Table of Contents

 

 

 

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, 2013

 

Commission file number   1-7349

 

BALL CORPORATION

 

State of Indiana

(State or other jurisdiction of incorporation or
organization)

 

35-0160610

(I.R.S. Employer Identification No.)

 

10 Longs Peak Drive, P.O. Box 5000

Broomfield, CO 80021-2510

(Address of 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 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 September 30, 2013

Common Stock, without par value

 

144,633,496 shares

 

 

 



Table of Contents

 

Ball Corporation and Subsidiaries

QUARTERLY REPORT ON FORM 10-Q

For the period ended September 30, 2013

 

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, 2013 and 2012

 

1

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Comprehensive Earnings for the Three and Nine Months Ended September 30, 2013 and 2012

 

2

 

 

 

 

 

Unaudited Condensed Consolidated Balance Sheets at September 30, 2013, and December 31, 2012

 

3

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2013 and 2012

 

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

 

45

 

 

 

 

Item 4.

Controls and Procedures

 

45

 

 

 

 

PART II.

OTHER INFORMATION

 

47

 



Table of Contents

 

PART I.              FINANCIAL INFORMATION

 

Item 1.                     FINANCIAL STATEMENTS

 

BALL CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

($ in millions, except per share amounts)

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

2,277.9

 

$

2,282.5

 

$

6,471.3

 

$

6,621.5

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses

 

 

 

 

 

 

 

 

 

Cost of sales (excluding depreciation and amortization)

 

(1,846.9

)

(1,866.1

)

(5,289.3

)

(5,444.6

)

Depreciation and amortization

 

(76.6

)

(74.7

)

(223.6

)

(210.2

)

Selling, general and administrative

 

(99.0

)

(86.3

)

(311.2

)

(284.5

)

Business consolidation and other activities

 

(43.8

)

(36.8

)

(89.1

)

(44.0

)

 

 

(2,066.3

)

(2,063.9

)

(5,913.2

)

(5,983.3

)

 

 

 

 

 

 

 

 

 

 

Earnings before interest and taxes

 

211.6

 

218.6

 

558.1

 

638.2

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(45.5

)

(44.2

)

(138.0

)

(134.2

)

Debt refinancing costs

 

(1.3

)

 

(28.0

)

(15.1

)

Total interest expense

 

(46.8

)

(44.2

)

(166.0

)

(149.3

)

 

 

 

 

 

 

 

 

 

 

Earnings before taxes

 

164.8

 

174.4

 

392.1

 

488.9

 

Tax provision

 

(44.1

)

(51.7

)

(93.0

)

(129.7

)

Equity in results of affiliates, net of tax

 

0.9

 

(0.8

)

0.9

 

(1.0

)

Net earnings from continuing operations

 

121.6

 

121.9

 

300.0

 

358.2

 

Discontinued operations, net of tax

 

0.3

 

(2.2

)

0.4

 

(2.9

)

 

 

 

 

 

 

 

 

 

 

Net earnings

 

121.9

 

119.7

 

300.4

 

355.3

 

Less net earnings attributable to noncontrolling interests

 

(6.7

)

(4.6

)

(18.1

)

(12.4

)

 

 

 

 

 

 

 

 

 

 

Net earnings attributable to Ball Corporation

 

$

115.2

 

$

115.1

 

$

282.3

 

$

342.9

 

 

 

 

 

 

 

 

 

 

 

Amounts attributable to Ball Corporation:

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

114.9

 

$

117.3

 

$

281.9

 

$

345.8

 

Discontinued operations

 

0.3

 

(2.2

)

0.4

 

(2.9

)

Net earnings

 

$

115.2

 

$

115.1

 

$

282.3

 

$

342.9

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

Basic - continuing operations

 

$

0.80

 

$

0.76

 

$

1.92

 

$

2.22

 

Basic - discontinued operations

 

 

(0.01

)

 

(0.02

)

Total basic earnings per share

 

$

0.80

 

$

0.75

 

$

1.92

 

$

2.20

 

 

 

 

 

 

 

 

 

 

 

Diluted - continuing operations

 

$

0.78

 

$

0.74

 

$

1.88

 

$

2.18

 

Diluted - discontinued operations

 

 

(0.01

)

 

(0.02

)

Total diluted earnings per share

 

$

0.78

 

$

0.73

 

$

1.88

 

$

2.16

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

1



Table of Contents

 

BALL CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

($ in millions)

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

$

121.9

 

$

119.7

 

$

300.4

 

$

355.3

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive earnings:

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

57.3

 

27.5

 

29.7

 

(2.0

)

Pension and other postretirement benefits (a)

 

3.3

 

5.7

 

17.7

 

20.2

 

Effective financial derivatives (b)

 

3.6

 

28.6

 

(22.9

)

26.0

 

Total comprehensive earnings

 

186.1

 

181.5

 

324.9

 

399.5

 

Less comprehensive earnings attributable to noncontrolling interests

 

(6.6

)

(4.5

)

(18.3

)

(12.6

)

Comprehensive earnings attributable to Ball Corporation

 

$

179.5

 

$

177.0

 

$

306.6

 

$

386.9

 

 


(a)         Net of tax (expense) benefit of $(4.7) million and $(13.9) million for the three and nine months ended September 30, 2013, respectively, and $(4.2) million and $(12.4) million for the comparable periods in 2012, respectively.

(b)         Net of tax (expense) benefit of $(2.4) million and $2.5 million for the three and nine months ended September 30, 2013, respectively, and $(17.6) million and $(15.6) million for the comparable periods in 2012, respectively.

 

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)

 

2013

 

2012

 

 

 

 

 

 

 

Assets

 

 

 

 

 

Current assets

 

 

 

 

 

Cash and cash equivalents

 

$

168.2

 

$

174.1

 

Receivables, net

 

1,087.5

 

930.1

 

Inventories, net

 

980.3

 

1,044.4

 

Other current assets

 

189.4

 

190.8

 

Total current assets

 

2,425.4

 

2,339.4

 

Non-current assets

 

 

 

 

 

Property, plant and equipment, net

 

2,360.1

 

2,288.6

 

Goodwill

 

2,379.8

 

2,359.4

 

Intangibles and other assets, net

 

543.9

 

519.7

 

Total assets

 

$

7,709.2

 

$

7,507.1

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

Current liabilities

 

 

 

 

 

Short-term debt and current portion of long-term debt

 

$

104.5

 

$

219.8

 

Accounts payable

 

998.8

 

946.9

 

Accrued employee costs

 

232.3

 

278.4

 

Other current liabilities

 

234.6

 

240.7

 

Total current liabilities

 

1,570.2

 

1,685.8

 

Non-current liabilities

 

 

 

 

 

Long-term debt

 

3,417.5

 

3,085.3

 

Employee benefit obligations

 

1,175.7

 

1,238.1

 

Other non-current liabilities

 

229.0

 

207.9

 

Total liabilities

 

6,392.4

 

6,217.1

 

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

Common stock (330,072,784 shares issued - 2013; 329,014,589 shares issued - 2012)

 

1,068.3

 

1,026.3

 

Retained earnings

 

3,807.3

 

3,580.8

 

Accumulated other comprehensive earnings (loss)

 

(328.1

)

(352.4

)

Treasury stock, at cost (185,439,288 shares - 2013; 179,285,288 shares - 2012)

 

(3,418.1

)

(3,140.1

)

Total Ball Corporation shareholders’ equity

 

1,129.4

 

1,114.6

 

Noncontrolling interests

 

187.4

 

175.4

 

Total shareholders’ equity

 

1,316.8

 

1,290.0

 

Total liabilities and shareholders’ equity

 

$

7,709.2

 

$

7,507.1

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

3



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BALL CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

Nine Months Ended

 

 

 

September 30,

 

($ in millions)

 

2013

 

2012

 

 

 

 

 

 

 

Cash Flows from Operating Activities

 

 

 

 

 

Net earnings

 

$

300.4

 

$

355.3

 

Discontinued operations, net of tax

 

(0.4

)

2.9

 

Adjustments to reconcile net earnings to cash provided by (used in) continuing operating activities:

 

 

 

 

 

Depreciation and amortization

 

223.6

 

210.2

 

Business consolidation and other activities

 

89.1

 

44.0

 

Deferred tax provision

 

3.3

 

15.4

 

Other, net

 

4.8

 

(34.1

)

Changes in working capital components

 

(166.6

)

(204.4

)

Cash provided by (used in) continuing operating activities

 

454.2

 

389.3

 

Cash provided by (used in) discontinued operating activities

 

(2.3

)

(1.0

)

Total cash provided by (used in) operating activities

 

451.9

 

388.3

 

Cash Flows from Investing Activities

 

 

 

 

 

Capital expenditures

 

(309.6

)

(206.9

)

Business acquisitions, net of cash acquired

 

(14.2

)

(15.3

)

Other, net

 

2.2

 

18.0

 

Cash provided by (used in) investing activities

 

(321.6

)

(204.2

)

Cash Flows from Financing Activities

 

 

 

 

 

Long-term borrowings

 

1,546.6

 

1,269.8

 

Repayments of long-term borrowings

 

(1,277.5

)

(982.7

)

Net change in short-term borrowings

 

(55.4

)

(98.8

)

Proceeds from issuances of common stock

 

24.3

 

40.8

 

Acquisitions of treasury stock

 

(292.2

)

(345.7

)

Common dividends

 

(56.8

)

(46.6

)

Other, net

 

(15.6

)

(6.6

)

Cash provided by (used in) financing activities

 

(126.6

)

(169.8

)

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

(9.6

)

1.1

 

 

 

 

 

 

 

Change in cash and cash equivalents

 

(5.9

)

15.4

 

Cash and cash equivalents - beginning of period

 

174.1

 

165.8

 

Cash and cash equivalents - end of period

 

$

168.2

 

$

181.2

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

4



Table of Contents

 

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 22, 2013, pursuant to Section 13 of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2012 (annual report).

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of 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. Actual results could differ from these estimates under different assumptions and conditions. However, we believe that the financial statements reflect all adjustments which are of a normal and recurring nature and are necessary to fairly state the results of the interim periods. Certain prior period amounts have been reclassified in order to conform to the current period presentation.

 

2.              Accounting Pronouncements

 

Recently Adopted Accounting Standards

 

In July 2013, accounting guidance was issued to provide for inclusion of the Overnight Index Swap Rate (OIS, also referred to as the Fed Funds Effective Swap Rate) as a benchmark interest rate for hedge accounting purposes. Prior to this guidance, in the U.S. only interest rates on direct U.S. Treasury obligations and the London Interbank Offered Rate (LIBOR) swap rate were considered benchmark interest rates for hedge accounting purposes. The guidance was effective for Ball prospectively for qualifying new or redesignated hedging relationships entered into on or after July 17, 2013. The guidance did not have a material effect on the company’s consolidated financial statements.

 

In February 2013, amendments to the existing accounting guidance were issued requiring the company to present, either on the face of the financial statements or in the notes, the effect of significant amounts reclassified in their entirety from each component of accumulated other comprehensive earnings based on the source into net earnings during the reporting period. For amounts not required to be reclassified in their entirety, the company is required to cross-reference to other disclosures that provide additional details about those reclassifications. The new guidance was effective for Ball prospectively on January 1, 2013, and the additional required disclosures are included in Note 13.

 

In December 2011, accounting guidance was issued requiring disclosures to help reconcile differences in the offsetting requirements under U.S. generally accepted accounting principles (U.S. GAAP) and international financial reporting standards (IFRS). The new disclosure requirements mandate that companies disclose both gross and net information about instruments and transactions eligible for offset in the statement of financial position as well as instruments and transactions subject to an agreement similar to a master netting arrangement. Further guidance was issued in January 2013 to clarify the intended scope of the required disclosures. The guidance was effective for Ball on January 1, 2013, and did not have a material effect on the company’s unaudited condensed consolidated financial statements.

 

5



Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

2.              Accounting Pronouncements (continued)

 

New Accounting Guidance

 

In July 2013, accounting guidance was issued to eliminate diversity in practice for the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss or a tax credit carryforward exists. In general, an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, unless certain exceptions exist. The guidance, which will be effective for Ball on January 1, 2014, is not expected to have a material effect on the company’s consolidated financial statements.

 

In May 2013, the Committee of Sponsoring Organization of the Treadway Commission (COSO) issued the 2013 “Internal Control — Integrated Framework” (Framework). The 2013 Framework is expected to: (1) help companies design and implement internal controls in light of the changes in business and operating environments since the issuance of the original Framework, (2) broaden the application of internal controls in addressing operating and reporting objectives and (3) clarify the requirements for determining what constitutes effective internal controls. Implementation of the 2013 Framework is effective for Ball for the year ended December 31, 2014. During the transitional period, companies can continue to use the original Framework but should disclose whether the original or the 2013 Framework was utilized. Ball is continuing to use the original Framework and does not expect the implementation of the 2013 Framework to have a material effect on the company’s established internal controls around financial reporting.

 

In March 2013, accounting guidance was issued to clarify that a company should release the cumulative translation adjustment into net earnings if the parent ceases to have a controlling financial interest in a subsidiary or group of assets within a foreign entity. The guidance also affects entities that lose a controlling financial interest in an investment in a foreign entity and those that acquire a business in stages by increasing an investment in a foreign entity from one accounted for under the equity method to one accounted for as a consolidated investment. The guidance will be effective for Ball prospectively on January 1, 2014, and is not expected to have a material effect on the company’s 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. On January 1, 2013, the company implemented changes to its management and internal reporting structure. As a result, the European extruded aluminum business, which was previously included in the metal beverage packaging, Europe, segment, is now included in the metal food and household products packaging segment. The segment results and disclosures for the three and nine months ended September 30, 2012, and the financial position at December 31, 2012, have been retrospectively adjusted to conform to the current year presentation.

 

Metal beverage packaging, Americas and AsiaConsists 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, and also manufacture and sell non-beverage plastic containers in the PRC.

 

Metal beverage packaging, EuropeConsists 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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Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

3.              Business Segment Information (continued)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

($ in millions)

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

 

 

 

 

 

 

 

 

Metal beverage packaging, Americas & Asia

 

$

1,109.2

 

$

1,169.6

 

$

3,190.7

 

$

3,426.9

 

Metal beverage packaging, Europe

 

488.9

 

450.8

 

1,400.5

 

1,377.0

 

Metal food & household products packaging

 

463.6

 

445.8

 

1,213.4

 

1,196.7

 

Aerospace & technologies

 

217.5

 

219.9

 

675.0

 

631.8

 

Corporate and intercompany eliminations

 

(1.3

)

(3.6

)

(8.3

)

(10.9

)

Net sales

 

$

2,277.9

 

$

2,282.5

 

$

6,471.3

 

$

6,621.5

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

 

 

 

 

 

 

 

 

Metal beverage packaging, Americas & Asia

 

$

134.8

 

$

142.2

 

$

364.5

 

$

384.5

 

Business consolidation and other activities

 

(14.1

)

(31.5

)

(26.6

)

(32.9

)

Total metal beverage packaging, Americas & Asia

 

120.7

 

110.7

 

337.9

 

351.6

 

 

 

 

 

 

 

 

 

 

 

Metal beverage packaging, Europe

 

60.5

 

54.3

 

143.2

 

152.7

 

Business consolidation and other activities

 

(1.7

)

(3.5

)

(4.6

)

(6.2

)

Total metal beverage packaging, Europe

 

58.8

 

50.8

 

138.6

 

146.5

 

 

 

 

 

 

 

 

 

 

 

Metal food & household products packaging

 

58.4

 

50.1

 

140.6

 

131.0

 

Business consolidation and other activities

 

(28.9

)

 

(57.4

)

 

Total metal food & household products packaging

 

29.5

 

50.1

 

83.2

 

131.0

 

 

 

 

 

 

 

 

 

 

 

Aerospace & technologies

 

18.0

 

22.5

 

55.0

 

62.4

 

Business consolidation and other activities

 

 

 

(0.2

)

 

Total aerospace & technologies

 

18.0

 

22.5

 

54.8

 

62.4

 

 

 

 

 

 

 

 

 

 

 

Segment earnings before interest and taxes

 

227.0

 

234.1

 

614.5

 

691.5

 

 

 

 

 

 

 

 

 

 

 

Undistributed and corporate expenses and intercompany eliminations, net

 

(16.3

)

(13.7

)

(56.1

)

(48.4

)

Business consolidation and other activities

 

0.9

 

(1.8

)

(0.3

)

(4.9

)

Total undistributed and corporate expenses and intercompany eliminations, net

 

(15.4

)

(15.5

)

(56.4

)

(53.3

)

 

 

 

 

 

 

 

 

 

 

Earnings before interest and taxes

 

211.6

 

218.6

 

558.1

 

638.2

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(45.5

)

(44.2

)

(138.0

)

(134.2

)

Debt refinancing costs

 

(1.3

)

 

(28.0

)

(15.1

)

Total interest expense

 

(46.8

)

(44.2

)

(166.0

)

(149.3

)

Tax provision

 

(44.1

)

(51.7

)

(93.0

)

(129.7

)

Equity in results of affiliates, net of tax

 

0.9

 

(0.8

)

0.9

 

(1.0

)

Net earnings from continuing operations

 

121.6

 

121.9

 

300.0

 

358.2

 

Discontinued operations, net of tax

 

0.3

 

(2.2

)

0.4

 

(2.9

)

Net earnings

 

121.9

 

119.7

 

300.4

 

355.3

 

Less net earnings attributable to noncontrolling interests

 

(6.7

)

(4.6

)

(18.1

)

(12.4

)

Net earnings attibutable to Ball Corporation

 

$

115.2

 

$

115.1

 

$

282.3

 

$

342.9

 

 

7



Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

3.              Business Segment Information (continued)

 

 

 

September 30,

 

December 31,

 

($ in millions)

 

2013

 

2012

 

 

 

 

 

 

 

Total Assets

 

 

 

 

 

Metal beverage packaging, Americas & Asia

 

$

3,307.6

 

$

3,227.5

 

Metal beverage packaging, Europe

 

2,325.9

 

2,299.8

 

Metal food & household products packaging

 

1,635.3

 

1,568.9

 

Aerospace & technologies

 

346.6

 

332.8

 

Segment assets

 

7,615.4

 

7,429.0

 

Corporate assets and intercompany eliminations

 

93.8

 

78.1

 

Total assets

 

$

7,709.2

 

$

7,507.1

 

 

4.  Acquisitions

 

Envases del Plata S.A. de C.V.

 

In December 2012, the company acquired a leading producer of extruded aluminum aerosol packaging in Mexico with a single manufacturing facility in San Luis Potosí for cash of $57.7 million, net of cash acquired, and assumed debt of $72.7 million. The facility produces extruded aluminum aerosol containers for personal care and household products for customers in North, Central and South America and employs approximately 150 people. The acquisition is expected to provide a platform to grow the company’s existing North American extruded aluminum business, providing a new end market for the company’s products, including the company’s ReAlTM technology that enables the use of recycled material and meaningful lightweighting in the manufacture of extruded aluminum packaging. Based on the final purchase price allocation, goodwill of $64.0 million was recorded at September 30, 2013. This acquisition is not material to the metal food and household products packaging segment.

 

5.              Business Consolidation and Other Activities

 

Following is a summary of business consolidation and other activity charges included in the unaudited condensed consolidated statements of earnings:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

($ in millions)

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

Metal beverage packaging, Americas & Asia

 

$

(14.1

)

$

(31.5

)

$

(26.6

)

$

(32.9

)

Metal beverage packaging, Europe

 

(1.7

)

(3.5

)

(4.6

)

(6.2

)

Metal food & household products packaging

 

(28.9

)

 

(57.4

)

 

Aerospace & technologies

 

 

 

(0.2

)

 

Corporate and other

 

0.9

 

(1.8

)

(0.3

)

(4.9

)

 

 

$

(43.8

)

$

(36.8

)

$

(89.1

)

$

(44.0

)

 

8



Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

5.              Business Consolidation and Other Activities (continued)

 

2013

 

Metal Beverage Packaging, Americas and Asia

 

During July 2013, the company signed a compensation agreement for approximately $72 million pretax with the PRC government to vacate the Shenzhen manufacturing facility and relocate the production equipment. Proceeds from the compensation agreement will offset costs related to the closure and relocation of the Shenzhen facility and will be composed of compensation for the disposal of the land and building, the disposal and transfer of machinery and equipment, business interruption costs and severance. Any compensation received in excess of expenses or losses incurred by the company will be reflected in business consolidation and other activities. The third quarter and first nine months included charges of $6.8 million and $8.1 million, respectively, for closure and relocation costs. The total charges in the first nine months of $8.1 million were composed of $6.6 million for severance, which will be compensated in the fourth quarter; and $1.5 million for other costs that will not be compensated under the agreement. The company also recorded charges of $7.8 million and $3.3 million, respectively, in the first nine months for the write-off of the land and building and the disposal and transfer of machinery and equipment, which were both fully compensated in the third quarter and recorded as income to offset the charges. During the third quarter, the company received $28.4 million of compensation, of which $17.3 million was deferred on the balance sheet. The remainder of the compensation is expected to be received in the fourth quarter of 2013.

 

The third quarter and first nine months included charges of $1.6 million and $8.7 million, respectively, to eliminate 12-ounce beverage can production from the company’s Milwaukee, Wisconsin, facility. The charges for the nine months were composed of $4.6 million for accelerated depreciation, $1.6 million for severance and other employee benefits and $2.5 million for other costs. In addition, the third quarter and first nine months of 2013 included net charges of $5.3 million and $8.4 million, respectively, primarily for ongoing costs related to the previously announced closures of Ball’s Columbus, Ohio, and Gainesville, Florida, facilities and voluntary separation programs, as well as other insignificant charges.

 

The third quarter and first nine months of 2013 also included net charges of $0.4 million and $1.4 million, respectively, for ongoing costs related to previously closed facilities and other insignificant costs.

 

Metal Beverage Packaging, Europe, and Corporate

 

During the third quarter and first nine months, the company recorded charges of $1.7 million and $5.5 million, respectively, primarily for headcount reductions and implementation costs incurred in connection with the relocation of the company’s European headquarters from Germany to Switzerland.

 

The third quarter and first nine months of 2013 also included net income of $0.9 million and $0.6 million, respectively, primarily related to previously closed facilities.

 

Metal Food and Household Products Packaging

 

In the third quarter, the company recorded an accounts receivable provision of $27.0 million as a result of the October 28, 2013, bankruptcy filing of a metal food and household products packaging segment customer. This provision represents the company’s estimate of the most likely potential loss of value it expects to incur on the approximately $46.5 million accounts receivable balance as a result of the financial condition of this customer. The company’s estimate of potential loss as a result of this event may materially change in the future if the customer’s facts and circumstances change.

 

During the first quarter, the company announced that it will close its Elgin, Illinois, food and household products packaging facility in December 2013. The third quarter and first nine months included charges of $1.9 million and $28.0 million, respectively, in connection with this planned closure. The total charges in the first nine months were composed of $16.0 million for severance, pension and other employee benefits; $4.2 million for the write down of the land and building to net realizable value; and $7.8 million for the accelerated depreciation on assets to be abandoned and other closure costs. The Elgin facility produces steel aerosol and specialty cans, as well as flat steel sheet used by other Ball facilities. The plant’s production capabilities will be supplied by other Ball food and household products packaging facilities.

 

9



Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

5.              Business Consolidation and Other Activities (continued)

 

The second quarter also included a charge of $5.9 million to migrate certain hourly employees from a multi-employer defined benefit pension plan as of January 1, 2014, to a Ball-sponsored defined benefit pension plan. Additionally, the first six months included income of $3.5 million to accrue for the reimbursement of funds paid in 2012 for the settlement of certain Canadian defined benefit pension liabilities related to previously closed facilities.

 

2012

 

Metal Beverage Packaging, Americas and Asia

 

In August 2012, Ball announced plans to close its Columbus, Ohio, U.S., beverage can manufacturing facility and its Gainesville, Florida, U.S., end facility in order to consolidate the company’s 12-ounce beverage can and end production capacity to meet changing market demand. In connection with the closures, the company recorded initial charges of $31.3 million in the third quarter, of which $20.1 million represented severance, pension and other employee benefits; $6.6 million represented accelerated depreciation and $4.6 million represented the obsolescence of tooling and spares.

 

The third quarter and first nine months of 2012 also included net charges of $0.2 million and $1.6 million, respectively, for ongoing costs related to previously closed facilities and other insignificant costs.

 

Metal Beverage Packaging, Europe, and Corporate

 

The third quarter and first nine months included charges of $4.2 million and $9.6 million, respectively, as well as $1.3 million of additional tax expense, in connection with the relocation of the company’s European headquarters from Germany to Switzerland, which was completed during the third quarter of 2012. The third quarter and first nine months of 2012 also included net charges of $1.1 million and $1.5 million, respectively, for ongoing costs related to previously closed facilities and other insignificant charges.

 

Following is a summary by segment of the activity in the restructuring reserves:

 

($ in millions) 

 

Metal Beverage
Packaging,
Americas &
Asia

 

Metal Food &
Household
Products
Packaging

 

Aerospace &
Technologies

 

Corporate and
Other Costs

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2012

 

$

16.4

 

$

3.0

 

$

1.9

 

$

3.8

 

$

25.1

 

Charges to earnings

 

(3.3

)

18.4

 

 

0.2

 

15.3

 

Cash payments and other activity

 

(11.3

)

(6.3

)

(1.9

)

(4.0

)

(23.5

)

Balance at September 30, 2013

 

$

1.8

 

$

15.1

 

$

 

$

 

$

16.9

 

 

The carrying value of assets held for sale in connection with facility closures was $36.8 million at September 30, 2013, and $31.4 million at December 31, 2012.

 

10



Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

6.              Receivables

 

 

 

September 30,

 

December 31,

 

($ in millions) 

 

2013

 

2012

 

 

 

 

 

 

 

Trade accounts receivable

 

$

1,061.2

 

$

878.3

 

Less allowance for doubtful accounts

 

(39.3

)

(13.7

)

Net trade accounts receivable

 

1,021.9

 

864.6

 

Other receivables

 

65.6

 

65.5

 

 

 

$

1,087.5

 

$

930.1

 

 

The allowance for doubtful accounts at September 30, 2013, includes a provision recorded in the third quarter as a result of the October 28, 2013, bankruptcy filing of a metal food and household products packaging segment customer. Additional details are available in Note 5.

 

The company has several regional uncommitted accounts receivable factoring programs with various financial institutions for certain receivables of the company. The programs are accounted for as true sales of the receivables, without recourse to Ball, and had combined limits of approximately $245 million at September 30, 2013. A total of $149.5 million and $75.0 million were sold under these programs as of September 30, 2013, and December 31, 2012, respectively. Latapack-Ball also has a non-recourse uncommitted accounts receivable factoring program in 2013 with a limit of approximately $24 million (55 million Brazilian real), under which there were no accounts receivable sold as of September 30, 2013.

 

7.              Inventories

 

 

 

September 30,

 

December 31,

 

($ in millions) 

 

2013

 

2012

 

 

 

 

 

 

 

Raw materials and supplies

 

$

441.6

 

$

426.7

 

Work-in-process and finished goods

 

588.1

 

664.5

 

Less inventory reserves

 

(49.4

)

(46.8

)

 

 

$

980.3

 

$

1,044.4

 

 

8.              Property, Plant and Equipment

 

 

 

September 30,

 

December 31,

 

($ in millions) 

 

2013

 

2012

 

 

 

 

 

 

 

Land

 

$

79.2

 

$

82.6

 

Buildings

 

963.5

 

934.3

 

Machinery and equipment

 

3,541.1

 

3,407.6

 

Construction-in-progress

 

283.2

 

240.6

 

 

 

4,867.0

 

4,665.1

 

Accumulated depreciation

 

(2,506.9

)

(2,376.5

)

 

 

$

2,360.1

 

$

2,288.6

 

 

Property, plant and equipment are stated at historical or acquired cost. Depreciation expense amounted to $66.8 million and $194.9 million for the three and nine months ended September 30, 2013, respectively, and $64.4 million and $190.2 million for the comparable periods in 2012, respectively.

 

11



Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

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, 2012

 

$

740.7

 

$

993.2

 

$

625.5

 

$

 

$

2,359.4

 

Business acquisitions and related opening balance sheet adjustments

 

 

 

(15.1

)

8.6

 

(6.5

)

Effects of currency exchange rates

 

 

23.0

 

3.9

 

 

26.9

 

Balance at September 30, 2013

 

$

740.7

 

$

1,016.2

 

$

614.3

 

$

8.6

 

$

2,379.8

 

 

On January 1, 2013, the company implemented changes to its management and internal reporting structure. As a result, the European extruded aluminum reporting unit, which was previously included in the metal beverage packaging, Europe, segment, is now included in the metal food and household products packaging segment. Goodwill by segment has been retrospectively adjusted to conform to the current year presentation.

 

10. Intangibles and Other Assets

 

 

 

September 30,

 

December 31,

 

($ in millions)

 

2013

 

2012

 

 

 

 

 

 

 

Investment in affiliates

 

$

33.6

 

$

32.2

 

Intangible assets (net of accumulated amortization of $87.0 million at September 30, 2013, and $68.1 million at December 31, 2012)

 

171.5

 

162.9

 

Capitalized software (net of accumulated amortization of $87.7 million at September 30, 2013, and $78.4 million at December 31, 2012)

 

61.6

 

50.4

 

Company and trust-owned life insurance

 

139.9

 

114.7

 

Deferred financing costs

 

47.8

 

37.3

 

Other

 

89.5

 

122.2

 

 

 

$

543.9

 

$

519.7

 

 

Total amortization expense of intangible assets amounted to $9.8 million and $28.7 million for the three and nine months ended September 30, 2013, respectively, and $10.3 million and $20.0 million for the comparable periods in 2012, respectively.

 

12



Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

11.       Debt

 

Long-term debt consisted of the following:

 

 

 

September 30, 2013

 

December 31, 2012

 

 

 

In

 

 

 

In

 

 

 

 

 

Denominated

 

 

 

Denominated

 

 

 

($ in millions)

 

Currency

 

In U.S. $

 

Currency

 

In U.S. $

 

 

 

 

 

 

 

 

 

 

 

Notes Payable

 

 

 

 

 

 

 

 

 

7.125% Senior Notes, due September 2016

 

$

 

$

 

$

375.0

 

$

375.0

 

7.375% Senior Notes, due September 2019

 

$

315.4

 

315.4

 

$

325.0

 

325.0

 

6.75% Senior Notes, due September 2020

 

$

500.0

 

500.0

 

$

500.0

 

500.0

 

5.75% Senior Notes, due May 2021

 

$

500.0

 

500.0

 

$

500.0

 

500.0

 

5.00% Senior Notes, due March 2022

 

$

750.0

 

750.0

 

$

750.0

 

750.0

 

4.00% Senior Notes, due November 2023

 

$

1,000.0

 

1,000.0

 

$

 

 

Senior Credit Facilities, due June 2018 (at variable rates)

 

 

 

 

 

 

 

 

 

Term A Loan, U.S. dollar denominated

 

$

 

 

$

125.0

 

125.0

 

Term B Loan, British sterling denominated

 

£

37.3

 

60.2

 

£

46.5

 

75.2

 

Term C Loan, euro denominated

 

81.6

 

110.4

 

91.3

 

120.6

 

Multi-currency revolver, euro denominated

 

 

 

159.0

 

210.1

 

Latapack-Ball Notes Payable (at various rates and terms)

 

$

230.7

 

230.7

 

$

176.1

 

176.1

 

Other (including discounts and premiums)

 

Various

 

(2.6

)

Various

 

32.4

 

 

 

 

 

3,464.1

 

 

 

3,189.4

 

Less: Current portion of long-term debt

 

 

 

(46.6

)

 

 

(104.1

)

 

 

 

 

$

3,417.5

 

 

 

$

3,085.3

 

 

In May 2013, Ball: (1) issued $1 billion of 4.00 percent senior notes due in November 2023; (2) tendered for the redemption of its 7.125 percent senior notes originally due in September 2016 in the amount of $375 million, at a redemption price per note of 105.322 percent of the outstanding principal amount plus accrued interest; and (3) repaid the $125 million Term A loan, which was a component of the senior credit facilities. The redemption of the senior notes, all of which occurred in the second quarter, and the early repayment of the Term A loan resulted in charges of $26.5 million for the tender and call premiums, as well as the write off of unamortized financing costs and issuance discounts. These charges are included as a component of interest expense in the unaudited condensed consolidated statement of earnings.

 

The senior credit facilities bear interest at variable rates and include the term loans described in the table above, as well as a long-term, multi-currency committed revolving credit facility that provides the company with up to the U.S. dollar equivalent of $1 billion. In June 2013, the company amended the senior credit facilities and extended the term from December 2015 to June 2018. In connection with the amendment, the company recorded a charge of $0.4 million for the write off of unamortized financing costs. The charge is included as a component of interest expense in the unaudited condensed consolidated statement of earnings.

 

At September 30, 2013, taking into account outstanding letters of credit and excluding availability under the accounts receivable securitization program, approximately $984 million was available under the company’s long-term, multi-currency committed revolving credit facilities, which are available until June 2018. In addition to these facilities, the company had approximately $658 million of short-term uncommitted credit facilities available at the end of the quarter, of which $57.9 million was outstanding and due on demand.

 

The fair value of the long-term debt at September 30, 2013, and at December 31, 2012, 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. 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.

 

13



Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

11.       Debt (continued)

 

On March 9, 2012, Ball issued $750 million of 5.00 percent senior notes due in March 2022. On the same date, the company tendered for the redemption of its 6.625 percent senior notes originally due in March 2018 in the amount of $450 million, at a redemption price per note of 102.583 percent of the outstanding principal amount plus accrued interest. The company redeemed $392.7 million during the first quarter of 2012, and the remaining $57.3 million was redeemed during the second quarter. The redemption of the bonds resulted in a charge of $15.1 million for the call premium and the write off of unamortized financing costs and premiums. The charge is included as a component of interest expense in the unaudited condensed consolidated statement of earnings.

 

In August 2011, the company entered into an accounts receivable securitization agreement for a term of three years, as amended from time to time. The maximum the company can borrow under the amended agreement can vary between $85 million and $210 million depending on the seasonal accounts receivable balances in the company’s North American packaging businesses. There were no accounts receivable sold under this agreement at September 30, 2013, or December 31, 2012. Borrowings under the securitization agreement, if any, are included within short-term debt and current portion of long-term debt on the balance sheet.

 

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. Note 19 contains further details, as well as required unaudited condensed consolidating financial information for the company, segregating the guarantor subsidiaries and non-guarantor subsidiaries as defined in the senior notes agreements.

 

The U.S. note agreements, bank credit agreement 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 in the agreements) of no less than 3.50 and a leverage ratio (as defined) of no greater than 4.00. The company was in compliance with all loan agreements and debt covenants at September 30, 2013, and December 31, 2012, and has met all debt payment obligations.

 

The Latapack-Ball debt facilities contain various covenants and restrictions but are non-recourse to Ball Corporation and its wholly owned subsidiaries.

 

14



Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

12.       Employee Benefit Obligations

 

 

 

September 30,

 

December 31,

 

($ in millions)

 

2013

 

2012

 

 

 

 

 

 

 

Underfunded defined benefit pension liabilities, net

 

$

762.7

 

$

820.2

 

Less current portion and prepaid pension assets

 

(23.8

)

(25.0

)

Long-term defined benefit pension liabilities

 

738.9

 

795.2

 

Retiree medical and other postemployment benefits

 

175.0

 

177.0

 

Deferred compensation plans

 

239.5

 

237.8

 

Other

 

22.3

 

28.1

 

 

 

$

1,175.7

 

$

1,238.1

 

 

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

 

 

 

Three Months Ended September 30,

 

 

 

2013

 

2012

 

($ in millions)

 

U.S.

 

Foreign

 

Total

 

U.S.

 

Foreign

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ball-sponsored plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

12.1

 

$

2.5

 

$

14.6

 

$

11.7

 

$

2.0

 

$

13.7

 

Interest cost

 

13.8

 

5.9

 

19.7

 

14.2

 

7.1

 

21.3

 

Expected return on plan assets

 

(19.3

)

(3.4

)

(22.7

)

(18.6

)

(4.3

)

(22.9

)

Amortization of prior service cost

 

 

(0.1

)

(0.1

)

0.2

 

(0.1

)

0.1

 

Recognized net actuarial loss

 

10.7

 

1.2

 

11.9

 

8.4

 

1.8

 

10.2

 

Curtailment loss

 

 

 

 

0.1

 

 

0.1

 

Net periodic benefit cost for Ball-sponsored plans

 

17.3

 

6.1

 

23.4

 

16.0

 

6.5

 

22.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net periodic benefit cost for multi-employer plans

 

0.7

 

 

0.7

 

0.6

 

 

0.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total net periodic benefit cost

 

$

18.0

 

$

6.1

 

$

24.1

 

$

16.6

 

$

6.5

 

$

23.1

 

 

15



Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

12.  Employee Benefit Obligations (continued)

 

 

 

Nine Months Ended September 30,

 

 

 

2013

 

2012

 

($ in millions)

 

U.S.

 

Foreign

 

Total

 

U.S.

 

Foreign

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ball-sponsored plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

36.5

 

$

7.5

 

$

44.0

 

$

35.1

 

$

5.9

 

$

41.0

 

Interest cost

 

41.4

 

17.8

 

59.2

 

42.4

 

21.5

 

63.9

 

Expected return on plan assets

 

(58.0

)

(10.2

)

(68.2

)

(55.5

)

(12.8

)

(68.3

)

Amortization of prior service cost

 

 

(0.3

)

(0.3

)

0.7

 

(0.3

)

0.4

 

Recognized net actuarial loss

 

32.0

 

3.7

 

35.7

 

25.1

 

5.3

 

30.4

 

Curtailment loss (a)

 

4.1

 

 

4.1

 

0.3

 

 

0.3

 

Net periodic benefit cost for Ball-sponsored plans

 

56.0

 

18.5

 

74.5

 

48.1

 

19.6

 

67.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Multi-employer plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net periodic benefit cost, excluding curtailment loss

 

2.0

 

 

2.0

 

2.0

 

 

2.0

 

Curtailment loss (a)

 

9.8

 

 

9.8

 

 

 

 

Net periodic benefit cost for multi-employer plans

 

11.8

 

 

11.8

 

2.0

 

 

2.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total net periodic benefit cost

 

$

67.8

 

$

18.5

 

$

86.3

 

$

50.1

 

$

19.6

 

$

69.7

 

 


(a)         Curtailment losses in 2013 are related to the closure of the company’s Elgin, Illinois, facility and the migration of certain of the company’s Weirton, West Virginia, hourly employees from a multi-employer defined benefit pension plan to a Ball-sponsored defined benefit pension plan as of January 1, 2014. Further details are available in Note 5.

 

Contributions to the company’s defined global benefit pension plans, not including the unfunded German plans, were $89.7 million in the first nine months of 2013 ($108.7 million in 2012). The total contributions to these funded plans are expected to be approximately $95 million for the full year. This estimate may change based on changes in the Pension Protection Act, actual plan asset performance and available company cash flow, among other factors. Payments to participants in the unfunded German plans were $16.7 million (€12.7 million) in the first nine months of 2013 and are expected to be approximately $23 million (approximately €17 million) for the full year.

 

16



Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

13.  Shareholders’ Equity and Comprehensive Earnings

 

Accumulated Other Comprehensive Earnings (Loss)

 

The activity related to accumulated other comprehensive earnings (loss) was as follows:

 

($ in millions)

 

Foreign
Currency
Translation

 

Pension and
Other
Postretirement
Benefits
(Net of Tax)

 

Effective
Derivatives
(Net of Tax)

 

Accumulated
Other
Comprehensive
Earnings (Loss)

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2012

 

$

117.5

 

$

(461.0

)

$

(8.9

)

$

(352.4

)

Other comprehensive earnings (loss) before reclassifications

 

29.7

 

(3.8

)

(37.0

)

(11.1

)

Amounts reclassified from Accumulated other comprehensive earnings (loss)

 

 

21.5

 

13.9

 

35.4

 

Balance at September 30, 2013

 

$

147.2

 

$

(443.3

)

$

(32.0

)

$

(328.1

)

 

The following table provides additional details of the amounts recognized into net earnings from accumulated other comprehensive earnings (loss):

 

 

 

Three Months Ended

 

Nine Months Ended

 

($ in millions)

 

September 30, 2013

 

September 30, 2013

 

 

 

 

 

 

 

Gains (losses) on cash flow hedges:

 

 

 

 

 

Commodity contracts recorded in net sales

 

$

2.8

 

$

5.2

 

Commodity contracts and currency exchange contracts recorded in cost of sales

 

(13.2

)

(23.6

)

Interest rate contracts recorded in interest expense

 

(0.3

)

(0.8

)

Total before tax effect

 

(10.7

)

(19.2

)

Tax benefit (expense) on amounts reclassified into earnings

 

2.7

 

5.3

 

Recognized gain (loss)

 

$

(8.0

)

$

(13.9

)

 

 

 

 

 

 

Amortization of pension and other postretirement benefits (a):

 

 

 

 

 

Prior service income (cost)

 

$

0.1

 

$

0.3

 

Actuarial gains (losses)

 

(11.9

)

(35.7

)

Total before tax effect

 

(11.8

)

(35.4

)

Tax benefit (expense) on amounts reclassified into earnings

 

4.7

 

13.9

 

Recognized gain (loss)

 

$

(7.1

)

$

(21.5

)

 


(a)         These components are included in the computation of net periodic benefit cost included in Note 12.

 

17



Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

13.       Shareholders’ Equity and Comprehensive Earnings (continued)

 

Share Repurchase Agreements

 

In February 2012, in a privately negotiated transaction, Ball entered into an accelerated share repurchase agreement to buy $200 million of its common shares using cash on hand and available borrowings. The company advanced the $200 million on February 3, 2012, and received 4,584,819 shares, which represented 90 percent of the total shares as calculated using the closing price on January 31, 2012. The agreement was settled in May 2012, and the company received an additional 334,039 shares, which represented a weighted average price of $40.66 for the contract period.

 

In October 2011, in a privately negotiated transaction, Ball entered into an accelerated share repurchase agreement to buy $100 million of its common shares using cash on hand and available borrowings. The company advanced the $100 million on November 2, 2011, and received 2,523,836 shares, which represented 90 percent of the total shares as calculated using the closing price on October 28, 2011. The agreement was settled in January 2012, and the company received an additional 361,615 shares, which represented a weighted average price of $34.66 for the contract period.

 

14.       Stock-Based Compensation Programs

 

The company has shareholder-approved stock plans under which options and stock-settled appreciation rights (SSARs) have been granted to employees at the market value of the company’s stock at the date of grant. In the case of stock options, payment must be made by the employee at the time of exercise in cash or with shares of stock owned by the employee, which are valued at fair market value on the date exercised. For SSARs, the employee receives the share equivalent of the difference between the fair market value on the date exercised and the exercise price of the SSARs exercised. In general, options and SSARs are exercisable in four equal installments commencing one year from the date of grant and terminating 10 years from the date of grant. A summary of stock option and SSAR activity for the nine months ended September 30, 2013, follows:

 

 

 

Outstanding Options and SSARs

 

 

 

Number of
Shares

 

Weighted
Average
Exercise Price

 

 

 

 

 

 

 

Beginning of year

 

9,982,104

 

$

26.71

 

Granted

 

1,364,870

 

$

45.93

 

Exercised

 

(1,046,369

)

$

23.14

 

Canceled/forfeited

 

(48,625

)

$

37.62

 

End of period

 

10,251,980

 

$

29.59

 

 

 

 

 

 

 

Vested and exercisable, end of period

 

6,866,980

 

$

24.79

 

Reserved for future grants (a)

 

12,412,861

 

 

 

 


(a)         On April 24, 2013, Ball’s shareholders approved the 2013 Stock and Cash Incentive Plan, which authorized 12.5 million shares for future option, SSAR and restricted share grants. This authorization replaced all previous authorizations.

 

The weighted average remaining contractual term for all options and SSARs outstanding at September 30, 2013, was 6.0 years and the aggregate intrinsic value (difference in exercise price and closing price at that date) was $158.2 million. The weighted average remaining contractual term for options and SSARs vested and exercisable at September 30, 2013, was 4.8 years and the aggregate intrinsic value was $138.0 million.

 

The company received $5.2 million from options exercised during the three months ended September 30, 2013, and the intrinsic value associated with these exercises was $4.6 million. During the nine months ended September 30, 2013, the company received $14.1 million from options exercised, and the intrinsic value associated with these exercises was $13.8 million. The tax benefit associated with the company’s stock compensation programs was $10.5 million for the first nine months of 2013 and was reported as other financing activities in the unaudited condensed consolidated statement of cash flows.

 

18



Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

14.       Stock-Based Compensation Programs (continued)

 

These options and SSARs cannot be traded in any equity market. However, based on the Black-Scholes option pricing model, options and SSARs granted in 2013 and 2012 have estimated weighted average fair values at the grant dates of $8.69 and $9.44 per share, respectively. The actual value an employee may realize will depend on the excess of the stock price over the exercise price on the date the option or SSAR is exercised. Consequently, there is no assurance that the value realized by an employee will be at or near the value estimated. The fair values were estimated using the following weighted average assumptions:

 

 

 

January 2013

 

January 2012

 

 

 

 

 

 

 

Expected dividend yield

 

1.13%

 

1.06%

 

Expected stock price volatility

 

22.02%

 

30.22%

 

Risk-free interest rate

 

1.02%

 

0.84%

 

Expected life of options

 

5.50 years

 

5.26 years

 

 

In addition to stock options and SSARs, the company issues restricted shares and restricted stock units to officers and certain employees, which vest over various periods. Other than the performance-contingent grants discussed below, such restricted shares and restricted stock units generally vest in equal installments over five years. Compensation cost is recorded based upon the estimated fair value of the shares at the grant date.

 

The following is a summary of restricted stock activity for the nine months ended September 30, 2013:

 

 

 

Number of
Shares/Units

 

Weighted
Average Grant
Price

 

 

 

 

 

 

 

Beginning of year

 

1,763,636

 

$

28.97

 

Granted

 

185,845

 

46.11

 

Vested

 

(493,910

)

26.61

 

Canceled/forfeited

 

(5,502

)

34.21

 

End of period

 

1,450,069

 

31.95

 

 

In January 2013, the company’s board of directors granted 148,875 performance-contingent restricted stock units (RSUs) to key employees, which will vest in January 2016 depending on the company’s growth in economic valued added (EVA®) dollars using 2012 EVA® dollars generated as the minimum threshold. The number of RSUs that will vest can range between zero and 200 percent of each participant’s assigned award opportunity. Under a previous program, in January 2012 the company’s board of directors granted 223,600 performance-contingent RSUs, to key employees, which will cliff-vest if the company’s return on average invested capital during a 36-month performance period is equal to or exceeds the company’s cost of capital established at the beginning of the performance period. In both RSU programs, if the minimum performance goals are not met, the shares will be forfeited. Grants under the plan are being accounted for as equity awards and compensation expense is recorded based upon the most probable outcome using the closing market price of the shares at the grant date. On a quarterly basis, the company reassesses the probability of the goals being met and adjusts compensation expense as appropriate.

 

For the three and nine months ended September 30, 2013, the company recognized expense of $5.6 million ($3.5 million after tax) and $19.0 million ($11.6 million after tax) for share-based compensation arrangements in selling, general and administrative expenses. For the three and nine months ended September 30, 2012, the company recognized expense of $6.6 million ($4.0 million after tax) and $20.2 million ($12.3 million after tax), respectively, for such arrangements. At September 30, 2013, there were $38.9 million of unrecognized compensation costs related to nonvested share-based compensation arrangements. This cost is expected to be recognized in earnings over a weighted average period of 2.2 years.

 

19



Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

15.       Earnings and Dividends Per Share

 

 

 

Three Months Ended

 

Nine Months Ended

 

($ in millions, except per share amounts;

 

September 30,

 

September 30,

 

shares in thousands)

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

Net earnings attributable to Ball Corporation

 

$</