10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on August 3, 2018
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended June 30, 2018
or
◻ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 001-07349
BALL CORPORATION
State of Indiana
(State or other jurisdiction of incorporation or |
35-0160610 (I.R.S. Employer Identification No.) |
10 Longs Peak Drive, P.O. Box 5000 Broomfield, CO 80021-2510 (Address of registrant’s principal executive office) |
80021-2510 (Zip Code) |
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 ☒ No ☐
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 ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ |
Accelerated filer ☐ |
Non-accelerated filer ☐(Do not check if a smaller reporting company) |
Smaller reporting company☐ |
|
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
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 July 31, 2018 |
Common Stock, without par value |
|
343,911,434 shares |
Ball Corporation
QUARTERLY REPORT ON FORM 10-Q
For the period ended June 30, 2018
BALL CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
||||||||||
($ in millions, except per share amounts) |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Net sales |
|
$ |
3,101 |
|
$ |
2,855 |
|
$ |
5,886 |
|
$ |
5,328 |
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Cost of sales (excluding depreciation and amortization) |
|
|
(2,484) |
|
|
(2,270) |
|
|
(4,721) |
|
|
(4,245) |
|
|
||
Depreciation and amortization |
|
|
(178) |
|
|
(229) |
|
|
(358) |
|
|
(377) |
|
|
||
Selling, general and administrative |
|
|
(127) |
|
|
(128) |
|
|
(239) |
|
|
(271) |
|
|
||
Business consolidation and other activities |
|
|
(69) |
|
|
(41) |
|
|
(99) |
|
|
(96) |
|
|
||
|
|
|
(2,858) |
|
|
(2,668) |
|
|
(5,417) |
|
|
(4,989) |
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Earnings before interest and taxes |
|
|
243 |
|
|
187 |
|
|
469 |
|
|
339 |
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Interest expense |
|
|
(77) |
|
|
(74) |
|
|
(150) |
|
|
(142) |
|
|
||
Debt refinancing and other costs |
|
|
— |
|
|
(1) |
|
|
(1) |
|
|
(1) |
|
|
||
Total interest expense |
|
|
(77) |
|
|
(75) |
|
|
(151) |
|
|
(143) |
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Earnings before taxes |
|
|
166 |
|
|
112 |
|
|
318 |
|
|
196 |
|
|
||
Tax (provision) benefit |
|
|
(46) |
|
|
(22) |
|
|
(80) |
|
|
(44) |
|
|
||
Equity in results of affiliates, net of tax |
|
|
— |
|
|
10 |
|
|
7 |
|
|
18 |
|
|
||
Net earnings |
|
|
120 |
|
|
100 |
|
|
245 |
|
|
170 |
|
|
||
Net earnings attributable to noncontrolling interests |
|
|
(1) |
|
|
(1) |
|
|
(1) |
|
|
(3) |
|
|
||
Net earnings attributable to Ball Corporation |
|
$ |
119 |
|
$ |
99 |
|
$ |
244 |
|
$ |
167 |
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Basic |
|
$ |
0.34 |
|
$ |
0.28 |
|
$ |
0.70 |
|
$ |
0.48 |
|
|
||
Diluted |
|
$ |
0.34 |
|
$ |
0.28 |
|
$ |
0.68 |
|
$ |
0.47 |
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Weighted average shares outstanding: (000s) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Basic |
|
|
348,221 |
|
|
351,066 |
|
|
349,212 |
|
|
350,560 |
|
|
||
Diluted |
|
|
354,904 |
|
|
358,979 |
|
|
356,276 |
|
|
358,506 |
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Cash dividends declared and paid, per share |
|
$ |
0.10 |
|
$ |
0.10 |
|
$ |
0.20 |
|
$ |
0.165 |
|
|
See accompanying notes to the unaudited condensed consolidated financial statements.
1
BALL CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||
($ in millions) |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
120 |
|
$ |
100 |
|
$ |
245 |
|
$ |
170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
(121) |
|
|
(71) |
|
|
(110) |
|
|
13 |
|
Pension and other postretirement benefits |
|
|
3 |
|
|
(24) |
|
|
19 |
|
|
(18) |
|
Effective financial derivatives |
|
|
32 |
|
|
(35) |
|
|
(20) |
|
|
16 |
|
Total other comprehensive earnings (loss) |
|
|
(86) |
|
|
(130) |
|
|
(111) |
|
|
11 |
|
Income tax (provision) benefit |
|
|
(8) |
|
|
24 |
|
|
— |
|
|
11 |
|
Total other comprehensive earnings (loss), net of tax |
|
|
(94) |
|
|
(106) |
|
|
(111) |
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive earnings (loss) |
|
|
26 |
|
|
(6) |
|
|
134 |
|
|
192 |
|
Comprehensive (earnings) loss attributable to noncontrolling interests |
|
|
(1) |
|
|
(1) |
|
|
(1) |
|
|
(3) |
|
Comprehensive earnings (loss) attributable to Ball Corporation |
|
$ |
25 |
|
$ |
(7) |
|
$ |
133 |
|
$ |
189 |
|
See accompanying notes to the unaudited condensed consolidated financial statements.
2
BALL CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
June 30, |
|
December 31, |
|
||
($ in millions) |
|
2018 |
|
2017 |
|
||
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
549 |
|
$ |
448 |
|
Receivables, net |
|
|
2,013 |
|
|
1,634 |
|
Inventories, net |
|
|
1,257 |
|
|
1,526 |
|
Other current assets |
|
|
206 |
|
|
145 |
|
Assets held for sale |
|
|
850 |
|
|
5 |
|
Total current assets |
|
|
4,875 |
|
|
3,758 |
|
Noncurrent assets |
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
4,473 |
|
|
4,610 |
|
Goodwill |
|
|
4,516 |
|
|
4,933 |
|
Intangible assets, net |
|
|
2,305 |
|
|
2,462 |
|
Other assets |
|
|
1,366 |
|
|
1,406 |
|
Total assets |
|
$ |
17,535 |
|
$ |
17,169 |
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders' Equity |
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
Short-term debt and current portion of long-term debt |
|
$ |
176 |
|
$ |
453 |
|
Accounts payable |
|
|
2,739 |
|
|
2,762 |
|
Accrued employee costs |
|
|
256 |
|
|
352 |
|
Other current liabilities |
|
|
558 |
|
|
540 |
|
Liabilities held for sale |
|
|
225 |
|
|
— |
|
Total current liabilities |
|
|
3,954 |
|
|
4,107 |
|
Noncurrent liabilities |
|
|
|
|
|
|
|
Long-term debt |
|
|
7,171 |
|
|
6,518 |
|
Employee benefit obligations |
|
|
1,452 |
|
|
1,463 |
|
Deferred taxes |
|
|
666 |
|
|
695 |
|
Other liabilities |
|
|
297 |
|
|
340 |
|
Total liabilities |
|
|
13,540 |
|
|
13,123 |
|
|
|
|
|
|
|
|
|
Shareholders' equity |
|
|
|
|
|
|
|
Common stock (672,069,984 shares issued - 2018; 670,576,215 shares issued - 2017) |
|
|
1,120 |
|
|
1,084 |
|
Retained earnings |
|
|
5,199 |
|
|
4,987 |
|
Accumulated other comprehensive earnings (loss) |
|
|
(767) |
|
|
(656) |
|
Treasury stock, at cost (325,459,294 shares - 2018; 320,694,598 shares - 2017) |
|
|
(1,663) |
|
|
(1,474) |
|
Total Ball Corporation shareholders' equity |
|
|
3,889 |
|
|
3,941 |
|
Noncontrolling interests |
|
|
106 |
|
|
105 |
|
Total shareholders' equity |
|
|
3,995 |
|
|
4,046 |
|
Total liabilities and shareholders' equity |
|
$ |
17,535 |
|
$ |
17,169 |
|
See accompanying notes to the unaudited condensed consolidated financial statements.
3
BALL CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
Six Months Ended June 30, |
|
||||
($ in millions) |
|
2018 |
|
2017 |
|
||
|
|
|
|
|
|
|
|
Cash Flows from Operating Activities |
|
|
|
|
|
|
|
Net earnings |
|
$ |
245 |
|
$ |
170 |
|
Adjustments to reconcile net earnings to cash provided by (used in) continuing operating activities: |
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
358 |
|
|
377 |
|
Business consolidation and other activities |
|
|
99 |
|
|
96 |
|
Deferred tax provision (benefit) |
|
|
37 |
|
|
(59) |
|
Other, net (a) |
|
|
48 |
|
|
(147) |
|
Changes in working capital components, net of dispositions (b) |
|
|
(353) |
|
|
(176) |
|
Cash provided by (used in) operating activities (a) |
|
|
434 |
|
|
261 |
|
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
Capital expenditures |
|
|
(444) |
|
|
(240) |
|
Business dispositions, net of cash sold |
|
|
(45) |
|
|
31 |
|
Other, net |
|
|
39 |
|
|
2 |
|
Cash provided by (used in) investing activities |
|
|
(450) |
|
|
(207) |
|
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
Long-term borrowings |
|
|
1,426 |
|
|
290 |
|
Repayments of long-term borrowings |
|
|
(840) |
|
|
(561) |
|
Net change in short-term borrowings |
|
|
(165) |
|
|
91 |
|
Proceeds from issuances of common stock, net of shares used for taxes |
|
|
9 |
|
|
14 |
|
Acquisitions of treasury stock |
|
|
(184) |
|
|
(3) |
|
Common stock dividends |
|
|
(70) |
|
|
(58) |
|
Other, net |
|
|
(12) |
|
|
(1) |
|
Cash provided by (used in) financing activities |
|
|
164 |
|
|
(228) |
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
|
(50) |
|
|
8 |
|
|
|
|
|
|
|
|
|
Change in cash, cash equivalents and restricted cash (a) |
|
|
98 |
|
|
(166) |
|
Cash, cash equivalents and restricted cash - beginning of period (a) |
|
|
459 |
|
|
607 |
|
Cash, cash equivalents and restricted cash - end of period (a) |
|
$ |
557 |
|
$ |
441 |
|
(a) |
Amounts in 2017 have been retrospectively adjusted to reflect the adoption of new accounting guidance that was effective January 1, 2018. See Notes 2 and 7 for further details. |
(b) |
Includes payments of costs associated with the acquisition of Rexam and the related sale of certain existing Ball and Rexam beverage can assets. |
See accompanying notes to the unaudited condensed consolidated financial statements.
4
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
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 variability of contract sales in the company’s aerospace 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 Current Report on Form 8-K filed on March 6, 2018, pursuant to the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2017 (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 sales 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 year amounts have been reclassified in order to conform to the current year presentation.
2. Accounting Pronouncements
Recently Adopted Accounting Standards
Revenue from Contracts with Customers
On January 1, 2018, Ball adopted Accounting Standard Codification 606, “Revenue from Contracts with Customers,” and all related amendments (collectively, the new revenue standard) applying the modified retrospective method to all contracts that were not completed as of January 1, 2018. The cumulative effect of initially applying the new revenue standard was recognized as an adjustment to the retained earnings balance as of January 1, 2018. Comparative periods have not been restated and continue to be reported under the accounting standards in effect for those periods.
5
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
The cumulative effect of the changes made to the consolidated January 1, 2018, balance sheet for the adoption of the new revenue standard is as follows:
($ in millions) |
|
Balance at December 31, 2017 |
|
Adjustments Due to Adoption |
|
Balance at January 1, |
|||
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
Receivables, net |
|
$ |
1,634 |
|
$ |
307 |
|
$ |
1,941 |
Inventories, net |
|
|
1,526 |
|
|
(241) |
|
|
1,285 |
Other current assets |
|
|
150 |
|
|
(4) |
|
|
146 |
Liabilities |
|
|
|
|
|
|
|
|
|
Other current liabilities |
|
|
540 |
|
|
17 |
|
|
557 |
Deferred taxes |
|
|
695 |
|
|
7 |
|
|
702 |
Shareholders' equity |
|
|
|
|
|
|
|
|
|
Retained earnings |
|
|
4,987 |
|
|
37 |
|
|
5,024 |
Accumulated other comprehensive earnings (loss) |
|
|
(656) |
|
|
1 |
|
|
(655) |
In accordance with the disclosure requirements of the new revenue standard, the impact of adoption on our consolidated statement of earnings and balance sheet was as follows:
|
|
Three Months Ended June 30, 2018 |
|
Six Months Ended June 30, 2018 |
|||||||||||||||||
($ in millions, except per share amounts) |
|
As Reported |
|
Balances Without Adoption |
|
Effect of Change Higher (Lower) |
|
As Reported |
|
Balances Without Adoption |
|
Effect of Change Higher (Lower) |
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Net sales |
|
$ |
3,101 |
|
$ |
3,143 |
|
$ |
(42) |
|
$ |
5,886 |
|
$ |
5,895 |
|
$ |
(9) |
|||
Cost of sales (excluding depreciation and amortization) |
(2,484) |
(2,522) |
38 |
(4,721) |
(4,728) |
7 |
|||||||||||||||
Earnings before interest and taxes |
|
|
243 |
|
|
247 |
|
|
(4) |
|
|
469 |
|
|
471 |
|
|
(2) |
|||
Tax (provision) benefit |
|
|
(46) |
|
|
(45) |
|
|
(1) |
|
|
(80) |
|
|
(79) |
|
|
(1) |
|||
Net earnings attributable to Ball Corporation |
|
|
119 |
|
|
124 |
|
|
(5) |
|
|
244 |
|
|
247 |
|
|
(3) |
|||
Basic earnings per share |
|
|
0.34 |
|
|
0.36 |
|
|
(0.02) |
|
|
0.70 |
|
|
0.71 |
|
|
(0.01) |
|||
Diluted earnings per share |
|
|
0.34 |
|
|
0.35 |
|
|
(0.01) |
|
|
0.68 |
|
|
0.69 |
|
|
(0.01) |
|
|
June 30, 2018 |
|||||||
($ in millions) |
|
As Reported |
|
Balances Without Adoption |
|
Effect of Change |
|||
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
Receivables, net |
|
$ |
2,013 |
|
$ |
1,722 |
|
$ |
291 |
Inventories, net |
|
|
1,257 |
|
|
1,489 |
|
|
(232) |
Other current assets |
|
|
206 |
|
|
210 |
|
|
(4) |
Liabilities |
|
|
|
|
|
|
|
|
|
Other current liabilities |
|
|
558 |
|
|
545 |
|
|
13 |
Deferred taxes |
|
|
666 |
|
|
659 |
|
|
7 |
Shareholders' equity |
|
|
|
|
|
|
|
|
|
Retained earnings |
|
|
5,199 |
|
|
5,165 |
|
|
34 |
Accumulated other comprehensive earnings (loss) |
|
|
(767) |
|
|
(768) |
|
|
1 |
6
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
The following summarizes the significant changes to the company’s unaudited condensed consolidated statement of earnings and consolidated balance sheet as a result of the new revenue standard adopted on January 1, 2018, compared to if the company had continued to recognize sales under the previous revenue recognition guidance:
· |
For the metal beverage packaging segments and, to a lesser extent, in our food and aerosol packaging segment, the new revenue standard accelerated the recognition of certain sales to be over time such that a portion of sales was recognized prior to shipment or delivery of goods. The accelerated recognition of sales also caused the company’s inventory to decrease with an offsetting increase to unbilled receivables to the extent the amounts had not yet been invoiced to the customer and right to payment was unconditional. |
· |
For the aerospace segment, sales from the majority of the company’s contracts continue to be recognized over time under the “cost-to-cost” method based on the continuous transfer of control to the customer, which is consistent with how sales were recognized under previous revenue recognition guidance. Therefore, no cumulative adjustment was required to be made upon adoption. |
· |
Ball recognized a contract liability when the customer’s payment, or Ball’s unconditional right to that consideration, preceded the company’s performance. |
Share-Based Compensation
In May 2017, amendments to existing accounting guidance were issued to provide clarity and reduce diversity in practice, cost and complexity when applying stock compensation accounting guidance regarding modifications to the terms or conditions of a share-based payment award. The amendments specify that all changes to the terms and conditions of a share-based payment award will require an entity to apply modification accounting unless all of the following are met: (1) the fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified, (2) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified and (3) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The guidance was applied prospectively on January 1, 2018, and it did not have an impact on the company’s unaudited condensed consolidated financial statements.
Pension and Postretirement Benefit Costs
In March 2017, amendments to existing accounting guidance were issued to change the presentation of net periodic pension cost and net periodic postretirement benefit cost. Employers are required to report the service cost component in the same line item as other compensation costs arising from services rendered by the associated employees during the period. The other components of net periodic pension cost and net periodic postretirement benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. The amendments also permit only the service cost component of net benefit cost to be eligible for capitalization. This guidance was adopted by the company on January 1, 2018, and the capitalization of the service cost component was applied on a prospective basis. Curtailment and settlement losses are reported by the company in business consolidation and other activities. All other non-service components are immaterial and will be presented in selling, general and administrative (SG&A) expenses beginning in 2018. These non-service costs were reported in both cost of sales and SG&A in prior periods; however, due to immateriality in all prior periods presented, no retrospective adjustments were considered necessary. Such costs were $6 million and $12 million for the three and six months ended June 30, 2017, respectively, and $21 million for the full year 2017.
Sales of Nonfinancial Assets
In February 2017, amendments to existing accounting guidance were issued to clarify the scope and to add guidance for partial sales of nonfinancial assets. The guidance requires that all entities account for the derecognition of a business in accordance with guidance for consolidation, including instances in which the business is considered to be in substance real estate. This guidance was applied on January 1, 2018, using a modified retrospective approach and did not have a material impact on the company’s unaudited condensed consolidated financial statements.
7
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
Definition of a Business
In January 2017, amendments to existing accounting guidance were issued to further clarify the definition of a business in determining whether or not a company has acquired or sold a business. The amendments provide a screen to determine when an integrated set of assets and activities (collectively referred to as a “set”) is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. If the screen is not met, the amendments in this update (1) require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2) remove the evaluation of whether a market participant could replace missing elements. The amendments also narrow the definition of the term “output” so that the term is consistent with how outputs are described in the new guidance for revenue recognition. The guidance was applied prospectively for Ball on January 1, 2018, and did not have an impact on the company’s unaudited condensed consolidated financial statements.
Statement of Cash Flows
In November 2016, accounting guidance was issued requiring the statement of cash flows to reconcile the change in the total of cash, cash equivalents and restricted cash or restricted cash equivalents. This guidance was applied retrospectively on January 1, 2018, and the impact on the 2017 statement of cash flow was not material. The impact on the 2016 statement of cash flows was material due to approximately $2 billion of restricted cash held by the company at December 2015, in an acquisition escrow account. In July 2016, the funds in the escrow account were used to pay a portion of the cash component of the acquisition price of Rexam. The impact on the statement of cash flows for the six months ended June 30, 2017, was a $2 million reduction in cash flows from operating activities.
In August 2016, accounting guidance was issued addressing the following eight specific cash flow issues:
· |
Debt prepayment or debt extinguishment costs |
· |
Settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing |
· |
Contingent consideration payments made after a business combination |
· |
Proceeds from the settlement of insurance claims |
· |
Proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies) |
· |
Distributions received from equity method investees |
· |
Beneficial interests in securitization transactions |
· |
Separately identifiable cash flows and, for cash flows with aspects of more than one class which are not separately identifiable, classification based on the predominant source for those cash flows |
This guidance was applied retrospectively on January 1, 2018, and did not have a material impact on the company’s unaudited condensed consolidated statement of cash flows.
Intra-Entity Transfers
In October 2016, amendments to existing accounting guidance were issued that require entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs, as opposed to when the asset is sold to an unrelated third party. The amendments also eliminate the exception for an intra-entity transfer of an asset other than inventory. This guidance was applied on a modified retrospective basis on January 1, 2018, and did not have a material impact on the company’s unaudited condensed consolidated financial statements.
8
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
Financial Assets and Liabilities
In January 2016, accounting guidance was issued on the classification and measurement of financial assets and liabilities (equity securities and financial liabilities) under the fair value option and the presentation and disclosure requirements for financial instruments. Subsequent guidance was issued in February 2018 to clarify certain aspects of the guidance issued in January 2016. The guidance modifies how entities measure equity investments and present changes in the fair value of financial liabilities. Under the new guidance, entities have to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and recognize any related changes in fair value in net income unless the investments qualify for the new practicality exception. An exception applies to those equity investments that do not have a readily determinable fair value and do not qualify for the practical expedient to estimate fair value under the guidance and, as such, these investments may be measured at cost. The guidance was applied on January 1, 2018, and did not have a material impact on the company’s unaudited condensed consolidated financial statements.
New Accounting Guidance
Share Based Payments
In June 2018, amendments to existing accounting guidance were issued to simplify share-based payment transactions for acquiring goods and services from nonemployees. The amendments specify that existing guidance for share-based payment transactions with employees applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that existing guidance does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of revenue contracts. The guidance is effective for Ball on January 1, 2019, and is not expected to have a material effect on the company’s consolidated financial statements.
Stranded Tax Effects
In February 2018, accounting guidance was issued to permit the reclassification from accumulated other comprehensive income to retained earnings of stranded tax effects resulting from the U.S. Tax Cuts and Jobs Act signed into law in December 2017. The guidance is effective for Ball on January 1, 2019, and the company is currently assessing whether or not to early adopt the new guidance.
Financial Assets
In June 2016, amendments to existing guidance were issued requiring financial assets or a group of financial assets measured at amortized cost basis to be presented at the net amount expected to be collected when finalized. The allowance for credit losses is a valuation account that will be deducted from the amortized cost basis of the financial asset to present the net carrying value at the amount expected to be collected on the financial asset. This guidance affects loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables and any other financial assets not excluded from the scope that have the contractual right to receive cash. The guidance will be effective on January 1, 2020. The company is currently assessing the impact that the adoption of this new guidance will have on its consolidated financial statements.
Lease Accounting
In February 2016, lease accounting guidance was issued which, for operating leases, will require a lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, on its balance sheet. The guidance also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, generally on a straight-line basis.
9
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
In July 2018, targeted improvements were issued to provide an additional transition method, which is optional, that allows entities to apply the new leases standard upon adoption by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. This is in addition to the existing modified retrospective transition method that requires entities to apply the new standard at the beginning of the earliest period presented in the financial statements. Additionally, the amendments included a lessor-specific practical expedient, by underlying asset class, to not separate nonlease components from the associated lease components, similar to the practical expedient already made available by the standard to lessees. The lessor practical expedient is limited to circumstances in which the nonlease component or components otherwise would be accounted for under the new revenue guidance and both of the following are true: the timing and pattern of transfer are the same for the nonlease component(s) and associated lease component; and the lease component, if accounted for separately, would be classified as an operating lease. Codification improvements were also were issued on a variety of topics within the leasing standard, which represent minor corrections or improvements and are not expected to have a significant impact on accounting practices.
We have established a cross-functional implementation team, which includes representatives from all of our business segments. We are utilizing a bottoms-up approach to analyze the impact of the new standard by reviewing our current lease population, including completeness, to identify potential accounting, data and other operational changes that might be required under the new guidance. In addition, we are assessing changes to our business processes, systems and controls to support recognition and disclosure under the standard upon adoption. The guidance will be effective for Ball on January 1, 2019, and it is expected that a material amount of lease assets and liabilities will be recorded on its consolidated balance sheet.
3. Business Segment Information
Ball’s operations are organized and reviewed by management along its product lines and geographical areas and presented in the five reportable segments outlined below:
Beverage packaging, North and Central America: Consists of operations in the U.S., Canada and Mexico that manufacture and sell metal beverage containers throughout those countries.
Beverage packaging, South America: Consists of operations in Brazil, Argentina and Chile that manufacture and sell metal beverage containers throughout most of South America.
Beverage packaging, Europe: Consists of operations in numerous countries in Europe, including Russia, that manufacture and sell metal beverage containers throughout most of Europe.
Food and aerosol packaging: Consists of operations in the U.S., Europe, Canada, Mexico, Argentina and India that manufacture and sell steel food and aerosol containers, extruded aluminum aerosol containers and aluminum slugs.
Aerospace: Consists of operations that manufacture and sell aerospace and other related products and provide services used in the defense, civil space and commercial space industries.
As presented below, other consists of non-reportable segments in Africa, Middle East and Asia (AMEA) and Asia Pacific that manufacture and sell metal beverage containers, undistributed corporate expenses, intercompany eliminations and other business activities.
The accounting policies of the segments are the same as those in the consolidated financial statements and are discussed in Note 1. The company also has investments in operations in Guatemala, Panama, South Korea, the U.S. and Vietnam that are accounted for under the equity method of accounting and, accordingly, those results are not included in segment sales or earnings.
10
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
On July 31, 2018, Ball sold its U.S. steel food and steel aerosol packaging business and formed a joint venture, Ball Metalpack. Beginning in the third quarter 2018, Ball’s 49 percent ownership of Ball Metalpack's financial results will be reported in equity in results of affiliates within Ball's consolidated statements of earnings. The financial results of Ball's existing global aluminum aerosol and Argentine tinplate steel aerosol businesses will be reported as a non-reportable segment within Other. For comparative periods, the entire former food and aerosol packaging reportable segment will be reported as a non-reportable segment within Other in the tables of this footnote. At June 30, 2018, the assets and liabilities of the U.S. steel food and steel aerosol business are presented as held for sale on the unaudited condensed consolidated balance sheet.
Summary of Business by Segment
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||
($ in millions) |
2018 |
2017 |
2018 |
2017 |
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage packaging, North and Central America |
|
$ |
1,241 |
|
$ |
1,151 |
|
$ |
2,276 |
|
$ |
2,100 |
|
Beverage packaging, South America |
|
|
379 |
|
|
349 |
|
|
838 |
|
|
720 |
|
Beverage packaging, Europe |
|
|
703 |
|
|
665 |
|
|
1,312 |
|
|
1,173 |
|
Food and aerosol packaging |
|
|
304 |
|
|
274 |
|
|
579 |
|
|
546 |
|
Aerospace |
|
|
290 |
|
|
257 |
|
|
554 |
|
|
493 |
|
Reportable segment sales |
|
|
2,917 |
|
|
2,696 |
|
|
5,559 |
|
|
5,032 |
|
Other |
|
|
184 |
|
|
159 |
|
|
327 |
|
|
296 |
|
Net sales |
|
$ |
3,101 |
|
$ |
2,855 |
|
$ |
5,886 |
|
$ |
5,328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable operating earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage packaging, North and Central America (b) |
|
$ |
157 |
|
$ |
156 |
|
$ |
270 |
|
$ |
279 |
|
Beverage packaging, South America (b) |
|
|
66 |
|
|
69 |
|
|
164 |
|
|
127 |
|
Beverage packaging, Europe (b) |
|
|
75 |
|
|
63 |
|
|
135 |
|
|
110 |
|
Food and aerosol packaging |
|
|
32 |
|
|
25 |
|
|
55 |
|
|
46 |
|
Aerospace |
|
|
24 |
|
|
26 |
|
|
49 |
|
|
47 |
|
Reportable segment comparable operating earnings |
|
|
354 |
|
|
339 |
|
|
673 |
|
|
609 |
|
Reconciling items |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (a)(b) |
|
|
(2) |
|
|
(21) |
|
|
(21) |
|
|
(52) |
|
Business consolidation and other activities |
|
|
(69) |
|
|
(41) |
|
|
(99) |
|
|
(96) |
|
Amortization of acquired Rexam intangibles |
|
|
(40) |
|
|
(51) |
|
|
(84) |
|
|
(83) |
|
Catch-up depreciation and amortization for 2016 from finalization of Rexam valuation |
|
|
— |
|
|
(39) |
|
|
— |
|
|
(39) |
|
Earnings before interest and taxes |
|
|
243 |
|
|
187 |
|
|
469 |
|
|
339 |
|
Interest expense |
|
|
(77) |
|
|
(74) |
|
|
(150) |
|
|
(142) |
|
Debt refinancing and other costs |
|
|
— |
|
|
(1) |
|
|
(1) |
|
|
(1) |
|
Total interest expense |
|
|
(77) |
|
|
(75) |
|
|
(151) |
|
|
(143) |
|
Earnings before taxes |
|
$ |
166 |
|
$ |
112 |
|
$ |
318 |
|
$ |
196 |
|
(a) |
Includes undistributed corporate expenses, net, of $21 million and $32 million for the three months ended June 30, 2018 and 2017, respectively, and $43 million and $77 million for the six months ended June 30, 2018 and 2017, respectively. |
(b) |
The three months ended June 30, 2017, includes catch-up depreciation for the three months ended March 31, 2017, from the finalization of fair values and useful lives for the Rexam acquisition associated with the following segments: $8 million for beverage packaging, Europe; $1 million for beverage packaging, North and Central America; $1 million for beverage packaging, South America;and $1 million for Other. |
The company does not disclose total assets by segment as it is not provided to the chief operating decision maker.
11
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
4. Acquisitions and Dispositions
On July 31, 2018, Ball sold its U.S. steel food and steel aerosol packaging business and formed a joint venture, Ball Metalpack. In exchange for the sale of this business, Ball received approximately $600 million in after-tax cash proceeds, subject to customary closing adjustments, as well as 49 percent ownership of Ball Metalpack, which will be reported in other assets as an equity method investment on Ball’s unaudited condensed consolidated balance sheets. This transaction enhances our ability to return additional value to shareholders via share repurchases.
At June 30, 2018, the assets and liabilities of the U.S. steel food and steel aerosol packaging business are presented as held for sale on Ball’s unaudited condensed consolidated balance sheet. Prior to the classification of the assets and liabilities to held for sale, the company assessed the carrying value of certain working capital and other liability balances and then conducted an impairment test of the goodwill and of the other long-lived assets of the U.S. steel food and steel aerosol packaging business. No impairment or other adjustments were required. Upon classification of the assets and liabilities to held for sale, the carrying value of the disposal group as a whole was compared to the fair value of the business less costs to sell. The approach to establish fair value was consistent with that outlined in the critical accounting policy for ‘Recoverability of Goodwill and Intangible Assets’ in our Form 10-K for the year ended December 31, 2017. Following this review, an allowance of $41 million was applied to the carrying value of the assets held for sale. This charge has been presented in business consolidation and other activities in the unaudited condensed consolidated statements of earnings.
The following table summarizes the assets and liabilities of the U.S. steel food and steel aerosol packaging business presented as held for sale:
|
|
|
($ in millions) |
June 30, 2018 |
|
Assets: |
|
|
Receivables |
$ |
78 |
Inventories |
|
231 |
Property, plant and equipment |
|
192 |
Goodwill |
|
354 |
Other assets |
|
33 |
Allowance for valuation of assets held for sale |
|
(41) |
Assets held for sale (a) |
$ |
847 |
|
|
|
Liabilities: |
|
|
Accounts payable |
$ |
198 |
Other liabilities |
|
27 |
Liabilities held for sale |
$ |
225 |
(a) |
At June 30, 2018, the company presented an additional $3 million of assets held for sale that are unrelated to Ball Metalpack. |
The assets sold included nine plants that manufacture and sell steel food and steel aerosol containers. The manufacturing plants were located in Canton and Columbus, Ohio; Milwaukee and Deforest, Wisconsin; Chestnut Hill, Tennessee; Horsham, Pennsylvania; Springdale, Arkansas; and Oakdale, California. The accounting for this transaction is not complete as of the date these financial statements are available for issuance.
12
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
5. Revenue from Contracts with Customers
Disaggregation of Sales
The company disaggregates net sales by reportable segments as disclosed in Note 3, and based on the timing of transfer of control for goods and services as explained below. The transfer of control for goods and services may occur at a point in time or over time; in other words, sales may be recognized over the course of the underlying contract, or they may occur at a single point in time based upon the transfer of control. This distinction is discussed in further detail below. The company determined that disaggregating sales into these categories achieves the disclosure objective to depict how the nature, amount, timing, and uncertainty of sales and cash flows are affected by economic factors. As noted in Note 3, the company’s business consists of five reportable segments, which encompass disaggregated product lines and geographical areas: (1) beverage packaging, North and Central America; (2) beverage packaging, South America; (3) beverage packaging, Europe; (4) food and aerosol packaging; and (5) aerospace.
The following table disaggregates the company’s net sales based on the timing of transfer of control:
|
|
Three Months Ended June 30, 2018 |
|
Six Months Ended June 30, 2018 |
||||||||||||||
($ in millions) |
|
Point in Time |
|
Over Time |
|
Total |
|
Point in Time |
|
Over Time |
|
Total |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
755 |
|
$ |
2,346 |
|
$ |
3,101 |
|
$ |
1,417 |
|
$ |
4,469 |
|
$ |
5,886 |
Contract Balances
The company enters into contracts to sell beverage packaging, food and aerosol packaging, and aerospace products. The payment terms and conditions in customer contracts vary. Those customers that prepay are represented by the contract liabilities below until the performance obligations are satisfied. Contract assets would exist when sales have been recorded (i.e., control of the goods or services has been transferred to the customer) but customer payment is contingent on a future event beyond the passage of time (i.e., satisfaction of additional performance obligations). The company does not have any contract assets. Unbilled receivables, which are not classified as contract assets, represent arrangements in which sales have been recorded prior to billing and right to payment is unconditional. The opening and closing balances of the company’s current and noncurrent contract liabilities are as follows:
|
|
Contracts |
|
Contract |
||
|
|
Liabilities |
|
Liabilities |
||
($ in millions) |
|
(Current) |
|
(Noncurrent) |
||
|
|
|
|
|
|
|
Balance at December 31, 2017 |
|
$ |
45 |
|
$ |
— |
Increase |
|
|
20 |
|
|
6 |
Balance at June 30, 2018 |
|
$ |
65 |
|
$ |