2 |
) |
(7.0 |
) | ||
|
Net trade accounts receivable |
|
901.2 |
|
793.0 |
| ||
|
Other receivables |
|
142.5 |
|
164.1 |
| ||
|
|
|
$ |
1,043.7 |
|
$ |
957.1 |
|
The company has entered into several regional committed and uncommitted accounts receivable factoring programs with various financial institutions for certain receivables of the company. The programs are accounted for as true sales of the receivables, without recourse to Ball, and had combined limits of approximately $396 million at March 31, 2015. A total of $216.5 million and $197.6 million were sold under these programs as of March 31, 2015, and December 31, 2014, respectively.
7. Inventories
|
|
|
March 31, |
|
December 31, |
| ||
|
($ in millions) |
|
2015 |
|
2014 |
| ||
|
|
|
|
|
|
| ||
|
Raw materials and supplies |
|
$ |
439.8 |
|
$ |
479.2 |
|
|
Work-in-process and finished goods |
|
633.5 |
|
579.2 |
| ||
|
Less inventory reserves |
|
(40.1 |
) |
(41.7 |
) | ||
|
|
|
$ |
1,033.2 |
|
$ |
1,016.7 |
|
8. Property, Plant and Equipment
|
|
|
March 31, |
|
December 31, |
| ||
|
($ in millions) |
|
2015 |
|
2014 |
| ||
|
|
|
|
|
|
| ||
|
Land |
|
$ |
63.9 |
|
$ |
64.6 |
|
|
Buildings |
|
967.5 |
|
973.4 |
| ||
|
Machinery and equipment |
|
3,623.6 |
|
3,612.5 |
| ||
|
Construction-in-progress |
|
359.6 |
|
382.7 |
| ||
|
|
|
5,014.6 |
|
5,033.2 |
| ||
|
Accumulated depreciation |
|
(2,591.0 |
) |
(2,602.5 |
) | ||
|
|
|
$ |
2,423.6 |
|
$ |
2,430.7 |
|
Property, plant and equipment are stated at historical or acquired cost. Depreciation expense amounted to $58.9 million and $59.1 million for the three months ended March 31, 2015 and 2014, respectively.
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
9. Goodwill
|
($ in millions) |
|
Metal |
|
Metal |
|
Metal Food & |
|
Aerospace & |
|
Total |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Balance at December 31, 2014 |
|
$ |
739.5 |
|
$ |
913.9 |
|
$ |
592.5 |
|
$ |
8.6 |
|
$ |
2,254.5 |
|
|
Business acquisition |
|
|
|
|
|
39.4 |
|
|
|
39.4 |
| |||||
|
Effects of currency exchange rates |
|
|
|
(99.5 |
) |
(16.6 |
) |
|
|
(116.1 |
) | |||||
|
Balance at March 31, 2015 |
|
$ |
739.5 |
|
$ |
814.4 |
|
$ |
615.3 |
|
$ |
8.6 |
|
$ |
2,177.8 |
|
10. Intangibles and Other Assets
|
|
|
March 31, |
|
December 31, |
| ||
|
($ in millions) |
|
2015 |
|
2014 |
| ||
|
|
|
|
|
|
| ||
|
Investments in affiliates |
|
$ |
31.3 |
|
$ |
33.2 |
|
|
Intangible assets (net of accumulated amortization of $118.1 million at March 31, 2015, and $115.2 million at December 31, 2014) |
|
134.0 |
|
137.1 |
| ||
|
Capitalized software (net of accumulated amortization of $105.8 million at March 31, 2015, and $103.8 million at December 31, 2014) |
|
69.2 |
|
62.6 |
| ||
|
Company and trust-owned life insurance |
|
146.5 |
|
168.1 |
| ||
|
Deferred financing costs |
|
56.2 |
|
36.3 |
| ||
|
Long-term deferred tax assets |
|
70.6 |
|
66.5 |
| ||
|
Other |
|
83.4 |
|
68.5 |
| ||
|
|
|
$ |
591.2 |
|
$ |
572.3 |
|
Total amortization expense of intangible assets amounted to $9.4 million and $9.7 million for the three months ended March 31, 2015 and 2014, respectively.
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
11. Debt
Long-term debt consisted of the following:
|
|
|
March 31, |
|
December 31, |
| ||
|
($ in millions) |
|
2015 |
|
2014 |
| ||
|
|
|
|
|
|
| ||
|
Notes Payable |
|
|
|
|
| ||
|
6.75% Senior Notes, due September 2020 |
|
$ |
|
|
$ |
500.0 |
|
|
5.75% Senior Notes, due May 2021 |
|
|
|
500.0 |
| ||
|
5.00% Senior Notes, due March 2022 |
|
750.0 |
|
750.0 |
| ||
|
4.00% Senior Notes, due November 2023 |
|
1,000.0 |
|
1,000.0 |
| ||
|
Multi-currency revolver, due February 2018 (at variable rates) |
|
1,275.0 |
|
|
| ||
|
Senior Credit Facilities, due June 2018 (at variable rates) |
|
|
|
|
| ||
|
Term C loan, euro denominated |
|
|
|
92.9 |
| ||
|
Latapack-Ball Notes Payable (at various rates and terms), |
|
|
|
|
| ||
|
denominated in various currencies |
|
199.5 |
|
204.2 |
| ||
|
Other (including discounts), |
|
|
|
|
| ||
|
denominated in various currencies |
|
(9.9 |
) |
1.7 |
| ||
|
|
|
3,214.6 |
|
3,048.8 |
| ||
|
|
|
|
|
|
| ||
|
Less: Current portion of long-term debt |
|
(62.5 |
) |
(55.0 |
) | ||
|
|
|
$ |
3,152.1 |
|
$ |
2,993.8 |
|
In February, Ball entered into a new $3 billion revolving credit facility to replace the existing approximate $1 billion revolver credit facility, repay its $92.9 million Term C loan, repay the outstanding balance on the existing revolving credit facility, redeem the 2020 and 2021 senior notes and repay the existing private placement debt of Rexam upon closing of the announced, proposed acquisition of Rexam. Also in February 2015, Ball announced the redemption of its outstanding 6.75 percent senior notes and 5.75 percent senior notes due in September 2020 and May 2021, respectively. These redemptions were completed on March 21, 2015, at a price per note of 103.375 percent and 106.096 percent, respectively, of the outstanding principal amounts plus accrued interest. The new revolving credit facility bears interest at variable rates and expires in February 2018. The revolving credit facility accrues interest at LIBOR plus an applicable margin based on the net leverage ratio of the company, which varies from 1.25 percent to 1.75 percent.
The company recorded charges of $1.7 million for the write off of unamortized deferred financing costs associated with the refinancing of the revolving credit facility and repayment of the Term C loan. The company also recorded charges of $55.8 million for the call premiums and write-offs of unamortized deferred financing costs associated with the redemption of the 2020 and 2021 senior notes. These charges are included in debt refinancing and other costs, a component of total interest expense, in the unaudited condensed consolidated statement of earnings.
Additionally, in February 2015, the company entered into a £3.3 billion unsecured, committed bridge loan agreement, pursuant to which lending institutions have agreed, subject to limited conditions, to provide the financing necessary to pay the cash portion of the consideration payable to Rexams shareholders upon consummation of the announced, proposed acquisition of Rexam along with related fees and expenses. Under this bridge loan agreement, the company is required to pay fees while the facility is outstanding, which vary depending on the amount borrowed and the duration that the facility is outstanding.
Fees paid to lenders in connection with obtaining financing, which totaled $27.8 million during the three months ended March 31, 2015, are classified as other, net in cash flows from financing activities in the unaudited condensed consolidated statements of cash flows.
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
11. Debt (continued)
At March 31, 2015, taking into account outstanding letters of credit and excluding availability under the accounts receivable securitization program, approximately $1.7 billion was available under the companys long-term, revolving credit facility, which is available until February 2018. In addition to this facility, the company had approximately $741 million of short-term uncommitted credit facilities available at March 31, 2015, of which $227.2 million was outstanding and due on demand. At December 31, 2014, the company had $10.1 million outstanding under short-term uncommitted credit facilities.
Short-term debt and current portion of long-term debt on the balance sheet includes the companys borrowings under its existing accounts receivable securitization program, totaling $55.0 million and $110.0 million at March 31, 2015, and December, 31 2014, respectively. This program, which has been amended and extended from time to time, is scheduled to mature in May 2017 and allows the company to borrow against a maximum amount of accounts receivable that varies between $90 million and $140 million depending on the seasonal accounts receivable balances in the companys North American packaging businesses.
The fair value of long-term debt at March 31, 2014, and at December 31, 2013, approximated its carrying value. The fair value reflects the market rates at each period end for debt with credit ratings similar to the companys ratings and is classified as Level 2 within the fair value hierarchy. 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 senior notes and senior credit facilities are guaranteed on a full, unconditional and joint and several basis by certain of the companys wholly owned domestic subsidiaries. Certain foreign denominated tranches of the senior credit facilities are similarly guaranteed by certain of the companys wholly owned foreign subsidiaries. Note 19 contains further details, as well as required unaudited condensed consolidating financial information for the company, segregating the guarantor subsidiaries and non-guarantor subsidiaries as defined in the senior notes agreements.
The U.S. note agreements, bank credit agreement, bridge loan agreement and accounts receivable securitization agreement contain certain restrictions relating to dividend payments, share repurchases, investments, financial ratios, guarantees and the incurrence of additional indebtedness. The most restrictive of the companys debt covenants require the company to maintain a leverage ratio (as defined) of no greater than 4.00, prior to considering the impacts of the announced, proposed acquisition of Rexam. The company was in compliance with all loan agreements and debt covenants at March 31, 2015, and December 31, 2014, and has met all debt payment obligations.
The Latapack-Ball debt facilities contain various covenants and restrictions but are nonrecourse to Ball Corporation and its wholly owned subsidiaries.
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
12. Employee Benefit Obligations
|
|
|
March 31, |
|
December 31, |
| ||
|
($ in millions) |
|
2015 |
|
2014 |
| ||
|
|
|
|
|
|
| ||
|
Underfunded defined benefit pension liabilities |
|
$ |
688.2 |
|
$ |
724.1 |
|
|
Less current portion and prepaid pension assets |
|
(18.6 |
) |
(19.4 |
) | ||
|
Long-term defined benefit pension liabilities |
|
669.6 |
|
704.7 |
| ||
|
Retiree medical and other postemployment benefits |
|
168.8 |
|
169.0 |
| ||
|
Deferred compensation plans |
|
265.3 |
|
272.2 |
| ||
|
Other |
|
28.6 |
|
32.4 |
| ||
|
|
|
$ |
1,132.3 |
|
$ |
1,178.3 |
|
Components of net periodic benefit cost associated with the companys defined benefit pension plans were:
|
|
|
Three Months Ended March 31, |
| ||||||||||||||||
|
|
|
2015 |
|
2014 |
| ||||||||||||||
|
($ in millions) |
|
U.S. |
|
Foreign |
|
Total |
|
U.S. |
|
Foreign |
|
Total |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Ball-sponsored plans: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Service cost |
|
$ |
13.0 |
|
$ |
3.7 |
|
$ |
16.7 |
|
$ |
11.4 |
|
$ |
3.5 |
|
$ |
14.9 |
|
|
Interest cost |
|
14.3 |
|
4.7 |
|
19.0 |
|
15.6 |
|
6.5 |
|
22.1 |
| ||||||
|
Expected return on plan assets |
|
(19.8 |
) |
(5.0 |
) |
(24.8 |
) |
(20.5 |
) |
(3.5 |
) |
(24.0 |
) | ||||||
|
Amortization of prior service cost |
|
(0.3 |
) |
(0.1 |
) |
(0.4 |
) |
|
|
(0.1 |
) |
(0.1 |
) | ||||||
|
Recognized net actuarial loss |
|
9.8 |
|
2.5 |
|
12.3 |
|
7.2 |
|
1.3 |
|
8.5 |
| ||||||
|
Net periodic benefit cost for |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Ball-sponsored plans |
|
17.0 |
|
5.8 |
|
22.8 |
|
13.7 |
|
7.7 |
|
21.4 |
| ||||||
|
Net periodic benefit cost for multiemployer plans |
|
0.5 |
|
|
|
0.5 |
|
0.7 |
|
|
|
0.7 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Total net periodic benefit cost |
|
$ |
17.5 |
|
$ |
5.8 |
|
$ |
23.3 |
|
$ |
14.4 |
|
$ |
7.7 |
|
$ |
22.1 |
|
Contributions to the companys defined global benefit pension plans, not including the unfunded German plans, were insignificant in the first three months of 2015 ($33.9 million in 2014) and are also expected to be insignificant for the full year. This estimate may change based on changes in the U.S. Pension Protection Act and actual plan asset performance, among other factors. Payments to participants in the unfunded German plans were $4.6 million in the first three months of 2015 and are expected to be approximately $18 million for the full year.
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
13. Shareholders Equity and Comprehensive Earnings
Accumulated Other Comprehensive Earnings (Loss)
The activity related to accumulated other comprehensive earnings (loss) was as follows:
|
($ in millions) |
|
Foreign |
|
Pension and |
|
Effective |
|
Accumulated |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Balance at December 31, 2014 |
|
$ |
(18.4 |
) |
$ |
(499.9 |
) |
$ |
(3.8 |
) |
$ |
(522.1 |
) |
|
Other comprehensive earnings (loss) before reclassifications |
|
(138.6 |
) |
11.6 |
|
(1.4 |
) |
(128.4 |
) | ||||
|
Amounts reclassified from accumulated other comprehensive earnings (loss) |
|
|
|
7.5 |
|
0.9 |
|
8.4 |
| ||||
|
Balance at March 31, 2015 |
|
$ |
(157.0 |
) |
$ |
(480.8 |
) |
$ |
(4.3 |
) |
$ |
(642.1 |
) |
The following table provides additional details of the amounts recognized into net earnings from accumulated other comprehensive earnings (loss):
|
|
|
Three Months Ended March 31, |
| ||||
|
($ in millions) |
|
2015 |
|
2014 |
| ||
|
|
|
|
|
|
| ||
|
Gains (losses) on cash flow hedges: |
|
|
|
|
| ||
|
Commodity contracts recorded in net sales |
|
$ |
(1.4 |
) |
$ |
0.8 |
|
|
Commodity contracts and currency exchange contracts recorded in cost of sales |
|
|
|
(7.5 |
) | ||
|
Interest rate contracts recorded in interest expense |
|
(0.2 |
) |
(0.3 |
) | ||
|
Total before tax effect |
|
(1.6 |
) |
(7.0 |
) | ||
|
Tax benefit (expense) on amounts reclassified into earnings |
|
0.7 |
|
0.9 |
| ||
|
Recognized gain (loss) |
|
$ |
(0.9 |
) |
$ |
(6.1 |
) |
|
|
|
|
|
|
| ||
|
Amortization of pension and other postretirement benefits (a): |
|
|
|
|
| ||
|
Prior service income (cost) |
|
$ |
0.4 |
|
$ |
0.1 |
|
|
Actuarial gains (losses) |
|
(12.3 |
) |
(8.5 |
) | ||
|
Total before tax effect |
|
(11.9 |
) |
(8.4 |
) | ||
|
Tax benefit (expense) on amounts reclassified into earnings |
|
4.4 |
|
3.1 |
| ||
|
Recognized gain (loss) |
|
$ |
(7.5 |
) |
$ |
(5.3 |
) |
(a) These components are included in the computation of net periodic benefit cost included in Note 12.
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
14. Stock-Based Compensation Programs
The company has shareholder-approved stock plans under which options and stock-settled appreciation rights (SSARs) have been granted to employees at the market value of the companys stock at the date of grant. In general, options and SSARs are exercisable in four equal installments commencing one year from the date of grant and terminating 10 years from the date of grant. A total of 1,231,865 stock options and SSARs were granted in February 2015.
These options and SSARs cannot be traded in any equity market. However, based on the Black-Scholes option pricing model, options and SSARs granted in 2015 and 2014 have estimated weighted average fair values at the date of grant of $14.20 per share and $9.81 per share, respectively. The actual value an employee may realize will depend on the excess of the stock price over the exercise price on the date the option or SSAR is exercised. Consequently, there is no assurance that the value realized by an employee will be at or near the value estimated. The fair values were estimated using the following weighted average assumptions:
|
|
|
February 2015 |
|
January 2014 |
|
|
|
|
|
|
|
|
|
Expected dividend yield |
|
0.79 |
% |
1.06 |
% |
|
Expected stock price volatility |
|
22.11 |
% |
21.41 |
% |
|
Risk-free interest rate |
|
1.39 |
% |
1.65 |
% |
|
Expected life of options (in years) |
|
5.85 years |
|
5.5 years |
|
In February 2015 and January 2014, the companys board of directors granted 116,559 and 143,305 performance-contingent restricted stock units (PCEQs), respectively, to key employees. These PCEQs vest three years from the date of grant, and the number of shares available at the vesting date are based on the companys growth in economic valued added (EVA®) dollars in excess of the EVA® dollars generated in the calendar year prior to grant as the minimum threshold, ranging from zero to 200 percent of each participants assigned award opportunity. If the minimum performance goals are not met, the shares will be forfeited. Grants under the plan are being accounted for as equity awards and compensation expense is recorded based upon the most probable outcome using the closing market price of the shares at the grant date. On a quarterly and annual basis, the company reassesses the probability of the goals being met and adjusts compensation expense as appropriate.
15. Earnings and Dividends Per Share
|
|
|
Three Months Ended March 31, |
| ||||
|
($ in millions, except per share amounts; shares in thousands) |
|
2015 |
|
2014 |
| ||
|
|
|
|
|
|
| ||
|
Net earnings attributable to Ball Corporation |
|
$ |
20.7 |
|
$ |
93.5 |
|
|
|
|
|
|
|
| ||
|
Basic weighted average common shares |
|
137,086 |
|
140,405 |
| ||
|
Effect of dilutive securities |
|
3,990 |
|
3,653 |
| ||
|
Weighted average shares applicable to diluted earnings per share |
|
141,076 |
|
144,058 |
| ||
|
|
|
|
|
|
| ||
|
Per basic share |
|
$ |
0.15 |
|
$ |
0.67 |
|
|
Per diluted share |
|
$ |
0.15 |
|
$ |
0.65 |
|
Certain outstanding options were excluded from the diluted earnings per share calculation because they were anti-dilutive (i.e., the sum of the assumed exercise proceeds, including the unrecognized compensation and windfall tax benefits, exceeded the average closing stock price for the period). The options excluded totaled 1.2 million and 1.4 million in the three months ended March 31, 2015 and 2014, respectively.
The company declared and paid dividends of $0.13 per share in the first quarters of both 2015 and 2014.
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
16. Financial Instruments and Risk Management
The company employs established risk management policies and procedures, which seek to reduce the companys commercial risk exposure to fluctuations in commodity prices, interest rates, currency exchange rates and prices of the companys common stock with regard to common share repurchases and the companys deferred compensation stock plan. However, there can be no assurance that these policies and procedures will be successful. Although the instruments utilized involve varying degrees of credit, market and interest risk, the counterparties to the agreements are expected to perform fully under the terms of the agreements. The company monitors counterparty credit risk, including lenders, on a regular basis, but Ball cannot be certain that all risks will be discerned or that its risk management policies and procedures will always be effective. Additionally, in the event of default under the companys master derivative agreements, the non-defaulting party has the option to set-off any amounts owed with regard to open derivative positions.
Commodity Price Risk
Aluminum
The company manages commodity price risk in connection with market price fluctuations of aluminum ingot through two different methods. First, the company enters into container sales contracts that include aluminum ingot-based pricing terms that generally reflect the same price fluctuations under commercial purchase contracts for aluminum sheet. The terms include fixed, floating or pass-through aluminum ingot component pricing. Second, the company uses certain derivative instruments such as option and forward contracts as economic and cash flow hedges of commodity price risk where there are material differences between sales and purchase contracted pricing and volume.
At March 31, 2015, the company had aluminum contracts limiting its aluminum exposure with notional amounts of approximately $304 million, of which approximately $245 million received hedge accounting treatment. The aluminum contracts, which are recorded at fair value, include economic derivative instruments that are undesignated, as well as cash flow hedges that offset sales and purchase contracts of various terms and lengths. Cash flow hedges relate to forecasted transactions that expire within the next three years. Included in shareholders equity at March 31, 2015, within accumulated other comprehensive earnings (loss), is a net after-tax gain of $1.7 million associated with these contracts. A net loss of $2.7 million is expected to be recognized in the consolidated statement of earnings during the next 12 months, the majority of which will be offset by pricing changes in sales and purchase contracts, thus resulting in little or no earnings impact to Ball.
Steel
Most sales contracts involving our steel products either include provisions permitting the company to pass through some or all steel cost changes incurred, or they incorporate annually negotiated steel prices.
Interest Rate Risk
The companys objective in managing exposure to interest rate changes is to minimize the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, the company may use a variety of interest rate swaps, collars and options to manage our mix of floating and fixed-rate debt. Interest rate instruments held by the company at March 31, 2015, included pay-fixed interest rate swaps, which effectively convert variable rate obligations to fixed-rate instruments.
At March 31, 2015, the company had outstanding interest rate swap contracts with notional amounts of approximately $158 million paying fixed rates expiring within the next five years. The after-tax loss included in shareholders equity at March 31, 2015, within accumulated other comprehensive earnings (loss) is insignificant.
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
16. Financial Instruments and Risk Management (continued)
Interest Rate Risk Rexam Acquisition
The company entered into interest rate swaps to minimize its interest rate exposure associated with anticipated debt issuances in connection with the announced, proposed acquisition of Rexam. At March 31, 2015, the company had outstanding interest rate swaps with notional amounts totaling approximately $75 million. These contracts were not designated as hedges, and therefore, changes in the fair value of these interest swap contracts are recognized in the unaudited condensed consolidated statement of earnings in debt refinancing and other costs, a component of total interest expense. The loss included in debt refinancing and other costs during the first quarter of 2015 associated with these contracts was insignificant. The contracts outstanding at March 31, 2015, expire within the next five years.
Subsequent to the first quarter, the company entered into additional interest rate swap contracts to hedge against rising U.S. and European interest rates with aggregate notional amounts of approximately $25 million and 950 million, respectively. In addition, the company entered into interest rate option contracts to hedge negative Euribor rates with an aggregate notional amount of 750 million.
Currency Exchange Rate Risk
The companys objective in managing exposure to currency fluctuations is to limit the exposure of cash flows and earnings from changes associated with currency exchange rate changes through the use of various derivative contracts. In addition, at times the company manages earnings translation volatility through the use of currency option strategies, and the change in the fair value of those options is recorded in the companys net earnings. The companys currency translation risk results from the currencies in which we transact business. The company faces currency exposures in our global operations as a result of various factors including intercompany currency denominated loans, selling our products in various currencies, purchasing raw materials and equipment in various currencies and tax exposures not denominated in the functional currency. Sales contracts are negotiated with customers to reflect cost changes and, where there is not an exchange pass-through arrangement, the company uses forward and option contracts to manage currency exposures.
Additionally, at March 31, 2015, the company had outstanding exchange forward and option contracts with notional amounts totaling approximately $703 million. Included in shareholders equity at March 31, 2015, within accumulated other comprehensive earnings (loss), is a net after-tax loss of $5.8 million associated with these contracts. A net loss of $6.4 million is expected to be recognized in the consolidated statement of earnings during the next 12 months. The contracts outstanding at March 31, 2015, expire within the next year.
Currency Exchange Rate Risk Rexam Acquisition
In connection with the announced, proposed acquisition of Rexam, the company entered into collar and option contracts to partially mitigate its currency exchange rate risk from February 19, 2015, through the expected closing date of the acquisition. At March 31, 2015, the company had outstanding collar and option contracts with notional amounts totaling approximately £2.1 billion ($3.1 billion). These contracts were not designated as hedges, and therefore, changes in the fair value of these contracts are recognized in the unaudited condensed consolidated statement of earnings in business consolidation and other activities (see Note 5). During the first quarter of 2015, the company recognized a loss of $27.7 million associated with these contracts. The contracts outstanding at March 31, 2015, expire within the next two years.
Common Stock Price Risk
The companys deferred compensation stock program is subject to variable plan accounting and, accordingly, is marked to fair value using the companys closing stock price at the end of the related reporting period. Based on current share levels in the program, each $1 change in the companys stock price has an impact of $1.3 million on pretax earnings. The company entered into a total return swap to reduce the companys earnings exposure to these fair value fluctuations that will be outstanding until March 2016 and has a notional value of 1 million shares. As of March 31, 2015, the fair value of the swap was a $0.5 million gain. All gains and losses on the total return swaps are recorded in the unaudited condensed consolidated statement of earnings in selling, general and administrative expenses.
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
16. Financial Instruments and Risk Management (continued)
Collateral Calls
The companys agreements with its financial counterparties require the company to post collateral in certain circumstances when the negative mark to fair value of the derivative contracts exceeds specified levels. Additionally, the company has collateral posting arrangements with certain customers on these derivative contracts. The cash flows of the margin calls are shown within the investing section of the companys consolidated statements of cash flows. As of March 31, 2015, the aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position was $29.0 million and no collateral was required to be posted. As of December 31, 2014, the aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position was $12.4 million and no collateral was required to be posted.
Fair Value Measurements
The company has classified all applicable financial derivative assets and liabilities as Level 2 within the fair value hierarchy and presented those values in the tables below. The companys assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. The fair values of the companys derivative instruments were as follows:
|
|
|
March 31, 2015 |
|
December 31, 2014 |
| ||||||||||||||
|
($ in millions) |
|
Derivatives |
|
Derivatives not |
|
Total |
|
Derivatives |
|
Derivatives not |
|
Total |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Commodity contracts |
|
$ |
8.1 |
|
$ |
1.6 |
|
$ |
9.7 |
|
$ |
3.8 |
|
$ |
1.3 |
|
$ |
5.1 |
|
|
Foreign currency contracts |
|
1.1 |
|
15.4 |
|
16.5 |
|
0.8 |
|
3.5 |
|
4.3 |
| ||||||
|
Interest rate and other contracts |
|
|
|
0.5 |
|
0.5 |
|
|
|
|
|
|
| ||||||
|
Total current derivative contracts |
|
$ |
9.2 |
|
$ |
17.5 |
|
$ |
26.7 |
|
$ |
4.6 |
|
$ |
4.8 |
|
$ |
9.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Commodity contracts |
|
$ |
4.0 |
|
$ |
0.7 |
|
$ |
4.7 |
|
$ |
2.2 |
|
$ |
0.5 |
|
$ |
2.7 |
|
|
Foreign currency contracts |
|
|
|
8.4 |
|
8.4 |
|
|
|
|
|
|
| ||||||
|
Interest rate and other contracts |
|
0.2 |
|
|
|
0.2 |
|
0.4 |
|
|
|
0.4 |
| ||||||
|
Total noncurrent derivative contracts |
|
$ |
4.2 |
|
$ |
9.1 |
|
$ |
13.3 |
|
$ |
2.6 |
|
$ |
0.5 |
|
$ |
3.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Commodity contracts |
|
$ |
9.6 |
|
$ |
2.6 |
|
$ |
12.2 |
|
$ |
6.9 |
|
$ |
1.6 |
|
$ |
8.5 |
|
|
Foreign currency contracts |
|
7.6 |
|
0.5 |
|
8.1 |
|
1.6 |
|
1.3 |
|
2.9 |
| ||||||
|
Interest rate and other contracts |
|
0.4 |
|
|
|
0.4 |
|
0.5 |
|
0.4 |
|
0.9 |
| ||||||
|
Total current derivative contracts |
|
$ |
17.6 |
|
$ |
3.1 |
|
$ |
20.7 |
|
$ |
9.0 |
|
$ |
3.3 |
|
$ |
12.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Commodity contracts |
|
$ |
3.1 |
|
$ |
0.7 |
|
$ |
3.8 |
|
$ |
6.8 |
|
$ |
0.5 |
|
$ |
7.3 |
|
|
Foreign currency contracts |
|
|
|
19.4 |
|
19.4 |
|
|
|
|
|
|
| ||||||
|
Interest rate and other contracts |
|
0.5 |
|
0.2 |
|
0.7 |
|
0.3 |
|
|
|
0.3 |
| ||||||
|
Total noncurrent derivative contracts |
|
$ |
3.6 |
|
$ |
20.3 |
|
$ |
23.9 |
|
$ |
7.1 |
|
$ |
0.5 |
|
$ |
7.6 |
|
The company uses closing spot and forward market prices as published by the London Metal Exchange, the Chicago Mercantile Exchange, Reuters and Bloomberg to determine the fair value of any outstanding aluminum, currency, energy, inflation and interest rate spot and forward contracts. Option contracts are valued using a Black-Scholes model with observable market inputs for aluminum, currency and interest rates. We value each of our financial instruments either internally using a single valuation technique or from a reliable observable market source. The company does not adjust the value of its financial instruments except in determining the fair value of a trade that settles in the future by discounting the value to its present value using 12-month LIBOR as the discount factor. Ball performs validations of our internally derived fair values reported for our financial instruments on a quarterly basis utilizing counterparty valuation statements. The company additionally evaluates counterparty creditworthiness and, as of March 31, 2015, has not identified any circumstances requiring that the reported values of our financial instruments be adjusted.
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
16. Financial Instruments and Risk Management (continued)
Impact on Earnings from Derivative Instruments
|
|
|
Three Months Ended March 31, |
| ||||||||||
|
|
|
2015 |
|
2014 |
| ||||||||
|
($ in millions) |
|
Cash Flow |
|
Gain (Loss) on Designated as |
|
Cash Flow |
|
Gain (Loss) on |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Commodity contracts (a) |
|
$ |
(0.9 |
) |
$ |
0.5 |
|
$ |
(6.7 |
) |
$ |
0.2 |
|
|
Interest rate contracts (b) |
|
(0.2 |
) |
(0.2 |
) |
(0.3 |
) |
|
| ||||
|
Foreign currency contracts (c) |
|
(0.5 |
) |
(40.7 |
) |
|
|
(4.6 |
) | ||||
|
Equity contracts (d) |
|
|
|
2.4 |
|
|
|
(1.2 |
) | ||||
|
Total |
|
$ |
(1.6 |
) |
$ |
(38.0 |
) |
$ |
(7.0 |
) |
$ |
(5.6 |
) |
(a) Gains and losses on commodity contracts are recorded in sales and cost of sales in the statements of earnings. Virtually all of these expenses were passed through to our customers, resulting in no significant impact to earnings.
(b) Gains and losses on interest contracts are recorded in total interest expense in the statements of earnings.
(c) Gains and losses on foreign currency contracts to hedge the sales of products are recorded in cost of sales. Gains and losses on foreign currency hedges used for transactions between segments are reflected in selling, general and administrative expenses in the consolidated statements of earnings. Gains and losses on foreign currency contracts related to the announced, proposed acquisition of Rexam are reflected in business consolidation and other activities in the consolidated statement of earnings.
(d) Gains and losses on equity contracts are recorded in selling, general and administrative expenses in the consolidated statements of earnings.
The changes in accumulated other comprehensive earnings (loss) for effective derivatives were as follows:
|
|
|
Three Months Ended March 31, |
| ||||
|
($ in millions) |
|
2015 |
|
2014 |
| ||
|
|
|
|
|
|
| ||
|
Amounts reclassified into earnings: |
|
|
|
|
| ||
|
Commodity contracts |
|
$ |
0.9 |
|
$ |
6.7 |
|
|
Interest rate contracts |
|
0.2 |
|
0.3 |
| ||
|
Currency exchange contracts |
|
0.5 |
|
|
| ||
|
Change in fair value of cash flow hedges: |
|
|
|
|
| ||
|
Commodity contracts |
|
4.2 |
|
(3.1 |
) | ||
|
Interest rate contracts |
|
(0.4 |
) |
(0.3 |
) | ||
|
Currency exchange contracts |
|
(6.6 |
) |
0.2 |
| ||
|
Foreign currency and tax impacts |
|
0.7 |
|
(1.2 |
) | ||
|
|
|
$ |
(0.5 |
) |
$ |
2.6 |
|
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
17. Contingencies
Ball is subject to numerous lawsuits, claims or proceedings arising out of the ordinary course of business, including actions related to product liability; personal injury; the use and performance of company products; warranty matters; patent, trademark or other intellectual property infringement; contractual liability; the conduct of the companys business; tax reporting in domestic and foreign jurisdictions; workplace safety; and environmental and other matters. The company has also been identified as a potentially responsible party (PRP) at several waste disposal sites under U.S. federal and related state environmental statutes and regulations and may have joint and several liability for any investigation and remediation costs incurred with respect to such sites. Some of these lawsuits, claims and proceedings involve substantial amounts, including as described below, and some of the environmental proceedings involve potential monetary costs or sanctions that may be material. Ball has denied liability with respect to many of these lawsuits, claims and proceedings and is vigorously defending such lawsuits, claims and proceedings. The company carries various forms of commercial, property and casualty, and other forms of insurance; however, such insurance may not be applicable or adequate to cover the costs associated with a judgment against Ball with respect to these lawsuits, claims and proceedings. The company does not believe that these lawsuits, claims and proceedings are material individually or in the aggregate. While management believes the company has established adequate accruals for expected future liability with respect to pending lawsuits, claims and proceedings, where the nature and extent of any such liability can be reasonably estimated based upon then presently available information, there can be no assurance that the final resolution of any existing or future lawsuits, claims or proceedings will not have a material adverse effect on the liquidity, results of operations or financial condition of the company.
As previously reported, the U.S. Environmental Protection Agency (USEPA) considers the company a PRP with respect to the Lowry Landfill site located east of Denver, Colorado. In 1992, the company was served with a lawsuit filed by the City and County of Denver (Denver) and Waste Management of Colorado, Inc., seeking contributions from the company and approximately 38 other companies. The company filed its answer denying the allegations of the complaint. Subsequently in 1992, the company was served with a third-party complaint filed by S.W. Shattuck Chemical Company, Inc., seeking contribution from the company and other companies for the costs associated with cleaning up the Lowry Landfill. The company denied the allegations of the complaint.
Also in 1992, Ball entered into a settlement and indemnification agreement with Chemical Waste Management, Inc., and Waste Management of Colorado, Inc. (collectively Waste Management) and Denver pursuant to which Waste Management and Denver dismissed their lawsuit against the company, and Waste Management agreed to defend, indemnify and hold harmless the company from claims and lawsuits brought by governmental agencies and other parties relating to actions seeking contributions or remedial costs from the company for the cleanup of the site. Waste Management, Inc., has agreed to guarantee the obligations of Waste Management. Waste Management and Denver may seek additional payments from the company if the response costs related to the site exceed $319 million. In 2003 Waste Management, Inc., indicated that the cost of the site might exceed $319 million in 2030, approximately three years before the projected completion of the project. The company might also be responsible for payments (based on 1992 dollars) for any additional wastes that may have been disposed of by the company at the site but which are identified after the execution of the settlement agreement. While remediating the site, contaminants were encountered, which could add an additional cleanup cost of approximately $10 million. This additional cleanup cost could, in turn, add approximately $1 million to total site costs for the PRP group. At this time, there are no Lowry Landfill actions in which the company is actively involved. Based on the information available to the company at this time, we do not believe that this matter will have a material adverse effect upon the liquidity, results of operations or financial condition of the company.
In November 2012, the USEPA wrote to the company asserting that it is one of at least 50 PRPs with respect to the Lower Duwamish site located in Seattle, Washington, based on the companys ownership of a glass container plant prior to 1995, and notifying the company of a proposed remediation action plan. An allocator has been selected to begin data review on over 30 industrial companies and government entities and at least two PRP groups have begun to discuss various allocation proposals, with this process expected to last approximately three years. During the third quarter of 2014, the PRP groups voted to include 20 new members. The USEPA issued the site Record of Decision (ROD) on December 2, 2014. Remediation costs of $342 million are expected according to the remediation plan, which does not include $100 million that has already been spent. Based on the information available to the company at this time, we do not believe that this matter will have a material adverse effect upon the liquidity, results of operations or financial condition of the company.
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
17. Contingencies (continued)
In February 2012, Ball Metal Beverage Container Corp. (BMBCC) filed an action against Crown Packaging Technology, Inc. (Crown) in the U.S. District Court for the Southern District of Ohio seeking a declaratory judgment that the sale and use of certain ends by BMBCC and its customers do not infringe certain claims of Crowns U.S. patents. Crown subsequently filed a counterclaim alleging infringement of certain claims in these patents seeking unspecified monetary damages, fees and declaratory and injunctive relief. The parties are awaiting a claim construction order from the District Court. Based on the information available to the company at the present time, the company does not believe that this matter will have a material adverse effect upon the liquidity, results of operations or financial condition of the company.
Latapack-Balls operations are involved in various governmental assessments, principally related to claims for taxes on the internal transfer of inventory, gross revenue taxes and tax incentives. The company does not believe that the ultimate resolution of these matters will materially impact Ball Corporations results of operations, financial position or cash flows. Under customary local regulations, Latapack-Ball may need to post cash or other collateral if the process to challenge any administrative assessment proceeds to the Brazilian court system; however, the level of any potential cash or collateral required would not significantly impact the liquidity of the Latapack-Ball or Ball Corporation.
18. Indemnifications and Guarantees
General Guarantees
The company or its appropriate consolidated direct or indirect subsidiaries have made certain indemnities, commitments and guarantees under which the specified entity may be required to make payments in relation to certain transactions. These indemnities, commitments and guarantees include indemnities to the customers of the subsidiaries in connection with the sales of their packaging and aerospace products and services; guarantees to suppliers of subsidiaries of the company guaranteeing the performance of the respective entity under a purchase agreement, construction contract or other commitment; guarantees in respect of certain foreign subsidiaries pension plans; indemnities for liabilities associated with the infringement of third party patents, trademarks or copyrights under various types of agreements; indemnities to various lessors in connection with facility, equipment, furniture and other personal property leases for certain claims arising from such leases; indemnities to governmental agencies in connection with the issuance of a permit or license to the company or a subsidiary; indemnities pursuant to agreements relating to certain joint ventures; indemnities in connection with the sale of businesses or substantially all of the assets and specified liabilities of businesses; and indemnities to directors, officers and employees of the company to the extent permitted under the laws of the State of Indiana and the United States of America. The duration of these indemnities, commitments and guarantees varies and, in certain cases, is indefinite. In addition, many of these indemnities, commitments and guarantees do not provide for any limitation on the maximum potential future payments the company could be obligated to make. As such, the company is unable to reasonably estimate its potential exposure under these items.
The company has not recorded any liability for these indemnities, commitments and guarantees in the accompanying consolidated balance sheets. The company does, however, accrue for payments under promissory notes and other evidences of incurred indebtedness and for losses for any known contingent liability, including those that may arise from indemnifications, commitments and guarantees, when future payment is both reasonably estimable and probable. Finally, the company carries specific and general liability insurance policies and has obtained indemnities, commitments and guarantees from third party purchasers, sellers and other contracting parties, which the company believes would, in certain circumstances, provide recourse to any claims arising from these indemnifications, commitments and guarantees.
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
18. Indemnifications and Guarantees (continued)
Debt Guarantees
The companys senior notes and senior credit facilities are guaranteed on a full, unconditional and joint and several basis by certain of the companys material domestic subsidiaries and the domestic subsidiary borrowers, and obligations of the subsidiary borrowers under the senior credit facilities are guaranteed by the company. Loans borrowed under the senior credit facilities by foreign subsidiary borrowers are also effectively guaranteed by certain of the companys foreign subsidiaries by pledges of stock of the foreign subsidiary borrowers and stock of material foreign subsidiaries. These guarantees are required in support of the notes and credit facilities referred to above, are co-terminous with the terms of the respective note indentures and credit agreements and would require performance upon certain events of default referred to in the respective guarantees. The maximum potential amounts which could be required to be paid under the domestic guarantees are essentially equal to the then outstanding principal and interest under the respective notes and credit agreements, or under the applicable tranche, and the maximum potential amounts that could be required to be paid under the foreign stock pledges by foreign subsidiaries are essentially equal to the value of the stock pledged. The company is not in default under the above notes or credit facilities. The condensed consolidating financial information for the guarantor and non-guarantor subsidiaries is presented in Note 19. Separate financial statements for the guarantor subsidiaries and the non-guarantor subsidiaries are not presented because management has determined that such financial statements are not required by the current regulations.
Accounts Receivable Securitization
Ball Capital Corp. II is a separate, wholly owned corporate entity created for the purchase of accounts receivable from certain of the companys wholly owned subsidiaries. Ball Capital Corp. IIs assets will be available first to satisfy the claims of its creditors. The company has been designated as the servicer pursuant to an agreement whereby Ball Capital Corp. II may sell and assign the accounts receivable to a commercial lender or lenders. As the servicer, the company is responsible for the servicing, administration and collection of the receivables and is primarily liable for the performance of such obligations. The company, the relevant subsidiaries and Ball Capital Corp. II are not in default under the above credit arrangement.
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
19. Subsidiary Guarantees of Debt
The companys senior notes are guaranteed on a full, unconditional and joint and several basis by certain of the companys material domestic subsidiaries. Each of the guarantor subsidiaries is 100 percent owned by Ball Corporation. These guarantees are required in support of the notes, are co-terminous with the terms of the respective note indentures and would require performance upon certain events of default referred to in the respective guarantees. The maximum potential amounts that could be required to be paid under the domestic guarantees are essentially equal to the then outstanding principal and interest under the respective notes. The following is unaudited condensed, consolidating financial information for the company, segregating the guarantor subsidiaries and non-guarantor subsidiaries, as of March 31, 2015, and December 31, 2014, and for the three months ended March 31, 2015 and 2014. Separate financial statements for the guarantor subsidiaries and the non-guarantor subsidiaries are not presented because management has determined that such financial statements are not required by the current regulations.
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Unaudited Condensed Consolidating Statement of Earnings |
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|
|
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Three Months Ended March 31, 2015 |
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($ in millions) |
|
Ball |
|
Guarantor |
|
Non-Guarantor |
|
Eliminating |
|
Consolidated |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Net sales |
|
$ |
|
|
$ |
1,144.5 |
|
$ |
789.1 |
|
$ |
(10.5 |
) |
$ |
1,923.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Cost and expenses |
|
|
|
|
|
|
|
|
|
|
| |||||
|
Cost of sales (excluding depreciation and amortization) |
|
|
|
(946.7 |
) |
(624.7 |
) |
10.5 |
|
(1,560.9 |
) | |||||
|
Depreciation and amortization |
|
(1.3 |
) |
(32.1 |
) |
(34.9 |
) |
|
|
(68.3 |
) | |||||
|
Selling, general and administrative |
|
(23.9 |
) |
(40.3 |
) |
(51.8 |
) |
|
|
(116.0 |
) | |||||
|
Business consolidation and other activities |
|
(48.2 |
) |
(0.2 |
) |
(3.6 |
) |
|
|
(52.0 |
) | |||||
|
Equity in results of subsidiaries |
|
94.7 |
|
39.8 |
|
|
|
(134.5 |
) |
|
| |||||
|
Intercompany |
|
51.5 |
|
(42.2 |
) |
(9.3 |
) |
|
|
|
| |||||
|
|
|
72.8 |
|
(1,021.7 |
) |
(724.3 |
) |
(124.0 |
) |
(1,797.2 |
) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Earnings (loss) before interest and taxes |
|
72.8 |
|
122.8 |
|
64.8 |
|
(134.5 |
) |
125.9 |
| |||||
|
Interest expense |
|
(37.4 |
) |
1.6 |
|
(2.7 |
) |
|
|
(38.5 |
) | |||||
|
Debt refinancing and other costs |
|
(59.3 |
) |
|
|
(0.6 |
) |
|
|
(59.9 |
) | |||||
|
Total interest expense |
|
(96.7 |
) |
1.6 |
|
(3.3 |
) |
|
|
(98.4 |
) | |||||
|
Earnings (loss) before taxes |
|
(23.9 |
) |
124.4 |
|
61.5 |
|
(134.5 |
) |
27.5 |
| |||||
|
Tax provision |
|
44.6 |
|
(31.0 |
) |
(14.1 |
) |
|
|
(0.5 |
) | |||||
|
Equity in results of affiliates, net of tax |
|
|
|
0.2 |
|
0.3 |
|
|
|
0.5 |
| |||||
|
Net earnings (loss) |
|
20.7 |
|
93.6 |
|
47.7 |
|
(134.5 |
) |
27.5 |
| |||||
|
Less net earnings attributable to noncontrolling interests |
|
|
|
|
|
(6.8 |
) |
|
|
(6.8 |
) | |||||
|
Net earnings (loss) attributable to Ball Corporation |
|
$ |
20.7 |
|
$ |
93.6 |
|
$ |
40.9 |
|
$ |
(134.5 |
) |
$ |
20.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Comprehensive earnings (loss) attributable to Ball Corporation |
|
$ |
(99.4 |
) |
$ |
(27.5 |
) |
$ |
(80.3 |
) |
$ |
107.8 |
|
$ |
(99.4 |
) |
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
19. Subsidiary Guarantees of Debt (continued)
|
|
|
Unaudited Condensed Consolidating Statement of Earnings |
| |||||||||||||
|
|
|
Three Months Ended March 31, 2014 |
| |||||||||||||
|
($ in millions) |
|
Ball |
|
Guarantor |
|
Non-Guarantor |
|
Eliminating |
|
Consolidated |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Net sales |
|
$ |
|
|
$ |
1,171.8 |
|
$ |
837.8 |
|
$ |
(2.8 |
) |
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