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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 September 30, 2015

 

Commission file number 001-07349

 

BALL CORPORATION

 

 

 

Registrant’s 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 issuer’s classes of common stock, as of the latest practicable date.

 

Class		Outstanding at October 26, 2015
Common Stock, without par value		136,321,229 shares

 

 

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Ball Corporation

QUARTERLY REPORT ON FORM 10-Q

For the period ended September 30, 2015

 

INDEX

 

		Page Number
PART I.	FINANCIAL INFORMATION:
Item 1.	Financial Statements
	Unaudited Condensed Consolidated Statements of Earnings for the Three and Nine Months Ended September 30, 2015 and 2014	1
	Unaudited Condensed Consolidated Statements of Comprehensive Earnings for the Three and Nine Months Ended September 30, 2015 and 2014	2
	Unaudited Condensed Consolidated Balance Sheets at September 30, 2015, and December 31, 2014	3
	Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2015 and 2014	4
	Notes to the Unaudited Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	47
Item 4.	Controls and Procedures	47
PART II.	OTHER INFORMATION	49

 

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PART I.              FINANCIAL INFORMATION

 

Item 1.                     FINANCIAL STATEMENTS

 

BALL CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

 

		Three Months Ended September 30,						Nine Months Ended September 30,
($ in millions, except per share amounts)		2015			2014			2015			2014
Net sales		$	2,097.0		$	2,238.9		$	6,192.4		$	6,537.6
Costs and expenses
Cost of sales (excluding depreciation and amortization)		(1,690.3		)	(1,807.3		)	(5,026.3		)	(5,266.6		)
Depreciation and amortization		(71.9		)	(71.3		)	(211.5		)	(209.7		)
Selling, general and administrative		(106.8		)	(123.1		)	(340.5		)	(342.2		)
Business consolidation and other activities		(151.9		)	(9.2		)	(138.3		)	(17.8		)
		(2,020.9		)	(2,010.9		)	(5,716.6		)	(5,836.3		)
Earnings before interest and taxes		76.1			228.0			475.8			701.3
Interest expense		(37.5		)	(40.1		)	(107.0		)	(120.9		)
Debt refinancing and other costs		(21.0		)	—			(85.9		)	(33.1		)
Total interest expense		(58.5		)	(40.1		)	(192.9		)	(154.0		)
Earnings before taxes		17.6			187.9			282.9			547.3
Tax (provision) benefit		31.0			(39.8		)	(47.9		)	(139.6		)
Equity in results of affiliates, net of tax		1.5			0.3			3.4			1.9
Net earnings		50.1			148.4			238.4			409.6
Less net earnings attributable to noncontrolling interests		(5.6		)	(1.0		)	(12.8		)	(15.6		)
Net earnings attributable to Ball Corporation		$	44.5		$	147.4		$	225.6		$	394.0
Earnings per share:
Basic		$	0.32		$	1.07		$	1.64		$	2.83
Diluted		$	0.32		$	1.04		$	1.60		$	2.76
Weighted average shares outstanding (000s):
Basic		137,337			138,010			137,409			139,133
Diluted		140,858			142,090			141,141			142,986

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

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BALL CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

 

		Three Months Ended September 30,						Nine Months Ended September 30,
($ in millions)		2015			2014			2015			2014
Net earnings		$	50.1		$	148.4		$	238.4		$	409.6
Other comprehensive earnings (loss):
Foreign currency translation adjustment		(20.9		)	(106.1		)	(113.5		)	(136.7		)
Pension and other postretirement benefits		10.5			15.4			41.6			32.5
Effective financial derivatives		(0.9		)	24.3			(16.6		)	44.5
Total other comprehensive earnings (loss)		(11.3		)	(66.4		)	(88.5		)	(59.7		)
Income tax (provision) benefit		(5.0		)	(6.4		)	(10.0		)	(16.3		)
Total other comprehensive earnings (loss), net of tax		(16.3		)	(72.8		)	(98.5		)	(76.0		)
Total comprehensive earnings (loss)		33.8			75.6			139.9			333.6
Less comprehensive (earnings) loss attributable to noncontrolling interests		(5.7		)	(0.6		)	(12.3		)	(15.2		)
Comprehensive earnings (loss) attributable to Ball Corporation		$	28.1		$	75.0		$	127.6		$	318.4

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

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BALL CORPORATION

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

 

		September 30,			December 31,
($ in millions)		2015			2014
Assets
Current assets
Cash and cash equivalents		$	244.4		$	191.4
Receivables, net		1,097.8			957.1
Inventories, net		876.0			1,016.7
Deferred taxes and other current assets		164.4			148.3
Total current assets		2,382.6			2,313.5
Noncurrent assets
Property, plant and equipment, net		2,547.3			2,430.7
Goodwill		2,204.1			2,254.5
Intangibles and other assets, net		593.0			572.3
Total assets		$	7,727.0		$	7,571.0
Liabilities and Shareholders’ Equity
Current liabilities
Short-term debt and current portion of long-term debt		$	282.9		$	175.1
Accounts payable		1,451.4			1,340.0
Accrued employee costs		213.3			269.9
Other current liabilities		332.0			221.8
Total current liabilities		2,279.6			2,006.8
Noncurrent liabilities
Long-term debt		2,879.4			2,993.8
Employee benefit obligations		1,159.5			1,178.3
Deferred taxes and other liabilities		165.1			152.5
Total liabilities		6,483.6			6,331.4
Shareholders’ equity
Common stock (332,437,320 shares issued - 2015; 331,618,306 shares issued - 2014)		1,171.3			1,131.3
Retained earnings		4,519.6			4,346.9
Accumulated other comprehensive earnings (loss)		(620.1		)	(522.1		)
Treasury stock, at cost (196,180,099 shares - 2015; 194,652,028 shares - 2014)		(4,037.1		)	(3,923.0		)
Total Ball Corporation shareholders’ equity		1,033.7			1,033.1
Noncontrolling interests		209.7			206.5
Total shareholders’ equity		1,243.4			1,239.6
Total liabilities and shareholders’ equity		$	7,727.0		$	7,571.0

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

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BALL CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

		Nine Months Ended September 30,
($ in millions)		2015			2014
Cash Flows from Operating Activities
Net earnings		$	238.4		$	409.6
Adjustments to reconcile net earnings to cash provided by (used in) operating activities:
Depreciation and amortization		211.5			209.7
Business consolidation and other activities		138.3			17.8
Deferred tax provision (benefit)		(68.3		)	8.3
Other, net		91.6			(18.8		)
Changes in working capital components		(14.5		)	23.4
Cash provided by (used in) operating activities		597.0			650.0
Cash Flows from Investing Activities
Capital expenditures		(356.8		)	(250.0		)
Business acquisitions		(29.1		)	—
Other, net		18.3			11.1
Cash provided by (used in) investing activities		(367.6		)	(238.9		)
Cash Flows from Financing Activities
Long-term borrowings		2,315.0			396.9
Repayments of long-term borrowings		(2,408.4		)	(874.3		)
Net change in short-term borrowings		111.0			199.0
Proceeds from issuances of common stock		26.3			27.7
Acquisitions of treasury stock		(135.5		)	(335.5		)
Common dividends		(54.0		)	(54.8		)
Other, net		(40.2		)	7.7
Cash provided by (used in) financing activities		(185.8		)	(633.3		)
Effect of exchange rate changes on cash		9.4			(4.3		)
Change in cash and cash equivalents		53.0			(226.5		)
Cash and cash equivalents - beginning of period		191.4			416.0
Cash and cash equivalents - end of period		$	244.4		$	189.5

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

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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 company’s 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 Ball’s 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. Ball’s 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 entity’s 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 company’s unaudited condensed consolidated financial statements.

 

New Accounting Guidance

 

In September 2015, amendments to existing accounting guidance were issued to simplify the accounting for adjustments made to provisional amounts recognized in a business combination. Under the previous guidance, companies were required to revise comparative information for changes made to provisional amounts. The amended guidance eliminates the requirement to retrospectively account for those adjustments. The guidance will be effective for Ball on January 1, 2016, and early adoption is permitted for financial statements that have not been issued. The guidance is not expected to have a material effect on the company’s consolidated financial statements.

 

In July 2015, amendments to existing accounting guidance were issued to modify the subsequent measurement of inventory. Under existing guidance, a company measures inventory at the lower of cost or market, with market defined as replacement cost, net realizable value (NRV), or NRV less a normal profit margin. Current replacement cost can be used provided that it is not above the NRV (ceiling) or below NRV less a normal profit margin (floor). Amendments in the new guidance requires a company to subsequently measure inventory at the lower of cost or net realizable value and eliminates the need to determine replacement cost and evaluate whether it is above the ceiling or below the floor. NRV is defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The guidance will be effective for Ball on January 1, 2017, and early adoption is permitted. The guidance is not expected to have a material effect on the company’s consolidated financial statements.

 

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Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

2.     Accounting Pronouncements (continued)

 

In April 2015, amendments to existing accounting guidance were issued to provide explicit guidance related to a customer’s 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 company’s 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 will 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. In August 2015, subsequent clarification guidance was issued permitting companies to defer and present debt issuance costs related to line-of-credit arrangements as an asset and amortize them over the terms of these arrangements, regardless of whether there are any amounts outstanding under those arrangements. The guidance will be effective for Ball retrospectively on January 1, 2016, and is not expected to have a material effect on the company’s consolidated financial statements.

 

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 guidance is not expected to have a material effect on the company’s consolidated financial statements.

 

In August 2014, accounting guidance was issued to define management’s responsibility to evaluate whether there is substantial doubt about an entity’s 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 entity’s 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 company’s 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. In July 2015, the FASB approved the deferral of the effective date of the new revenue recognition guidance by one year. The guidance will be effective for Ball on January 1, 2018, and early adoption is permitted. However, entities are not permitted to adopt the standard earlier than the original effective date of January 1, 2017. 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.

 

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Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

3.              Business Segment Information

 

Ball’s 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 People’s 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 company’s critical and significant accounting policies can be found in Ball’s 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.

 

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Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

3.              Business Segment Information (continued)

 

Summary of Business by Segment

 

		Three Months Ended September 30,						Nine Months Ended September 30,
($ in millions)		2015			2014			2015			2014
Net sales
Metal beverage packaging, Americas & Asia		$	1,072.3		$	1,079.6		$	3,226.9		$	3,207.3
Metal beverage packaging, Europe		450.1			489.2			1,310.3			1,497.8
Metal food & household products packaging		372.0			450.6			1,012.3			1,159.4
Aerospace & technologies		203.4			221.7			648.4			683.5
Corporate and intercompany eliminations		(0.8		)	(2.2		)	(5.5		)	(10.4		)
Net sales		$	2,097.0		$	2,238.9		$	6,192.4		$	6,537.6
Net earnings
Metal beverage packaging, Americas & Asia		$	131.9		$	133.7		$	383.4		$	400.8
Business consolidation and other activities		(21.2		)	(0.1		)	(23.8		)	1.7
Total metal beverage packaging, Americas & Asia		110.7			133.6			359.6			402.5
Metal beverage packaging, Europe		61.1			63.8			149.6			193.0
Business consolidation and other activities		(1.3		)	(4.3		)	(8.6		)	(6.6		)
Total metal beverage packaging, Europe		59.8			59.5			141.0			186.4
Metal food & household products packaging		30.6			43.0			89.5			119.1
Business consolidation and other activities		(0.1		)	(4.5		)	(1.0		)	(11.6		)
Total metal food & household products packaging		30.5			38.5			88.5			107.5
Aerospace & technologies		21.4			21.2			60.9			70.1
Business consolidation and other activities		—			—			0.7			—
Total aerospace & technologies		21.4			21.2			61.6			70.1
Segment earnings before interest and taxes		222.4			252.8			650.7			766.5
Undistributed corporate expenses and intercompany eliminations, net		(17.0		)	(24.5		)	(69.3		)	(63.9		)
Business consolidation and other activities		(129.3		)	(0.3		)	(105.6		)	(1.3		)
Total undistributed corporate expenses and intercompany eliminations, net		(146.3		)	(24.8		)	(174.9		)	(65.2		)
Earnings before interest and taxes		76.1			228.0			475.8			701.3
Interest expense		(37.5		)	(40.1		)	(107.0		)	(120.9		)
Debt refinancing and other costs		(21.0		)	—			(85.9		)	(33.1		)
Total interest expense		(58.5		)	(40.1		)	(192.9		)	(154.0		)
Tax (provision) benefit		31.0			(39.8		)	(47.9		)	(139.6		)
Equity in results of affiliates, net of tax		1.5			0.3			3.4			1.9
Net earnings		50.1			148.4			238.4			409.6
Less net earnings attributable to noncontrolling interests		(5.6		)	(1.0		)	(12.8		)	(15.6		)
Net earnings attibutable to Ball Corporation		$	44.5		$	147.4		$	225.6		$	394.0

 

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Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

3.              Business Segment Information (continued)

 

		September 30,			December 31,
($ in millions)		2015			2014
Total Assets
Metal beverage packaging, Americas & Asia		$	3,534.4		$	3,422.8
Metal beverage packaging, Europe		2,309.6			2,274.5
Metal food & household products packaging		1,645.1			1,508.1
Aerospace & technologies		401.2			411.6
Segment assets		7,890.3			7,617.0
Corporate assets, net of eliminations		(163.3		)	(46.0		)
Total assets		$	7,727.0		$	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 company’s 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 company’s 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. As discussed below, Ball’s shareholders approved the issuance of Ball common stock to shareholders of Rexam as partial consideration for the proposed acquisition. As a result, the amount of the break payment would be £302 million.

 

A special meeting of Ball’s shareholders was held on July 28, 2015, to approve the issuance of Ball common stock to shareholders of Rexam as partial consideration for the proposed acquisition. Approximately 83 percent of the shares outstanding as of the record date on June 22, 2015, voted, and 99.2 percent of the shares that were voted approved the issuance of Ball’s common stock in connection with the proposed acquisition. Both Ball and Rexam’s boards of directors unanimously support the transaction, and the consummation of the transaction remains subject to approval from Rexam’s shareholders, certain regulatory approvals and other customary closing conditions. Subject to the satisfaction of all such conditions, Ball currently expects to complete the acquisition during the first half of 2016.

 

The transaction is currently undergoing a regulatory review process by the Federal Trade Commission (FTC), the European Commission (EC) and Brazil’s Council for Economic Defence (CADE). The company and Rexam continue to work with the FTC, EC and CADE to obtain the regulatory clearances required to close the transaction.

 

A wholly-owned subsidiary of Ball owns interests in a joint venture company (Latapack-Ball) organized and operating in Brazil. On October 27, 2015, Ball and its joint venture partners announced that they have reached an agreement, pursuant to which Ball’s joint venture partners agreed to exchange all of their interests in Latapack-Ball for a total of 6 million treasury shares of Ball common stock. The actual value of the transaction will be determined based on the company’s stock price at the time of the close of the transaction.  This transaction is subject to certain regulatory approvals and other conditions.

 

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Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

4.              Acquisitions (continued)

 

Long-Term Debt

 

In February 2015, the company entered into a $3 billion revolving credit facility to replace its existing $1 billion revolving 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 Rexam’s shareholders upon consummation of the announced, proposed acquisition of Rexam along with related fees and expenses. As a result of the issuance of $1 billion of 5.25 percent senior notes in June 2015, the company reduced the borrowing capacity under the revolving credit facility from $3 billion to $2.25 billion. See Note 11 for further details related to these transactions.

 

Currency Exchange Rate and Interest Rate Risks

 

During the first nine months of 2015, the company entered into collar and option contracts to partially mitigate its currency exchange rate risk associated with the British pound denominated cash portion of the purchase price from February 19, 2015, through the expected closing date of the announced, proposed acquisition of Rexam, with an aggregate notional amount of approximately £2.3 billion ($3.4 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 statements of earnings in business consolidation and other activities.

 

Also during the first nine months of 2015, the company entered into interest rate swaps to hedge against rising U.S. and European interest rates to minimize its interest rate exposure associated with anticipated debt issuances in connection with the announced, proposed acquisition of Rexam. At September 30, 2015, the company had U.S. and European outstanding interest rate swaps with notional amounts totaling approximately $250 million and €1,750 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. Subsequent to the third quarter of 2015, the company entered into additional interest rate swap contracts to hedge against rising U.S. interest rates with aggregate notional amounts of approximately $100 million. These contracts were not designated as hedges; therefore, changes in the fair value of these interest swap and option contracts are recorded in the unaudited condensed consolidated statements of earnings in debt refinancing and other costs, a component of total interest expense.

 

For further details related to the aforementioned currency exchange rate and interest rate risks, and the valuation of these derivatives, see Notes 5 and 16.

 

Sonoco Products Company (Sonoco)

 

In February 2015, the company acquired Sonoco’s 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, $10.5 million of contingent cash consideration and $24.4 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.

 

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Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

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 September 30,						Nine Months Ended September 30,
($ in millions)		2015			2014			2015			2014
Metal beverage packaging, Americas & Asia		$	(21.2	)	$	(0.1	)	$	(23.8	)	$	1.7
Metal beverage packaging, Europe		(1.3		)	(4.3		)	(8.6		)	(6.6		)
Metal food & household products packaging		(0.1		)	(4.5		)	(1.0		)	(11.6		)
Aerospace & technologies		—			—			0.7			—
Corporate and other		(129.3		)	(0.3		)	(105.6		)	(1.3		)
		$	(151.9	)	$	(9.2	)	$	(138.3	)	$	(17.8	)

 

2015

 

Metal Beverage Packaging, Americas and Asia

 

During the third quarter of 2015, the company announced the closure of the Bristol, Virginia, metal beverage packaging end-making facility, which is expected to cease production in the second quarter of 2016. The closure will realign end-making capacities in North America to better position the company to meet customer demand. The company recorded initial charges of $20.2 million in the third quarter, which are comprised of $19.0 million in severance, pension and other employee benefits and other individually insignificant items totaling $1.2 million.

 

During the first nine months of 2015, the company recorded charges of $3.3 million related to business reorganization activities in the company’s metal beverage packaging, Asia, operations and for ongoing costs related to previously closed facilities.

 

During the third quarter and the first nine months of 2015, the company also recognized charges of $1.0 million and $0.3 million, respectively, for individually insignificant items.

 

Metal Beverage Packaging, Europe

 

During the first nine months of 2015, the company recorded a charge of $4.7 million for the write down of property held for sale to fair value less cost to sell.

 

During the third quarter and first nine months of 2015, the company recorded charges of $1.3 million and $3.9 million, respectively, related to headcount reductions, cost-out initiatives and the relocation of the company’s European headquarters from Germany to Switzerland, as well as an additional tax expense of $1.7 million and $5.0 million, respectively, related to this relocation.

 

Corporate

 

During the third quarter and first nine months of 2015, the company recorded charges of $24.7 million and $68.8 million respectively, for professional services and other costs associated with the proposed acquisition of Rexam announced in February 2015. Also during the third quarter and first nine months of 2015, the company recognized losses of $104.6 million and $36.3 million, respectively, associated with the change in fair value of 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 first nine months of 2015 included $0.5 million for insignificant activities.

 

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Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

5.              Business Consolidation and Other Activities (continued)

 

2014

 

Metal Beverage Packaging, Americas and Asia

 

The first nine months included charges of $2.0 million related to a fire at a metal beverage packaging, Americas, facility.

 

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 company’s closure and relocation of the Shenzhen, PRC, 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. During the third quarter, the company entered into a supplemental agreement related to the sale and recorded a loss of $1.1 million.

 

The third quarter and first nine months of 2014 also included net gains of $1.0 million and net charges of $1.0 million, respectively, primarily related to previously closed facilities and for other insignificant activities.

 

Metal Food and Household Products Packaging

 

In the third quarter, the company recorded charges of $3.6 million related to a reduction in force to eliminate certain food can production in the Oakdale, California, facility, as well as the completion of a voluntary separation program. The third quarter and first nine months also included charges of $0.9 million and $4.2 million, respectively, related to previously closed facilities and other insignificant activities.

 

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 $3.8 million were recorded during the first nine months of 2014 in connection with the announced closure.

 

Metal Beverage Packaging, Europe, and Corporate

 

The third quarter and first nine months included charges of $0.9 million and $3.2 million, respectively, for headcount reductions, cost-out initiatives and the relocation of the company’s European headquarters from Germany to Switzerland, as well as additional tax expense of $1.9 million and $6.1 million, respectively, related to this relocation. The third quarter and first nine months of 2014 also included charges of $3.7 million and $4.7 million, respectively, related to the write off of previously capitalized costs associated with the company’s Lublin, Poland, facility, and for other insignificant activities.

 

Assets Held for Sale

 

The carrying value of assets held for sale in connection with facility closures was $3.3 million at September 30, 2015, and $11.7 million at December 31, 2014.

 

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Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

6.              Receivables

 

		September 30,			December 31,
($ in millions)		2015			2014
Trade accounts receivable		$	989.5		$	800.0
Less allowance for doubtful accounts		(6.2		)	(7.0		)
Net trade accounts receivable		983.3			793.0
Other receivables		114.5			164.1
		$	1,097.8		$	957.1

 

The company has entered into several regional committed and uncommitted accounts receivable factoring programs with multiple 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 $605 million at September 30, 2015. A total of $489.6 million and $197.6 million were sold under these programs as of September 30, 2015, and December 31, 2014, respectively.

 

7.              Inventories

 

		September 30,			December 31,
($ in millions)		2015			2014
Raw materials and supplies		$	441.9		$	479.2
Work-in-process and finished goods		476.8			579.2
Less inventory reserves		(42.7		)	(41.7		)
		$	876.0		$	1,016.7

 

8.              Property, Plant and Equipment

 

		September 30,			December 31,
($ in millions)		2015			2014
Land		$	63.5		$	64.6
Buildings		984.3			973.4
Machinery and equipment		3,776.0			3,612.5
Construction-in-progress		432.8			382.7
		5,256.6			5,033.2
Less accumulated depreciation		(2,709.3		)	(2,602.5		)
		$	2,547.3		$	2,430.7

 

Property, plant and equipment are stated at historical or acquired cost. Depreciation expense amounted to $62.3 million and $183.3 million for the three and nine months ended September 30, 2015, respectively, and $60.9 million and $179.1 million for the comparable periods in 2014, respectively.

 

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Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statement

 

9.              Goodwill

 

($ in millions)		Metal Beverage Packaging, Americas & Asia			Metal Beverage Packaging, Europe			Metal Food & Household Products Packaging			Aerospace & Technologies			Total
Balance at December 31, 2014		$	739.5		$	913.9		$	592.5		$	8.6		$	2,254.5
Business acquisition		—			—			35.5			—			35.5
Effects of currency exchange rates		—			(73.6		)	(12.3		)	—			(85.9		)
Balance at September 30, 2015		$	739.5		$	840.3		$	615.7		$	8.6		$	2,204.1

 

The company’s annual goodwill impairment test completed in the fourth quarter of 2014 indicated the estimated fair value of the metal beverage packaging, Asia, reporting unit exceeded its carrying amount, including goodwill, by approximately 20 percent and no triggering events have occurred during the nine months ended September 30, 2015, that would require an interim impairment test of the goodwill associated with this reporting unit. We continue to see the supply of metal beverage packaging exceed demand in China, resulting in pricing pressure and negative impacts on the profitability of our metal beverage packaging, Asia, reporting unit.  If it becomes an expectation that this situation will continue for an extended period of time, it may result in a noncash impairment of some or all of the goodwill associated with this reporting unit, totaling $78.3 million at September 30, 2015.

 

10.       Intangibles and Other Assets

 

		September 30,			December 31,
($ in millions)		2015			2014
Investments in affiliates		$	33.7		$	33.2
Intangible assets (net of accumulated amortization of $129.9 million at September 30, 2015 and $115.2 million at December 31, 2014)		123.9			137.1
Capitalized software (net of accumulated amortization of $112.4 million at September 30, 2015, and $103.8 million at December 31, 2014)		75.8			62.6
Company and trust-owned life insurance		142.1			168.1
Long-term derivative assets		2.5			3.1
Deferred financing costs		61.6			36.3
Long-term deferred tax assets		87.1			66.5
Other		66.3			65.4
		$	593.0		$	572.3

 

Total amortization expense of intangible assets amounted to $9.6 million and $28.2 million for the three and nine months ended September 30, 2015, respectively, and $10.4 million and $30.6 million for the comparable periods in 2014, respectively.

 

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Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

11.       Debt

 

Long-term debt consisted of the following:

 

		September 30,			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
5.25% Senior Notes, due June 2025		1,000.0			—
Multi-currency revolver, due February 2018 (at variable rates)		—			—
Bridge Facility		—			—
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		188.8			204.2
Other (including discounts), denominated in various currencies		(5.0		)	1.7
		2,933.8			3,048.8
Less current portion of long-term debt		(54.4		)	(55.0		)
		$	2,879.4		$	2,993.8

 

In June 2015, Ball issued $1 billion of 5.25 percent senior notes due in June 2025. Ball used the net proceeds of the offering and other available cash to repay borrowings under its revolving credit facility and reduced the borrowing capacity under the revolving credit facility from $3 billion to $2.25 billion. In connection with this partial extinguishment, the company recorded a charge of $5.0 million, which is included in debt refinancing and other costs, a component of total interest expense, in the unaudited condensed consolidated statements of earnings.

 

In February 2015, Ball entered into a new $3 billion revolving credit facility to replace the existing approximate $1 billion revolving 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. In March 2015, Ball redeemed its outstanding 6.75 percent senior notes and 5.75 percent senior notes due in September 2020 and May 2021, respectively, 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 expires in February 2018 and 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.

 

During the first quarter of 2015, the company 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. The company also 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. These charges are included in debt refinancing and other costs, a component of total interest expense, in the unaudited condensed consolidated statements 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 Rexam’s 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.  These charges are included in debt refinancing and other costs, a component of total interest expense, in the unaudited condensed consolidated statements of earnings.

 

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Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

11.       Debt (continued)

 

Fees paid to lenders in connection with obtaining financing, which totaled $27.8 million during the nine months ended September 30, 2015, are classified as other, net in cash flows from financing activities in the unaudited condensed consolidated statements of cash flows.

 

At September 30, 2015, taking into account outstanding letters of credit and excluding availability under the accounts receivable securitization program, approximately $2.2 billion was available under the company’s long-term, revolving credit facility, which is available until February 2018. In addition to this facility, the company had approximately $760 million of short-term uncommitted credit facilities available at September 30, 2015, of which $88.5 million was outstanding and due on demand. Of the amounts available under the credit facilities described above, approximately $1.4 billion has been committed in the proposed acquisition of Rexam to repay certain of Rexam’s debt obligations and to settle Rexam’s outstanding derivatives. 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 company’s borrowings under its existing accounts receivable securitization program, totaling $140 million and $110 million at September 30, 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 company’s North American packaging businesses.

 

The fair value of the long-term debt at September 30, 2015, and at December 31, 2014, approximated its carrying value. The fair value reflects the market rates at each period end for debt with credit ratings similar to the company’s 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 company’s wholly owned domestic subsidiaries. Certain foreign denominated tranches of the senior credit facilities are similarly guaranteed by certain of the company’s wholly owned foreign subsidiaries. Notes 18 and 19 contain 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 company’s debt covenants require the company to maintain an interest coverage 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 September 30, 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.

 

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Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

12.       Employee Benefit Obligations

 

		September 30,			December 31,
($ in millions)		2015			2014
Underfunded defined benefit pension liabilities, net		$	715.8		$	724.1
Less current portion and prepaid pension assets		(17.2		)	(19.4		)
Long-term defined benefit pension liabilities		698.6			704.7
Retiree medical and other postemployment benefits		172.2			169.0
Deferred compensation plans		260.1			272.2
Other		28.6			32.4
		$	1,159.5		$	1,178.3

 

Components of net periodic benefit cost associated with the company’s defined benefit pension plans were:

 

		Three Months Ended September 30,
		2015									2014
($ in millions)		U.S.			Foreign			Total			U.S.			Foreign			Total
Ball-sponsored plans:
Service cost		$	13.0		$	3.7		$	16.7		$	11.5		$	3.1		$	14.6
Interest cost		14.4			4.6			19.0			15.6			6.5			22.1
Expected return on plan assets		(19.8		)	(4.9		)	(24.7		)	(20.6		)	(4.2		)	(24.8		)
Amortization of prior service cost		(0.3		)	(0.1		)	(0.4		)	—			(0.2		)	(0.2		)
Recognized net actuarial loss		9.7			2.3			12.0			7.2			2.0			9.2
Curtailment and settlement losses		5.3						5.3			—			—			—
Net periodic benefit cost for Ball-sponsored plans		22.3			5.6			27.9			13.7			7.2			20.9
Net periodic benefit cost for multiemployer plans		—			—			—			0.7			—			0.7
Total net periodic benefit cost		$	22.3		$	5.6		$	27.9		$	14.4		$	7.2		$	21.6

 

		Nine Months Ended September 30,
		2015									2014
($ in millions)		U.S.			Foreign			Total			U.S.			Foreign			Total
Ball-sponsored plans:
Service cost		$	39.0		$	11.2		$	50.2		$	34.3		$	10.2		$	44.5
Interest cost		42.9			13.8			56.7			46.8			19.6			66.4
Expected return on plan assets		(59.4		)	(14.8		)	(74.2		)	(61.6		)	(12.9		)	(74.5		)
Amortization of prior service cost		(0.8		)	(0.3		)	(1.1		)	—			(0.4		)	(0.4		)
Recognized net actuarial loss		29.3			7.0			36.3			21.6			6.2			27.8
Curtailment and settlement losses		5.3			—			5.3			—			—			—
Net periodic benefit cost for Ball-sponsored plans		56.3			16.9			73.2			41.1			22.7			63.8
Net periodic benefit cost for multiemployer plans		1.0			—			1.0			2.0			—			2.0
Total net periodic benefit cost		$	57.3		$	16.9		$	74.2		$	43.1		$	22.7		$	65.8

 

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