UNITED STATES OF AMERICA
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 28, 1997
Commission file number 1-7349
BALL CORPORATION
State of Indiana 35-0160610
345 South High Street, P.O. Box 2407
Muncie, IN 47307-0407
765/747-6100
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 [ ]
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, 1997
Common Stock,
without par value 30,169,805 shares
<PAGE>
Ball Corporation and Subsidiaries
QUARTERLY REPORT ON FORM 10-Q
For the period ended September 28, 1997
INDEX
<TABLE>
<CAPTION>
Page Number
---------------------
<S> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Unaudited Condensed Consolidated Statement of Income for the
three and nine month periods ended September 28, 1997 and
September 29, 1996 3
Unaudited Condensed Consolidated Balance Sheet at September 28,
1997 and December 31, 1996 4
Unaudited Condensed Consolidated Statement of Cash Flows for
the nine month periods ended September 28, 1997 and
September 29, 1996 5
Notes to Unaudited Condensed Consolidated Financial Statements
6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
PART II. OTHER INFORMATION 13
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Ball Corporation and Subsidiaries
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Millions of dollars except per share amounts)
<TABLE>
<CAPTION>
Three months ended Nine months ended
----------------------------------------- ------------------------------------------
September 28, September 29, September 28, September 29,
1997 1996 1997 1996
------------------ ------------------- ------------------ -------------------
<S> <C> <C> <C> <C>
Net sales $ 690.2 $ 622.2 $ 1,813.7 $ 1,684.3
------------------ ------------------- ------------------ -------------------
Costs and expenses
Cost of sales 605.2 566.7 1,609.6 1,539.1
Selling, general and
administrative expenses 32.1 21.9 95.6 66.7
Net gain on sale of investment -- -- (8.7) 2.8
and other
Interest expense 14.3 8.6 39.6 24.8
------------------ ------------------- ------------------ -------------------
651.6 597.2 1,736.1 1,633.4
------------------ ------------------- ------------------ -------------------
Income from continuing
operations before taxes on 38.6 25.0 77.6 50.9
income
Provision for taxes on income (14.1) (4.5) (28.8) (13.0)
Minority interests (0.1) (0.3) 3.8 (0.1)
Equity in (losses) earnings of (1.7) (0.8) (2.1) 1.7
affiliates
------------------ ------------------- ------------------ -------------------
Net income (loss) from:
Continuing operations 22.7 19.4 50.5 39.5
Discontinued operations -- 0.7 -- (2.1)
------------------ ------------------- ------------------ -------------------
Net income 22.7 20.1 50.5 37.4
Preferred dividends, net of tax (0.7) (0.7) (2.1) (2.2)
benefit
------------------ ------------------- ------------------ -------------------
Earnings available to common
shareholders $ 22.0 $ 19.4 $ 48.4 $ 35.2
================== =================== ================== ===================
Net earnings (loss) per share of
common stock:
Continuing operations $ 0.73 $ 0.62 $ 1.60 $ 1.23
Discontinued operations -- 0.02 -- (0.07)
------------------ ------------------- ------------------ -------------------
Earnings per share of common
stock $ 0.73 $ 0.64 $ 1.60 $ 1.16
================== =================== ================== ===================
Fully diluted earnings (loss)
per share:
Continuing operations $ 0.68 $ 0.58 $ 1.51 $ 1.17
Discontinued operations -- 0.02 -- (0.06)
------------------ ------------------- ------------------ -------------------
Fully diluted earnings per share $ 0.68 $ 0.60 $ 1.51 $ 1.11
================== =================== ================== ===================
Cash dividends declared
per common share $ 0.15 $ 0.15 $ 0.45 $ 0.45
================== =================== ================== ===================
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
<PAGE>
Ball Corporation and Subsidiaries
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
(Millions of dollars)
<TABLE>
<CAPTION>
September 28, December 31,
1997 1996
------------------ -------------------
<S> <C> <C>
ASSETS
Current assets
Cash and temporary investments $ 28.1 $ 169.2
Accounts receivable, net 401.5 245.9
Inventories, net
Raw materials and supplies 161.5 95.7
Work in process and finished goods 216.5 206.3
Prepaid expenses and other 25.5 18.5
Deferred income tax benefits 32.2 31.0
------------------ ------------------
Total current assets 865.3 766.6
------------------ ------------------
Property, plant and equipment, at cost 1,644.9 1,269.5
Accumulated depreciation (693.4) (570.5)
------------------ ------------------
951.5 699.0
------------------ ------------------
Investment in affiliates 86.7 80.9
Goodwill 168.7 59.5
Other assets 99.2 94.8
------------------ ------------------
$ 2,171.4 $ 1,700.8
================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt and current portion of long-term debt $ 436.8 $ 175.2
Accounts payable 289.6 214.3
Salaries, wages and other current liabilities 171.1 121.5
------------------ ------------------
Total current liabilities 897.5 511.0
------------------ ------------------
Noncurrent liabilities
Long-term debt 399.2 407.7
Deferred income taxes 47.5 34.7
Employee benefit obligations and other 141.5 136.0
------------------ ------------------
Total noncurrent liabilities 588.2 578.4
------------------ ------------------
Contingencies
Minority interests 54.8 7.0
------------------ ------------------
Shareholders' equity
Series B ESOP Convertible Preferred Stock 60.7 61.7
Unearned compensation - ESOP (40.6) (44.0)
------------------ ------------------
Preferred shareholder's equity 20.1 17.7
------------------ ------------------
Common stock (issued 33,559,212 shares - 1997;
32,976,708 shares - 1996) 330.8 315.2
Retained earnings 378.8 344.5
Treasury stock, at cost (3,365,268 shares - 1997;
2,458,483 shares - 1996) (98.8) (73.0)
------------------ ------------------
Common shareholders' equity 610.8 586.7
------------------ ------------------
Total shareholders' equity 630.9 604.4
------------------ ------------------
$ 2,171.4 $ 1,700.8
================== ==================
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
<PAGE>
Ball Corporation and Subsidiaries
UNAUDITED CONDENSED CONSOLIDATED
STATEMENT OF CASH FLOWS
(Millions of dollars)
<TABLE>
<CAPTION>
Nine months ended
-----------------------------------------
September 28, September 29,
1997 1996
------------------ -------------------
<S> <C> <C>
Cash flows from operating activities
Net income from continuing operations $ 50.5 $ 39.5
Reconciliation of net income from continuing operations to net cash
provided by operating activities:
Depreciation and amortization 86.0 63.5
Other, net (1.0) 1.0
Changes in working capital components (61.4) (95.2)
------------------ -------------------
Net cash provided by operating activities 74.1 8.8
------------------ -------------------
Cash flows from financing activities
Net change in short-term debt 102.5 144.1
Net change in long-term debt (45.9) 104.0
Common and preferred dividends (16.1) (16.1)
Net proceeds from issuance of common stock under various employee and
shareholder plans 15.6 20.0
Acquisitions of treasury stock (25.8) (6.8)
Other, net 0.6 (30.3)
------------------ -------------------
Net cash provided by financing activities 30.9 214.9
------------------ -------------------
Cash flows from investing activities
Additions to property, plant and equipment (83.5) (144.5)
Acquisitions of M. C. Packaging, net of cash acquired ($159.4) and of
PET manufacturing assets ($40.4) (199.8) --
Investments in and advances to affiliates (14.2) (39.4)
Proceeds from sale of Datum stock 26.2 --
Net cash related to company-owned life insurance 14.0 (8.5)
Other, net 11.2 (25.6)
------------------ -------------------
Net cash used in investing activities (246.1) (218.0)
------------------ -------------------
Net (decrease) increase in cash (141.1) 5.7
Cash and temporary investments:
Beginning of period 169.2 5.1
------------------ -------------------
End of period $ 28.1 $ 10.8
================== ===================
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
<PAGE>
Ball Corporation and Subsidiaries
September 28, 1997
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. General.
The accompanying condensed consolidated financial statements have been prepared
by the Company without audit. Certain information and footnote disclosures,
including significant accounting policies, normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. The Company believes that the financial
statements reflect all adjustments which are necessary for a fair statement of
the results for the interim period. Results of operations for the periods shown
are not necessarily indicative of results for the year, particularly in view of
some seasonality in packaging operations. It is suggested that these unaudited
condensed consolidated financial statements and accompanying notes be read in
conjunction with the consolidated financial statements and the notes thereto
included in the Company's latest 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 assets and liabilities at the date of the financial statements, and
reported amounts of revenues and expenses during the reporting period. Future
events could affect these estimates.
Certain prior year amounts have been reclassified in order to conform with the
1997 presentation.
2. Summary of New Accounting Pronouncements.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 128, "Earnings per Share," effective for
financial statements issued after December 15, 1997. Early adoption of the new
standard is not permitted. It is expected that neither the Company's earnings
per common share nor its diluted per share amounts will differ significantly
from amounts previously reported.
Statement of Financial Accounting Standards No. 130 (SFAS 130), "Reporting
Comprehensive Income," was issued by the Financial Accounting Standards Board in
June 1997. This Statement requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. The Company will adopt SFAS 130 beginning January 1,
1998. Adoption will not affect the presentation of the traditional statement of
income.
Statement of Financial Accounting Standards No. 131 (SFAS 131), "Disclosures
about Segments of an Enterprise and Related Information," was issued by the
Financial Accounting Standards Board in June 1997. This Statement establishes
standards for reporting information about operating segments in annual financial
statements and requires reporting of selected information about operating
segments in interim financial reports issued to stockholders. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. The Company will adopt SFAS 131 beginning
January 1, 1998. The effect of adopting this standard has not yet been
determined.
<PAGE>
3. Acquisitions.
M.C. Packaging (Hong Kong) Limited
Ball, through its majority-owned subsidiary, FTB Packaging Limited (FTB
Packaging), acquired in 1997, approximately 75 percent of M. C. Packaging (Hong
Kong) Limited (M.C. Packaging) previously held by Lam Soon (Hong Kong) Limited
and the general public for a total purchase price of approximately $179 million.
The remaining minority interest of approximately 25 percent is owned by Ng Fung
Hong (Holdings) Limited of Hong Kong, an indirect subsidiary of China Resources
(Holding) Company, a major importer of foodstuffs from China into Hong Kong.
M.C. Packaging produces two-piece aluminum beverage containers, three-piece
steel food containers, aerosol cans, plastic packaging, metal crowns and printed
and coated metal.
M.C. Packaging has been included in the Company's consolidated statements
effective March 1997. The accompanying financial statements reflect a
preliminary allocation of the purchase price. The final allocation will be
completed when all information becomes available. Net assets acquired of M.C.
Packaging consisted of the following:
(dollars in millions)
Total assets $ 485.2
Less liabilities assumed:
Current liabilities 64.7
Total debt 197.8
Other long-term liabilities and minority interests 44.0
-------
Net assets acquired $ 178.7
=======
PET Manufacturing Assets
During the quarter ended September 28, 1997, the Company completed its
acquisition of certain manufacturing assets totaling approximately $40 million
from Brunswick Container Corporation including a plant in South Hill, Va. In
connection with this acquisition, the Company began operating a new plant in
Delran, N.J., to supply soft drink bottling affiliates of Brunswick Container
Corporation and other customers.
4. Discontinued Operations.
Earnings from discontinued operations of $0.7 million and the loss of $2.1
million for the three and nine month periods of 1996, respectively, were
comprised of the Company's share of the results of Ball-Foster Glass Container
Co. L.L.C. (Ball-Foster), in which the Company then owned a 42 percent interest,
and allocated interest expense of $1.9 million ($1.2 million after tax) and $5.5
million ($3.3 million after tax), for the three and nine month periods ending
September, respectively. Interest expense was allocated to discontinued
operations based on the Company's weighted average borrowing rate for general
borrowings, excluding debt specifically identified with Ball's other operations.
Ball sold its interest in Ball-Foster in October 1996.
5. Shareholders' Equity.
Issued and outstanding shares of the Series B ESOP Convertible Preferred Stock
were 1,654,562 shares at September 28, 1997, and 1,680,584 shares at December
31, 1996.
6. Net Gain on Sale of Investment and Other.
The Company sold its investment in Datum, Inc. during the first half of 1997. A
pretax gain of $11.7 million ($7.1 million after tax or $0.23 per share) was
recorded during the first six months of 1997. This gain was partially offset by
a $3.0 million second quarter pretax charge to close a small PET container
manufacturing plant.
7. Contingencies.
In the ordinary course of business, the Company is subject to various risks and
uncertainties due, in part, to the competitive nature of the industries in which
Ball participates, its operations in developing markets outside the U.S.,
volatile costs of commodity materials used in the manufacture of its products,
and changing capital markets. Where practicable, the Company attempts to reduce
these risks and uncertainties. As discussed in the Company's 1996 Annual Report
to Shareholders, Ball uses interest rate swaps and options to manage the
Company's mix of floating-rate and fixed-rate debt. Interest rate derivatives
which effectively change the Company's underlying debt obligations to an
intended rate mix are designated as hedges. The differential exchanged with
counter parties between fixed-rate and floating-rate interest amounts are
recorded as an adjustment to interest expense. Gains or losses arising from the
termination of interest rate swaps, which are not significant, are deferred and
amortized over the original contract terms. If an interest rate swap no longer
qualifies as an effective hedge, the Company records the instrument at fair
market value.
Prior to July 2, 1997, the Thai baht (currency of Thailand) was held steady
against the U.S. dollar. Since a change in monetary policy by the government of
Thailand on July 2, the baht has depreciated versus the U.S. dollar. The
Company's results reflect the impact of this devaluation, a charge of $2.1
million after-tax or $0.07 per share, on its 40 percent equity affiliate, Thai
Beverage Can Ltd. largely as a result of the U.S. dollar denominated debt held
in Thailand (approximately $20 million). The Company also has U.S. dollar
denominated debt in both Hong Kong and China (approximately $250 million) and
its 50 percent owned affiliate in Brazil (approximately $75 million). In
addition, the Company has other U.S. dollar denominated assets and liabilities
in other countries than those previously mentioned which are subject to exchange
rate changes, although rates have been relatively stable in those countries.
The U.S. government is disputing the Company's claim to recoverability of
reimbursed costs associated with Ball's Employee Stock Ownership Plan for fiscal
years 1989 through 1995, as well as the corresponding prospective costs accrued
after 1995. In October 1995, the Company filed its complaint before the Armed
Services Board of Contract Appeals (ASBCA) seeking final adjudication of this
matter. Trial before the ASBCA was conducted in January 1997. While the outcome
of the trial is not yet known, the Company's information at this time does not
indicate that this matter will have a material, adverse effect upon the
financial condition, results of operations or competitive position of the
Company. For additional information regarding this matter, refer to the
Company's latest annual report.
From time to time, the Company is subject to routine litigation incidental to
its business. Additionally, the U.S. Environmental Protection Agency has
designated Ball as a potentially responsible party, along with numerous other
companies, for the cleanup of several hazardous waste sites. However, the
Company's information at this time does not indicate that these matters will
have a material, adverse effect upon financial condition, results of operations,
capital expenditures or competitive position of the Company.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Ball Corporation and subsidiaries are referred to collectively as "Ball" or the
"Company" in the following discussion and analysis.
ACQUISITIONS
M.C. Packaging
In 1997, the Company, through its majority-owned subsidiary, FTB Packaging
Limited (FTB Packaging), completed the acquisition of a 75 percent controlling
interest in M.C. Packaging (Hong Kong) Limited (M.C. Packaging) for
approximately $179 million. The acquisition has been accounted for as a purchase
transaction.
M.C. Packaging has been included in the Company's consolidated statements
effective March 1997. The overall comparability of the accompanying 1997
consolidated statements to prior years has been affected by the M.C. Packaging
acquisition. M.C. Packaging had net sales of approximately $200 million in 1996
and operates throughout China and Hong Kong through various subsidiary and
affiliated companies. M.C. Packaging produces two-piece aluminum beverage
containers, three-piece steel food containers, aerosol cans, plastic packaging,
metal crowns and printed and coated metal.
PET Manufacturing Assets
Ball acquired certain manufacturing assets of Brunswick Container Corporation in
early July 1997 and began supplying PET bottles during the third quarter to the
soft drink bottling affiliates of Brunswick Container Corporation under a
multi-year contract.
RESULTS OF OPERATIONS
Sales and Earnings
Consolidated net sales of $690.2 million for the third quarter of 1997 increased
10.9 percent compared to the third quarter of 1996. For the first nine months of
1997, consolidated net sales were $1.8 billion, an increase of 7.7 percent over
the same period for 1996. The increased sales reflect the consolidation of M.C.
Packaging in 1997 and the increased volume from PET container operations.
Consolidated operating earnings for the third quarter of 1997 were $56.4 million
compared to $36.1 million in the third quarter of 1996, reflecting increased
earnings in the packaging segment. Consolidated operating earnings for the
year-to-date periods were $123.3 million and $80.8 million for 1997 and 1996,
respectively. Consolidated earnings for the nine month period of 1997 include a
net pretax gain from the sale of the Company's interest in Datum Inc. of $11.7
million ($7.1 million after tax, or $0.23 per share), partially offset by a $3.0
million charge associated with the Reading, Pa. plant closure, while 1996
included first quarter employee termination costs primarily related to the metal
packaging business.
Packaging
Packaging segment net sales were $588.0 million for the third quarter of 1997
compared to $528.6 million in the third quarter of 1996. Nine month period net
sales were $1.5 billion and $1.4 billion for 1997 and 1996, respectively.
Segment operating earnings increased in the three and nine month periods of 1997
compared to the same periods of 1996 as a result of improved earnings within the
North American metal container businesses, the results of the M.C. Packaging
acquisition and reduced operating losses within the PET business.
<PAGE>
Within the packaging segment, sales in the North American metal container
businesses decreased for the three and nine month periods of 1997 compared to
the same periods of 1996. Lower shipments of metal food and beverage containers
contributed to lower sales in the 1997 periods. Also contributing to the
comparative decrease, sales in 1996 included $10.5 million and $31.7 million in
the third quarter and year-to-date periods, respectively, from the Company's
aerosol container business sold in the fourth quarter of that year. Operating
earnings increased in the North American metal food and beverage container
businesses despite lower shipments, due in part to improved operating
efficiencies compared to 1996. In addition, metal beverage incurred lower
warehousing costs in 1997. Metal beverage container results in 1996 were
affected, in part, by higher contractual can sheet costs and manufacturing
inefficiencies caused by the conversion of production capabilities to a smaller
diameter end and lower gauge aluminum.
PET container sales for the nine months represented approximately six percent of
consolidated 1997 net sales compared to two percent in 1996. The business
operated near breakeven for the quarter and at a loss for the nine month period
of 1997, though at a reduced level from 1996. Costs associated with the start-up
of new plants in Iowa and New Jersey contributed to the operating loss in 1997.
Ball acquired certain manufacturing assets of Brunswick Container Corporation in
early July 1997 and began supplying PET bottles during the third quarter to the
soft drink bottling affiliates of Brunswick Container Corporation under a
multi-year contract.
Sales within Ball's FTB Packaging operations increased substantially with the
inclusion of $36.5 million and $106.2 million in net sales from M.C. Packaging
for the three and nine month periods of 1997, respectively. FTB Packaging
operations reported consolidated operating earnings of $6.6 million and $5.3
million in 1997, versus $1.8 million and $2.9 million for the quarter and
year-to-date periods of 1996, respectively. These increases were primarily due
to the acquisition of M.C.
Packaging.
Aerospace and Technologies
Sales in the aerospace and technology segment increased to $102.3 million and
$303.3 million for the three and nine month periods of 1997, respectively,
compared to $93.7 million and $275.9 million in 1996, respectively. Operating
earnings for the nine month period also increased from $26.1 million in 1996 to
$39.0 million in 1997, primarily due to the sale of the Company's investment in
Datum at a pretax gain of approximately $11.7 million during the first half of
1997. Backlog at the end of September 1997 was approximately $287 million
compared to $329 million at December 31, 1996, and $373 million at the end of
the June 1996.
Interest and Taxes
Consolidated interest expense for the third quarter and the first nine months of
1997 was $14.3 million and $39.6 million, respectively, compared to $8.6 million
and $24.8 million, for the same periods of 1996, respectively. The increase was
attributable primarily to an increase in the average level of short-term
borrowings outstanding as a result of consolidating the existing debt
obligations of M.C. Packaging in 1997.
Ball's consolidated effective income tax rate was approximately 37 percent for
both the three and nine month periods of 1997 compared to 18.0 percent and 25.5
percent for the same periods of 1996, respectively. In 1996 the U.S. Internal
Revenue Service (IRS) concurred with the Company's position on certain tax
matters in connection with a routine examination of its federal income tax
return, resulting in a lower effective tax rate. In addition, during 1996 the
Company was required to exclude from deductible expenses a portion of interest
incurred in connection with company owned life insurance as a result of changes
in the tax law related to this program. The net effect of these tax adjustments
was an increase in 1996 third quarter net income of $4.3 million, or 14 cents
per share.
<PAGE>
Results of Equity Affiliates
Equity in earnings of affiliates for the third quarter of 1997 were a loss of
$1.7 million compared to a loss of $0.8 million for the 1996 third quarter. The
increased loss is primarily attributable to the charge taken at the Company's
equity affiliate in Thailand related to the currency devaluation of the Thai
baht that occurred during the third quarter of 1997. The Company took a charge
of $2.1 million, or $0.07 per share, related to the Thai baht devaluation. For
the nine month periods, equity in earnings of affiliates were a loss of $2.1
million and earnings of $1.7 million for 1997 and 1996, respectively. The
year-to-date decrease from 1996 resulted from the devaluation of the Thai baht,
the soft market in China where the majority of equity affiliates operate and the
startup of ventures in Brazil and Thailand.
Discontinued Operations
The earnings from discontinued operations of $0.7 million and the loss of $2.1
million for the three and nine month periods of 1996, respectively, were
comprised of the Company's share of the results of Ball-Foster, in which the
Company then owned a 42 percent interest, and allocated interest expense of $1.9
million ($1.2 million after tax) and $5.5 million ($3.3 million after tax),
respectively. Interest expense was allocated to discontinued operations based on
the Company's weighted average borrowing rate for general borrowings, excluding
debt specifically identified with Ball's other operations. Ball sold its
interest in Ball-Foster in October 1996.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations in 1997 of $74.1 million increased from $8.8 million
in 1996 due in part to a reduction in the amount of cash used for normal
seasonal working capital requirements, higher depreciation and improved
earnings.
Total debt was $836.0 million at September 28, 1997 compared to $582.9 million
at December 31, 1996. Debt-to-total capitalization ratio was 54.9 percent at
September 28, 1997 compared to 48.8 percent as of December 31, 1996. These
increases are largely attributable to the 1997 acquisition and consolidation of
M.C. Packaging and its related borrowings as well as normal seasonal working
capital requirements.
The Company has committed revolving credit agreements totaling $280 million
consisting of a five-year facility for $150 million and 364-day facilities for
$130 million. An additional $356 million in short-term funds were available to
the Company on an uncommitted basis at quarter end, under which $73 million were
outstanding at September 28, 1997. In addition, Ball has a Canadian dollar
commercial paper facility of approximately $87 million, under which
approximately $73 million was outstanding at quarter end. Additionally, FTB has
approximately $339 million of short-term committed and uncommitted facilities
which are without recourse to Ball. At the end of the third quarter 1997,
approximately $131 million of these facilities were available.
The Company has a receivable sale agreement, under which a net amount of $66.5
million of packaging trade receivables have been sold without recourse as of
September 28, 1997. Fees related to this agreement were $0.9 million and $2.8
million for the quarter and year-to-date periods in 1997 and $0.9 million and
$2.7 million for the same periods in 1996, and were included in selling, general
and administrative expenses.
Total 1997 capital spending is expected to be approximately $100 million. This
excludes the acquisition of M.C. Packaging and the acquisition of certain PET
manufacturing equipment and other assets from Brunswick Container Corporation.
<PAGE>
OTHER
In the ordinary course of business, the Company is subject to various risks and
uncertainties due, in part, to the competitive nature of the industries in which
Ball participates, its operations in developing markets outside the U.S.,
volatile costs of commodity materials used in the manufacture of its products,
and changing capital markets. Where practicable, the Company attempts to reduce
these risks and uncertainties. As discussed in the Company's 1996 Annual Report
to Shareholders, Ball uses interest rate swaps and options to manage the
Company's mix of floating-rate and fixed-rate debt. Interest rate derivatives
which effectively change the Company's underlying debt obligations to an
intended rate mix are designated as hedges. The differential exchanged with
counter parties between fixed-rate and floating-rate interest amounts are
recorded as an adjustment to interest expense. Gains or losses arising from the
termination of interest rate swaps, which are not significant, are deferred and
amortized over the original contract terms. If an interest rate swap no longer
qualifies as an effective hedge, the Company records the instrument at fair
market value.
Prior to July 2, 1997, the Thai baht (currency of Thailand) was held steady
against the U.S. dollar. Since a change in monetary policy by the government of
Thailand on July 2, the baht has depreciated versus the U.S. dollar. The
Company's results reflect the impact of this devaluation, a charge of $2.1
million after-tax or $0.07 per share, on its 40 percent equity affiliate, Thai
Beverage Can Ltd. largely as a result of the U.S. dollar denominated debt held
in Thailand (approximately $20 million). The Company also has U.S. dollar
denominated debt in both Hong Kong and China (approximately $250 million) and
its 50 percent owned affiliate in Brazil (approximately $75 million). In
addition, the Company has other U.S. dollar denominated assets and liabilities
in other countries than those previously mentioned which are subject to exchange
rate changes, although rates have been relatively stable in those countries.
The U.S. government is disputing the company's claim to recoverability of
reimbursed costs associated with Ball's Employee Stock Ownership Plan for fiscal
years 1989 through 1995, as well as the corresponding prospective costs accrued
after 1995. In October 1995, the Company filed its complaint before the Armed
Services Board of Contract Appeals (ASBCA) seeking final adjudication of this
matter. Trial before the ASBCA was conducted in January 1997. While the outcome
of the trial is not yet known, the Company's information at this time does not
indicate that this matter will have a material, adverse effect upon financial
condition, results of operations or competitive position of the Company. For
additional information regarding this matter, refer to the Company's latest
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 assets and liabilities at the date of the financial statements, and
reported amounts of revenues and expenses during the reporting period. Future
events could affect these estimates.
As is commonly known, there is a potential issue facing many companies today
regarding the ability of information systems to accommodate the coming year
2000. Ball is evaluating its information systems and believes that all critical
systems can, or will be able to, accommodate the coming century, without
material adverse effect on the Company's financial condition, results of
operations, capital spending or competitive position.
From time to time, the Company is subject to routine litigation incident to its
business. Additionally, the U.S. Environmental Protection Agency has designated
Ball as a potentially responsible party, along with numerous other companies,
for the cleanup of several hazardous waste sites. However, the Company's
information at this time does not indicate that these matters will have a
material, adverse effect upon financial condition, results of operations,
capital expenditures or competitive position of the Company.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There were no events required to be reported under Item 1 for the quarter ending
September 28, 1997.
Item 2. Changes in securities
There were no events required to be reported under Item 2 for the quarter ending
September 28, 1997.
Item 3. Defaults upon senior securities
There were no events required to be reported under Item 3 for the quarter ending
September 28, 1997.
Item 4. Submission of matters to a vote of security holders
There were no events required to be reported under Item 4 for the quarter ending
September 28, 1997.
Item 5. Other information
There were no events required to be reported under Item 5 for the quarter ending
September 28, 1997.
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
10.1 1997 Enhancement to the Ball Corporation Economic Value
Added Incentive Compensation Plan
11.1 Statement Re: Computation of Earnings per Share
27.1 Financial Data Schedule for the Nine Months Ending
September 28, 1997
99.1 Cautionary statement for purposes of the "safe harbor"
provisions of the Private Securities Litigation Reform
Act of 1995
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended
September 28, 1997.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Ball Corporation
(Registrant)
By: /s/ R. David Hoover
R. David Hoover
Executive Vice President
and Chief Financial Officer
Date: November 10, 1997
<PAGE>
Ball Corporation and Subsidiaries
QUARTERLY REPORT ON FORM 10-Q
September 28, 1997
EXHIBIT INDEX
Description Exhibit
-----------------
1997 Enhancement to the Ball Corporation Economic Value Added
Incentive Compensation Plan EX-10.1
Statement Re: Computation of Earnings per Share EX-11.1
Financial Data Schedule for the Nine Months Ending
September 28, 1997 EX-27.1
Cautionary statement for purposes of the "safe harbor"
provisions of the Private Securities Litigation Reform Act
of 1995 EX-99.1
<PAGE>
Exhibit 10.1
- ------------
1997 Enhancement to the Ball Corporation
Economic Value Added
Incentive Compensation Plan
Certain senior level executives approved by the Human Resources Committee of the
Board of Directors are eligible to receive a supplemental incentive compensation
award in 1997. To be eligible, the average performance factor for the
participant's combined participation basis must be equal to one or greater. The
supplemental award will be 20 percent of the participant's target participation
rate for 1997. This award will be made in the form of restricted stock at the
time of payment of incentive compensation in early 1998. Restrictions shall
lapse as determined by the Committee.
<PAGE>
Exhibit 11.1
- ------------
Ball Corporation and Subsidiaries
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(Millions of dollars except per share amounts)
<TABLE>
<CAPTION>
Three months ended Nine months ended
--------------------------------------------- ------------------------------------------
September 28, September 29, September 28, September 29,
1997 1996 1997 1996
-------------------- -------------------- -------------------- ---------------------
<S> <C> <C> <C> <C>
Earnings per Common Share - Assuming No Dilution
Net income (loss) from:
Continuing operations $ 22.7 $ 19.4 $ 50.5 $ 39.5
Discontinued operations -- 0.7 -- (2.1)
------------------- ------------------ ------------------ ------------------
Net income 22.7 20.1 50.5 37.4
Preferred dividends, net of tax (0.7) (0.7) (2.1) (2.2)
benefit
------------------- ------------------ ------------------ ------------------
Net earnings available to common
shareholders $ 22.0 $ 19.4 $ 48.4 $ 35.2
=================== ================== ================== ==================
Weighted average number of
common shares outstanding
(000s) 30,135 30,471 30,263 30,253
=================== ================== ================== ==================
Earnings (loss) per share of
common stock:
Continuing operations $ 0.73 $ 0.62 $ 1.60 $ 1.23
Discontinued operations -- 0.02 -- (0.07)
------------------- ------------------ ------------------ ------------------
$ 0.73 $ 0.64 $ 1.60 $ 1.16
=================== ================== ================== ==================
Earnings per Share - Assuming Full
Dilution Net income (loss) from:
Continuing operations $ 22.7 $ 19.4 $ 50.5 $ 39.5
Discontinued operations -- 0.7 -- (2.1)
------------------- ------------------ ------------------ ------------------
Net income 22.7 20.1 50.5 37.4
Adjustments for deemed ESOP cash
contribution in lieu of Series
B ESOP Preferred dividend (0.6) (0.5) (1.6) (1.6)
------------------- ------------------ ------------------ ------------------
Net earnings available to common
shareholders $ 22.1 $ 19.6 $ 48.9 $ 35.8
=================== ================== ================== ==================
Weighted average number of common
shares outstanding (000s) 30,135 30,471 30,263 30,253
Dilutive effect of stock options 307 8 295 67
Common shares issuable upon
conversion of Series B ESOP 1,911 1,964 1,920 1,988
Preferred stock
------------------- ------------------ ------------------ ------------------
Weighted average number shares
applicable to fully diluted
earnings per share 32,353 32,443 32,478 32,318
=================== ================== ================== ==================
Fully diluted earnings (loss)
per share:
Continuing operations $ 0.68 $ 0.58 $ 1.51 $ 1.17
Discontinued operations -- 0.02 -- (0.06)
------------------- ------------------ ------------------ ------------------
$ 0.68 $ 0.60 $ 1.51 $ 1.11
=================== ================== ================== ==================
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27.1
BALL CORPORATION
FINANCIAL DATA SCHEDULE
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED
SEPTEMBER 28, 1997 AND THE UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET AS OF
SEPTEMBER 28, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-28-1997
<CASH> 28,100
<SECURITIES> 0
<RECEIVABLES> 401,500
<ALLOWANCES> 0
<INVENTORY> 378,000
<CURRENT-ASSETS> 865,300
<PP&E> 1,644,900
<DEPRECIATION> 693,400
<TOTAL-ASSETS> 2,171,400
<CURRENT-LIABILITIES> 897,500
<BONDS> 399,200
0
20,100
<COMMON> 232,000
<OTHER-SE> 378,900
<TOTAL-LIABILITY-AND-EQUITY> 2,171,400
<SALES> 1,813,700
<TOTAL-REVENUES> 1,813,700
<CGS> 1,609,600
<TOTAL-COSTS> 1,609,600
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,600
<INCOME-PRETAX> 77,600
<INCOME-TAX> 28,800
<INCOME-CONTINUING> 50,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 50,500
<EPS-PRIMARY> 1.60
<EPS-DILUTED> 1.51
<PAGE>
</TABLE>
Exhibit 99.1
Safe Harbor Statement Under the Private Securities
Litigation Reform Act of 1995
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 (the Reform Act), Ball (the "Company") is hereby
filing cautionary statements identifying important factors that could cause the
Company's actual results to differ materially from those projected in
forward-looking statements of the Company. Management's Discussion and Analysis
of Financial Condition and Results of Operations contains forward-looking
statements, and many of these statements are contained in Part I, Item 1,
"Business" and incorporated by reference in Item 7. The Reform Act defines
forward-looking statements as statements that express an expectation or belief
and contain a projection, plan or assumption with regard to, among other things,
future revenues, income, earnings per share or capital structure. Such
statements of future events or performance involve estimates, assumptions, and
uncertainties and are qualified in their entirety by reference to, and are
accompanied by, the following important factors that could cause the Company's
actual results to differ materially from those contained in forward-looking
statements made by or on behalf of the Company.
Some important factors that could cause the Company's actual results or outcomes
to differ materially from those discussed in the forward-looking statements
include, but are not limited to, fluctuation in customer growth and demand,
weather, fuel costs and availability, regulatory action, Federal and State
legislation, interest rates, labor strikes, maintenance and capital expenditures
and local economic conditions. In addition, the Company's ability to have
available an appropriate amount of production capacity in a timely manner can
significantly impact the Company's financial performance. The timing of
deregulation and competition, product development and introductions and
technology changes are also important potential factors. Other important factors
include the following:
The competitive industries in which the Company participates.
Difficulties in obtaining raw materials, supplies, power and natural resources
needed for the production of metal and plastic containers as well as
telecommunications and aerospace products could affect the Company's ability to
ship containers and telecommunications and aerospace products.
The pricing of raw materials, supplies, power and natural resources needed for
the production of metal and plastic containers as well as telecommunications and
aerospace products, pricing and ability to sell scrap associated with the
production of metal containers and the effect of changes in the cost of
warehousing the Company's products could adversely affect the Company's
financial performance.
The failure of EarthWatch Incorporated to launch successfully satellites planned
for 1997 and subsequent years, technological or market acceptance issues,
performance failures and related contracts or subcontracts, including any
failure of EarthWatch to receive additional financing needed for EarthWatch to
continue to make payments, or any events which would require the Company to
provide additional financial support for EarthWatch Incorporated.
Cancellation or termination of government contracts for the U.S. Government,
other customers or other government contractors.
<PAGE>
The effects of, and changes in, laws, regulations, other activities of
governments (including political situations and inflationary economies),
agencies and similar organizations, including, but not limited to, those
affecting frequency, use and availability of metal and plastic containers, the
authorization and control over the availability of government contracts and the
nature and continuation of those contracts and the related services provided
thereunder, the use of remote sensing data and changes in domestic and
international tax laws could negatively impact the Company's financial
performance.
The Company intends to grow through acquisitions of complementary products,
technologies and businesses. The successful implementation of this strategy will
be dependent upon the Company's ability to identify and acquire suitable
acquisition candidates and manage and integrate the operations of such
acquisitions. There can be no assurance the Company will be able to identify and
acquire suitable additional candidates. There can be no assurance that the
Company will be successful in managing and integrating such acquisitions. Growth
through acquisitions will place additional demands on the Company's management
and resources.
As a result of conducting business internationally, the Company is subject to
various risks, which include: a greater difficulty of administering its business
globally; compliance with multiple and potentially conflicting regulatory
requirements such as export requirements, tariffs and other barriers;
differences in intellectual property protections; health and safety
requirements; difficulties in staffing and managing foreign operations; longer
accounts receivable cycles; currency fluctuations; volatility in the business
growth rates in developing nations; risks involved in purchasing and selling
products and services and receiving payments in currencies other than the U.S.
dollar; restrictions against the repatriation of earnings; export control
restrictions; overlapping or differing tax structures; political and economic
instability and general trade restrictions. There can be no assurance that any
of the foregoing factors will not have a material adverse effect on the
Company's business, results of operations and financial condition. There also
can be no assurance that foreign markets, particularly in developing economies,
for the Company's products will not develop more slowly than currently
anticipated. Any action, by foreign countries could reduce the market for the
Company's products, which could materially, adversely affect the Company's
business, results of operations and financial conditions.
The effects of changes in the Company's organization or in the compensation
and/or benefit plans; any changes in agreements regarding investments or joint
ventures in which the Company has an investment; the amount, type or cost of the
Company's financing and changes to that financing, could adversely impact Ball's
financial performance.
<PAGE>
