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, 2015

 

Commission file number 001-07349

 

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 October 26, 2015

Common Stock, without par value

 

136,321,229 shares

 

 

 



Table of Contents

 

Ball Corporation

QUARTERLY REPORT ON FORM 10-Q

For the period ended September 30, 2015

 

INDEX

 

 

 

Page
Number

 

 

 

PART I.

FINANCIAL INFORMATION:

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Earnings for the Three and Nine Months Ended September 30, 2015 and 2014

1

 

 

 

 

Unaudited Condensed Consolidated Statements of Comprehensive Earnings for the Three and Nine Months Ended September 30, 2015 and 2014

2

 

 

 

 

Unaudited Condensed Consolidated Balance Sheets at September 30, 2015, and December 31, 2014

3

 

 

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2015 and 2014

4

 

 

 

 

Notes to the Unaudited Condensed Consolidated Financial Statements

5

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

36

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

47

 

 

 

Item 4.

Controls and Procedures

47

 

 

 

PART II.

OTHER INFORMATION

49

 



Table of Contents

 

PART I.              FINANCIAL INFORMATION

 

Item 1.                     FINANCIAL STATEMENTS

 

BALL CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

($ in millions, except per share amounts)

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

2,097.0

 

$

2,238.9

 

$

6,192.4

 

$

6,537.6

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses

 

 

 

 

 

 

 

 

 

Cost of sales (excluding depreciation and amortization)

 

(1,690.3

)

(1,807.3

)

(5,026.3

)

(5,266.6

)

Depreciation and amortization

 

(71.9

)

(71.3

)

(211.5

)

(209.7

)

Selling, general and administrative

 

(106.8

)

(123.1

)

(340.5

)

(342.2

)

Business consolidation and other activities

 

(151.9

)

(9.2

)

(138.3

)

(17.8

)

 

 

(2,020.9

)

(2,010.9

)

(5,716.6

)

(5,836.3

)

 

 

 

 

 

 

 

 

 

 

Earnings before interest and taxes

 

76.1

 

228.0

 

475.8

 

701.3

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(37.5

)

(40.1

)

(107.0

)

(120.9

)

Debt refinancing and other costs

 

(21.0

)

 

(85.9

)

(33.1

)

Total interest expense

 

(58.5

)

(40.1

)

(192.9

)

(154.0

)

 

 

 

 

 

 

 

 

 

 

Earnings before taxes

 

17.6

 

187.9

 

282.9

 

547.3

 

Tax (provision) benefit

 

31.0

 

(39.8

)

(47.9

)

(139.6

)

Equity in results of affiliates, net of tax

 

1.5

 

0.3

 

3.4

 

1.9

 

Net earnings

 

50.1

 

148.4

 

238.4

 

409.6

 

Less net earnings attributable to noncontrolling interests

 

(5.6

)

(1.0

)

(12.8

)

(15.6

)

Net earnings attributable to Ball Corporation

 

$

44.5

 

$

147.4

 

$

225.6

 

$

394.0

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.32

 

$

1.07

 

$

1.64

 

$

2.83

 

Diluted

 

$

0.32

 

$

1.04

 

$

1.60

 

$

2.76

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding (000s):

 

 

 

 

 

 

 

 

 

Basic

 

137,337

 

138,010

 

137,409

 

139,133

 

Diluted

 

140,858

 

142,090

 

141,141

 

142,986

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

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Table of Contents

 

BALL CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

($ in millions)

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

$

50.1

 

$

148.4

 

$

238.4

 

$

409.6

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive earnings (loss):

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

(20.9

)

(106.1

)

(113.5

)

(136.7

)

Pension and other postretirement benefits

 

10.5

 

15.4

 

41.6

 

32.5

 

Effective financial derivatives

 

(0.9

)

24.3

 

(16.6

)

44.5

 

Total other comprehensive earnings (loss)

 

(11.3

)

(66.4

)

(88.5

)

(59.7

)

Income tax (provision) benefit

 

(5.0

)

(6.4

)

(10.0

)

(16.3

)

Total other comprehensive earnings (loss), net of tax

 

(16.3

)

(72.8

)

(98.5

)

(76.0

)

 

 

 

 

 

 

 

 

 

 

Total comprehensive earnings (loss)

 

33.8

 

75.6

 

139.9

 

333.6

 

Less comprehensive (earnings) loss attributable to noncontrolling interests

 

(5.7

)

(0.6

)

(12.3

)

(15.2

)

Comprehensive earnings (loss) attributable to Ball Corporation

 

$

28.1

 

$

75.0

 

$

127.6

 

$

318.4

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

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Table of Contents

 

BALL CORPORATION

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

September 30,

 

December 31,

 

($ in millions)

 

2015

 

2014

 

 

 

 

 

 

 

Assets

 

 

 

 

 

Current assets

 

 

 

 

 

Cash and cash equivalents

 

$

244.4

 

$

191.4

 

Receivables, net

 

1,097.8

 

957.1

 

Inventories, net

 

876.0

 

1,016.7

 

Deferred taxes and other current assets

 

164.4

 

148.3

 

Total current assets

 

2,382.6

 

2,313.5

 

Noncurrent assets

 

 

 

 

 

Property, plant and equipment, net

 

2,547.3

 

2,430.7

 

Goodwill

 

2,204.1

 

2,254.5

 

Intangibles and other assets, net

 

593.0

 

572.3

 

Total assets

 

$

7,727.0

 

$

7,571.0

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

Current liabilities

 

 

 

 

 

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

 

$

282.9

 

$

175.1

 

Accounts payable

 

1,451.4

 

1,340.0

 

Accrued employee costs

 

213.3

 

269.9

 

Other current liabilities

 

332.0

 

221.8

 

Total current liabilities

 

2,279.6

 

2,006.8

 

Noncurrent liabilities

 

 

 

 

 

Long-term debt

 

2,879.4

 

2,993.8

 

Employee benefit obligations

 

1,159.5

 

1,178.3

 

Deferred taxes and other liabilities

 

165.1

 

152.5

 

Total liabilities

 

6,483.6

 

6,331.4

 

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

Common stock (332,437,320 shares issued - 2015; 331,618,306 shares issued - 2014)

 

1,171.3

 

1,131.3

 

Retained earnings

 

4,519.6

 

4,346.9

 

Accumulated other comprehensive earnings (loss)

 

(620.1

)

(522.1

)

Treasury stock, at cost (196,180,099 shares - 2015; 194,652,028 shares - 2014)

 

(4,037.1

)

(3,923.0

)

Total Ball Corporation shareholders’ equity

 

1,033.7

 

1,033.1

 

Noncontrolling interests

 

209.7

 

206.5

 

Total shareholders’ equity

 

1,243.4

 

1,239.6

 

Total liabilities and shareholders’ equity

 

$

7,727.0

 

$

7,571.0

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

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Table of Contents

 

BALL CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

Nine Months Ended September 30,

 

($ in millions)

 

2015

 

2014

 

 

 

 

 

 

 

Cash Flows from Operating Activities

 

 

 

 

 

Net earnings

 

$

238.4

 

$

409.6

 

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

 

 

 

 

 

Depreciation and amortization

 

211.5

 

209.7

 

Business consolidation and other activities

 

138.3

 

17.8

 

Deferred tax provision (benefit)

 

(68.3

)

8.3

 

Other, net

 

91.6

 

(18.8

)

Changes in working capital components

 

(14.5

)

23.4

 

Cash provided by (used in) operating activities

 

597.0

 

650.0

 

Cash Flows from Investing Activities

 

 

 

 

 

Capital expenditures

 

(356.8

)

(250.0

)

Business acquisitions

 

(29.1

)

 

Other, net

 

18.3

 

11.1

 

Cash provided by (used in) investing activities

 

(367.6

)

(238.9

)

Cash Flows from Financing Activities

 

 

 

 

 

Long-term borrowings

 

2,315.0

 

396.9

 

Repayments of long-term borrowings

 

(2,408.4

)

(874.3

)

Net change in short-term borrowings

 

111.0

 

199.0

 

Proceeds from issuances of common stock

 

26.3

 

27.7

 

Acquisitions of treasury stock

 

(135.5

)

(335.5

)

Common dividends

 

(54.0

)

(54.8

)

Other, net

 

(40.2

)

7.7

 

Cash provided by (used in) financing activities

 

(185.8

)

(633.3

)

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

9.4

 

(4.3

)

 

 

 

 

 

 

Change in cash and cash equivalents

 

53.0

 

(226.5

)

Cash and cash equivalents - beginning of period

 

191.4

 

416.0

 

Cash and cash equivalents - end of period

 

$

244.4

 

$

189.5

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

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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 20, 2015, pursuant to Section 13 of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2014 (annual report).

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires Ball’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting periods. These estimates are based on historical experience and various assumptions believed to be reasonable under the circumstances. Ball’s management evaluates these estimates on an ongoing basis and adjusts or revises the estimates as circumstances change. As future events and their impacts cannot be determined with precision, actual results may differ from these estimates. In the opinion of management, the financial statements reflect all adjustments necessary to fairly state the results of the periods presented.

 

Certain prior period amounts have been reclassified in order to conform to the current period presentation.

 

2.     Accounting Pronouncements

 

Recently Adopted Accounting Standards

 

In April 2014, accounting guidance was issued to change the criteria for reporting discontinued operations. Under the new guidance, only disposals of components of an entity that represent strategic shifts that have, or will have, a major effect on an entity’s operations should be reported as discontinued operations in the financial statements. The new guidance also requires expanded disclosures for discontinued operations, as well as disclosures about the financial effects of significant disposals that do not qualify for discontinued operations. The guidance was effective for Ball on January 1, 2015, and did not have a material effect on the company’s unaudited condensed consolidated financial statements.

 

New Accounting Guidance

 

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

 

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

 

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Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

2.     Accounting Pronouncements (continued)

 

In April 2015, amendments to existing accounting guidance were issued to provide explicit guidance related to a customer’s accounting for fees paid in a cloud computing arrangement. Under the guidance, cloud computing arrangements that include a software license would be accounted for consistent with the acquisition of other software licenses. Conversely, cloud computing arrangements that do not include a software license would be accounted for as a service contract. The guidance will be effective for Ball on January 1, 2016, and early adoption is permitted. The guidance is not expected to have a material effect on the company’s consolidated financial statements.

 

In April 2015, accounting guidance was issued to change the balance sheet presentation for debt issuance costs. Under the new guidance, debt issuance costs related to a recognized debt liability will be presented as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts, rather than as a deferred charge. The guidance does not affect the recognition and measurement of debt issuance costs; hence, amortization of debt issuance costs would continue to be reported as interest expense. In August 2015, subsequent clarification guidance was issued permitting companies to defer and present debt issuance costs related to line-of-credit arrangements as an asset and amortize them over the terms of these arrangements, regardless of whether there are any amounts outstanding under those arrangements. The guidance will be effective for Ball retrospectively on January 1, 2016, and is not expected to have a material effect on the company’s consolidated financial statements.

 

In February 2015, amendments to existing accounting guidance were issued that modify the analysis companies must perform in order to determine whether a legal entity should be consolidated. The new guidance includes modifications related to: 1) limited partnerships and similar legal entities, 2) evaluating fees paid to a decision maker or service provider as a variable interest, 3) the effect of fee arrangements on the primary beneficiary, 4) the effect of related parties on the primary beneficiary and 5) certain investment funds. The guidance will be effective for Ball on January 1, 2016, and early adoption is permitted. The guidance is not expected to have a material effect on the company’s consolidated financial statements.

 

In August 2014, accounting guidance was issued to define management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosure in certain circumstances. Under the new guidance, management is required to evaluate, at each annual and interim reporting period, whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date the financial statements are issued and to provide related disclosures. The guidance will be effective for Ball on January 1, 2017, and is not expected to have a material effect on the company’s consolidated financial statements.

 

In May 2014, the FASB and International Accounting Standards Board jointly issued new revenue recognition guidance which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The new guidance contains a more robust framework for addressing revenue issues and is intended to remove inconsistencies in existing guidance and improve comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets. The guidance will supersede the majority of current revenue recognition guidance, including industry-specific guidance. In July 2015, the FASB approved the deferral of the effective date of the new revenue recognition guidance by one year. The guidance will be effective for Ball on January 1, 2018, and early adoption is permitted. However, entities are not permitted to adopt the standard earlier than the original effective date of January 1, 2017. Entities have the option of using either a full retrospective or modified retrospective approach for the adoption of the standard. The company is currently assessing the impact that the adoption of this standard will have on its consolidated financial statements.

 

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Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

3.              Business Segment Information

 

Ball’s operations are organized and reviewed by management along its product lines and geographical areas and presented in the four reportable segments discussed below.

 

Metal beverage packaging, Americas and 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.

 

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)

 

Summary of Business by Segment

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

($ in millions)

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

 

 

 

 

 

 

 

 

Metal beverage packaging, Americas & Asia

 

$

1,072.3

 

$

1,079.6

 

$

3,226.9

 

$

3,207.3

 

Metal beverage packaging, Europe

 

450.1

 

489.2

 

1,310.3

 

1,497.8

 

Metal food & household products packaging

 

372.0

 

450.6

 

1,012.3

 

1,159.4

 

Aerospace & technologies

 

203.4

 

221.7

 

648.4

 

683.5

 

Corporate and intercompany eliminations

 

(0.8

)

(2.2

)

(5.5

)

(10.4

)

Net sales

 

$

2,097.0

 

$

2,238.9

 

$

6,192.4

 

$

6,537.6

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

 

 

 

 

 

 

 

 

Metal beverage packaging, Americas & Asia

 

$

131.9

 

$

133.7

 

$

383.4

 

$

400.8

 

Business consolidation and other activities

 

(21.2

)

(0.1

)

(23.8

)

1.7

 

Total metal beverage packaging, Americas & Asia

 

110.7

 

133.6

 

359.6

 

402.5

 

 

 

 

 

 

 

 

 

 

 

Metal beverage packaging, Europe

 

61.1

 

63.8

 

149.6

 

193.0

 

Business consolidation and other activities

 

(1.3

)

(4.3

)

(8.6

)

(6.6

)

Total metal beverage packaging, Europe

 

59.8

 

59.5

 

141.0

 

186.4

 

 

 

 

 

 

 

 

 

 

 

Metal food & household products packaging

 

30.6

 

43.0

 

89.5

 

119.1

 

Business consolidation and other activities

 

(0.1

)

(4.5

)

(1.0

)

(11.6

)

Total metal food & household products packaging

 

30.5

 

38.5

 

88.5

 

107.5

 

 

 

 

 

 

 

 

 

 

 

Aerospace & technologies

 

21.4

 

21.2

 

60.9

 

70.1

 

Business consolidation and other activities

 

 

 

0.7

 

 

Total aerospace & technologies

 

21.4

 

21.2

 

61.6

 

70.1

 

 

 

 

 

 

 

 

 

 

 

Segment earnings before interest and taxes

 

222.4

 

252.8

 

650.7

 

766.5

 

 

 

 

 

 

 

 

 

 

 

Undistributed corporate expenses and intercompany eliminations, net

 

(17.0

)

(24.5

)

(69.3

)

(63.9

)

Business consolidation and other activities

 

(129.3

)

(0.3

)

(105.6

)

(1.3

)

Total undistributed corporate expenses and intercompany eliminations, net

 

(146.3

)

(24.8

)

(174.9

)

(65.2

)

 

 

 

 

 

 

 

 

 

 

Earnings before interest and taxes

 

76.1

 

228.0

 

475.8

 

701.3

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(37.5

)

(40.1

)

(107.0

)

(120.9

)

Debt refinancing and other costs

 

(21.0

)

 

(85.9

)

(33.1

)

Total interest expense

 

(58.5

)

(40.1

)

(192.9

)

(154.0

)

Tax (provision) benefit

 

31.0

 

(39.8

)

(47.9

)

(139.6

)

Equity in results of affiliates, net of tax

 

1.5

 

0.3

 

3.4

 

1.9

 

Net earnings

 

50.1

 

148.4

 

238.4

 

409.6

 

Less net earnings attributable to noncontrolling interests

 

(5.6

)

(1.0

)

(12.8

)

(15.6

)

Net earnings attibutable to Ball Corporation

 

$

44.5

 

$

147.4

 

$

225.6

 

$

394.0

 

 

8



Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

3.              Business Segment Information (continued)

 

 

 

September 30,

 

December 31,

 

($ in millions)

 

2015

 

2014

 

 

 

 

 

 

 

Total Assets

 

 

 

 

 

Metal beverage packaging, Americas & Asia

 

$

3,534.4

 

$

3,422.8

 

Metal beverage packaging, Europe

 

2,309.6

 

2,274.5

 

Metal food & household products packaging

 

1,645.1

 

1,508.1

 

Aerospace & technologies

 

401.2

 

411.6

 

Segment assets

 

7,890.3

 

7,617.0

 

Corporate assets, net of eliminations

 

(163.3

)

(46.0

)

Total assets

 

$

7,727.0

 

$

7,571.0

 

 

4.              Acquisitions

 

Rexam PLC (Rexam)

 

On February 19, 2015, the company and Rexam PLC (Rexam) announced the terms of a recommended offer by the company to acquire all of the outstanding shares of Rexam in a cash and stock transaction. Under the terms of the offer, for each Rexam share, Rexam shareholders will receive 407 pence in cash and 0.04568 shares of the company. The transaction values Rexam at 610 pence per share based on the company’s 90-day volume weighted average stock price as of February 17, 2015, and an exchange rate of US$1.54: £1 on that date representing an equity value of £4.3 billion ($6.6 billion). The actual value of the transaction will be determined based on the exchange rate and the company’s stock price at the time of the closing of the transaction. As described below, the company has entered into collar and option contracts to partially mitigate its currency exchange risk with regard to the cash component of the purchase price.

 

By way of compensation for any loss suffered by Rexam in connection with the preparation and negotiation of the offer, the Co-operation Agreement and any other document relating to the acquisition, Ball has undertaken in the Co-operation Agreement that, on the occurrence of a break payment event Ball will pay, or procure the payment to Rexam of an amount in cash in British pounds. As discussed below, Ball’s shareholders approved the issuance of Ball common stock to shareholders of Rexam as partial consideration for the proposed acquisition. As a result, the amount of the break payment would be £302 million.

 

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

 

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

 

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

 

9



Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

4.              Acquisitions (continued)

 

Long-Term Debt

 

In February 2015, the company entered into a $3 billion revolving credit facility to replace its existing $1 billion revolving credit facility, repay its $92.9 million Term C loan, repay the outstanding balance on the existing revolving credit facility, redeem the 2020 and 2021 senior notes and repay the existing private placement debt of Rexam upon closing of the announced, proposed acquisition of Rexam. Also in February 2015, the company entered into a £3.3 billion unsecured, committed bridge loan agreement, pursuant to which lending institutions have agreed, subject to limited conditions, to provide the financing necessary to pay the cash portion of the consideration payable to Rexam’s shareholders upon consummation of the announced, proposed acquisition of Rexam along with related fees and expenses. As a result of the issuance of $1 billion of 5.25 percent senior notes in June 2015, the company reduced the borrowing capacity under the revolving credit facility from $3 billion to $2.25 billion. See Note 11 for further details related to these transactions.

 

Currency Exchange Rate and Interest Rate Risks

 

During the first nine months of 2015, the company entered into collar and option contracts to partially mitigate its currency exchange rate risk associated with the British pound denominated cash portion of the purchase price from February 19, 2015, through the expected closing date of the announced, proposed acquisition of Rexam, with an aggregate notional amount of approximately £2.3 billion ($3.4 billion). These contracts were not designated as hedges, and therefore, changes in the fair value of these contracts are recorded in the unaudited condensed consolidated statements of earnings in business consolidation and other activities.

 

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

 

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

 

Sonoco Products Company (Sonoco)

 

In February 2015, the company acquired Sonoco’s metal end and closure manufacturing facilities in Canton, Ohio, and entered into a long-term supply agreement with Sonoco in exchange for total cash of $29.1 million paid at closing, $10.5 million of contingent cash consideration and $24.4 million of contingent noncash consideration. The facilities manufacture multiple-sized closures for the metal food container market, including high quality steel and aluminum easy-open ends. The financial results of Sonoco have been included in our metal food and household products packaging segment from the date of acquisition. The acquisition is not material to the company.

 

10



Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

5.              Business Consolidation and Other Activities

 

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

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

($ in millions)

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

Metal beverage packaging, Americas & Asia

 

$

(21.2

)

$

(0.1

)

$

(23.8

)

$

1.7

 

Metal beverage packaging, Europe

 

(1.3

)

(4.3

)

(8.6

)

(6.6

)

Metal food & household products packaging

 

(0.1

)

(4.5

)

(1.0

)

(11.6

)

Aerospace & technologies

 

 

 

0.7

 

 

Corporate and other

 

(129.3

)

(0.3

)

(105.6

)

(1.3

)

 

 

$

(151.9

)

$

(9.2

)

$

(138.3

)

$

(17.8

)

 

2015

 

Metal Beverage Packaging, Americas and Asia

 

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

 

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

 

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

 

Metal Beverage Packaging, Europe

 

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

 

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

 

Corporate

 

During the third quarter and first nine months of 2015, the company recorded charges of $24.7 million and $68.8 million respectively, for professional services and other costs associated with the proposed acquisition of Rexam announced in February 2015. Also during the third quarter and first nine months of 2015, the company recognized losses of $104.6 million and $36.3 million, respectively, associated with the change in fair value of its collar and option contracts entered into to reduce its exposure to currency exchange rate changes in connection with the British pound denominated cash portion of the announced, proposed acquisition of Rexam, further discussed in Note 16. Other charges in the first nine months of 2015 included $0.5 million for insignificant activities.

 

11



Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

5.              Business Consolidation and Other Activities (continued)

 

2014

 

Metal Beverage Packaging, Americas and Asia

 

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

 

During the first quarter, the company received and recorded compensation of $5.0 million for the reimbursement of severance costs incurred in connection with the company’s closure and relocation of the Shenzhen, PRC, manufacturing facility in 2013. Also during the first quarter, the company sold its plastic motor oil container and pail manufacturing business in the PRC and recorded a gain of $0.8 million in connection with the sale. During the third quarter, the company entered into a supplemental agreement related to the sale and recorded a loss of $1.1 million.

 

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

 

Metal Food and Household Products Packaging

 

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

 

During the fourth quarter of 2013, the company announced plans to close its Danville, Illinois, steel aerosol packaging facility in the second half of 2014. Charges of $3.8 million were recorded during the first nine months of 2014 in connection with the announced closure.

 

Metal Beverage Packaging, Europe, and Corporate

 

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

 

Assets Held for Sale

 

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

 

12



Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

6.              Receivables

 

 

 

September 30,

 

December 31,

 

($ in millions)

 

2015

 

2014

 

 

 

 

 

 

 

Trade accounts receivable

 

$

989.5

 

$

800.0

 

Less allowance for doubtful accounts

 

(6.2

)

(7.0

)

Net trade accounts receivable

 

983.3

 

793.0

 

Other receivables

 

114.5

 

164.1

 

 

 

$

1,097.8

 

$

957.1

 

 

The company has entered into several regional committed and uncommitted accounts receivable factoring programs with multiple financial institutions for certain receivables of the company. The programs are accounted for as true sales of the receivables, without recourse to Ball, and had combined limits of approximately $605 million at September 30, 2015. A total of $489.6 million and $197.6 million were sold under these programs as of September 30, 2015, and December 31, 2014, respectively.

 

7.              Inventories

 

 

 

September 30,

 

December 31,

 

($ in millions)

 

2015

 

2014

 

 

 

 

 

 

 

Raw materials and supplies

 

$

441.9

 

$

479.2

 

Work-in-process and finished goods

 

476.8

 

579.2

 

Less inventory reserves

 

(42.7

)

(41.7

)

 

 

$

876.0

 

$

1,016.7

 

 

8.              Property, Plant and Equipment

 

 

 

September 30,

 

December 31,

 

($ in millions)

 

2015

 

2014

 

 

 

 

 

 

 

Land

 

$

63.5

 

$

64.6

 

Buildings

 

984.3

 

973.4

 

Machinery and equipment

 

3,776.0

 

3,612.5

 

Construction-in-progress

 

432.8

 

382.7

 

 

 

5,256.6

 

5,033.2

 

Less accumulated depreciation

 

(2,709.3

)

(2,602.5

)

 

 

$

2,547.3

 

$

2,430.7

 

 

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

 

13



Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statement

 

9.              Goodwill

 

($ in millions)

 

Metal
Beverage
Packaging,
Americas &
Asia

 

Metal
Beverage
Packaging,
Europe

 

Metal Food &
Household
Products
Packaging

 

Aerospace &
Technologies

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2014

 

$

739.5

 

$

913.9

 

$

592.5

 

$

8.6

 

$

2,254.5

 

Business acquisition

 

 

 

35.5

 

 

35.5

 

Effects of currency exchange rates

 

 

(73.6

)

(12.3

)

 

(85.9

)

Balance at September 30, 2015

 

$

739.5

 

$

840.3

 

$

615.7

 

$

8.6

 

$

2,204.1

 

 

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

 

10.       Intangibles and Other Assets

 

 

 

September 30,

 

December 31,

 

($ in millions)

 

2015

 

2014

 

 

 

 

 

 

 

Investments in affiliates

 

$

33.7

 

$

33.2

 

Intangible assets (net of accumulated amortization of $129.9 million at September 30, 2015 and $115.2 million at December 31, 2014)

 

123.9

 

137.1

 

Capitalized software (net of accumulated amortization of $112.4 million at September 30, 2015, and $103.8 million at December 31, 2014)

 

75.8

 

62.6

 

Company and trust-owned life insurance

 

142.1

 

168.1

 

Long-term derivative assets

 

2.5

 

3.1

 

Deferred financing costs

 

61.6

 

36.3

 

Long-term deferred tax assets

 

87.1

 

66.5

 

Other

 

66.3

 

65.4

 

 

 

$

593.0

 

$

572.3

 

 

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

 

14



Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

11.       Debt

 

Long-term debt consisted of the following:

 

 

 

September 30,

 

December 31,

 

($ in millions)

 

2015

 

2014

 

 

 

 

 

 

 

Notes Payable

 

 

 

 

 

6.75% Senior Notes, due September 2020

 

$

 

$

500.0

 

5.75% Senior Notes, due May 2021

 

 

500.0

 

5.00% Senior Notes, due March 2022

 

750.0

 

750.0

 

4.00% Senior Notes, due November 2023

 

1,000.0

 

1,000.0

 

5.25% Senior Notes, due June 2025

 

1,000.0

 

 

Multi-currency revolver, due February 2018 (at variable rates)

 

 

 

Bridge Facility

 

 

 

Senior Credit Facilities, due June 2018 (at variable rates) Term C loan, euro denominated

 

 

92.9

 

Latapack-Ball Notes Payable (at various rates and terms), denominated in various currencies

 

188.8

 

204.2

 

Other (including discounts), denominated in various currencies

 

(5.0

)

1.7

 

 

 

2,933.8

 

3,048.8

 

 

 

 

 

 

 

Less current portion of long-term debt

 

(54.4

)

(55.0

)

 

 

$

2,879.4

 

$

2,993.8

 

 

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

 

In February 2015, Ball entered into a new $3 billion revolving credit facility to replace the existing approximate $1 billion revolving credit facility, repay its $92.9 million Term C loan, repay the outstanding balance on the existing revolving credit facility, redeem the 2020 and 2021 senior notes and repay the existing private placement debt of Rexam upon closing of the announced, proposed acquisition of Rexam. In March 2015, Ball redeemed its outstanding 6.75 percent senior notes and 5.75 percent senior notes due in September 2020 and May 2021, respectively, at a price per note of 103.375 percent and 106.096 percent, respectively, of the outstanding principal amounts plus accrued interest. The new revolving credit facility expires in February 2018 and accrues interest at LIBOR plus an applicable margin based on the net leverage ratio of the company, which varies from 1.25 percent to 1.75 percent.

 

During the first quarter of 2015, the company recorded charges of $55.8 million for the call premiums and write-offs of unamortized deferred financing costs associated with the redemption of the 2020 and 2021 senior notes. The company also recorded charges of $1.7 million for the write-off of unamortized deferred financing costs associated with the refinancing of the revolving credit facility and repayment of the Term C loan. These charges are included in debt refinancing and other costs, a component of total interest expense, in the unaudited condensed consolidated statements of earnings.

 

Additionally, in February 2015, the company entered into a £3.3 billion unsecured, committed bridge loan agreement, pursuant to which lending institutions have agreed, subject to limited conditions, to provide the financing necessary to pay the cash portion of the consideration payable to Rexam’s shareholders upon consummation of the announced, proposed acquisition of Rexam along with related fees and expenses. Under this bridge loan agreement, the company is required to pay fees while the facility is outstanding, which vary depending on the amount borrowed and the duration that the facility is outstanding.  These charges are included in debt refinancing and other costs, a component of total interest expense, in the unaudited condensed consolidated statements of earnings.

 

15



Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

11.       Debt (continued)

 

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

 

At September 30, 2015, taking into account outstanding letters of credit and excluding availability under the accounts receivable securitization program, approximately $2.2 billion was available under the company’s long-term, revolving credit facility, which is available until February 2018. In addition to this facility, the company had approximately $760 million of short-term uncommitted credit facilities available at September 30, 2015, of which $88.5 million was outstanding and due on demand. Of the amounts available under the credit facilities described above, approximately $1.4 billion has been committed in the proposed acquisition of Rexam to repay certain of Rexam’s debt obligations and to settle Rexam’s outstanding derivatives. At December 31, 2014, the company had $10.1 million outstanding under short-term uncommitted credit facilities.

 

Short-term debt and current portion of long-term debt on the balance sheet includes the company’s borrowings under its existing accounts receivable securitization program, totaling $140 million and $110 million at September 30, 2015, and December 31, 2014, respectively. This program, which has been amended and extended from time to time, is scheduled to mature in May 2017 and allows the company to borrow against a maximum amount of accounts receivable that varies between $90 million and $140 million depending on the seasonal accounts receivable balances in the company’s North American packaging businesses.

 

The fair value of the long-term debt at September 30, 2015, and at December 31, 2014, approximated its carrying value. The fair value reflects the market rates at each period end for debt with credit ratings similar to the company’s ratings and is classified as Level 2 within the fair value hierarchy. Rates currently available to the company for loans with similar terms and maturities are used to estimate the fair value of long-term debt based on discounted cash flows.

 

The senior notes and senior credit facilities are guaranteed on a full, unconditional and joint and several basis by certain of the company’s wholly owned domestic subsidiaries. Certain foreign denominated tranches of the senior credit facilities are similarly guaranteed by certain of the company’s wholly owned foreign subsidiaries. Notes 18 and 19 contain further details, as well as required unaudited condensed consolidating financial information for the company, segregating the guarantor subsidiaries and non-guarantor subsidiaries as defined in the senior notes agreements.

 

The U.S. note agreements, bank credit agreement, bridge loan agreement and accounts receivable securitization agreement contain certain restrictions relating to dividend payments, share repurchases, investments, financial ratios, guarantees and the incurrence of additional indebtedness. The most restrictive of the company’s debt covenants require the company to maintain an interest coverage ratio (as defined) of no greater than 4.00, prior to considering the impacts of the announced, proposed acquisition of Rexam.  The company was in compliance with all loan agreements and debt covenants at September 30, 2015, and December 31, 2014, and has met all debt payment obligations.

 

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

 

16



Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

12.       Employee Benefit Obligations

 

 

 

September 30,

 

December 31,

 

($ in millions)

 

2015

 

2014

 

 

 

 

 

 

 

Underfunded defined benefit pension liabilities, net

 

$

715.8

 

$

724.1

 

Less current portion and prepaid pension assets

 

(17.2

)

(19.4

)

Long-term defined benefit pension liabilities

 

698.6

 

704.7

 

Retiree medical and other postemployment benefits

 

172.2

 

169.0

 

Deferred compensation plans

 

260.1

 

272.2

 

Other

 

28.6

 

32.4

 

 

 

$

1,159.5

 

$

1,178.3

 

 

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

 

 

 

Three Months Ended September 30,

 

 

 

2015

 

2014

 

($ in millions)

 

U.S.

 

Foreign

 

Total

 

U.S.

 

Foreign

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ball-sponsored plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

13.0

 

$

3.7

 

$

16.7

 

$

11.5

 

$

3.1

 

$

14.6

 

Interest cost

 

14.4

 

4.6

 

19.0

 

15.6

 

6.5

 

22.1

 

Expected return on plan assets

 

(19.8

)

(4.9

)

(24.7

)

(20.6

)

(4.2

)

(24.8

)

Amortization of prior service cost

 

(0.3

)

(0.1

)

(0.4

)

 

(0.2

)

(0.2

)

Recognized net actuarial loss

 

9.7

 

2.3

 

12.0

 

7.2

 

2.0

 

9.2

 

Curtailment and settlement losses

 

5.3

 

 

 

5.3

 

 

 

 

Net periodic benefit cost for Ball-sponsored plans

 

22.3

 

5.6

 

27.9

 

13.7

 

7.2

 

20.9

 

Net periodic benefit cost for multiemployer plans

 

 

 

 

0.7

 

 

0.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total net periodic benefit cost

 

$

22.3

 

$

5.6

 

$

27.9

 

$

14.4

 

$

7.2

 

$

21.6

 

 

 

 

Nine Months Ended September 30,

 

 

 

2015

 

2014

 

($ in millions)

 

U.S.

 

Foreign

 

Total

 

U.S.

 

Foreign

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ball-sponsored plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

39.0

 

$

11.2

 

$

50.2

 

$

34.3

 

$

10.2

 

$

44.5

 

Interest cost

 

42.9

 

13.8

 

56.7

 

46.8

 

19.6

 

66.4

 

Expected return on plan assets

 

(59.4

)

(14.8

)

(74.2

)

(61.6

)

(12.9

)

(74.5

)

Amortization of prior service cost

 

(0.8

)

(0.3

)

(1.1

)

 

(0.4

)

(0.4

)

Recognized net actuarial loss

 

29.3

 

7.0

 

36.3

 

21.6

 

6.2

 

27.8

 

Curtailment and settlement losses

 

5.3

 

 

5.3

 

 

 

 

Net periodic benefit cost for Ball-sponsored plans

 

56.3

 

16.9

 

73.2

 

41.1

 

22.7

 

63.8

 

Net periodic benefit cost for multiemployer plans

 

1.0

 

 

1.0

 

2.0

 

 

2.0

 

Total net periodic benefit cost

 

$

57.3

 

$

16.9

 

$

74.2

 

$

43.1

 

$

22.7

 

$

65.8

 

 

17



Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

12.       Employee Benefit Obligations (continued)

 

Contributions to the company’s defined global benefit pension plans, not including the unfunded German plans, were insignificant in the first nine months of 2015 ($83.6 million in 2014) and are also expected to be insignificant for the full year. This estimate may change based on changes in the U.S. Pension Protection Act and actual plan asset performance, among other factors. Payments to participants in the unfunded German plans were $13.7 million in the first nine months of 2015 and are expected to be approximately $19 million for the full year.

 

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, 2014

 

$

(18.4

)

$

(499.9

)

$

(3.8

)

$

(522.1

)

Other comprehensive earnings (loss) before reclassifications

 

(113.1

)

8.2

 

(19.2

)

(124.1

)

Amounts reclassified from accumulated other comprehensive earnings (loss)

 

 

21.1

 

5.0

 

26.1

 

Balance at September 30, 2015

 

$

(131.5

)

$

(470.6

)

$

(18.0

)

$

(620.1

)

 

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

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

($ in millions)

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

Gains (losses) on cash flow hedges:

 

 

 

 

 

 

 

 

 

Commodity contracts recorded in net sales

 

$

1.3

 

$

(2.5

)

$

2.1

 

$

(3.0

)

Commodity contracts and currency exchange contracts recorded in cost of sales

 

(8.1

)

(20.3

)

(10.8

)

(34.2

)

Interest rate contracts recorded in interest expense

 

 

0.1

 

(0.1

)

(0.2

)

Total before tax effect

 

(6.8

)

(22.7

)

(8.8

)

(37.4

)

Tax benefit (provision) on amounts reclassified into earnings

 

2.7

 

3.2

 

3.8

 

4.1

 

Recognized gain (loss)

 

$

(4.1

)

$

(19.5

)

$

(5.0

)

$

(33.3

)

 

 

 

 

 

 

 

 

 

 

Amortization of pension and other postretirement benefits (a):

 

 

 

 

 

 

 

 

 

Prior service income (cost)

 

$

0.6

 

$

0.1

 

$

1.6

 

$

0.3

 

Actuarial gains (losses)

 

(11.3

)

(9.2

)

(35.0

)

(27.7

)

Total before tax effect

 

(10.7

)

(9.1

)

(33.4

)

(27.4

)

Tax benefit (provision) on amounts reclassified into earnings

 

4.0

 

3.3

 

12.3

 

9.9

 

Recognized gain (loss)

 

$

(6.7

)

$

(5.8

)

$

(21.1

)

$

(17.5

)

 


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

 

18



Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

14.       Stock-Based Compensation Programs

 

The company has shareholder-approved stock plans under which options and stock-settled appreciation rights (SSARs) have been granted to employees at the market value of the company’s stock at the date of grant. In general, options and SSARs are exercisable in four equal installments commencing one year from the date of grant and terminating 10 years from the date of grant. A total of 1,231,865 stock options and SSARs were granted in February 2015.

 

These options and SSARs cannot be traded in any equity market. However, based on the Black-Scholes option pricing model, options and SSARs granted in 2015 and 2014 have estimated weighted average fair values at the date of grant of $14.20 per share and $9.81 per share, respectively. The actual value an employee may realize will depend on the excess of the stock price over the exercise price on the date the option or SSAR is exercised. Consequently, there is no assurance that the value realized by an employee will be at or near the value estimated. The fair values were estimated using the following weighted average assumptions:

 

 

 

February 2015

 

January 2014

 

 

 

 

 

 

 

Expected dividend yield

 

0.79%

 

1.06%

 

Expected stock price volatility

 

22.11%

 

21.41%

 

Risk-free interest rate

 

1.39%

 

1.65%

 

Expected life of options (in years)

 

5.85 years

 

5.50 years

 

 

In February 2015 and January 2014, the company’s board of directors granted 116,559 and 143,305 performance-contingent restricted stock units (PCEQs), respectively, to key employees. These PCEQs vest three years from the date of grant, and the number of shares available at the vesting date are based on the company’s growth in economic valued added (EVA®) dollars in excess of the EVA® dollars generated in the calendar year prior to grant as the minimum threshold, ranging from zero to 200 percent of each participant’s assigned award opportunity. If the minimum performance goals are not met, the shares will be forfeited. Grants under the plan are being accounted for as equity awards and compensation expense is recorded based upon the most probable outcome using the closing market price of the shares at the grant date. On a quarterly and annual basis, the company reassesses the probability of the goals being met and adjusts compensation expense as appropriate.

 

15.       Earnings and Dividends Per Share

 

($ in millions, except per share amounts;

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

shares in thousands)

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

Net earnings attributable to Ball Corporation

 

$

44.5

 

$

147.4

 

$

225.6

 

$

394.0

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average common shares

 

137,337

 

138,010

 

137,409

 

139,133

 

Effect of dilutive securities

 

3,521

 

4,080

 

3,732

 

3,853

 

Weighted average shares applicable to diluted earnings per share

 

140,858

 

142,090

 

141,141

 

142,986

 

 

 

 

 

 

 

 

 

 

 

Per basic share

 

$

0.32

 

$

1.07

 

$

1.64

 

$

2.83

 

Per diluted share

 

$

0.32

 

$

1.04

 

$

1.60

 

$

2.76

 

 

Certain outstanding options were excluded from the diluted earnings per share calculation because they were antidilutive (i.e., their assumed conversion into common stock would increase rather than decrease earnings per share). The options excluded totaled 1.2 million in each of the three and nine months ended September 30, 2015, and the nine months ended September 30, 2014. There were no options excluded in the three months ended September 30, 2014.

 

The company declared and paid dividends of $0.13 per share in each of the first three quarters of 2015 and 2014.

 

19



Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

16.  Financial Instruments and Risk Management

 

The company employs established risk management policies and procedures, which seek to reduce the company’s commercial risk exposure to fluctuations in commodity prices, interest rates, currency exchange rates and prices of the company’s common stock with regard to common share repurchases and the company’s deferred compensation stock plan. However, there can be no assurance that these policies and procedures will be successful. Although the instruments utilized involve varying degrees of credit, market and interest risk, the counterparties to the agreements are expected to perform fully under the terms of the agreements. The company monitors counterparty credit risk, including lenders, on a regular basis, but Ball cannot be certain that all risks will be discerned or that its risk management policies and procedures will always be effective. Additionally, in the event of default under the company’s master derivative agreements, the non-defaulting party has the option to set-off any amounts owed with regard to open derivative positions.

 

Commodity Price Risk

 

Aluminum

 

The company manages commodity price risk in connection with market price fluctuations of aluminum ingot through two different methods. First, the company enters into container sales contracts that include aluminum ingot-based pricing terms that generally reflect the same price fluctuations under commercial purchase contracts for aluminum sheet. The terms include fixed, floating or pass-through aluminum ingot component pricing. Second, the company uses certain derivative instruments such as option and forward contracts as economic and cash flow hedges of commodity price risk where there are material differences between sales and purchase contracted pricing and volume.

 

At September 30, 2015, the company had aluminum contracts limiting its aluminum exposure with notional amounts of approximately $336 million, of which approximately $130 million received hedge accounting treatment. The aluminum contracts, which are recorded at fair value, include economic derivative instruments that are undesignated, as well as cash flow hedges that offset sales and purchase contracts of various terms and lengths. Cash flow hedges relate to forecasted transactions that expire within the next four years. Included in shareholders’ equity at September 30, 2015, within accumulated other comprehensive earnings (loss) is a net after-tax loss of $15.5 million associated with these contracts. A net loss of $12.5 million is expected to be recognized in the consolidated statement of earnings during the next 12 months, the majority of which will be offset by pricing changes in sales and purchase contracts, thus resulting in little or no earnings impact to Ball.

 

Steel

 

Most sales contracts involving our steel products either include provisions permitting the company to pass through some or all steel cost changes incurred, or they incorporate annually negotiated steel prices.

 

Interest Rate Risk

 

The company’s objective in managing exposure to interest rate changes is to minimize the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, the company may use a variety of interest rate swaps, collars and options to manage our mix of floating and fixed-rate debt. Interest rate instruments held by the company at September 30, 2015, included pay-fixed interest rate swaps, which effectively convert variable rate obligations to fixed-rate instruments.

 

At September 30, 2015, the company had outstanding interest rate swap contracts with notional amounts of approximately $146 million paying fixed rates expiring within the next four years. The after-tax loss included in shareholders’ equity at September 30, 2015, within accumulated other comprehensive earnings (loss) is insignificant.

 

20



Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

16.  Financial Instruments and Risk Management (continued)

 

Interest Rate Risk—Rexam Acquisition

 

The company entered into interest rate swaps to hedge against rising U.S. and European interest rates to minimize its interest rate exposure associated with anticipated debt issuances in connection with the announced, proposed acquisition of Rexam. At September 30, 2015, the company had outstanding interest rate swaps with notional amounts totaling approximately $250 million and €1,750 million. In addition, the company entered into interest rate option contracts to hedge negative Euribor rates with an aggregate notional amount of €750 million. Subsequent to the third quarter of 2015, the company entered into additional interest rate swap contracts to hedge against rising U.S. interest rates with aggregate notional amounts of approximately $100 million.  These contracts were not designated as hedges, and therefore, changes in the fair value of these interest swap and option contracts are recognized in the unaudited condensed consolidated statements of earnings in debt refinancing and other costs, a component of total interest expense. The loss included in debt refinancing and other costs during the first nine months of 2015 associated with these contracts was $10 million. The contracts outstanding at September 30, 2015, expire within the next five years.

 

Currency Exchange Rate Risk

 

The company’s objective in managing exposure to currency fluctuations is to limit the exposure of cash flows and earnings to changes associated with currency exchange rate changes through the use of various derivative contracts. In addition, at times the company manages earnings translation volatility through the use of currency option strategies, and the change in the fair value of those options is recorded in the company’s net earnings. The company’s currency translation risk results from the currencies in which we transact business. The company faces currency exposures in our global operations as a result of various factors including intercompany currency denominated loans, selling our products in various currencies, purchasing raw materials and equipment in various currencies and tax exposures not denominated in the functional currency. Sales contracts are negotiated with customers to reflect cost changes and, where there is not an exchange pass-through arrangement, the company uses forward and option contracts to manage currency exposures.

 

Additionally, at September 30, 2015, the company had outstanding exchange forward contracts and option contracts with notional amounts totaling approximately $449 million. Included in shareholders’ equity at September 30, 2015, within accumulated other comprehensive earnings (loss) is a net after-tax loss of $2.2 million associated with these contracts. A net loss of $2.3 million is expected to be recognized in the consolidated statement of earnings during the next 12 months. The contracts outstanding at September 30, 2015, expire within the next year.

 

Currency Exchange Rate Risk — Rexam Acquisition

 

In connection with the announced, proposed acquisition of Rexam, the company entered into collar and option contracts to partially mitigate its currency exchange rate risk from February 19, 2015, through the expected closing date of the acquisition. At September 30, 2015, the company had outstanding collar and option contracts with notional amounts totaling approximately £2.3 billion ($3.4 billion). These contracts were not designated as hedges, and therefore, changes in the fair value of these contracts are recognized in the unaudited condensed consolidated statements of earnings in business consolidation and other activities (see Note 5). During the third quarter and first nine months of 2015, the company recognized losses of $104.6 million and of $36.3 million, respectively, associated with these contracts. The contracts outstanding at September 30, 2015, expire within the next year.

 

Common Stock Price Risk

 

The company’s deferred compensation stock program is subject to variable plan accounting and, accordingly, is marked to fair value using the company’s closing stock price at the end of the related reporting period. The company entered into a total return swap to reduce the company’s earnings exposure to these fair value fluctuations that will be outstanding until March 2016 and has a notional amount of 1 million shares. As of September 30, 2015, the fair value of the swap was a $4.8 million loss. All gains and losses on the total return swap are recorded in the unaudited condensed consolidated statements of earnings in selling, general and administrative expenses.

 

21



Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

16.  Financial Instruments and Risk Management (continued)

 

Collateral Calls

 

The company’s agreements with its financial counterparties require the company to post collateral in certain circumstances when the negative mark to fair value of the derivative contracts exceeds specified levels. Additionally, the company has collateral posting arrangements with certain customers on these derivative contracts. The cash flows of the margin calls are shown within the investing section of the company’s consolidated statements of cash flows. As of September 30, 2015, the aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position was $63.5 million and $2.7 million of collateral was required to be posted. As of December 31, 2014, the aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position was $12.4 million and no collateral was required to be posted.

 

Fair Value Measurements

 

The company has classified all applicable financial derivative assets and liabilities as Level 2 within the fair value hierarchy and presented those values in the tables below. The company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of assets and liabilities and their placement within the fair value hierarchy levels. The fair values of the company’s derivative instruments were as follows:

 

 

 

September 30, 2015

 

December 31, 2014

 

($ in millions)

 

Derivatives
Designated
as Hedging
Instruments

 

Derivatives not
Designated as
Hedging
Instruments

 

Total

 

Derivatives
Designated
as Hedging
Instruments

 

Derivatives not
Designated as
Hedging
Instruments

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts

 

$

5.7

 

$

4.7

 

$

10.4

 

$

3.8

 

$

1.3

 

$

5.1

 

Foreign currency contracts

 

0.1

 

13.1

 

13.2

 

0.8

 

3.5

 

4.3

 

Total current derivative contracts

 

$

5.8

 

$

17.8

 

$

23.6

 

$

4.6

 

$

4.8

 

$

9.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts

 

$

0.2

 

$

0.8

 

$

1.0

 

$

2.2

 

$

0.5

 

$

2.7

 

Foreign currency contracts

 

 

 

 

 

 

 

Interest rate and other contracts

 

 

1.5

 

1.5

 

0.4

 

 

0.4

 

Total noncurrent derivative contracts

 

$

0.2

 

$

2.3

 

$

2.5

 

$

2.6

 

$

0.5

 

$

3.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts

 

$

14.0

 

$

6.5

 

$

20.5

 

$

6.9

 

$

1.6

 

$

8.5

 

Foreign currency contracts

 

2.2

 

29.2

 

31.4

 

1.6

 

1.3

 

2.9

 

Interest rate and other contracts

 

0.5

 

4.7

 

5.2

 

0.5

 

0.4

 

0.9

 

Total current derivative contracts

 

$

16.7

 

$

40.4

 

$

57.1

 

$

9.0

 

$

3.3

 

$

12.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts

 

$

7.8

 

$

1.5

 

$

9.3

 

$

6.8

 

$

0.5

 

$

7.3

 

Interest rate and other contracts

 

0.4

 

9.2

 

9.6

 

0.3

 

 

0.3

 

Total noncurrent derivative contracts

 

$

8.2

 

$

10.7

 

$

18.9

 

$

7.1

 

$

0.5

 

$

7.6

 

 

The company uses closing spot and forward market prices as published by the London Metal Exchange, the Chicago Mercantile Exchange, Reuters and Bloomberg to determine the fair value of any outstanding aluminum, currency, energy, inflation and interest rate spot and forward contracts. Option contracts are valued using a Black-Scholes model with observable market inputs for aluminum, currency and interest rates. We value each of our financial instruments either internally using a single valuation technique or from a reliable observable market source. The company does not adjust the value of its financial instruments except in determining the fair value of a trade that settles in the future by discounting the value to its present value using 12-month LIBOR as the discount factor. Ball performs validations of our internally derived fair values reported for our financial instruments on a quarterly basis utilizing counterparty valuation statements. The company additionally evaluates counterparty creditworthiness and, as of September 30, 2015, has not identified any circumstances requiring that the reported values of our financial instruments be adjusted.

 

22



Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

16.  Financial Instruments and Risk Management (continued)

 

Impact on Earnings from Derivative Instruments

 

 

 

 

 

Three Months Ended September 30,

 

 

 

 

 

2015

 

2014

 

($ in millions)

 

Location of Gain (Loss)
Recognized in Earnings
on Derivatives

 

Cash Flow
Hedge -
Reclassified
Amount from
Accumulated
Other
Comprehensive
Earnings (Loss)

 

Gain (Loss) on
Derivatives not
Designated as
Hedge
Instruments

 

Cash Flow
Hedge -
Reclassified
Amount from
Accumulated
Other
Comprehensive
Earnings (Loss)

 

Gain (Loss) on
Derivatives not
Designated as
Hedge
Instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts - manage exposure to customer pricing

 

Net sales

 

$

1.3

 

$

0.2

 

$

(2.5

)

$

3.2

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts - manage exposure to supplier pricing

 

Cost of sales

 

(8.4

)

(2.1

)

(20.2

)

1.5

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts - manage exposure for outstanding debt

 

Interest expense

 

 

 

0.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts - manage exposure for forecasted Rexam financing

 

Debt refinancing and other costs

 

 

(15.0

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency contracts - manage exposure to sales of products

 

Cost of sales

 

0.3

 

1.6

 

 

(0.7

)

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency contracts - manage exposure for transactions between segments

 

Selling, general and administrative

 

 

17.0

 

(0.1

)

(13.7

)

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency contracts - manage exposure for proposed acquisition of Rexam

 

Business consolidation and other activities

 

 

(104.6

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity contracts

 

Selling, general and administrative

 

 

(8.2

)

 

(3.6

)

Total

 

 

 

$

(6.8

)

$

(111.1

)

$

(22.7

)

$

(13.3

)

 

23



Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

16.  Financial Instruments and Risk Management (continued)

 

 

 

 

 

Nine Months Ended September 30,

 

 

 

 

 

2015

 

2014

 

($ in millions)

 

Location of Gain (Loss)
Recognized in Earnings
on Derivatives

 

Cash Flow
Hedge -
Reclassified
Amount From
Other
Comprehensive
Earnings (Loss)

 

Gain (Loss) on
Derivatives Not
Designated As
Hedge
Instruments

 

Cash Flow
Hedge -
Reclassified
Amount From
Other
Comprehensive
Earnings (Loss)

 

Gain (Loss) on
Derivatives Not
Designated As
Hedge
Instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts - manage exposure to customer pricing

 

Net sales

 

$

2.1

 

$

0.9

 

$

(3.0

)

$

3.4

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts - manage exposure to supplier pricing

 

Cost of sales

 

(10.6

)

(4.8

)

(34.4

)

2.1

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts - manage exposure for outstanding debt

 

Interest expense

 

(0.1

)

 

(0.2

)