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[LOGO]
PROSPECTUS
BALL CORPORATION
EXCHANGE OFFER FOR
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$300,000,000 AND $250,000,000
7 3/4% SENIOR NOTES 8 1/4% SENIOR
DUE 2006 SUBORDINATED NOTES
DUE 2008
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TERMS OF THE EXCHANGE OFFER
- - Expires 5:00 p.m. New York City time, January 27, 1999, unless extended.
- - All Outstanding Notes that are validly tendered and not validly withdrawn
will be exchanged.
- - Tenders of the Outstanding Notes may be withdrawn any time prior to the
expiration of the Exchange Offer.
- - Not subject to any condition, other than that the Exchange Offer not violate
applicable law or any applicable interpretation of the Staff of the
Securities and Exchange Commission.
- - The Company will not receive any proceeds from the Exchange Offer.
- - The exchange of notes will not be a taxable exchange for U.S. federal income
tax purposes.
- - The terms of the Exchange Notes and the Outstanding Notes are substantially
identical, except for certain transfer restrictions and registration rights
relating to the Outstanding Notes.
- - There is no existing market for the Exchange Notes, and the Company does not
intend to apply for their listing on any securities exchange.
- --------------------------------------------------------------------------------
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS
PRIOR TO TENDERING THEIR OUTSTANDING NOTES IN THE EXCHANGE OFFER, SEE "RISK
FACTORS" BEGINNING ON PAGE 17.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE NOTES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
December 21, 1998
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THE PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS THAT ARE NOT CONTAINED IN
OR DELIVERED WITH THE PROSPECTUS. THESE DOCUMENTS ARE AVAILABLE WITHOUT CHARGE
UPON REQUEST FROM DOUGLAS E. POLING, TREASURER, AT BALL CORPORATION, 10 LONGS
PEAK DRIVE, P.O. BOX 5000, BROOMFIELD, COLORADO 80038-5000, TELEPHONE NUMBER
(303) 469-3131. TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD
BE MADE BY JANUARY 20, 1999.
------------------------
TABLE OF CONTENTS
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PAGE
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Prospectus Summary............................. 1
Risk Factors................................... 17
Debt Financing Risks......................... 17
Risks Associated with the Operation of the
Business................................... 19
Environmental Matters........................ 22
Risks Associated with the Exchange Offer..... 23
The Exchange Offer............................. 24
The Transactions............................... 32
Recent Developments............................ 33
Sources and Uses of Funds...................... 34
Capitalization................................. 35
Unaudited Pro Forma Condensed Combined
Financial Data............................... 36
Selected Financial Data........................ 40
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 43
Business....................................... 59
Management..................................... 73
Ownership of Capital Stock..................... 76
Description of Certain Indebtedness............ 77
Description of the Exchange Notes.............. 80
Certain Federal Income Tax Consequences........ 116
Plan of Distribution........................... 119
Legal Matters.................................. 119
Experts........................................ 120
Where You Can Find More Information............ 120
Information Incorporated by Reference.......... 121
Index to Financial Statements.................. F-1
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PROSPECTUS SUMMARY
The following summary highlights selected information from this Prospectus
and may not contain all of the information that is important to you. This
Prospectus includes the terms of the notes we are offering, as well as
information regarding our business and detailed financial data. We encourage you
to read this Prospectus in its entirety. Except as otherwise required by the
context, the "Acquisition" refers to the acquisition of the North American
beverage can business of Reynolds Metals Company by Ball Corporation and Ball
Metal Beverage Container Corp. References in this Prospectus to "we," "us,"
"our" or the "Company" refer to the combined business of Ball Corporation and
its subsidiaries and the North American beverage can business of Reynolds Metals
Company after the Acquisition. The term "Ball" refers to Ball Corporation and
its subsidiaries before the Acquisition. The term "Reynolds" refers to the North
American beverage can business of Reynolds Metals Company before its Acquisition
by Ball Corporation and Ball Metal Beverage Container Corp. The terms "North
America" and "North American" refer to the United States and Canada. The term
"you" refers to prospective investors in the Exchange Notes. The term
"Securities Act" refers to the Securities Act of 1933, as amended.
THE EXCHANGE OFFER
On August 10, 1998, we privately
placed $300.0 million of 7 3/4% Senior Notes due 2006 and $250.0 million of
8 1/4% Senior Subordinated Notes due 2008. The Outstanding Notes are, and the
Exchange Notes will be, guaranteed by most of our wholly owned domestic
subsidiaries.
Simultaneously with the private placement, the subsidiary guarantors and the
Company entered into a Senior Registration Rights Agreement and a Senior
Subordinated Registration Rights Agreement with the initial purchasers of the
Outstanding Notes. Under the Registration Rights Agreements, we must deliver
this Prospectus to the holders of the Outstanding Notes and must complete the
Exchange Offer on or before February 8, 1999. If the Exchange Offer does not
take place on or before February 8, 1999, we must pay liquidated damages to the
holders of the Outstanding Notes until the Exchange Offer is completed. You may
exchange your Outstanding Notes for Exchange Notes with substantially the same
terms in this Exchange Offer. You should read the discussion under the heading
"Summary of Terms of the Exchange Notes" and "Description of the Exchange Notes"
for further information regarding the Exchange Notes.
We believe that holders of the Outstanding Notes may resell the Exchange
Notes without complying with the registration and prospectus delivery provisions
of the Securities Act, if certain conditions are met. You should read the
discussion under the headings "Summary of the Exchange Offer" and "The Exchange
Offer" for further information regarding the Exchange Offer and resales of the
Exchange Notes.
THE ACQUISITION
The Outstanding Notes were sold to help finance Ball Corporation's and Ball
Metal Beverage Container Corp.'s acquisition of the North American beverage can
business of Reynolds Metals Company on August 10, 1998 for a net purchase price
of approximately $745.4 million, subject to certain adjustments. Ball Metal
Beverage Container Corp. is a wholly owned subsidiary of Ball Corporation. The
assets acquired consisted primarily of 16 beverage can and can end manufacturing
plants in 12 states and Puerto Rico.
The $550.0 million in cash from the sale of the Outstanding Notes, together
with $808.2 million in borrowings under a $1,200.0 million Senior Credit
Facility, were used to (1) pay for the Acquisition, (2) fund a $39.0 million
incentive loan to Reynolds Metals Company, (3) refinance $521.9 million
principal amount of our existing debt and (4) pay fees and expenses related to
the
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Acquisition. You should read the discussions under the headings "The
Transactions" and "Use of Proceeds" for further information regarding the
Acquisition and the sources and uses of funds.
COMPANY OVERVIEW
Our Company is one of the largest beverage can manufacturers in the world,
capable of producing over 42.0 billion aluminum beverage cans in 1998.
NORTH AMERICAN BEVERAGE CAN PRODUCTION
We own and operate 25 plants in North America, including Puerto Rico. We
estimate these plants are capable of producing 35.8 billion cans in 1998, which
comprises approximately one-third of total beverage can production capacity in
this region.
INTERNATIONAL BEVERAGE CAN PRODUCTION
In addition, we are the largest beverage can producer in the People's
Republic of China ("China"), capable of producing over 5.0 billion cans
annually. Our production capacity comprises approximately 53% of total
production capacity in China. In addition to having joint ventures in Brazil,
Thailand, Taiwan, Russia and the Philippines, we license technology to companies
in Europe, Mexico, Israel, Australia and New Zealand.
OUR OTHER PRODUCTS
We are also a producer of two- and three-piece steel food cans in North
America. We also produce polyethylene terephthalate ("PET") plastic containers,
which are used for beverages and other purposes, using some of the most
sophisticated technology available. In addition, we supply high technology
aerospace products and services to governmental and commercial customers. On a
pro forma basis, these businesses comprised approximately 29% of our 1997 sales.
OUR CUSTOMERS
We serve major beverage and food producers domestically and internationally,
including Anheuser-Busch Companies, Inc., The Coca-Cola Company and affiliated
bottlers, Miller Brewing Company and PepsiCo Inc. and affiliated bottlers.
HOW WE HAVE DONE
Our pro forma sales for the twelve-months ending December 31, 1997 were
approximately $3,581.2 million. Pro forma EBITDA and net income for the same
period were approximately $353.7 million and $45.7 million, respectively. For
further information, see "Summary Unaudited Pro Forma Condensed Combined
Financial Data."
We believe that, as a result of our superior technology and manufacturing
practices, we are the lowest cost beverage can producer and have the most
productive beverage can plants in North America. In 1998, we believe that our
estimated average number of cans produced for each manufacturing line (790
million cans) will be the highest among our competitors. By comparison, the
estimated industry average is approximately 600 million cans for each line.
ACQUISITION RATIONALE
The Acquisition of Reynolds will nearly double what our beverage can
revenues were in 1997, from approximately $1.3 billion to approximately $2.5
billion on a pro forma basis. The Acquisition thus makes us the largest beverage
can manufacturer in North America and a worldwide leader in beverage can
production technology. In addition, there are several other reasons which made
the Acquisition attractive from a strategic point of view.
First, customer overlap between Ball and Reynolds was minimal. Our customers
before the acquisition included Anheuser-Busch, Coca-Cola, Molson Breweries
U.S.A. Inc. and Pepsi. With the acquisition of the beverage can business of
Reynolds, our customers now include Campbell Soup Company, Coca-Cola, Miller,
Pepsi and Shasta Beverages, Inc. The combination thus created a more diversified
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customer base with less reliance on any single customer.
Second, Reynolds' strength was its "specialty" beverage can sizes, while our
strength was the "standard" 12-ounce beverage can size. The combination allows
us to provide a broader array of beverage containers to our customers.
Third, with the addition of Reynolds' manufacturing facilities, we can serve
customers in certain regions that we could not serve as cost-effectively from
our existing plants.
Finally, our management believes we can improve Reynolds' can-making
operations and increase our earnings by:
- - eliminating duplicative over-head costs;
- - relocating productive capacity;
- - streamlining operations; and
- - applying Ball's can-making technology and manufacturing know-how.
COMPETITIVE STRENGTHS
We believe that a number of factors make us a premier supplier of rigid
packaging products, with multiple sources of earnings and cash flow. These
factors include our:
SIGNIFICANT INDUSTRY PRESENCE. As previously mentioned, we are one of the
largest beverage can manufacturers in the world. Our 1998 beverage can
production capacity represents approximately one-third of total capacity in
North America, substantially ahead of our next largest competitor, American
National Can Company. We are the largest beverage can producer in China and,
through joint ventures and licensing arrangements, have a presence in fourteen
other countries.
LOW-COST MANUFACTURING WITH STATE-OF-THE-ART FACILITIES. We believe that,
as a result of Ball's superior process technology and manufacturing practices,
we are the lowest cost beverage can producer in North America. Over the last
four years, Ball and Reynolds completed significant modernization programs at
many of their facilities. These investments increased productivity, reduced
costs and improved product quality. We believe we can improve operations in the
Reynolds' plants by implementing our low cost manufacturing processes in the
acquired plants and by eliminating duplicative overhead costs. Furthermore, now
we can serve customers in certain regions that we could not serve as
cost-effectively from our existing plants.
HIGH QUALITY PRODUCTS AND SERVICES. We believe that the quality of Ball's
products and customer service has been among the highest in the industry. The
number of quality awards that customers have awarded Ball provides support for
this belief. For example, Anheuser-Busch conferred the prestigious "Select
Status" upon three of the five Ball beverage can manufacturing plants serving
Anheuser-Busch. We expect the other two plants to earn "Select Status" in the
near future. We continually strive to improve the quality of our products and
production processes through rigorous quality systems, comprehensive employee
training and rigid control of critical manufacturing processes. Since 1996, we
have reduced total spoilage by 19% and the defect rate of finished cans by 44%
in our beverage can manufacturing facilities.
TECHNOLOGICAL LEADERSHIP. Ball has increased manufacturing efficiencies and
lowered unit costs through internally-developed equipment improvements. Ball
also has developed many patents in can and can end manufacturing. Reynolds
introduced several popular products and product features, such as stay-on tabs,
colored tabs and large-opening "mouths" for beer cans. Reynolds possesses
particular expertise in the value-added specialty can segment and is a leader in
hot-fill can technology.
ESTABLISHED PRESENCE IN INTERNATIONAL MARKETS. We have made substantial
investments in emerging markets with a high potential for growth. For example,
in 1997, we acquired M.C. Packaging (Hong Kong)
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Limited, the largest beverage can manufacturer in China. Ball also was among the
first foreign manufacturers to enter the Brazilian beverage can market through
its Latapack-Ball Embalagens Ltda. joint venture. As established North American
customers expand into these developing markets, we are well-positioned to serve
their needs for innovative, convenient, low-cost packaging. We also continue to
license technology and know-how to beverage can suppliers in certain other
attractive international markets.
EXPERIENCED MANAGEMENT. We are led by an experienced management team.
Management has a proven track record of increasing profitability, expanding our
customer base, implementing state-of-the-art manufacturing technology, improving
operating efficiencies, introducing product innovations and entering new markets
and businesses. Our top ten senior executives average over 23 years of packaging
industry experience and over 17 years with the Company.
DIVERSIFIED AND GROWING CASH FLOW. Our packaging and aerospace operations
historically have generated significant cash flow. We believe that the addition
of Reynolds, modest business growth and the recent completion of major domestic
capital improvement programs at Ball and Reynolds provide opportunities to
increase earnings and cash flow. Our presence in emerging markets, and in PET
containers, steel food cans and high technology aerospace products and services,
further diversifies our available sources of cash flow.
COMPANY STRATEGY
Since 1994, we have pursued a strategy to exit mature businesses where
returns were unacceptable and to restructure and modernize existing businesses
with greater potential. Simultaneously, we have expanded into new geographic
markets where we saw potential for higher growth rates and entered new packaging
markets where we believe we can sustain a competitive advantage. In pursuit of
this strategy, we sold our glass container operations in 1995 and 1996. We also
invested more than $675 million beginning in 1994 to upgrade facilities, expand
geographically and enter the PET container business. The Company will continue
to pursue several business strategies, including:
LEVERAGING RELATIONSHIPS WITH EXISTING CUSTOMERS. We have long-term
relationships with leading domestic and international beverage and food
manufacturers. We will seek to expand our business with them and their
affiliates by:
- - delivering quality, competitively priced products;
- - providing superior customer service;
- - developing new designs;
- - distributing our products efficiently through strategically located plants;
and
- - supplying products under multi-year supply contracts.
MAINTAINING OUR LOW COST POSITION. We plan to reduce costs and increase our
efficiency in production by:
- - developing proprietary process technology;
- - reducing the material content of the containers;
- - investing in more productive machinery and equipment; and
- - effectively utilizing our production capacity, equipment and personnel.
ENHANCING OUR TECHNOLOGICAL LEADERSHIP. Research and development investment
is an important element in designing new products and in improving production
efficiency and productivity. We plan to continue working with customers to
improve existing products and to design new packaging features. Developing
value-added packaging and new aerospace products will also be focal points of
our research and development activities.
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GROWING THE PET BUSINESS. The beverage and food industries' use of PET
containers continues to grow. We plan to increase production at our existing PET
container plants, lower production costs and improve operating efficiency. We
anticipate selling PET products both to existing beverage can customers
(capitalizing on our strong customer relationships) and to new customers in the
beverage and food industries.
EXPLOITING OUR GLOBAL PRESENCE. Since 1974, we have expanded
internationally through acquisitions, joint ventures and equity investments. Our
recent international expansion allows us to meet growing global demand for
packaging, especially in developing regions. Our international expansion also
enables us to capitalize on our domestic customers' expansion into international
markets.
COMMERCIALIZING BALL AEROSPACE'S WORLD-CLASS CAPABILITIES. We intend to
continue adapting the proprietary technologies developed for defense and
aerospace programs at our Ball Aerospace & Technologies Corp. ("Ball Aerospace")
subsidiary for commercial uses. Ball Aerospace currently applies its technical
services and products in the commercial airlines and telecommunications
industries. We plan to increase our commercial customer base by adapting more of
our proprietary technologies to commercial purposes.
RECENT DEVELOPMENTS
On December 10, 1998, we announced that we will close four metal can plants,
two in California and two in China. We will continue to supply customers of the
closed facilities from our other plants. The plant closings are part of our
overall program to improve profits and operating efficiencies. We expect that
the actions in China will result in a fourth quarter pretax charge of
approximately $56 million (approximately $31 million after tax or 95 cents per
share on a diluted basis). You should read the discussion under the heading
"Recent Developments" for further information regarding the plant closings.
RISK FACTORS
See the section entitled "Risk Factors," beginning on page 17, for a
discussion of certain factors that you should consider in connection with your
investment in the Exchange Notes.
PRINCIPAL EXECUTIVE OFFICE
Our headquarters are located at 10 Longs Peak Drive, Broomfield, Colorado
80038-5000, telephone number (303) 469-3131.
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SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
(IN MILLIONS EXCEPT RATIO AND PER SHARE DATA)
The following table summarizes financial data from the unaudited pro forma
condensed combined financial data included elsewhere in this Prospectus. The pro
forma condensed combined income statement and other data for the year ended
December 31, 1997, and the nine-month period ended September 27, 1998 are
intended to give you a picture of what our business might have looked like if
the Acquisition and related financing had occurred on January 1, 1997.
It is important that you read the summary unaudited pro forma condensed
combined financial data presented below along with "Unaudited Pro Forma
Condensed Combined Financial Data," "Selected Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated or combined financial statements of Ball and Reynolds and
accompanying notes included elsewhere in this Prospectus.
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NINE-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, SEPTEMBER 27,
1997 1998
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PRO FORMA INCOME STATEMENT DATA:
Sales............................................................................ $ 3,581.2 $ 2,826.0
Cost of sales.................................................................... 3,211.6 2,516.2
Selling, product development, general and administrative expense................. 180.4 130.8
Disposition, relocation and other (income) expense............................... (9.0) 15.0
------- -------
Operating income................................................................. 198.2 164.0
Net income (loss)................................................................ $ 45.7 $ 48.1
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Earnings per common share........................................................ 1.42 1.52
Diluted earnings per share....................................................... 1.35 1.43
Weighted average common shares outstanding (in thousands):
Basic.......................................................................... 30,234 30,345
Diluted........................................................................ 32,311 32,466
OTHER PRO FORMA DATA:
EBITDA(1)........................................................................ $ 353.7 $ 312.1
Interest expense................................................................. 131.9 95.0
Depreciation and amortization expense............................................ 164.5 133.1
Capital expenditures............................................................. 119.0 58.9
SELECTED RATIOS
Ratio of earnings to fixed charges(2)............................................ 1.5x 1.6x
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(1) Pro forma EBITDA for any period presented above is defined as net income
plus (minus) interest expense, income taxes, depreciation and amortization,
disposition, relocation and other (income) expense, minority interest in
income (losses) of subsidiaries, and equity in losses (income) of
affiliates. EBITDA is included because management believes that certain
investors may find it useful for analyzing operating performance, leverage,
and liquidity. EBITDA should not be construed as a measure that is superior
to, or a substitute for, operating income or net cash flow provided by
operating activities, or as an indicator of liquidity, which are determined
in accordance with generally accepted accounting principles. Other companies
may not calculate EBITDA in a similar manner and, for that reason, these
measures may not be comparable.
(2) The pro forma ratio of earnings to fixed charges is calculated by dividing
the pro forma fixed charges into pro forma net income before taxes, equity
earnings and minority interests plus pro forma fixed charges, among other
things. Pro forma fixed charges consist of interest expensed and
capitalized, amortization of financing costs, and the estimated interest
component of rent expense, as adjusted for the Transactions.
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SUMMARY SELECTED FINANCIAL DATA
(IN MILLIONS EXCEPT RATIO AND PER SHARE DATA)
The summary historical consolidated or combined financial data as of and for
each year in the three-year period set forth below have been derived from the
audited consolidated or combined financial statements of Ball and Reynolds. The
summary historical consolidated financial data set forth below as of and for the
nine-month periods ended September 28, 1997 and September 27, 1998 (for Ball),
and as of and for the six-month periods ended June 30, 1997 and 1998 (for
Reynolds), have been derived from the unaudited condensed consolidated or
combined financial statements of Ball and Reynolds. The historical condensed
consolidated or combined results of Ball and Reynolds for the nine-month and
six-month periods, respectively, are unaudited. The historical condensed
consolidated or combined results of Ball and Reynolds for the nine-month and
six-month periods, respectively, are not necessarily indicative of the results
of operations of Ball and Reynolds for the full year. The unaudited historical
consolidated or combined financial data reflect all adjustments (consisting of
normal, recurring adjustments) which are, in the opinion of management of each
company, necessary for a fair presentation of such company's financial position,
results of operations and cash flows as of and for the end of the periods
presented. The information set forth below should be read in conjunction with
"Unaudited Pro Forma Condensed Combined Financial Data," "Selected Financial
Data," "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the consolidated or combined financial statements of Ball and
Reynolds included elsewhere in this Prospectus.
BALL CONSOLIDATED FINANCIAL DATA
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NINE-MONTH PERIOD ENDED
YEAR ENDED DECEMBER 31, ----------------------------
------------------------------- SEPTEMBER 28, SEPTEMBER 27,
1995 1996 1997 1997 1998
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(UNAUDITED)
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INCOME STATEMENT DATA:
Sales......................................................... $ 2,045.8 $ 2,184.4 $ 2,388.5 $ 1,813.7 $ 2,054.5
Cost of sales(1).............................................. 1,836.6 2,007.3 2,121.2 1,609.6 1,817.3
Selling, product development, general
and administrative expense.................................. 99.5 93.2 136.9 95.6 103.4
Disposition, relocation and other (income) expense............ 7.1 21.0 (9.0) (8.7) 15.0
--------- --------- --------- ------------- -------------
Operating income.............................................. 102.6 62.9 139.4 117.2 118.8
Net income (loss) from:
Continuing operations....................................... 51.9 13.1 58.3 50.5 49.2
Discontinued operations..................................... (70.5) 11.1 -- -- --
--------- --------- --------- ------------- -------------
$ (18.6) $ 24.2 $ 58.3 $ 50.5 $ 49.2
--------- --------- --------- ------------- -------------
--------- --------- --------- ------------- -------------
Net earnings (loss) per common share:
Earnings (loss) from:
Continuing operations..................................... $ 1.63 $ 0.34 $ 1.84 $ 1.60 $ 1.55
Discontinued operations................................... (2.35) 0.36 -- -- --
--------- --------- --------- ------------- -------------
Net earnings (loss) before extraordinary item............... (0.72) 0.70 1.84 1.60 1.55
Extraordinary loss from early debt extinguishment, net of
tax....................................................... -- -- -- -- (0.40)
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Earnings (loss) per common share............................ $ (0.72) $ 0.70 $ 1.84 $ 1.60 $ 1.15
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NINE-MONTH PERIOD ENDED
YEAR ENDED DECEMBER 31, ----------------------------
------------------------------- SEPTEMBER 28, SEPTEMBER 27,
1995 1996 1997 1997 1998
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(UNAUDITED)
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Diluted earnings (loss) per share:
Earnings (loss) from:
Continuing operations..................................... $ 1.54 $ 0.34 $ 1.74 $ 1.51 $ 1.46
Discontinued operations................................... (2.18) 0.34 -- -- --
--------- --------- --------- ------------- -------------
Net earnings (loss) before extraordinary item............... (0.64) 0.68 1.74 1.51 1.46
Extraordinary loss from early debt extinguishment, net of
tax....................................................... -- -- -- -- (0.37)
--------- --------- --------- ------------- -------------
Diluted earnings (loss) per share........................... $ (0.64) $ 0.68 $ 1.74 $ 1.51 $ 1.09
--------- --------- --------- ------------- -------------
--------- --------- --------- ------------- -------------
Weighted average common shares outstanding (in thousands):
Basic....................................................... 30,024 30,314 30,234 30,263 30,345
Diluted..................................................... 32,312 32,335 32,311 32,297 32,466
OTHER DATA:
EBITDA(2)..................................................... $ 188.4 $ 177.4 $ 247.9 $ 194.5 $ 239.1
Interest expense.............................................. 25.7 33.3 53.5 39.6 48.5
Depreciation and amortization expense......................... 78.7 93.5 117.5 86.0 105.3
Capital expenditures.......................................... 178.9 196.1 97.7 83.5 51.7
Ratio of earnings to fixed charges(3)......................... 2.6x 1.5x 2.3x 2.5x 2.1x
Cash dividends declared per common share...................... $ 0.60 $ 0.60 $ 0.60 $ 0.45 $ 0.45
Cash flows provided by (used in):
Operating activities........................................ $ 32.9 $ 84.3 $ 143.5 $ 74.1 $ 200.0
Investing activities........................................ 3.3 (18.4) (250.9) (246.1) (849.9)
Financing activities........................................ (41.5) 98.2 (36.3) 30.9 658.4
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DECEMBER 31,
------------------------------- SEPTEMBER 28, SEPTEMBER 27,
1995 1996 1997 1997 1998
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BALANCE SHEET DATA:
Cash and temporary investments................................ $ 5.1 $ 169.2 $ 25.5 $ 28.1 $ 34.0
Total assets.................................................. 1,614.0 1,700.8 2,090.1 2,171.4 3,043.2
Total debt, including current maturities...................... 475.4 582.9 773.1 836.0 1,464.7
Shareholders' equity.......................................... 567.5 604.4 634.2 630.9 664.7
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(1) Includes depreciation expense.
(2) EBITDA for any period presented above is defined as net income from
continuing operations plus (minus) interest expense, income taxes,
depreciation and amortization, disposition, relocation and other (income)
expense, minority interest in income (losses) of subsidiaries, and equity in
losses (income) of affiliates. EBITDA is included because management
believes that certain investors may find it to be a useful tool for
analyzing operating performance, leverage, and liquidity. EBITDA should not
be construed as a measure that is superior to, or a substitute for,
operating income or net cash provided by operating activities or as an
indicator of liquidity, which are determined in accordance with generally
accepted accounting principles. Other companies may not calculate EBITDA in
a similar manner and, for that reason, these measures may not be comparable.
(3) The ratio of earnings to fixed charges is computed by dividing fixed charges
into earnings from continuing operations before income taxes, equity
earnings and minority interests plus fixed charges, among other things.
Fixed charges consist of interest expensed and capitalized, amortization of
financing costs, and the estimated interest component of rent expense.
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REYNOLDS COMBINED FINANCIAL DATA
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SIX-MONTH PERIOD ENDED
YEAR ENDED DECEMBER 31, ------------------------
------------------------------- JUNE 30, JUNE 30,
1995 1996 1997 1997 1998
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INCOME STATEMENT DATA:
Sales...................................................... $ 1,245.4 $ 1,156.6 $ 1,192.7 $ 625.6 $ 629.8
Cost of sales(1)........................................... 1,149.5 1,120.6 1,109.9 585.0 583.1
Selling, general and administrative expense................ 36.2 33.9 32.1 15.6 16.5
Operational restructuring costs............................ 15.9 37.2 -- -- --
--------- --------- --------- ----------- -----------
Operating income (loss).................................... 43.8 (35.1) 50.7 25.0 30.2
Net income (loss).......................................... $ 25.3 $ (22.1) $ 28.7 14.3 17.3
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
OTHER DATA:
EBITDA(2).................................................. $ 113.1 $ 55.9 $ 107.4 $ 52.9 $ 58.9
Interest expense........................................... 0.9 -- 2.1 0.9 1.2
Depreciation and amortization expense...................... 53.4 53.8 56.7 27.9 28.7
Capital expenditures....................................... 59.1 67.9 21.3 13.4 7.2
Cash flows provided by (used in):
Operating activities..................................... 75.0 95.5 56.4 38.3 48.5
Investing activities..................................... (59.1) (61.2) (20.6) (13.1) (5.5)
Financing activities..................................... (15.9) (34.3) (35.8) (25.2) (43.0)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------- -----------
1996 1997 1998
--------- --------- -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Total assets......................................................................... $ 582.6 $ 566.1 $ 553.4
Total debt, including current maturities............................................. 54.8 54.6 54.5
Owner's equity....................................................................... 381.9 375.0 349.4
</TABLE>
- ------------------------
(1) Includes depreciation and amortization expense.
(2) EBITDA for any period presented above is defined as net income plus interest
expense, income taxes, depreciation and amortization and operational
restructuring costs. EBITDA is included because management believes that
certain investors may find it to be a useful tool for analyzing operating
performance, leverage, and liquidity. EBITDA should not be construed as a
measure that is superior to, or a substitute for, operating income or net
cash provided by operating activities, or as an indicator of liquidity,
which are determined in accordance with generally accepted accounting
principles. Other companies may not calculate EBITDA in a similar manner
and, for that reason, these measures may not be comparable.
9
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of Ball and
certain pro forma per share data of the Company. The information set forth below
should be read together with the selected historical financial data included
elsewhere in this Prospectus. The pro forma combined financial data are not
necessarily indicative of the operating results that would have been achieved
had the Acquisition been consummated as of the beginning of the periods
presented and should not be construed as representative of future operations.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPT. 27,
1997 1998
--------------- -------------
<S> <C> <C>
Historical:
Earnings per common share before extraordinary item........... $ 1.84 $ 1.55
Diluted earnings per share before extraordinary item.......... 1.74 1.46
Cash dividends per share...................................... 0.60 0.45
Book value per share (at period end)(1)....................... 20.99 21.58
Pro Forma:
Combined earnings per common share............................ $ 1.42 $ 1.52
Combined diluted earnings per share........................... 1.35 1.43
Combined book value per share(2).............................. 20.17 N/A
</TABLE>
- ------------------------
(1) Historical book value per share is computed by dividing total stockholders'
equity by the number of shares of common stock outstanding at the end of
each period.
(2) The pro forma combined book value per share is computed by dividing pro
forma stockholders' equity by the number of shares of common stock
outstanding at the end of each period.
10
<PAGE>
SUMMARY OF THE EXCHANGE OFFER
<TABLE>
<S> <C>
REGISTRATION RIGHTS AGREEMENTS.... We sold the Outstanding Notes on August 10, 1998 to the
initial purchasers--Lehman Brothers Inc., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, BancAmerica
Robertson Stephens and First Chicago Capital Markets,
Inc. The initial purchasers then sold the Outstanding
Notes to institutional investors. Simultaneously with
the initial sale of the Outstanding Notes, we entered
into a Senior Registration Rights Agreement and a Senior
Subordinated Registration Rights Agreement, each of
which provides for the Exchange Offer.
You may exchange your Outstanding Notes for Exchange
Notes, which have substantially identical terms. The
Exchange Offer satisfies your rights under the
Registration Rights Agreements. After the Exchange Offer
is over, you will not be entitled to any exchange or
registration rights with respect to your Outstanding
Notes.
THE EXCHANGE OFFER................ We are offering to exchange $300.0 million total
principal amount of 7 3/4% Senior Notes due 2006 and
$250.0 million total principal amount of 8 1/4% Senior
Subordinated Notes due 2008 of the Company, which have
been registered under the Securities Act for your 7 3/4%
Outstanding Senior Notes due 2006 or your 8 1/4%
Outstanding Senior Subordinated Notes due 2008 sold in
the August 1998 private offering. To exchange your
Outstanding Notes, you must properly tender them, and we
must accept them. We will exchange all Outstanding Notes
that you validly tender and do not validly withdraw. We
will issue registered Exchange Notes at or promptly
after the end of the Exchange Offer.
RESALES........................... We believe that you can offer for resale, resell and
otherwise transfer the Exchange Notes without complying
with the registration and prospectus delivery
requirements of the Securities Act if:
- you acquire the Exchange Notes in the ordinary course
of your business;
- you are not participating, do not intend to
participate, and have no arrangement or understanding
with any person to participate, in the distribution
of the Exchange Notes; and
- you are not an "affiliate" of ours, as defined in
Rule 405 of the Securities Act.
If any of these conditions is not satisfied and you
transfer any Exchange Note without delivering a proper
prospectus or without qualifying for a registration
exemption, you may incur liability under the Securities
Act. We do not assume or indemnify you against such
liability.
Each broker-dealer acquiring Exchange Notes for its own
account in exchange for Outstanding Notes, which it
acquired
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
through market-making or other trading activities, must
acknowledge that it will deliver a proper prospectus
when any Exchange Notes are transferred. A broker-dealer
may use this Prospectus for an offer to resell, a resale
or other retransfer of the Exchange Notes.
EXPIRATION DATE................... The Exchange Offer expires at 5:00 p.m., New York City
time, January 27, 1999, unless we extend the expiration
date.
CONDITIONS TO THE EXCHANGE
OFFER........................... The Exchange Offer is subject to customary conditions,
some of which we may waive.
PROCEDURES FOR TENDERING
OUTSTANDING NOTES............... Ball Corporation issued the Outstanding Notes as global
securities. When the Outstanding Notes were issued, the
Company deposited them with The Bank of New York, as
book-entry depositary. The Bank of New York issued a
certificateless depositary interest in each note, which
represents a 100% interest in the notes, to The
Depositary Trust Company ("DTC"). Beneficial interests
in the Outstanding Notes, which are held by direct or
indirect participants in DTC through the certificateless
depositary interest, are shown on records maintained in
book-entry form by DTC.
You may tender your Outstanding Notes through book-entry
transfer in accordance with DTC's Automated Tender Offer
Program ("ATOP"). To tender your Outstanding Notes by a
means other than book-entry transfer, a Letter of
Transmittal must be completed and signed according to
the instructions contained in the letter. The Letter of
Transmittal and any other documents required by the
Letter of Transmittal must be delivered to the Exchange
Agent by mail, facsimile, hand delivery or overnight
carrier. In addition, you must deliver the Outstanding
Notes to the Exchange Agent or comply with the
procedures for guaranteed delivery. See "The Exchange
Offer-- Procedures for Tendering Outstanding Notes" for
more information.
Do not send Letters of Transmittal and certificates
representing Outstanding Notes to the Company. Send
these documents only to the Exchange Agent. See "The
Exchange Offer--Exchange Agent" for more information.
SPECIAL PROCEDURES FOR BENEFICIAL
OWNERS.......................... If you are a beneficial owner whose Outstanding Notes
are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and wish
to tender your Outstanding Notes in the Exchange Offer,
please contact the registered holder as soon as possible
and instruct it to tender on your behalf and comply with
our instructions set forth elsewhere in this Prospectus.
WITHDRAWAL RIGHTS................. You may withdraw the tender of your Outstanding Notes at
any time before 5:00 p.m. New York City time on January
27, 1999, unless we extend the date.
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
APPRAISAL OR DISSENTERS' RIGHTS... Holders of Outstanding Notes do not have any appraisal
or dissenters' rights in the Exchange Offer. If you do
not tender your Outstanding Notes or the Company rejects
your tender, you will not be entitled to any further
registration rights under the Registration Rights
Agreements, except under limited circumstances. However,
your notes will remain outstanding and entitled to the
benefits of the Indentures. Holders should read the
discussion under the heading "Risk Factors--Consequences
of a Failure to Exchange Outstanding Notes" for further
information.
FEDERAL INCOME TAX
CONSIDERATIONS.................. The exchange of notes is not a taxable exchange for
United States federal income tax purposes. You will not
recognize any taxable gain or loss or any interest
income as a result of the exchange. For additional
information regarding federal income tax considerations,
you should read the discussion under the heading
"Certain United States Federal Income Tax Consequences."
USE OF PROCEEDS................... We will not receive any proceeds from the issuance of
the Exchange Notes, and we will pay the expenses of the
Exchange Offer.
EXCHANGE AGENT.................... The Bank of New York is serving as the Exchange Agent in
the Exchange Offer. The Exchange Agent's address, and
telephone and facsimile numbers are listed in the
section of this Prospectus entitled "The Exchange
Offer--Exchange Agent" and in the Letter of Transmittal.
</TABLE>
You should consider carefully the information set forth under the caption
"Risk Factors" beginning on page 17 and all other information set forth in this
Prospectus before deciding whether to participate in the Exchange Offer.
13
<PAGE>
SUMMARY OF TERMS OF THE EXCHANGE NOTES
The form and terms of the Exchange Notes are the same as the form and terms
of the Outstanding Notes, except that the Exchange Notes will be registered
under the Securities Act. As a result, the Exchange Notes will not bear legends
restricting their transfer and will not contain the registration rights and
liquidated damage provisions contained in the Outstanding Notes. The Exchange
Notes represent the same debt as the Outstanding Notes. Both the Outstanding
Notes and the Exchange Notes are governed by the same Indentures.
<TABLE>
<S> <C>
AGGREGATE AMOUNT.................. $300.0 million principal amount of 7 3/4% Senior Notes
due 2006 and $250.0 million principal amount of 8 1/4%
Senior Subordinated Notes due 2008.
MATURITY DATES.................... August 1, 2006 for the Senior Exchange Notes and August
1, 2008 for the Senior Subordinated Exchange Notes.
INTEREST PAYMENT DATES............ February 1 and August 1 of each year, beginning February
1, 1999.
GUARANTEES........................ Some of the Company's wholly owned direct and indirect
subsidiaries fully and unconditionally guaranteed the
Senior Exchange Notes on a senior basis and the Senior
Subordinated Exchange Notes on a senior subordinated
basis. You should read "Description of the Exchange
Notes--Subordination" and "Description of the Exchange
Notes--Subsidiary Guarantees" for more information
regarding the guarantees of the Exchange Notes.
OPTIONAL REDEMPTION............... At our option, we may redeem all of the Senior Exchange
Notes at any time. On or after August 1, 2003, we may
redeem all or some of the Senior Subordinated Exchange
Notes. In addition, at any time before August 1, 2001,
we may redeem up to 35% of the total initial amount of
the Senior Subordinated Exchange Notes with the net
proceeds of one or more equity offerings to the public.
The Company's optional redemption prices for the
Exchange Notes are contained in this Prospectus under
the heading "Description of the Exchange Notes--Optional
Redemption."
CHANGE OF CONTROL................. Upon a change of control of the Company, the holders of
the Exchange Notes have the right to require us to
repurchase the Exchange Notes at a purchase price equal
to 101% of their total principal amount on the date of
purchase, plus accrued interest to the date of
repurchase. For more information, see "Description of
the Exchange Notes--Repurchase at the Option of
Holders--Change of Control."
RANKING........................... The Senior Exchange Notes:
- are unsecured obligations of the Company;
- rank senior in right of payment to all subordinated
indebtedness of the Company;
- rank equally in right of payment with all existing
and future unsecured senior debt; and
</TABLE>
14
<PAGE>
<TABLE>
<S> <C>
- are jointly and severally guaranteed on a senior
basis by certain current and future subsidiary
guarantors.
The Senior Subordinated Exchange Notes are:
- unsecured obligations of the Company;
- subordinate in right of payment to all existing and
future senior debt of the Company, including the
borrowings under the Senior Credit Facility, the
Canadian Credit Facility and the Senior Exchange
Notes; and
- jointly and severally guaranteed on a senior
subordinated basis by certain current and future
subsidiary guarantors.
As of September 27, 1998, the Company had approximately
$1,464.7 million of debt, of which $1,032.7 million was
debt senior to the Outstanding Senior Subordinated
Notes. You should read "Capitalization" and "Description
of the Exchange Notes--Subordination" for more
information regarding the Company's debt and the payment
ranking of the Exchange Notes.
CERTAIN COVENANTS................. The Senior Note Indenture and the Senior Subordinated
Note Indenture under which the Outstanding Notes have
been, and the Exchange Notes will be, issued contain
certain covenants for your benefit which restrict our
ability to, among other things:
- borrow additional money;
- pay dividends or make certain other restricted
payments or investments;
- sell certain assets;
- enter into transactions with affiliates;
- create liens; and
- merge or consolidate with any other person; or
- sell all or substantially all of our assets.
The Indentures also provide that if the ratings assigned
to the Exchange Notes are investment grade ratings and
no default has occurred and is continuing, certain of
these restrictions will be suspended. All of these
limitations and prohibitions are subject to a number of
important qualifications and exceptions. For more
information, see "Description of the Exchange
Notes--Certain Covenants."
USE OF PROCEEDS................... The Company will not receive any cash proceeds in the
Exchange Offer.
FORM OF THE EXCHANGE NOTES........ The Exchange Notes will be represented by one or more
permanent global securities in bearer form deposited
with The Bank of New York, as book-entry depositary, for
the benefit of DTC. You will not receive notes in
registered form unless one of the events set forth under
the heading "Description of the Exchange
Notes--Book-Entry; Delivery and Form-Definitive
Registered Exchange Notes" occurs. Instead, beneficial
interests
</TABLE>
15
<PAGE>
<TABLE>
<S> <C>
in the Exchange Notes will be shown on, and transfers of
these interests will be effected only through, records
maintained in book-entry form by DTC with respect to its
participants.
ABSENCE OF A PUBLIC MARKET FOR THE
EXCHANGE NOTES.................. While the Outstanding Notes are presently eligible for
trading in the Private Offerings, Resales and Trading
through Automated Linkages ("PORTAL") market of the
National Association of Securities Dealers, Inc.
("NASD") by qualified institutional buyers, there is no
existing market for the Exchange Notes. The initial
purchasers of the Outstanding Notes have advised the
Company that they currently intend to make a market in
the Exchange Notes following the Exchange Offer, but
they are not obligated to do so, and any market-making
may be stopped at any time without notice. The Company
does not intend to apply for a listing of the Exchange
Notes on any securities exchange. We do not know if an
active public market for the notes will develop or, if
developed, will continue. If an active public market
does not develop or is not maintained, the market price
and liquidity of the notes may be adversely affected.
The Company cannot make any assurances regarding the
liquidity of the market for the Exchange Notes, the
ability of holders to sell their Exchange Notes or the
price at which holders may sell their Exchange Notes.
</TABLE>
For additional information regarding the Exchange Notes, see "Description of the
Exchange Notes."
16
<PAGE>
RISK FACTORS
You should consider the following risk factors, as well as the other
information contained in this Prospectus, before making a decision to exchange
your notes in the Exchange Offer.
THIS PROSPECTUS MAY CONTAIN FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS CAN
BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMS SUCH AS "MAY," "WILL,"
"BELIEVE," "EXPECT," "ANTICIPATE," "ESTIMATE," "CONTINUE" OR OTHER SIMILAR
WORDS. THESE STATEMENTS DISCUSS FUTURE EXPECTATIONS, CONTAIN PROJECTIONS OF
RESULTS OF OPERATIONS OR OF FINANCIAL CONDITION OR STATE OTHER "FORWARD-LOOKING"
INFORMATION THAT CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. WHEN CONSIDERING SUCH
FORWARD-LOOKING STATEMENTS, YOU SHOULD KEEP IN MIND THE RISK FACTORS AND OTHER
CAUTIONARY STATEMENTS IN THIS PROSPECTUS. THE RISK FACTORS NOTED IN THIS SECTION
AND OTHER FACTORS NOTED THROUGHOUT THIS PROSPECTUS, INCLUDING CERTAIN RISKS AND
UNCERTAINTIES, COULD CAUSE OUR ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
CONTAINED IN ANY FORWARD-LOOKING STATEMENTS. GIVEN THESE UNCERTAINTIES, YOU
SHOULD NOT PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS.
DEBT FINANCING RISKS
SUBSTANTIAL LEVERAGE AND VARIABLE INTEREST RATES
As a result of the borrowings required to finance the Acquisition, we have a
significant level of debt. As of September 27, 1998, the Company had
approximately $1,464.7 million of debt and approximately $638.9 million of
common shareholders' equity. You should read the discussions under the headings
"Capitalization" and "Unaudited Pro Forma Condensed Combined Financial Data" for
further information regarding the Company's indebtedness.
This high level of debt may limit our ability to:
- make capital and research and development expenditures;
- obtain additional financing for working capital, capital expenditures or
acquisitions;
- refinance the Exchange Notes;
- compete effectively or take advantage of business opportunities; or
- weather economic downturns.
In addition, a substantial portion of our debt bears interest at variable
rates. If market interest rates increase, variable-rate debt will create higher
debt service requirements, which would adversely affect our cash flow. While we
intend to enter into one or more agreements limiting our exposure, any such
agreements may not offer complete protection from this risk.
SUBORDINATION
As of September 27, 1998, the Company had approximately $1,032.7 of debt
senior to the Outstanding Senior Subordinated Notes: $644.5 million under a
Senior Credit Facility, $26.4 million under a Canadian Credit Facility, $300.0
million under the Senior Notes, $33.3 million under the ESOP Notes and $28.5
million of other indebtedness. We may incur additional senior debt under the
Indentures. If the Company declares bankruptcy, liquidates or reorganizes, the
Company must pay all senior debt before our assets will be available to pay on
the Senior Subordinated Exchange Notes. In certain circumstances, we may not be
able to pay on some or all of the Senior Subordinated Exchange Notes. If the
Company
17
<PAGE>
defaults on certain senior debt, we cannot pay principal or interest on the
Senior Subordinated Exchange Notes or redeem the Exchange Notes. You should read
"Description of the Exchange Notes" and "Description of Certain Indebtedness"
for more information about the Company's debt.
COMPANY STRUCTURE; LIMITATIONS ON ACCESS TO SUBSIDIARIES' CASH FLOWS
To pay the principal and interest on the Exchange Notes and to make other
debt payments, the Company must rely entirely on distributions and loan
repayments from its subsidiaries. The ability of the Company's subsidiaries to
pay dividends and make other payments to the Company depends upon their
operating results. The ability to make these payments also may be limited by law
or by the subsidiaries' existing debt agreements, if any. While the Indentures
limit the subsidiaries' ability to restrict dividend and other payments to the
Company, these limitations are subject to a number of significant
qualifications. You should read "Description of the Exchange Notes--Certain
Covenants--Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries" for more information regarding limitations on access to the
subsidiaries' cash flows.
RESTRICTIVE DEBT COVENANTS
The Indentures contain a number of significant covenants. These covenants
limit our ability to, among other things:
- borrow additional money;
- pay dividends or make certain other restricted payments or investments;
- sell certain assets;
- enter into transactions with affiliates;
- create liens;
- merge or consolidate with any other person; or
- sell all or substantially all of the Company's assets.
In addition, the Senior Credit Facility and the Canadian revolving credit
facility prohibit the Company from prepaying the Exchange Notes (except in
certain circumstances) and require the Company to meet certain financial tests.
If we are unable to pay our debts or to comply with these covenants, we would
default under our existing debt agreements. If our creditors did not waive this
default, the default could accelerate payments on our debt. We can not ensure
that our assets would be sufficient to repay such debt, including the Exchange
Notes, on an accelerated basis.
POTENTIAL INABILITY TO FUND CHANGE OF CONTROL OFFER
We must offer to purchase the Exchange Notes at 101% of their principal
amount plus accrued interest upon a change of control of the Company. If a
change of control were to occur, the Company cannot ensure that it would have
sufficient money or be able to arrange financing to pay for all tendered
Exchange Notes. The Indentures do not protect Exchange Note holders from a
highly leveraged transaction, reorganization, restructuring, merger or similar
event that does not result in a change of control. The Senior Credit Facility
prohibits the Company from voluntarily purchasing the Exchange Notes, and
certain events constituting a change of control terminate the Senior Credit
Facility. If a change of control occurs under the Senior Credit Facility, the
Company could ask its lenders to consent to our purchase of the Exchange Notes
or could attempt to refinance the debt. However, obtaining the lenders' consent
or refinancing is uncertain. The Company's inability to purchase the Exchange
Notes could become an event of default under the Indentures and other debt. You
should read "Description of the Exchange Notes--Repurchase at the Option of
Holders--Change of Control" and "Description of Certain
18
<PAGE>
Indebtedness--The Senior Credit Facility" for more information regarding the
Company's potential inability to fund a change of control offer.
FRAUDULENT CONVEYANCE
Any of the Company's creditors may file a lawsuit objecting to the Company's
obligations under the Exchange Notes or the use of the proceeds from the
Outstanding Notes. A court could void the Company's obligations under the
Exchange Notes, subordinate the Exchange Notes to the Company's other debt or
order the holders to return any amounts paid for the Outstanding Notes to the
Company or to a fund benefitting the creditors if the court finds the Company
(1) intended to defraud a creditor or (2) did not receive fair value for the
Outstanding Notes and the Company either (A) was insolvent or became insolvent
by offering the Outstanding Notes, (B) did not have enough capital to engage in
the Acquisition or (C) intended to or believed that it overextended its debt
obligations. Creditors of the subsidiary guarantors may also object to their
guarantee of the Exchange Notes. A court could order the relief outlined above
for the same reasons outlined above. In addition, the guarantors' creditors
could claim that since the guarantees were made for the benefit of the Company,
the guarantors did not receive fair value for the guarantees.
The measure of insolvency for fraudulent transfer purposes will vary
depending upon the law of the jurisdiction that is being applied in any
proceeding. Generally, however, the Company or a subsidiary guarantor would be
considered insolvent if, at the time it incurred the debt, either (1) the sum of
its debts (including contingent liabilities) is greater than its assets, at a
fair valuation, or (2) the present fair salable value of its assets is less than
the amount required to pay the probable liability on its total existing debts
and liabilities (including contingent liabilities) as they become absolute and
matured. We cannot give any assurance as to what standards a court would use to
determine whether the Company or a subsidiary guarantor was solvent at the
relevant time, or whether, whatever standard was used, the Exchange Notes would
not be voided or further subordinated on another of the grounds set forth above.
We believe that at the time we incurred the debt constituting the
Outstanding Notes and the subsidiary guarantees, we (1) were (a) neither
insolvent nor to be rendered insolvent as a result, (b) in possession of
sufficient capital to run our businesses effectively, and (c) incurring debts
within our ability to pay them as they become due, and (2) had sufficient assets
to satisfy any probable money judgment against us in any pending action. In
reaching this conclusion, we have relied upon our analyses of internal cash flow
projections and estimated values of our assets and liabilities. We cannot assure
you, however, that a court passing on the same questions would reach the same
conclusions.
RISKS ASSOCIATED WITH THE OPERATION OF THE BUSINESS
INTEGRATION OF OPERATIONS
The Acquisition's success depends, in part, on our ability to integrate
Reynolds' beverage can operations with Ball's operations. The integration may
require the substantial attention of management, which may divert time otherwise
spent on our existing operations. We should begin to experience cost savings
from the Acquisition in our current fiscal year and should realize the full
impact of cost savings, an estimated $70.0 million annually by the end of 2001.
However, we cannot give any assurances that we will achieve cost savings within
these time periods or at all. If we are unable to effectively or efficiently
integrate the operations of the two companies, this inability would adversely
affect cost savings.
At September 27, 1998, approximately 28% of our North American employees
were unionized. Of these unionized employees, 70% were employees of Reynolds
prior to the Acquisition. If strikes occur at our unionized facilities, we could
experience a significant disruption of operations and higher labor costs. These
events could hamper our efforts to integrate the two businesses and could
adversely affect our business, financial condition and results of operations.
19
<PAGE>
DEPENDENCE ON SIGNIFICANT CUSTOMERS
While we have diversified our customer base, we do sell a majority of our
packaging products to relatively few major beverage and packaged food companies.
The following table illustrates 1997 consolidated net sales (on a pro forma
basis) to our major customers:
<TABLE>
<CAPTION>
% OF 1997
PRO FORMA
CUSTOMER NET SALES
- -------------------------------------------------------------------------------------------- ---------------
<S> <C>
PepsiCo Inc. and affiliated bottlers........................................................ 19%
Miller Brewing Company...................................................................... 15%
The Coca-Cola Company and affiliated bottlers............................................... 15%
Anheuser-Busch Companies, Inc............................................................... 6%
-
Total....................................................................................... 55%
</TABLE>
Because we depend on relatively few major customers, our financial condition and
results of operations could be adversely affected by the loss of any of these
customers, a reduction in the purchasing levels of these customers, a strike or
work stoppage by a significant number of these customers' employees or an
adverse change in the terms of the supply agreements with these customers.
The primary customers for our aerospace work are U.S. government agencies or
their prime contractors. These sales represent approximately 11% of consolidated
1997 net sales on a pro forma basis. Our contracts with these customers are
subject to the following risks:
- unilateral termination for convenience by the customers;
- reduction or modification in the scope of the contracts due to changes in
the customer's requirements or budgetary constraints;
- under fixed-price contracts, increased or unexpected costs causing losses
or reduced profits; and
- under cost reimbursement contracts, unallowable costs causing losses or
reduced profits.
Congressional budget reductions or a failure to increase agency budgets may
limit both the funding of our existing government-derived contracts and our
ability to obtain new contracts. In addition, our failure to win a long-term
contract with a government agency or their prime contractors can effectively
prevent us from selling certain items to that customer for a long time.
COMPETITION
Competition within the packaging industry is intense. Increases in
productivity, combined with surplus capacity in the industry, have increased
pricing pressure. Some of our competitors have greater financial, technical and
marketing resources. Our current or potential competitors may offer products at
a lower cost or products that are superior to ours. In addition, our competitors
may be more effective and efficient in integrating new technologies. Any of the
factors listed above may cause price reductions, reduced gross margins and
losses of market share for the Company. We cannot assure you that we will
compete successfully.
INTERNATIONAL OPERATIONS
Sales by our consolidated international operations represented 11% of our
1997 total sales (7% on a pro forma basis). Our business strategy includes
continued expansion of international activities. However, foreign operations are
subject to various risks, including:
- political and economic instability in foreign markets;
20
<PAGE>
- foreign governments' restrictive trade policies;
- inconsistent product regulation or sudden policy changes by foreign
agencies or governments;
- the imposition of duties, taxes or government royalties;
- foreign exchange rate risks;
- difficulty in collecting international accounts receivable;
- potentially longer payment cycles;
- increased costs in maintaining international manufacturing and marketing
efforts;
- the introduction of non-tariff barriers and higher duty rates;
- difficulties in enforcement of contractual obligations and intellectual
property rights;
- exchange controls; and
- national and regional labor strikes.
Our international purchases and sales are denominated in various currencies.
The United States dollar value of our overseas operations varies with exchange
rate fluctuations. In addition, a decrease in the value of these currencies
relative to the United States dollar could reduce our profits from non-U.S.
operations. Any of these risks could adversely affect our business, financial
condition, carrying value of certain assets or results of operations.
In particular, current local market conditions have slowed our business in
China and Latin America and decreased exports of our products from China to
other Asian countries. We cannot predict when or if these market conditions will
improve. Moreover, overcapacity (which often leads to lower prices) exists in a
number of regions, including China and Latin America, and may persist even if
demand grows.
APPLICATION OF TECHNOLOGY AND KNOW-HOW
Our success depends in part on our ability to improve production processes
and services. The Company must also introduce new products and services to meet
changing customer needs. If we are unable to implement better production
processes or to develop new products, we may not be able to remain competitive
with other manufacturers. As a result, our business, financial condition or
results of operations could be adversely affected.
WEATHER
We manufacture packaging primarily for beverages and foods. Unseasonably
cool weather can reduce demand for certain beverages packaged in our containers.
In addition, poor weather conditions that reduce crop yields of fruits and
vegetables can adversely affect demand for our food containers, creating
potentially adverse effects on our business.
RAW MATERIALS COST AND AVAILABILITY
We use various raw materials, such as aluminum, steel and plastic resin, in
our manufacturing operations. Several sources currently supply our raw
materials. We believe that these sources can satisfy our current requirements.
However, shortages of raw materials or substantial fluctuations in the price of
raw materials are possible. We cannot ensure that our current suppliers of raw
materials will be able to supply us with sufficient quantities or at reasonable
prices.
Futhermore, our contracts often pass raw material costs directly to the
customer. As a result, declining raw materials costs may not impact the
Company's overall profitability, but could decrease our sales.
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YEAR 2000
Many computer systems and other equipment with embedded chips or processors
use only two digits to represent the year and, as a result, they may be unable
to process accurately certain data before, during or after the year 2000. As a
result, business and governmental entities are at risk for possible
miscalculations or system failures causing disruptions in their operations. This
is commonly known as the Year 2000 issue and can arise at any point in the
Company's supply, manufacturing, processing, distribution and financial chains.
Most of our critical systems and related software are Year 2000 compliant or
are not adversely impacted by the Year 2000 issue. However, a program is in
progress to make the remaining software and systems Year 2000 compliant, or
verify that the Year 2000 issue will not adversely impact the software and
systems, in time to minimize any significant negative effects on operations. The
program covers information systems infrastructure, financial and administrative
systems, process control and manufacturing operating systems and the compliance
profiles of significant vendors, lenders and customers. Completion of the
programs already identified is on target for mid-1999.
In addition, we rely on third party suppliers for raw materials, water,
utilities, transportation, banking and other key services, the interruption of
which could affect our operations. The program identified above includes efforts
to evaluate the status of suppliers' and customers' efforts as a means of
managing risk but cannot eliminate the potential for disruption due to third
party failure.
Due to the general uncertainty inherent in the Year 2000 issue, resulting in
part from the uncertainty of the Year 2000 readiness of the third-party
suppliers and customers, the consequences of Year 2000 failures could have a
material impact on the Company's results of operations, liquidity or financial
condition.
ENVIRONMENTAL MATTERS
Our operations are subject to federal, state and local laws and regulations
relating to environmental hazards, such as emissions to air, discharges to
water, the handling and disposal of hazardous and solid wastes and the cleanup
of hazardous substances. The U.S. Environmental Protection Agency has designated
the Company, along with numerous other companies, as a potentially responsible
party for the cleanup of several hazardous waste sites. Based on available
information, we do not believe that any costs incurred in connection with such
sites will have a material adverse effect on the Company's financial condition,
results of operations, capital expenditures or competitive position. You should
read the discussions under the headings "Business--Environmental Regulation" for
further information regarding environmental matters.
The Company continually reviews its compliance with the environmental laws
and believes that its operations are in substantial compliance with these laws,
other than in the situations described above. However, we may incur liabilities
for noncompliance, or substantial expenditures to achieve compliance, with
environmental laws in the future. In addition, stricter laws and regulations, or
stricter interpretations of existing laws or regulations, may impose new
liabilities on the Company, adversely affecting our business, financial
condition and results of operations in the future.
Furthermore, various legislators have introduced or may introduce laws
prohibiting, taxing or restricting the sale or use of certain types of
containers or prohibiting disposal of packaging materials in landfills. Some
laws have been adopted and others rejected. We anticipate that advocates of such
laws will continue to lobby for their passage in the future. Wide adoption of
these or similar laws could have an adverse affect on the Company's business,
financial condition and results of operations.
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RISKS ASSOCIATED WITH THE EXCHANGE OFFER
CONSEQUENCES OF A FAILURE TO EXCHANGE OUTSTANDING NOTES
The Company did not register the Outstanding Notes under the Securities Act
or any state securities laws, nor does it intend to after the Exchange Offer. As
a result, the Outstanding Notes may only be transferred in limited circumstances
under the securities laws. If the holders of the Outstanding Notes do not
exchange their notes in the Exchange Offer, they lose their right to have the
Outstanding Notes registered under the Securities Act, subject to certain
limitations. A holder of Outstanding Notes after the Exchange Offer may be
unable to sell the notes.
To exchange the Outstanding Notes for the Exchange Notes, the Exchange Agent
must receive (i) certificates for the Outstanding Notes or a book-entry
confirmation of the transfer of the Outstanding Notes into the Exchange Agent's
account at DTC, (ii) a completed and signed Letter of Transmittal with any
required signature guarantees, or an Exchange Agents' message in the case of a
book-entry transfer, and (iii) any other documents required by the Letter of
Transmittal. Holders of Outstanding Notes who want to exchange their notes
should allow enough time to guarantee timely delivery. The Company is under no
duty to give notice of defective exchanges.
LACK OF PUBLIC MARKET FOR EXCHANGE NOTES
While the Outstanding Notes are presently eligible for trading in the PORTAL
market of the NASD by qualified institutional buyers, there is no existing
market for the Exchange Notes. The initial purchasers of the Outstanding Notes
have advised the Company that they currently intend to make a market in the
Exchange Notes following the Exchange Offer, but they are not obligated to do
so, and any market-making may be stopped at any time without notice. The Company
does not intend to apply for a listing of the Exchange Notes on any securities
exchange. We do not know if an active public market for the Exchange Notes will
develop or, if developed, will continue. If an active public market does not
develop or is not maintained, the market price and liquidity of the Exchange
Notes may be adversely affected. The Company cannot make any assurances
regarding the liquidity of the market for the Exchange Notes, the ability of
holders to sell their Exchange Notes or the price at which holders may sell
their Exchange Notes.
PROCEDURES FOR TENDER OF OUTSTANDING NOTES
The Exchange Notes will be issued in exchange for the Outstanding Notes only
after timely receipt by the Exchange Agent of the Outstanding Notes, a properly
completed and executed Letter of Transmittal and all other required
documentation. If you want to tender your Outstanding Notes in exchange for
Exchange Notes, you should allow sufficient time to ensure timely delivery.
Neither the Exchange Agent nor the Company is under any duty to give you
notification of defects or irregularities with respect to tenders of Outstanding
Notes for exchange. Outstanding Notes that are not tendered or are tendered but
not accepted will, following the Exchange Offer, continue to be subject to the
existing transfer restrictions. In addition, if you tender the Outstanding Notes
in the Exchange Offer to participate in a distribution of the Exchange Notes,
you will be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
For additional information, please refer to the sections entitled "The Exchange
Offer" and "Plan of Distribution" later in this Prospectus.
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
Simultaneously with the sale of the Outstanding Notes, we entered into a
Senior Registration Rights Agreement and a Senior Subordinated Registration
Rights Agreement with the initial purchasers of the Outstanding Notes--Lehman
Brothers Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, BancAmerica
Robertson Stephens and First Chicago Capital Markets, Inc. Under these
Registration Rights Agreements, we agreed to file a registration statement
regarding the exchange of the Outstanding Notes for notes with terms identical
in all material respects. We also agreed to use our reasonable best efforts to
cause that registration statement to become effective with the Securities and
Exchange Commission. Copies of the Registration Rights Agreements have been
filed as exhibits to our Current Report on Form 8-K filed with the Securities
and Exchange Commission on August 25, 1998 and are incorporated by reference as
exhibits to the registration statement of which this Prospectus is a part.
The Company is conducting the Exchange Offer to satisfy its contractual
obligations under the Registration Rights Agreements. The form and terms of the
Exchange Notes are the same as the form and terms of the Outstanding Notes,
except that the Exchange Notes will be registered under the Securities Act, and
holders of the Exchange Notes will not be entitled to liquidated damages. The
Outstanding Notes provide that, if a registration statement relating to the
Exchange Offer has not been filed by November 9, 1998 and declared effective by
January 7, 1998, the Company will pay liquidated damages on the Outstanding
Notes. Upon the completion of the Exchange Offer, holders of Outstanding Notes
will not be entitled to any liquidated damages on the Outstanding Notes or any
further registration rights under the Registration Rights Agreements, except
under limited circumstances. See "Risk Factors--Consequences of a Failure to
Exchange Outstanding Notes" and "Description of the Exchange Notes" for further
information regarding the rights of Outstanding Note holders after the Exchange
Offer. The Exchange Offer is not extended to Outstanding Note holders in any
jurisdiction where the Exchange Offer does not comply with the securities or
blue sky laws of that jurisdiction.
In the event that applicable interpretations of the staff of the SEC do not
permit the Company to conduct the Exchange Offer, or if certain holders of the
Outstanding Notes notify the Company that they are not eligible to participate
in, or would not receive freely tradeable Exchange Notes in exchange for
tendered Outstanding Notes in, the Exchange Offer, the Company will use its
commercially reasonable best efforts to cause to become effective a shelf
registration statement with respect to the resale of the Outstanding Notes. The
Company also agreed to use its reasonable best efforts to keep the shelf
registration statement effective at least two years after its date of
effectiveness.
The term "holder" as used in this section of the Prospectus entitled "The
Exchange Offer" means (1) any person in whose name the Outstanding Notes are
registered on the books of the Company, or (2) any other person who has obtained
a properly completed bond power from the registered holder, or (3) any person
whose Outstanding Notes are held of record by DTC and who wants to deliver such
Outstanding Notes by book-entry transfer at DTC.
TERMS OF THE EXCHANGE OFFER
The Company is offering to exchange up to $300,000,000 total principal
amount of Senior Exchange Notes for a like total principal amount of Outstanding
Senior Notes. The Outstanding Senior Notes must be tendered properly on or
before the Expiration Date and not withdrawn. In exchange for Outstanding Senior
Notes properly tendered and accepted, the Company will issue, a like total
principal amount of up to $300,000,000 in Senior Exchange Notes. In addition,
the Company is offering to exchange up to $250,000,000 total principal amount of
Senior Subordinated Exchange Notes for a like total principal amount of
Outstanding Senior Subordinated Notes. The Outstanding Senior Subordinated Notes
also must be tendered properly on or before the Expiration Date and not
withdrawn. In exchange for
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Outstanding Senior Subordinated Notes properly tendered and accepted, the
Company will issue a like total principal amount of up to $250,000,000 in Senior
Subordinated Exchange Notes.
The Exchange Offer is not conditioned upon holders tendering minimum
principal amount of Outstanding Notes. As of the date of this Prospectus,
$300,000,000 aggregate principal amount of Senior Notes are outstanding and
$250,000,000 aggregate principal amount of Senior Subordinated Notes are
outstanding.
Holders of the Outstanding Notes do not have any appraisal or dissenters'
rights in the Exchange Offer. If holders do not tender Outstanding Notes or
tender Outstanding Notes that the Company does not accept, their Outstanding
Notes will remain outstanding. Any Outstanding Notes will be entitled to the
benefits of the Senior Note Indenture and Senior Subordinated Note Indenture, as
applicable, but will not be entitled to any further registration rights under
the Registration Rights Agreements, except under limited circumstances. See
"Risk Factors--Consequences of a Failure to Exchange Outstanding Notes" for more
information regarding notes outstanding after the Exchange Offer.
After the Expiration Date, the Company will return to the holder any
tendered Outstanding Notes that the Company did not accept for exchange.
Holders exchanging Outstanding Notes will not have to pay brokerage
commissions or fees or transfer taxes if they follow the instructions in the
Letter of Transmittal. The Company will pay the charges and expenses, other than
certain taxes described below, in the Exchange Offer. See "--Fees and Expenses"
for further information regarding fees and expenses.
NEITHER THE COMPANY NOR THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS YOU TO
TENDER OR NOT TENDER OUTSTANDING NOTES IN THE EXCHANGE OFFER. IN ADDITION, THE
COMPANY HAS NOT AUTHORIZED ANYONE TO MAKE ANY RECOMMENDATION. YOU MUST DECIDE
WHETHER TO TENDER IN THE EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF
OUTSTANDING NOTES TO TENDER.
The Expiration Date is 5:00 p.m., New York City time, on January 27, 1999
unless we extend the Exchange Offer.
The Company has the right, in accordance with applicable law, at any time:
- to delay the acceptance of the Outstanding Notes;
- to terminate the Exchange Offer if the Company determines that
any of the conditions to the Exchange Offer have not occurred or
have not been satisfied;
- to extend the Expiration Date of the Exchange Offer and keep all
Outstanding Notes tendered other than those notes properly
withdrawn; and
- to waive any condition or amend the terms of the Exchange Offer.
If the Company materially changes the Exchange Offer, or if the Company
waives a material condition of the Exchange Offer, the Company will promptly
distribute a prospectus supplement to the holders of the Outstanding Notes
disclosing the change or waiver. The Company also will extend the Exchange Offer
as required by Rule 14e-1 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act").
If the Company exercises any of the rights listed above, it will promptly
give oral or written notice of the action to the Exchange Agent and will issue a
release to an appropriate news agency. In the case of an extension, an
announcement will be made no later than 9:00 a.m., New York City time, on the
next business day after the previously scheduled Expiration Date.
ACCEPTANCE FOR EXCHANGE AND ISSUANCE OF EXCHANGE NOTES
The Company will issue to the Exchange Agent Exchange Notes for Outstanding
Notes tendered and accepted and not withdrawn promptly after the Expiration
Date. The Exchange Agent might not deliver
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the Exchange Notes to all tendering holders at the same time. The timing of
delivery depends upon when the Exchange Agent receives and processes the
required documents.
The Company will be deemed to have exchanged Outstanding Notes validly
tendered and not withdrawn when the Company gives oral or written notice to the
Exchange Agent of their acceptance. The Exchange Agent is an agent for the
Company for receiving tenders of Outstanding Notes, Letters of Transmittal and
related documents. The Exchange Agent is also an agent for tendering holders for
receiving Outstanding Notes, Letters of Transmittal and related documents and
transmitting Exchange Notes to validly tendering holders. If for any reason, the
Company (1) delays the acceptance or exchange of any Outstanding Notes (2)
extends the Exchange Offer; or (3) is unable to accept or Exchange Notes, then
the Exchange Agent may, on behalf of the Company and subject to Rule 14e-1(c)
under the Exchange Act, retain tendered notes. Notes retained by the Exchange
Agent may not be withdrawn, except according to the withdrawal procedures
outlined in the section entitled "--Withdrawal Rights" below.
In tendering Outstanding Notes, you must warrant in the Letter of
Transmittal or in an Agent's Message (described below) that (1) you have full
power and authority to tender, exchange, sell, assign and transfer Outstanding
Notes, (2) the Company will acquire good, marketable and unencumbered title to
the tendered Outstanding Notes, free and clear of all liens, restrictions,
charges and other encumbrances, and (3) the Outstanding Notes tendered for
exchange are not subject to any adverse claims or proxies. You also must warrant
and agree that you will, upon request, execute and deliver any additional
documents requested by the Company or the Exchange Agent to complete the
exchange, sale, assignment, and transfer of the Outstanding Notes.
PROCEDURES FOR TENDERING OUTSTANDING NOTES
VALID TENDER
You may tender your Outstanding Notes by book-entry transfer or by other
means. For book-entry transfer, you must deliver to the Exchange Agent either
(1) a completed and signed Letter of Transmittal or (2) an Agent's Message,
meaning a message transmitted to the Exchange Agent by DTC stating that you
agree to be bound by the terms of the Letter of Transmittal. You must deliver
your Letter of Transmittal or the Agent's Message by mail, facsimile, hand
delivery or overnight carrier to the Exchange Agent on or before the Expiration
Date. In addition, to complete a book-entry transfer, you must also either (1)
have DTC transfer the Outstanding Notes into the Exchange Agent's account at DTC
using the ATOP procedures for transfer, and obtain a confirmation of such a
transfer, or (2) follow the guaranteed delivery procedures described below under
"--Guaranteed Delivery Procedures."
If you tender fewer than all of your Outstanding Notes, you should fill in
the amount of notes tendered in the appropriate box on the Letter of
Transmittal. If you do not indicate the amount tendered in the appropriate box,
the Company will assume you are tendering all Outstanding Notes that you hold.
For tendering your Outstanding Notes other than by book-entry transfer, you
must deliver a completed and signed Letter of Transmittal to the Exchange Agent.
Again, you must deliver the Letter of Transmittal by mail, facsimile, hand
delivery or overnight carrier to the Exchange Agent on or before the Expiration
Date. In addition, to complete a valid tender you must either (1) deliver your
Outstanding Notes to the Exchange Agent on or before the Expiration Date, or (2)
follow the guaranteed delivery procedures set forth below under "Guaranteed
Delivery Procedures."
DELIVERY OF REQUIRED DOCUMENT BY WHATEVER METHOD YOU CHOOSE IS AT YOUR SOLE
RISK. DELIVERY IS COMPLETE WHEN THE EXCHANGE AGENT ACTUALLY RECEIVES THE ITEMS
TO BE DELIVERED. DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH DTC'S
PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. IF DELIVERY IS BY
MAIL, REGISTERED MAIL, RETURN RECEIPT REQUESTED, PROPERLY INSURED, OR AN
OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES, YOU SHOULD ALLOW
SUFFICIENT TIME TO ENSURE TIMELY DELIVERY.
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SIGNATURE GUARANTEES
You do not need to endorse certificates for the Outstanding Notes or provide
signature guarantees on the Letter of Transmittal, unless (a) someone other than
the registered holder tenders the certificate or (b) you complete the box
entitled "Special Issuance Instructions" or "Special Delivery Instructions" in
the Letter of Transmittal. In the case of (a) or (b) above, you must sign your
Outstanding Note or provide a properly executed bond power, with the signature
on the bond power and on the Letter of Transmittal guaranteed by a firm or other
entity identified in Rule 17Ad-15 under the Exchange Act as an "eligible
guarantor institution." Eligible Guarantor Institutions include: (1) a bank; (2)
a broker, dealer, municipal securities broker or dealer or government securities
broker or dealer; (3) a credit union; (4) a national securities exchange,
registered securities association or clearing agency; or (5) a savings
association that is a participant in a securities transfer association.
GUARANTEED DELIVERY
If a holder wants to tender Outstanding Notes in the Exchange Offer and (1)
the certificates for the Outstanding Notes are not immediately available or all
required documents are unlikely to reach the Exchange Agent on or before the
Expiration Date, or (2) a book-entry transfer cannot be completed in time, the
Outstanding Notes may be tendered if the holder complies with the following
guaranteed delivery procedures:
(a) the tender is made by or through an Eligible Institution;
(b) you deliver a properly completed and signed Notice of Guaranteed
Delivery, like the form provided with the Letter of Transmittal, to the
Exchange Agent on or before the Expiration Date; and
(c) you deliver the certificates or a confirmation of book-entry transfer
and a properly completed and signed Letter of Transmittal to the Exchange
Agent within three New York Stock Exchange trading days after the Notice
of Guaranteed Delivery is executed.
You may deliver the Notice of Guaranteed Delivery by hand, facsimile or mail
to the Exchange Agent and must include a guarantee by an Eligible Institution in
the form described in the notice.
The Company's acceptance of properly tendered Outstanding Notes is a binding
agreement between the tendering holder and the Company upon the terms and
subject to the conditions of the Exchange Offer.
DETERMINATION OF VALIDITY
The Company will resolve all questions regarding the form of documents,
validity, eligibility (including time of receipt) and acceptance for exchange of
any tendered Outstanding Notes. The Company's resolution of these questions as
well as the Company's interpretation of the terms and conditions of the Exchange
Offer (including the Letter of Transmittal) is final and binding on all parties.
A tender of Outstanding Notes is invalid until all irregularities have been
cured or waived. Neither the Company, any affiliates or assigns of the Company,
the Exchange Agent nor any other person is under any obligation to give notice
of any irregularities in tenders nor will they be liable for failing to give any
such notice. The Company reserves the absolute right, in its sole and absolute
discretion, to reject any tenders determined to be in improper form or unlawful.
The Company also reserves the absolute right to waive any of the conditions of
the Exchange Offer or any condition or irregularity in the tender of Outstanding
Notes by any holder. The Company need not waive similar conditions or
irregularities in the case of other holders.
If any Letter of Transmittal, endorsement, bond power, power of attorney, or
any other document required by the Letter of Transmittal is signed by a trustee,
executor, administrator, guardian, attorney-in-fact, officer of a corporation or
other person acting in a fiduciary or representative capacity, that person
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must indicate that capacity when signing. In addition, unless waived by the
Company, the person must submit proper evidence satisfactory to the Company, in
its sole discretion, of his or her authority to so act.
A beneficial owner of Outstanding Notes that are held by or registered in
the name of a broker, dealer, commercial bank, trust company or other nominee or
custodian should contact that entity promptly if the holder wants to participate
in the Exchange Offer.
RESALES OF EXCHANGE NOTES
The Company is exchanging the Outstanding Notes for Exchange Notes based
upon the Staff of the Securities and Exchange Commission's position, set forth
in interpretive letters to third parties in other similar transactions. The
Company will not seek its own interpretive letter. As a result, the Company
cannot assure you that the Staff will take the same position on this Exchange
Offer as it did in interpretive letters to other parties. Based on the Staff's
letters to other parties, we believe that holders of Exchange Notes, other than
broker-dealers, can offer the notes for resale, resell and otherwise transfer
the Exchange Notes without delivering a prospectus to prospective purchasers.
However, prospective holders must acquire the Exchange Notes in the ordinary
course of business and have no intention of engaging in a distribution of the
notes, as a "distribution" is defined by the Securities Act.
Any holder of Outstanding Notes who is an "affiliate" of the Company or who
intends to distribute Exchange Notes, or any broker-dealer who purchased
Outstanding Notes from the Company to resell pursuant to Rule 144A or any other
available exemption under the Securities Act:
- cannot rely on the Staff's interpretations in the above
mentioned interpretive letters;
- cannot tender Outstanding Notes in the Exchange Offer; and
- must comply with the registration and prospectus delivery
requirements of the Securities Act to transfer the Outstanding
Notes, unless the sale is exempt.
In addition, if any broker-dealer acquired Outstanding Notes for its own
account as a result of market-making or other trading activities and exchanges
the Outstanding Notes for Exchange Notes, the broker-dealer must deliver a
prospectus with any resales of the Exchange Notes.
If you want to exchange your Outstanding Notes for Exchange Notes, you will
be required to affirm that
- you are not an "affiliate" of the Company;
- you are acquiring the Exchange Notes in the ordinary course of
your business;
- you have no arrangement or understanding with any person to
participate in a distribution of the Exchange Notes (within the
meaning of the Securities Act); and
- you are not a broker-dealer, not engaged in, and do not intend
to engage in, a distribution of the Exchange Notes (within the
meaning of the Securities Act).
In addition, the Company may require you to provide information regarding
the number of "beneficial owners" (within the meaning of Rule 13d-3 under the
Exchange Act) of the Outstanding Notes. Each broker-dealer that receives
Exchange Notes for its own account must acknowledge that it acquired the
Outstanding Notes for its own account as the result of market-making activities
or other trading activities and must agree that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale of
Exchange Notes. By making this acknowledgment and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" under the
Securities Act. Based on the Staff's position in certain interpretive letters,
we believe that broker-dealers who acquired Outstanding Notes for their own
accounts as a result of market-making activities or other trading activities may
fulfill their prospectus delivery requirements with respect to the Exchange
Notes with a
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prospectus meeting the requirements of the Securities Act. Accordingly, a
broker-dealer may use this Prospectus to satisfy such requirements. The Company
has agreed that a broker-dealer may use this Prospectus for a period ending 180
days after the Expiration Date or, if earlier, when a broker-dealer has disposed
of all Exchange Notes. See "Plan of Distribution" for further information. A
broker-dealer intending to use this Prospectus in the resale of Exchange Notes
must notify the Company, on or prior to the Expiration Date, that it is a
Participating Broker-Dealer. This notice may be given in the Letter of
Transmittal or may be delivered to the Exchange Agent. Any Participating
Broker-Dealer who is an "affiliate" of the Company may not rely on the Staff's
interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act when reselling Exchange Notes.
Each Participating Broker-Dealer exchanging Outstanding Notes for Exchange
Notes agrees that, upon receipt of notice from the Company (a) any statement
contained or incorporated by reference in this Prospectus that makes the
Prospectus untrue in any material respect or this Prospectus omits to state a
material fact necessary to make the statements contained or incorporated by
reference herein, in light of the circumstances under which they were made, not
misleading or (b) of the occurrence of certain other events specified in the
Registration Rights Agreements, the Participating Broker-Dealer will suspend the
sale of Exchange Notes. A Participating Broker-Dealer will not resell the
Exchange Notes until (1) the Company has amended or supplemented this Prospectus
to correct such misstatement or omission and the Company furnishes copies to the
Participating Broker-Dealer or (2) the Company gives notice that the sale of the
Exchange Notes may be resumed. If the Company gave notice suspending the sale of
Exchange Notes, it shall extend the 180-day period by the number of days between
the date Company gives notice of suspension and the date Participating
Broker-Dealers receive copies of the amended or supplemented prospectus or the
date the Company gives notice resuming the sale of Exchange Notes.
WITHDRAWAL RIGHTS
You can withdraw tenders of Outstanding Notes at any time on or before the
Expiration Date.
For a withdrawal to be effective, you must deliver a written, telegraphic,
telex or facsimile transmission of a Notice of Withdrawal to the Exchange Agent
on or before the Expiration Date. The Notice of Withdrawal must specify the name
of the person tendering the Outstanding Notes to be withdrawn, the total
principal amount of Outstanding Notes withdrawn, and the name of the registered
holder of the Outstanding Notes if different from the person tendering the
Outstanding Notes. If you delivered Outstanding Notes to the Exchange Agent, you
must submit the serial numbers of the Outstanding Notes to be withdrawn and the
signature on the Notice of Withdrawal must be guaranteed by an Eligible
Institution, except in the case of Outstanding Notes tendered for the account of
an Eligible Institution. If you tendered Outstanding Notes as a book-entry
transfer, the Notice of Withdrawal must specify the name and number of the
account at DTC to be credited with the withdrawal of Outstanding Notes and you
must deliver the Notice of Withdrawal to the Exchange Agent by written,
telegraphic, telex or facsimile transmission. You may not rescind withdrawals of
tender. Outstanding Notes properly withdrawn may again be tendered at any time
on or before the Expiration Date.
We will determine all questions regarding the validity, form and eligibility
of withdrawal notices. Our determination will be final and binding on all
parties. Neither the Company, any affiliate or assign of the Company, the
Exchange Agent nor any other person is under any obligation to give notice of
any irregularities in any Notice of Withdrawal, nor will they be liable for
failing to give any such notice. Withdrawn Outstanding Notes will be returned to
the holder after withdrawal.
INTEREST ON EXCHANGE NOTES
The Senior Exchange Notes will bear interest at a rate of 7 3/4% per annum
and the Senior Subordinated Exchange Notes will bear interest at a rate of
8 1/4% per annum, both payable semi-annually, on February 1 and August 1 of each
year, commencing February 1, 1999. Holders of Exchange Notes will
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receive interest on February 1, 1999 from the date of initial issuance of the
Exchange Notes, plus an amount equal to the accrued interest on the Outstanding
Notes. Interest on the Outstanding Notes accepted for exchange will cease to
accrue upon issuance of the Exchange Notes.
CONDITIONS TO THE EXCHANGE OFFER
The Company need not exchange any Outstanding Notes, may terminate the
Exchange Offer or may waive any conditions to the Exchange Offer or amend the
Exchange Offer, if any of the following conditions have occurred:
(a) the Staff no longer allows the Exchange Notes to be offered for resale,
resold and otherwise transferred by certain holders without compliance
with the registration and prospectus delivery provisions of the
Securities Act; or
(b) a governmental body passes any law, statute, rule or regulation which,
in the Company's opinion, prohibits or prevents the Exchange Offer; or
(c) the Securities and Exchange Commission or any state securities authority
issues a stop order suspending the effectiveness of the registration
statement or initiates or threatens to initiate a proceeding to suspend
the effectiveness of the registration statement; or
(d) the Company is unable to obtain any governmental approval that the
Company believes is necessary to complete the Exchange Offer.
If the Company reasonably believes that any of the above conditions has
occurred, it may (1) terminate the Exchange Offer, whether or not any
Outstanding Notes have been accepted for exchange, (2) waive any condition to
the Exchange Offer or (3) amend the terms of the Exchange Offer in any respect.
If the Company's waiver or amendment materially changes the Exchange Offer, the
Company will promptly disclose the waiver or amendment through a prospectus
supplement, distributed to the registered holders of the Outstanding Notes. The
prospectus supplement also will extend the Exchange Offer as required by Rule
14e-1 of the Exchange Act.
EXCHANGE AGENT
The Company appointed The Bank of New York as Exchange Agent for the
Exchange Offer. Holders should direct questions and requests for assistance,
requests for additional copies of this Prospectus or of the Letter of
Transmittal and requests for Notice of Guaranteed Delivery to the Exchange Agent
addressed as follows:
<TABLE>
<S> <C> <C>
By Registered or Certified Confirm By Telephone: By Hand or Overnight Delivery:
Mail: Odell Romeo The Bank of New York
The Bank of New York (212) 815-6337 101 Barclay Street
101 Barclay Street, 7E Facsimile Transmissions: Corporate Trust Services
New York, New York 10286 (212) 815-4699 Window
Attention: Odell Romeo (Eligible Institutions Ground Level
Only) Attention: Odell Romeo
</TABLE>
If you deliver Letters of Transmittal and any other required documents to an
address or facsimile number other than those listed above, your tender is
invalid.
30
<PAGE>
FEES AND EXPENSES
The Company will pay the Exchange Agent reasonable and customary fees for
its services and reasonable out-of-pocket expenses. The Company will also pay
brokerage houses and other custodians, nominees and fiduciaries their reasonable
out-of-pocket expenses for sending copies of this Prospectus and related
documents to holders of Outstanding Notes, and in handling or tendering for
their customers.
The Company will pay the transfer taxes for the exchange of the Outstanding
Notes in the Exchange Offer. If, however, Exchange Notes are delivered to or
issued in the name of a person other than the registered holder, or if a
transfer tax is imposed for any reason other than for the exchange of
Outstanding Notes in the Exchange Offer, then the tendering holder will pay the
transfer taxes. If a tendering holder does not submit satisfactory evidence of
payment of taxes or exemption from taxes with the Letter of Transmittal, the
taxes will be billed directly to the tendering holder.
The Company will not make any payment to brokers, dealers or other nominees
soliciting acceptances in the Exchange Offer.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Outstanding Notes. Accordingly, the Company will not recognize any gain or loss
for accounting purposes. The Company intends to amortize the expenses of the
Exchange Offer and issuance of the Outstanding Notes over the respective terms
of the Senior Exchange Notes and Senior Subordinated Exchange Notes.
31
<PAGE>
THE TRANSACTIONS
THE ACQUISITION
On August 10, 1998, pursuant to an Asset Purchase Agreement dated April 22,
1998, Ball, through its Ball Metal Beverage Container Corp. subsidiary ("BMBC"),
acquired substantially all the assets of Reynolds Metals Company's North
American beverage can operations for $745.4 million, subject to certain
adjustments. The Asset Purchase Agreement (conformed copy) was filed as an
exhibit to the Company's Current Report on Form 8-K with the Securities and
Exchange Commission August 25, 1998 and is incorporated by reference as an
exhibit to the registration statement of which this Prospectus is a part. The
Asset Purchase Agreement contained typical provisions for acquisitions of this
kind, including representations and warranties regarding the conditions and
operations of Reynolds, covenants regarding the conduct of Reynolds' operations
prior to the acquisition and various closing conditions.
The Asset Purchase Agreement also contained typical indemnification
provisions. Reynolds Metals Company ("RMC") agreed to indemnify and hold the
Company, BMBC and certain others harmless against (1) certain damages, claims
and breaches of or inaccuracies in any representation or warranty made by RMC in
the Asset Purchase Agreement, (2) any breach or violation of any covenant or
agreement made by RMC and (3) certain environmental matters. The Company and
BMBC agreed to indemnify and hold RMC harmless against certain damages, claims
and liabilities due to (1) any breach of or inaccuracy in any representation or
warranty contained made by the Company or BMBC in the Asset Purchase Agreement
and (2) any breach or violation of any covenant or agreement made by the Company
or BMBC.
ANCILLARY AGREEMENTS
In connection with the Acquisition, on August 10, 1998, BMBC and RMC entered
into several ancillary agreements, including a Supply Program Agreement and an
Incentive Loan Agreement. The Supply Program Agreement provides that BMBC will
purchase from RMC a substantial portion of the can stock required for the plants
purchased from RMC through December 31, 2000 (which date BMBC may, as its
option, extend for three months). Under the Incentive Loan Agreement, the
Company advanced $39.0 million to RMC at a fixed interest rate to help fund
RMC's working capital for satisfaction of its obligations under the Supply
Program Agreement. If the amount of can stock that BMBC purchases in 1998, 1999,
2000 and 2001, if extended, under the Supply Program Agreement exceeds certain
thresholds, RMC will make specified principal and interest payments on the loan
up to a maximum of $43.75 million. After deducting these payments, any amounts
still owed on the loan will be cancelled.
ACQUISITION RATIONALE
The opportunity to combine the Company with Reynolds was attractive for
several reasons. First, customer overlap between the Company and Reynolds was
minimal, creating a company with a more diversified, less concentrated customer
base. Ball's customers before the Acquisition included Anheuser-Busch, Coca-Cola
and affiliated bottlers, Molson and Pepsi and affiliated bottlers, and Reynolds'
customers included Campbell Soup, Coca-Cola and affiliated bottlers, Miller,
Pepsi and affiliated bottlers and Shasta. Second, Reynolds' strength was
"specialty" beverage can sizes, while Ball's strength was "standard" 12-ounce
beverage can sizes. The Ball-Reynolds combination creates a company able to
provide the full spectrum of beverage containers to its customers. Third, the
addition of Reynolds' facilities enabled Ball to serve its customers in certain
regions more cost-effectively then it could from Ball's pre-Acquisition plants.
Finally, our management believes there are significant opportunities to improve
Reynolds' can-making operations through the elimination of duplicative over-head
costs, relocation of productive capacity, streamlining of operations and the
application of Ball's can-making technology and manufacturing know-how.
THE REFINANCING
At the time of the Acquisition, the Company also refinanced approximately
$521.9 million principal amount of its existing debt (the "Refinancing"). The
refinancing, combined with the Acquisition and certain ancillary agreements
entered into in connection with the Acquisition, are referred to collectively in
this Prospectus as the "Transactions."
32
<PAGE>
RECENT DEVELOPMENTS
On December 10, 1998, the Company announced that it will close four plants
that produce metal cans, two in the United States and two in China, and will
supply customers of the closed facilities from other Ball plants. The plant
closings are part of the Company's comprehensive program to improve profits and
operating efficiencies.
The plant closings in the U.S. will be accounted for as part of the
Acquisition of Reynolds and, therefore, will not result in a charge to earnings.
The plants are expected to be closed during the first quarter of 1999 and
include a beverage can manufacturing plant in Hayward, California, and a
beverage can end manufacturing plant in Rocklin, California. The Company also
stated that additional capacity rationalization and cost savings will likely
occur in North America in 1999 as the Company continues to integrate the assets
acquired from Reynolds Metals Company.
The China plant closings and other actions in China are being taken to
improve overall profitability and cash flow through headcount reductions and
lower manufacturing costs. The Company expects that these actions in China will
result in a fourth quarter pretax charge of approximately $56 million
(approximately $31 million after tax or 95 cents per share on a diluted basis).
The plants to be closed in China include one beverage can plant and one food can
plant and are expected to occur in the early part of 1999.
33
<PAGE>
SOURCES AND USES OF FUNDS
The Exchange Offer will not generate cash proceeds for the Company. The
Company used the proceeds from the offering of the Outstanding Notes and the
borrowings under the Senior Credit Facility to complete the Acquisition of
Reynolds, refinance outstanding debt, fund the loan to RMC under the Incentive
Loan Agreement and pay related fees and expenses.
The following table shows the sources and uses of funds for the
Transactions:
SOURCES OF FUNDS:
<TABLE>
<CAPTION>
AMOUNT
-----------
(IN
MILLIONS OF
DOLLARS)
<S> <C>
Senior Credit Facility:
Term Loan A............................ $ 350.0
Term Loan B............................ 200.0
Revolving Credit Facility(1)........... 258.2
Senior Notes............................. 300.0
Senior Subordinated Notes................ 250.0
-----------
TOTAL SOURCES........................ $ 1,358.2
-----------
-----------
</TABLE>
USES OF FUNDS:
<TABLE>
<CAPTION>
AMOUNT
-----------
(IN
MILLIONS OF
DOLLARS)
<S> <C>
Acquisition Price of Reynolds(2)......... $ 745.4
Refinance Ball's Existing Debt........... 521.9
Funding of Incentive Loan(3)............. 39.0
Make-Whole Payments(4)................... 17.5
Estimated Fees and Expenses(5)........... 34.4
-----------
TOTAL USES........................... $ 1,358.2
-----------
-----------
</TABLE>
- ------------------------
(1) Amount drawn at closing. Additional borrowing capacity of $391.8 million
under the revolving credit facility was available, subject to certain
conditions, for working capital purposes, letters of credit and general
corporate purposes.
(2) Under the Asset Purchase Agreement, the purchase price will be increased or
decreased, as the case may be, by an amount equal to the difference between
the working capital on the balance sheet of Reynolds on the date of closing
and $78.0 million. As of August 10, 1998, the purchase price would have been
increased by approximately $43.5 million. The actual purchase price
adjustment may differ from this amount.
(3) The Company advanced to RMC $39.0 million at the closing of the Acquisition
pursuant to the terms of the Incentive Loan Agreement. See "The
Transactions."
(4) Prepayment costs in connection with the prepayment of $294.9 million of
privately placed notes.
(5) Including fees and expenses of the initial placement of the Outstanding
Notes.
34
<PAGE>
CAPITALIZATION
The following table sets forth the Company's consolidated unaudited
capitalization as of September 27, 1998. This table should be read together with
Ball's consolidated financial statements and the accompanying notes, and the
unaudited pro forma condensed combined financial data, both of which are
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 27, 1998
------------------
(DOLLARS IN
MILLIONS)
<S> <C>
Cash and temporary investments................................................................ $ 34.0
----------
----------
Current maturities of revolving and long-term debt(1)(2)...................................... 204.8
Senior Credit Facility:
Term Loans(1)............................................................................... 533.5
Revolving Loans(1).......................................................................... 94.5
7 3/4% Senior Notes due 2006.................................................................. 300.0
8 1/4% Senior Subordinated Notes due 2008..................................................... 250.0
Other debt.................................................................................... 81.9
----------
Total debt, including current maturities.................................................... 1,464.7
Total shareholders' equity.................................................................... 664.7
----------
Total capitalization.......................................................................... $ 2,129.4
----------
----------
</TABLE>
- ------------------------
(1) $16.5 million of the Senior Credit Facility term loans is included in
current maturities of revolving and long-term debt. The maximum amount
available under the term loan portion of the Senior Credit Facility is
$550.0 million. The maximum amount available for the revolving credit
portion of the Senior Credit Facility is $650.0 million.
(2) $26.4 million of the Canadian Credit Facility loan is included in current
maturities of revolving and long-term debt.
35
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The unaudited pro forma condensed combined financial data below are based on
the consolidated financial statements of Ball and the combined financial
statements of Reynolds included elsewhere in this Prospectus. The unaudited pro
forma condensed combined statements of income for the year ended December 31,
1997 and the nine-month period ended September 27, 1998 are based on the
consolidated financial statements of Ball and adjusted to give effect to the
Transactions as if they had occurred on January 1, 1997. During the periods
presented, neither Ball's nor Reynolds' statements of income included any
amounts related to discontinued operations. Adjustments for the Transactions are
based upon historical financial information of Ball and Reynolds and certain
assumptions that management of Ball believes are reasonable. The Acquisition
will be accounted for under the purchase method of accounting. Under this
method, the purchase price has been allocated to the assets and liabilities
acquired based on preliminary estimates of fair value. The actual fair value may
vary from the preliminary estimates. The pro forma financial data does not
necessarily reflect the results of operations or the financial position of Ball
that actually would have resulted had the Transactions occurred at the date
indicated, or project the results of operations or financial position of the
Company for any future date or period.
The unaudited pro forma condensed combined financial data below should be
read together with the consolidated financial statements of Ball and the
combined financial statements of Reynolds, and the accompanying notes, included
elsewhere in this Prospectus.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1997
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
BALL REYNOLDS PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS TOTAL
----------- --------- ------------- -----------
<S> <C> <C> <C> <C>
Net sales..................................................... $ 2,388.5 $ 1,192.7 $ -- $ 3,581.2
----------- --------- ------ -----------
Costs and expenses
Cost of sales............................................... 2,121.2 1,109.9 (17.9)(1)
(1.6 )(2) 3,211.6
Selling, product development, general and administrative
expense................................................... 136.9 32.1 9.8 (3)
1.6 (9) 180.4
Disposition, relocation and other income.................... (9.0) -- -- (9.0)
Interest expense............................................ 53.5 2.1 104.3 (4)
(31.6 )(4)
(2.1 )(4)
1.6 (4)
4.1 (4) 131.9
----------- --------- ------ -----------
2,302.6 1,144.1 68.2 3,514.9
----------- --------- ------ -----------
Earnings before taxes on income............................... 85.9 48.6 (68.2 ) 66.3
Provision for income tax expense.............................. (32.0) (19.9) 26.9 (6) (25.0)
Minority interests............................................ 5.1 -- -- 5.1
Equity in losses of affiliates................................ (0.7) -- -- (0.7)
----------- --------- ------ -----------
Net income.................................................... 58.3 28.7 (41.3 ) 45.7
Preferred dividends, net of tax benefit..................... (2.8) -- -- (2.8)
----------- --------- ------ -----------
Net earnings attributable to common shareholders.............. $ 55.5 $ 28.7 $ (41.3 ) $ 42.9
----------- --------- ------ -----------
----------- --------- ------ -----------
Earnings per common share(7):
Basic....................................................... $ 1.84 $ 1.42
----------- -----------
----------- -----------
Diluted..................................................... $ 1.74 $ 1.35
----------- -----------
----------- -----------
Weighted average common shares outstanding (in thousands)(7):
Basic....................................................... 30,234 30,234
----------- -----------
----------- -----------
Diluted..................................................... 32,311 32,311
----------- -----------
----------- -----------
</TABLE>
36
<PAGE>
NINE-MONTH PERIOD ENDED SEPTEMBER 27, 1998
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
BALL REYNOLDS PRO FORMA PRO FORMA
HISTORICAL HISTORICAL(8) ADJUSTMENTS TOTAL
---------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Net sales................................................... $ 2,054.5 $ 771.5 $ -- $ 2,826.0
---------- ------ ------ ------------
Costs and expenses
Cost of sales............................................. 1,817.3 711.5 (11.6)(1)
(1.0)(2) 2,516.2
Selling, product development, general and administrative
expense................................................. 103.4 20.8 5.6(3)
1.0(9) 130.8
Dispositions, relocation and other expense (income)....... 15.0 -- -- 15.0
Interest expense.......................................... 48.5 1.5 63.3(5)
(20.1)(5)
(1.5)(5)
0.9(5)
2.4(5) 95.0
---------- ------ ------ ------------
1,984.2 733.8 39.0 2,757.0
---------- ------ ------ ------------
Income (loss) before taxes on income........................ 70.3 37.7 (39.0) 69.0
Provision for taxes on income............................... (27.4) (15.2) 15.4(6) (27.2)
Minority interests.......................................... 5.1 -- -- 5.1
Equity in earnings (losses) of affiliates................... 1.2 -- -- 1.2
---------- ------ ------ ------------
Net income (loss) before extraordinary item................. 49.2 22.5 (23.6) 48.1
Extraordinary loss from early debt extinguishment, net of
tax........................................................ (12.1) -- 12.1 (10 --
---------- ------ ------ ------------
Net income (loss)........................................... 37.1 22.5 (11.5) 48.1
Preferred dividends, net of tax benefit..................... (2.1) -- -- (2.1)
---------- ------ ------ ------------
Earnings (loss) attributable to common shareholders......... $ 35.0 $ 22.5 $ (11.5) $ 46.0
---------- ------ ------ ------------
---------- ------ ------ ------------
Earnings (loss) per common share(7):
Net income (loss) before extraordinary item............... $ 1.55 $ 1.52
Extraordinary loss from early debt extinguishment, net of
tax..................................................... (0.40) --
---------- ------------
Earnings (loss) per common share.......................... $ 1.15 $ 1.52
---------- ------------
---------- ------------
Diluted earnings (loss) per share(7):
Net income (loss) before extraordinary item............... $ 1.46 $ 1.43
Extraordinary loss from early debt extinguishment, net of
tax..................................................... (0.37) --
---------- ------------
Diluted earnings (loss) per share......................... $ 1.09 $ 1.43
---------- ------------
---------- ------------
Weighted average common shares outstanding (in
thousands)(7):
Basic..................................................... 30,345 30,345
---------- ------------
---------- ------------
Diluted................................................... 32,466 32,466
---------- ------------
---------- ------------
</TABLE>
37
<PAGE>
BALL CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF INCOME
(IN MILLIONS)
(1) Represents the adjustment to depreciation expense to reflect the estimated
depreciation on plant and equipment, based on their respective estimated
fair values, and estimated remaining useful lives versus Reynolds' historic
depreciation. The assets are generally being amortized over periods from ten
to twenty years.
(2) To eliminate the historical amortization of goodwill of Reynolds.
(3) Represents: (i) the amortization of the excess purchase price over the fair
value of the acquired assets and liabilities over a period of 40 years and
(ii) the amortization of other identified intangible assets of $15.0 million
over a period of 10 years.
(4) Interest expense was adjusted to reflect (i) $104.3 million resulting from
the following borrowings:
<TABLE>
<CAPTION>
AVERAGE INTEREST INTEREST
DEBT INSTRUMENT PRINCIPAL RATE EXPENSE
- ---------------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Senior Notes.................................................... $ 300.0 7.75% $ 23.3
Senior Subordinated Notes....................................... 250.0 8.25% 20.6
Senior Credit Facility.......................................... 818.7 7.38% 60.4
-----------
Total....................................................... $ 104.3
-----------
-----------
</TABLE>
(ii) the elimination of $31.6 million of interest on the existing Ball debt
that will be repaid with proceeds of the Senior Credit Facility and the
Outstanding Notes; (iii) the elimination of $2.1 million of interest related
to the Reynolds debt that will not be assumed by Ball; (iv) $1.6 million of
commitment fees on the average unused portion of the Senior Credit Facility
revolving loan; and (v) the amortization of financing costs of $4.1 million
over the life of the indebtedness. Borrowings under the Senior Credit
Facility represent floating rate debt. A 1/8 of 1 percent change in the
interest rate on that debt would result in a change in interest expense of
approximately $1.0 million.
(5) Interest expense was adjusted to reflect (i) $63.3 million resulting from
the following borrowings:
<TABLE>
<CAPTION>
AVERAGE INTEREST INTEREST
DEBT INSTRUMENT PRINCIPAL RATE EXPENSE
- ---------------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Senior Notes.................................................... $ 300.0 7.75% $ 13.9
Senior Subordinated Notes....................................... 250.0 8.25% 12.3
Senior Credit Facility.......................................... 858.4 7.25% 37.1
-----
Total....................................................... $ 63.3
-----
-----
</TABLE>
(ii) the elimination of $20.1 million of interest on the existing Ball debt
that will be repaid with proceeds of the Senior Credit Facility and
Outstanding Notes; (iii) the elimination of $1.5 million of interest related
to the Reynolds debt that will not be assumed by Ball; (iv) $0.9 million of
commitment fees on the average unused portion of the Senior Credit Facility
revolving loan; and (v) the amortization of financing costs of $2.4 million
over the life of the indebtedness. Borrowings under the Senior Credit
Facility represent floating rate debt. A 1/8 of 1 percent change in the
interest rate on that debt would result in a change in interest expense of
approximately $0.75 million.
(6) Income tax expense was adjusted to reflect an effective tax rate of 39.2%,
which is the expected statutory effective tax rate of Ball.
38
<PAGE>
BALL CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENTS OF INCOME (CONTINUED)
(IN MILLIONS)
(7) Basic earnings per common share was calculated by dividing Ball historical
or pro forma net earnings available to common shareholders by the weighted
average common shares outstanding. Diluted earnings per common share was
calculated by dividing Ball historical or pro forma net income, as adjusted
for the impact of an assumed conversion of the Ball ESOP (as defined)
preferred shares into common shares, by the weighted average common shares
outstanding, as adjusted for the assumed exercise of dilutive stock options
and the conversion of the ESOP preferred shares into common shares. See Ball
"Notes to Consolidated Financial Statements."
(8) Year-to-date period ended August 10, 1998.
(9) Represents incremental rent expense on certain of the Company's leases as a
result of the borrowings under the Senior Credit Facility and the proceeds
from the Outstanding Notes.
(10) To eliminate Ball's historical extraordinary loss from early debt
extinguishment associated with the refinancing of its historical debt.
39
<PAGE>
SELECTED FINANCIAL DATA
SELECTED HISTORICAL FINANCIAL DATA OF BALL
(DOLLARS IN MILLIONS EXCEPT SHARE DATA)
The following table sets forth selected historical financial data of Ball.
The selected historical information as of and for each of the five fiscal years
in the period ended December 31, 1997, was derived from the audited consolidated
financial statements of Ball. The information contained in this table should be
read together with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements of Ball,
including the accompanying notes, appearing elsewhere in this Prospectus. The
selected historical financial data as of and for the nine-month periods ended
September 28, 1997 and September 27, 1998 were derived from unaudited interim
financial statements of Ball. In the opinion of Ball, such unaudited interim
financial statements contain all adjustments (consisting of only normal
recurring items) necessary to present fairly its financial position and results
of operations as of and for the periods presented.
<TABLE>
<CAPTION>
NINE-MONTH PERIOD ENDED
(UNAUDITED)
YEAR ENDED DECEMBER 31, ----------------------------
----------------------------------------------------- SEPTEMBER 28, SEPTEMBER 27,
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales........................................ $ 1,735.1 $ 1,842.8 $ 2,045.8 $ 2,184.4 $ 2,388.5 $ 1,813.7 $ 2,054.5
Cost of sales(1)............................. 1,540.5 1,615.0 1,836.6 2,007.3 2,121.2 1,609.6 1,817.3
Selling, product development, general
and administrative expense................. 106.9 98.2 99.5 93.2 136.9 95.6 103.4
Disposition, relocation and other (income)
expense.................................... 57.3 6.8 7.1 21.0 (9.0) (8.7) 15.0
--------- --------- --------- --------- --------- ------------- -------------
Operating income............................. 30.4 122.8 102.6 62.9 139.4 117.2 118.8
Net income (loss):
Continuing operations...................... 3.2 64.0 51.9 13.1 58.3 50.5 49.2
Discontinued operations.................... (33.6) 9.0 (70.5) 11.1 -- -- --
--------- --------- --------- --------- --------- ------------- -------------
$ (30.4) $ 73.0 $ (18.6) $ 24.2 $ 58.3 $ 50.5 $ 49.2
--------- --------- --------- --------- --------- ------------- -------------
--------- --------- --------- --------- --------- ------------- -------------
Net earnings (loss) per common share:
Earnings (loss) from:
Continuing operations.................... $ -- $ 2.05 $ 1.63 $ 0.34 $ 1.84 $ 1.60 $ 1.55
Discontinued operations.................. (1.17) 0.30 (2.35) 0.36 -- -- --
--------- --------- --------- --------- --------- ------------- -------------
Net earnings (loss) before extraordinary
item and cumulative effect of accounting
changes.................................. (1.17) 2.35 (0.72) 0.70 1.84 1.60 1.55
Extraordinary loss from early debt
extinguishment, net of tax............... -- -- -- -- -- -- (0.40)
Cumulative effect of accounting changes,
net of tax............................... (1.21) -- -- -- --
--------- --------- --------- --------- --------- ------------- -------------
Earnings (loss) per common share........... $ (2.38) $ 2.35 $ (0.72) $ 0.70 $ 1.84 $ 1.60 $ 1.15
--------- --------- --------- --------- --------- ------------- -------------
--------- --------- --------- --------- --------- ------------- -------------
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
NINE-MONTH PERIOD ENDED
(UNAUDITED)
YEAR ENDED DECEMBER 31, ----------------------------
----------------------------------------------------- SEPTEMBER 28, SEPTEMBER 27,
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Diluted earnings (loss) per share:
Earnings (loss) from:
Continuing operations.................... $ -- $ 1.93 $ 1.54 $ 0.34 $ 1.74 $ 1.51 $ 1.46
Discontinued operations.................. (1.17) 0.28 (2.18) 0.34 -- -- --
--------- --------- --------- --------- --------- ------------- -------------
Net earnings (loss) before extraordinary
item and cumulative effect of accounting
changes.................................. (1.17) 2.21 (0.64) 0.68 1.74 1.51 1.46
Extraordinary loss from early debt
extinguishment, net of tax............... -- -- -- -- -- -- (0.37)
Cumulative effect of accounting changes,
net of tax............................... (1.21) -- -- -- -- -- --
--------- --------- --------- --------- --------- ------------- -------------
Diluted earnings (loss) per share.......... $ (2.38) $ 2.21 $ (0.64) $ 0.68 $ 1.74 $ 1.51 $ 1.09
--------- --------- --------- --------- --------- ------------- -------------
--------- --------- --------- --------- --------- ------------- -------------
Weighted average common shares outstanding
(in thousands):
Basic...................................... 28,712 29,662 30,024 30,314 30,234 30,263 30,345
Diluted.................................... 28,712 31,902 32,312 32,335 32,311 32,297 32,466
OTHER DATA:
EBITDA(2).................................... $ 161.8 $ 208.2 $ 188.4 $ 177.4 $ 247.9 $ 194.5 $ 239.1
Interest expense............................. 30.5 26.9 25.7 33.3 53.5 39.6 48.5
Depreciation and amortization expense........ 74.1 78.6 78.7 93.5 117.5 86.0 105.3
Capital expenditures......................... 89.1 41.3 178.9 196.1 97.7 83.5 51.7
Ratio of earnings to fixed charges(3)........ 1.0x 2.8x 2.6x 1.5x 2.3x 2.5x 2.1x
Cash dividends declared per common share..... $ 1.24 $ 0.60 $ 0.60 $ 0.60 $ 0.60 $ 0.45 $ 0.45
Cash flows provided by (used in):
Operating activities....................... $ 144.6 $ 191.7 $ 32.9 $ 84.3 $ 143.5 $ 74.1 $ 200.0
Investing activities....................... (103.9) (40.6) 3.3 (18.4) (250.9) (246.1) (849.9)
Financing activities....................... (47.0) (148.9) (41.5) 98.2 (36.3) 30.9 658.4
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------- SEPTEMBER 28, SEPTEMBER 27,
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and temporary investments............... $ 8.2 $ 10.4 $ 5.1 $ 169.2 $ 25.5 $ 28.1 $ 34.0
Total assets................................. 1,668.8 1,631.9 1,614.0 1,700.8 2,090.1 2,171.4 3,043.2
Total debt, including current maturities..... 637.2 493.7 475.4 582.9 773.1 836.0 1,464.7
Shareholders' equity......................... 548.6 604.8 567.5 604.4 634.2 630.9 664.7
</TABLE>
- ------------------------------
(1) Includes depreciation expense.
(2) EBITDA for any period presented above is defined as net income from
continuing operations plus (minus) interest expense, income taxes,
depreciation and amortization, disposition, relocation and other (income)
expense, minority interest in income (losses) of subsidiaries, and equity in
losses (income) of affiliates. EBITDA is included because management
believes that certain investors may find it to be a useful tool for
analyzing operating performance, leverage, and liquidity. EBITDA should not
be construed as a measure that is superior to, or a substitute for,
operating income or net cash provided by operating activities or as an
indicator of liquidity, which are determined in accordance with generally
accepted accounting principles. Other companies may not calculate EBITDA in
a similar manner and, for that reason, these measures may not be comparable.
(3) The ratio of earnings to fixed charges is computed by dividing fixed charges
into earnings from continuing operations before income taxes, equity
earnings and minority interests plus fixed charges, among other things.
Fixed charges consist of interest expensed and capitalized, amortization of
financing costs, and the estimated interest component of rent expense.
41
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF REYNOLDS
(DOLLARS IN MILLIONS)
The following table sets forth selected historical financial data of
Reynolds. The selected historical information as of December 31, 1997 and 1996,
and for each of the three fiscal years in the period ended December 31, 1997,
was derived from the audited combined financial statements of Reynolds. The
information contained in this table should be read together with the combined
financial statements of Reynolds, including the accompanying notes appearing
elsewhere in this Prospectus. The selected historical financial data as of and
for the six-month periods ended June 30, 1997 and 1998 were derived from
unaudited interim financial statements of Reynolds. In the opinion of Reynolds,
such unaudited interim financial statements contain all adjustments (consisting
of only normal recurring items) necessary to present fairly its financial
position and results of operations as of and for the periods presented.
<TABLE>
<CAPTION>
SIX-MONTH PERIOD ENDED
YEAR ENDED DECEMBER 31, ------------------------
------------------------------- JUNE 30, JUNE 30,
1995 1996 1997 1997 1998
--------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales...................................................... $ 1,245.4 $ 1,156.6 $ 1,192.7 $ 625.6 $ 629.8
Cost of sales(1)........................................... 1,149.5 1,120.6 1,109.9 585.0 583.1
Selling, general and administrative expense................ 36.2 33.9 32.1 15.6 16.5
Operational restructuring costs............................ 15.9 37.2 -- -- --
--------- --------- --------- ----------- -----------
Operating income (loss).................................... 43.8 (35.1) 50.7 25.0 30.2
Net income (loss).......................................... $ 25.3 $ (22.1) $ 28.7 14.3 17.3
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
OTHER DATA:
EBITDA(2).................................................. $ 113.1 $ 55.9 $ 107.4 $ 52.9 $ 58.9
Interest expense........................................... 0.9 -- 2.1 0.9 1.2
Depreciation and amortization expense...................... 53.4 53.8 56.7 27.9 28.7
Capital expenditures....................................... 59.1 67.9 21.3 13.4 7.2
Cash flows provided by (used in):
Operating activities..................................... 75.0 95.5 56.4 38.3 48.5
Investing activities..................................... (59.1) (61.2) (20.6) (13.1) (5.5)
Financing activities..................................... (15.9) (34.3) (35.8) (25.2) (43.0)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1996 1997 1998
--------- --------- -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Total assets........................................................................ $ 582.6 $ 566.1 $ 553.4
Total debt, including current maturities............................................ 54.8 54.6 54.5
Owner's equity...................................................................... 381.9 375.0 349.4
</TABLE>
- ------------------------
(1) Includes depreciation and amortization expense.
(2) EBITDA for any period presented above is defined as net income plus interest
expense, income taxes, depreciation and amortization and operational
restructuring costs. EBITDA is included because management believes that
certain investors may find it to be a useful tool for analyzing operating
performance, leverage, and liquidity. EBITDA should not be construed as a
measure that is superior to, or a substitute for, operating income or net
cash provided by operating activities, or as an indicator of liquidity,
which are determined in accordance with generally accepted accounting
principles. Other companies may not calculate EBITDA in a similar manner
and, for that reason, these measures may not be comparable.
42
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND THE ACCOMPANYING
NOTES. BALL CORPORATION AND SUBSIDIARIES ARE REFERRED TO COLLECTIVELY AS "BALL"
OR THE "COMPANY" IN THE FOLLOWING DISCUSSION AND ANALYSIS.
OVERVIEW OF BALL BEFORE THE ACQUISITION
Ball produces rigid metal and plastic packaging, primarily for beverages and
food, and, supplies aerospace and other technology products and services for
government and commercial uses. In 1997, Ball reported sales, EBITDA and net
income of $2,388.5 million, $247.9 million and $58.3 million, respectively. Ball
is listed on the New York Stock Exchange (ticker symbol "BLL").
PACKAGING
The packaging segment includes the businesses that manufacture metal and PET
containers, primarily for beverages and food. This segment comprised 83% of
Ball's 1997 revenues.
Ball has two primary product lines in metal packaging: two-piece aluminum
beverage cans and two-and three-piece steel food containers. Ball operates nine
beverage can plants, two of which also produce can ends. Annual production
capacity of these plants is approximately 18.2 billion cans. The Company sells
beverage cans mainly to large beverage manufacturers and their fillers,
including Anheuser-Busch, Coca-Cola and Pepsi, through supply contracts that
typically last one to five years. Two-piece beverage cans produced in North
America represent Ball's largest product line, comprising approximately 46% and
53% of Ball's 1997 sales and EBITDA, respectively.
Through its 95%-plus-owned subsidiary, FTB Packaging Limited ("FTB") and its
essentially wholly-owned subsidiary, M.C. Packaging (Hong Kong) Limited ("MCP"),
the Company is the largest beverage can manufacturer in China. Ball supplies
more than half of all beverage cans sold in China. Ball believes that its
facilities are the most modern in that country. Ball also has beverage can joint
ventures in Brazil, Thailand, Taiwan, the Philippines and Russia. International
beverage can sales comprised approximately 11% and 12% of Ball's 1997 sales and
EBITDA, respectively.
Internationally, Ball has also entered into arrangements with ten companies
operating 20 facilities worldwide to license its manufacturing technology and to
provide assistance with manufacturing processes and management systems. Current
licensees include PLM AB of Sweden, Fabricas Monterrey, a subsidiary of Fomento
Economico Mexicano, SA de CV of Mexico, and Containers Packaging Ltd., a
subsidiary of Amcor Ltd. of Australia.
In addition to metal beverage cans, Ball produces two- and three-piece steel
food cans for packaging vegetables, fruit, soups, meat, fish and pet food. Ball
operates 12 plants in North America with annual production capacity of 4.7
billion cans. These cans are sold mainly to customers in the Midwestern U.S. and
Canada. Sales of food cans represented approximately 20% and 15% of Ball's 1997
sales and EBITDA, respectively.
To capitalize on existing customer relationships, Ball entered the PET
container business in 1995. The Company built and operates facilities in
California, Iowa, New Jersey and New York capable of producing approximately 3.2
billion containers annually. Ball also established a research and development
and customer service center in Georgia. Most of Ball's PET containers are sold
to makers of carbonated soft drinks, including Coca-Cola and Pepsi, under long
term contracts. Ball is also seeking opportunities to serve producers of juice,
bottled water and liquor. Sales and EBITDA of PET containers represented 6% and
3% of Ball's 1997 totals, respectively.
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<PAGE>
AEROSPACE AND TECHNOLOGY
Ball's wholly-owned subsidiary, Ball Aerospace, consists of two divisions:
the Aerospace Systems Division ("Aerospace") and the Telecommunication Products
Division ("Telecommunications"). Aerospace provides hardware, software, and
services primarily for uses in space science, manned space missions, defense and
earth sciences. Major customers include NASA, the United States Department of
Defense and foreign governments. Telecommunications develops and manufactures
antenna, communication, and video products and systems for space, aeronautical,
land and marine applications. End users include the United States military,
commercial airlines and companies in the telecommunications and marine
industries. Ball Aerospace comprised 17% and 19% of Ball's 1997 sales and
EBITDA, respectively.
OVERVIEW OF REYNOLDS BEFORE THE ACQUISITION
Reynolds is the fifth largest manufacturer of aluminum beverage cans in
North America. Its 16 plants, which include two "stand alone" end plants, can
produce 17.6 billion cans annually. Substantially all of Reynolds' sales are
made to leading producers of beer, soft drinks and other beverages, including
Campbell Soup, Coca-Cola, Miller, Pepsi and Shasta. Reynolds has been a leader
in developing beverage can innovations, including the recently introduced large
opening end which pours more smoothly and quickly. Reynolds also is the largest
North American producer of "specialty" beverage cans. Reynolds had 1997 sales
and EBITDA of $1,192.7 million and $107.4 million, respectively.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 27, 1998 AND SEPTEMBER 28, 1997 FOR
THE COMPANY
ACQUISITIONS
On August 10, 1998, Ball acquired substantially all the assets and assumed
certain liabilities of the domestic beverage can manufacturing business of
Reynolds Metals Company for a total purchase price of $745.4 million, subject to
certain adjustments. The acquisition of Reynolds has been accounted for as a
purchase and, accordingly, its results of operations are included in the
consolidated financial statements since the date of the Acquisition.
The assets acquired consist primarily of 16 plants in 12 states and Puerto
Rico, as well as a headquarters facility in Richmond, Virginia. The Company has
announced that it will close the Richmond facility and consolidate headquarters
operations at its offices near Denver, Colorado. In addition, the Company is
assessing possible further integration opportunities and has initially recorded
a $52.0 million liability, before tax effects, as a part of the valuation
process. Upon finalization of the plan, adjustments to the liability will be
reflected in the allocation of the purchase price.
During 1998, FTB Packaging Limited purchased substantially all of the
remaining direct and indirect minority interest in MCP which represented less
than ten percent of the outstanding shares of MCP.
RESULTS OF OPERATIONS
CONSOLIDATED RESULTS
Consolidated net sales of $859.2 million for the third quarter of 1998
increased approximately 25 percent compared to the third quarter of 1997. For
the first nine months of 1998, consolidated net sales were $2.1 billion, an
increase of approximately 13 percent over the same period for 1997. The increase
in sales resulted primarily from the Acquisition. Excluding the effect of
Reynolds, net sales for the first nine months of 1998 increased nearly five
percent reflecting increased volume from both the plastic and metal beverage
container operations, partially offset by lower sales from the aerospace and
technologies segment.
44
<PAGE>
Net earnings attributable to common shareholders (before extraordinary item)
of $24.2 million, or 80 cents per share, for the third quarter of 1998 included
a pretax charge of $4.7 million ($2.9 million after tax or nine cents per share)
for the relocation of the Company's corporate office. Net earnings attributable
to common shareholders were $22.0 million, or 73 cents per share, for the third
quarter of 1997. Excluding the 1998 charges taken for the extraordinary item and
the relocation, net earnings attributable to common shareholders increased 23
percent over the 1997 third quarter.
For the first nine months of 1998, earnings attributable to common
shareholders (before extraordinary item) were $47.1 million, or $1.55 per share,
including an after-tax charge of $9.1 million, or 30 cents per share, for costs
incurred in connection with the relocation of the corporate headquarters. In the
first nine months of 1997, earnings were $48.4 million, or $1.60 cents per
share, including a net after-tax gain of $5.3 million, or 17 cents per share,
largely attributable to the sale of the interest in a technology business.
In February 1998, Ball announced that it would relocate its corporate
headquarters to an existing company-owned building in Broomfield, Colorado. The
total cost of the headquarters relocation is estimated to be $19.0 million
($11.5 million after tax or 38 cents per share). Generally accepted accounting
principles do not permit financial statement recognition of certain costs, such
as employee relocation, until they are paid or incurred. Therefore the Company
recorded pretax charges of $4.7 million ($2.9 million after tax or nine cents
per share) and $15.0 million ($9.1 million after tax or 30 cents per share),
primarily for relocation costs paid or incurred in the third quarter and first
nine months of 1998, respectively. It is anticipated that the remainder of the
relocation costs will be paid and recorded largely by the end of the year.
The Company sold its investment in a technology business during the first
half of 1997 and included a pretax gain of $11.7 million ($7.1 million after tax
or 23 cents per share). In the second quarter of 1997, the Company recorded a
pretax charge of $3.0 million ($1.8 million after tax or six cents per share) to
close a small PET container manufacturing plant in connection with the
acquisition of certain PET container manufacturing assets.
INTEREST AND TAXES
Consolidated interest expense for the third quarter and the first nine
months of 1998 was $22.4 million
and $48.5 million, respectively, compared to $14.3 million and $39.6 million,
for the same periods of 1997, respectively. The increase in both periods is
attributable to the additional debt associated with the Acquisition.
Ball's consolidated effective income tax rate was 34.4 percent for the third
quarter of 1998 compared to 36.5 percent for the third quarter of 1997. For the
first nine months of 1998, the effective tax rate was approximately 39 percent
compared to 37.1 percent for 1997. The effective tax rates for the first nine
months reflect a reduction in taxes attributable to creditable costs of U.S.
research and development of $2.9 million (nine cents per share) and $2.5 million
(eight cents per share) for 1998 and 1997, respectively. Excluding the tax
credits, the consolidated effective income tax rates for the third quarter and
first nine months of 1998 would have been 42.6 percent and 43.1 percent,
respectively, and 40.3 percent for the first nine months of 1997, which largely
reflect the tax effects of foreign operations.
RESULTS OF EQUITY AFFILIATES
Equity in earnings of affiliates for the third quarter of 1998 was $0.7
million compared to a loss of $1.7 million for the third quarter of 1997. For
the nine month periods, equity in earnings of affiliates was $1.2 million and a
loss of $2.1 million for 1998 and 1997, respectively. Equity earnings in
affiliates are largely attributable to equity investments in China, Thailand and
Brazil. The improved results in 1998 reflect the effects of the strengthening of
the Thai baht in 1998 and reduced start-up costs compared to 1997 when
operations in Brazil, Thailand and China began. Although there has been
improvement during 1998, the Thai baht remains volatile, and there can be no
assurance that the current trend will continue.
45
<PAGE>
Both 1997 and 1998 results include lower earnings from certain equity affiliates
reflecting the soft China market which are expected to continue throughout 1998.
EXTRAORDINARY LOSS ON EARLY DEBT EXTINGUISHMENT
In connection with the Acquisition, the Company refinanced approximately
$521.9 million of its existing debt and, as a result, recorded a pre-tax charge
for early extinguishment of the debt of approximately $19.9 million ($12.1
million after tax or 40 cents per share).
BUSINESS SEGMENTS
PACKAGING
Packaging segment net sales were $772.8 million for the third quarter of
1998 compared to $588.0 million in the third quarter of 1997. Net sales for the
nine month periods were $1,795.9 million and $1,510.3 million for 1998 and 1997,
respectively. The increase in both periods reflects the acquisition of Reynolds.
Segment operating earnings for the third quarter and the first nine months of
1998 increased from 1997 due to the additional earnings from the Reynolds
business and improved earnings in the metal beverage and plastic container
businesses which were partially offset by lower results within the metal food
can business in North America and packaging operations in China.
Within the packaging segment, sales in the North American metal container
business increased 40.4 percent and 19.3 percent for the three and nine month
periods, respectively. Excluding the effect of the business acquired, sales
increased 5.9 percent and 6.2 for the 1998 quarter and year-to-date periods,
respectively, resulting from higher shipments of metal beverage and food
containers in both periods. Increased metal beverage can operating earnings
reflect the higher shipment levels as well as improved operating efficiencies.
Metal food container operating earnings declined from 1997 results due in large
part to reduced salmon can volumes (primarily the result of a government imposed
ban on commercial salmon fishing) and the effects of a strike in a Canadian
facility.
Plastic container sales as a percentage of consolidated sales increased to
8.3 percent in 1998 from 5.9 percent in 1997. The 1998 third quarter and
year-to-date results of plastic container operations were significantly improved
over the same periods in 1997 and included the first full-year of operations of
an East Coast plant. Costs associated with the start-up of new plants in the
eastern United States and the Midwest, and the closure of a small PET container
manufacturing facility contributed to the operating loss in 1997. Ball acquired
certain manufacturing assets in early July 1997 and began supplying PET bottles
to an East Coast bottler under a multi-year contract.
Sales within Ball's FTB Packaging operations decreased for the three- and
nine-month periods of 1998 compared to the same periods in 1997. Quarter and
year-to-date earnings were also down from the prior year, due in large part to
the effects on the marketplace of economic disruption in Asia. The unit sold a
record number of cans during the quarter, but pricing remains under pressure due
to excess manufacturing capacity in China. FTB has taken steps to substantially
reduce its headquarters staffing and the Company is examining its operations in
China in order to improve results there while maintaining its market position.
AEROSPACE AND TECHNOLOGIES
Sales in the aerospace and technologies segment for the third quarter and
first nine months of 1998 decreased to $86.4 million and $258.6 million,
respectively, compared to $102.3 million and $303.3 million in 1997. The sales
reduction from 1997 to 1998 reflects, in large part, reduced activity in
connection with government programs and the unusually strong demand in the first
half of 1997 for certain telecommunications equipment and related products.
Demand for those products in 1998 returned to more normal levels. The operating
earnings decrease in 1998 reflected the effect of lower sales in 1998 and the
inclusion, in the first half of 1997, of one-time early delivery incentives
earned in connection with telecommunication
46
<PAGE>
products. Backlog at the end of September 1998 was approximately $326.3 million
compared to approximately $267 million at December 31, 1997, and $287 million at
the end of the September 1997. Year-to-year comparisons of backlog are not
necessarily indicative of the trend of future operations.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations in 1998 of $200.0 million improved significantly
compared to 1997, due in part to a reduction in the amount of cash used for
normal seasonal working capital requirements and higher depreciation in
connection with the Reynolds acquisition. Capital spending of $51.7 million in
the first nine months of 1998 is below depreciation of $96.1 million. Total 1998
capital spending is expected to be approximately $97 million.
Primarily as a result of the Reynolds acquisition, total debt increased to
$1,464.7 million at September 27, 1998 compared to $773.1 million at December
31, 1997. The debt-to-total capitalization ratio rose to 67.7 percent at
September 27, 1998 from 53.0 percent at December 31, 1997.
In connection with the Acquisition, the Company refinanced approximately
$521.9 million of its existing debt and, as a result, recorded an extraordinary
charge from the early extinguishment of debt of approximately $12.1 million (40
cents per share), net of related income tax benefit.
The Acquisition and the Refinancing, including related costs, were financed
with a placement of $300.0 million in 7.75% Senior Notes, $250.0 million in
8.25% Senior Subordinated Notes and approximately $808.2 million from a Senior
Credit Facility.
The Outstanding Senior Notes, which are due August 1, 2006, are unsecured,
rank senior to the Company's subordinated debt and are guaranteed on a senior
basis by certain of the Company's domestic subsidiaries. The Outstanding Senior
Subordinated Notes, which are due August 1, 2008, are also unsecured, rank
subordinate to existing and future senior debt of the Company and are guaranteed
by certain subsidiaries of the Company. Both the Senior Note Indenture and the
Senior Subordinated Note Indenture contain certain covenants and restrictions
including, among other things, restrictions on the incurrence of additional
indebtedness and the payment of dividends.
Pursuant to this Prospectus, the Company is offering to exchange the
Outstanding Senior Notes and the Outstanding Senior Subordinated Notes. The
terms of the Exchange Notes will be substantially identical in all respects
(including principal amount, interest rate, maturity, ranking and covenant
restrictions) to the terms of the Outstanding Notes for which they will be
exchanged except that the Exchange Notes will be registered under the Securities
Act and therefore will not be subject to certain restrictions on transfer except
as provided in the Prospectus. The Indentures provide that if the Exchange Notes
are assigned investment grade ratings and the Company is not in default, certain
covenant restrictions will be suspended.
The Senior Credit Facility is comprised of three separate facilities, two
term loans and a revolving credit facility. The first term loan provides the
Company with up to $350.0 million and matures in August, 2004. The second term
loan provides the Company with up to $200.0 million and matures in March, 2006.
Both term loans are payable in quarterly installments beginning in March, 1999.
The revolving credit facility provides the Company with up to $650.0 million, of
which $150.0 million is available for a period of 364 days, renewable for
another 364 days from the current termination date at the option of the Company
and the participating lenders. The remainder is comprised of letters of credit
with an expiration date of up to one year and revolving loans which mature in
August, 2004. The Senior Credit Facility bears interest at variable rates, is
guaranteed by certain subsidiaries of the Company and contains certain covenants
and restrictions including, among other things, restrictions on the incurrence
of additional indebtedness and the payment of dividends. In addition, all
amounts outstanding under the Senior Credit Facility are secured by (1) a pledge
of 100 percent of the stock of the Company's direct and indirect
47
<PAGE>
majority-owned domestic subsidiaries and (2) a pledge of 65 percent of the stock
of the Company's material foreign subsidiaries.
The Company has a Canadian dollar credit facility for committed short-term
funds of up to $50.0 million at September 27, 1998. At quarter end,
approximately $26.4 million was outstanding under this facility. The Company's
Asian subsidiary and related investments had short-term uncommitted credit
facilities of approximately $226.9 million at the end of the third quarter, of
which $80.8 million was outstanding at September 27, 1998.
The Company's accounts receivable sales agreement provides for the ongoing,
revolving sale of up to $75.0 million of a designated pool of trade accounts
receivable of Ball's domestic packaging businesses. Net funds received from the
sale of the accounts receivable totaled $65.9 million and $66.5 million as of
September 27, 1998 and September 28, 1997, respectively. Fees related to this
agreement for the three and nine month periods of 1998 were $0.9 million and
$2.8 million, respectively, and $0.9 million and $2.8 million for the same
periods in 1997. These fees are included in general and administrative expenses.
YEAR 2000 UPDATE
Many computer systems and other equipment with embedded chips or processors
use only two digits to represent the year and, as a result, they may be unable
to process accurately certain data before, during or after the year 2000. As a
result, business and governmental entities are at risk for possible
miscalculations or system failures causing disruptions in their operations. This
is commonly known as the Year 2000 issue and can arise at any point in the
Company's supply, manufacturing, processing, distribution and financial chains.
Most of Ball's critical systems and related software are Year 2000 compliant
or are not adversely impacted by the Year 2000 issue. However, a program is in
progress to make the remaining software and systems Year 2000 compliant, or
verify that the Year 2000 issue will not adversely impact the software and
systems, in time to minimize any significant negative effects on operations. The
program covers information systems infrastructure, financial and administrative
systems, process control and manufacturing operating systems and the compliance
profiles of significant vendors, lenders and customers. Completion of the
programs already identified is on target for mid-1999.
In addition, Ball relies on third party suppliers for raw materials, water,
utilities, transportation, banking and other key services, the interruption of
which could affect its operations. The program identified above includes efforts
to evaluate the status of suppliers' and customers' efforts as a means of
managing risk but cannot eliminate the potential for disruption due to third
party failure.
The Company is also developing contingency plans intended to mitigate the
possible disruption in business operations that may result from external third
party Year 2000 issues. Such plans may include stockpiling raw materials,
increasing inventory levels, securing alternate sources of supply, adjusting
facility shut-down and start-up schedules and other appropriate measures. The
contingency plans and related cost estimates will be refined as additional
information becomes available.
Over the course of the past several years, systems installations, upgrades
and enhancements were performed with specific attention given to the Company
becoming Year 2000 compliant. As a result, when a formal Year 2000 program was
instituted in 1996, much of the Company's Year 2000 matters had either been
resolved or were near resolution. Given the actions to date as well as the
results of the compliance program, the Company believes, at this time, that
costs specifically resulting from completing the internal Year 2000 program will
not be significant to its results of operations or financial condition.
Due to the general uncertainty inherent in the Year 2000 problem, resulting
in part from the uncertainty of the Year 2000 readiness of the third-party
suppliers and customers, the Company is unable to determine at this time whether
the consequences of Year 2000 failures will have a material impact on the
Company's results of operations, liquidity or financial condition. The Company's
Year 2000 issue
48
<PAGE>
program is reducing the level of uncertainty about the Year 2000 issue and, in
particular, about the Year 2000 compliance and readiness of material external
third parties dealing with Ball. The Company believes that, with the recent
implementation of new business systems and completion of the program as
scheduled, the possibility of significant interruptions of normal operations
should be reduced.
The discussion of the Company's efforts, and management's expectations,
relating to Year 2000 compliance contain forward-looking statements. The
Company's ability to achieve Year 2000 compliance and the level of associated
incremental costs could be adversely impacted by, among other things, the
availability and cost of programming and testing resources, the ability of
suppliers and customers to bring their systems into Year 2000 compliance, and
unanticipated problems identified in the ongoing compliance review.
The information contained herein regarding the Company's efforts to deal
with the Year 2000 problem apply to all of the Company's products and services.
Such statements are intended as Year 2000 Statements and Year 2000 Readiness
Disclosures and are subject to the Year 2000 Information Readiness Disclosure
Act.
OTHER
The Company is subject to various risks and uncertainties in the ordinary
course of business due, in part, to the competitive nature of the industries in
which Ball participates, its operations in developing markets outside the U.S.,
changing commodity prices for the materials used in the manufacture of its
products, and changing capital markets. Where practicable, the Company attempts
to reduce these risks and uncertainties, through the establishment of risk
management policies and procedures, including, at times, the use of certain
derivative financial instruments.
At September 27, 1998, the Company was not in default of any loan agreement
and had met all payment obligations.
The U.S. government is disputing the Company's claim to recoverability of
reimbursed costs associated with Ball's Employee Stock Ownership Plan ("ESOP")
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 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 the financial condition, results of
operations, capital expenditures or competitive position of the Company.
COMPARISON OF YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 FOR THE COMPANY
OVERVIEW
Over the three-year reporting period, the Company has taken several actions
which affect the comparability of the accompanying financial statements. The
Company has significantly expanded its presence in international markets with
the 1997 acquisition of MCP, the construction of metal container plants in China
and, through joint ventures, metal beverage container plants in Brazil and
Thailand. The Company entered the PET plastic container market, beginning in
1995 with the construction of a pilot line and research and development center,
and currently operates four multi-line manufacturing facilities. The Company
also consolidated operations within its North American metal packaging business
to reduce costs
49
<PAGE>
and increase efficiency, by closing or selling three food container operations
and related facilities, including selling a U.S. aerosol can business;
discontinuing the manufacture of metal beverage containers at one facility in
Canada; and, eliminating certain administrative positions within these lines of
business. The Company exited the glass container business and sold a time and
frequency measurement device business.
On February 4, 1998, the Company announced that it would relocate its
corporate headquarters to an existing company-owned building in Broomfield,
Colorado. In connection with the relocation, the Company expects to record in
1998 a charge estimated to be approximately $20 million pretax, primarily for
employee related costs and the write-down of certain assets to net realizable
values. This move is expected to be largely completed by the end of 1998.
ACQUISITIONS
During 1997, the Company acquired approximately 75 percent of MCP through
FTB, for a total purchase price of approximately $179 million in cash. MCP, with
net sales of approximately $149 million included in the Company's 1997
consolidated results, operates 13 manufacturing facilities in China, including
four equity affiliates. Products manufactured by MCP include two-piece aluminum
beverage containers, three-piece steel beverage and food containers, aerosol
cans, plastic packaging, metal crowns and printed and coated metal. With this
acquisition, the Company estimates that it supplies over 50 percent of the metal
beverage containers used in China. The acquisition was accounted for as a
purchase and the results of MCP are included within the packaging segment from
the acquisition date in early 1997. The excess of the purchase price of
approximately $122.3 million was determined based on preliminary fair values of
assets acquired and liabilities assumed in the acquisition.
In the third quarter of 1997, the Company acquired certain PET container
manufacturing assets from Brunswick Container Corporation ("Brunswick") for cash
of approximately $42.7 million. In connection with this acquisition, the Company
obtained long-term agreements to supply a large East Coast bottler of soft
drinks.
DISPOSITIONS AND OTHER
Following is a summary of the financial effects of dispositions and other
charges by business segment.
PACKAGING
In the second quarter of 1997, the Company recorded a pretax charge of $3.0
million ($1.8 million after tax or six cents per share) for the closure of a
small PET container manufacturing facility. In addition, in January 1998 the
Company closed, as anticipated, a facility acquired as part of the 1997
acquisition and will be relocating certain equipment during 1998 from that
facility to the Company's larger PET container facilities.
In October 1996, the Company sold net assets of approximately $47.5 million,
including $6.0 million of goodwill, of a U.S. aerosol can manufacturing business
for cash of $41.3 million and a $3.0 million note. In connection with this sale,
the Company recognized a loss of $3.3 million ($4.4 million after tax, including
the effect of non-deductible goodwill, or 14 cents per share). The aerosol
business was included in consolidated results and within the packaging segment
through the date of sale. The Company also recorded pretax charges of $17.7
million ($11.0 million after tax or 37 cents per share) and $10.9 million ($6.6
million after tax or 22 cents per share) in 1996 and 1995, respectively, in
connection with actions to consolidate its metal packaging operations, including
costs to close facilities, write-down assets to net realizable value and
eliminate certain administrative positions within these businesses.
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AEROSPACE AND TECHNOLOGIES
In the first quarter of 1995, upon conclusion of a study by the Company to
explore its strategic alternatives relative to its aerospace and technologies
business, the Company sold its Efratom time and frequency devices business to
Datum Inc. ("Datum") for cash of $15.0 million and 1.3 million shares, or
approximately 32 percent, of Datum common stock. The Company recorded a gain of
$11.8 million ($7.7 million after tax or 25 cents per share) on this
transaction. The 1995 gain was partially offset by a pretax charge of $8.0
million ($4.9 million after tax or 16 cents per share) for costs in connection
with the decision to exit the visual image generating systems business in 1993.
CORPORATE
Corporate dispositions and other in 1997 include the sale of the Company's
investment in Datum in the first half for cash of approximately $26.2 million,
resulting in a pretax gain of $11.7 million ($7.1 million after tax or 23 cents
per share). The Company's share of Datum's earnings under the equity method of
accounting were $0.5 million and $0.3 million in 1997 and 1995, respectively,
and a loss of $0.2 million in 1996.
In the fourth quarter of 1997, the Company disposed of or wrote down to
estimated net realizable value certain equity investments, resulting in a net
pretax gain of $0.3 million. The Company's equity in the net earnings of these
affiliates was not significant in 1997, 1996 and 1995.
OTHER
In 1994, the Company formed EarthWatch, Incorporated ("EarthWatch"), and in
1995 acquired WorldView, Inc., to commercialize certain proprietary technologies
by serving the market for satellite-based remote sensing images of the Earth.
Through December 31, 1995, the Company invested approximately $21 million in
EarthWatch. As of December 31, 1996, EarthWatch had experienced extended product
development and deployment delays and expected to incur significant product
development losses into the future, exceeding the Company's investment. Although
the Company was a 49 percent equity owner of EarthWatch at year end 1996, and
had contracted to design satellites for that company, the remaining carrying
value of the investment was written to zero. Accordingly, the Company recorded a
pretax charge of $15.0 million ($9.3 million after tax or 31 cents per share),
in the fourth quarter of 1996 which is reflected as a part of equity in losses
of affiliates. EarthWatch continued to incur losses throughout 1997. The Company
has no commitments to provide further equity or debt financing to EarthWatch
beyond its investment to date. The Company has agreed to produce satellites for
EarthWatch. At year end 1997, the Company owned approximately 48 percent of the
voting stock in EarthWatch.
In 1996, the Company sold its 42 percent interest in Ball-Foster Glass
Container Co., L.L.C. ("Ball-Foster"), exiting the glass packaging business.
Ball-Foster was formed in 1995 from the glass businesses acquired from the
Company and Foster-Forbes, a division of American National Can Company. The
financial effects of these transactions, as well as the results of the glass
business, have been segregated in the accompanying financial statements as
discontinued operations. See "Discontinued Operations" for additional
information regarding these transactions.
SALES AND EARNINGS
Consolidated net sales in 1997 increased more than nine percent to $2.4
billion compared to 1996. The increase reflects MCP's sales since the
acquisition, as well as increased sales of PET containers and from the aerospace
and technologies segment. Consolidated net sales of $2.2 billion in 1996
increased 6.8 percent compared to 1995 net sales of $2.0 billion, reflecting
sales of the Company's newly established PET container business, as well as
increased sales in the metal packaging business and the aerospace and
technologies segment.
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Consolidated operating earnings increased to $139.3 million, compared to
$68.0 million in 1996, reflecting improved results in both the packaging and the
aerospace and technologies businesses. Consolidated operating earnings of $68.0
million in 1996 decreased 41.3 percent compared to 1995 earnings of $115.8
million. The decrease in 1996 reflects lower packaging segment earnings,
including $21.0 million related to dispositions and other charges discussed
above. Similar charges of $3.0 million and $7.1 million were recorded in 1997
and 1995, respectively.
Consolidated general and administrative expenses were $119.2 million, $77.2
million, and $83.3 million for 1997, 1996 and 1995, respectively. Lower
consolidated general and administrative expenses in 1996 compared to 1997 were
due, in large part, to lower incentive compensation expense based upon 1996
operating performance, coupled with higher income in 1996 from the temporary
investment of proceeds from dispositions, including that of the glass business.
Consolidated general and administrative expenses in 1997 include the operating
costs of MCP, which was acquired in 1997, as well as those costs attributable to
other new facilities in China.
Corporate expenses were $11.9 million, $5.1 million and $13.2 million for
1997, 1996 and 1995, respectively. The lower corporate expenses in 1996 compared
to 1997 and 1995 were due, in part, to income from short-term temporary
investments, attributable to the proceeds from business dispositions, and lower
operating costs, including incentive compensation.
PACKAGING SEGMENT
Packaging segment sales were $2.0 billion, $1.8 billion and $1.7 billion for
1997, 1996 and 1995, respectively. Segment sales included net sales of metal
containers of $1.8 billion in 1997, an increase of 2.9 percent compared to 1996
as a result of the acquisition of MCP and the consolidation of that company's
sales, partially offset by a decrease in sales of the Company's North American
metal packaging businesses of approximately 5.8 percent. The Company's sales of
PET containers in the U.S. increased to $153.0 million in 1997 from $56.3
million in 1996. The increase in packaging sales when comparing 1996 to 1995 was
primarily attributable to those from the new PET container business, as well as
a 6.0 percent increase in North American metal food container sales and
increased sales within the international metal packaging businesses.
Segment earnings of $105.3 million in 1997 reflect improved operating
results in all product lines compared to 1996. Segment earnings declined in 1996
to $36.6 million from $84.7 million in 1995. Excluding the effects of
dispositions and other charges, segment earnings were $108.3 million, $57.6
million and $95.6 million for 1997, 1996 and 1995, respectively.
NORTH AMERICAN METAL BEVERAGE CONTAINERS
Sales of the Company's North American metal beverage container business,
which represented approximately 56 percent of segment sales in 1997, decreased
approximately 5.7 percent in 1997 compared to 1996 and 6.0 percent compared to
1995. The decrease in 1997 sales compared to 1996 reflects the lower cost of
aluminum can sheet, which is generally passed on through formula pricing to the
customer, and a decrease of approximately 3.5 percent in 1997 shipments compared
to 1996. The decrease in can shipments reflects the reduction in the Company's
metal beverage capacity as a result of discontinuing manufacture at one Canadian
facility and the full year effects of converting a U.S. metal beverage container
line to two-piece food containers. In 1996, lower selling prices offset an 11
percent increase in can unit shipments. U.S. and Canadian industry shipments of
metal beverage containers increased an estimated 1.6 percent in 1997 and
slightly more than one percent in 1996. The Company estimates that its North
American metal beverage container shipments, as a percentage of total U.S. and
Canadian shipments for metal beverage containers, was approximately 17 percent
in 1997 and 1996, and 16 percent in 1995.
Despite lower sales in 1997, earnings attributable to North American metal
beverage containers improved, increasing 55 percent compared to 1996, and 3.6
percent compared to 1995, before dispositions
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and other charges of $8.1 million and $3.8 million in 1996 and 1995,
respectively. The improvement in 1997 is largely attributable to the completion
of project work begun in 1995 to convert to smaller diameter ends and to
lightweight cans and ends, corresponding higher productivity and the impact of
higher cost aluminum contracted for in 1995, which was not passed on to
customers in 1996. The lower earnings for the North American metal beverage
container business in 1996 compared to 1995 were due to the higher cost aluminum
contracted for in late 1995 and lower aluminum scrap selling prices, both of
which resulted in higher cost of sales. Production inefficiencies in early 1996
while converting to the smaller diameter end and implementing the use of a lower
gauge metal also contributed to lower results.
NORTH AMERICAN METAL FOOD CONTAINERS
North American metal food container sales, which comprised approximately 24
percent of 1997 segment sales, declined approximately 5.9 percent in 1997
compared to 1996, which included $36.6 million of aerosol can sales. Excluding
aerosol in 1996, can sales in this product line increased 1.3 percent in 1997,
with lower shipments to salmon can customers offset by increased shipments to
customers for other food products. Comparing 1996 to 1995, North American metal
food container sales increased as a result of an 11 percent increase in the
Company's shipments, as well as marginally improved pricing. The increase in
1996 shipments compared to 1995 reflects, in part, depressed shipments of
vegetable and pet food cans in 1995. The Company estimates that its North
American metal food container shipments were approximately 14 percent of total
U.S. and Canadian metal food container shipments in 1997 and 1996, based on
available industry information.
Operating earnings attributable to North American metal food containers,
before dispositions and other charges, continue to improve with increases of 76
and 47 percent in 1997 and 1996, respectively. Dispositions and other charges
related to North American metal food containers totaled $20.0 million in 1996
and 1995. The improvement in 1997 compared to 1996 was attributed in part to the
closure of a higher-cost operating facility late in 1996, and to improved
productivity and quality, reflected in a reduction in provisions for customer
claims. The 1996 improvement in earnings was primarily due to the increased
sales volumes.
NORTH AMERICAN PET CONTAINERS
The increase in the Company's sales of PET containers to $153.0 million in
1997 compared to $56.3 million in 1996 reflects the start-up of two
manufacturing facilities in 1997, plus the additional sales from the new
business acquired from Brunswick in the third quarter of 1997. However, sales in
both 1997 and 1996 were below anticipated levels. In 1997, continued promotion
of metal cans by major soft drink companies and lower than forecasted sales by
other customers were reflected in the lower than expected sales. Sales in 1996
were affected in part by lower resin prices and lower than expected requirements
of a key customer.
Although the PET container business continued to operate at a loss in 1997,
the loss was substantially lower than that incurred in 1996. PET resin prices
increased during 1997, and the increases were, in large part, passed on to
customers. Recruiting and training costs, and under-utilized labor during the
start-up of the new facilities in all years, contributed to the operating
losses. Production efficiencies in the plants which started up operations prior
to 1997 improved, but were negatively affected by the lower sales volumes.
INTERNATIONAL PACKAGING OPERATIONS
Sales within the international packaging businesses in 1997 were comprised
of the consolidated sales of FTB, including MCP for approximately 11 months of
1997, and revenues from technical services to licensees. Excluding sales of MCP,
sales in 1997 increased nearly 24 percent in 1997 compared to 1996 due to the
inclusion of a full year's sales of two new metal beverage container facilities.
Sales within China have
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been negatively affected by a soft metal beverage container market combined with
lower pricing resulting from current industry over capacity. The current
supply/demand imbalance in the industry is expected to be relatively short term
as per capita consumption in China, substantially below the U.S. and other more
developed countries, increases. In the interim, the Company has elected to delay
start-up of two facilities originally expected to become operational in 1998.
The Chinese market also has been affected by turmoil in the Asian financial
markets which has resulted in a decrease in exports of the Company's products
from China to other Asian countries. Earnings from consolidated international
operations in 1997 reflect the impact of consolidating MCP and lower pricing. In
comparing 1996 to 1995, earnings were lower in 1996, due, in part, to start-up
operating costs from three new manufacturing facilities in China.
AEROSPACE AND TECHNOLOGIES SEGMENT
Aerospace and technologies segment operating results in 1995 included a
pretax gain of $11.8 million on the sale of the Efratom business, and a charge
of $8.0 million to exit the visual image generating business. In the following
discussion of aerospace and technologies segment results, the effect of these
dispositions and other charges is excluded to facilitate comparison.
Segment sales were $398.7 million, $362.3 million and $315.8 million for
1997, 1996 and 1995, respectively, representing annual increases of 10.0 percent
and 14.7 percent for 1997 and 1996, respectively. Segment operating earnings
were $34.0 million, $31.4 million and $27.3 million in 1997, 1996 and 1995,
respectively, representing annual increases of 8.3 percent and 15.0 percent for
1997 and 1996, respectively.
Sales and earnings for 1997 increased compared to 1996 in both Aerospace and
Telecommunications. The higher sales and earnings in aerospace systems reflect
growth in three programs, as well as the start-up of three new programs and
award fees for the successful 1997 launch of second generation replacement
instruments for the Hubble Space Telescope. Within Telecommunications, earnings
increased significantly, in part due to a one-time early delivery incentive
earned related to one contract, and increased fixed cost coverage related to the
increased production volume. Comparing 1996 and 1995, the increase in earnings
is primarily attributable to the increase in sales, partially offset by costs
related to one now completed fixed price contract.
Sales to the U.S. government, either as a prime contractor or as a
subcontractor, represented approximately 87 percent, 91 percent and 86 percent
of segment sales in 1997, 1996 and 1995, respectively. Within Aerospace,
industry trends have not changed significantly, with a declining budget for the
Department of Defense and a flat National Aeronautics and Space Administration
("NASA") budget. However, there is a growing worldwide market for commercial
space activities, in which the Company believes there are significant
international opportunities in which the Company could participate.
Consolidation in the industry continues so that competition for business remains
intense. Backlog for the aerospace and technologies segment at December 31, 1997
and 1996, was approximately $267 million and $337 million, respectively.
Year-to-year comparisons of backlog are not necessarily indicative of the trend
of future operations.
INTEREST AND TAXES
Interest expense for continuing operations increased to $53.5 million in
1997, compared to $33.3 million in 1996 and $25.7 million in 1995. Interest
capitalized amounted to $4.4 million, $6.6 million and $3.5 million for 1997,
1996 and 1995, respectively, and, interest expense allocated to discontinued
operations for 1996 and 1995 was $5.5 million and $12.1 million, respectively.
The increase in total interest cost in 1997 compared to 1996 was primarily a
result of the acquisition and consolidation of MCP. The increase in 1996
compared to 1995 reflects the higher levels of borrowing for the first nine
months of 1996, including the issue of $150 million in fixed-rate term debt,
partially offset by generally lower interest rates on interest-sensitive
borrowings.
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The Company's consolidated effective income tax rate was 37.2 percent in
1997, compared to 24.3 percent in 1996 and 34.4 percent in 1995. The lower rate
for 1996 compared to 1997 and 1995 was primarily attributable to the effect of a
1996 refund for tax credits recognized by the Company after the Internal Revenue
Service concurred with the Company's position regarding creditable cost of
research and development. In 1997, the Company recorded an additional tax credit
upon settlement for years 1991 and 1992, although lower than that recorded in
1996. The benefit of the 1996 tax credits was partially offset by the effect of
a tax/book investment basis difference related to the sale of the aerosol
business and approximately $1.5 million due to a change in tax legislation which
limited the amount of deductible interest on policy loans. As a result of
actions taken by the Company, this new legislation did not, nor is it expected
to, have a significant impact on 1997 results and beyond.
RESULTS OF EQUITY AFFILIATES
Equity in losses of affiliates of $0.7 million in 1997 included charges of
$3.2 million after tax (11 cents per share) for the Company's share of primarily
unrealized currency exchange losses incurred by its 40 percent owned Thai
venture. As a result of a change in the monetary policy by the government of
Thailand in early July 1997, the Thai baht depreciated significantly versus the
U.S. dollar. The unrealized exchange loss was largely a result of the U.S.
dollar denominated debt held by the Thai company. See, "--Other," for additional
discussion of the Company's foreign currency exposure. In addition to the Thai
exchange loss, the Company's share of its equity affiliates' results reflect the
impact of the soft market in China for metal beverage containers. The
manufacturing facilities of the Company's Thai venture and the 50-percent owned
Brazilian venture both began production in 1997, and have experienced good
manufacturing performance.
Equity in losses of affiliates in 1996 of $9.5 million included a charge of
$15.0 million ($9.3 million after tax or 31 cents per share) to write to zero
the Company's investment in EarthWatch. In addition, the Company's share of
EarthWatch's operating losses were $3.0 million and $1.3 million in 1996 and
1995, respectively. The Company's share of the net earnings from other equity
affiliates were $2.8 million and $4.3 million in 1996 and 1995, respectively,
and were primarily from the Company's Pacific Rim equity affiliates. In 1996,
start-up operating costs associated with new investments in Brazil and Thailand
reduced earnings.
EARNINGS FROM CONTINUING OPERATIONS
Net income from continuing operations was $58.3 million, $13.1 million and
$51.9 million in 1997, 1996 and 1995, respectively. The increase in 1997
compared to 1996 was due to improved operating results, including aggregate net
after-tax gains of $5.0 million, or 16 cents per share, for the sale of certain
investments, net of plant closing costs and investment write-downs. The decrease
in 1996 compared to 1995 was due to lower operating results, including aggregate
net after-tax charges of $20.4 million, or 68 cents per share, for plant
closures, asset write-downs (including EarthWatch), employee termination costs,
tax matters and the sale of the aerosol business. Net income from continuing
operations in 1995 included aggregate after-tax charges of $3.8 million for
dispositions, plant closures and asset write-downs. Earnings per share from
continuing operations were $1.84, 34 cents and $1.63, in 1997, 1996 and 1995,
respectively.
DISCONTINUED OPERATIONS
In October 1996, the Company sold its 42 percent investment in Ball-Foster
to Compagnie de Saint Gobain ("Saint-Gobain") for $190 million in cash, exiting
the glass packaging business. Ball-Foster was formed in September 1995 with
Saint-Gobain acquiring the assets of Ball Glass Container Corporation ("Ball
Glass"), a wholly owned subsidiary of the Company, for approximately $338
million in cash, and those of Foster-Forbes. Concurrent with the sale of Ball
Glass to Ball-Foster, the Company acquired its 42 percent investment in
Ball-Foster for $180.6 million in cash. The financial effects of these
transactions, as
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well as the results of the glass business, have been segregated in the
accompanying financial statements as discontinued operations.
Earnings from discontinued operations in 1996 of $11.1 million, or 36 cents
per share, were comprised primarily of the net gain of $24.1 million ($13.2
million after tax or 43 cents per share) resulting from the sale of the
Company's remaining interest in Ball-Foster. The loss of $111.1 million ($76.7
million after tax or $2.55 per share) resulting from the sale of the Ball Glass
assets to Ball-Foster was included as a part of 1995 results from discontinued
operations.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
Cash flow from continuing operations in 1997 increased to $143.5 million,
compared to $84.3 million in 1996 and $32.9 million in 1995. The increase in
1997 resulted primarily from the improved operating results within North America
and a reduction in the cash used for working capital. In 1996, cash used for
working capital was $52.6 million lower than in 1995, more than offsetting the
effects of lower operating results. At December 31, 1997, working capital
(excluding cash and debt) was $341.8 million, an increase of $80.2 million
compared to $261.6 million at the 1996 year end, due largely to the acquisition
and consolidation of MCP.
Capital expenditures were $97.7 million, $196.1 million and $178.9 million
in 1997, 1996 and 1995, respectively. Spending in 1997, 1996 and 1995 included
approximately $16 million, $75 million and $70 million, respectively, for the
Company's PET container business. Spending in 1997 also included amounts to
complete the two new metal packaging plants in China, as well as spending within
MCP. Capital expenditures in 1996 and 1995 include the conversion of metal
beverage plant equipment to meet industry specifications for smaller diameter
ends. Other capital projects in 1996 included the conversion of a metal beverage
container line to the manufacture of two-piece metal food containers and a
technology upgrade related to the manufacture of salmon cans in Canada. Other
spending in 1995 included productivity improvement programs in several of the
metal packaging facilities.
Investments in and advances to affiliates were $11.2 million, $27.7 million
and $55.2 million for 1997, 1996 and 1995, respectively. Investments in 1997
included $6.5 million for a ten percent indirect ownership in a new can venture
in Russia, plus additional investments in Brazil and Thailand, net of
approximately $7.6 million of cash received from equity affiliates. Spending in
1996 included investments in Brazil and Thailand for construction of metal
beverage container facilities. Investments in 1995 include $20.9 million for
EarthWatch and approximately $31 million primarily for new majority-owned metal
container plants in China.
In 1998 total capital spending and investments are anticipated to be
approximately $100 million, which is below forecasted depreciation levels.
Premiums on company-owned life insurance were approximately $6 million in
each of 1997 and 1996 and $20 million in 1995. Amounts in the consolidated
statement of cash flows represent net cash flows from this program, including
policy loans of approximately $10 million in each of 1997 and 1996 and $113
million in 1995, and partial withdrawals from the cash value of the policies of
approximately $22 million in 1997. Legislation enacted in 1996 limits the amount
of interest on policy loans which can be deducted for federal income tax
purposes. The limits affect insurance programs initiated after June 1986, and
phase-in over a three-year period. As a result of the new legislation, the
provision for taxes on income for 1996 increased by approximately $1.5 million
(five cents per share). As a result of actions taken by the Company in 1996, the
new legislation did not have a significant impact on 1997 results, nor is
further significant impact expected.
Debt at December 31, 1997, increased $190.2 million to $773.1 million from
$582.9 million at year end 1996, while cash and temporary investments decreased
from $169.2 million at year end 1996 to $25.5 million at December 31, 1997. The
increase in debt, and decrease in cash, was due primarily to the acquisition
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of MCP, including the consolidation of MCP's debt. Consolidated debt-to-total
capitalization increased to 53.0 percent at December 31, 1997, from 48.8 percent
at year end 1996.
In January 1996, the Company issued long-term, senior, unsecured notes with
a weighted average interest rate of 6.71 percent to several insurance companies
for an aggregate amount of $150 million to secure lower cost, fixed-rate
financing.
In the U.S., the Company had committed revolving credit agreements at
December 31, 1997, totaling $280 million, consisting of a five-year facility
expiring July 2002 for $150 million and 364-day facilities for $130 million. The
revolving credit agreements provide for various borrowing rates, including
borrowing rates based on the London Interbank Offered Rate ("LIBOR"). The
Canadian dollar commercial paper facility provides for committed short-term
funds of approximately $84 million. The Company also has short-term uncommitted
credit facilities in the U.S. of approximately $326 million, and, in Asia, FTB,
including MCP, had short-term uncommitted credit facilities of approximately
$250 million at December 31, 1997.
Cash dividends paid on common stock in 1997, 1996 and 1995 were 60 cents per
share each year.
NEW ACCOUNTING PRONOUNCEMENTS
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income," in
the accompanying financial statements. In accordance with SFAS No. 130, the
Company is required to report the changes in shareholders' equity from all
sources during the period other than those resulting from investments by
shareholders (such as issuance or repurchase of common shares and dividends).
Although adoption of this standard has not resulted in any change to the
historic basis of the determination of earnings or shareholders' equity, the
comprehensive income (loss) components recorded under generally accepted
accounting principles and previously included under the category "retained
earnings" are displayed as "accumulated other comprehensive loss" within the
consolidated balance sheet and the components of other comprehensive income
(loss) are displayed in the statement of shareholders' equity. The presentation
required by SFAS No. 130 has been provided for all periods covered by these
financial statements.
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information," was issued in June 1997 and will be effective for the Company in
1998. SFAS No. 131 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 shareholders. It also establishes standards for related disclosures
about products and services, geographic areas and major customers. The Company
is evaluating this standard to determine the impact, if any, on its segment
reporting.
OTHER
The Company is subject to various risks and uncertainties in the ordinary
course of business due, in part, to the competitive nature of the industries in
which the Company 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 mentioned earlier, in 1997, the Company recognized its share of exchange
losses, comprised primarily of the unrealized loss attributable to approximately
$23 million of U.S. dollar denominated debt held by its 40 percent equity
affiliate in Thailand. The charge of $3.2 million, or 11 cents per share,
resulted from a change in monetary policy by the government of Thailand in early
July 1997, to no longer peg the Thai baht to the U.S. dollar. Through November
30, 1997, the Thai baht depreciated significantly versus the U.S. dollar, and
continues to be volatile. The Company also has U.S. dollar denominated debt in
China (approximately $205 million included in the Company's consolidated balance
sheet and approximately $45 million issued by equity affiliates at year end).
The Company's 50 percent owned affiliate in Brazil had
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approximately $72 million of U.S. dollar denominated debt at year end. In
addition, the Company has other U.S. dollar denominated assets and liabilities
outside the U.S. which are subject to exchange rate fluctuations.
The Company was not in default of any loan agreement at December 31, 1997,
and has met all payment obligations. MCP was, however, in noncompliance with
certain financial ratio provisions, including interest coverage and current
ratio, under a fixed term loan agreement of which $37.5 million was outstanding
at year end. The lender granted MCP an unspecified period to present a revised,
comprehensive financing structure for its business. Management believes that MCP
has made significant progress towards concluding an alternative, longer term
financing arrangement satisfactory to all parties and that although such an
arrangement has substantially been concluded, a definitive agreement has not yet
been executed. Management also believes that existing credit resources will be
adequate to meet foreseeable financing requirements. The Company Corporation
does not guarantee any debt obligations of MCP.
The U.S. government is disputing the Company's claim to recoverability (by
means of allocation to government contracts) of reimbursed costs associated with
the Company's ESOP for fiscal years 1989 through 1995, as well as the
corresponding prospective costs accrued after 1995. The government will not
reimburse the Company for disputed ESOP expenses incurred or accrued after 1995.
A deferred payment agreement for the costs reimbursed through 1996 was entered
into between the government and the Company. On October 10, 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.
From time to time, the Company is subject to routine litigation incidental
to its business. Additionally, the United States Environmental Protection Agency
(the "EPA") has designated the Company 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.
As is commonly known, there is a potential issue facing companies regarding
the ability of information systems to accommodate the year 2000. The Company 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.
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 contingencies at the date of the financial statements, and
reported amounts of revenues and expenses during the reporting period. Future
events could affect these estimates.
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BUSINESS
COMPANY OVERVIEW
The Company is one of the largest beverage can manufacturers in the world,
with an estimated 1998 can production capacity of over 42.0 billion cans. In
North America, the Company's estimated 1998 production capacity of 35.8 billion
cans annually represents approximately one-third of total North American
beverage can capacity. In addition, the Company is the largest beverage can
producer in China, with annual production capacity of approximately 5.0 billion
cans annually, or 53% of total production capacity in China. The Company has
joint ventures in Brazil, Thailand, Taiwan, Russia and the Philippines. The
Company also licenses technology to companies in Europe, Mexico, Israel,
Australia and New Zealand. The Company serves major beverage and food producers
domestically and internationally, including Anheuser-Busch, Coca-Cola, Miller
and Pepsi. The Company's pro forma sales, pro forma EBITDA and pro forma net
income for the twelve-month period ended December 31, 1997 were approximately
$3,581.2 million, $353.7 million and $45.7 million, respectively. See "Unaudited
Pro Forma Condensed Combined Financial Data" for more detailed information.
We believe that, as a result of our superior technology and manufacturing
practices, we are the lowest cost beverage can producer and have the most
productive beverage can plants in North America. In 1998, our estimated average
annual output per manufacturing line will be the highest among our competitors
in North America, at an estimated 790 million cans per line, compared with an
estimated industry average of approximately 600 million cans per line and an
estimated 530 million cans per line for Reynolds. The Acquisition provides the
Company with the opportunity to realize significant operating synergies through
the application of its low-cost manufacturing practices to Reynolds' facilities,
the elimination of duplicative overhead and the optimization of logistics
throughout its expanded plant network.
In addition to its beverage can business, the Company is a producer of two-
and three-piece steel food cans in North America. We also produce PET plastic
containers, which are used for beverages and other purposes, using some of the
most sophisticated technology available. In addition, we are a niche supplier of
high technology aerospace products and services for government and commercial
customers. On a pro forma basis, these businesses contributed approximately 29%
of our 1997 sales.
COMPETITIVE STRENGTHS
We believe that a number of factors contribute to our position as a premier
supplier of rigid packaging products, with multiple sources of earnings and cash
flow. These factors include:
- SIGNIFICANT INDUSTRY PRESENCE--The Company is one of the largest beverage
can manufacturers in the world, with estimated 1998 production capacity
exceeding 42.0 billion cans, including approximately 35.8 billion cans in
North America. The latter figure represents approximately one-third of
total North American beverage can production capacity, substantially ahead
of the next largest competitor, American National Can Company. The Company
is also the largest beverage can producer in China, with production
capacity of approximately 5.0 billion cans. Through joint ventures and
licensing arrangements, the Company also has a presence in fourteen other
countries.
- LOW COST MANUFACTURER WITH STATE-OF-THE-ART FACILITIES--The Company
believes that, as a result of Ball's superior process technology and
manufacturing practices, Ball has been the lowest cost beverage can
producer in North America. Over the last four years, Ball and Reynolds
have each completed significant modernization programs at many of their
facilities. These investments have increased productivity, reduced costs
and improved product quality. The Company believes it can improve
operations in the Reynolds' plants by implementing its low cost
manufacturing processes and by eliminating duplicative overhead.
Furthermore, the Company can distribute products more efficiently through
our larger network of plant locations.
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- HIGH QUALITY PRODUCTS AND SERVICE--The Company believes that the quality
of Ball's products and customer service has been among the highest in the
industry, as indicated by the number of quality awards it has earned. For
example, three of Ball's five beverage can manufacturing plants serving
Anheuser-Busch have been awarded the prestigious "Select Status" from
Anheuser-Busch, while the other two plants are expected to earn "Select
Status" in the near future. Ball has continually strived to improve the
quality of its products and production processes through rigorous quality
systems, comprehensive employee training, and rigid control of critical
manufacturing processes. Since 1996, the Company has reduced total
spoilage by 19% and the defect rate of finished cans by 44% in its
beverage can manufacturing facilities.
- TECHNOLOGICAL LEADERSHIP--Ball increased manufacturing efficiencies and
lowered unit costs through internally-developed equipment enhancements.
Ball also has developed many patents in can and can end manufacturing.
Reynolds introduced several popular products and product features, such as
stay-on tabs, colored tabs and large-opening "mouths" for beer cans.
Reynolds had particular expertise in the value-added specialty can segment
and was a leader in hot-fill can technology.
- ESTABLISHED PRESENCE IN INTERNATIONAL MARKETS--The Company has made
substantial investments in emerging markets with a high potential for
growth. For example, in 1997, the Company acquired MCP, the largest
beverage can manufacturer in China. Ball also was among the first foreign
manufacturers to enter the Brazilian beverage can market through its
Latapack-Ball Embalagens Ltda. joint venture. As established North
American customers expand into these developing markets, the Company is
well-positioned to serve their needs for innovative, convenient, low-cost
packaging. The Company also continues to license technology and know-how
to beverage can suppliers in certain other attractive international
markets.
- EXPERIENCED MANAGEMENT--The Company is led by an experienced management
team. Management has a proven track record of increasing profitability,
expanding the Company's customer base, implementing state-of-the-art
manufacturing technology, improving operating efficiency, introducing
product innovations and entering new markets and businesses. Ball's top
ten senior executives average over 23 years of packaging industry
experience and over 17 years with the Company.
- DIVERSIFIED AND GROWING CASH FLOW--Ball's packaging and aerospace
operations historically have generated significant cash flow. Ball
believes that the addition of Reynolds, modest business growth and the
recent completion of major domestic capital improvement programs at Ball
and Reynolds provide opportunities to increase earnings and cash flow. The
Company's presence in emerging markets, and in PET containers, steel food
cans and high technology aerospace products and services, further
diversifies the Company's available sources of cash flow.
BUSINESS STRATEGY
Since 1994, Ball has pursued a strategy to exit mature businesses where
returns were unacceptable and to restructure and modernize existing businesses
with greater potential. Simultaneously, we have expanded into new geographic
markets where we saw potential for higher growth rates and have entered new
packaging markets where we believed we could be competitive. In pursuit of this
strategy, we sold our glass container operations in 1995 and 1996. We also
invested more than $675 million into the business since 1994 to upgrade
facilities, expand geographically, and enter the PET container business.
To maintain our status as a premier low-cost manufacturer of rigid packaging
and expand its world-class niche aerospace business, the Company will continue
to pursue several strategic initiatives, including:
- LEVERAGE RELATIONSHIPS WITH EXISTING CUSTOMERS--The Company has long-term
relationships with leading domestic and international beverage and food
manufacturers. The Company is seeking to expand its business with these
customers and their affiliates. Central to this strategy are continued:
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(1) delivery of quality products; (2) superior customer service; (3)
innovation in design; (4) provision of competitively priced products; (5)
efficient distribution through use of strategically located plants; and
(6) supply of products under multi-year supply contracts.
- MAINTAIN LOW COST POSITION--The Company will continue to pursue
opportunities to strengthen Ball's low-cost position in the beverage can
business, as well as opportunities to lower costs in steel food cans and
PET containers. Management plans to reduce costs and increase efficiency
by: (1) investing in productivity-enhancing machinery and equipment; (2)
developing and implementing proprietary process technology; (3) reducing
the material content of containers; and (4) improving utilization of
capacity, equipment and personnel.
- ENHANCE TECHNOLOGICAL LEADERSHIP--Research and development is an important
element of the Company's competitive advantage both in designing new
products and in improving production efficiency and productivity. The
Company plans to continue to work actively with customers to improve
existing products and to design new packaging features. The Company also
intends to leverage its design and engineering capabilities to develop
value-added packaging and aerospace products, and to create cost-effective
manufacturing systems and materials that contribute to improvements in
quality and operating efficiency.
- GROW PET BUSINESS--The Company plans to capitalize on the growth in the
use of PET containers in the beverage and food industries. The Company's
strategy is to increase production at existing plants, lower costs and
optimize efficiency. The Company plans to sell PET products both to
existing beverage can customers (capitalizing on its strong customer
relationships) as well as to new customers in the beverage and food
industries.
- EXPLOIT GLOBAL PRESENCE--Since 1974, the Company has expanded globally
through acquisitions, joint ventures and equity investments. The Company
believes that its recent international expansion positions it to meet
growing global demand for packaging, particularly in the developing
regions of the world, as consumer economies expand and industrialization
continues. This international expansion also enables the Company to
capitalize on the expansion of domestic customers into emerging
international markets as an independent supplier or as a joint venture
partner.
- CAPITALIZE ON BALL AEROSPACE'S WORLD-CLASS CAPABILITIES--Ball intends to
continue adapting the proprietary technologies developed for defense and
aerospace programs at its Ball Aerospace subsidiary for commercial uses.
As examples of its work, Ball Aerospace supplied the Hubble Space
Telescope with much of the highly specialized optical equipment that was
required to correct the telescope's imaging problems and recently
developed the Ground Maneuver Camera System, which provides flight crews
with real-time images of an airplane's main and nose landing gear,
improving the safety and reliability of airline operations. Ball Aerospace
currently is applying its technical services and products to certain
civilian markets, particularly commercial airlines and the
telecommunications industry. The Company plans to increase its commercial
customer base through further development of commercial products and
technologies.
PACKAGING INDUSTRY OVERVIEW
The North American rigid container industry includes manufacturers of metal,
glass and PET plastic containers for beverages, food and other goods. The $12.2
billion metal container business is the largest segment, with beverage cans
accounting for $8.7 billion annually and food cans for $3.5 billion. The plastic
container business represents approximately $6.8 billion of annual revenues, and
the glass container business represents approximately $4.4 billion of annual
revenues. Apart from the PET plastic container market, the rigid container
markets in North American and other industrialized countries are generally
mature, while emerging markets, such as Latin America, China and Russia, are
experiencing more dynamic growth.
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The main customers for rigid packaging containers similar to those produced
by the Company are beverage and food manufacturers and their fillers. Most metal
beverage containers are aluminum cans made of two-pieces--the can body and the
end. Metal food cans are made from two or three pieces (a can body with one or
two ends) and are used mainly to package vegetables, fruits, soups, fish and pet
food. PET containers are transparent plastic containers purchased mostly by
beverage producers.
The packaging products industry is highly competitive. The principal basis
of competition is price, due to the commodity status of most container products
and the availability of substitute products. Rigid packaging products made from
metal, glass and plastic compete with each other as well as with flexible
packaging products, such as coated paper cartons and pouches. Competitors'
costs, and thus their profitability, are particularly sensitive to production
volumes and labor costs. Prices of raw materials, such as aluminum or plastic
resin, constitute 50% to 70% of the cost of goods sold, and raw material price
fluctuations can significantly affect sales. Many customer contracts provide for
passing through raw material costs to the customer. Consequently, changes in raw
material prices affect the revenues but not necessarily the profit of rigid
packaging producers. Most competitors have invested in manufacturing technology
to enhance productivity and in the development of products that require less raw
materials. Consistent productivity improvements and technological advancements
have significantly boosted output while making containers that use less raw
material.
Certain features of the packaging container business, such as
capital-intensiveness, reliance on technology and sensitivity to cost, have made
scale economies in research, purchasing and production important competitive
factors. The result has been consolidation of the industry on a global basis. In
1997, five manufacturers accounted for substantially all of the aluminum
beverage can business in North America, three manufacturers accounted for
approximately 75% of the food can business, and four manufacturers accounted for
approximately 67% of the PET business.
METAL BEVERAGE CONTAINERS
INDUSTRY. The Company estimates that, in 1997, the top manufacturers in the
metal beverage can industry in North America were American National Can Company,
which represented approximately 23% of production capacity; Crown Cork & Seal
Company, Inc., with approximately 21%; Metal Container Corp., a wholly-owned
subsidiary of Anheuser-Busch, with approximately 19%; Ball, with approximately
17%; and Reynolds, with approximately 16%. Sales volume of metal beverage cans
and can ends tends to be highest during the period between April and September.
Since 1993, most metal beverage cans and ends produced in the U.S. have been
made with aluminum, with steel restricted to use in certain fruit juice cans.
Aluminum beverage cans compete with PET beverage containers. While PET has made
meaningful inroads into the soft drink business, aluminum beverage cans have
attractive packaging characteristics such as lower cost and a longer shelf life.
In developing markets, beverage cans have recently gained acceptance over
glass bottles, which currently represent the primary method of beverage
packaging. The two-piece aluminum can business in China experienced considerable
growth during the period 1991 through 1997, with demand for cans increasing by
over 30% per annum, from approximately 1.2 billion in 1991 to approximately 6.0
billion in 1997. Prior to 1995, demand exceeded local supply and China imported
several hundred million cans per year. New plants began to come on-line during
1995, which resulted in supply exceeding demand starting in early 1996. The
beverage can market in China experienced excess supply during 1996 and 1997 due
to several factors, including slower growth in the demand for cans due to
China's imposition of a tight monetary policy to control inflation, and
significant additions of can-making capacity in response to the April 1996
expiration of Chinese regulations permitting duty-free importation of capital
equipment. Also, additional can-making competitors entered the Chinese market,
increasing local supplies. The result of this supply/demand imbalance has been
lower pricing and, therefore, weaker financial performance by all
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participants. Two-piece aluminum can capacity in China is led by FTB and MCP
(53% in 1997), Crown Can Group (16%), Great China Metal (14%), and Pacific Can
Company Limited (11%).
Between 1992 and 1996, consumption in the Brazilian soft drink market grew
at a 17% compound annual growth rate, and consumption in the Brazilian beer
business grew at a 10% rate. Over this same time frame, growth in aluminum can
sales increased significantly. Growth in demand for aluminum cans in Brazil over
the past five years has been favorably affected by overall beverage industry
growth and the increasing penetration of aluminum cans within the beverage
container industry. In recent years, consumption of both aluminum cans and PET
containers in Brazil has increased at the expense of returnable glass bottles.
Ball's Brazilian joint venture, Latapack, has approximately 14% of total 1997
Brazilian beverage can manufacturing capacity, compared to 58% for Latasa de
Aluminio, S.A.-LATASA, and 14% for each of American National Can Company and
Crown.
PRODUCTS. Metal beverage containers and ends represent the Company's
largest product line. The Company's primary product is the decorated two-piece
aluminum beverage can, consisting of a drawn-and-ironed can body (one piece) and
an easy opening can end (the other piece).
Prior to the Acquisition, Ball specialized in the production of long-run,
12-ounce beverage cans. In addition, Ball has developed a number of innovative
container designs and attractive graphics. Ball recently introduced a
proprietary process called Rheoform-TM- to shape beverage cans for a more
appealing and differentiating appearance.
While Reynolds' principal product has been the 12-ounce beverage can, it has
a strong position in the specialty can business. Specialty can sizes range from
5.5 ounces to 32 ounces. Specialty cans represented approximately 20% of
Reynolds' beverage can business in 1997. The primary customers for Reynolds'
specialty beverage cans are producers of fruit juices, isotonics, hot-fill
acidified tea and other beverages as well as brewers. Reynolds has also been a
leader in hot-fill technology which permits containers to be filled with heated
beverages immediately after pasteurization. Reynolds also introduced unique
features such as stay-on tabs and color tabs, and has developed the
large-opening end, which pours smoother and faster.
Through joint ventures and licensing and consulting arrangements, as well as
through direct subsidiaries, the Company has 30 international manufacturing
facilities that primarily manufacture two-piece beverage cans. Outside North
America, beverage cans are gaining increasing acceptance over glass bottles,
which currently represent the primary method of beverage packaging abroad. The
Company has expanded its international presence to certain key developing
markets. In 1995, Ball created Latapack, its 50% owned joint venture in Brazil.
Latapack produces primarily two-piece beverage cans and can ends. Latapack has
one beverage can plant and one can end plant, both of which became fully
operational in 1997. Latapack has annual capacity of 1.7 billion cans and 1.5
billion can ends. In 1996, Ball entered into a joint venture with Standard Can
Company, a Thai can manufacturer, to form Thai Beverage Can Company ("TBC").
Ball and Standard Can each owns 40% of TBC, with the remaining interest held by
local investors. The joint venture produces two-piece beverage cans and can ends
at a plant in Bangkok. TBC's plant became fully operational during 1997. TBC has
annual capacity of 400 to 600 million cans and 700 million can ends.
In 1997, the Company, through FTB, Ball's 95%-plus-owned subsidiary,
acquired MCP. MCP produces two-piece aluminum beverage containers and
three-piece steel beverage and food containers. With the investment in MCP, FTB
became the largest beverage can manufacturer in China, supplying more than half
of the two-piece aluminum beverage cans used in China. Ball's Chinese facilities
are able to produce more than 5.0 billion metal beverage cans annually. Its
Beijing manufacturing facility is one of the most technologically-advanced in
China with the fastest line-speed capacity in the country. FTB's affiliate,
Sanshui Jianlibao FTB Packaging Limited, has the largest beverage can
manufacturing facility in China in terms of production capacity, producing 1.2
billion two-piece cans. In addition to these investments, the Company also has
minority investments in Taiwan, the Philippines and Russia.
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The focus at the Company's international operations is on cost reduction
through efforts such as light-weighting of containers and improving production
efficiency.
CUSTOMERS. Metal beverage containers are sold primarily to makers and
fillers of carbonated soft drinks, beer and other beverages. Ball and Reynolds
have maintained long-term relationships with Pepsi, Miller, Coca-Cola and
Anheuser Busch. Worldwide sales to these customers represented approximately
19%, 15%, 15% and 6% of the Company's pro forma consolidated net sales in 1997.
Ball and Reynolds have multi-year supply arrangements with most of their large
customers providing the Company with stable sales volume over the next few
years. More than 90% of the Company's volume is under contract for 1998 and
1999. The Company's international customers include primarily producers of soft
drinks, beer and other beverages.
FACILITIES. Before the acquisition, the Company produced beverage cans at
seven manufacturing facilities in the U.S. and two facilities in Canada. Can
ends were produced at two of the U.S. facilities. Together, these plants have an
annual production capacity of approximately 18.2 billion cans. As a result of
the Acquisition, the Company also now manufactures beverage cans and can ends in
14 can plants and two dedicated end plants in the continental U.S., Hawaii and
Puerto Rico, with annual production capacity of approximately 17.6 billion cans
in the acquired plants alone. Prior to the Acquisition, Reynolds also completed
a facility modernization and consolidation program. As part of this program,
Reynolds modernized its Torrance, California can facility and its Reidsville,
North Carolina can and can end facility, and closed its Fulton, New York and its
Houston, Texas can facilities.
Because the metal beverage container business is capital-intensive and
sensitive to production volumes and raw material costs, the Company has invested
in manufacturing technology and research to boost productivity and lower costs.
For example, the Company has reduced the metal content of can bodies and ends
while maintaining or increasing the strength. Ball believes it has the highest
average can output per line of any North American manufacturer, with an
estimated average output of approximately 790 million cans per line at its
beverage can facilities in 1998. In 1997, Ball completed a multi-year facility
program to modernize many of Ball's existing plants. The retooling of these
facilities with state-of-the-art equipment and manufacturing technology should
improve productivity and allow greater can and can end light weighting.
METAL FOOD CONTAINERS
INDUSTRY. In the metal food container industry, approximately 34 billion
steel food cans are shipped in North America each year. The top three producers,
by estimated annual production capacity, are Silgan Holdings, Inc. (45%), Crown
Cork & Seal (25%) and the Company (14%). Food fillers, food processors and food
packagers that manufacture metal cans for their own use and for sale represent
another 15% of the business. The primary customers for metal cans are food
fillers and food processors. Sales of metal food containers tend to be highest
from June through October as a result of seasonal vegetable packs and fish
catches.
PRODUCTS. The Company is the third largest manufacturer of metal food
containers in North America. These containers are sold primarily to food
processors in the Midwestern United States and Canada. Two- and three-piece
steel food containers (a welded can body with one or two ends) are manufactured
at 12 plants in both the U.S. and Canada. These containers are used to package
vegetables, fruits, soups, meat products, fish and pet foods. The Company's
metal food container operations benefit from excellent cost control, advanced
technology and selective market penetrations. Over the past several years, Ball
has increased asset utilization levels through commitment to product quality,
customer service, technical support and research and development. In 1997, on a
pro forma basis, metal food container sales comprised approximately 14% and 11%
of the Company's 1997 sales and EBITDA, respectively.
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CUSTOMERS. Substantially all of the Company's sales are made to leading
processors of vegetables, fruits, soups, meat, fish, and pet food including Kal
Kan Foods Inc., Campbell Soup, Allen Canning Company and Nabisco, Inc. The
Company has entered into multi-year supply contracts with many of its customers,
and the Company estimates that 55% of its food container sales will be made
under such arrangements in 1998. Sales of metal food containers tend to be
highest from June through October as a result of seasonal vegetable packs. To
mitigate the impact of seasonality on food container sales, the Company is
pursuing business from other food processors whose production is not seasonal.
FACILITIES. The Company's metal food container manufacturing operations
include the cutting, coating, lithographing, fabricating, assembling and
packaging of finished cans at 12 plants in both the U.S. and Canada. The
Company's two-piece draw-and-iron process is more cost effective than
three-piece can manufacturing. Two-piece cans are preferred by some customers
due to lower cost, more consistent quality (eliminating the bottom double seam
and side seam of the traditional three-piece can), reduced potential for
spoilage claims and better stacking ability. For three-piece cans, the Company
uses sophisticated electronic weld monitors and organic coatings that are
thermally cured by induction and convection processes to ensure the high
integrity of the side seam. In 1996, the Company completed the restructuring of
its metal food container operations, resulting in the closure of three can
facilities and the addition of a new, high-speed, two-piece food can line. The
Company's domestic facilities are capable of producing more than 4.7 billion
metal food containers annually.
PET PLASTIC CONTAINERS
INDUSTRY. In the PET plastic container industry in North America, there are
two national suppliers and several regional suppliers and self-manufacturers.
PET plastic containers compete against both metal and glass packaging, and the
historical growth in PET use has come primarily at the expense of glass
containers. Between 1990 and 1997, PET containers' share of the soft drink
packaging business increased from 31% to 48%, while glass decreased from 19% to
2%. Preferred marketing channels for PET-packaged beverages include convenience
stores, vending machines and grocery stores. Price, service and quality are
deciding competitive factors in the PET container industry. Increasingly, the
ability to produce customized, differentiated plastic containers is an important
competitive factor.
PRODUCTS. PET packaging is the Company's newest product line, with 1997
sales of $153.0 million. The Company entered the PET packaging business when the
industry experienced a shift to more technologically advanced and cost-efficient
manufacturing processes. The Company incorporated these new state-of-the-art
manufacturing technologies when it built its new PET packaging facilities. As a
result, the Company enjoys a competitive technological edge in the PET packaging
segment.
PET containers, which are transparent, are used for products that value
glass-like clarity and require shelf stability, such as carbonated soft drinks,
juice drinks, isotonics and teas. The Company designs, manufactures and sells
both stock and customized PET blow-molded rigid plastic containers. In 1996, the
Company implemented the "Rapid to Market" program, which enables the Company to
provide a customized PET container prototype to a customer within three days of
an approved design. Ball's research center in Georgia has developed software
that permits engineers to design a three dimensional customized PET container on
the computer, without the need to create physical prototypes. This software has
significantly reduced the time required for the Company to design customized PET
containers. Sales from PET containers accounted for approximately 4% and 2% of
the Company's 1997 pro forma sales and EBITDA, respectively.
CUSTOMERS. The Company has entered into multi-year supply contracts with
many of its PET container customers, such as Pepsi, Consolidated Purchasing
Group, Clinton's Ditch and Honickman, and the Company estimates that 84% of its
PET container sales will be made under such arrangements in 1998.
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FACILITIES. The Company currently operates a research and development
center and four state-of-the-art PET container manufacturing facilities. A
full-scale pilot line, research and development center in Smyrna, Georgia, was
completed in 1995. During 1996, multi-line production plants in Chino,
California, and Baldwinsville, New York, became operational. A third production
facility began full production in the first quarter of 1997 in Ames, Iowa. In
connection with the acquisition of certain manufacturing assets from Brunswick
Container Corporation, the Company began operating a new plant in Delran, New
Jersey in the second half of 1997 and closed small manufacturing facilities in
Pennsylvania and Virginia.
The Company's recently-constructed manufacturing facilities employ the
latest in PET manufacturing technology and can manufacture cold-fill or hot-fill
containers. The majority of the Company's PET containers are cold-fill
containers, which are characterized by long production runs. While certain
competitors use similar technology in their production lines, the Company has
implemented a number of proprietary improvements which enable it to operate its
lines at higher speeds and with greater efficiency. The Company has focused its
research and development efforts on developing proprietary manufacturing
processes such as co-injection and quick change mold technology. One of the
largest costs associated with high-speed production of PET containers is the
constant changeovers required to accommodate the proliferation of custom
containers. To increase manufacturing flexibility, the Company has developed a
quick-insert mold technology. Using this innovation, the Company can develop
customized PET container molds quicker and more cheaply by inserting modular
components into the molds without having to develop entirely new molds for each
customer.
AEROSPACE AND TECHNOLOGY
BACKGROUND. Ball Aerospace produces aerospace systems and other technology
products. The aerospace systems portion of the business is a full-service
aerospace and defense organization, comprised of five business units: Civil
Space Systems, Defense Systems, Technology Operations, Commercial Space
Operations and Systems Engineering Operations. Overall, Ball Aerospace provides
hardware, software and services to a wide range of U.S. and international
customers, with an emphasis on science, environment and earth sciences, defense,
manned missions and exploration. Ball Aerospace also develops and manufactures
antenna, communication and video products and systems for space, aeronautical,
land and marine applications for military and specialized civil markets. Sales
from Ball Aerospace accounted for approximately 11% and 14% of the Company's
1997 pro forma sales and EBITDA, respectively.
PRODUCTS. Ball Aerospace is a technological leader with world-class
capabilities serving niche segments of the aerospace and telecommunications
industries. As examples, Ball Aerospace has been awarded the following projects
and contracts:
- Ball Aerospace built the Space Telescope Imaging Spectrograph and
Near-infrared Camera and Multi-object Spectrometer, ("NICMOS") for the
February 1997 Hubble Space Telescope's second servicing mission. NICMOS
provided new images of objects at wavelengths not detected by the Hubble
Space Telescope's instruments.
- Ball Aerospace supplied system software and hardware for the mission's two
ground support stations and also provided integrated antennas and
communications antennas for the GEOSAT follow-on operational radar
altimeter satellite. The satellite was launched in February 1998.
- Ball Aerospace was also awarded a contract to design and develop the
cryogenic telescope assembly for NASA's Space Infrared Telescope Facility
("SIRTF"). SIRTF is a high-priority astrophysics mission to explore the
birth and evolution of the universe. SIRTF is planned for launch in 2001.
- Ball Aerospace was awarded the Advanced Camera for Surveys ("ACS")
contract which is a third generation Hubble instrument scheduled for
launch in 1999. ACS will replace the Faint Object Camera and will also
study the formation and evolution of galaxies as well as ultraviolet
readings of planet atmospheres.
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CUSTOMERS. The majority of the Company's aerospace business involves work
under contracts that generally last one to five years. Customers for Ball
Aerospace products include NASA and the Department of Defense. Contracts funded
by the various agencies of the federal government represented approximately 87%
of this segment's sales in 1997. Customers for commercial applications include
The Boeing Company, Japan Airlines Company Ltd. and certain research
institutions.
FACILITIES. Ball Aerospace's offices are located in Boulder, Colorado. The
Colorado-based operations of this business operate from a variety of
Company-owned and leased facilities in Boulder, Broomfield and Westminster,
Colorado, which together total approximately 1,000,000 square feet of office,
laboratory, research and development, engineering and test, and manufacturing
space, including a leased research and development facility in Broomfield. Other
aerospace and technologies operations are based in Dayton, Ohio; Warner Robins,
Georgia; Albuquerque, New Mexico; San Diego, California; and Washington, D.C.
PROPERTIES
The Company's corporate headquarters are located in Broomfield, Colorado.
The offices for metal packaging operations are based in Westminster, Colorado.
Also located in Westminster is the Edmund F. Ball Technical Center, which serves
as a research and development facility primarily for the metal packaging
operations. The offices, pilot line and research and development center for the
plastic container business are located in Smyrna, Georgia.
The approximate size of the manufacturing locations for the Company's
significant packaging operations are listed below. The Company owns all of the
properties, except when otherwise indicated. Where certain locations include
multiple facilities, the total approximate size for the location is noted. In
addition to the manufacturing facilities, the Company leases warehousing space.
<TABLE>
<CAPTION>
APPROXIMATE
FLOOR SPACE
IN SQUARE
PLANT LOCATION FEET
- ----------------------------------------------------------------------------------------- -------------
<S> <C>
METAL PACKAGING MANUFACTURING FACILITIES:
NORTH AMERICA:
Blytheville, Arkansas (leased)........................................................... 8,000
Springdale, Arkansas..................................................................... 290,000
Richmond, British Columbia............................................................... 204,000
Fairfield, California.................................................................... 148,000
Rocklin, California (can ends) (formerly operated by Reynolds)........................... 149,200
San Francisco, California (formerly operated by Reynolds)................................ 209,200
Torrance, California (formerly operated by Reynolds)..................................... 227,000
Golden, Colorado......................................................................... 330,000
Tampa, Florida........................................................................... 139,000
Tampa, Florida (formerly operated by Reynolds)........................................... 226,200
Moultrie, Georgia (formerly operated by Reynolds)........................................ 130,000
Honolulu, Hawaii (formerly operated by Reynolds)......................................... 131,000
Monticello, Indiana (cans and can ends) (formerly operated by Reynolds).................. 338,000
Kansas City, Missouri (formerly operated by Reynolds).................................... 245,500
Saratoga Springs, New York............................................................... 283,000
Walkill, New York (formerly operated by Reynolds)........................................ 312,700
Reidsville, North Carolina (cans and can ends) (formerly operated by Reynolds)........... 280,300
Salisbury, North Carolina (formerly operated by Reynolds)................................ 157,000
Columbus, Ohio........................................................................... 170,000
Findlay, Ohio............................................................................ 430,000
Burlington, Ontario...................................................................... 309,000
Hamilton, Ontario........................................................................ 347,000
Whitby, Ontario.......................................................................... 195,000
</TABLE>
67
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE
FLOOR SPACE
IN SQUARE
PLANT LOCATION FEET
- ----------------------------------------------------------------------------------------- -------------
<S> <C>
Guayama, Puerto Rico (formerly operated by Reynolds)..................................... 224,700
Baie d'Urfe, Quebec...................................................................... 117,000
Chestnut Hill, Tennessee................................................................. 42,000
Conroe, Texas............................................................................ 284,000
Fort Worth, Texas (formerly operated by Reynolds)........................................ 160,800
Bristol, Virginia (can ends) (formerly operated by Reynolds)............................. 229,900
Williamsburg, Virginia................................................................... 260,000
Seattle, Washington (formerly operated by Reynolds)...................................... 166,300
Weirton, West Virginia (leased).......................................................... 117,000
DeForest, Wisconsin...................................................................... 45,000
Milwaukee, Wisconsin (formerly operated by Reynolds)..................................... 157,000
ASIA:
Beijing, China........................................................................... 227,000
E-zhou, Hubei (Wuhan), China............................................................. 183,000
Ningbo, China............................................................................ 81,000
Hong Kong, China......................................................................... 340,000
Panyu, China............................................................................. 133,000
Shenzhen, China.......................................................................... 271,000
Tianjin, China........................................................................... 333,000
Xi'an, China............................................................................. 89,000
Zhuhai, China............................................................................ 84,000
PLASTIC PACKAGING MANUFACTURING FACILITIES:
NORTH AMERICA:
Chino, California (leased)............................................................... 228,000
Ames, Iowa............................................................................... 250,000
Delran, New Jersey (leased).............................................................. 466,000
Baldwinsville, New York (leased)......................................................... 240,000
ASIA:
Hong Kong, China (leased)................................................................ 55,000
Taicang, Jiangsu, China (leased)......................................................... 63,000
Tianjin, China........................................................................... 52,000
</TABLE>
In addition to the manufacturing facilities, the Company has minority
ownership interests in packaging affiliates located in China, Brazil, Thailand,
Taiwan, Russia and the Philippines.
RAW MATERIALS
The raw materials used by the Company's packaging businesses, such as
aluminum, steel and plastic resin are generally available from several sources.
The Company believes its current supply of raw materials will satisfy its
current manufacturing requirements. In most contracts with large customers, raw
material costs are passed through to the customer. As a result, a decline in raw
material costs may not impact the overall profitability of the Company but could
decrease sales.
EMPLOYEES
At September 27, 1998, the Company had approximately 14,700 employees
worldwide, including 9,500 employees in North America. Approximately 28% of the
North American employees were unionized. Of these unionized employees,
approximately 70% were employees of Reynolds prior to the Acquisition.
68
<PAGE>
ENVIRONMENTAL REGULATION
The EPA considers the Company to be a Potentially Responsible Party ("PRP")
with respect to the Lowry Landfill site located east of Denver, Colorado. On
June 12, 1992, the City and County of Denver and Waste Management of Colorado,
Inc. served the Company with a lawsuit seeking contribution from the Company and
approximately 38 other companies. The Company filed its answer denying the
allegations of the complaint. On July 8, 1992, S. W. Shattuck Chemical Company,
Inc. served the Company with a third-party complaint seeking contribution from
the Company and other companies for the costs associated with cleaning up the
Lowry Landfill. The Company denied the allegations of the Complaint.
In July 1992, the Company entered into a settlement and indemnification
agreement with the City and County of Denver ("Denver"), Chemical Waste
Management, Inc., and Waste Management of Colorado, Inc., under which Denver,
Chemical Waste Management, Inc., and Waste Management of Colorado, Inc.
(collectively, "Waste"), dismissed their lawsuit against the Company and Waste
agreed to defend, indemnify and hold harmless the Company from claims and
lawsuits brought by governmental agencies and other parties seeking
contributions or remedial costs from the Company for the clean-up of the Lowry
Landfill site. Several other companies which are defendants in these lawsuits
had already entered into the settlement and indemnification agreement with
Denver and Waste. Waste Management, Inc. has agreed to guarantee the obligations
of Chemical Waste Management, Inc., and Waste Management of Colorado, Inc. Waste
and Denver may seek additional payments from the Company if the response costs
related to the site exceed $319 million. The Company might also be responsible
for payments (calculated in 1992 dollars) for any additional waste which may
have been disposed of by the Company at the site but which are identified after
the execution of the settlement agreement.
At this time, the Company is not actively involved in any Lowry Landfill
action. Based on the information available to the Company at the present time,
the Company believes that this matter will not have a material adverse effect on
the financial condition of the Company.
On April 24, 1992, the Muncie Race Track Steering Committee notified the
Company that the Company may be a PRP with respect to waste disposed at the
Muncie Race Track Site located in Delaware County, Indiana. The Steering
Committee requested that the Company pay 2% of the clean-up costs which are
estimated at this time to be $10 million. The Company declined to participate in
the PRP group because the Company's records do not show the Company contributed
hazardous waste to the site. Based upon the information available to the Company
at this time, the Company does not believe that this matter will have a material
adverse effect upon the financial condition of the Company.
On August 1, 1997, the EPA sent notice of potential liability letters to 19
owners, operators, and waste generators of one or more of the four Rocky Flats
parcels at the Rocky Flats Industrial Park site located in Jefferson County,
Colorado. Based upon sampling at the site in 1996, the EPA determined that
additional site work would be required to determine the extent of contamination
and the possible clean-up of the site. The EPA requested the letter recipients
conduct an engineering evaluation and cost analysis ("EE/CA") of the site.
Fourteen companies, including the Company, have agreed to undertake the study.
The EPA is also seeking reimbursement for approximately $1.5 million they have
already spent at the site. On December 19, 1997, the EPA issued an
Administrative Order to conduct the EE/CA to 18 owners, operators, and
generators associated with the site. The EPA alleges that the Company is the
ninth largest generator of the thirteen generators to which Administrative
Orders were issued. The PRP group has undertaken the EE/ CA at a cost of about
$850,000 of which the Company has paid approximately $70,000. Based upon the
information available at this time, the Company believes that this matter will
not have a material adverse effect on the financial condition of the Company.
On or about June 14, 1990, the El Monte plant of Ball-InCon Glass Packaging
Corp., a then wholly owned subsidiary of the Company (renamed Ball Glass) and
now owned by Ball-Foster Glass Container Co., L.L.C., which is wholly owned by
Saint-Gobain, received a general notification letter and information
69
<PAGE>
request from the EPA, notifying Ball Glass that it may have a potential
liability as defined in Section 107(a) of CERCLA for the San Gabriel Valley
areas 1-4 Superfund sites located in Los Angeles, California. The EPA requested
certain information from Ball Glass, and Ball Glass responded. The Company
received notice from the City of El Monte that, under a proposed city economic
redevelopment plan, the City proposed to commence groundwater clean-up by a pump
and treat remediation process. A PRP group organized and drafted a PRP group
agreement, which Ball Glass signed. The PRP group retained an environmental
engineering firm to critique the EPA studies and any proposed remediation.
The PRP group completed negotiations with the EPA over the terms of the
administrative consent order, statement of work for the remedial investigation
phase of the clean-up, and the interim allocation arrangement between group
members to fund the remedial investigation. The interim allocation approach
requires that any payment will be based upon contribution to pollution. The
group and the EPA signed the administrative consent order. The group retained an
environmental engineering consulting firm to perform the remedial investigation.
As required under the administrative consent order, the group submitted to the
EPA all copies of all environmental studies conducted by Ball at the plant, the
majority of which has already been furnished to the State of California. The EPA
approved the work plan, project management plan, and the data management plan
portions of the PRP group's proposed remedial investigation/ feasibility study
("RI/FS"). The group is currently funding the RI/FS. The group has proposed a
range of remedies. The cost of such remedies might range from minimal costs to
$25 million for deep groundwater remediation. The EPA has selected the most
extensive remedy (shallow groundwater remediation for the east and west plumes
and deep groundwater remediation around City Wall No. 5 which is situated
adjacent to the El Monte Plant) for incorporation into the Record of Decision,
but will allow some discretion concerning approaches to implementing the remedy.
In response, the group has instructed its environmental consultant to evaluate
methods to reduce the potential costs of such remedy. The group has not made any
final allocation.
Based on the information available to the Company at the present time, the
Company is unable to express an opinion as to the actual exposure of the Company
for this matter. However, Commercial Union, the Company's general liability
insurer, is defending this governmental action and is paying the cost of defense
including attorneys' fees.
LEGAL PROCEEDINGS
Chrysler Corporation ("Chrysler") notified the Company that Chrysler, Ford
Motor Company, and General Motors Corporation have been named in a lawsuit filed
in the U.S. District Court in Reno, Nevada, by Jerome Lemelson, alleging
infringement of three of his vision inspection system patents used by the
defendants. One or more of the vision inspection systems used by the defendants
may have been supplied by the Company's former Industrial Systems Division or
its predecessors. The suit seeks injunctive relief and unspecified damages.
Chrysler notified the Company that the division may have indemnification
responsibilities to Chrysler. The Company responded to Chrysler that the systems
sold to Chrysler by the Company either were not covered by the identified
patents or were sold to Chrysler before the patents were issued. On June 16,
1995, the Magistrate of the U.S. District Court declared the patents of Lemelson
unenforceable because of the long delays in prosecution. On April 28, 1997, the
U.S. District Court Judge vacated the report and recommendation of the U.S.
Magistrate and found that the patents were not invalid. On August 20, 1997, the
U.S. Court of Appeals for the Federal Circuit denied Ford's petition for
permission to appeal. Mr. Lemelson died in October 1997. In January 1998, the
Court permitted the Lemelson Medical, Education & Research Foundation, Limited
Partnership to be substituted as a party to the lawsuit. The Court remanded the
case back to the U.S. Magistrate for further proceedings on pending motions.
Based on that information, the Company is unable to express an opinion as to the
actual exposure of the Company for these matters. Under an agreement in
connection with the spin-off of Alltrista Corporation from Ball, Alltrista has
agreed to indemnify Ball for liabilities arising from this litigation.
70
<PAGE>
On January 5, 1996 an individual named Tangee E. Daniels, on behalf of
herself and two minor children and four other plaintiffs, served the Company
with a lawsuit filed alleging that the Company's metal beverage container
operations and over 50 other defendants disposed of certain hazardous waste at
the hazardous waste disposal site operated by Gibraltar Chemical Resources,
Inc., located in Winona, Smith County, Texas. The lawsuit also alleges that
American Ecology Corp., America Ecology Management Corp., Mobley Environmental
Services, Inc., John A. Mobley, James Mobley, Daniel Mobley and Thomas Mobley
were managers for Gibraltar and failed to appropriately manage the waste
disposed of or treated at the Gibraltar site, resulting in release of hazardous
substances into the environment. The plaintiffs allege that they have been
denied the enjoyment of their property and have sustained personal and bodily
injury and damages due to the release of hazardous waste and toxic substances
into the environment caused by all the defendants. The plaintiffs allege
numerous causes of action under state law and common law. Plaintiffs also seek
to recover damages for past, present, and future medical treatment; mental and
emotional anguish and trauma; loss of wages and earning capacity; and physical
impairment, as well as punitive damages and prejudgment interest in unspecified
amounts. On May 4, 1998, the plaintiffs in the Daniels lawsuit filed for an
involuntary dismissal of their complaint without prejudice. Three other lawsuits
have been filed against substantially the same defendants: Williams v. Akzo
Nobel Chemicals, Inc. (dismissed but appealed) and Gibraltar Chemical Resources,
Inc.; Steich v. Akzo et al. (voluntarily dismissed without prejudice); and Adams
v. Akzo et al. Each lawsuit makes the same allegations that are made in the
Daniel's suit and seeks the same damages. The Company is a defendant in each
lawsuit. The Company denied the allegations of each complaint and intends to
defend each case. Based upon the limited information available to the Company at
the present time, the Company is unable to express an opinion as to the actual
exposure of the Company for these lawsuits.
On September 21, 1998, The Daiei, Inc. ("Daiei"), a Japanese corporation,
with its principal place of business in Tokyo, Japan, sued the Company in U.S.
District Court, Southern District of Indiana, Evansville Division. Daiei alleges
it is engaged in the retail sale of consumer goods and food products at stores
throughout Japan. Daiei alleges that it purchased defective beer cans filled
with beer from Evansville Brewing Company, Inc. ("EBC") between April 6, 1995
and July 20, 1995. Daiei also alleges that the metal containers were defectively
assembled and sealed by EBC at its production facility in Evansville, Indiana,
on a machine that was inspected by representatives of Ball. Daiei further
alleges Ball breached its warranty to provide metal containers that performed in
a commercially reasonable manner and that Ball's representatives were negligent
in the repair of the sealing equipment owned by EBC. Daiei seeks damages for the
lost containers and product in the amount of $6,000,035. The Company has
retained counsel and is defending this case. Based upon the information
available to the Company at the present time, the Company does not believe that
this matter will have a material adverse affect upon the financial condition of
the Company.
Cheyenne Land and Cattle Company ("Cheyenne") filed suit against Miller
Brewing Company ("Miller") in the U.S. District Court, District of Wyoming
alleging that Miller infringed U.S. Patent No. 4,998,641 owned by Cheyenne by
its sale of beer in cans having a lid covered by the patent. The complaint was
served on Miller on October 27, 1998. Pursuant to a supply agreement between the
Company and Miller, the Company was asked by Miller to defend the suit (this
supply agreement was originally between Miller and Reynolds Metals Company but
was assigned to Ball effective August 10, 1998). The complaint alleges damages
of $7,000,000. An answer to the complaint was filed denying infringement and
alleging the invalidity of the patent. Other affirmative defenses have been
asserted. Reynolds has been asked to participate in the defense since between
November, 1993 and August 10, 1998 Reynolds was apparently the sole supplier of
can lids to Miller. Initial discovery is proceeding. Based on the information
available to the Company at the present time, the Company does not believe that
this matter will have a material adverse effect upon the financial condition of
the Company.
On December 10, 1998, Leslie S. Allen ("Allen") filed a third-party
complaint against several companies, including the Company, in the United States
District Court for the Northern District of
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<PAGE>
Alabama Southern Division, seeking contribution in an unspecified amount from
the defendants. Allen is a defendant in an action brought by Southdown, Inc.
seeking recovery of damages including the Environmental Protection Agency's
response costs to clean up the site allegedly owned and operated by Allen or a
company owned by Allen. Allen alleges in his third-party complaint that waste
was contributed to the site by the Company's plant located in Birmingham,
Alabama which was spun-off from Ball Corporation to Alltrista Corporation in
1993. The Company tendered this lawsuit to Alltrista Corporation for defense and
indemnification. Based upon the limited information available to the Company, at
the present time, the Company is unable to express an opinion as to the actual
exposure of the Company as a result of this lawsuit.
72
<PAGE>
MANAGEMENT
BOARD OF DIRECTORS AND MANAGEMENT
The following table sets forth the name, age and position of management
(including all executive officers) and directors of the Company as of September
27, 1998.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- --- ---------------------------------------------------------------
<S> <C> <C>
George A. Sissel..................... 62 Chairman and Chief Executive Officer and Director
R. David Hoover...................... 53 Vice Chairman and Chief Financial Officer and Director
George A. Matsik..................... 58 President; Chief Operating Officer, Packaging
Raymond J. Seabrook.................. 47 Senior Vice President, Finance
David A. Westerlund.................. 48 Senior Vice President, Administration
Donald C. Lewis...................... 56 Vice President and General Counsel
Albert R. Schlesinger................ 56 Vice President and Controller
Harold L. Sohn....................... 52 Vice President, Corporate Relations
Douglas E. Poling.................... 48 Treasurer
Frank A. Bracken..................... 64 Director
Howard M. Dean....................... 61 Director
John T. Hackett...................... 65 Director
John F. Lehman....................... 56 Director
George McFadden...................... 57 Director
Ruel C. Mercure, Jr.................. 67 Director
Jan Nicholson........................ 53 Director
William P. Stiritz................... 64 Director
</TABLE>
GEORGE A. SISSEL has been Chairman and Chief Executive Officer of the
Company since January 1998 and a director since 1995. Mr. Sissel was Chairman,
President and Chief Executive Officer from April 1996 to January 1998. He has
served in various other capacities since 1970, when he began working at the
Company, including as Acting President, Senior Vice President, Corporate
Affairs, Corporate Secretary, General Counsel, Senior Vice President and Vice
President. Mr. Sissel is also a director of First Merchants Corporation.
R. DAVID HOOVER has been Vice Chairman and Chief Financial Officer since
January 1998, a director since 1996 and Chief Financial Officer since 1992. He
has served in various other capacities at the Company, including Executive Vice
President, Senior Vice President, Vice President and Treasurer. Mr. Hoover is
also a director of ANB Corporation and Datum, Inc.
GEORGE A. MATSIK has been President; Chief Operating Officer, Packaging
since January 1998. He has served in various other capacities at the Company,
including Executive Vice President and Chief Operating Officer, Packaging
Operations from 1997-1998, Chief Operating Officer, Packaging Operations from
1996-1997, President, International Packaging Operations from 1995-1996 and Vice
President and General Manager, International Division, of the Packaging Products
Group from 1993-1995.
RAYMOND J. SEABROOK has been Senior Vice President, Finance since April
1998. He has served in various other capacities at Ball, including Vice
President, Planning and Control from 1996-1998, Vice President and Treasurer
from 1992-1996 and Senior Vice President and Chief Financial Officer, Ball
Packaging Products Canada, Inc. from 1988-1992.
DAVID A. WESTERLUND has been Senior Vice President, Administration since
April 1998. He has served in various other capacities at the Company, including
Vice President, Administration from 1997-1998, Vice President, Human Resources
from 1994-1997, Senior Director, Corporate Human Resources from July
1994-December 1994, Vice President, Human Resources and Administration, Ball
Glass Container
73
<PAGE>
Corporation from 1988-1994 and Vice President, Human Resources, Ball-InCon Glass
Packaging Corp. from 1987-1988.
DONALD C. LEWIS has been Vice President and General Counsel since September
1998 and Vice President, Assistant Corporate Secretary and General Counsel since
April 1997. He has served in various other capacities at Ball, including General
Counsel and Assistant Corporate Secretary from 1995-1997, Associate General
Counsel from 1983-1995, Assistant General Counsel from 1980-1983, Senior
Attorney from 1978-1980 and General Attorney from 1974-1978.
ALBERT R. SCHLESINGER has been Vice President and Controller since January
1987 and Assistant Controller prior to 1987.
HAROLD L. SOHN has been Vice President, Corporate Relations since March 1993
and Director, Industry Affairs, Packaging Products prior to 1993.
DOUGLAS E. POLING has been Treasurer since April, 1997. From 1996 to 1997,
he was Assistant Treasurer. From 1993 to 1996, he was Director, Planning and
Development.
FRANK A. BRACKEN has been a director since 1995. Mr. Bracken is Of Counsel
with the law firm of Bingham Summers Welsh & Spilman of Indianapolis. From 1989
to 1993, he was Deputy Secretary, U.S. Department of the Interior, and from 1987
to 1989, he was Chairman of the Board of Ball-InCon Glass Packaging Corp. Mr.
Bracken is also a director of First Merchants Corporation.
HOWARD M. DEAN has been a director since 1984. Since 1989, Mr. Dean has been
Chairman and Chief Executive Officer of Dean Foods Company, a company engaged in
the processing, distribution and sales of dairy, vegetables, pickle and
speciality food products, and from 1987 to 1989, he was President and Chief
Executive Officer of Dean Foods Company. Mr. Dean is also a director of Dean
Foods Company, Nalco Chemical Company and Yellow Corporation.
JOHN T. HACKETT has been a director since 1994. Since 1991, Mr. Hackett has
been Managing General Partner, CID Equity Partners, a provider of venture
capital and mezzanine financing to high growth companies. From 1989 to 1991, he
served as Vice President of Finance and Administration of Indiana University.
Prior to 1989, he served as Executive Vice President, Chief Financial Officer
and Director of Cummins Engine Company. Mr. Hackett is also a director of Irwin
Financial Corporation, Meridian Insurance Group, Inc. and Wabash National Corp.
JOHN F. LEHMAN has been a director since 1987. Since 1990, Mr. Lehman has
been Chairman of J.F. Lehman & Company, a private equity investment firm that
specializes in acquisitions in aerospace, marine and engineering industries.
From 1993 to 1996, he served as Chairman of the Board of Sperry Marine Inc.,
which was acquired by J.F. Lehman & Company in 1993. Previously, he has served
as Managing Director, Investment Banking Division of PaineWebber Inc. and as
Secretary of the Navy. Mr. Lehman is also a director of OAO Technology Solutions
Inc. and Sedgwick Group PLC.
GEORGE MCFADDEN has been a director since 1996. Since 1978, Mr. McFadden has
been a General Partner of McFadden Brothers, a merchant banker. Mr. McFadden is
also a director of Triangle Pharmaceuticals, Inc.
RUEL C. MERCURE, JR. has been a director since 1996. Mr. Mercure has been
Chairman and Chief Executive Officer of CDM Optics, Inc. ("CDM") since 1997. CDM
specializes in combined optical/digital imaging systems. Recently developed
optical lens design techniques and modern signal processing are combined at CDM
to produce proprietary optical/digital imaging systems. Mr. Mercure has also
been Chairman of WITI Corporation since 1991, which engages in strategic
business opportunities utilizing technologies and know-how developed within the
atmospheric sciences community.
JAN NICHOLSON has been a director since 1994. Since February 1998, Ms.
Nicholson has been Managing Director of MBIA Insurance Corporation, a company
engaged in guaranteeing asset-based securities and
74
<PAGE>
municipal bonds. From 1994 to 1998, she was Managing Director of Capital Markets
Assurance Corporation, a company engaged in guaranteeing asset-based securities
and municipal bonds, and from 1990 to 1994, she was Vice President and Manager
of Northeast Department for Citicorp Real Estate. Ms. Nicholson is also a
director of Rubbermaid Incorporated.
WILLIAM P. STIRITZ has been a director since 1983. Since March 1998, Mr.
Stiritz has been the Chairman, Chief Executive Officer and President of
Agribrands International, Inc., an international supplier of compound animal
feed. Since October 1997, he has been Chairman of Ralston Purina Company.
Ralston Purina is the leading producer of pet foods and batteries. From 1982 to
1997, he was Chairman, President and Chief Executive Officer of Ralston Purina
Company. Mr. Stiritz is also a director of Agribrands International, Inc.,
Ralston Purina Company, Angelica Corp., Ralcorp Holdings, Inc., Reinsurance
Group of America, Inc., May Department Stores Co. and Vail Resorts Inc.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company to the
Company's Chief Executive Officer and each of the four most highly compensated
executive officers of the Company (the "Named Executives") during the years
ended December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION PAYOUTS
-----------------------
AWARDS
ANNUAL COMPENSATION ----------- PAYOUTS
PAYOUTS SECURITIES ----------
---------------------- UNDERLYING LTIP(B) OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(A) OPTIONS(#) PAYOUT COMPENSATION(C)
- -------------------------------------- --------- ---------- ---------- ----------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C>
George A. Sissel ..................... 1997 $ 552,115 $ 796,854 35,000 $ 221,032 $ 110,114
Chairman and Chief Executive Officer 1996 550,000 151,948 100,000 -- 114,323
1995 440,496 391,409 25,000 -- 104,809
R. David Hoover ...................... 1997 288,986 421,421 10,000 93,433 103,403
Vice Chairman and Chief Financial 1996 257,876 73,108 40,000 -- 107,217
Officer 1995 207,749 189,761 8,000 -- 57,093
George A. Matsik ..................... 1997 286,519 382,244 10,000 58,143 23,567
President; Chief Operating Officer, 1996 -- -- -- -- --
Packaging Division 1995 -- -- -- -- --
Raymond J. Seabrook .................. 1997 191,687 216,165 5,000 33,889 28,274
Senior Vice President, Finance 1996 178,125 38,063 15,000 -- 26,409
1995 156,000 101,060 3,000 -- 24,057
David A. Westerlund .................. 1997 178,702 195,356 5,000 29,060 10,172
Senior Vice President, 1996 147,237 25,612 12,000 -- 8,502
Administration 1995 129,600 73,245 3,000 -- 6,748
</TABLE>
- ------------------------
(a) Included in the Bonus Amount is Restricted Stock awarded pursuant to the
supplement to the Annual Incentive Compensation Plan for 1997: Mr. Sissel,
$71,500; Mr. Hoover, $37,272; Mr. Matsik, $35,105; Mr. Seabrook, $19,067;
and Mr. Westerlund, $17,489.
(b) One-half of the award was in Restricted Stock.
(c) Amounts related to above-market interest on deferred compensation account,
Company contributions to Employee Stock Ownership Plan, Company contribution
to Employee Stock Purchase Plan, Supplemental Long-Term Disability premium
and compensation attributable to the split-dollar life insurance program.
75
<PAGE>
OWNERSHIP OF CAPITAL STOCK
The following table sets forth certain information regarding beneficial
ownership of the Company's common stock as of September 30, 1998, by (i) each
person known by the Company to beneficially own five percent or more of any
class of the Company's capital stock; (ii) each director of the Company; (iii)
each executive officer of the Company that is a Named Executive; and (iv) all
directors and executive officers of the Company as a group. All information with
respect to beneficial ownership has been furnished to the Company by the
respective shareholders of the Company.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK
BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT OF CLASS
- ---------------------------------------------------------------------------- ------------------- -----------------
<S> <C> <C>
Sasco Capital, Inc.(1)...................................................... 2,234,000 7.2%
USAA Management Company (1)................................................. 1,543,000 5.0%
Frank A. Bracken(2)......................................................... 364,915 1.2%
Howard M. Dean(3)........................................................... 8,121 *
John T. Hackett............................................................. 4,408 *
R. David Hoover(4).......................................................... 89,953 *
John F. Lehman.............................................................. 8,532 *
George A. Matsik(5)......................................................... 25,043 *
George McFadden(6).......................................................... 929,812 3.0%
Ruel C. Mercure, Jr......................................................... 11,911 *
Jan Nicholson............................................................... 15,065 *
Douglas E. Poling(7)........................................................ 6,989 *
Raymond J. Seabrook(8)...................................................... 29,673 *
George A. Sissel(9)......................................................... 163,998 *
William P. Stiritz.......................................................... 407,864 1.3%
David A. Westerlund(10)..................................................... 33,326 *
All directors and executive officers as a group (16 persons)................ 2,193,179 7.1%
</TABLE>
- --------------------------
* Represents less than 1% of such Common Stock.
(1) Beneficial ownership as of September 27, 1998. The address for Sasco
Capital, Inc. is: 10 Sasco Hill Road, Fairfield, CO 06430. The address for
USAA Investment Company is: 10750 Robert F. McDermott Freeway, San Antonio,
TX 73288-0228.
(2) Includes 82,433 shares held in trust for the estate of another family
member for which Mr. Bracken, as co-trustee, has sole voting and shared
investment power, and 6,220 shares owned by his wife, as to which he
disclaims beneficial ownership.
(3) Includes 250 shares owned by Mr. Dean's wife, as to which he disclaims
beneficial ownership.
(4) Includes 1,327 shares held by Mr. Hoover's wife and 4,106 shares held in
trust for Mr. Hoover's wife, all as to which he disclaims beneficial
ownership, and 45,172 shares which he may acquire during the 60 days
following September 30 upon the exercise of stock options.
(5) Includes 20,252 shares which Mr. Matsik may acquire during the 60 days
following September 30 upon the exercise of stock options.
(6) Includes 890,900 shares held in family trusts for which Mr. McFadden, as
co-trustee, has shared voting and investment power, and 37,000 shares owned
by his wife, as to which he disclaims beneficial ownership.
(7) Includes 3,171 shares which Mr. Poling may acquire during the 60 days
following September 30 upon the exercise of stock options.
(8) Includes 8,635 shares which Mr. Seabrook may acquire during the 60 days
following September 30 upon the exercise of stock options.
(9) Includes 10,000 shares owned by Mr. Sissel's wife, as to which he disclaims
beneficial ownership, and 84,339 shares which he may acquire during the 60
days following September 30 upon the exercise of stock options.
(10) Includes 17,082 shares which Mr. Westerlund may acquire during the 60 days
following September 30 upon the exercise of stock options.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The capitalized terms used but not defined in this summary are defined in
the credit agreements described below.
THE SENIOR CREDIT FACILITY
On August 10, 1998, the Company entered into a Short-Term Credit Agreement
with The First National Bank of Chicago ("FNBC"), as administrative agent, Bank
of America National Trust and Savings Association, as syndication agent, Lehman
Commercial Paper Inc., as documentation agent and certain other lenders. Also on
August 10, 1998, The Company entered into a Long-Term Credit Agreement with
FNBC, as administrative agent, Bank of America National Trust and Savings
Association, as syndication agent, Lehman Commercial Paper Inc., as
documentation agent and certain other lenders dated August 10, 1998. Under the
credit agreements, the lenders provided a $1,200.0 million Senior Credit
Facility, including term and revolving portions, of which $808.2 million was
utilized in the Acquisition.
The Senior Credit Facility is comprised of three separate facilities. The
first two facilities are separate term loans. The third facility is a revolving
credit facility with a letter of credit sub-facility ("Facility D"). The Company
used the term loans to finance the Acquisition and to repay existing debt. The
first term loan provides the Company with up to $350.0 million and matures in
August 2004. The second term-loan provides the Company with up to $200.0 million
and matures in March 2006. Facility D provides the Company with up to $650.0
million, of which $150.0 million is available under a 364-day facility. The
remainder is comprised of letters of credit with an expiration date of up to one
year and revolving loans which mature in August of 2004. All amounts outstanding
under Facility D are due in August of 2004, other than amounts drawn under the
364-day facility. The Company used Facility D to fund the Acquisition, pay fees
and expenses relating to the Acquisition, to repay existing debt and to provide
funds for the working capital needs of the Company and its subsidiaries.
Principal payments on the first term loan are payable in arrears in
consecutive, quarterly installments beginning in March of 1999, totalling $20.0
million in 1999 and increasing to $95.0 million in 2004. Scheduled principal
payments on the second term loan are payable in arrears in consecutive quarterly
installments, commencing March 31, 1999, aggregating to an annual amount equal
to 1.0% of the term loan commitment and the remaining outstanding principal
balance of the second term loan is to be repaid in its entirety on the maturity
date.
The term loans and Facility D bear interest at the Company's option of
either (a) the larger of (1) the corporate base rate of interest announced by
FNBC from time to time and (2) the federal funds rate plus 0.5% per annum, plus,
in each case, a percentage (the "Applicable Margin") that is subject to
adjustment based upon the ratio of the Company's total debt to EBITDA or (b) the
Eurodollar Rate plus the Applicable Margin.
All amounts outstanding under the Senior Credit Facility are secured by (1)
a pledge of 100% of the stock of the Company's direct and indirect
majority-owned domestic subsidiaries and (2) a pledge of 65% of the stock of the
Company's material foreign subsidiaries.
The Company is required to make a mandatory prepayment of the loans in an
amount equal to 65% of the Excess Cash Flow, if positive, beginning with the
fiscal year ending December 31, 1999. Such percentage will be reduced to 50% or
0% based on reductions of the Leverage Ratio. In addition, the Company is
required to make a mandatory prepayment of the Loans in an amount equal to 100%
of all net proceeds from (1) the sale of any assets of the Company or its
subsidiaries, (2) the sale or issuance of certain debt by the Company or its
subsidiaries and (3) the sale of certain stock of the Company or its
subsidiaries. The Company is required to make a mandatory prepayment of the
outstandings under Facility D at any time that such outstandings exceed the
commitment for Facility D. The Company may
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voluntarily reduce the commitment under Facility D in whole, or in part, ratably
among the lenders on one business day's notice, without penalty or premium.
The Company must pay certain commitment fees based upon the average daily
unused portion of Facility D, certain fees assessed in the issuance of the
letters of credit and other fees relating to the Senior Credit Facility.
Under the Senior Credit Facility, the Company must comply with certain
covenants including limitations on:
- additional liens and encumbrances;
- dividends;
- guarantees;
- sale and leaseback transactions;
- asset sales;
- consolidations and mergers;
- investments and acquisitions;
- loans and advances;
- indebtedness;
- off balance sheet liabilities;
- transactions with affiliates;
- changes in lines of business;
- hedging of interest rates; and
- prepayment of other debt.
The Senior Credit Facility requires the Company to meet certain financial
tests pertaining to net worth, leverage and fixed charges. The Senior Credit
Facility contains customary events of default, including cross-default to other
debt that exceeds certain maximum specified levels and certain change of control
events.
THE CANADIAN CREDIT FACILITY
Currently, one of the Company's subsidiaries Ball Packaging Products Canada,
Inc. ("Ball Canada"), is borrowing under a credit facility, referred to as the
"Canadian Credit Facility," established in favor of Ball Canada and/or the
Company, as the borrowers, by The Royal Bank of Canada ("Royal Bank") in the
maximum principal amount of Cdn. $50 million, or the equivalent in U.S. dollars,
under a letter agreement dated May 21, 1998, as the same has been extended. The
Company is the guarantor for all amounts borrowed by Ball Canada. Borrowings may
be made in any of the following methods: (a) Royal Bank Prime Rate Advance loan
in Canadian dollars; (b) Royal Bank U.S. Base Rate loan in U.S. dollars; (c)
Bankers' Acceptances in Canadian Dollars; and (d) LIBOR-based loan in U.S.
dollars.
Ball Canada, as borrower, and the Company, as guarantor, are expected to
enter into a credit agreement, referred to as the "Canadian Revolving Credit
Facility," with Royal Bank dated as of August 10, 1998. This new facility would
replace the existing Canadian Credit Facility. Under the Canadian Revolving
Credit Facility, Royal Bank will furnish a 364-day revolving credit facility in
the amount of US$50 million, or the equivalent in Canadian dollars.
Borrowings under the Canadian Revolving Credit Facility can be made, at the
option of Ball Canada, through one of the following four vehicles:
(1) Eurodollar based loans in U.S. Dollars ("Eurodollar Loans") for 1,
2, 3 or 6 months;
(2) Bankers' Acceptances ("Bankers' Acceptances") in Canadian Dollars
for 1, 2, 3 or 6 months;
(3) Prime Rate Loans in Canadian Dollars ("Prime Loans"); or
(4) U.S. Base Rate Loans in U.S. Dollars ("USBR Loans").
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Ball Canada will have to pay a commitment fee to be assessed as a percentage
of the daily average unused portion of the Canadian Revolving Credit Facility,
payable quarterly in arrears from the closing date until the termination of the
Canadian Revolving Credit Facility.
Ball Canada will have the option, upon three business days' notice, to
prepay without penalty all or a portion of the borrowings. However, the
Eurodollar Loans prepaid at any time other than the last day of an interest
period shall be subject to reimbursement of the break-funding costs of the banks
in the syndicate.
The Company will have to unconditionally and irrevocably guarantee the
principal, interests, fees and all other amounts payable when due under the
Canadian Revolving Credit Facility. The Company's guarantee will be supported by
appropriate legal opinions, including that the guarantee ranks equal in right of
payment to all senior unsecured indebtedness of the Company. There will be no
subrogation. In addition, the Company will have to agree:
(1) to fully subordinate all inter-company loans that Ball Canada owes
the Company to each bank in the syndicate;
(2) to maintain ownership, directly or indirectly, of 100% of the common
stock of Ball Canada and that it will not sell or transfer any
interest in Ball Canada without the prior written consent of all of
the banks in the syndicate; and
(3) not to pledge its interest in Ball Canada, except as provided for in
the Senior Credit Facility on its respective closing date.
The Canadian Revolving Credit Facility will include certain representations,
warranties, covenants and events of default similar to those included in the
Senior Credit Facility, supplemented and modified as appropriate to reflect the
structure of this Canadian Revolving Credit Facility with Ball Canada as
borrower and the Company as guarantor and amended to conform to Canadian law and
market convention.
THE ESOP NOTES
In connection with entering into the Senior Credit Facility, the Company
entered into amendments with lenders under its existing 8.46% Guaranteed ESOP
Notes, Series A due June 15, 1999 and the 8.83% Guaranteed ESOP Notes, Series B
due December 15, 2001 of the Ball Corporation Salary Conversion and Employee
Stock Ownership Plan Trust and the related guarantees by the Company. The
amendments provide for pledges of stock of certain of the Company's subsidiaries
and guarantees in favor of the lenders under the ESOP Notes comparable to those
under the Senior Credit Facility, subject to an intercreditor agreement. As of
September 27, 1998, approximately $33.3 million was outstanding under the ESOP
Notes.
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DESCRIPTION OF THE EXCHANGE NOTES
The Outstanding Senior Notes were, and the Senior Exchange Notes will be,
issued under a Senior Note Indenture, dated August 10, 1998, among the Company,
certain subsidiary guarantors and The Bank of New York, as Senior Note Trustee.
The Outstanding Senior Subordinated Notes were, and the Senior Subordinated
Exchange Notes will be, issued under a Senior Subordinated Note Indenture, dated
August 10, 1998 among the Company, certain subsidiary guarantors and The Bank of
New York, as Senior Subordinated Note Trustee. The terms of the Exchange Notes
are the same as the terms of the Outstanding Notes, except that (1) the Company
registered the Exchange Notes under the Securities Act of 1933, as amended, and
their transfer is not restricted like the Outstanding Notes and (2) holders of
the Exchange Notes are not entitled to certain rights under the Registration
Rights Agreements.
The Outstanding Senior Notes are, and the Senior Exchange Notes will be,
senior obligations of the Company, and rank equal in right of payment with all
existing and future unsubordinated Indebtedness and rank senior in right of
payment to all existing and future subordinated Indebtedness of the Company. The
Outstanding Senior Subordinated Notes are, and the Senior Subordinated Exchange
Notes will be, general unsecured obligations of the Company and subordinated in
right of payment to all current and future Senior Debt, and rank equal in right
of payment with all other senior subordinated Indebtedness of the Company issued
in the future and senior in the right of payment to all subordinated
Indebtedness of the Company issued in the future. As of September 27, 1998,
approximately $1,032.7 million of Senior Debt was outstanding and secured by a
first priority lien on the stock of certain Company Subsidiaries. The Company
has additional liabilities through its Restricted Subsidiaries totalling
approximately $804.7 million. The Indentures permit the incurrence of additional
Senior Debt in the future. As of the date of the Indentures, all of the
Company's Subsidiaries, except for the FTB Group, Ball Capital Corp. and the
Excluded Subsidiaries are Restricted Subsidiaries. Under certain circumstances,
the Company can designate current or future Subsidiaries as Unrestricted
Subsidiaries. Unrestricted Subsidiaries are not subject to any of the
restrictive covenants set forth in the Indentures.
BECAUSE THIS SECTION OF THE PROSPECTUS MERELY SUMMARIZES THE TERMS OF THE
EXCHANGE NOTES, YOU SHOULD READ THE INDENTURES AND THE RELEVANT PORTIONS OF THE
TRUST INDENTURE ACT OF 1939 FOR MORE COMPLETE INFORMATION REGARDING THE TERMS OF
THE EXCHANGE NOTES. COPIES OF THE SENIOR NOTE INDENTURE, SENIOR SUBORDINATED
NOTE INDENTURE AND REGISTRATION RIGHTS AGREEMENTS CAN BE OBTAINED BY FOLLOWING
THE INSTRUCTIONS CONTAINED IN THIS PROSPECTUS UNDER THE HEADINGS "WHERE YOU CAN
FIND MORE INFORMATION" AND "INFORMATION INCORPORATED BY REFERENCE." THE
DEFINITIONS OF CERTAIN TERMS USED IN THE FOLLOWING SUMMARY ARE SET FORTH BELOW
UNDER "CERTAIN DEFINITIONS." FOR PURPOSES OF THIS SUMMARY, THE TERM "COMPANY"
REFERS ONLY TO BALL CORPORATION AND NOT TO ANY OF ITS RESTRICTED SUBSIDIARIES.
FOR THE PURPOSES OF THE REMAINDER OF THIS SECTION ENTITLED "DESCRIPTION OF THE
EXCHANGE NOTES," THE TERMS THE "NOTES," THE "SENIOR NOTES" AND THE "SENIOR
SUBORDINATED NOTES" REFER TO THE EXCHANGE NOTES, THE SENIOR EXCHANGE NOTES AND
THE SENIOR SUBORDINATED EXCHANGE NOTES, RESPECTIVELY.
PRINCIPAL, MATURITY AND INTEREST
The Company will issue up to $300.0 million total principal amount of Senior
Notes which will mature on August 1, 2006. Interest on the Senior Notes will
accrue at the rate of 7 3/4% per annum. The Company will pay interest
semi-annually in arrears on February 1 and August 1, commencing on February 1,
1999, to Holders of record on the immediately preceding January 15 and July 15.
The Company will issue up to $250.0 million total principal amount of Senior
Subordinated Notes which will mature on August 1, 2008. Interest on the Senior
Subordinated Notes will accrue at the rate of 8 1/4% per annum. The Company will
pay interest semi-annually in arrears on February 1 and August 1, commencing on
February 1, 1999, to Holders of record on the immediately preceding January 15
and July 15.
Interest on the Notes accrues from the most recent date on which interest
has been paid or, if no interest has been paid, from the date the Company
originally issued the Notes. Interest as calculated based
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upon a 360-day year comprised of twelve 30-day months. The Company shall pay
principal, premium, interest and liquidated damages on the Notes at the New York
City office of the Company or by mailing a check to the Holders of the Notes.
However, the Company shall pay a Holder by wire transfer of immediately
available funds if the Holder gives wire transfer instructions to the Trustee.
Until otherwise designated by the Company The Bank of New York's office in New
York is the Company's office in New York. The Company will issue Notes in
denominations of $1,000 and integral multiples thereof.
SUBORDINATION
The payment of principal of, premium, interest and liquidated damages on the
Senior Subordinated Notes is subordinated in right of payment to the payment of
all Senior Debt, whether outstanding on August 10, 1998 or incurred after that
date.
Upon any distribution to creditors in the event of: (1) a liquidation or
dissolution of the Company or a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company, or (2) an assignment
for the benefit of creditors or any marshaling of the Company's assets and
liabilities, the Company shall pay Holders of Senior Debt before the Company
pays Holders of Senior Subordinated Notes. However Holders of Senior
Subordinated Notes may receive and retain (1) Permitted Junior Securities and
(2) payments made from the trust described under "--Legal Defeasance and
Covenant Defeasance."
The Company also may not make any payment on the Notes if the Company
defaults on the Designated Senior Debt. The Company shall resume paying on the
Notes (a) in the case of a payment default, when the Company cures or waives the
default and (b) in case of a nonpayment default, the earlier of (1) when the
Company cures or waives the default or (2) 179 days after the Trustee receives
notice of the default (provided that Maturity of the Senior Debt has not been
accelerated).
The Senior Subordinated Note Indenture requires the Company to promptly
notify holders of Senior Debt if payment of the Senior Subordinated Notes is
accelerated because of an Event of Default.
Because payment on the Senior Subordinated Notes is subordinated to payment
on the Senior Debt, Holders of Senior Subordinated Notes may recover less than
holders of Senior Debt. On a pro forma basis, the Company's principal amount of
Senior Debt outstanding at September 27, 1998 is approximately $1,032.7 million.
The Indentures limit the amount of additional debt that the Company and its
subsidiaries can incur. See "--Certain Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock."
SUBSIDIARY GUARANTEES
The Company's payment obligations under the Notes will be fully and
unconditionally, jointly and severally guaranteed by certain wholly-owned
domestic subsidiaries of the Company. The Subsidiary Guarantees of the Senior
Notes will be on a senior basis, equal in right of payment with all existing and
future unsubordinated Indebtedness of the Guarantors and senior in right of
payment to all existing and future subordinated Indebtedness of the Guarantors.
The Subsidiary Guarantees of the Senior Subordinated Notes will be subordinated
to any other Guarantees of the Company's Senior Debt by the Subsidiary
Guarantors. The Subsidiary Guarantees are limited so as not to constitute a
fraudulent conveyance under applicable law. See, however, "Risk
Factors--Fraudulent Conveyance" for further information.
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The Indentures provide that no Guarantor may consolidate with or merge with
or into another entity unless
(1) the Person formed by or surviving any such consolidation or merger
assumes all the obligations of the Guarantor in a supplemental indenture
approved by the Trustee;
(2) after the transaction, no Default or Event of Default exists; and
(3) except in the case of a merger of a Guarantor with or into the Company
or a Restricted Subsidiary that is a Guarantor, the Company is permitted,
under the Company's pro forma Fixed Charge Coverage Ratio after the
transaction to incur at least $1.00 of additional Indebtedness under the
Fixed Charge Coverage Ratio test. The Fixed Charge Coverage Ratio test is
explained in this section of the Prospectus under the heading "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock."
Under the Indentures, if any Guarantor sells or disposes of all of its
assets or its capital stock, then the Guarantor or the corporation acquiring the
property will be released and relieved of any obligations under its Subsidiary
Guarantee. However, the Net Proceeds of a sale or other disposition must be
applied in accordance with the Indentures. See "--Repurchase at Option of
Holders--Asset Sales" for more information.
OPTIONAL REDEMPTION
SENIOR NOTES
The Company may redeem all of the Senior Notes at any time at a redemption
price equal to the sum of (a) an amount equal to 100% of the principal amount of
the Notes and (b) the Senior Make-Whole Premium, together with accrued and
unpaid interest and liquidated damages to the redemption date.
SENIOR SUBORDINATED NOTES
The Company may redeem the Senior Subordinated Notes at any time after
August 1, 2003, in whole or in part, upon between 30 and 60 days' notice at the
redemption prices set forth below plus accrued and unpaid interest and
liquidated damages to the redemption date. The redemption prices, expressed
below as a percentage of principal amount, are based upon redemption occuring
during the twelve-month period beginning on August 1 of the years indicated
below:
<TABLE>
<CAPTION>
PERCENTAGE OF
YEAR PRINCIPAL AMOUNT
- -------------------------------------------------------------------------------- ----------------
<S> <C>
2003............................................................................ 104.125%
2004............................................................................ 102.750%
2005............................................................................ 101.375%
2006 and thereafter............................................................. 100.000%
</TABLE>
During the first 36 months after August 5, 1998, the Company may redeem up
to 35% of the total principal amount of the Senior Subordinated Notes issued
under the Senior Subordinated Note Indenture at a redemption price of 108.25% of
the principal amount of the Senior Subordinated Notes, plus accrued and unpaid
interest and liquidated damages to the redemption date, with the net cash
proceeds of any Public Equity Offering. However at least 65% of the aggregate
principal amount of the Senior Subordinated Notes issued must remain outstanding
immediately after each redemption. In addition, each redemption shall occur
within 90 days of closing the Public Equity Offering.
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SELECTION
If the Company redeems less than all of the Senior Subordinated Notes, the
Trustee will select the Senior Subordinated Notes for redemption. The selection
must comply with the requirements of the principal national securities exchange
on which the Senior Subordinated Notes are listed. If the Senior Subordinated
Notes are not listed on a national securities exchange, the Company must redeem
the notes on a pro rata basis, by lot or by the method the Trustee deems fair
and appropriate. However, the Company will not redeem notes in denominations of
$1,000 or less in part.
NOTICE
Notices of redemption shall be mailed by first class mail at least 30 but
not more than 60 days before the redemption date to each Holder of Notes to be
redeemed at its registered address. Notices of redemption may not be
conditional. If any Senior Subordinated Note is to be redeemed in part only, the
notice of redemption that relates to such Senior Subordinated Note shall state
the portion of the principal amount thereof to be redeemed. A new Senior
Subordinated Note in principal amount equal to the unredeemed portion thereof
will be issued in the name of the Holder thereof upon cancellation of the
original Senior Subordinated Note. Notes called for redemption become due on the
date fixed for redemption. On and after the redemption date, interest ceases to
accrue on Notes or portions of them called for redemption.
MANDATORY REDEMPTION
Except as set forth below under "Repurchase at the Option of Holders," the
Company is not required to make mandatory redemption or sinking fund payments
with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require the Company to repurchase all or any part (equal to $1,000
or an integral multiple thereof) of such Holder's Notes pursuant to the offer
described below (the "CHANGE OF CONTROL OFFER") at an offer price in cash equal
to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest and liquidated damages thereon, if any, to the date of purchase (the
"CHANGE OF CONTROL PAYMENT"). Within fifteen days following any Change of
Control, the Company will mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase Notes on the date specified in such notice, which date shall be no
earlier than 30 days and no later than 60 days from the date such notice is
mailed (the "CHANGE OF CONTROL PAYMENT DATE"), pursuant to the procedures
required by the Indentures and described in such notice. The Company will comply
with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Notes as a
result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by the
Company. The Paying Agent will promptly mail to each Holder of Notes so tendered
the Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any. Each such new Note will be in a principal amount of $1,000
or an integral multiple thereof. The Senior Subordinated Note Indenture provides
that,
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prior to complying with the provisions of this covenant, but in any event within
60 days following a Change of Control, the Company will either repay all
outstanding Senior Debt or obtain the requisite consents, if any, under all
agreements governing outstanding Senior Debt to permit the repurchase of Senior
Subordinated Notes required by this covenant. The Company will publicly announce
the results of the Change of Control Offer on or as soon as practicable after
the Change of Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indentures are applicable. Except as
described above with respect to a Change of Control, the Indentures do not
contain provisions that permit the Holders of the Notes to require that the
Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction.
The Credit Agreements currently prohibit the Company from purchasing any
Notes and also provide that certain Change of Control events with respect to the
Company would constitute a default thereunder. Any future credit agreements or
other agreements relating to Senior Debt to which the Company becomes a party
may contain similar restrictions and provisions. In the event a Change of
Control occurs at a time when the Company is prohibited from purchasing Notes,
the Company could seek the consent of its lenders to the purchase of Notes or
could attempt to refinance the borrowings that contain such prohibition. If the
Company does not obtain such a consent or repay such borrowings, the Company
will remain prohibited from purchasing Notes. In such case, the Company's
failure to purchase tendered Notes would constitute an Event of Default under
the Indentures which would, in turn, constitute a default under the Credit
Agreements. In such circumstances, the subordination provisions in the Senior
Subordinated Note Indenture would likely restrict payments to the Holders of
Senior Subordinated Notes.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indentures applicable to a Change of Control Offer made by the Company
and purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
ASSET SALES
The Company will not, and will not permit any of its Restricted Subsidiaries
to, consummate an Asset Sale unless
(1) the Company or such Restricted Subsidiary receives consideration at
the time of such Asset Sale at least equal to the fair market value
(evidenced by a resolution of the Board of Directors set forth in
an Officers' Certificate delivered to the Trustee with respect to
any Asset Sale determined to have a fair market value greater than
$25.0 million), of the assets or Equity Interests issued or sold or
otherwise disposed of and
(2) at least 75% of the consideration therefor received by the Company
or such Restricted Subsidiary is in the form of cash or Cash
Equivalents; PROVIDED that the following amounts shall be deemed to
be cash:
(w) any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet), of the Company or
any Restricted Subsidiary of the Company (other than
contingent liabilities and liabilities that are by their
terms subordinated to the Notes or any Guarantee thereof)
that are assumed by the transferee of any such assets
pursuant to a customary novation agreement that releases the
Company or such Restricted Subsidiary from further liability,
(x) any securities, notes or other obligations received by the
Company or any such Restricted Subsidiary from such
transferee that are converted by the Company or
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such Restricted Subsidiary into cash within 180 days after
the consummation of such Asset Sale (to the extent of the
cash received),
(y) any Designated Noncash Consideration received by the Company
or any of its Restricted Subsidiaries in such Asset Sale;
PROVIDED that the aggregate fair market value (as determined
above) of such Designated Noncash Consideration, taken
together with the fair market value at the time of receipt of
all other Designated Noncash Consideration received pursuant
to this clause (y) less the amount of Net Proceeds previously
realized in cash from prior Designated Noncash Consideration
is less than 5% of Total Assets at the time of the receipt of
such Designated Noncash Consideration (with the fair market
value of each item of Designated Noncash Consideration being
measured at the time received and without giving effect to
subsequent changes in value) and
(z) Additional Assets received in an exchange-of-assets
transaction.
The Senior Note Indenture provides that within 365 days after the receipt of
any Net Proceeds from an Asset Sale, the Company may apply such Net Proceeds, at
its option, (a) to repay Indebtedness under any Credit Facility (and to
correspondingly permanently reduce the commitments with respect thereto in the
case of revolving borrowings), (b) to the acquisition of a controlling interest
in another business, the making of a capital expenditure or the acquisition of
other long-term assets, in each case, in Permitted Businesses or (c) to an
Investment in Additional Assets. The Company will have complied with clause (c)
if, within 365 days of such Asset Sale, the Company shall have entered into a
definitive agreement covering such Investment which is thereafter completed
within 365 days after the first anniversary of such Asset Sale. Pending the
final application of any such Net Proceeds, the Company may temporarily reduce
Indebtedness under any Credit Facility or otherwise invest such Net Proceeds in
any manner that is not prohibited by the Indentures. Any Net Proceeds from Asset
Sales that are not applied or invested as provided in the first sentence of this
paragraph shall be deemed to constitute "EXCESS PROCEEDS." When the aggregate
amount of Excess Proceeds exceeds $20.0 million, the Company shall be required
to make an offer to all Holders of Senior Notes and all holders of other
Indebtedness that ranks equal to the Senior Notes containing provisions similar
to those set forth in the Senior Note Indenture with respect to offers to
purchase or redeem with the proceeds of sales of assets (a "Senior Asset Sale
Offer") to purchase the maximum principal amount of Senior Notes and such other
Indebtedness that may be purchased out of the Excess Proceeds, at an offer price
in cash in an amount equal to 100% of the principal amount thereof plus accrued
and unpaid interest and liquidated damages thereon, if any, to the date of
purchase, in accordance with the procedures set forth in the Senior Note
Indenture and such other Indebtedness. To the extent that any Excess Proceeds
remain after consummation of a Senior Asset Sale Offer, the Company may use any
remaining Excess Proceeds for any purpose not otherwise prohibited by the Senior
Note Indenture. If the aggregate principal amount of Senior Notes and such other
Indebtedness tendered into such Senior Asset Sale Offer surrendered by Holders
thereof exceeds the amount of Excess Proceeds, the Senior Note Trustee shall
select the Senior Notes and such other Indebtedness to be purchased on a pro
rata basis. Upon completion of such offer to purchase, the amount of Excess
Proceeds shall be reset at zero.
The Senior Subordinated Note Indenture provides that within 365 days after
the receipt of any Net Proceeds from an Asset Sale, the Company may apply such
Net Proceeds, at its option, (a) to repay Senior Debt of the Company or any
Restricted Subsidiary, including, without limitation, Indebtedness under the
Senior Notes and any Credit Facility (and to correspondingly permanently reduce
the commitments with respect thereto in the case of revolving borrowings), (b)
to the acquisition of a controlling interest in another business, the making of
a capital expenditure or the acquisition of other long-term assets, in each
case, in Permitted Businesses or (c) to an Investment in Additional Assets. The
Company will have complied with clause (c) if, within 365 days of such Asset
Sale, the Company shall have entered into a definitive agreement covering such
Investment which is thereafter completed within 365 days after the first
anniversary of such Asset Sale. Pending the final application of any such Net
Proceeds, the Company may
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temporarily reduce Indebtedness under any Credit Facility or otherwise invest
such Net Proceeds in any manner that is not prohibited by the Indentures. Any
Net Proceeds from Asset Sales that are not applied or invested as provided in
the first sentence of this paragraph shall be deemed to constitute "EXCESS
PROCEEDS." When the aggregate amount of Excess Proceeds exceeds $20.0 million,
the Company shall be required to make an offer to all Holders of Senior
Subordinated Notes and all holders of other Indebtedness that is not Senior Debt
that ranks equal to the Senior Subordinated Notes containing provisions similar
to those set forth in the Senior Subordinated Note Indenture with respect to
offers to purchase or redeem with the proceeds of sales of assets (a "Senior
Subordinated Asset Sale Offer") to purchase the maximum principal amount of
Senior Subordinated Notes and such other Indebtedness that may be purchased out
of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of
the principal amount thereof plus accrued and unpaid interest and liquidated
damages thereon, if any, to the date of purchase, in accordance with the
procedures set forth in the Senior Subordinated Note Indenture and such other
Indebtedness. To the extent that any Excess Proceeds remain after consummation
of a Senior Subordinated Asset Sale Offer, the Company may use any remaining
Excess Proceeds for any purpose not otherwise prohibited by the Senior
Subordinated Note Indenture. If the aggregate principal amount of Senior
Subordinated Notes and such other Indebtedness tendered into such Senior
Subordinated Asset Sale Offer surrendered by Holders thereof exceeds the amount
of Excess Proceeds, the Senior Subordinated Note Trustee shall select the Senior
Subordinated Notes and such other Indebtedness to be purchased on a pro rata
basis. Upon completion of such offer to purchase, the amount of Excess Proceeds
shall be reset at zero.
CERTAIN COVENANTS
The Indentures provide that the covenants set forth herein will be
applicable to the Company, except that during any period of time that (1) the
ratings assigned to the Senior Notes or the Senior Subordinated Notes, treated
separately, by both Standard & Poor's Ratings Group ("S&P") and Moody's
Investors Service, Inc. ("Moody's" and, together with S&P, the "Rating
Agencies") are equal to or higher than BBB- and Baa3, or the equivalents
thereof, respectively (the "Investment Grade Ratings"), except subsequent to a
Change of Control of the Company, and (2) no Default or Event of Default shall
have occurred and be continuing, the Company and its Subsidiaries will not be
subject to the provisions of the Senior Note Indenture and/or the Senior
Subordinated Note Indenture, as the case may be, described under "--Asset
Sales," "--Restricted Payments," "--Incurrence of Indebtedness and Issuance of
Preferred Stock," "--Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries," "Transactions with Affiliates" and "Sale and Leaseback
Transactions" (collectively, the "Suspended Covenants"). In the event that the
Company is not subject to the Suspended Covenants for any period of time as a
result of the preceding sentence (a "Suspension Period") and, subsequently, one
or both Rating Agencies withdraws its ratings or downgrades the ratings assigned
to the Senior Notes or the Senior Subordinated Notes, as the case may be, below
the required Investment Grade Ratings, then, from and after the date of such
withdrawal or downgrade, the Company and its Subsidiaries will again be subject
to the Suspended Covenants and compliance with the Suspended Covenants with
respect to Restricted Payments made after the time of such withdrawal or
downgrade will be calculated in accordance with the terms of the "Restricted
Payments" covenant as if such covenant had been in effect during the entire
period of time from the Issue Date. Notwithstanding any other provision of the
Senior Note Indenture or the Senior Subordinated Note Indenture, the continued
existence, after the date of such withdrawal or downgrade, of facts and
circumstances that were incurred or otherwise came into being during a
Suspension Period shall not constitute a breach of any covenant set forth in the
Senior Note Indenture or the Senior Subordinated Note Indenture or a Default or
Event of Default thereunder.
RESTRICTED PAYMENTS
The Indentures provide that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly: (1) declare or pay any
dividend or make any other payment or
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distribution on account of the Company's or any of its Restricted Subsidiaries'
Equity Interests (including, without limitation, any payment in connection with
any merger or consolidation involving the Company) or to the direct or indirect
holders of the Company's or any of its Restricted Subsidiaries' Equity Interests
in their capacity as such (other than dividends or distributions payable in
Equity Interests (other than Disqualified Stock) of the Company); (2) purchase,
redeem or otherwise acquire or retire for value (including, without limitation,
in connection with any merger or consolidation involving the Company) any Equity
Interests of the Company or any direct or indirect parent of the Company or
other Affiliate of the Company; (3) make any payment on or with respect to, or
purchase, redeem, defease or otherwise acquire or retire for value any
subordinated Indebtedness, except a payment of interest or principal at Stated
Maturity; or (4) make any Restricted Investment (all such payments and other
actions set forth in clauses (1) through (4) above being collectively referred
to as "RESTRICTED PAYMENTS"), unless, at the time of and after giving effect to
such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the covenant
described below under the caption "--Incurrence of Indebtedness and Issuance
of Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company or any of its Restricted
Subsidiaries after the Issue Date (excluding Restricted Payments permitted
by clauses (2), (3), (4), (5) or (10) of the next succeeding paragraph), is
less than the sum, without duplication, of (1) 50% of the Consolidated Net
Income of the Company for the period (taken as one accounting period) from
the beginning of the first fiscal quarter immediately following the Issue
Date to the end of the Company's most recently ended fiscal quarter for
which internal financial statements are available at the time of such
Restricted Payment (or, if such Consolidated Net Income for such period is a
deficit, less 100% of such deficit), plus (2) 100% of the aggregate Net Cash
Proceeds or the fair market value of property other than cash received by
the Company as a contribution to its common equity capital or from the issue
or sale since the Issue Date of Equity Interests of the Company (other than
Disqualified Stock), or of Disqualified Stock or debt securities of the
Company that have been converted into such Equity Interests (other than
Equity Interests (or Disqualified Stock or convertible debt securities) sold
to a Restricted Subsidiary of the Company and other than Disqualified Stock
or convertible debt securities that have been converted into Disqualified
Stock), plus (3) to the extent not already included in Consolidated Net
Income of the Company for such period and without duplication, any
Restricted Investment that was made by the Company or any of its Restricted
Subsidiaries after the Issue Date is sold for cash or otherwise liquidated
or repaid for cash, or any Unrestricted Subsidiary which is designated as an
Unrestricted Subsidiary subsequent to the Issue Date is sold for cash or
otherwise liquidated or repaid for cash, 100% of the cash return of capital
with respect to such Restricted Investment or Unrestricted Subsidiary (less
the cost of disposition, if any) and 50% of the excess of the fair market
value of the Company's Investment in such Unrestricted Subsidiary as of the
date of such redesignation over the amount of the Restricted Investment that
reduced this clause (c); PROVIDED FURTHER, that any amounts that increase
this clause (c) shall not duplicatively increase amounts available as
Permitted Investments.
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The foregoing provisions shall not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would
have complied with the provisions of the Indentures;
(2) the redemption, repurchase, retirement, defeasance or other
acquisition of any Indebtedness which is subordinated Indebtedness or
Equity Interests of the Company in exchange for, or out of the net cash
proceeds of the substantially concurrent sale (other than to a Restricted
Subsidiary of the Company) of, other Equity Interests of the Company
(other than any Disqualified Stock); PROVIDED that the amount of any such
net cash proceeds that are utilized for any such redemption, repurchase,
retirement, defeasance or other acquisition shall be excluded from clause
(c) (2) of the preceding paragraph;
(3) the defeasance, redemption, repurchase or other acquisition of
Indebtedness which is subordinated Indebtedness with the net cash
proceeds from an incurrence of Permitted Refinancing Indebtedness;
(4) the payment of any dividend or distribution by a Restricted
Subsidiary of the Company to the holders of its common Equity Interests
so long as the Company or such Restricted Subsidiary receives at least
its pro rata share of such dividend or distribution in accordance with
its Equity Interests in such class or series of securities;
(5) the payment of dividends on the Company's Common Stock and
Series B ESOP Convertible Preferred Stock of up to a combined amount of
$25.0 million per annum; PROVIDED that any amount not utilized by the
Company to pay dividends in any calendar year will not be carried forward
to any subsequent year;
(6) (a) the repurchase, redemption or other acquisition or
retirement for value of any Equity Interests of the Company that are held
by any member of the Company's (or any of its Restricted Subsidiaries)
management pursuant to any management equity subscription agreement or
stock option agreement or (b) the repurchase of Equity Interests of the
Company or any Restricted Subsidiary of the Company held by employee
benefits plans (whether directly or for employees, directors or former
directors) pursuant to the terms of agreements (other than management
equity subscription agreements or stock option agreements) approved by
the Company's Board of Directors; PROVIDED that, in the case of foregoing
clause (a), the aggregate price paid for all such repurchased, redeemed,
acquired or retired Equity Interests shall not exceed $10.0 million in
the aggregate since the Issue Date and, in the case of foregoing clause
(b), the aggregate purchase price paid for all such repurchased Equity
Interests shall not exceed $15.0 million in any twelve-month period;
(7) repurchases of Equity Interests deemed to occur upon exercise of
stock options if such Equity Interests represent a portion of the
exercise price of such options;
(8) with respect to the Senior Note Indenture, the repurchase,
redemption or other acquisition or retirement for value of the Senior
Subordinated Notes pursuant to the provisions described under the caption
"Description of the Notes--Optional Redemption;" PROVIDED, that the
amount of any Equity Offering used to effect such a repurchase,
redemption or other acquisition or retirement for value shall be excluded
from the calculation made pursuant to clause (c)(2) of the preceding
paragraph;
(9) with respect to the Senior Note Indenture, the repurchase,
redemption or other acquisition or retirement for value of the Senior
Subordinated Notes pursuant to the provisions described under the caption
"Description of the Notes--Repurchase at the Option of Holders-- Change
of Control" and "Description of the Notes--Repurchase at the Option of
Holders-- Asset Sales;" PROVIDED, that, as of the date of such
repurchase, redemption or other acquisition or retirement for value, no
Default or Event of Default shall have occurred and be continuing or,
with the passage of time, would occur as a consequence thereof; and
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(10) other Restricted Payments in an aggregate amount since the Issue
Date not to exceed $50.0 million under this clause (10);
PROVIDED that, with respect to clauses (2), (3), (5), (6), (8), (9) and (10)
above, no Default or Event of Default shall have occurred and be continuing
immediately after such transaction or as a consequence thereof.
As of the date of the Indentures, all of the Company's Subsidiaries other
than the FTB Group, Ball Capital Corp. and the Excluded Subsidiaries were
Restricted Subsidiaries. The Board of Directors may designate any Restricted
Subsidiary to be an Unrestricted Subsidiary if such designation would not cause
a Default. For purposes of making such determination, all outstanding
Investments by the Company and its Restricted Subsidiaries (except to the extent
repaid in cash) in the Subsidiary so designated will be deemed to be Restricted
Payments at the time of such designation and will reduce the amount available
for Restricted Payments under the first paragraph of this covenant. All such
outstanding Investments will be deemed to constitute Investments in an amount
equal to the fair market value of such Investments at the time of such
designation. Such designation will be permitted only if such Restricted Payment
would be permitted at such time and if such Restricted Subsidiary otherwise
meets the definition of an Unrestricted Subsidiary.
If, at any time, any Unrestricted Subsidiary fails to meet the requirements
in the definition of "Unrestricted Subsidiary" as an Unrestricted Subsidiary, it
shall thereafter cease to be an Unrestricted Subsidiary for purposes of the
Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred
by a Restricted Subsidiary of the Company as of such date (and, if such
Indebtedness is not permitted to be incurred as of such date under the covenant
described under the caption "--Incurrence of Indebtedness and Issuance of
Preferred Stock," the Company shall be in default of such covenant). The Board
of Directors of the Company may at any time designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; PROVIDED that such designation shall
be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the
Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such
designation shall be permitted only if (1) such Indebtedness is permitted under
the covenant described under the caption "--Incurrence of Indebtedness and
Issuance of Preferred Stock," calculated on a pro forma basis as if such
designation had occurred at the beginning of the four-quarter reference period,
(2) if such Subsidiary is a Domestic Subsidiary, such Subsidiary shall have
executed and delivered a supplemental indenture pursuant to which it will become
a Guarantor under the Indentures, and (3) no Default or Event of Default would
be in existence following such designation.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or such Restricted
Subsidiary of the Company, pursuant to the Restricted Payment. The fair market
value of any noncash Restricted Payment or any adjustment made pursuant to
paragraph (c) of this covenant shall be determined by the Board of Directors of
the Company whose resolution with respect thereto shall be delivered to the
Trustee, such determination to be based upon an opinion or appraisal issued by
an investment banking firm (or, if an investment banking firm is generally not
qualified to give such an opinion or appraisal, by an appraisal firm) of
national standing if such fair market value exceeds $25.0 million. Not later
than the date of making any Restricted Payment, the Company shall deliver to the
Trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
the covenant "--Restricted Payments" were computed, together with a copy of any
fairness opinion or appraisal required by the Indentures.
If any Restricted Investment is sold or otherwise liquidated or repaid or
any dividend or payment is received by the Company or a Restricted Subsidiary
and such amounts may be credited to clause (c) above, then such amounts will be
credited only to the extent of amounts not otherwise included in Consolidated
Net Income and that do not otherwise increase the amount available as a
Permitted Investment.
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INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Indentures provide that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "INCUR") any
Indebtedness (including Acquired Debt) and that the Company shall not issue any
Disqualified Stock and shall not permit any of its Restricted Subsidiaries to
issue any shares of preferred stock; PROVIDED, HOWEVER, that the Company may
incur Indebtedness (including Acquired Debt) or issue shares of Disqualified
Stock and any of the Company's Restricted Subsidiaries may incur Indebtedness if
the Company's Fixed Charge Coverage Ratio for the Company's most recently ended
four full fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is incurred
or such Disqualified Stock is issued would have been at least 2.00 to 1,
determined on a pro forma basis (including a pro forma application of the net
proceeds therefrom), as if the additional Indebtedness had been incurred, or the
Disqualified Stock had been issued, as the case may be, at the beginning of such
four-quarter period.
The provisions of the first paragraph of this covenant shall not apply to
the incurrence of any of the following items of Indebtedness (collectively,
"PERMITTED DEBT"):
(1) the incurrence by the Company or its Restricted Subsidiaries of term
Indebtedness under the Credit Facility, letters of credit (with letters of
credit being deemed to have a principal amount equal to the maximum
potential liability of the Company and its Restricted Subsidiaries
thereunder) and related Guarantees under the Credit Facility; PROVIDED that
the aggregate principal amount of all term Indebtedness and letters of
credit of the Company and its Restricted Subsidiaries (with letters of
credit being deemed to have a principal amount equal to the maximum
potential liability of the Company and its Restricted Subsidiaries
thereunder) outstanding under the Credit Facility after giving effect to
such incurrence, including all Permitted Refinancing Indebtedness incurred
to refund, refinance or replace any other Indebtedness incurred pursuant to
this clause (1) does not exceed an amount equal to $550.0 million;
(2) the incurrence by the Company or its Restricted Subsidiaries of
revolving credit Indebtedness under the Credit Facility, letters of credit
(with letters of credit being deemed to have a principal amount equal to the
maximum potential liability of the Company and its Restricted Subsidiaries
thereunder) and related Guarantees under the Credit Facility; PROVIDED that
the aggregate principal amount of all revolving Indebtedness and letters of
credit of the Company and its Restricted Subsidiaries (with letters of
credit being deemed to have a principal amount equal to the maximum
potential liability of the Company and its Restricted Subsidiaries
thereunder) outstanding under the Credit Facility after giving effect to
such incurrence, including all Permitted Refinancing Indebtedness incurred
to refund, refinance or replace any other Indebtedness incurred pursuant to
this clause (2), does not exceed $700.0 million less the aggregate amount of
Asset Sale proceeds applied by the Company and its Restricted Subsidiaries
to reduce permanently the availability of revolving credit Indebtedness
under the Credit Agreements pursuant to the provisions described under the
caption "--Repurchase at the Option of Holders--Asset Sales";
(3) the incurrence by the Company and its Restricted Subsidiaries of the
Existing Indebtedness;
(4) the incurrence by the Company and the Guarantors of Indebtedness
represented by the Senior Notes, the Senior Subordinated Notes, the Senior
Subsidiary Guarantees and the Subordinated Subsidiary Guarantees limited in
aggregate principal amount, without duplication, to amounts outstanding
under the Senior Note Indenture and the Senior Subordinated Note Indenture
as of their respective dates;
(5) the incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each
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case incurred for the purpose of financing all or any part of the purchase
price or cost of construction or improvement of property, plant or equipment
used in the business of the Company or such Restricted Subsidiary, in an
aggregate principal amount, including all Permitted Refinancing Indebtedness
incurred to refund, refinance or replace Indebtedness incurred pursuant to
this clause (5), not to exceed 5% of Total Assets;
(6) the incurrence by the Company or any of its Restricted Subsidiaries
of Permitted Refinancing Indebtedness;
(7) the incurrence by the Company or any of its Restricted Subsidiaries
of intercompany Indebtedness between or among the Company and any of its
Restricted Subsidiaries; PROVIDED, HOWEVER, that (1) if the Company is the
obligor on such Indebtedness, such Indebtedness is expressly subordinated to
the prior payment in full in cash of all Obligations with respect to the
Notes and the Indentures, (2) if a Restricted Subsidiary of the Company is
the obligor on such Indebtedness, such Indebtedness is expressly
subordinated to the prior payment in full in cash of such Restricted
Subsidiary's Subsidiary Guarantee and (3)(A) any subsequent event or
issuance or transfer of Equity Interests that results in any such
Indebtedness being held by a Person other than the Company or a Restricted
Subsidiary of the Company and (B) any sale or other transfer of any such
Indebtedness to a Person that is not either the Company or a Restricted
Subsidiary of the Company shall be deemed, in each case, to constitute an
incurrence of such Indebtedness by the Company or such Restricted
Subsidiary, as the case may be, that was not permitted by this clause (7);
(8) the incurrence by the Company or any of its Restricted Subsidiaries
of Hedging Obligations that are incurred in the normal course of business
for the purpose of fixing or hedging currency, commodity or interest rate
risk (including with respect to any Indebtedness that is permitted by the
terms of the Indentures to be outstanding in connection with the conduct of
their respective businesses and not for speculative purposes);
(9) the incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness in the ordinary course of business solely in respect of
performance, surety and similar bonds, completion or performance guarantees
or standby letters of credit issued for the purpose of supporting workers'
compensation liabilities of the Company or any of its Restricted
Subsidiaries, to the extent that such incurrence does not result in the
incurrence of any obligation for the payment of borrowed money to others;
(10) the incurrence of Indebtedness arising from agreements of the
Company or a Restricted Subsidiary providing for indemnification, adjustment
of purchase price or similar obligations, in each case, incurred or assumed
in connection with the disposition of any business, assets or a Subsidiary;
(11) the incurrence by a Restricted Subsidiary of the Company of
Indebtedness in connection with, and in contemplation of, the concurrent
disposition of such Restricted Subsidiary to the stockholders of the
Company; PROVIDED that such disposition occurs concurrently with such
incurrence and, following such disposition, neither the Company nor any of
its Restricted Subsidiaries has any liability with respect to such
Indebtedness;
(12) the incurrence by a Securitization Entity of Indebtedness in a
Qualified Securitization Transaction that is Non-Recourse Debt with respect
to the Company and its other Restricted Subsidiaries (except for Standard
Securitization Undertakings and Limited Originator Recourse);
(13) the guarantee by the Company or any of the Guarantors of
Indebtedness of the Company or a Restricted Subsidiary of the Company that
was permitted to be incurred by another provision of this covenant
"--Incurrence of Indebtedness and Issuance of Preferred Stock"; and
(14) the incurrence by the Company or any of its Restricted Subsidiaries
of additional Indebtedness in an aggregate principal amount (or accreted
value, as applicable) at any time outstanding,
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including all Permitted Refinancing Indebtedness incurred to refund,
refinance or replace any other Indebtedness incurred pursuant to this clause
(14), not to exceed $75.0 million.
For purposes of determining compliance with this covenant, in the event that
an item of proposed Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (1) through (14) above as of
the date of incurrence thereof or is entitled to be incurred pursuant to the
first paragraph of this covenant as of the date of incurrence thereof, the
Company shall, in its sole discretion, classify or reclassify such item of
Indebtedness as of the date of incurrence thereof in any manner that complies
with this covenant and such item of Indebtedness shall be treated as having been
incurred pursuant to only one of such clauses or pursuant to the first paragraph
hereof. Accrual of interest, the accretion of accreted value and the payment of
interest in the form of additional Indebtedness will not be deemed to be an
incurrence of Indebtedness for purposes of this covenant.
LIENS
The Indentures provide that the Company will not, and will not permit any of
its Restricted Subsidiaries to, create, incur, assume or otherwise cause or
suffer to exist or become effective any Lien of any kind securing Indebtedness,
Attributable Debt, or trade payables (other than Permitted Liens) upon any of
their property or assets, now owned or hereafter acquired, unless all payments
due under the Indentures and the Notes are secured on an equal and ratable basis
with the obligations so secured until such time as such obligations are no
longer secured by a Lien.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES
The Indentures provide that the Company will not, and will not permit any of
its Restricted Subsidiaries that are not Guarantors to, directly or indirectly,
create or otherwise cause or suffer to exist or become effective any encumbrance
or restriction on the ability of any Restricted Subsidiary of the Company or the
Company to (1)(a) pay dividends or make any other distributions to the Company
or any of its Restricted Subsidiaries (i) on its Capital Stock or (ii) with
respect to any other interest or participation in, or measured by, its profits,
or (b) pay any Indebtedness owed to the Company or any of its Restricted
Subsidiaries, (2) make loans or advances to the Company or any of its Restricted
Subsidiaries or (3) transfer any of its properties or assets to the Company or
any of its Restricted Subsidiaries, except for such encumbrances or restrictions
existing under or by reason of (a) Existing Indebtedness as in effect on the
Issue Date, (b) the Credit Facility as in effect as of the Issue Date, and any
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings thereof, PROVIDED that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacement or refinancings are no more restrictive with respect to such
dividend and other payment restrictions than those contained in the Credit
Facility as in effect on the Issue Date, (c) the Senior Note Indenture, the
Senior Subordinated Note Indenture, the Senior Notes and the Senior Subordinated
Notes, (d) applicable law or any applicable rule, regulation or order, (e) any
instrument governing Indebtedness or Capital Stock of a Person acquired by the
Company or any of its Restricted Subsidiaries as in effect at the time of such
acquisition (except to the extent such Indebtedness was incurred in connection
with or in contemplation of such acquisition), which encumbrance or restriction
is not applicable to any Person, or the properties or assets of any Person,
other than the Person, or the property or assets of the Person, so acquired,
PROVIDED that, in the case of Indebtedness, such Indebtedness was permitted by
the terms of the Indentures to be incurred, (f) by reason of customary
non-assignment provisions in leases or other contracts entered into in the
ordinary course of business and consistent with past practices, (g) purchase
money obligations for property acquired in the ordinary course of business that
impose restrictions of the nature described in clause (3) above on the property
so acquired, (h) Indebtedness of Guarantors, PROVIDED that such Indebtedness was
permitted to be incurred pursuant to the Indentures, (i) Permitted Refinancing
Indebtedness, PROVIDED that the restrictions contained in the agreements
governing such Permitted Refinancing Indebtedness are no more restrictive than
those contained in the agreements governing the
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Indebtedness being refinanced, (j) secured Indebtedness otherwise permitted to
be incurred pursuant to the provisions of the covenant described above under the
caption "--Liens" that limits the right of the debtor to dispose of assets
securing such Indebtedness, (k) provisions with respect to the disposition or
distribution of assets or property in joint venture or similar agreements
entered into in the ordinary course of business or (l) any Purchase Money Note,
or other Indebtedness or other contractual requirements of a Securitization
Entity in connection with a Qualified Securitization Transaction; PROVIDED that
such restrictions apply only to such Securitization Entity.
MERGER, CONSOLIDATION, OR SALE OF ASSETS
The Indentures provide that the Company will not, directly or indirectly,
consolidate or merge with or into (whether or not the Company is the surviving
corporation), or sell, assign, transfer, convey or otherwise dispose of all or
substantially all of its properties or assets in one or more related
transactions, to another Person unless (1) the Company is the surviving
corporation or the Person formed by or surviving any such consolidation or
merger (if other than the Company) or to which such sale, assignment, transfer,
conveyance or other disposition shall have been made is a corporation organized
or existing under the laws of the United States, any state thereof or the
District of Columbia; (2) the Person formed by or surviving any such
consolidation or merger (if other than the Company) or the Person to which such
sale, assignment, transfer, conveyance or other disposition shall have been made
assumes all the obligations of the Company under the Registration Rights
Agreement, the Notes and the Indentures pursuant to a supplemental indenture in
a form reasonably satisfactory to the Trustee; (3) immediately before and after
such transaction no Default or Event of Default shall have occurred; and (4)
except in the case of a merger of the Company with or into a Subsidiary, the
Company or Person formed by or surviving any such consolidation or merger (if
other than the Company), or to which such sale, assignment, transfer, conveyance
or other disposition shall have been made will, immediately after such
transaction after giving pro forma effect thereto and any related financing
transactions as if the same had occurred at the beginning of the applicable
four-quarter period, (A) be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the
first paragraph of covenant described above under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock" or (B) the Fixed Charge Coverage
Ratio for the Company or the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company), or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made would, immediately after giving pro forma effect thereto as if such
transaction had occurred at the beginning of the applicable four-quarter period,
not be less than such Fixed Charge Coverage Ratio for the Company and its
Restricted Subsidiaries immediately prior to such transaction. The Indentures
will also provide that the Company may not, directly or indirectly, lease all or
substantially all of its properties or assets, in one or more related
transactions, to any other Person. The provisions of this covenant will not be
applicable to a sale, assignment, transfer, conveyance or other disposition of
assets between or among the Company and its Restricted Subsidiaries.
TRANSACTIONS WITH AFFILIATES
The Indentures provide that the Company will not, and will not permit any of
its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or
otherwise dispose of any properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or Guarantee with, or for the benefit
of, any Affiliate of any such Person (each of the foregoing, an "AFFILIATE
TRANSACTION"), unless (1) such Affiliate Transaction is on terms that are no
less favorable to the Company or the relevant Restricted Subsidiary than those
that would have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person and (2) the Company delivers to
the Trustee (a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $5.0
million, a resolution of its Board of Directors set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with clause (1)
above and that such Affiliate Transaction has been approved
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by a majority of the disinterested members of its Board of Directors and (b)
with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $25.0 million, an
opinion as to the fairness to the Holders of such Affiliate Transaction from a
financial point of view issued by an investment banking firm (or, if an
investment banking firm is generally not qualified to give such an opinion, by
an appraisal firm) of national standing; PROVIDED that none of the following
shall be deemed to be Affiliate Transactions: (1) any employment, severance or
termination agreement entered into by the Company or any of its Restricted
Subsidiaries in the ordinary course of business and consistent with the past
practice of the Company or such Restricted Subsidiary, as the case may be, (2)
transactions between or among the Company and/or its Restricted Subsidiaries
that are Guarantors, (3) transactions between or among the Company or its
Restricted Subsidiaries that are Guarantors with its Restricted Subsidiaries
that are not Guarantors, FTB Group and Permitted Joint Ventures on terms that
are no less favorable to the Company and/or such Subsidiary than those that
would have been obtained in a comparable transaction by the Company and/or such
Subsidiary with an unrelated Person, (4) any sale or other issuance of Equity
Interests (other than Disqualified Stock) of the Company, (5) Restricted
Payments that are permitted by and Investments that are not prohibited by the
covenant described above under the caption "--Restricted Payments," (6) fees and
compensation paid to members of the Board of Directors of the Company and of its
Restricted Subsidiaries in their capacity as such, to the extent such fees and
compensation are reasonable and customary, (7) advances to employees for moving,
entertainment and travel expenses, drawing accounts and similar expenditures in
the ordinary course of business and consistent with past practices, (8) fees and
compensation paid to, and indemnity provided on behalf of, officers, directors
or employees of the Company or any of its Restricted Subsidiaries, as determined
by the Board of Directors of the Company or of any such Restricted Subsidiary,
to the extent such fees and compensation are reasonable and customary, shall not
be deemed to be Affiliate Transactions and (9) transactions effected as part of
a Qualified Securitization Transaction.
SALE AND LEASEBACK TRANSACTIONS
The Indentures provide that the Company will not, and will not permit any of
its Restricted Subsidiaries to, enter into any sale and leaseback transaction;
PROVIDED that the Company may enter into a sale and leaseback transaction if (1)
the Company could have incurred Indebtedness in an amount equal to the
Attributable Debt relating to such sale and leaseback transaction pursuant to
the covenant described above under the caption "--Incurrence of Indebtedness and
Issuance of Preferred Stock" and (2) the gross cash proceeds of such sale and
leaseback transaction are at least equal to the fair market value (as determined
in good faith by the Board of Directors and set forth in an Officers'
Certificate delivered to the Trustee) of the property that is the subject of
such sale and leaseback transaction and (3) the transfer of assets in such sale
and leaseback transaction is permitted by, and the Company applies the proceeds
of such transaction in compliance with, the covenant described above under the
caption "Repurchase at the Option of the Holders--Asset Sales."
ADDITIONAL SUBSIDIARY GUARANTEES
The Senior Note Indenture provides that, in the event that the Company or
any of its Domestic Subsidiaries (1) acquires or creates any Domestic Subsidiary
after the Issue Date that is not a Guarantor or (2) causes or permits any
Foreign Subsidiary that is not a Guarantor to, directly or indirectly, guarantee
the payment of any Indebtedness of the Company or any Restricted Subsidiary
("Other Indebtedness") then, in each case the Company shall cause such
Subsidiary to simultaneously execute and deliver a supplemental indenture
pursuant to which it will become a Guarantor under the Senior Note Indenture;
PROVIDED, HOWEVER, that if such Other Indebtedness is (1) Indebtedness that is
ranked equal in right of payment with the Senior Notes or such Subsidiary's
Guarantee of the Senior Notes, as the case may be, such Subsidiary's Guarantee
of the Senior Notes shall be equal in right of payment with such Subsidiary's
guarantee of the Other Indebtedness; or (2) subordinated Indebtedness, such
Subsidiary's Guarantee of the Senior Notes shall be senior in right of payment
to the guarantee of Other Indebtedness (which guarantee of such
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subordinated Indebtedness shall provide that the guarantee is subordinated to
such Subsidiary's Guarantee of the Senior Notes to the same extent and in the
same manner as the Other Indebtedness is subordinated to the Senior Notes or
such Subsidiary's Guarantee of the Senior Notes, as the case may be).
The Senior Subordinated Note Indenture provides that, in the event that the
Company or any of its Domestic Subsidiaries (1) acquires or creates any Domestic
Subsidiary after the Issue Date that is not a Guarantor or (2) causes or permits
any Foreign Subsidiary that is not a Guarantor to, directly or indirectly,
guarantee the payment of any Other Indebtedness then, in each case the Company
shall cause such Subsidiary to simultaneously execute and deliver a supplemental
indenture pursuant to which it will become a Guarantor under the Senior
Subordinated Note Indenture; PROVIDED, HOWEVER, that if such Other Indebtedness
is (1) Indebtedness that is ranked equal in right of payment with the Senior
Subordinated Notes or such Subsidiary's Guarantee of the Senior Subordinated
Notes, as the case may be, such Subsidiary's Guarantee of the Senior
Subordinated Notes shall be PARI PASSU in right of payment with such
Subsidiary's guarantee of the Other Indebtedness; or (2) Senior Debt, such
Subsidiary's Guarantee of the Senior Subordinated Notes shall be subordinated in
right of payment to the guarantee of Other Indebtedness (which guarantee of such
Senior Debt shall provide that the guarantee is senior to such Subsidiary's
Guarantee of the Senior Subordinated Notes to the same extent and in the same
manner as the Other Indebtedness is senior to the Senior Subordinated Notes or
such Subsidiary's Guarantee of the Senior Subordinated Notes, as the case may
be).
ANTI-LAYERING
The Senior Subordinated Note Indenture provides that, notwithstanding any
other provision thereof, (1) the Company will not incur, create, issue, assume,
guarantee or otherwise become liable directly or indirectly for any Indebtedness
(including Acquired Debt) that is subordinate or junior in right of payment to
any Senior Debt and senior in any respect in right of payment to the Senior
Subordinated Notes and (2) no Guarantor will incur, create, issue, assume,
guarantee or otherwise become liable for any Indebtedness (including Acquired
Debt) that is subordinate or junior in right of payment to any Senior Debt of a
Guarantor and senior in any respect in right of payment to any Subordinated
Subsidiary Guarantees.
PAYMENTS FOR CONSENT
The Indentures provide that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, pay or cause to be paid
any consideration, whether by way of interest, fee or otherwise, to any Holder
of any Senior Notes or Senior Subordinated Notes, as applicable, for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the Senior Note Indenture or Senior Notes, or the Senior Subordinated Note
Indenture or the Senior Subordinated Notes, as the case may be, unless such
consideration is offered to be paid or is paid to all Holders of the Senior
Notes or Senior Subordinated Notes, as applicable, that consent, waive or agree
to amend in the time frame set forth in the solicitation documents relating to
such consent, waiver or agreement.
REPORTS
The Indentures provide that whether or not the Company is required by the
rules and regulations of the SEC, so long as any Notes are outstanding, the
Company will furnish to each of the Holders of Notes (1) all quarterly and
annual financial information that would be required to be contained in a filing
with the SEC on Forms 10-Q and 10-K if the Company were required to file such
financial information, including a "Management's Discussion and Analysis of
Financial Condition and Results of Operations" that describes the financial
condition and results of operations of the Company and any consolidated
Restricted Subsidiaries and, with respect to the annual information only,
reports thereon by the Company's independent public accountants (which shall be
firm(s) of established national reputation) and (2) all information that would
be required to be filed with the SEC on Form 8-K if the Company were required to
file such reports. All such information and reports shall be filed with the SEC
(unless the SEC will not
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accept such a filing) on or prior to the dates on which such filings would have
been required to be made had the Company been subject to the rules and
regulations of the SEC. In addition, whether or not required by the rules and
regulations of the SEC, the Company shall file a copy of all such information
and reports with the SEC for public availability within the time periods
specified in the SEC's rules and regulations (unless the SEC will not accept
such a filing) and make such information available to securities analysts and
prospective investors upon request. For so long as any Notes remain outstanding,
the Company and the Guarantors shall furnish to the Holders and to securities
analysts and prospective investors, upon their request, the information required
to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indentures provide that each of the following constitutes an Event of
Default: (1) default for 30 days in the payment when due of interest on, or
liquidated damages with respect to, the Notes (whether or not prohibited by the
subordination provisions of the Indentures); (2) default in payment when due of
the principal of or premium, if any, on the Notes (whether or not prohibited by
the subordination provisions of the Indentures); (3) failure by the Company or
any of its Restricted Subsidiaries to comply with the provisions described under
the caption "--Merger, Consolidation or Sale of Assets"; (4) failure by the
Company or any of its Restricted Subsidiaries for 30 days after notice to comply
with the provisions described under the captions "Repurchase at the Option of
Holders--Asset Sales," "--Restricted Payments," "--Incurrence of Indebtedness
and Issuance of Preferred Stock," or "Repurchase at the Option of
Holders--Change of Control"; (5) failure by the Company or any of its Restricted
Subsidiaries for 60 days after notice to comply with any of its other agreements
in the Indentures or the Notes; (6) default under any mortgage, indenture or
instrument under which there may be issued or by which there may be secured or
evidenced any Indebtedness for money borrowed by the Company or any of its
Restricted Subsidiaries (other than a Securitization Entity) (or the payment of
which is guaranteed by the Company or any of its Restricted Subsidiaries (other
than a Securitization Entity)) whether such Indebtedness or guarantee now
exists, or is created after the Issue Date, which default (a) is caused by a
failure to pay principal of or premium, if any, or interest on such Indebtedness
prior to the expiration of the grace period provided in such Indebtedness on the
date of such default (a "PAYMENT DEFAULT") or (b) results in the acceleration of
such Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default or the maturity
of which has been so accelerated, aggregates without duplication $20.0 million
or more; (7) failure by the Company or any of its Restricted Subsidiaries to pay
final judgments aggregating in excess of $20.0 million (excluding amounts
covered by insurance), which judgments are not paid, discharged or stayed for a
period of 60 days; (8) certain events of bankruptcy or insolvency with respect
to the Company or any of its Restricted Subsidiaries and (9) except as permitted
by the Indentures, any Subsidiary Guarantee shall be held in any judicial
proceeding to be unenforceable or invalid or shall cease for any reason to be in
full force and effect or any Guarantor, or any Person acting on behalf of any
Guarantor, shall deny or disaffirm its obligations under its Subsidiary
Guarantee.
If any Event of Default occurs and is continuing, the Trustees or the
Holders of at least 25% in principal amount of the then outstanding Senior Notes
or Senior Subordinated Notes, as the case may be, may declare all the Senior
Notes or Senior Subordinated Notes, as the case may be, to be due and payable
immediately. Notwithstanding the foregoing, in the case of an Event of Default
arising from certain events of bankruptcy or insolvency, with respect to the
Company or any Restricted Subsidiary, all Outstanding Notes will become due and
payable without further action or notice. Holders of the Notes may not enforce
the Indentures or the Notes except as provided in the Indentures. Subject to
certain limitations, Holders of a majority in principal amount of the then
outstanding Senior Notes or Senior Subordinated Notes, as the case may be, may
direct the applicable Trustee in its exercise of any trust or power. The Trustee
may withhold from Holders of the Notes notice of any continuing Default or Event
of Default (except a Default
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or Event of Default relating to the payment of principal or interest) if it
determines that withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indentures, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to
August 1, 2003 by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the Senior Subordinated Notes prior to August 1,
2003, then the premium specified in the Senior Subordinated Indenture shall also
become immediately due and payable to the extent permitted by law upon the
acceleration of the Senior Subordinated Notes.
The Holders of a majority in aggregate principal amount of the Senior Notes
then outstanding by notice to the Senior Note Trustee may on behalf of the
Holders of all of the Senior Notes waive any existing Default or Event of
Default and its consequences under the Senior Note Indenture except a continuing
Default or Event of Default in the payment of interest on, or the principal of,
the Senior Notes. The Holders of a majority in aggregate principal amount of the
Senior Subordinated Notes then outstanding by notice to the Senior Subordinated
Note Trustee may on behalf of the Holders of all of the Senior Subordinated
Notes waive any existing Default or Event of Default and its consequences under
the Senior Subordinated Note Indenture except a continuing Default or Event of
Default in the payment of interest on, or the principal of, the Senior
Subordinated Notes.
The Company is required to deliver to each Trustee annually a statement
regarding compliance with the respective Indenture, and the Company is required,
upon becoming aware of any Default or Event of Default, to deliver to the
Trustee a statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes or the Indentures or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each Holder of Notes by accepting a Note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the expressed view
of the Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the Outstanding Notes ("LEGAL
DEFEASANCE") except for (1) the rights of Holders of Outstanding Notes to
receive payments in respect of the principal of, premium, if any, and interest
and liquidated damages on such Notes when such payments are due from the trust
referred to below, (2) the Company's obligations with respect to the Notes
concerning issuing temporary Notes, registration of Notes, mutilated, destroyed,
lost or stolen Notes and the maintenance of an office or agency for payment and
money for security payments held in trust, (3) the rights, powers, trusts,
duties and immunities of the Trustees, and the Company's obligations in
connection therewith and (4) the Legal Defeasance provisions of the Indentures.
In addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants that are
described in the Indentures ("COVENANT DEFEASANCE") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the Notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Notes.
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In order to exercise either Legal Defeasance or Covenant Defeasance, (1) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders of the Senior Notes or Senior Subordinated Notes, cash in U.S.
dollars, noncallable Government Securities, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if any, and
interest and liquidated damages on the Outstanding Notes on the stated maturity
or on the applicable redemption date, as the case may be, and the Company must
specify whether the Notes are being defeased to maturity or to a particular
redemption date; (2) in the case of Legal Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that (A) the Company has received from, or
there has been published by, the Internal Revenue Service a ruling or (B) since
the Issue Date, there has been a change in the applicable federal income tax
law, in either case to the effect that, and based thereon such opinion of
counsel shall confirm that, the Holders of the Outstanding Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such Legal Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Legal Defeasance had not occurred; (3) in the case of Covenant Defeasance,
the Company shall have delivered to the Trustee an opinion of counsel in the
United States reasonably acceptable to the Trustee confirming that the Holders
of the Outstanding Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be subject
to federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be continuing on the
date of such deposit (other than a Default or Event of Default resulting from
the borrowing of funds to be applied to such deposit) or insofar as Events of
Default from bankruptcy or insolvency events are concerned, at any time in the
period ending on the 91st day after the date of deposit; (5) such Legal
Defeasance or Covenant Defeasance will not result in a breach or violation of,
or constitute a default under any material agreement or instrument (other than
the Indentures) to which the company or any of its Restricted Subsidiaries is a
party or by which the Company or any of its Restricted Subsidiaries is bound;
(6) the Company must have delivered to the Trustee an opinion of counsel to the
effect that after the 91st day following the deposit, the trust funds will not
be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; (7) the
Company must deliver to the Trustee an Officers' Certificate stating that the
deposit was not made by the Company with the intent of preferring the Holders of
Notes to the other creditors of the Company with the intent of defeating,
hindering, delaying or defrauding creditors of the Company or others; and (8)
the Company must deliver to the Trustee an Officers' Certificate and an opinion
of counsel, each stating that all conditions precedent provided for relating to
the Legal Defeasance or the Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indentures.
The Registrars and the Trustees may require a Holder to furnish, among other
things, appropriate endorsements and transfer documents, and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indentures. The Company is not required to transfer or exchange any Note
selected for redemption. Also, the Company is not required to transfer or
exchange any Note for a period of 15 days before a selection of Notes to be
redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Senior Note
Indenture or the Senior Notes, or the Senior Subordinated Note Indenture or the
Senior Subordinated Notes, as the case may be, may be amended or supplemented
with the consent of the Holders of at least a majority in principal
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amount of the Senior Notes or Senior Subordinated Notes, as applicable, then
outstanding (including, without limitation, consents obtained in connection with
a purchase of, or tender offer or exchange offer for, the Senior Notes or the
Senior Subordinated Notes), and any existing default or compliance with any
provision of the Senior Note Indenture or the Senior Notes, or the Senior
Subordinated Note Indenture or the Senior Subordinated Notes, as the case may
be, or may be waived with the consent of the Holders of a majority in principal
amount of the then outstanding Senior Notes or Senior Subordinated Notes, as
applicable (including consents obtained in connection with a tender offer or
exchange offer for Senior Notes or Senior Subordinated Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (1) reduce the
principal amount of Notes whose Holders must consent to an amendment, supplement
or waiver, (2) reduce the principal of or change the fixed maturity of any Note
or alter the provisions with respect to the redemption of the Notes (other than
provisions relating to the covenants described above under the caption
"--Repurchase at the Option of Holders"), (3) reduce the rate of or change the
time for payment of interest on any Note, (4) waive a Default or Event of
Default in the payment of principal of or premium, if any, or interest on the
Notes (except a rescission of acceleration of the Notes by the Holders of at
least a majority in aggregate principal amount of the Notes and a waiver of the
payment default that resulted from such acceleration), (5) make any Note payable
in money other than that stated in the Notes, (6) make any change in the
provisions of the Indentures relating to waivers of past Defaults or the rights
of Holders of Notes to receive payments of principal of or premium, if any, or
interest on the Notes, (7) waive a redemption payment with respect to any Note
(other than a payment required by one of the covenants described above under the
caption "--Repurchase at the Option of Holders") or (8) make any change in the
foregoing amendment and waiver provisions. In addition, any amendment to the
provisions of Article 10 of the Senior Subordinated Note Indenture (which relate
to subordination) will require the consent of the Holders of at least 75% in
aggregate principal amount of the Senior Subordinated Notes then outstanding if
such amendment would adversely affect the rights of Holders of Senior
Subordinated Notes.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company and the Trustees may amend or supplement the Indentures or the Notes
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to provide for the
assumption of the Company's obligations to Holders of Notes in the case of a
merger or consolidation, to make any change that would provide any additional
rights or benefits to the Holders of Notes or that does not adversely affect the
legal rights under the Indentures of any such Holder, or to comply with
requirements of the Commission in order to effect or maintain the qualification
of the Indentures under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indentures contain certain limitations on the rights of the Trustees,
should either of them become a creditor of the Company, to obtain payment of
claims in certain cases, or to realize on certain property received in respect
of any such claim as security or otherwise. The Trustees will be permitted to
engage in other transactions; HOWEVER, if any Trustee acquires any conflicting
interest it must eliminate such conflict within 90 days, apply to the Commission
for permission to continue or resign.
The Holders of a majority in principal amount of the then Outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indentures provide that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indentures at the
request of any Holder of Notes, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
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ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indentures and
Registration Rights Agreement without charge by writing to Ball Corporation, 10
Longs Peak Drive, P.O. Box 5000, Broomfield, CO 80038-5000 Attention: Treasurer.
In addition, the Company filed these documents as exhibits to its Form 8-K dated
August 10, 1998 filed with the SEC on August 25, 1998. See the section in this
Prospectus entitled "Where You Can Find More Information" for information
regarding how to obtain documents from the SEC.
BOOK-ENTRY, DELIVERY AND FORM
The Outstanding Notes are, and the Exchange Notes will be, issued in the
form of one Senior Global Note (the "SENIOR GLOBAL NOTE") and one Senior
Subordinated Global Note (the "SENIOR SUBORDINATED GLOBAL NOTE," and, together
with the Senior Global Note, the "GLOBAL NOTES"). The Global Notes will be
deposited on the date of the acceptance for exchange of the Outstanding Notes
and the issuance of the Exchange Notes (the "CLOSING DATE") with, or on behalf
of, The Depository Trust Company (the "DEPOSITARY") and registered in the name
of Cede & Co., as nominee of the Depositary (such nominee being referred to
herein as the "GLOBAL NOTES HOLDER").
Notes that are issued as described below under "Certificated Securities"
will be issued in the form of registered definitive certificates (the
"CERTIFICATED SECURITIES"). Upon the transfer of Certificated Securities, such
Certificated Securities may, unless the Global Notes have previously been
exchanged for Certificated Securities, be exchanged for an interest in the
Global Notes representing the principal amount of Notes being transferred.
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the "PARTICIPANTS"
or the "DEPOSITARY'S PARTICIPANTS") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depositary's
Participants include securities brokers and dealers (including the Initial
Purchasers), banks and trust companies, clearing corporations and certain other
organizations. Access to the Depositary's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"INDIRECT PARTICIPANTS" or the "DEPOSITARY'S INDIRECT PARTICIPANTS") that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only thorough the Depositary's
Participants or the Depositary's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depositary (1) upon deposit of the Global Notes, the Depositary will credit the
accounts of Participants designated by the Initial Purchasers with portions of
the principal amount of the Global Notes and (2) ownership of the Notes
evidenced by the Global Notes will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by the Depositary
(with respect to the interests of the Depositary's Participants), the
Depositary's Participants and the Depositary's Indirect Participants.
Prospective purchasers are advised that the laws of some states require that
certain persons take physical delivery in definitive form of securities that
they own. Consequently, the ability to transfer Notes evidenced by the Global
Notes will be limited to such extent. For certain other restrictions on the
transferability of the Notes see "Notice to Investors."
So long as the Global Notes Holder is the registered owner of any Notes, the
Global Notes Holder will be considered the sole Holder under the Indentures of
any Notes evidenced by the Global Notes. Beneficial owners of Notes evidenced by
the Global Notes will not be considered the owners or Holders thereof under the
Indentures for any purpose, including with respect to the giving of any
directions, instructions or approvals to the Trustees thereunder. Neither the
Company nor the Trustees will have any
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responsibility or liability for any aspect of the records of the Depositary or
for maintaining, supervising or reviewing any records of the Depositary relating
to the Notes.
Payments in respect of the principal of, premium, if any, interest and
liquidated damages, if any, on any Notes registered in the name of the Global
Notes Holder on the applicable record date will be payable by the Trustee to or
at the direction of the Global Notes Holder in its capacity as the registered
Holder under the Indentures. Under the terms of the Indentures, the Company and
the Trustee may treat the persons in whose names Notes, including the Global
Notes, are registered as the owners thereof for the purpose of receiving such
payments. Consequently, neither the Company nor the Trustee has or will have any
responsibility or liability for the payment of such amounts to beneficial owners
of Notes. The Company believes, however, that it is currently the policy of the
Depositary to immediately credit the accounts of the relevant Participants with
such payments, in amounts proportionate to their respective holdings of
beneficial interests in the relevant security as shown on the records of the
Depositary. Payments by the Depositary's Participants and the Depositary's
Indirect Participants to the beneficial owners of Notes will be governed by
standing instructions and customary practice and will be the responsibility of
the Depositary's Participants or the Depositary's Indirect Participants.
CERTIFICATED SECURITIES
Subject to certain conditions, any person having a beneficial interest in
the Global Notes may, upon request to the Trustee, exchange such beneficial
interest for Notes in the form of Certificated Securities. Upon any such
issuance, the Trustee is required to register such Certificated Securities in
the name of, and cause the same to be delivered to, such person or persons (or
the nominee of any thereof). All such certificated Notes would be subject to the
legend requirements described herein under "Notice to Investors." In addition,
if (1) the Company notifies the Trustee in writing that the Depositary is no
longer willing or able to act as a depositary and the Company is unable to
locate a qualified successor within 90 days or (2) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of Notes in
the form of Certificated Securities under the Indentures, then, upon surrender
by the Global Notes Holder of a Global Note, Notes in such form will be issued
to each person that the Global Notes Holder and the Depositary identify as being
the beneficial owner of the related Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Notes Holder or the Depositary in identifying the beneficial owners of
Notes and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Notes Holder or the
Depositary for all purposes.
SAME DAY SETTLEMENT AND PAYMENT
The Indentures will require that payments in respect of the Notes
represented by the Global Notes (including principal, premium, if any, interest
and liquidated damages, if any) be made by wire transfer of immediately
available funds to the accounts specified by the Global Notes Holder. With
respect to Certificated Securities, the Company will make all payments of
principal, premium, if any, interest and liquidated damages, if any, by wire
transfer of immediately available funds to the accounts specified by the Holders
thereof or, if no such account is specified, by mailing a check to each such
Holder's registered address. The Company presently expects that secondary
trading in the Certificated Securities will also be settled in immediately
available funds.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Company, the Guarantors and Lehman Brothers Inc., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, BancAmerica Robertson Stephens and First Chicago
Capital Markets, Inc., as initial purchasers in the offering of the Outstanding
Notes, entered into a Senior Registration Rights Agreement
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and a Senior Subordinated Registration Rights Agreement (together, the
"Registration Rights Agreements") dated as of August 10, 1998. Pursuant to the
Registration Rights Agreements, the Company agreed to file with the SEC a
registration statement with respect to the Exchange Notes, of which this
Prospectus forms a part (the "Exchange Offer Registration Statement"). If (1)
the Company is not permitted to consummate the Exchange Offer because the
Exchange Offer is not permitted by applicable law or SEC policy or (2) any
Holder of Transfer Restricted Securities notifies the Company prior to the 20th
day following consummation of the Exchange Offer that (A) it is prohibited by
law or SEC policy from participating in the Exchange Offer or (B) that it may
not resell the Exchange Notes acquired by it in the Exchange Offer to the public
without delivering a prospectus and the prospectus contained in the Exchange
Offer Registration Statement is not appropriate or available for such resales or
(C) that it is a broker-dealer and owns Outstanding Notes acquired directly from
the Company or an affiliate of the Company, the Company will file with the SEC a
Shelf Registration Statement to cover resales of the Outstanding Notes by the
Holders thereof who satisfy certain conditions relating to the provision of
information in connection with the Shelf Registration Statement. For purposes of
the foregoing, "TRANSFER RESTRICTED SECURITIES" means each Outstanding Note
until (1) the date on which such Outstanding Note has been exchanged by a person
other than a broker-dealer for an Exchange Note in the Exchange Offer, (2)
following the exchange by a broker-dealer in the Exchange Offer of an
Outstanding Note for an Exchange Note, the date on which such Exchange Note is
sold to a purchaser who receives from such broker-dealer on or prior to the date
of such sale a copy of the prospectus contained in the Exchange Offer
Registration Statement, (3) the date on which such Outstanding Note has been
effectively registered under the Securities Act and disposed of in accordance
with the Shelf Registration Statement or (4) the date on which such Outstanding
Note is distributed to the public pursuant to Rule 144 under the Act.
The Registration Rights Agreements provide that (1) the Company will file an
Exchange Offer Registration Statement with the Commission on or prior to 90 days
after August 10, 1998, (2) the Company will use its reasonable best efforts to
have the Exchange Offer Registration Statement declared effective by the
Commission on or prior to 150 days after August 10, 1998, (3) unless the
Exchange Offer would not be permitted by applicable law or SEC policy, the
Company will commence the Exchange Offer and use its reasonable best efforts to
issue on or prior to 30 business days after the date on which the Exchange Offer
Registration Statement was declared effective by the SEC, Exchange Notes in
exchange for all Outstanding Notes tendered prior thereto in the Exchange Offer
and (4) if obligated to file the Shelf Registration Statement, the Company will
use its reasonable best efforts to file the Shelf Registration Statement with
the SEC on or prior to 60 days after such filing obligation arises and to cause
the Shelf Registration to be declared effective by the SEC on or prior to 75
days after such obligation arises. If (a) the Company fails to file any of the
Registration Statements required by the Registration Rights Agreements on or
before the date specified for such filing, (b) any of such Registration
Statements is not declared effective by the SEC on or prior to the date
specified for such effectiveness (the "EFFECTIVENESS TARGET DATE"), or (c) the
Company fails to consummate the Exchange Offer within 30 business days of the
Effectiveness Target Date with respect to the Exchange Offer Registration
Statement, or (d) the Shelf Registration Statement or the Exchange Offer
Registration Statement is declared effective but thereafter ceases to be
effective or usable in connection with resales of Transfer Restricted Securities
during the periods specified in the Registration Rights Agreement (each such
event referred to in clauses (a) through (d) above a "REGISTRATION DEFAULT"),
then the Company will pay liquidated damages to each Holder of Outstanding
Notes, with respect to the first 90-day period immediately following the
occurrence of the first Registration Default in an amount equal to $.05 per week
per $1,000 principal amount of Outstanding Notes held by such Holder. The amount
of the liquidated damages will increase by an additional $.05 per week per
$1,000 principal amount of Outstanding Notes with respect to each subsequent
90-day period until all Registration Defaults have been cured, up to a maximum
amount of liquidated damages of $.50 per week per $1,000 principal amount of
Outstanding Notes. Any amounts payable as a result of a Registration Default are
referred to herein as "liquidated damages." All accrued liquidated damages will
be paid by the Company on each Damages Payment Date to the Global Note Holder by
wire transfer of immediately available funds or by federal
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funds check and to Holders of Certificated Securities by wire transfer to the
accounts specified by them or by mailing checks to their registered addresses if
no such accounts have been specified. Following the cure of all Registration
Defaults, the accrual of liquidated damages will cease.
Holders of Outstanding Notes will be required to make certain
representations to the Company (as described in the Registration Rights
Agreements) in order to participate in the Exchange Offer and will be required
to deliver information to be used in connection with the Shelf Registration
Statement and to provide comments on the Shelf Registration Statement within the
time periods set forth in the Registration Rights Agreements in order to have
their Outstanding Notes included in the Shelf Registration Statement and benefit
from the provisions regarding liquidated damages set forth above. Holders of
Outstanding Notes will also be required to suspend their use of the prospectus
included in the Shelf Registration Statement under circumstances upon receipt of
written notice to that effect from the Company.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indentures. Reference
is made to the Indentures for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"ACQUIRED DEBT" means, with respect to any specified Person, (1)
Indebtedness of any other Person (a) existing at the time such other Person is
merged with or into or became a Restricted Subsidiary of such specified Person
or is otherwise acquired by such specified Person or (b) assumed in connection
with the purchase of all or substantially all the assets of such other Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into, acquiring or becoming
a Restricted Subsidiary of such specified Person, and (2) Indebtedness secured
by a Lien encumbering any asset acquired by such specified Person.
"ACQUISITION" means the acquisition by the Company and Ball Metal Beverage
Container Corp. of substantially all of the assets of the North American
beverage can business of Reynolds Metals Company.
"ADDITIONAL ASSETS" means (1) any property or assets (other than Capital
Stock, Indebtedness or rights to receive payments over a period greater than 180
days) that is usable by the Company or a Restricted Subsidiary in a Permitted
Business or (2) the Capital Stock of a Person that is at the time, or becomes, a
Restricted Subsidiary as a result of the acquisition of such Capital Stock by
the Company or another Restricted Subsidiary.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; PROVIDED that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"ASSET SALE" means (1) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback) other than in the ordinary course of business consistent with past
practices (PROVIDED that the sale, lease, conveyance or other disposition of all
or substantially all of the assets of the Company and its Restricted
Subsidiaries taken as a whole will be governed by the covenants described above
under the captions "Repurchase at the Option of Holders-- Change of Control" and
"--Merger, Consolidation, or Sale of Assets" and not by the provisions of the
covenant described above under the caption "--Asset Sales"), and (2) the issue
or sale by the Company or any of its Restricted Subsidiaries of Equity Interests
of any of the Company's Restricted Subsidiaries, in the case of either clause
(1) or (2), whether in a single transaction or a series of related transactions
(a) that have a fair market value in excess of $5.0 million or (b) for Net
Proceeds in excess of $5.0 million.
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Notwithstanding the foregoing: (1) a transfer of assets by the Company to a
Restricted Subsidiary of the Company or by a Restricted Subsidiary of the
Company to the Company or to another Restricted Subsidiary of the Company, (2)
an issuance or sale of Equity Interests by a Restricted Subsidiary of the
Company to the Company or to another Restricted Subsidiary of the Company that
is a Guarantor, (3) a Restricted Payment that is permitted by and Investments
that are not prohibited by the covenant described above under the caption
"--Restricted Payments" but excluding any Investment made as a result of the
receipt of non-cash consideration from an Asset Sale that was made pursuant to
and in compliance with the covenant described under the caption "Asset Sales,"
(4) sales of receivables of the type specified in the definition of "Qualified
Securitization Transaction" to a Securitization Entity for the fair market value
thereof, including consideration in the amount specified in the proviso to the
definition of Qualified Securitization Transaction and (5) the sale or
disposition of Cash Equivalents or obsolete equipment, will not be deemed to be
Asset Sales.
"ATTRIBUTABLE DEBT" in respect of a sale and leaseback transaction means, at
the time of determination, the present value (discounted at the rate of interest
implicit in such transaction, determined in accordance with GAAP) of the
obligation of the lessee for net rental payments during the remaining term of
the lease included in such sale and leaseback transaction (including any period
for which such lease has been extended or may, at the option of the lessor, be
extended).
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"CAPITAL STOCK" means (1) in the case of a corporation, corporate stock, (2)
in the case of an association or business entity, all shares, interests,
participation, rights or other equivalents (however designated) of corporate
stock, (3) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited) and (4) any
other interest or participation that confers on a Person the right to receive a
share of the profits and losses of, or distributions of assets of, the issuing
Person.
"CASH EQUIVALENTS" means (1) United States dollars, (2) securities issued or
directly and fully guaranteed or insured by the United States government or any
agency or instrumentality thereof having maturities of not more than one year
from the date of acquisition, (3) certificates of deposit and eurodollar time
deposits with maturities of not more than one year from the date of acquisition,
bankers' acceptances with maturities of not more than one year from the date of
acquisition and overnight bank deposits, in each case with any domestic
commercial bank having capital and surplus in excess of $500 million and a
Thompson Bank Watch Rating of "B" or better, (4) repurchase obligations with a
term of not more than seven days for underlying securities of the types
described in clauses (2) and (3) above entered into with any financial
institution meeting the qualifications specified in clause (3) above and (5)
commercial paper having the highest rating obtainable from Moody's Investors
Service, Inc. or one of the two highest ratings from Standard & Poor's with
maturities of not more than six months from the date of acquisition.
"CHANGE OF CONTROL" means the occurrence of any of the following: (1) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Restricted Subsidiaries,
taken as a whole to any "person" (as such term is used in Section 13(d)(3) of
the Exchange Act; (2) the adoption of a plan relating to the liquidation or
dissolution of the Company; (3) the consummation of any transaction (including,
without limitation, any merger or consolidation) the result of which is that any
"person" (as defined above) becomes the "beneficial owners" (as such term is
defined in Rule 13d-3 and Rule l3d-5 under the Exchange Act, except that a
person shall be deemed to have "beneficial ownership" of all securities that
such person has the right to acquire, whether such right is currently
exercisable or is exercisable only upon the occurrence of a subsequent
condition), directly or indirectly, of more than 50% of the total of the Voting
Stock of the Company (measured by voting power rather than number of shares);
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(4) the first day on which a majority of the members of the Board of Directors
of the Company are not Continuing Directors; or (5) the Company consolidates
with, or merges with or into, any Person or sells, assigns, conveys, transfers,
leases or otherwise disposes of all or substantially all of its assets to any
Person, or any Person consolidates with, or merges with or into, the Company, in
any such event pursuant to a transaction in which any of the outstanding Voting
Stock of the Company is converted into or exchanged for cash, securities or
other property, other than any such transaction where the Voting Stock of the
Company outstanding immediately prior to such transaction is converted into or
exchanged for Voting Stock (other than Disqualified Stock) of the surviving or
transferee Person constituting a majority of the outstanding shares of such
Voting Stock of such surviving or transferee Person (immediately after giving
effect to such issuance).
"CONSOLIDATED CASH FLOW" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (1) an amount
equal to any extraordinary loss plus any net loss realized in connection with an
Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (2) provision for taxes based on income or
profits of such Person and its Restricted Subsidiaries for such period, to the
extent that such provision for taxes was included in computing such Consolidated
Net Income, plus (3) consolidated interest expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued and whether or
not capitalized (including, without limitation, amortization of debt issuance
costs and original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component of all
payments associated with Capital Lease Obligations, commissions, discounts and
other fees and charges incurred in respect of letter of credit or bankers'
acceptance financings and receivables financings, and net payments (if any)
pursuant to Hedging Obligations), to the extent that any such expense was
deducted in computing such Consolidated Net Income, plus (4) depreciation,
amortization (including amortization of goodwill and other intangibles but
excluding amortization of prepaid cash expenses that were paid in a prior
period) and other noncash expenses (excluding any such noncash expense to the
extent that it represents an accrual of or reserve for cash expenses in any
future period) of such Person and its Restricted Subsidiaries for such period to
the extent that such depreciation, amortization and other noncash expenses were
deducted in computing such Consolidated Net Income, minus (5) non-cash items
increasing such Consolidated Net Income for such period (other than items that
were accrued in the ordinary course of business), in each case, on a
consolidated basis and determined in accordance with GAAP. Notwithstanding the
foregoing, the provision for taxes on the income or profits of, and the
depreciation and amortization and other non-cash charges of, a Restricted
Subsidiary of the Company shall be added to Consolidated Net Income to compute
Consolidated Cash Flow of the Company only to the extent (and in same
proportion) that the Net Income of such Restricted Subsidiary was included in
calculating the Consolidated Net Income of such Person and only if a
corresponding amount would be permitted at the date of determination to be
dividended to the Company by such Restricted Subsidiary without prior
governmental approval (that has not been obtained), and without direct or
indirect restriction pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Restricted Subsidiary or its stockholders.
"CONSOLIDATED NET INCOME" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
(for such period, on a consolidated basis, determined in accordance with GAAP);
PROVIDED that (1) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Restricted Subsidiary,
(2) the Net Income of any Restricted Subsidiary shall be excluded to the extent
that the declaration or payment of dividends or similar distributions by that
Restricted Subsidiary of that Net Income is not at the date of determination
permitted without any prior governmental approval (that has not been obtained)
or, directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Restricted Subsidiary or its stockholders, (3) the
Net Income of any Person acquired in a pooling of interests
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transaction for any period prior to the date of such acquisition shall be
excluded, and (4) the cumulative effect of a change in accounting principles
shall be excluded.
"CONTINUING DIRECTORS" means, as of any date of determination, any member of
the Board of Directors of the Company who (1) was a member of such Board of
Directors on the Issue Date or (2) was nominated for election or elected to such
Board of Directors with the approval of a majority of the Continuing Directors
who were members of such Board at the time of such nomination or election.
"CREDIT AGREEMENTS" means (1) the Long-Term Credit Agreement dated as of
August 10, 1998 among the Company, the financial institutions from time to time
a party thereto as lenders, The First National Bank of Chicago, in its capacity
as Administrative Agent, Bank of America National Trust and Savings Association,
in its capacity as Syndication Agent, and Lehman Commercial Paper Inc., in its
capacity as Documentation Agent (as the same may from time to time be amended,
modified, supplemented and/or restated, the "Long-Term Credit Agreement"), (2)
the Short-Term Credit Agreement dated as of August 10, 1998 among the Company,
the financial institutions from time to time a party thereto as lenders, The
First National Bank of Chicago, in its capacity as Administrative Agent, Bank of
America National Trust and Savings Association, in its capacity as Syndication
Agent, and Lehman Commercial Paper Inc., in its capacity as Documentation Agent
(as the same may from time to time be amended, modified, supplemented and/or
restated, the "Short-Term Credit Agreement"), and (3) the Canadian Revolving
Credit Agreement dated as of August 10, 1998 among the Company, Ball Packaging
Products Canada, Inc., and the Royal Bank of Canada.
"CREDIT FACILITIES" means, with respect to the Company, one or more debt
facilities (including, without limitation, the Credit Agreements) or commercial
paper facility with banks or other institutional lenders providing for revolving
credit loans, receivables financing (including through the sale of receivables
to such lenders or to special purpose entities formed to borrow from such
lenders against such receivables) or letters of credit, in each case, as
amended, restated, modified, renewed, refunded, replaced or refinanced in whole
or in part from time to time.
"DEFAULT" means any event that is or with the passage of time or the giving
of notice (or both) would be an Event of Default.
"DESIGNATED NONCASH CONSIDERATION" means the fair market value of noncash
consideration received by the Company or one of its Restricted Subsidiaries in
connection with an Asset Sale that is so designated as Designated Noncash
Consideration pursuant to an officers' certificate, setting forth the basis of
such valuation, executed by the principal executive officer and the principal
financial officer of the Company, less the amount of cash or Cash Equivalents
received in connection with a sale of such Designated Noncash Consideration.
"DESIGNATED SENIOR DEBT" means (1) any Indebtedness outstanding under the
Credit Agreements and (2) any other Senior Debt permitted hereunder the
principal amount of which is $25.0 million or more and that has been designated
by the Company as "Designated Senior Debt."
"DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable at the option of the holder thereof), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the holder thereof, in
whole or in part, on or prior to the date that is 91 days after the date on
which the Notes mature, except to the extent that such Capital Stock is solely
redeemable with, or solely exchangeable for, any Capital Stock of such Person
that is not Disqualified Stock.
"DOMESTIC SUBSIDIARY" means a Subsidiary that is (1) formed under the laws
of the United States of America or a state or territory thereof or (2) as of the
date of determination, treated as a domestic entity or a partnership or a
division of a domestic entity for United States federal income tax purposes.
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"EQUITY INTERESTS" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"EXCLUDED SUBSIDIARY" means each of the following Subsidiaries of the
Company: Analytic Decisions, Incorporated, a Virginia corporation; Ball
Corporation, a Nevada corporation; Ball-Canada Holdings Inc., a Canadian
corporation; Ball Glass Containers, Inc., a Delaware corporation; Ball
International Sales Corporation, a Delaware corporation; Ball Metal Container
Corporation, an Indiana corporation; Ball Technology Licensing Corporation, an
Indiana corporation; Heekin Can, Inc., a Colorado corporation; Metropack
Containers Corporation, an Indiana corporation; Muncie & Western Railroad
Company, an Indiana corporation; Ball Pan Asia Ltd., a corporation organized
under the laws of Mauritius, and Ball Brazil Holdings Limited, a Company Limited
by Shares organized under the laws of the Cayman Islands; PROVIDED, that each
such Subsidiary shall be an Excluded Subsidiary only if and only for so long as
(1) each such Subsidiary is in existence solely for the purposes of being a
"name-holding" entity, (2) each such Subsidiary engages in no business, (3) each
such Subsidiary has no liabilities (including any guarantee of Indebtedness of
any other Person), and (4) the aggregate of the assets (including
capitalization) of all such Subsidiaries shall not exceed $5,000,000.00.
"EXISTING INDEBTEDNESS" means Indebtedness of the Company and its Restricted
Subsidiaries in existence on the Issue Date.
"FIXED CHARGES" means, with respect to any Person for any period, the sum,
without duplication, of (1) the consolidated interest expense of such Person and
its Restricted Subsidiaries for such period, whether paid or accrued (including,
without limitation, to the extent properly characterized as interest expense in
accordance with GAAP, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings and
net payments (if any) pursuant to Hedging Obligations), (2) the consolidated
interest of such Person and its Restricted Subsidiaries that was capitalized
during such period, (3) any interest expense on Indebtedness of another Person
that is Guaranteed by such Person or one of its Restricted Subsidiaries or
secured by a Lien on assets of such Person or one of its Restricted Subsidiaries
(whether or not such Guarantee or Lien is called upon) and (4) all dividend
payments, whether or not in cash, on any series of preferred stock of such
Person or any of its Restricted Subsidiaries, other than dividend payments on
Equity Interests payable solely in Equity Interests of the Company (other than
Disqualified Stock).
"FIXED CHARGE COVERAGE RATIO" means, with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
Company or any of its Restricted Subsidiaries incurs, assumes, Guarantees or
redeems any Indebtedness (other than revolving credit borrowings under any
Credit Facility) or issues preferred stock subsequent to the commencement of the
period for which the Fixed Charge Coverage Ratio is being calculated but on or
prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the "CALCULATION DATE"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, Guarantee or redemption of Indebtedness, or such issuance or
redemption of preferred stock, as if the same had occurred at the beginning of
the applicable four-quarter reference period. In addition, for purposes of
making the computation referred to above, (1) acquisitions that have been made
by the Company or any of its Restricted Subsidiaries, including through mergers
or consolidations and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Calculation Date shall be deemed to have occurred on the first day
of the four-quarter reference period and Consolidated Cash Flow for such
reference period shall be calculated without giving effect to clause (3) the
proviso set forth in the definition of Consolidated Net Income, (2) the
Consolidated
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Cash Flow attributable to discontinued operations, as determined in accordance
with GAAP, and operations or businesses disposed of prior to the Calculation
Date, shall be excluded, and (3) the Fixed Charges attributable to discontinued
operations, as determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, shall be excluded, but only to the
extent that the obligations giving rise to such Fixed Charges will not be
obligations of the referent Person or any of its Restricted Subsidiaries
following the Calculation Date.
"FOREIGN SUBSIDIARIES" means Subsidiaries of the Company that are not
Domestic Subsidiaries.
"FTB" means FTB Packaging Limited, a Hong Kong corporation.
"FTB GROUP" means FTB and each of its Subsidiaries, including, without
limitation, MCP and each of its Subsidiaries and joint ventures.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants, the statements and pronouncements of
the Financial Accounting Standards Board and such other statements by such other
entities as have been approved by a significant segment of the accounting
profession, which are applicable at the Issue Date.
"GUARANTEE" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"GUARANTORS" means each Domestic Subsidiary of the Company as of the Issue
Date (other than Ball Capital Corp. and the Excluded Subsidiaries) and each
other Subsidiary that becomes a party to a Subsidiary Guarantee pursuant to the
Indentures.
"HEDGING OBLIGATIONS" means, with respect to any Person, the net payment
Obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements in the ordinary course of business and pursuant to
past practices designed to protect such Person against fluctuations in commodity
prices, interest rates or currency exchange rates.
"INDEBTEDNESS" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all Indebtedness of others
secured by a Lien on any asset of such Person (whether or not such Indebtedness
is assumed by such Person) and, to the extent not otherwise included, the
Guarantee by such Person of any Indebtedness of any other Person or any
liability, whether or not contingent and whether or not it appears on the
balance sheet, of such other Person. The amount of any Indebtedness outstanding
as of any date shall be (1) the accreted value thereof, in the case of any
Indebtedness that does not require current payments of interest, and (2) the
principal amount thereof, together with any interest thereon that is more than
30 days past due, in the case of any other Indebtedness.
"INVESTMENTS" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including Guarantees of Indebtedness or other Obligations),
advances of assets or capital contributions (excluding commission, travel and
entertainment, moving, and similar advances to officers and employees made in
the ordinary course of business,
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prepaid expenses and accounts receivable), purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities, together
with all items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP. If the Company or any of its Restricted
Subsidiaries sells or otherwise disposes of any Equity Interests of any direct
or indirect Restricted Subsidiary of the Company such that, after giving effect
to any such sale or disposition, such Person is no longer a direct or indirect
Restricted Subsidiary of the Company, the Company or such Restricted Subsidiary,
as the case may be, shall be deemed to have made an Investment on the date of
any such sale or disposition equal to the fair market value of the Equity
Interests of such Restricted Subsidiary not sold or disposed of in an amount
determined as provided in the final paragraph of the covenant described above
under the caption "--Restricted Payments."
"LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell or give a security interest in
any asset and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"LIMITED ORIGINATOR RECOURSE" means a reimbursement obligation to the
Company or a Restricted Subsidiary in connection with a drawing on a letter of
credit, revolving loan commitment, cash collateral account or other such credit
enhancement issued to support Indebtedness of a Securitization Entity under a
facility for the financing of trade receivables; PROVIDED that the available
amount of any such form of credit enhancement at any time shall not exceed 10.0%
of the principal amount of such Indebtedness at such time.
"MCP" means M.C. Packaging (Hong Kong) Limited, a Hong Kong corporation.
"NET INCOME" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (1) any gain or loss
together with any related provision for taxes on such gain or loss, realized in
connection with the disposition of any securities by such Person or any of its
Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person
or any of its Restricted Subsidiaries, (2) any extraordinary gain or loss,
together with any related provision for taxes on such extraordinary gain or
loss, and (3) any one-time noncash charges (including legal, accounting and debt
issuance costs) resulting from the Transactions.
"NET PROCEEDS" means the aggregate cash proceeds or Cash Equivalents
received by the Company or any of its Restricted Subsidiaries in respect of any
Asset Sale (including, without limitation, any cash received upon the sale or
other disposition of any non-cash consideration received in any Asset Sale), net
of all costs relating to such Asset Sale (including, without limitation, legal,
accounting, investment banking and brokers fees, and sales and underwriting
commissions) and any relocation expenses incurred as a result thereof, taxes
paid or payable as a result thereof (after taking into account any available tax
credits or deductions and any tax-sharing arrangements) and any reserve for
adjustment in respect of the sale price of such asset or assets established in
accordance with GAAP.
"NON-RECOURSE DEBT" means Indebtedness (1) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender; and (2) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness (other than
the Notes being offered hereby) of the Company or any of its Restricted
Subsidiaries to declare a default on such other Indebtedness or cause the
payment thereof to be accelerated or payable prior to its stated maturity; and
(iii) as to which the lenders have been notified in writing that they will not
have any recourse to the stock or assets of the Company or any of its Restricted
Subsidiaries.
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"OBLIGATIONS" means any principal, premium, if any, interest (including
interest accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company or its Restricted Subsidiaries whether or
not a claim for post-filing interest is allowed in such proceeding), penalties,
fees, charges, expenses, indemnifications, reimbursement obligations, damages
(including liquidated damages), guarantees and other liabilities or amounts
payable under the documentation governing any Indebtedness or in respect
thereof.
"PERMITTED BUSINESS" means the lines of business conducted by the Company
and its Restricted Subsidiaries on the date hereof and businesses substantially
similar, related or incidental thereto or reasonable extensions thereof.
"PERMITTED INVESTMENTS" means (a) any Investment in the Company or in a
Restricted Subsidiary of the Company; (b) any Investment in Cash Equivalents;
(c) any Investment by the Company or any Restricted Subsidiary of the Company in
a Person engaged in a Permitted Business, if as a result of such Investment (1)
such Person becomes a Restricted Subsidiary of the Company and a Guarantor or
(2) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated into,
the Company or a Restricted Subsidiary of the Company that is a Guarantor; (d)
any Restricted Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in compliance
with the covenant described above under the caption "--Repurchase at the Option
of Holders--Asset Sales"; (e) any acquisition of assets solely in exchange for
the issuance of Equity Interests (other than Disqualified Stock) of the Company;
(f) other Investments by the Company or any of its Restricted Subsidiaries in
any Person having an aggregate fair market value (measured as of the date made
and without giving effect to subsequent changes in value), when taken together
with all other Investments made pursuant to this clause (f) that are at the time
outstanding, not to exceed $50.0 million; (g) Investments arising in connection
with Hedging Obligations that are incurred in the ordinary course of business
consistent with past practices, for the purpose of fixing or hedging currency,
commodity or interest rate risk (including with respect to any floating rate
Indebtedness that is permitted by the terms of the Indentures to be outstanding)
in connection with the conduct of the business of the Company and its Restricted
Subsidiaries which are Guarantors; (h) any Investment by the Company or a
Subsidiary of the Company in a Securitization Entity or any Investment by a
Securitization Entity in any other Person in connection with a Qualified
Securitization Transaction; PROVIDED that any Investment in a Securitization
Entity is in the form of a Purchase Money Note or an equity interest; (i) any
Investment existing on the Issue Date and any amendment, modification,
restatement, supplement, extension, renewal, refunding, replacement,
refinancing, in whole or in part, thereof; (j) any Investment in FTB Group, the
proceeds of which are used to permanently repay Indebtedness of FTB Group in an
amount up to the amount that was outstanding on the Issue Date plus any
interest, prepayment penalty and reasonable costs associated with such
repayment; and (k) Investments in Permitted Joint Ventures of up to $25 million
outstanding at any time.
"PERMITTED JOINT VENTURE" means an entity characterized as a joint venture
(however structured) engaged in a Permitted Business and in which the Company or
a Restricted Subsidiary (a) owns at least 40% of the ownership interest or (b)
has a right to receive at least 40% of the profits or distributions; provided
that such joint venture is not a Subsidiary.
"PERMITTED JUNIOR SECURITIES" means Equity Interests in the Company or debt
securities that are subordinated to all Senior Debt (and any debt securities
issued in exchange for Senior Debt) to substantially the same extent as, or to a
greater extent than, the Notes are subordinated to Senior Debt pursuant to the
Indentures.
"PERMITTED LIENS" means (1) Liens on assets (including, without limitation,
the capital stock of a Subsidiary) of the Company or any of the Guarantors to
secure Indebtedness under the Credit Facilities that were permitted by the terms
of the Indentures to be incurred; (2) Liens on the assets of the Company or any
of the Guarantors to secure Hedging Obligations to any Person that is a holder
of Senior Debt (or
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an Affiliate thereof) that constitute Indebtedness under any Credit Facility,
which Hedging Obligations relate to Indebtedness permitted by the Indentures to
be incurred; (3) Liens on property of a Person existing at the time such Person
is acquired by, merged into or consolidated with the Company or any Restricted
Subsidiary of the Company; PROVIDED that such Liens were in existence prior to
the contemplation of such acquisition, merger or consolidation and do not extend
to any assets other than those of the Person acquired by, merged into or
consolidated with the Company; (4) Liens on property existing at the time of
acquisition thereof by the Company or any Restricted Subsidiary of the Company,
PROVIDED that such Liens were in existence prior to the contemplation of such
acquisition and only extend to the property so acquired; (5) Liens existing on
the Issue Date; (6) Liens to secure any Permitted Refinancing Indebtedness
incurred to refinance any Indebtedness secured by any Lien referred to in the
foregoing clauses (1) through (5), as the case may be, at the time the original
Lien became a Permitted Lien; (7) Liens in favor of the Company or any
Restricted Subsidiary that is a Guarantor; (8) Liens to secure Indebtedness
permitted by clause (14) of the second paragraph of the covenant described above
under the caption "--Incurrence of Indebtedness and Issuance of Preferred
Stock"; (9) Liens incurred in the ordinary course of business of the Company or
any Restricted Subsidiary of the Company with respect to obligations that do not
exceed $25.0 million in the aggregate at any one time outstanding and that (a)
are not incurred in connection with the borrowing of money or the obtaining of
advances or credit (other than trade credit in the ordinary course of business)
and (b) do not in the aggregate materially detract from the value of the
property or materially impair the use thereof in the operation of business by
the Company or such Restricted Subsidiary; (10) Liens to secure the performance
of statutory obligations, surety or appeal bonds, performance bonds, deposits to
secure the performance of bids, trade contracts, government contracts, leases or
licenses or other obligations of a like nature incurred in the ordinary course
of business (including, without limitation, landlord Liens on leased
properties); (11) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings; PROVIDED that any reserve or other appropriate
provision as shall be required to conform with GAAP shall have been made
therefor; (12) Liens to secure Indebtedness (including Capital Lease
Obligations) permitted by clause (5) of the second paragraph of the covenant
described above under the caption "--Incurrence of Indebtedness and Issuance of
Preferred Stock" covering only the assets acquired with such Indebtedness; (13)
carriers', warehousemen's, mechanics', landlords' materialmen's, repairmen's or
other like Liens arising in the ordinary course of business in respect of
obligations not overdue for a period in excess of 60 days or which are being
contested in good faith by appropriate proceedings promptly instituted and
diligently prosecuted; PROVIDED that any reserve or other appropriate provision
as shall be required to conform with GAAP shall have been made therefor; (14)
easements, rights-of-way, zoning and similar restrictions and other similar
encumbrances or title defects incurred, or leases or subleases granted to
others, in the ordinary course of business, which do not in any case materially
detract from the value of the property subject thereto or do not interfere with
or adversely affect in any material respect the ordinary conduct of the business
of the Company and its Restricted Subsidiaries taken as a whole; (15) Liens in
favor of customs and revenue authorities to secure payment of customs duties in
connection with the importation of goods in the ordinary course of business and
other similar Liens arising in the ordinary course of business; (16) leases or
subleases granted to third Persons not interfering with the ordinary course of
business of the Company or any of its Restricted Subsidiaries; (17) Liens (other
than any Lien imposed by ERISA or any rule or regulation promulgated thereunder)
incurred or deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance, and other types of social
security; (18) deposits made in the ordinary course of business to secure
liability to insurance carriers; (19) Liens for purchase money obligations
(including refinancings thereof permitted under the covenant described above
under the caption "--Incurrence of Indebtedness and Issuance of Preferred
Stock"), PROVIDED that (A) the Indebtedness secured by any such Lien is
permitted under the covenant described above under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock" and (B) any such Lien encumbers
only the asset so purchased; (20) any attachment or judgment Lien not
constituting an Event of Default under clause (i) of the first paragraph of the
section described above under the caption "Events of Default and Remedies"; (21)
any interest or title
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of a lessor or sublessor under any operating lease; (22) Liens on assets
transferred to a Securitization Entity or on assets of a Securitization Entity,
in either case incurred in connection with a Qualified Securitization
Transaction; and (23) Liens under licensing agreements for use of Intellectual
Property entered into in the ordinary course of business.
"PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries
(other than intercompany Indebtedness); PROVIDED that: (1) the principal amount
(or accreted value, if applicable) of such Permitted Refinancing Indebtedness
does not exceed the principal amount of (or accreted value, if applicable), plus
accrued and unpaid interest and premium, if any, on, any Indebtedness so
extended, refinanced, renewed, replaced, defeased or refunded (plus the amount
of reasonable expenses incurred in connection therewith); (2) such Permitted
Refinancing Indebtedness has a final maturity date later than the final maturity
date of, and has a Weighted Average Life to Maturity equal to or greater than
the Weighted Average Life to Maturity of, the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; (3) if the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded is
subordinated in right of payment to the Notes, such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and is subordinated in right of payment to the Notes on terms at least as
favorable to the Holders of Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; and (4) such Indebtedness is incurred either by the
Company or a Restricted Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"PERSON" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"PUBLIC EQUITY OFFERING" means any underwritten primary public offering of
the Common Stock or other Voting Stock of the Company (other than Disqualified
Stock) pursuant to an effective registration statement (other than a
registration statement on Form S-4, Form S-8, or any successor or similar form)
under the Securities Act.
"PURCHASE MONEY NOTE" means a promissory note of a Securitization Entity
evidencing a line of credit, which may be irrevocable, from the Company or any
Restricted Subsidiary of the Company in connection with a Qualified
Securitization Transaction, which note shall be repaid from cash available to
the Securitization Entity, other than amounts required to be established as
reserves pursuant to agreements, amounts paid to investors in respect of
interest, principal and other amounts owing to such investors and amounts paid
in connection with the purchase of newly generated receivables.
"QUALIFIED SECURITIZATION TRANSACTION" means any transaction or series of
transactions pursuant to which the Company or any of its Restricted Subsidiaries
may sell, convey or otherwise transfer to (a) a Securitization Entity (in the
case of a transfer by the Company or any of its Restricted Subsidiaries) and (b)
any other Person (in case of a transfer by a Securitization Entity), or may
grant a security interest in, any receivables (whether now existing or arising
or acquired in the future) of the Company or any of its Restricted Subsidiaries,
and any assets related thereto including, without limitation, all collateral
securing such receivables, all contracts and contract rights and all Guarantees
or other obligations in respect of such receivables, proceeds of such
receivables and other assets (including contract rights) which are customarily
transferred or in respect of which security interests are customarily granted in
connection with asset securitization transactions involving receivables
(collectively, "transferred assets"); PROVIDED that, in the case of any such
transfer by the Company or any of its Restricted Subsidiaries, the transferor
receives cash or Purchase Money Notes in an amount which (when aggregated with
the cash and Purchase Money Notes received by the Company and its Restricted
Subsidiaries upon all other such transfers of transferred assets
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during the ninety days preceding such transfer) is at least equal to 75% of the
aggregate face amount of all receivables so transferred during such day and the
ninety preceding days.
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary; provided that, on the Issue Date,
all Subsidiaries of the Company other than FTB Group, Ball Capital Corp. and the
Excluded Subsidiaries shall be Restricted Subsidiaries of the Company.
"SEC" means the Securities and Exchange Commission.
"SECURITIZATION ENTITY" means a Wholly Owned Subsidiary of the Company (or
another Person in which the Company or any Restricted Subsidiary of the Company
makes an Investment and to which the Company or any Restricted Subsidiary of the
Company transfers receivables and related assets) that engages in no activities
other than in connection with the financing of receivables and that is
designated by the Board of the Directors of the Company (as provided below) as a
Securitization Entity (a) no portion of the Indebtedness or any other
Obligations (contingent or otherwise) of which (1) is guaranteed by the Company
or any Restricted Subsidiary of the Company other than pursuant to Standard
Securitization Undertakings or Limited Originator Recourse, (2) is recourse to
or obligates the Company or any Restricted Subsidiary of the Company (other than
the Securitization Entity) in any way other than pursuant to Standard
Securitization Undertakings or Limited Originator Recourse or (3) subjects any
property or asset of the Company or any Restricted Subsidiary of the Company
(other than the Securitization Entity), directly or indirectly, contingently or
otherwise, to the satisfaction thereof, other than pursuant to Standard
Securitization Undertakings or Limited Originator Recourse, (b) with which
neither the Company nor any Restricted Subsidiary of the Company has any
material contract, agreement, arrangement or understanding other than on terms
no less favorable to the Company or such Restricted Subsidiary than those that
might be obtained at the time from Persons that are not Affiliates of the
Company, other than fees payable in the ordinary course of business in
connection with servicing receivables of such entity and (c) to which neither
the Company nor any Restricted Subsidiary of the Company has any obligation to
maintain or preserve such entity's financial condition or cause such entity to
achieve certain levels of operating results. Any such designation by the Board
of Directors of the Company shall be evidenced to the Trustees by filing with
the Trustees a certified copy of the resolution of the Board of Directors of the
Company giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions.
"SENIOR DEBT" means (1) all Indebtedness outstanding under the Credit
Facility permitted under clauses (1) and (2) of the second paragraph of the
covenant described above under the caption "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock," (2) any other Indebtedness
permitted to be incurred by the Company under the terms of the Indentures,
unless the instrument under which such Indebtedness is incurred expressly
provides that it is on a parity with or subordinated in right of payment to the
Notes and (3) all Obligations with respect to the foregoing. Notwithstanding
anything to the contrary in the foregoing, Senior Debt will not include (w) any
liability for federal, state, local or other taxes owed or owing by the Company,
(x) any Indebtedness of the Company to any of its Subsidiaries or other
Affiliates, (y) any trade payables or (z) any Indebtedness that is incurred in
violation of the Indentures.
"SENIOR MAKE-WHOLE PREMIUM" means, in connection with any optional
redemption of any Senior Note, the excess, if any, of (1) the aggregate present
value as of the date of such redemption of each dollar of principal of such
Senior Note being redeemed and the amount of interest (exclusive of interest
accrued to the date of redemption) that would have been payable in respect of
such dollar if such redemption had not been made, determined by discounting, on
a semiannual basis, such principal and interest at a rate equal to the sum of
the Treasury Yield (determined on the business day immediately preceding the
date of such redemption) plus 0.50% per annum, from the respective dates on
which such principal and interest
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would have been payable if such redemption had not been made, over (2) the
aggregate principal amount of such Senior Note being redeemed.
"STANDARD SECURITIZATION UNDERTAKINGS" means representations, warranties,
covenants and indemnities entered into by the Company or any Subsidiary of the
Company that are reasonably customary in receivables securitization
transactions.
"STATED MATURITY" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the Credit Agreements or other
original documentation governing such Indebtedness, and shall not include any
contingent obligations to repay, redeem or repurchase any such interest or
principal prior to the date originally scheduled for the payment thereof.
"SUBSIDIARY" means, with respect to any Person, (1) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person and (2) any partnership (a) the sole general partner or the managing
general partner of which is such Person or an entity described in clause (1) and
related to such Person or (b) the only general partners of which are such Person
or of one or more entities described in clause (1) and related to such Person
(or any combination thereof).
"SUBSIDIARY GUARANTEE" means the Guarantee of the Notes by each of the
Guarantors pursuant to Article 10 of the Senior Note Indenture and Article 11 of
the Senior Subordinated Note Indenture and in the form of Guarantee endorsed on
the form of Note attached as Exhibit A to the Indentures and any additional
Guarantee of the Notes to be executed by any Restricted Subsidiary of the
Company pursuant to the covenant described above under the caption "--Additional
Subsidiary Guarantees."
"TOTAL ASSETS" means the total assets of the Company and its Restricted
Subsidiaries on a consolidated basis determined in accordance with GAAP, as
shown on the most recently available consolidated balance sheet of the Company
and its Restricted Subsidiaries.
"TRANSACTIONS" means the entering into the Credit Agreements, the issuance
of the Notes and the Acquisition.
"TREASURY YIELD" means, in connection with the calculation of any Senior
Make-Whole Premium on any Senior Note, the yield to maturity at the time of
computation of United States Treasury securities with a constant maturity (as
compiled by and published in the most recent Federal Reserve Statistical Release
H.15 (519) that has become publicly available at least two business days prior
to the date fixed for redemption (or, if such Statistical Release is no longer
published, any publicly available source of similar data)) equal to the then
remaining maturity of such Senior Note; PROVIDED that if no United States
Treasury security is available with such a constant maturity and for which a
closing yield is given, the Treasury Yield shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the closing
yields of United States Treasury securities for which such yields are given,
except that if the remaining maturity of such Senior Note is less than one year,
the weekly average yield on actually traded United States Treasury securities
adjusted to a constant maturity of one year shall be used.
"UNRESTRICTED SUBSIDIARY" means each of FTB Group, Ball Capital Corp. and
the Excluded Subsidiaries. In addition, "Unrestricted Subsidiary" means any
Subsidiary that is designated by the Board of Directors as an Unrestricted
Subsidiary pursuant to a Board Resolution; but only to the extent that such
Subsidiary: (a) has no Indebtedness other than Non-Recourse Debt; (b) is not
party to any agreement, contract, arrangement or understanding with the Company
or any Restricted Subsidiary of the Company unless the terms of any such
agreement, contract, arrangement or understanding are no less favorable to the
Company or such Restricted Subsidiary than those that might be obtained at the
time from Persons who are not Affiliates of the Company; (c) is a Person with
respect to which neither the Company nor any
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of its Restricted Subsidiaries has any direct or indirect obligation (x) to
subscribe for additional Equity Interests or (y) to maintain or preserve such
Person's net worth; and (d) has not guaranteed or otherwise directly or
indirectly provided credit support for any Indebtedness of the Company or any of
its Restricted Subsidiaries; PROVIDED, HOWEVER, that the Company and its
Restricted Subsidiaries may guarantee the performance of Unrestricted
Subsidiaries in the ordinary course of business except for guarantees of
Obligations in respect of borrowed money. Any such designation by the Board of
Directors shall be evidenced to the Trustee by filing with the Trustee a
certified copy of the board resolution giving effect to such designation and an
officers' certificate certifying that such designation complied with the
foregoing conditions and was permitted by the covenant described above under the
caption "Certain Covenants-- Restricted Payments."
"VOTING STOCK" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (1) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (2) the then outstanding principal
amount of such Indebtedness.
"WHOLLY OWNED SUBSIDIARY" means a Restricted Subsidiary, 100% of the
outstanding Capital Stock and other Equity Interests of which is directly or
indirectly owned by the Company.
115
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of certain United States federal
income tax consequences associated with the exchange of the Outstanding Notes
for the Exchange Notes pursuant to the Exchange Offer and the ownership and
disposition of the Exchange Notes. This summary applies only to a beneficial
owner of an Exchange Note who acquired an Outstanding Note at the initial
offering from Lehman Brothers, Inc., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, BancAmerica Robertson Stephens or First Chicago Capital Markets,
Inc. for the original offering price thereof and who acquires the Exchange Note
pursuant to the Exchange Offer. This discussion is based on provisions of the
Internal Revenue Code of 1986, as amended, Treasury regulations promulgated
thereunder, and administrative and judicial interpretations thereof, all as in
effect on the date hereof and all of which are subject to change, possibly with
retroactive effect. This discussion does not address the tax consequences to
subsequent purchasers of the Exchange Notes and is limited to investors who hold
the Exchange Notes as capital assets. Furthermore, this discussion does not
address all aspects of United States federal income taxation that may be
applicable to investors in light of their particular circumstances, or to
investors subject to special treatment under United States federal income tax
law (including, without limitation, certain financial institutions, insurance
companies, tax-exempt entities, dealers in securities or persons who have
acquired the Exchange Notes as part of a straddle, hedge, conversion transaction
or other integrated investment).
EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES TO SUCH INVESTOR OF THE ACQUISITION, OWNERSHIP AND
DISPOSITION OF THE EXCHANGE NOTES, INCLUDING THE APPLICABILITY OF ANY FEDERAL
ESTATE OR GIFT TAX LAWS OR ANY STATE, LOCAL OR FOREIGN TAX LAWS, ANY CHANGES IN
APPLICABLE TAX LAWS AND ANY PENDING OR PROPOSED LEGISLATION OR REGULATIONS.
UNITED STATES TAXATION OF UNITED STATES HOLDERS
As used herein, (A) the term "United States Holder" means a beneficial owner
of a Note that is, for United States federal income tax purposes, (i) a citizen
or resident of the United States, (ii) a corporation or partnership created or
organized in or under the laws of the United States or of any political
subdivision thereof, (iii) an estate the income of which is subject to United
States federal income taxation regardless of its source and (iv) a trust if a
United States court is able to exercise primary supervision over the
administration of such trust and one or more United States persons have the
authority to control all substantial decisions of such trust and (B) the term
"Non-U.S. Holder" means a beneficial owner of a Note that is not a United States
Holder.
EXCHANGE OFFER
The exchange of an Outstanding Note for an Exchange Note pursuant to the
Exchange Offer will not constitute a "significant modification" of the
Outstanding Note for United States federal income tax purposes and, accordingly,
the Exchange Note received will be treated as a continuation of the Outstanding
Note in the hand of such holder. As a result, there will be no United States
federal income tax consequences to a United States Holder who exchanges an
Outstanding Note for an Exchange Note pursuant to the Exchange Offer, and any
such holder will have the same adjusted tax basis and holding period in the
Exchange Note as it had in the Outstanding Note immediately before the exchange.
PAYMENTS OF INTEREST
Stated interest payable on an Exchange Note generally will be included in
the gross income of a United States Holder as ordinary interest income at the
time accrued or received, in accordance with such United States Holder's method
of accounting for United States federal income tax purposes.
116
<PAGE>
DISPOSITION OF THE EXCHANGE NOTES
Upon the sale, exchange, retirement at maturity or other taxable disposition
(collectively, a "disposition") of an Exchange Note, a United States Holder
generally will recognize capital gain or loss equal to the difference between
the amount realized by such holder (except to the extent such amount is
attributable to accrued interest, which will be treated as ordinary interest
income) and such holder's adjusted tax basis in the Exchange Note. Such capital
gain or loss will be long-term capital gain or loss if such United States
Holder's holding period for the Exchange Note exceeds one year at the time of
the disposition. Recently enacted United States tax legislation reduced the
maximum federal income tax rate applicable to long-term capital gains in certain
instances. Prospective investors should consult their tax advisors regarding the
possible effect on such investors of such legislation.
UNITED STATES TAXATION OF NON-U.S. HOLDERS
PAYMENTS OF INTEREST
In general, payments of interest received by a Non-U.S. Holder will not be
subject to United States federal withholding tax, provided that (i)(a) the
Non-U.S. Holder does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of the Company entitled to vote,
(b) the Non-U.S. Holder is not a controlled foreign corporation that is related
to the Company actually or constructively through stock ownership and (c) the
beneficial owner of the Exchange Note, under penalties or perjury, provides the
Company or its agent with the beneficial owner's name and address and certifies
that it is not a United States Holder in compliance with applicable
requirements, (ii) the interest received on the Exchange Note is effectively
connected with the conduct by the Non-U.S. Holder of a trade or business within
the Unites States and the Non-U.S. Holder complies with certain reporting
requirements or (iii) the Non-U.S. Holder is entitled to the benefits of an
income tax treaty under which the interest is exempt from United States
withholding tax and the Non-U.S. Holder complies with certain reporting
requirements. Payments of interest not exempt from the United States federal
withholding tax as described above will be subject to such withholding tax at
the rate of 30% (subject to reduction under an applicable income tax treaty).
DISPOSITION OF THE EXCHANGE NOTES
A Non-U.S. Holder generally will not be subject to United States federal
income tax (and generally no tax will be withheld) with respect to gain realized
on the disposition of an Exchange Note, unless (i) the gain is effectively
connected with a United States trade or business conducted by the Non-U.S.
Holder, (ii) the Non-U.S. Holder is an individual who is present in the United
States for 183 or more days during the taxable year of the disposition and
certain other requirements are satisfied or (iii) the Non-U.S. Holder is subject
to certain provisions of United States federal income tax law applicable to
certain expatriates. In addition, an exchange of an Outstanding Note for an
Exchange Note pursuant to the Exchange Offer will not constitute a taxable
exchange of the Outstanding Note for Non-U.S. Holders. See "United States
Taxation of United States Holders--Exchange Offer."
EFFECTIVELY CONNECTED INCOME
If interest and other payments received by a Non-U.S. Holder with respect to
the Exchange Notes (including proceeds from the disposition of the Exchange
Notes) are effectively connected with the conduct by the Non-U.S. Holder of a
trade or business within the United States (or the Non-U.S. Holders is otherwise
subject to United States federal income taxation on a net basis with respect to
such Holder's ownership of the Exchange Notes), such Non-U.S. Holder will
generally be subject other rules described above under "United States Taxation
of United States Holders" (subject to any modification provided under an
applicable income tax treaty). Such Non-U.S. Holder may also be subject to the
"branch profits tax" if such Holder is a corporation.
117
<PAGE>
BACKUP WITHHOLDING AND INFORMATION REPORTING
Certain non-corporate United States Holders may be subject to backup
withholding at a rate of 31% on payments of principal, premium and interest on,
and the proceeds of the disposition of, the Exchange Notes. In general, backup
withholding will be imposed only if the United States Holder (i) fails to
furnish its taxpayer identification number ("TIN"), which, for an individual,
would be his or her Social Security number, (ii) furnishes an incorrect TIN,
(iii) is notified by the IRS that it has failed to report payments of interest
or dividends or (iv) under certain circumstances, fails to certify, under
penalty of perjury, that it has furnished a correct TIN and has been notified by
the IRS that it is subject to backup withholding tax for failure to report
interest or dividend payments. In addition, such payments of principal and
interest to United States Holders will generally be subject to information
reporting. United States Holders should consult their tax advisors regarding
their qualification for exemption from backup withholding and the procedure for
obtaining such an exemption, if applicable.
Backup withholding and information reporting generally will not apply to
interest payments made to a Non-U.S. Holder of an Exchange Note who provides the
certification described under "United States Taxation of Non-U.S.
Holders--Payments of Interest" or otherwise establishes an exemption from backup
withholding. Payments of the proceeds of a disposition of the Exchange Notes by
or through a United States office of a broker generally will be subject to
backup withholding at a rate of 31% and information reporting unless the
Non-U.S. Holder certifies it is a Non-U.S. Holder under penalties of perjury or
otherwise establishes an exemption. Payments of the proceeds of a disposition of
the Exchange Notes by or through a foreign office of a United States broker, a
controlled foreign corporation for United States federal income tax purposes or
a foreign broker with certain relationships to the United States generally will
be subject to information reporting, but not backup withholding.
The amount of any backup withholding imposed on a payment to a Holder of an
Exchange Note will be allowed as a credit against such Holder's United States
federal income tax liability and may entitle such Holder to a refund, provided
that the required information is furnished to the IRS.
RECENTLY ISSUED TREASURY REGULATIONS
The U.S. Treasury Department recently issued final Treasury regulations
governing information reporting and the certification procedures regarding
withholding and backup withholding on certain amounts paid to Non-U.S. Holders.
The new Treasury regulations are generally effective for payments made after
December 31, 1999. In addition, the new Treasury regulations would alter the
procedures for claiming the benefits of an income tax treaty and may change the
certification procedures relating to the receipt by intermediaries of payments
on behalf of a beneficial owner of an Exchange Note. Prospective investors
should consult their tax advisors concerning the effect, if any, of such new
Treasury regulations on an investment in the Exchange Notes.
118
<PAGE>
PLAN OF DISTRIBUTION
Based on interpretations by the SEC set forth in no-action letters issued to
third parties in similar transactions, the Company believes that the Exchange
Notes issued in the Exchange Offer in exchange for the Outstanding Notes may be
offered for resale, resold and otherwise transferred by holders without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that the Exchange Notes are acquired in the ordinary
course of such holders' business and the holders are not engaged in, and do not
intend to engage in, and have no arrangement or understanding with any person to
participate in, a distribution of Exchange Notes. This position does not apply
to any holder that is (1) an "affiliate" of the Company within the meaning of
Rule 406 under the Securities Act, (2) a broker-dealer who acquired Notes
directly from the Company or (3) broker-dealers who acquired Notes as a result
of market-making or other trading activities. Any broker-dealers ("Participating
Broker-Dealers") receiving Exchange Notes in the Exchange Offer are subject to a
prospectus delivery requirement with respect to resales of the Exchange Notes.
To date, the SEC has taken the position that Participating Broker-Dealers may
fulfill their prospectus delivery requirements with respect to transactions
involving an exchange of securities such as the exchange pursuant to the
Exchange Offer (other than a resale of an unsold allotment from the sale of the
Outstanding Notes to the initial purchasers) with this Prospectus.
Each broker-dealer receiving Exchange Notes for its own account in the
Exchange Offer must acknowledge that it will deliver a Prospectus in any resale
of the Exchange Notes. Participating Broker-Dealers may use this Prospectus in
reselling Exchange Notes, if the Outstanding Notes were acquired for their own
accounts as a result of market-making activities or other trading activities.
The Company has agreed that a Participating Broker-Dealer may use this
Prospectus in reselling Exchange Notes for a period ending 180 days after the
Expiration Date or, if earlier, when a Participating Broker-Dealer has disposed
of all Exchange Notes. A Participating Broker-Dealer intending to use this
Prospectus in the resale of Exchange Notes must notify the Company on or before
the Expiration Date, that it is a Participating Broker-Dealer. This notice may
be given in the space provided for in the Letter of Transmittal or may be
delivered to the Exchange Agent. The Company has agreed that, for a period of
180 days after the Expiration Date, it will make this Prospectus, and any
amendment or supplement to this Prospectus, available to any broker-dealer that
requests these documents in the Letter of Transmittal. See "The Exchange
Offer--Resales of Exchange Notes" for more information.
The Company will not receive any cash proceeds from the Exchange Notes.
Broker-dealers acquiring Exchange Notes for their own accounts may sell the
notes in one or more transactions in the over-the-counter market, in negotiated
transactions, through writing options on the Exchange Notes or a combination of
such methods. Any resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any broker-dealer and/or the purchasers of Exchange Notes.
Any broker-dealer reselling Exchange Notes that it received in the Exchange
Offer and any broker or dealer that participates in a distribution of Exchange
Notes may be deemed to be an "underwriter" within the meaning of the Securities
Act. Any profit on any resale of Exchange Notes and any commissions or
concessions received by any persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that by
acknowledging that it will deliver and by delivering a Prospectus, a
broker-dealer will not admit that it is an "underwriter" within the meaning of
the Securities Act.
LEGAL MATTERS
Donald C. Lewis, Vice President and General Counsel of the Company and
Skadden, Arps, Slate, Meagher & Flom (Illinois), Chicago, Illinois will pass
upon the validity of the Exchange Notes.
119
<PAGE>
EXPERTS
The audited consolidated financial statements of Ball as of December 31,
1997 and 1996 and for each of the three years in the period ended December 31,
1997, included in this Prospectus have been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of that firm as experts in auditing and accounting.
The combined financial statements of Reynolds as of December 31, 1997 and
1996, and for each of the three years in the period ended December 31, 1997,
appearing in this Prospectus and registration statement on Form S-4 (the
"Registration Statement") have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of that firm
as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
Ball Corporation has filed the Registration Statement regarding the Exchange
Notes with the Securities and Exchange Commission ("SEC"). This Prospectus does
not contain all of the information included in the Registration Statement. Any
statement made in this Prospectus concerning the contents of any other document
is not necessarily complete. If we have filed any other document as an exhibit
to the Registration Statement, you should read the exhibit for a more complete
understanding of the document or matter. Each statement regarding any other
document does not necessarily contain all of the information important to you.
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any documents we file at the
SEC's public reference rooms at Judiciary Plaza, 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549, and at the SEC's regional offices located at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661,
and Seven World Trade Center, New York, New York 10048. Please call the SEC at
1-800-SEC-0300 for further information on the public reference rooms. Our SEC
filings are also available to the public at the SEC's web site at HTTP://
WWW.SEC.GOV. In addition, reports, proxy statements and other information about
the Company (symbol: BLL) can be reviewed and copied at the offices of the New
York Stock Exchange, on which our common stock is listed. The Indentures require
us to file reports and other information required to be filed under the Exchange
Act with the SEC and provide such information to you, upon request, regardless
of whether the Company is subject to the reporting requirements of the Exchange
Act.
120
<PAGE>
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file with
them, meaning that we can disclose important information by referring you to
those documents. The information incorporated by reference is considered to be
part of this Prospectus, and information filed later with the SEC will update
and supersede the information then on file. We incorporate by reference the
documents listed below and any future filings made with the SEC under Sections
13(a), 13(c), 14, or 15(d) of the Exchange Act until the Exchange Offer is
completed.
1. Ball's Annual Report on Form 10-K for the year ended December 31, 1997
filed on March 31, 1998, as amended by an Annual Report on Form 10-K/A,
filed on April 9, 1998;
2. Ball's Quarterly Reports on Form 10-Q filed with the SEC on May 13,
1998, August 12, 1998 and November 5, 1998; and
3. Ball's Current Reports on Form 8-K filed with the SEC on February 12,
1998, April 27, 1998, June 12, 1998, July 19, 1998, August 25, 1998, as
amended by Form 8-K/A, filed on October 23, 1998 and December 17, 1998.
On the request of any person to whom a copy of this Prospectus is delivered,
we will provide, without charge, a copy of any or all of the documents
incorporated herein by reference (other than exhibits to such documents, unless
such exhibits are specifically incorporated by reference). Written requests for
such copies should be directed to Ball Corporate Headquarters, 10 Longs Peak
Drive, P.O. Box 5000, Broomfield, Colorado 80038-5000, telephone number (303)
469-3131 Attention: Treasurer.
You should rely only on the information incorporated by reference or
provided in this Prospectus or any prospectus supplement. Ball Corporation has
not authorized anyone to provide you with different or additional information.
We are not making an offer to sell any notes in any state or country where the
Exchange Offer is not permitted. You should not assume that the information in
this Prospectus or any prospectus supplement is accurate as of any date other
than the date on the front of this document.
121
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF BALL CORPORATION AND SUBSIDIARIES
Report of Independent Accountants.......................................................................... F-2
Consolidated Financial Statements as of December 31, 1997 and 1996 and for the three years in
the period ended December 31, 1997:
Consolidated Statement of Income (Loss).................................................................. F-3
Consolidated Balance Sheet............................................................................... F-4
Consolidated Statement of Cash Flows..................................................................... F-5
Consolidated Statement of Changes in Shareholders' Equity................................................ F-6
Notes to Consolidated Financial Statements............................................................... F-7
Unaudited Condensed Consolidated Financial Statements as of September 27, 1998 and
December 31, 1997 and for the nine-month periods ended September 27, 1998 and
September 28, 1997:
Unaudited Condensed Consolidated Statement of Income..................................................... F-41
Unaudited Condensed Consolidated Balance Sheet........................................................... F-42
Unaudited Condensed Consolidated Statement of Cash Flows................................................. F-43
Notes to Unaudited Condensed Consolidated Financial Statements........................................... F-44
COMBINED FINANCIAL STATEMENTS OF NORTH AMERICAN CAN OPERATIONS
(A COMPONENT OF REYNOLDS METALS COMPANY)
Report of Independent Auditors............................................................................. F-55
Combined Financial Statements as of December 31, 1997 and 1996 and for the three years in
the period ended December 31, 1997:
Combined Balance Sheet................................................................................... F-56
Combined Statement of Income............................................................................. F-57
Combined Statement of Cash Flows......................................................................... F-58
Notes to Combined Financial Statements................................................................... F-59
Unaudited Combined Financial Statements as of June 30, 1998 and December 31, 1997 and
for the six-month periods ended June 30, 1998 and 1997:
Combined Balance Sheet................................................................................... F-66
Combined Statement of Income............................................................................. F-67
Combined Statement of Cash Flows......................................................................... F-68
Notes to Combined Financial Statements................................................................... F-69
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
Ball Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income (loss), of cash flows and of changes in
shareholders' equity present fairly, in all material respects, the financial
position of Ball Corporation and its subsidiaries at December 31, 1997 and 1996,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Indianapolis, Indiana
January 28, 1998, except as to the note, "Subsequent Events, Relocation"
which is as of February 4, 1998
F-2
<PAGE>
CONSOLIDATED STATEMENT OF INCOME (LOSS)
Ball Corporation and Subsidiaries
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) 1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net sales...................................................................... $ 2,388.5 $ 2,184.4 $ 2,045.8
--------- --------- ---------
Costs and expenses
Cost of sales................................................................ 2,121.2 2,007.3 1,836.6
General and administrative expenses.......................................... 119.2 77.2 83.3
Selling and product development expenses..................................... 17.7 16.0 16.2
Dispositions and other....................................................... (9.0) 21.0 7.1
Interest expense............................................................. 53.5 33.3 25.7
--------- --------- ---------
2,302.6 2,154.8 1,968.9
--------- --------- ---------
Income from continuing operations before taxes on income....................... 85.9 29.6 76.9
Provision for income tax expense............................................... (32.0) (7.2) (26.4)
Minority interests............................................................. 5.1 0.2 (1.6)
Equity in (losses) earnings of affiliates:
EarthWatch................................................................... -- (12.3) (1.3)
All other.................................................................... (0.7) 2.8 4.3
--------- --------- ---------
Net income (loss) from:
Continuing operations........................................................ 58.3 13.1 51.9
Discontinued operations...................................................... -- 11.1 (70.5)
--------- --------- ---------
Net income (loss).............................................................. 58.3 24.2 (18.6)
Preferred dividends, net of tax benefit...................................... (2.8) (2.9) (3.1)
--------- --------- ---------
Net earnings (loss) attributable to common shareholders........................ $ 55.5 $ 21.3 $ (21.7)
--------- --------- ---------
--------- --------- ---------
Net earnings (loss) per share of common stock:
Continuing operations........................................................ $ 1.84 $ 0.34 $ 1.63
Discontinued operations...................................................... -- 0.36 (2.35)
--------- --------- ---------
$ 1.84 $ 0.70 $ (0.72)
--------- --------- ---------
--------- --------- ---------
Diluted earnings (loss) per share:
Continuing operations........................................................ $ 1.74 $ 0.34 $ 1.54
Discontinued operations...................................................... -- 0.34 (2.18)
--------- --------- ---------
$ 1.74 $ 0.68 $ (0.64)
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
CONSOLIDATED BALANCE SHEET
Ball Corporation and Subsidiaries
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
(DOLLARS IN MILLIONS) 1997 1996
--------- ---------
<S> <C> <C>
ASSETS
Current assets
Cash and temporary investments........................................................... $ 25.5 $ 169.2
Accounts receivable, net................................................................. 301.4 245.9
Inventories, net......................................................................... 413.3 302.0
Deferred income tax benefits and prepaid expenses........................................ 57.9 49.5
--------- ---------
Total current assets................................................................... 798.1 766.6
--------- ---------
Property, plant and equipment, at cost
Land..................................................................................... 42.5 24.2
Buildings................................................................................ 330.5 264.8
Machinery and equipment.................................................................. 1,183.1 980.5
--------- ---------
1,556.1 1,269.5
Accumulated depreciation................................................................. (636.6) (570.5)
--------- ---------
919.5 699.0
--------- ---------
Other assets............................................................................... 372.5 235.2
--------- ---------
$ 2,090.1 $ 1,700.8
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt and current portion of long-term debt.................................... $ 407.0 $ 175.2
Accounts payable......................................................................... 258.6 214.3
Salaries, wages and accrued employee benefits............................................ 78.3 64.2
Other current liabilities................................................................ 93.9 57.3
--------- ---------
Total current liabilities.............................................................. 837.8 511.0
--------- ---------
Noncurrent liabilities
Long-term debt........................................................................... 366.1 407.7
Deferred income taxes.................................................................... 60.5 34.7
Employee benefit obligations and other................................................... 139.8 136.0
--------- ---------
Total noncurrent liabilities........................................................... 566.4 578.4
--------- ---------
Contingencies
Minority interests......................................................................... 51.7 7.0
--------- ---------
Shareholders' equity
Series B ESOP convertible preferred stock................................................ 59.9 61.7
Unearned compensation -- ESOP............................................................ (37.0) (44.0)
--------- ---------
Preferred shareholder's equity......................................................... 22.9 17.7
--------- ---------
Common stock (33,759,234 shares issued -- 1997; 32,976,708 shares issued -- 1996)........ 336.9 315.2
Retained earnings........................................................................ 402.3 365.2
Accumulated other comprehensive loss..................................................... (22.8) (20.7)
Treasury stock, at cost (3,539,574 shares -- 1997; 2,458,483 shares -- 1996)............. (105.1) (73.0)
--------- ---------
Common shareholders' equity............................................................ 611.3 586.7
--------- ---------
Total shareholders' equity........................................................... 634.2 604.4
--------- ---------
$ 2,090.1 $ 1,700.8
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
Ball Corporation and Subsidiaries
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
(DOLLARS IN MILLIONS) 1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income from continuing operations.............................................. $ 58.3 $ 13.1 $ 51.9
Reconciliation of net income from continuing operations to
net cash provided by operating activities:
Depreciation and amortization.................................................... 117.5 93.5 78.7
Dispositions and other........................................................... (9.0) 21.0 7.1
Deferred taxes on income......................................................... 17.1 12.4 6.7
Other............................................................................ 2.2 1.6 (1.6)
Working capital changes, excluding effects of acquisitions and dispositions:
Accounts receivable.............................................................. (15.5) (62.4) (27.1)
Inventories...................................................................... (33.4) 3.2 (69.8)
Other current assets............................................................. (7.5) 15.5 (32.6)
Accounts payable................................................................. (2.1) 19.0 22.8
Other current liabilities........................................................ 15.9 (32.6) (3.2)
--------- --------- ---------
Net cash provided by operating activities...................................... 143.5 84.3 32.9
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment......................................... (97.7) (196.1) (178.9)
Acquisitions, net of cash acquired................................................. (202.7) -- --
Investments in and advances to affiliates, net..................................... (11.2) (27.7) (55.2)
Company-owned life insurance, net.................................................. 15.6 (10.3) 88.4
Net cash flows from:
Discontinued operations.......................................................... -- 188.1 116.7
Proceeds from sale of other businesses, net...................................... 31.1 41.3 14.5
Other.............................................................................. 14.0 (13.7) 17.8
--------- --------- ---------
Net cash (used in) provided by investing activities............................ (250.9) (18.4) 3.3
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in long-term borrowings................................................... 2.4 167.6 22.2
Principal payments of long-term debt............................................... (76.9) (66.6) (79.9)
Net change in short-term borrowings................................................ 72.0 12.9 40.0
Common and preferred dividends..................................................... (22.9) (22.8) (23.0)
Proceeds from issuance of common stock under various
employee and shareholder plans................................................... 21.7 21.4 32.5
Acquisitions of treasury stock..................................................... (32.1) (10.3) (27.6)
Other.............................................................................. (0.5) (4.0) (5.7)
--------- --------- ---------
Net cash (used in) provided by financing activities............................ (36.3) 98.2 (41.5)
--------- --------- ---------
NET (DECREASE) INCREASE IN CASH...................................................... (143.7) 164.1 (5.3)
Cash and temporary investments at beginning of year.................................. 169.2 5.1 10.4
--------- --------- ---------
CASH AND TEMPORARY INVESTMENTS AT END OF YEAR........................................ $ 25.5 $ 169.2 $ 5.1
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Ball Corporation and Subsidiaries
<TABLE>
<CAPTION>
NUMBER OF SHARES YEAR ENDED DECEMBER 31,
(IN THOUSANDS) (DOLLARS IN MILLIONS)
1997 1996 1995 1997 1996 1995
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SERIES B ESOP CONVERTIBLE
PREFERRED STOCK
Balance, beginning of year.......................... 1,681 1,787 1,828 $ 61.7 $ 65.6 $ 67.2
Shares retired...................................... (46) (106) (41) (1.8) (3.9) (1.6)
--------- --------- --------- --------- --------- ---------
Balance, end of year................................ 1,635 1,681 1,787 $ 59.9 $ 61.7 $ 65.6
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
UNEARNED COMPENSATION -- ESOP
Balance, beginning of year.......................... $ (44.0) $ (50.4) $ (55.3)
Amortization........................................ 7.0 6.4 4.9
--------- --------- ---------
Balance, end of year................................ $ (37.0) $ (44.0) $ (50.4)
--------- --------- ---------
--------- --------- ---------
COMMON STOCK
Balance, beginning of year.......................... 32,977 32,173 31,034 $ 315.2 $ 293.8 $ 261.3
Shares issued for stock options and other employee
and shareholder stock plans less shares
exchanged......................................... 782 804 1,139 21.7 21.4 32.5
--------- --------- --------- --------- --------- ---------
Balance, end of year................................ 33,759 32,977 32,173 $ 336.9 $ 315.2 $ 293.8
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
RETAINED EARNINGS
Balance, beginning of year.......................... $ 365.2 $ 362.0 $ 401.7
Net income (loss) for the year...................... 58.3 24.2 (18.6)
Common dividends.................................... (18.4) (18.1) (18.0)
Preferred dividends, net of tax benefit............. (2.8) (2.9) (3.1)
--------- --------- ---------
Balance, end of year................................ $ 402.3 $ 365.2 $ 362.0
--------- --------- ---------
--------- --------- ---------
TREASURY STOCK
Balance, beginning of year.......................... (2,458) (2,058) (1,167) $ (73.0) $ (62.7) $ (35.1)
Shares reacquired................................... (1,082) (400) (891) (32.1) (10.3) (27.6)
--------- --------- --------- --------- --------- ---------
Balance, end of year................................ (3,540) (2,458) (2,058) $ (105.1) $ (73.0) $ (62.7)
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED AS OF AND FOR THE YEAR ENDED AS OF AND FOR THE
YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------------------ ------------------------------------ -----------------
ACCUMULATED OTHER ACCUMULATED OTHER
COMPREHENSIVE COMPREHENSIVE COMPREHENSIVE COMPREHENSIVE COMPREHENSIVE
INCOME LOSS INCOME LOSS LOSS
----------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
COMPREHENSIVE INCOME
Balance, beginning of
year..................... $ (20.7) $ (25.6)
Net income (loss) for the
year..................... $ 58.3 $ 24.2 $ (18.6)
----- ----- ------
Foreign currency
translation adjustment,
net of reclassification
adjustments of $2.1, $0,
and ($1.0),
respectively............. (2.6) (0.5) (1.4)
Minimum pension liability
adjustment............... 0.5 5.4 (1.1)
----- ----- ------
Other comprehensive income
(loss)................... (2.1) (2.1) 4.9 4.9 (2.5)
----- ----- ------
Comprehensive income
(loss)................... $ 56.2 $ 29.1 $ (21.1)
----- ------ ----- ------ ------
----- ----- ------
Balance, end of year....... $ (22.8) $ (20.7)
------ ------
------ ------
<CAPTION>
ACCUMULATED OTHER
COMPREHENSIVE
LOSS
-----------------
<S> <C>
COMPREHENSIVE INCOME
Balance, beginning of
year..................... $ (23.1)
Net income (loss) for the
year.....................
Foreign currency
translation adjustment,
net of reclassification
adjustments of $2.1, $0,
and ($1.0),
respectively.............
Minimum pension liability
adjustment...............
Other comprehensive income
(loss)................... (2.5)
Comprehensive income
(loss)...................
------
Balance, end of year....... $ (25.6)
------
------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Ball Corporation and Subsidiaries
SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Ball
Corporation and majority-owned subsidiaries (collectively, Ball or the Company).
Investments in 20 percent through 50 percent owned affiliated companies, and
majority-owned affiliates where control is temporary, are included under the
equity method where Ball exercises significant influence over operating and
financial affairs. Otherwise, investments are included at cost. Differences
between the carrying amounts of equity investments and the Company's interest in
underlying net assets are amortized over periods benefited. Significant
intercompany transactions are eliminated. The results of subsidiaries and equity
affiliates in Asia and South America are reflected in the consolidated financial
statements on a one month lag. There were no significant events which occurred
subsequent to November 30, 1997, which were required to be reflected in the
accompanying financial statements. Certain amounts for 1996 and 1995 have been
reclassified to conform to the 1997 presentation.
In October 1996, the Company sold its 42 percent interest in Ball-Foster
Glass Container Co., L.L.C. (Ball-Foster), a company formed in 1995, to
Compagnie de Saint-Gobain (Saint-Gobain). With this sale, Ball no longer
participates in the manufacture or sale of glass containers. Accordingly, the
accompanying consolidated financial statements and notes segregate the financial
effects of the glass business as discontinued operations. See the note,
"Discontinued Operations," for more information regarding this transaction.
Amounts included in the notes to consolidated financial statements pertain to
continuing operations, except where otherwise noted.
USE OF ESTIMATES
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 contingencies at the date of the financial statements, and
reported amounts of revenues and expenses during the reporting period. Future
events could affect these estimates.
FOREIGN CURRENCY TRANSLATION
Foreign currency financial statements of foreign operations, where the local
currency is the functional currency, are translated using period-end exchange
rates for assets and liabilities and average exchange rates during each period
for results of operations and cash flows.
REVENUE RECOGNITION
Sales and earnings are recognized primarily upon shipment of products,
except in the case of long-term contracts within the aerospace and technologies
segment for which revenue is recognized under the percentage-of-completion
method. Certain of these contracts provide for fixed and incentive fees, which
are recorded as they are earned or when incentive amounts become determinable.
Provision for estimated contract losses, if any, is made in the period that such
losses are determined.
TEMPORARY INVESTMENTS
Temporary investments are considered cash equivalents if original maturities
are three months or less.
F-7
<PAGE>
FINANCIAL INSTRUMENTS
Accrual accounting is applied for financial instruments classified as
hedges. Costs of hedging instruments are deferred as a cost adjustment, or
deferred and amortized as a yield adjustment, over the term of the hedging
agreement. Gains and losses on early terminations of derivative financial
instruments related to debt are deferred and amortized as yield adjustments.
Deferred gains and losses related to exchange rate forwards are recognized as
cost adjustments of the related purchase or sale transaction. If a financial
instrument no longer qualifies as an effective hedge, the instrument is recorded
at fair market value.
INVENTORIES
Inventories are stated at the lower of cost or market. The cost for certain
U.S. metal beverage container inventories and substantially all inventories
within the U.S. metal food container business is determined using the last-in,
first-out (LIFO) method of accounting. The cost for remaining inventories is
determined using the first-in, first-out (FIFO) method.
DEPRECIATION AND AMORTIZATION
Depreciation is provided on the straight-line method in amounts sufficient
to amortize the cost of the properties over their estimated useful lives
(buildings -- 15 to 40 years; machinery and equipment -- 5 to 10 years).
Goodwill is amortized over the periods benefited, 40 years. The Company
evaluates long-lived assets, including goodwill and other intangibles, based on
fair values or undiscounted cash flows whenever significant events or changes in
circumstances occur which indicate the carrying amount may not be recoverable.
TAXES ON INCOME
Deferred income taxes reflect the future tax consequences of differences
between the tax bases of assets and liabilities and their financial reporting
amounts at each balance sheet date, based upon enacted income tax laws and tax
rates. Income tax expense or benefit is provided based on earnings reported in
the financial statements. The provision for income tax expense or benefit
differs from the amounts of income taxes currently payable because certain items
of income and expense included in the consolidated financial statements are
recognized in different time periods by taxing authorities.
EMPLOYEE STOCK OWNERSHIP PLAN
Ball records the cost of its Employee Stock Ownership Plan (ESOP) using the
shares allocated transitional method under which the annual pretax cost of the
ESOP, including preferred dividends, approximates program funding. Compensation
and interest components of ESOP cost are included in net income; preferred
dividends, net of related tax benefits, are shown as a reduction from net
income. Unearned compensation -- ESOP recorded within the accompanying balance
sheet is reduced as the principal of the guaranteed ESOP notes is amortized.
EARNINGS PER SHARE
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
128, "Earnings per Share," effective December 31, 1997. Under SFAS No. 128, Ball
is required to present both earnings per common share and diluted earnings per
share amounts. Earnings per common share are computed by dividing the net
earnings (loss) attributable to common shareholders by the weighted average
number of common shares outstanding for the period. Diluted earnings per share
reflect the potential dilution that could occur if the Series B ESOP Convertible
Preferred Stock (ESOP Preferred) was converted into additional outstanding
common shares and outstanding dilutive stock options were exercised. In the
diluted computation, net earnings (loss) attributable to common shareholders are
adjusted for additional ESOP contributions which would be required if the ESOP
Preferred was converted to common shares and
F-8
<PAGE>
excludes the tax benefit of deductible common dividends upon the assumed
conversion of the ESOP Preferred. Adoption of the new standard, which requires
restatement of previously disclosed amounts, had no effect on previously
disclosed earnings per common share amounts and had an insignificant effect on
previously disclosed diluted earnings per share amounts.
In 1995, the assumed conversion of the ESOP Preferred and exercise of stock
options resulted in a dilutive effect on continuing operations. Accordingly, the
diluted weighted average share amounts are required to be used for discontinued
operations, resulting in a lower total diluted loss per share than the total
loss per common share.
COMPREHENSIVE INCOME
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income," in
the accompanying financial statements. In accordance with SFAS No. 130, the
Company is required to report the changes in shareholders' equity from all
sources during the period other than those resulting from investments by
shareholders (such as issuance or repurchase of common shares and dividends).
Although adoption of this standard has not resulted in any change in the
historic basis of the determination of earnings or shareholders' equity, the
comprehensive income (loss) components recorded under generally accepted
accounting principles and previously included under the category "retained
earnings" are displayed as "accumulated other comprehensive loss" within the
consolidated balance sheet and the components of other comprehensive income
(loss) are displayed in the statement of shareholders' equity. The presentation
required by SFAS No. 130 has been provided for all periods covered by these
financial statements. Refer to the note "Shareholder's Equity" for information
regarding SFAS No. 130.
NEW ACCOUNTING PRONOUNCEMENT
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information," was issued in June 1997 and will be effective for the Company in
1998. SFAS No. 131 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 shareholders. It also establishes standards for related disclosures
about products and services, geographic areas and major customers. The Company
is evaluating this standard to determine the impact, if any, on its segment
reporting.
BUSINESS SEGMENT INFORMATION
The Company has two business segments: packaging, and aerospace and
technologies.
PACKAGING
The packaging segment includes the businesses that manufacture metal and PET
(polyethylene terephthalate) containers, primarily for use in beverage and food
packaging. The Company's packaging operations are located in and serve North
America (the U.S. and Canada) and Asia (primarily China). Packaging operations
in Asia have increased as a result of the early 1997 acquisition of a
controlling interest in M.C. Packaging (Hong Kong) Limited (M.C. Packaging). The
results of that business are included within the packaging segment since its
acquisition date. Ball also has investments in packaging companies in Brazil and
Thailand which are accounted for under the equity method, and, accordingly,
those results are not included in segment earnings or assets. See the notes,
"Acquisitions" and "Dispositions and Other," for additional information
regarding these and other transactions affecting segment results.
F-9
<PAGE>
AEROSPACE AND TECHNOLOGIES
The aerospace and technologies segment includes: the aerospace systems
division, comprised of civil space systems, technology operations, defense
systems, commercial space operations and systems engineering; and the
telecommunication products division, comprised of advanced antenna and video
systems and communication and video products. See the note, "Dispositions and
Other," for information regarding transactions affecting segment results.
MAJOR CUSTOMERS
Packaging segment sales to PepsiCo, Inc., and affiliates represented
approximately 12 percent of consolidated net sales in 1997 and 1996, and less
than 10 percent of consolidated net sales in 1995. Sales to Anheuser-Busch
Companies, Inc., represented approximately 9 percent of consolidated net sales
in 1997 and approximately 11 percent and 14 percent of consolidated net sales in
1996 and 1995, respectively. Sales to all bottlers of Pepsi-Cola and Coca-Cola
branded beverages comprised approximately 36 percent of consolidated net sales
in both 1997 and 1996 and 32 percent of consolidated net sales in 1995. Sales to
various U.S. government agencies by the aerospace and technologies segment,
either as a prime contractor or as a subcontractor, represented approximately 14
percent, 15 percent and 13 percent of consolidated net sales in 1997, 1996 and
1995, respectively.
F-10
<PAGE>
<TABLE>
<CAPTION>
SUMMARY OF BUSINESS BY SEGMENT
(DOLLARS IN MILLIONS) 1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
NET SALES
Packaging...................................................................... $ 1,989.8 $ 1,822.1 $ 1,730.0
Aerospace and technologies..................................................... 398.7 362.3 315.8
--------- --------- ---------
Consolidated net sales....................................................... $ 2,388.5 $ 2,184.4 $ 2,045.8
--------- --------- ---------
--------- --------- ---------
INCOME
Packaging...................................................................... $ 108.3 $ 57.6 $ 95.6
Dispositions and other (1)..................................................... (3.0) (21.0) (10.9)
--------- --------- ---------
Total packaging............................................................ 105.3 36.6 84.7
--------- --------- ---------
Aerospace and technologies..................................................... 34.0 31.4 27.3
Dispositions and other (1)..................................................... -- -- 3.8
--------- --------- ---------
Total aerospace and technologies........................................... 34.0 31.4 31.1
--------- --------- ---------
Consolidated operating earnings................................................ 139.3 68.0 115.8
Corporate undistributed expenses, net.......................................... (11.9) (5.1) (13.2)
Dispositions and other (1)..................................................... 12.0 -- --
--------- --------- ---------
Total corporate............................................................ 0.1 (5.1) (13.2)
--------- --------- ---------
Interest expense............................................................... (53.5) (33.3) (25.7)
--------- --------- ---------
Consolidated income from continuing operations before taxes on income........ $ 85.9 $ 29.6 $ 76.9
--------- --------- ---------
--------- --------- ---------
ASSETS EMPLOYED IN OPERATIONS
Packaging...................................................................... $ 1,729.2 $ 1,198.7 $ 1,081.0
Aerospace and technologies..................................................... 140.6 131.6 125.0
--------- --------- ---------
Assets employed in operations.............................................. 1,869.8 1,330.3 1,206.0
Discontinued operations........................................................ -- -- 200.8
Investments in affiliates (2).................................................. 74.5 80.9 84.5
Corporate (3).................................................................. 145.8 289.6 122.7
--------- --------- ---------
Total assets............................................................... $ 2,090.1 $ 1,700.8 $ 1,614.0
--------- --------- ---------
--------- --------- ---------
PROPERTY, PLANT AND EQUIPMENT ADDITIONS
Packaging...................................................................... $ 75.7 $ 179.7 $ 163.3
Aerospace and technologies..................................................... 18.6 15.1 13.9
Corporate...................................................................... 3.4 1.3 1.7
--------- --------- ---------
Total additions............................................................ $ 97.7 $ 196.1 $ 178.9
--------- --------- ---------
--------- --------- ---------
DEPRECIATION AND AMORTIZATION
Packaging...................................................................... $ 101.4 $ 78.9 $ 65.5
Aerospace and technologies..................................................... 14.3 12.5 10.9
Corporate...................................................................... 1.8 2.1 2.3
--------- --------- ---------
Total depreciation and amortization........................................ $ 117.5 $ 93.5 $ 78.7
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------------------
(1) Refer to the note, "Dispositions and Other."
(2) Refer to the note, "Other Assets."
(3) Corporate assets include cash and temporary investments, current deferred
and prepaid income taxes, amounts related to employee benefit plans and
corporate facilities and equipment.
F-11
<PAGE>
Financial data segmented by geographic area is provided below.
SUMMARY OF BUSINESS BY GEOGRAPHIC AREA
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS) U.S. CANADA ASIA ELIMINATIONS CONSOLIDATED
--------- --------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C>
1997
Net sales
Sales to unaffiliated customers..................... $ 1,889.0 $ 267.7 $ 231.8 $ -- $ 2,388.5
Inter-area sales to affiliates...................... -- 0.9 -- (0.9) --
--------- --------- --------- ----- ------------
1,889.0 268.6 231.8 (0.9) 2,388.5
--------- --------- --------- ----- ------------
--------- --------- --------- ----- ------------
Consolidated operating earnings(1).................... 122.4 11.1 6.2 (0.4) 139.3
--------- --------- --------- ----- ------------
--------- --------- --------- ----- ------------
Assets employed in operations......................... $ 1,049.8 $ 209.8 $ 618.8 $ (8.6) $ 1,869.8
--------- --------- --------- ----- ------------
--------- --------- --------- ----- ------------
1996
Net sales
Sales to unaffiliated customers..................... $ 1,826.3 $ 291.2 $ 66.9 $ -- $ 2,184.4
Inter-area sales to affiliates...................... -- 0.5 -- (0.5) --
--------- --------- --------- ----- ------------
1,826.3 291.7 66.9 (0.5) 2,184.4
--------- --------- --------- ----- ------------
--------- --------- --------- ----- ------------
Consolidated operating earnings(1).................... 62.0 4.4 3.0 (1.4) 68.0
--------- --------- --------- ----- ------------
--------- --------- --------- ----- ------------
Assets employed in operations......................... $ 976.5 $ 217.9 $ 138.4 $ (2.5) $ 1,330.3
--------- --------- --------- ----- ------------
--------- --------- --------- ----- ------------
1995
Net sales
Sales to unaffiliated customers..................... $ 1,685.7 $ 304.0 $ 56.1 $ -- $ 2,045.8
Inter-area sales to affiliates...................... -- 0.3 -- (0.3) --
--------- --------- --------- ----- ------------
1,685.7 304.3 56.1 (0.3) 2,045.8
--------- --------- --------- ----- ------------
--------- --------- --------- ----- ------------
Consolidated operating earnings(1).................... 92.1 19.1 4.7 (0.1) 115.8
--------- --------- --------- ----- ------------
--------- --------- --------- ----- ------------
Assets employed in operations......................... $ 951.1 $ 198.2 $ 60.4 $ (3.7) $ 1,206.0
--------- --------- --------- ----- ------------
--------- --------- --------- ----- ------------
</TABLE>
- ------------------------
(1) Refer to the note, "Dispositions and Other."
ACQUISITIONS
M.C. PACKAGING (HONG KONG) LIMITED
In early 1997, Ball, through its majority-owned subsidiary, FTB Packaging
Limited (FTB Packaging), acquired 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. M.C. Packaging produces two-piece aluminum beverage containers,
three-piece steel beverage and food containers, aerosol cans, plastic packaging,
metal crowns and printed and coated metal.
The acquisition has been accounted for as a purchase, with M.C. Packaging's
results included in the Company's consolidated financial statements effective
with the acquisition. The preliminary purchase price allocation included
provisions for costs incurred in 1997, or expected to be incurred, for
severance, relocation and other restructuring activities of approximately $7.3
million. In 1997, approximately $1.9 million was charged against these reserves,
primarily related to employee termination costs. To the extent that the actual
costs to complete these activities are different from the estimated amounts
provided, the change will be reflected as an adjustment to goodwill. The excess
of the purchase price over the net book value of
F-12
<PAGE>
assets acquired and liabilities assumed has been preliminarily assigned to
long-term assets, including goodwill of $122.3 million, and is being amortized
to expense over the periods benefited.
Following is a summary of the net assets acquired:
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C>
Total assets, including cash of $18.8 million........................................ $ 487.3
Less liabilities assumed:
Current liabilities (other than debt).............................................. 63.3
Total debt......................................................................... 198.0
Other long-term liabilities and minority interests................................. 47.2
---------
Net assets acquired.................................................................. $ 178.8
---------
---------
</TABLE>
The following table illustrates the effects of the acquisition on a pro
forma basis for the year ended 1996 as though it had occurred at January 1,
1996.
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) 1996(2)
---------
<S> <C>
Net sales.......................................................................... $ 2,366.4
Net income......................................................................... 1.1
Net loss attributable to common shareholders....................................... (1.8)
Loss per common share(1)........................................................... (0.06)
</TABLE>
- ------------------------
(1) The effect of assuming conversion of the ESOP Preferred shares would be
anti-dilutive. Accordingly, the diluted loss per share is the same as the
loss per common share.
(2) All amounts reflect continuing operations only.
The unaudited pro forma financial information is provided for informational
purposes only and does not purport to be indicative of the future results or
what the results of operations would have been had the acquisition been effected
on January 1, 1996. In addition to increased interest expense related to
incremental borrowings used to finance the acquisition and the amortization of
goodwill, pro forma results include charges of $6.2 million after taxes and
minority interests, or 20 cents per share, in connection with preacquisition
inventory, accounts receivable and other items which management believes to be
at abnormally high levels not anticipated in the future.
PET CONTAINER ASSETS
In the third quarter of 1997, the Company acquired certain PET container
assets for a purchase price of approximately $42.7 million from Brunswick
Container Corporation (Brunswick), including goodwill and other intangible
assets of approximately $28.3 million. In connection with the acquisition, the
Company began operating a new plant in Delran, New Jersey, to supply a large
East Coast bottler of soft drinks and other customers, and closed small
manufacturing facilities in Pennsylvania and Virginia. See the note,
"Dispositions and Other," for additional information regarding these plant
closures.
F-13
<PAGE>
DISPOSITIONS AND OTHER
The following table summarizes the gains and losses in connection with
dispositions and other charges included in the consolidated statement of income
(loss) during the three years ended December 31, 1997.
<TABLE>
<CAPTION>
EARNINGS (LOSS)
PRETAX AFTER TAX PER
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) GAIN (LOSS) GAIN (LOSS) COMMON SHARE
----------- ----------- ---------------
<S> <C> <C> <C>
1997 ITEMS
Sale of investment in Datum....................... $ 11.7 $ 7.1 $ 0.23
Plant closing..................................... (3.0) (1.8) (0.06)
Disposition and write-down of equity
investments...................................... 0.3 (0.3) (0.01)
----------- ----------- ------
$ 9.0 $ 5.0 $ 0.16
----------- ----------- ------
----------- ----------- ------
1996 ITEMS
Sale of U.S. aerosol business..................... $ (3.3) $ (4.4) $ (0.14)
Plant closings and other.......................... (17.7) (11.0) (0.37)
Write-down of investment in EarthWatch(1)......... -- (9.3) (0.31)
----------- ----------- ------
$ (21.0) $ (24.7) $ (0.82)
----------- ----------- ------
----------- ----------- ------
1995 ITEMS
Gain on sale of Efratom business.................. $ 11.8 $ 7.7 $ 0.25
Disposition of imaging business................... (8.0) (4.9) (0.16)
Plant closings and other.......................... (10.9) (6.6) (0.22)
----------- ----------- ------
$ (7.1) $ (3.8) $ (0.13)
----------- ----------- ------
----------- ----------- ------
</TABLE>
- ------------------------
(1) Reflected in "equity in (losses) earnings of affiliates" in the accompanying
consolidated statement of income (loss).
1997 ITEMS
In the first half of 1997, the Company sold its interest in the common stock
of Datum Inc. (Datum), for approximately $26.2 million, recording a pretax gain
of $11.7 million. Ball acquired its interest in Datum in connection with the
1995 disposition of its Efratom time and frequency measurement devices business
(see 1995 items). The Company owned approximately 32 percent of Datum. Ball's
share of Datum's earnings under the equity method of accounting were $0.5
million and $0.3 million in 1997 and 1995, respectively, and a loss of $0.2
million in 1996.
In the second quarter of 1997, the Company recorded a pretax charge of $3.0
million to close a small PET container manufacturing plant in connection with
the acquisition of certain PET container manufacturing assets. Operations ceased
during that quarter. A second plant, acquired from Brunswick, was closed in
early 1998.
In the fourth quarter of 1997, Ball disposed of or wrote down to estimated
net realizable value certain equity investments, resulting in a net pretax gain
of $0.3 million. The Company's equity in the net earnings of these affiliates
was not significant in 1997, 1996 and 1995.
1996 ITEMS
In the fourth quarter of 1996, Ball sold its U.S. aerosol container
manufacturing business, with net assets of approximately $47.5 million,
including $6.0 million of goodwill, for $44.3 million, comprised of cash and a
$3.0 million note, recording a pretax loss of $3.3 million.
F-14
<PAGE>
In late 1996, the Company closed a metal food container manufacturing
facility and discontinued the manufacture of metal beverage containers at
another facility. Ball recorded a pretax charge of $14.9 million consisting of
$9.4 million to write down assets to net realizable value and $5.5 million for
employee termination costs, benefits and other direct costs. In addition, in the
first quarter of 1996, Ball recorded a charge of $2.8 million for employee
termination costs, primarily related to the metal packaging business.
Curtailment activities were substantially completed during 1997.
In 1994, the Company formed EarthWatch, Incorporated (EarthWatch), and in
1995 acquired WorldView, Inc., to commercialize certain proprietary technologies
by serving the market for satellite-based remote sensing images of the Earth.
Through December 31, 1995, the Company invested approximately $21 million in
EarthWatch. As of December 31, 1996, EarthWatch had experienced extended product
development and deployment delays and expected to incur significant product
development losses into the future, exceeding Ball's investment. Although Ball
was a 49 percent equity owner of EarthWatch at year end 1996, and had contracted
to design satellites for that company, the remaining carrying value of the
investment was written to zero. Accordingly, Ball recorded a pretax charge of
$15.0 million ($9.3 million after tax or 31 cents per share), in the fourth
quarter of 1996 which is reflected as a part of equity in losses of affiliates.
EarthWatch continued to incur losses throughout 1997. Ball has no commitments to
provide further equity or debt financing to EarthWatch beyond its investment to
date. Subject to certain conditions, Ball has agreed to produce satellites for
Earth Watch. At year end 1997, Ball owned approximately 48 percent of the voting
stock in EarthWatch.
1995 ITEMS
During 1994, the Company concluded a study which explored strategic
alternatives for the aerospace and technologies business. A decision was made to
retain the core aerospace and technologies business, but to sell its Efratom
business. Efratom was sold in March 1995 to Datum for cash of $15.0 million and
approximately 1.3 million shares, or approximately 32 percent, of Datum common
stock with a market value at the date of the sale of $14.0 million. Ball
recorded a pretax gain of $11.8 million in connection with this sale.
In late 1995, the metal packaging business recorded a pretax charge of $10.9
million as a result of the curtailment of certain manufacturing capacity and
write-down of certain unproductive manufacturing equipment to net realizable
value. The charge included $7.5 million for asset write-downs to net realizable
value and $3.4 million for employment termination costs, benefits and other
direct costs. Curtailment activities were substantially completed during 1996.
In addition, a charge of $8.0 million was recorded in 1995 for costs
associated with the 1993 decision to exit the visual image generating systems
business. All significant business activities associated with the exit were
completed in early 1997.
SUBSEQUENT EVENTS
RELOCATION
On February 4, 1998, Ball announced that it would relocate its corporate
headquarters to an existing company-owned building in Broomfield, Colorado. In
connection with the relocation, the Company expects to record in 1998 a charge
estimated to be approximately $20 million pretax, primarily for employee related
costs and the write-down of certain assets to net realizable values. This move
is expected to be largely completed by the end of 1998.
ACQUISITION OF REYNOLDS' NORTH AMERICAN BEVERAGE CAN BUSINESS (UNAUDITED)
On August 10, 1998, Ball and its Ball Metal Beverage Container Corp.
subsidiary acquired essentially all of Reynolds Metals Company's North American
aluminum beverage can manufacturing business, consisting largely of 14 can
plants and 2 end plants in 12 states and Puerto Rico, for $745.4 million,
subject to certain adjustments.
F-15
<PAGE>
In conjunction with the Acquisition, Ball refinanced $521.9 million of
existing indebtedness under a new senior bank credit facility. To finance the
Acquisition, Ball issued $300.0 million of Outstanding Senior Notes due 2006 and
$250.0 million of Outstanding Senior Subordinated Notes due 2008 with the
balance of the purchase price funded from additional borrowings under the new
senior bank credit facility.
DISCONTINUED OPERATIONS
In September 1995, the Company sold substantially all of the assets of Ball
Glass Container Corporation (Ball Glass), a wholly owned subsidiary of Ball, to
Ball-Foster for approximately $323 million in cash. Concurrent with this
transaction, the Company acquired a 42 percent interest in Ball-Foster for
$180.6 million. The remaining 58 percent interest was acquired for $249.4
million by Saint-Gobain. Ball-Foster also acquired substantially all of the
assets of Foster-Forbes, a unit of American National Can Company.
In October 1996, the Company sold its interest in Ball-Foster to
Saint-Gobain for $190 million in cash and received an additional $15 million in
cash in final settlement of the 1995 transaction. With the October 1996 sale,
Ball no longer participates in the glass business.
The following table provides summary income statement data related to the
discontinued glass business:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
(DOLLARS IN MILLIONS) 1996 1995
--------- ---------
<S> <C> <C>
Net sales.......................................................... $ -- $ 545.9
--------- ---------
Earnings attributable to previously consolidated Ball Glass
operations before interest and taxes on income, excluding loss on
sale.............................................................. $ -- $ 30.5
Pretax gain (loss) on sale of Ball-Foster/Ball Glass............... 24.1 (111.1)
Ball's share of Ball-Foster's net loss............................. (7.6) (2.3)
Adjustment of provisions to currently estimated requirements....... 11.0 --
Allocated interest expense......................................... (5.5) (12.1)
Provision for income tax (expense) benefit......................... (10.9) 27.5
Minority interest.................................................. -- (3.0)
--------- ---------
Net income (loss) attributable to the glass business............... $ 11.1 $ (70.5)
--------- ---------
--------- ---------
</TABLE>
Interest expense allocated to the glass business was based on the average
net assets of the glass business and Ball's weighted average interest rate for
general borrowings. Debt specifically identified with the Company's other
operations was excluded in determining the weighted average interest rate. The
net loss attributable to discontinued operations in 1995 included general and
administrative expenses directly related to the glass business of approximately
$5.7 million.
ACCOUNTS RECEIVABLE
Accounts receivable are net of an allowance for doubtful accounts of $12.2
million and $5.1 million at December 31, 1997 and 1996, respectively.
SALE OF TRADE ACCOUNTS RECEIVABLE
In December 1997, Ball Capital Corp., a wholly owned subsidiary of Ball,
entered into a receivables sale agreement which provides for the ongoing,
revolving sale of up to $75.0 million of a designated pool of trade accounts
receivable of Ball's domestic packaging businesses. The current agreement
expires in December 1998. Net funds received under this agreement and a similar
agreement in the prior year totaled $65.9 million and $66.5 million at December
31, 1997 and 1996, respectively. Fees incurred in connection
F-16
<PAGE>
with the sale of accounts receivable in 1997, 1996 and 1995, and which are
included in general and administrative expenses, totaled $4.0 million, $3.7
million and $4.3 million, respectively.
ACCOUNTS RECEIVABLE IN CONNECTION WITH LONG-TERM CONTRACTS
Net accounts receivable under long-term contracts, due primarily from
agencies of the U.S. government, were $63.7 million and $60.4 million at
December 31, 1997 and 1996, respectively, and include unbilled amounts
representing revenue earned but not yet billable of $28.0 million and $15.4
million, respectively. Approximately $9.3 million of unbilled receivables at
December 31, 1997, is expected to be collected after one year.
INVENTORIES
Inventories at December 31 consisted of the following:
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS) 1997 1996
--------- ---------
<S> <C> <C>
Raw materials and supplies................................................. $ 184.9 $ 95.7
Work in process and finished goods......................................... 228.4 206.3
--------- ---------
$ 413.3 $ 302.0
--------- ---------
--------- ---------
</TABLE>
Approximately 67 percent of total U.S. product inventories at December 31,
1997 and 1996, were valued using LIFO accounting. Inventories at December 31,
1997 and 1996, would have been $9.9 million and $10.1 million higher,
respectively, than the reported amounts if the FIFO method, which approximates
replacement cost, had been used for all inventories.
OTHER ASSETS
The composition of other assets at December 31 was as follows:
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS) 1997 1996
--------- ---------
<S> <C> <C>
Investments in affiliates
Packaging affiliates..................................................... $ 74.5 $ 66.8
Datum Inc................................................................ -- 14.1
--------- ---------
Total investments in affiliates........................................ 74.5 80.9
Goodwill, net(1)........................................................... 194.8 59.5
Net cash surrender value of company-owned life insurance 24.6 32.5
Other...................................................................... 78.6 62.3
--------- ---------
$ 372.5 $ 235.2
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(1) Net of accumulated amortization of $20.6 million and $16.3 million at
December 31, 1997 and 1996, respectively.
COMPANY-OWNED LIFE INSURANCE
The Company has purchased insurance on the lives of certain employees.
Premiums were approximately $6 million in each of 1997 and 1996 and $20 million
in 1995. Amounts in the consolidated statement of cash flows represent net cash
flows from this program, including policy loans of approximately $10 million in
each of 1997 and 1996 and $113 million in 1995, and partial withdrawals of
approximately $22 million in 1997. Legislation enacted in 1996 limits the amount
of interest on policy loans which can be deducted for federal income tax
purposes. The limits affect insurance programs initiated after June 1986, and
phase-in over a three-year period. As a result of the new legislation, the
Company was unable to deduct certain amounts of its policy loan interest in
1996, resulting in higher income tax expense of approximately $1.5 million (five
cents per share). As a result of actions taken by Ball in 1996, the new
legislation did not have a significant impact on 1997 results.
F-17
<PAGE>
DEBT AND INTEREST COSTS
Short-term debt at December 31 consisted of the following:
<TABLE>
<CAPTION>
1997 1996
------------------------ ------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
(DOLLARS IN MILLIONS) OUTSTANDING RATE(1) OUTSTANDING RATE(1)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. bank facilities......................... $ 85.5 5.8% $ -- 5.5%
Canadian dollar commercial paper............. 40.9 3.4% 57.6 4.5%
Asian bank facilities(2)..................... 181.9 7.0% 58.7 7.2%
----------- -----------
$ 308.3 $ 116.3
----------- -----------
----------- -----------
</TABLE>
- ------------------------
(1) Represents the weighted average interest rate on short-term borrowings for
the year.
(2) Facilities for FTB Packaging and affiliates in U.S. ($130.2 million at year
end 1997) and Asian currencies. Borrowings are without recourse to Ball
Corporation.
Long-term debt at December 31 consisted of the following:
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS) 1997 1996
--------- ---------
<S> <C> <C>
Notes Payable
Private placements:
6.29% to 6.82% serial installment notes (6.71% weighted average) due
through 2008......................................................... $ 147.1 $ 150.0
8.09% to 8.75% serial installment notes (8.54% weighted average) due
through 2012......................................................... 90.6 101.4
8.20% to 8.57% serial notes (8.36% weighted average) due 1999 through
2000................................................................. 60.0 60.0
10.00% serial note due 1998............................................ 20.0 35.0
9.66% serial note due 1998(1).......................................... -- 20.0
Floating rate notes (6.56% to 7.63% at year end 1997) due through
2002(2).............................................................. 75.1 18.0
Industrial Development Revenue Bonds
Floating rates (2.5% to 4.3% at year end 1997) due through 2011.......... 31.5 32.2
Other...................................................................... 3.5 6.0
ESOP Debt Guarantee........................................................
8.38% installment notes due through 1999 11.9 18.9
8.75% installment note due 1999 through 2001............................. 25.1 25.1
--------- ---------
464.8 466.6
Less:
Current portion of long-term debt........................................ 98.7 58.9
--------- ---------
$ 366.1 $ 407.7
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(1) This note was prepaid without penalty in 1997.
(2) U.S. dollar-denominated notes issued by FTB Packaging and affiliates.
In the United States, Ball had committed revolving credit agreements at
December 31, 1997, totaling $280 million consisting of a five-year facility
expiring July 2002 for $150 million and 364-day facilities for $130 million. The
revolving credit agreements provide for various borrowing rates, including
borrowing rates based on the London Interbank Offered Rate (LIBOR). The Canadian
dollar commercial paper facility provides for committed short-term funds of
approximately $84 million. The Company also has
F-18
<PAGE>
short-term uncommitted credit facilities in the United States of approximately
$326 million, and, in Asia, FTB Packaging, including M.C. Packaging, had
short-term uncommitted credit facilities of approximately $250 million at
December 31, 1997. Ball pays a facility fee on the committed facilities.
In January 1996, the Company issued long-term, senior, unsecured notes to
several insurance companies for $150 million with a weighted average interest
rate of 6.71 percent and maturities from 1997 through 2008. Fixed-term debt in
China at year end 1997 included approximately $57.2 million of floating rate
notes issued by M.C. Packaging and its consolidated affiliates, and a floating
rate note issued by FTB Packaging's Beijing affiliate. Maturities of all fixed
long-term debt obligations outstanding at December 31, 1997, are $62.8 million,
$59.2 million, $35.2 million and $19.5 million for the years ending December 31,
1999 through 2002, respectively.
FTB Packaging issues letters of credit in the ordinary course of business in
connection with supplier arrangements and provides guarantees to secure bank
financing for its affiliates. At year end, FTB Packaging, including M.C.
Packaging, had outstanding letters of credit and guarantees of unconsolidated
affiliate debt of approximately $14.1 million. Ball also issues letters of
credit in the ordinary course of business to secure liabilities recorded in
connection with the Company's deferred compensation program, industrial
development revenue bonds and insurance arrangements, of which $72.5 million was
outstanding at December 31, 1997. Ball Corporation also has provided a
completion guarantee representing 50 percent of the $54 million of debt issued
by the Company's Brazilian joint venture to fund the construction of the
facilities. ESOP debt represents borrowings by the trust for the Ball-sponsored
ESOP; the borrowings have been irrevocably guaranteed by the Company.
The U.S. note agreements, bank credit agreement, ESOP debt guarantee and
industrial development revenue bond agreements contain certain restrictions
relating to dividends, investments, guarantees and other borrowings. Under the
most restrictive covenant, approximately $166 million was available for payment
of dividends and purchases of treasury stock at December 31, 1997.
The Company was not in default of any loan agreement at December 31, 1997,
and has met all payment obligations. M.C. Packaging was, however, in
noncompliance with certain financial ratio provisions, including interest
coverage and current ratio, under a fixed term loan agreement of which $37.5
million was outstanding at year end. The lender granted M.C. Packaging an
unspecified period to present a revised, comprehensive financing structure for
its business. Management believes that M.C. Packaging has made significant
progress towards concluding an alternative, longer term financing arrangement
satisfactory to all parties and that, although such an arrangement has
substantially been concluded, a definitive agreement has not yet been executed.
Management also believes that existing credit resources will be adequate to meet
foreseeable financing requirements. Ball Corporation does not guarantee any debt
obligations of M.C. Packaging.
A summary of total interest cost paid and accrued follows:
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS) 1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Interest costs....................................................... $ 57.9 $ 39.9 $ 29.2
Amounts capitalized.................................................. (4.4) (6.6) (3.5)
--------- --------- ---------
Interest expense................................................... 53.5 33.3 25.7
--------- --------- ---------
--------- --------- ---------
Interest paid during year(1)......................................... $ 53.9 $ 37.3 $ 42.6
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------------------
(1) Includes $5.5 million and $12.1 million for 1996 and 1995, respectively,
allocated to discontinued operations.
SUBSIDIARY GUARANTEES OF DEBT
The Outstanding Senior Notes and Outstanding Senior Subordinated Notes
issued in conjunction with the Acquisition of Reynolds Metals Company's
("RMC's") North American aluminum beverage can manufacturing business (as more
fully described in the note "Subsequent Events, Acquisition of Reynolds'
F-19
<PAGE>
North American Beverage Can Business (unaudited)") are, and the Senior Exchange
Notes and Senior Subordinated Exchange Notes issued in this Exchange Offer will
be, guaranteed by certain of the Company's domestic, wholly owned subsidiaries
(the "Guarantor Subsidiaries") on a full, unconditional, and joint and several
basis. The following is summarized condensed consolidating financial information
for the Company, segregating Guarantor Subsidiaries and Non-Guarantor
Subsidiaries, as of December 31, 1997 and 1996 and for the three years ended
December 31, 1997. Separate financial statements for the Subsidiary Guarantors
and the Non-Guarantor Subsidiaries are not presented because management has
determined that such financial statements would not be material to investors.
The assets and liabilities of the aerospace and packaging divisions of Ball
Corporation were contributed to newly formed subsidiaries in August 1995 and
February 1996, respectively. These operations have been presented below in the
Guarantor Subsidiaries column for all periods. Effective February 1996, Ball
Corporation entered into technology, trademark and tradename licensing
agreements with certain Guarantor Subsidiaries whereby Ball Corporation charges
these Guarantor Subsidiaries fees for the use of Ball Corporation technology,
trademark and tradename assets. In addition, effective February 1996, certain
Guarantor Subsidiaries assumed debt obligations of Ball Corporation. The effects
of these transactions have not been reflected in the applicable Ball Corporation
or Guarantor Subsidiaries columns prior to February 1996. The assets and
liabilities of RMC's North American aluminum beverage can manufacturing business
were acquired by a Guarantor Subsidiary and are not included in the Guarantor
Subsidiaries column for any period presented.
F-20
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
--------------------------------------------------------------------
DECEMBER 31, 1997
--------------------------------------------------------------------
BALL GUARANTOR NON-GUARANTOR ELIMINATING CONSOLIDATED
CORPORATION SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL
----------- ----------- --------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and temporary investments.......... $ 4.2 $ 0.5 $ 20.8 $ -- $ 25.5
Accounts receivable, net................ 2.8 191.5 107.1 -- 301.4
Inventories, net
Raw materials and supplies............ -- 113.5 71.4 -- 184.9
Work in process and finished goods.... -- 161.1 67.3 -- 228.4
Deferred income tax benefits and prepaid
expenses.............................. (22.0) 62.9 17.0 -- 57.9
----------- ----------- ------ ----------- ------------
Total current assets.................. (15.0) 529.5 283.6 -- 798.1
----------- ----------- ------ ----------- ------------
Property, plant and equipment, at cost.... 36.6 1,049.6 469.9 -- 1,556.1
Accumulated depreciation.................. (21.7) (525.3) (89.6) -- (636.6)
----------- ----------- ------ ----------- ------------
14.9 524.3 380.3 -- 919.5
----------- ----------- ------ ----------- ------------
Investment in subsidiaries................ 1,094.0 -- -- (1,094.0) --
Investment in affiliates.................. 5.1 -- 69.4 -- 74.5
Goodwill, net............................. -- 50.0 144.8 -- 194.8
Other assets.............................. 53.4 34.4 15.4 -- 103.2
----------- ----------- ------ ----------- ------------
$ 1,152.4 $ 1,138.2 $ 893.5 $(1,094.0) $ 2,090.1
----------- ----------- ------ ----------- ------------
----------- ----------- ------ ----------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt and current portion of
long-term debt........................ $ 93.4 $ 39.1 $ 274.5 $ -- $ 407.0
Accounts payable........................ 7.1 179.4 72.1 -- 258.6
Salaries, wages and accrued employee
benefits.............................. 16.1 55.2 7.0 -- 78.3
Other current liabilities............... (39.2) 85.4 47.7 -- 93.9
----------- ----------- ------ ----------- ------------
Total current liabilities............. 77.4 359.1 401.3 -- 837.8
----------- ----------- ------ ----------- ------------
Noncurrent liabilities
Long-term debt.......................... 46.5 294.1 25.5 -- 366.1
Intercompany borrowings................. 302.7 (364.2) 61.5 -- --
Deferred income taxes................... 7.3 10.4 42.8 -- 60.5
Employee benefit obligations and other.. 84.3 42.0 13.5 -- 139.8
----------- ----------- ------ ----------- ------------
Total noncurrent liabilities.......... 440.8 (17.7) 143.3 -- 566.4
----------- ----------- ------ ----------- ------------
Contingencies............................. -- -- -- -- --
Minority interests........................ -- -- 51.7 -- 51.7
----------- ----------- ------ ----------- ------------
Shareholders' equity
Series B ESOP convertible preferred
stock................................. 59.9 -- -- -- 59.9
Convertible preferred stock............. -- -- 94.3 (94.3) --
Unearned compensation -- ESOP........... (37.0) -- -- -- (37.0)
----------- ----------- ------ ----------- ------------
Preferred shareholders' equity........ 22.9 -- 94.3 (94.3) 22.9
----------- ----------- ------ ----------- ------------
Common stock (33,759,234 shares
issued)............................... 336.9 756.1 188.0 (944.1) 336.9
Retained earnings....................... 402.3 41.4 33.3 (74.7) 402.3
Accumulated other comprehensive loss.... (22.8) (0.7) (18.4) 19.1 (22.8)
Treasury stock, at cost (3,539,574
shares)............................... (105.1) -- -- -- (105.1)
----------- ----------- ------ ----------- ------------
Common shareholders' equity........... 611.3 796.8 202.9 (999.7) 611.3
----------- ----------- ------ ----------- ------------
Total shareholders' equity.......... 634.2 796.8 297.2 (1,094.0) 634.2
----------- ----------- ------ ----------- ------------
$ 1,152.4 $ 1,138.2 $ 893.5 $(1,094.0) $ 2,090.1
----------- ----------- ------ ----------- ------------
----------- ----------- ------ ----------- ------------
</TABLE>
F-21
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
--------------------------------------------------------------------
DECEMBER 31, 1996
--------------------------------------------------------------------
BALL GUARANTOR NON-GUARANTOR ELIMINATING CONSOLIDATED
CORPORATION SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL
----------- ----------- --------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and temporary investments.......... $ 159.6 $ 0.5 $ 9.1 $ -- $ 169.2
Accounts receivable, net................ 5.7 194.2 46.0 -- 245.9
Inventories, net
Raw materials and supplies............ -- 66.1 29.6 95.7
Work in process and finished goods.... -- 150.3 56.0 206.3
Deferred income tax benefits and prepaid
expenses.............................. (8.4) 51.7 6.2 -- 49.5
----------- ----------- ------ ----------- ------------
Total current assets.................. 156.9 462.8 146.9 -- 766.6
----------- ----------- ------ ----------- ------------
Property, plant and equipment, at cost.... 37.1 1,018.1 214.3 -- 1,269.5
Accumulated depreciation.................. (23.4) (481.7) (65.4) -- (570.5)
----------- ----------- ------ ----------- ------------
13.7 536.4 148.9 -- 699.0
----------- ----------- ------ ----------- ------------
Investment in subsidiaries................ 841.6 -- -- (841.6) --
Investment in affiliates.................. 4.3 14.1 62.5 -- 80.9
Goodwill, net............................. -- 32.7 26.8 -- 59.5
Other assets.............................. 57.3 23.2 14.3 -- 94.8
----------- ----------- ------ ----------- ------------
$ 1,073.8 $ 1,069.2 $ 399.4 $ (841.6) $ 1,700.8
----------- ----------- ------ ----------- ------------
----------- ----------- ------ ----------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt and current portion of
long-term debt........................ $ 7.7 $ 50.1 $ 117.4 $ -- $ 175.2
Accounts payable........................ 8.1 170.5 35.7 -- 214.3
Salaries, wages and accrued employee
benefits.............................. 13.8 45.8 4.6 -- 64.2
Other current liabilities............... (12.3) 57.0 12.6 -- 57.3
----------- ----------- ------ ----------- ------------
Total current liabilities............. 17.3 323.4 170.3 -- 511.0
----------- ----------- ------ ----------- ------------
Noncurrent liabilities
Long-term debt.......................... 54.4 333.2 20.1 -- 407.7
Intercompany borrowings................. 310.5 (352.4) 41.9 -- --
Deferred income taxes................... 6.2 (6.6) 35.1 -- 34.7
Employee benefit obligations and
other................................. 81.0 41.1 13.9 -- 136.0
----------- ----------- ------ ----------- ------------
Total noncurrent liabilities.......... 452.1 15.3 111.0 -- 578.4
----------- ----------- ------ ----------- ------------
Contingencies............................. -- -- -- -- --
Minority interests........................ -- -- 7.0 -- 7.0
----------- ----------- ------ ----------- ------------
Shareholders' equity
Series B ESOP convertible preferred
stock................................. 61.7 -- -- -- 61.7
Convertible preferred stock............. -- -- -- -- --
Unearned compensation -- ESOP........... (44.0) -- -- -- (44.0)
----------- ----------- ------ ----------- ------------
Preferred shareholder's equity........ 17.7 -- -- -- 17.7
----------- ----------- ------ ----------- ------------
Common stock (32,976,708 shares issued)... 315.2 754.3 92.2 (846.5) 315.2
Retained earnings......................... 365.2 (23.8) 35.7 (11.9) 365.2
Accumulated other comprehensive loss...... (20.7) -- (16.8) 16.8 (20.7)
Treasury stock, at cost ( 2,458,483
shares)................................. (73.0) -- -- -- (73.0)
----------- ----------- ------ ----------- ------------
Common shareholders' equity........... 586.7 730.5 111.1 (841.6) 586.7
----------- ----------- ------ ----------- ------------
Total shareholders' equity.......... 604.4 730.5 111.1 (841.6) 604.4
----------- ----------- ------ ----------- ------------
$ 1,073.8 $ 1,069.2 $ 399.4 $ (841.6) $ 1,700.8
----------- ----------- ------ ----------- ------------
----------- ----------- ------ ----------- ------------
</TABLE>
F-22
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME
----------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------------------------
BALL GUARANTOR NON-GUARANTOR ELIMINATING CONSOLIDATED
CORPORATION SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL
------------- ----------- --------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net sales................................. $ -- $ 2,156.7 $ 503.2 $ (271.4) $ 2,388.5
------ ----------- ------ ----------- ------------
Costs and expenses
Cost of sales........................... -- 1,947.0 445.6 (271.4) 2,121.2
General and administrative expenses..... 1.4 89.3 28.5 -- 119.2
Selling and product development
expenses.............................. -- 14.0 3.7 -- 17.7
Dispositions and other.................. 4.1 (13.1) -- -- (9.0)
Interest expense........................ 32.7 (1.5) 22.3 -- 53.5
Equity in earnings of subsidiaries...... (62.8) -- -- 62.8 --
Corporate allocations................... (25.6) 25.6 -- -- --
------ ----------- ------ ----------- ------------
(50.2) 2,061.3 500.1 (208.6) 2,302.6
------ ----------- ------ ----------- ------------
Income from continuing operations before
taxes on income......................... 50.2 95.4 3.1 (62.8) 85.9
Provision for income tax expense.......... 7.9 (31.5) (8.4) -- (32.0)
Minority interests........................ -- -- 5.1 -- 5.1
Equity in (losses) earnings of affiliates:
EarthWatch.............................. -- -- -- -- --
All other............................... 0.2 1.3 (2.2) -- (0.7)
------ ----------- ------ ----------- ------------
Net income (loss) from:
Continuing operations................... 58.3 65.2 (2.4) (62.8) 58.3
Discontinued operations................. -- -- -- -- --
------ ----------- ------ ----------- ------------
Net income (loss)......................... 58.3 65.2 (2.4) (62.8) 58.3
Preferred dividends, net of tax
benefit............................... (2.8) -- -- -- (2.8)
------ ----------- ------ ----------- ------------
Net earnings (loss) attributable to common
shareholders............................ $ 55.5 $ 65.2 $ (2.4) $ (62.8) $ 55.5
------ ----------- ------ ----------- ------------
------ ----------- ------ ----------- ------------
</TABLE>
F-23
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME
----------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1996
----------------------------------------------------------------------
BALL GUARANTOR NON-GUARANTOR ELIMINATING CONSOLIDATED
CORPORATION SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL
------------- ----------- --------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net sales................................. $ -- $ 2,117.4 $ 365.9 $ (298.9) $ 2,184.4
------ ----------- ------ ----------- ------------
Costs and expenses
Cost of sales........................... -- 1,973.9 332.3 (298.9) 2,007.3
General and administrative expenses..... (6.8) 74.5 9.5 -- 77.2
Selling and product development
expenses.............................. -- 14.5 1.5 -- 16.0
Dispositions and other.................. 0.1 13.3 7.6 -- 21.0
Interest expense........................ 24.4 1.5 7.4 -- 33.3
Equity in earnings of subsidiaries...... (5.9) -- -- 5.9 --
Corporate allocations................... (21.9) 21.9 -- -- --
------ ----------- ------ ----------- ------------
(10.1) 2,099.6 358.3 (293.0) 2,154.8
------ ----------- ------ ----------- ------------
Income from continuing operations before
taxes on income......................... 10.1 17.8 7.6 (5.9) 29.6
Provision for income tax expense.......... 3.0 (5.4) (4.8) -- (7.2)
Minority interests........................ -- -- 0.2 -- 0.2
Equity in (losses) earnings of affiliates:
EarthWatch.............................. -- (12.3) -- -- (12.3)
All other............................... -- 0.5 2.3 -- 2.8
------ ----------- ------ ----------- ------------
Net income (loss) from:
Continuing operations................... 13.1 0.6 5.3 (5.9) 13.1
Discontinued operations................. 11.1 12.2 -- (12.2) 11.1
------ ----------- ------ ----------- ------------
Net income (loss)......................... 24.2 12.8 5.3 (18.1) 24.2
Preferred dividends, net of tax
benefit............................... (2.9) -- -- -- (2.9)
------ ----------- ------ ----------- ------------
Net earnings (loss) attributable to common
shareholders............................ $ 21.3 $ 12.8 $ 5.3 $ (18.1) $ 21.3
------ ----------- ------ ----------- ------------
------ ----------- ------ ----------- ------------
</TABLE>
F-24
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME
------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------------------------
BALL GUARANTOR NON-GUARANTOR ELIMINATING CONSOLIDATED
CORPORATION SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL
------------- ----------- --------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Net sales................................ $ -- $ 1,990.0 $ 353.7 $ (297.9) $ 2,045.8
------ ----------- ------ ------------- ------------
Costs and expenses
Cost of sales.......................... -- 1,817.0 317.5 (297.9) 1,836.6
General and administrative expenses.... 2.8 74.5 6.0 -- 83.3
Selling and product development
expenses............................. -- 14.9 1.3 -- 16.2
Dispositions and other................. -- 3.3 3.8 -- 7.1
Interest expense....................... 13.9 4.0 7.8 -- 25.7
Equity in earnings of subsidiaries..... (65.5) -- -- 65.5 --
Corporate allocations.................. -- -- -- -- --
------ ----------- ------ ------------- ------------
(48.8) 1,913.7 336.4 (232.4) 1,968.9
------ ----------- ------ ------------- ------------
Income from continuing operations
before taxes on income................. 48.8 76.3 17.3 (65.5) 76.9
Provision for income tax expense......... 2.6 (22.9) (6.1) -- (26.4)
Minority interests....................... -- -- (1.6) -- (1.6)
Equity in (losses) earnings of affiliates
EarthWatch............................. -- (1.3) -- -- (1.3)
All other.............................. 0.5 0.6 3.2 -- 4.3
------ ----------- ------ ------------- ------------
Net income (loss) from:
Continuing operations.................. 51.9 52.7 12.8 (65.5) 51.9
Discontinued operations................ (70.5) (69.5) -- 69.5 (70.5)
------ ----------- ------ ------------- ------------
Net income (loss)........................ (18.6) (16.8) 12.8 4.0 (18.6)
Preferred dividends, net of tax
benefit.............................. (3.1) -- -- -- (3.1)
------ ----------- ------ ------------- ------------
Net earnings (loss) attributable to
common shareholders.................... $ (21.7) $ (16.8) $ 12.8 $ 4.0 $ (21.7)
------ ----------- ------ ------------- ------------
------ ----------- ------ ------------- ------------
</TABLE>
F-25
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
---------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1997
---------------------------------------------------------------------------
BALL GUARANTOR NON-GUARANTOR ELIMINATING CONSOLIDATED
CORPORATION SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL
----------- ------------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net income (loss) from continuing
operations................................ $ 58.3 $ 65.2 $ (2.4) $ (62.8) $ 58.3
Reconciliation of net income (loss) from
continuing operations to net cash (used
in) provided by operating activities:
Depreciation and amortization............. 1.2 86.3 30.0 -- 117.5
Dispositions and other.................... 4.1 (13.1) -- -- (9.0)
Deferred taxes on income.................. (7.8) 20.6 4.3 -- 17.1
Equity earnings of subsidiaries........... (62.8) -- -- 62.8 --
Other..................................... 7.1 (1.6) (3.3) -- 2.2
Working capital changes, excluding effects
of acquisitions and dispositions.......... 20.3 (60.2) (2.7) -- (42.6)
----------- ------ ------- ------ -------------
Net cash (used in) provided by operating
activities.............................. 20.4 97.2 25.9 -- 143.5
----------- ------ ------- ------ -------------
Cash flows from investing activities
Additions to property, plant and equipment.. (2.3) (62.0) (33.4) -- (97.7)
Acquisitions, net of cash acquired.......... -- (42.7) (160.0) -- (202.7)
Investment in and advances to affiliates,
net....................................... 0.7 -- (11.9) -- (11.2)
Intercompany capital contributions and
transactions.............................. (252.4) 37.2 215.2 -- --
Company-owned life insurance, net........... 13.1 2.5 -- -- 15.6
Net cash flows from:
Proceeds from sale of other businesses,
net..................................... -- 31.1 -- -- 31.1
Discontinued operations................... -- -- -- -- --
Other....................................... 14.7 (13.2) 12.5 -- 14.0
----------- ------ ------- ------ -------------
Net cash (used in) provided by investing
activities.............................. (226.2) (47.1) 22.4 -- (250.9)
----------- ------ ------- ------ -------------
Cash flows from financing activities
Net change in long-term debt................ (0.8) (50.0) (23.7) -- (74.5)
Net change in short-term debt............... 85.5 -- (13.5) -- 72.0
Common and preferred dividends.............. (22.9) -- -- -- (22.9)
Proceeds from issuance of common stock under
various employee and shareholder plans.... 21.7 -- -- -- 21.7
Acquisitions of treasury stock.............. (32.1) -- -- -- (32.1)
Other....................................... (1.0) (0.1) 0.6 -- (0.5)
----------- ------ ------- ------ -------------
Net cash (used in) provided by financing
activities.............................. 50.4 (50.1) (36.6) -- (36.3)
----------- ------ ------- ------ -------------
Net increase (decrease) in cash............... (155.4) -- 11.7 -- (143.7)
Cash and temporary investments
Beginning of period......................... 159.6 0.5 9.1 -- 169.2
----------- ------ ------- ------ -------------
End of period............................... $ 4.2 $ 0.5 $ 20.8 $ -- $ 25.5
----------- ------ ------- ------ -------------
----------- ------ ------- ------ -------------
</TABLE>
F-26
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
-------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1996
-------------------------------------------------------------------------
BALL GUARANTOR NON-GUARANTOR ELIMINATING CONSOLIDATED
CORPORATION SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL
------------- ----------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net income (loss) from continuing operations.. $ 13.1 $ 0.6 $ 5.3 $ (5.9) $ 13.1
Reconciliation of net income (loss) from
continuing operations to net cash (used in)
provided by operating activities:
Depreciation and amortization............... 5.3 75.5 12.7 -- 93.5
Dispositions and other...................... 0.1 13.3 7.6 -- 21.0
Deferred taxes on income.................... 15.6 (5.9) 2.7 -- 12.4
Equity earnings of subsidiaries............. (5.9) -- -- 5.9
Other....................................... (1.6) 5.0 (1.8) -- 1.6
Working capital changes, excluding effects of
acquisitions and dispositions............... (5.4) (38.6) (13.3) -- (57.3)
------ ----------- ------ ------ ------
Net cash (used in) provided by operating
activities................................ 21.2 49.9 13.2 -- 84.3
------ ----------- ------ ------ ------
Cash flows from investing activities
Additions to property, plant and equipment.... (7.9) (146.6) (41.6) -- (196.1)
Acquisitions, net of cash acquired............ -- -- -- -- --
Investment in and advances to affiliates,
net......................................... (4.0) (1.1) (22.6) -- (27.7)
Intercompany capital contributions and
transactions................................ 215.5 (235.6) 20.1 -- --
Company-owned life insurance, net............. (8.5) (1.8) -- -- (10.3)
Net cash flows from:
Proceeds from sale of other businesses,
net....................................... -- 41.3 -- -- 41.3
Discontinued operations..................... -- 188.1 -- -- 188.1
Other......................................... (1.9) (2.8) (9.0) -- (13.7)
------ ----------- ------ ------ ------
Net cash (used in) provided by investing
activities................................ 193.2 (158.5) (53.1) -- (18.4)
------ ----------- ------ ------ ------
Cash flows from financing activities
Net change in long-term debt.................. (21.0) 108.2 13.8 -- 101.0
Net change in short-term debt................. (21.7) -- 34.6 -- 12.9
Common and preferred dividends................ (22.8) -- -- -- (22.8)
Proceeds from issuance of common stock under
various employee and shareholder plans...... 21.4 -- -- -- 21.4
Acquisitions of treasury stock................ (10.3) -- -- -- (10.3)
Other......................................... (3.3) (0.7) -- -- (4.0)
------ ----------- ------ ------ ------
Net cash (used in) provided by financing
activities................................ (57.7) 107.5 48.4 -- 98.2
------ ----------- ------ ------ ------
Net increase (decrease) in cash................. 156.7 (1.1) 8.5 -- 164.1
Cash and temporary investments
Beginning of period........................... 2.9 1.6 0.6 -- 5.1
------ ----------- ------ ------ ------
End of period................................. $ 159.6 $ 0.5 $ 9.1 $ -- $ 169.2
------ ----------- ------ ------ ------
------ ----------- ------ ------ ------
</TABLE>
F-27
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
-------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1995
-------------------------------------------------------------------------
BALL GUARANTOR NON-GUARANTOR ELIMINATING CONSOLIDATED
CORPORATION SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL
----------- ------------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net income (loss) from continuing
operations................................. $ 51.9 $ 52.7 $ 12.8 $ (65.5) $ 51.9
Reconciliation of net income (loss) from
continuing operations to net cash (used in)
provided by operating activities:
Depreciation and amortization.............. 2.6 63.6 12.5 -- 78.7
Dispositions and other..................... -- 3.3 3.8 -- 7.1
Deferred taxes on income................... 1.2 1.7 3.8 -- 6.7
Equity earnings of subsidiaries............ (65.5) -- -- 65.5 --
Other...................................... 6.8 (10.5) 2.1 -- (1.6)
Working capital changes, excluding effects of
acquisitions and dispositions................. (54.9) 3.1 (58.1) -- (109.9)
----------- ------ ------- ------ -------------
Net cash (used in) provided by operating
activities............................... (57.9) 113.9 (23.1) -- 32.9
----------- ------ ------- ------ -------------
Cash flows from investing activities
Additions to property, plant and equipment... (5.2) (161.4) (12.3) -- (178.9)
Acquisitions, net of cash acquired........... -- -- -- -- --
Investments in and advances to affiliates,
net........................................ (10.0) (20.9) (24.3) -- (55.2)
Intercompany capital contributions and
transactions............................... 51.0 (95.8) 44.8 -- --
Company-owned life insurance, net............ 73.2 15.2 -- -- 88.4
Net cash flows from:
Proceeds from sale of other businesses,
net...................................... -- 14.5 -- -- 14.5
Discontinued operations.................... -- 116.7 -- -- 116.7
Other........................................ (3.8) 17.3 4.3 -- 17.8
----------- ------ ------- ------ -------------
Net cash (used in) provided by investing
activities............................... 105.2 (114.4) 12.5 -- 3.3
----------- ------ ------- ------ -------------
Cash flows from financing activities
Net change in long-term debt................. (35.0) (0.1) (22.6) -- (57.7)
Net change in short-term debt................ 4.7 -- 35.3 -- 40.0
Common and preferred dividends............... (23.0) -- -- -- (23.0)
Proceeds from issuance of common stock under
various employee and shareholder plans..... 32.5 -- -- -- 32.5
Acquisitions of treasury stock............... (27.6) -- -- -- (27.6)
Other........................................ (1.4) -- (4.3) -- (5.7)
----------- ------ ------- ------ -------------
Net cash (used in) provided by financing
activities............................... (49.8) (0.1) 8.4 -- (41.5)
----------- ------ ------- ------ -------------
Net increase (decrease) in cash................ (2.5) (0.6) (2.2) -- (5.3)
Cash and temporary investments
Beginning of period.......................... 5.4 2.2 2.8 -- 10.4
----------- ------ ------- ------ -------------
End of period................................ $ 2.9 $ 1.6 $ 0.6 $ -- $ 5.1
----------- ------ ------- ------ -------------
----------- ------ ------- ------ -------------
</TABLE>
F-28
<PAGE>
FINANCIAL AND DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT
The Company is subject to various risks and uncertainties due to the
competitive nature of the industries in which Ball participates, its operations
in developing markets outside the U.S., changing commodity prices and changing
capital markets.
POLICIES AND PROCEDURES
In the ordinary course of business, the Company employs established risk
management policies and procedures to reduce its exposure to commodity price
changes, changes in interest rates and fluctuations in foreign currencies. The
Company's objective in managing its exposure to commodity price changes is to
limit the impact of commodity price changes on earnings and cash flow through
arrangements with suppliers and, at times, through the use of certain derivative
instruments designated as hedges. The Company's objective in managing its
exposure to interest rate changes is to limit the impact of interest rate
changes on earnings and cash flow and to lower its overall borrowing costs. To
achieve these objectives, the Company primarily uses interest rate swaps and
options to manage the Company's mix of floating and fixed-rate debt. The
Company's objective in managing its exposure to foreign currency fluctuations is
to reduce cash flow and earnings volatility associated with foreign exchange
rate changes. The Company generally does not use derivative instruments for
trading purposes.
INTEREST RATE RISK
Interest rate instruments held by the Company at December 31, 1997 and 1996,
included pay-floating and pay-fixed swaps and pay-floating swap option
contracts. Pay-fixed swaps effectively convert floating rate obligations to
fixed rate instruments. Pay-floating swaps effectively convert fixed-rate
obligations to variable rate instruments. 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 have not been significant, are
deferred and amortized over the original contract terms. If an interest rate
swap would no longer qualify as an effective hedge, Ball records the instrument
at fair market value and the financial impact is reflected in earnings. Swap
agreements expire in one to eight years.
Interest rate swap agreements outstanding at December 31, 1997, had notional
amounts of $145 million at a floating rate and $326 million at a fixed rate, or
a net fixed-rate position of $181 million. At December 31, 1996, these
agreements had notional amounts of $110 million at a floating rate and $81
million at fixed rate, or a net floating-rate position of $29 million. Floating
rate agreements with notional amounts of $55 million and $50 million at December
31, 1997 and 1996, included an interest rate floor.
The related notional amounts of interest rate swaps and options serve as the
basis for computing the cash flow under these agreements but do not represent
the Company's exposure through its use of these instruments. Although these
instruments involve varying degrees of credit and interest risk, the counter
parties to the agreements involve financial institutions which are expected to
perform fully under the terms of the agreements.
The fair value of all non-derivative financial instruments approximates
their carrying amounts with the exception of long-term debt. 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
fair value of derivatives generally reflects the estimated amounts that Ball
would pay or receive upon
F-29
<PAGE>
termination of the contracts at December 31, 1997 and 1996, taking into account
any unrealized gains or losses on open contracts.
<TABLE>
<CAPTION>
1997 1996
---------------------- ----------------------
CARRYING FAIR CARRYING FAIR
(DOLLARS IN MILLIONS) AMOUNT VALUE AMOUNT VALUE
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Long-term debt........................................................... $ 464.8 $ 484.2 $ 466.6 $ 463.5
Unrealized net loss on derivative contracts relating to debt............. -- 1.2 -- 1.9
</TABLE>
EXCHANGE RATE RISK
In 1997, the Company recognized its share of exchange losses, comprised
primarily of the unrealized loss attributable to approximately $23 million of
U.S. dollar denominated debt held by its 40 percent equity affiliate in
Thailand. The charge of $3.2 million, or 11 cents per share, resulted from a
change in monetary policy by the government of Thailand in early July 1997, to
no longer peg the Thai baht to the U.S. dollar. Through November 30, 1997, the
Thai baht depreciated significantly versus the U.S. dollar, and continues to be
volatile. The Company also has U.S. dollar denominated debt in China
(approximately $205 million included in Ball's consolidated balance sheet and
approximately $45 million issued by equity affiliates at year end). The
Company's 50 percent owned affiliate in Brazil had approximately $72 million of
U.S. dollar denominated debt at year end. In addition, Ball has other U.S.
dollar denominated assets and liabilities outside the U.S. which are subject to
exchange rate fluctuations.
LEASES
The Company leases warehousing and manufacturing space and certain
manufacturing equipment, primarily within the packaging segment, and office
space, primarily within its aerospace and technologies business. Under certain
of these lease arrangements, Ball has the option to purchase the leased
facilities and equipment for a total purchase price at the end of the lease term
of approximately $96.3 million. If the Company elects not to purchase the
equipment, and does not enter into a new lease arrangement, Ball has guaranteed
the lessors a minimum residual value of approximately $77.2 million, and may
incur other incremental costs to discontinue or relocate the business activities
associated with these leased assets. These agreements contain certain
restrictions relating to dividends, investments and borrowings consistent with
the Company's bank credit agreements. Total noncancellable operating leases in
effect at December 31, 1997, require rental payments of $29.2 million, $25.8
million, $20.9 million, $15.3 million and $2.7 million for the years 1998
through 2002, respectively, and $15.4 million for all years thereafter. Lease
expense for all operating leases was $34.7 million, $28.9 million and $18.1
million in 1997, 1996 and 1995, respectively.
TAXES ON INCOME
The amounts of income from continuing operations before income taxes by
national jurisdiction follow:
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS) 1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Domestic................................................................................. $ 82.4 $ 17.9 $ 60.6
Foreign.................................................................................. 3.5 11.7 16.3
--------- --------- ---------
$ 85.9 $ 29.6 $ 76.9
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-30
<PAGE>
The provision for income tax expense (benefit) for continuing operations was
comprised as follows:
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS) 1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Current
U.S.................................................................................... $ 9.3 $ (7.2) $ 13.1
State and local........................................................................ 2.2 -- 4.4
Foreign................................................................................ 3.4 2.0 2.2
--------- --------- ---------
Total current.................................................................... 14.9 (5.2) 19.7
--------- --------- ---------
Deferred
U.S.................................................................................... 10.6 8.4 3.2
State and local........................................................................ 2.2 1.3 (0.3)
Foreign................................................................................ 4.3 2.7 3.8
--------- --------- ---------
Total deferred................................................................... 17.1 12.4 6.7
--------- --------- ---------
Provision for income tax expense......................................................... $ 32.0 $ 7.2 $ 26.4
--------- --------- ---------
--------- --------- ---------
</TABLE>
The provision for income tax expense recorded within the consolidated
statement of income (loss) differs from the amount of income tax expense
determined by applying the U.S. statutory federal income tax rate to pretax
income from continuing operations as a result of the following:
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS) 1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Statutory U.S. federal income tax.................................................... $ 30.1 $ 10.3 $ 26.9
Increase (decrease) due to:
Company-owned life insurance..................................................... (6.2) (6.0) (5.4)
Research and development tax credit.............................................. (2.5) (6.0) --
Tax effects of foreign operations................................................ 8.0 4.7 2.7
Basis difference on sale of assets............................................... 0.4 2.1 --
State and local income taxes, net................................................ 2.9 0.9 2.3
Other, net....................................................................... (0.7) 1.2 (0.1)
--------- --------- ---------
Provision for income tax expense..................................................... $ 32.0 $ 7.2 $ 26.4
--------- --------- ---------
--------- --------- ---------
Effective income tax rate expressed as a percentage of pretax income from continuing
operations.......................................................................... 37.2% 24.3% 34.4%
--------- --------- ---------
--------- --------- ---------
</TABLE>
In connection with a routine examination of its federal income tax return,
the Internal Revenue Service concurred with the Company's position on
recognition of research and development tax credits. As a result, the Company
received a refund in 1996 of a portion of prior years' tax payments. In 1997,
the Company settled tax credit matters for years 1991 and 1992, and recorded an
additional credit.
Provision is not made for additional U.S. or foreign taxes on undistributed
earnings of controlled foreign corporations where such earnings will continue to
be reinvested. It is not practicable to estimate the additional taxes, including
applicable foreign withholding taxes, that might become payable upon the
eventual remittance of the foreign earnings for which no provision has been
made.
F-31
<PAGE>
The significant components of deferred tax (assets) liabilities at December
31 were:
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS) 1997 1996
--------- ---------
<S> <C> <C>
Deferred tax assets:
Deferred compensation...................................................................... $ (21.8) $ (21.4)
Accrued employee benefits.................................................................. (34.8) (36.0)
Estimated plant closure costs.............................................................. (7.8) (9.7)
Other...................................................................................... (37.4) (39.5)
--------- ---------
Total deferred tax assets.................................................................... (101.8) (106.6)
--------- ---------
Deferred tax liabilities:
Depreciation............................................................................... 99.8 90.9
Other...................................................................................... 27.3 19.4
--------- ---------
Total deferred tax liabilities............................................................... 127.1 110.3
--------- ---------
Net deferred tax liabilities................................................................. $ 25.3 $ 3.7
--------- ---------
--------- ---------
</TABLE>
Net income tax payments were $4.2 million and $26.5 million for 1997 and
1995, respectively. In 1996, net income taxes refunded were $14.2 million.
PENSION BENEFITS
The Company's noncontributory pension plans cover substantially all U.S. and
Canadian employees meeting certain eligibility requirements. The defined benefit
plans for salaried employees provide pension benefits based on employee
compensation and years of service. In addition, the plan covering salaried
employees in Canada includes a defined contribution feature. Plans for hourly
employees provide benefits based on fixed rates for each year of service. Ball's
policy is to fund the plans on a current basis to the extent deductible under
existing tax laws and regulations and in amounts sufficient to satisfy statutory
funding requirements. Plan assets consist primarily of common stocks and fixed
income securities.
F-32
<PAGE>
The funded status of the plans at December 31 follows:
<TABLE>
<CAPTION>
1997 1996
-------------------------------- --------------------------------
ASSETS EXCEEDED ABO EXCEEDED ASSETS EXCEEDED ABO EXCEEDED
(DOLLARS IN MILLIONS) ABO ASSETS ABO ASSETS
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Vested benefit obligation.................... $ 226.3 $ 73.1 $ 187.0 $ 85.8
Nonvested benefit obligation................. 4.8 5.2 4.3 9.1
--------------- --------------- --------------- ---------------
Accumulated benefit obligation (ABO)......... 231.1 78.3 191.3 94.9
Effect of projected future compensation.... 26.4 0.8 22.0 0.5
--------------- --------------- --------------- ---------------
Projected benefit obligation (PBO)........... 257.5 79.1 213.3 95.4
--------------- --------------- --------------- ---------------
Plan assets at fair value.................... 294.9 69.4 238.7 79.8
--------------- --------------- --------------- ---------------
Plan assets in excess of (less than) PBO..... 37.4 (9.7) 25.4 (15.6)
Unrecognized transitional asset.............. (9.8) (0.2) (12.7) (0.7)
Unrecognized prior service cost.............. 1.0 6.1 0.8 5.2
Unrecognized net loss (gain)................. 8.8 (1.9) 16.7 4.8
Additional minimum pension liability......... -- (4.9) -- (8.9)
--------------- --------------- --------------- ---------------
Prepaid (accrued) pension cost............... $ 37.4 $ (10.6) $ 30.2 $ (15.2)
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Actuarial assumptions used for plan
calculations were:
Discount rate..................... 7.50% 7.50% 8.00-8.25% 8.00-8.25%
Assumed rate of increase in future
compensation.................... 4.0% 6.0% 4.0% 6.0%
Expected long-term rates of return
on assets....................... 10.25-11.00% 10.25-10.50% 10.25-11.00% 10.25-10.50%
</TABLE>
The higher discount rate in 1996 pertains to Ball's Canadian pension plans.
The additional minimum liability was partially offset by an intangible asset of
approximately $2.0 million and $5.1 million in 1997 and 1996, respectively. The
remainder, net of tax benefits, was recognized as a component of shareholders'
equity.
The cost of pension benefits, including prior service cost, is recognized
over the estimated service periods of employees, based upon respective pension
plan benefit provisions. The composition of pension expense, excluding
curtailments and settlements, follows:
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS) 1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Service cost............................................................................. $ 8.3 $ 7.9 $ 9.5
Interest cost on the PBO................................................................. 24.1 27.4 31.5
Investment return on plan assets......................................................... (61.7) (35.4) (77.6)
Net amortization and deferral............................................................ 27.8 1.7 42.3
--------- --------- ---------
Net periodic pension (credit) expense.................................................... (1.5) 1.6 5.7
Less net periodic pension expense of the glass business.................................. -- -- (5.4)
--------- --------- ---------
Net periodic pension (credit) expense of continuing operations........................... (1.5) 1.6 0.3
Expense of defined contribution pension plans............................................ 0.6 0.7 0.8
--------- --------- ---------
Total pension (credit) expense of continuing operations.................................. $ (0.9) $ 2.3 $ 1.1
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-33
<PAGE>
Settlement and curtailment costs in 1996 included a pretax gain of $1.9
million in connection with the settlement of hourly glass pension liabilities
with Ball-Foster, recorded as a part of discontinued operations, and a pretax
loss of $3.3 million recorded in connection with the sale of the aerosol
business. In 1995, a net curtailment loss of $18.6 million was included as part
of the net loss on the 1995 Ball Glass transaction.
OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
The Company sponsors various defined benefit and defined contribution
postretirement health care and life insurance plans for substantially all U.S.
and Canadian employees. Employees may also qualify for long-term disability,
medical and life insurance continuation and other postemployment benefits upon
termination of active employment prior to retirement. All of the Ball-sponsored
plans are unfunded and, with the exception of life insurance benefits, are
self-insured.
POSTRETIREMENT MEDICAL AND LIFE INSURANCE BENEFITS
Postretirement health care benefits are provided to substantially all of
Ball's U.S. and Canadian employees. In Canada, the Company provides supplemental
medical and other benefits in conjunction with Canadian Provincial health care
plans. Most U.S. salaried employees who retired prior to 1993 are covered by
noncontributory defined benefit medical plans with capped lifetime benefits.
Ball provides a fixed subsidy toward each retiree's future purchase of medical
insurance for U.S. salaried and substantially all nonunion hourly employees
retiring after January 1, 1993. Life insurance benefits are noncontributory.
Ball has no commitments to increase benefits provided by any of the
postretirement benefit plans.
The status of the Company's unfunded postretirement benefit obligation at
December 31 follows:
<TABLE>
<CAPTION>
1997 1996
--------------------------------- ---------------------------------
(DOLLARS IN MILLIONS) U.S. CANADIAN TOTAL U.S. CANADIAN TOTAL
--------- ----------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Accumulated postretirement
benefit obligation (APBO):
Retirees............................................... $ 35.5 $ 15.8 $ 51.3 $ 34.5 $ 15.3 $ 49.8
Fully eligible active plan participants................ 2.8 0.9 3.7 2.6 0.7 3.3
Other active plan participants......................... 4.1 1.3 5.4 3.7 1.1 4.8
--------- ----- --------- --------- ----- ---------
42.4 18.0 60.4 40.8 17.1 57.9
Unrecognized prior service cost.......................... (1.3) 0.6 (0.7) (1.4) 0.7 (0.7)
Unrecognized net gain (loss)............................. 6.4 (5.6) 0.8 8.2 (5.5) 2.7
--------- ----- --------- --------- ----- ---------
Accrued postretirement benefit obligation................ $ 47.5 $ 13.0 $ 60.5 $ 47.6 $ 12.3 $ 59.9
--------- ----- --------- --------- ----- ---------
--------- ----- --------- --------- ----- ---------
Assumptions used to measure the APBO were:
Discount rate............................................ 7.50% 7.50% 8.00% 8.25%
Health care cost trend rates:
Canadian................................................. -- 10.00% -- 11.00%
U.S. Pre-Medicare........................................ 8.00% -- 9.00% --
U.S. Post-Medicare....................................... 7.10% -- 7.50% --
</TABLE>
Curtailment and settlement gains amounting to $8.4 million in each of 1996
and 1995 in connection with the sale of the aerosol business and glass business,
respectively, are reflected as a part of the respective transaction. The Company
amortizes unrecognized actuarial gains and losses to expense over 10
F-34
<PAGE>
years. Net periodic postretirement benefit cost, excluding curtailments and
settlements, was comprised of the following components:
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS) U.S. CANADIAN TOTAL
--------- ------------- ---------
<S> <C> <C> <C>
1997
Service cost............................................................................ $ 0.4 $ 0.1 $ 0.5
Interest cost on APBO................................................................... 3.1 1.3 4.4
Net amortization and deferral........................................................... (0.5) 0.4 (0.1)
--- --- ---
Net periodic postretirement benefit cost of continuing operations....................... $ 3.0 $ 1.8 $ 4.8
--- --- ---
--- --- ---
1996
Service cost............................................................................ $ 0.7 $ 0.1 $ 0.8
Interest cost on APBO................................................................... 3.5 1.4 4.9
Net amortization and deferral........................................................... (0.1) -- (0.1)
--- --- ---
Net periodic postretirement benefit cost of continuing operations....................... $ 4.1 $ 1.5 $ 5.6
--- --- ---
--- --- ---
1995
Service cost............................................................................ $ 1.0 $ 0.1 $ 1.1
Interest cost on APBO................................................................... 4.1 1.3 5.4
Net amortization and deferral........................................................... (0.3) -- (0.3)
--- --- ---
Net periodic postretirement benefit cost................................................ 4.8 1.4 6.2
Less net periodic postretirement benefit cost of the glass business................... (1.0) -- (1.0)
--- --- ---
Net periodic postretirement benefit cost of continuing operations....................... $ 3.8 $ 1.4 $ 5.2
--- --- ---
--- --- ---
</TABLE>
The health care cost trend rates used to calculate the APBO are assumed to
decline to 5.0 percent after the year 2003. A one percentage point increase in
these rates would increase the APBO by $2.9 million at December 31, 1997, and
would not have significantly changed the service and interest components of net
periodic postretirement benefit cost in 1997.
OTHER BENEFIT PLANS
Effective January 1, 1996, substantially all employees within the Company's
aerospace and technologies business who participate in Ball's 401(k) salary
conversion plan receive a performance-based matching cash contribution of up to
four percent of base salary. Ball recorded $4.1 million and $3.5 million in
compensation expense in 1997 and 1996, respectively, related to this match. In
addition, substantially all U.S. salaried employees and certain U.S. nonunion
hourly employees who participate in Ball's 401(k) salary conversion plan
automatically participate in the Company's ESOP. Cash contributions to the ESOP
trust, including preferred dividends, are used to service the ESOP debt and were
$10.6 million in each of 1997 and 1996 and $10.2 million in 1995. Interest paid
by the ESOP trust for its borrowings was $3.6 million, $4.2 million and $4.7
million for 1997, 1996 and 1995, respectively.
SHAREHOLDERS' EQUITY
At December 31, 1997, the Company had 120 million shares of common stock and
15 million shares of preferred stock authorized, both without par value.
Preferred stock includes 600,000 authorized but unissued shares designated as
Series A Junior Participating Preferred Stock and 2,100,000 authorized shares
designated as Series B ESOP Convertible Preferred Stock (ESOP Preferred).
The ESOP Preferred has a stated value and liquidation preference of $36.75
per share and cumulative annual dividends of $2.76 per share. The ESOP Preferred
shares are entitled to 1.3 votes per share and are voted with common shares as a
single class upon matters submitted to a vote of Ball's shareholders. Each ESOP
Preferred share has a guaranteed value of $36.75 and is convertible into 1.1552
shares of Ball Corporation common stock.
F-35
<PAGE>
Under the Company's successor Shareholder Rights Plan, effective August
1997, one Preferred Stock Purchase Right (Right) is attached to each outstanding
share of Ball Corporation common stock. Subject to adjustment, each Right
entitles the registered holder to purchase from the Company one one-thousandth
of a share of Series A Junior Participating Preferred Stock of the Company at an
exercise price of $130 per Right. If a person or group acquires 15 percent or
more of the Company's outstanding common stock (or upon occurrence of certain
other events), the Rights (other than those held by the acquiring person) become
exercisable and generally entitle the holder to purchase shares of Ball
Corporation common stock at a 50 percent discount. The Rights, which expire in
2006, are redeemable by the Company at a redemption price of one cent per Right
and trade with the common stock. Exercise of such Rights would cause substantial
dilution to a person or group attempting to acquire control of the Company
without the approval of Ball's board of directors. The Rights would not
interfere with any merger or other business combinations approved by the board
of directors.
Common shares were reserved at December 31, 1997, for future issuance under
the employee stock purchase, stock option, dividend reinvestment and restricted
stock plans, as well as to meet conversion requirements of the ESOP Preferred.
In connection with the employee stock purchase plan, the Company contributes
20 percent of up to $500 of each participating employee's monthly payroll
deduction. Company contributions for this plan were approximately $1.5 million
in 1997 and $1.6 million in each of 1996 and 1995.
COMPREHENSIVE INCOME
The composition of accumulated other comprehensive loss is as follows:
<TABLE>
<CAPTION>
ACCUMULATED
FOREIGN MINIMUM OTHER
CURRENCY PENSION COMPREHENSIVE
TRANSLATION LIABILITY LOSS
----------- ----------- ---------------
<S> <C> <C> <C>
December 31, 1996......................................................... ($ 18.3) ($ 2.4) ($ 20.7)
Current-period change..................................................... (2.6) 0.5 (2.1)
----------- ----------- ------
December 31, 1997......................................................... ($ 20.9) ($ 1.9) ($ 22.8)
----------- ----------- ------
----------- ----------- ------
</TABLE>
The amounts included in the statement of shareholders' equity as the
components of other comprehensive income (loss) are presented net of tax. The
tax expense (benefit) related to the minimum pension liability component of
other comprehensive income was $0.4 million, $3.6 million and ($0.8) million for
the years ended December 31, 1997, 1996 and 1995, respectively. No tax benefit
has been provided on the foreign currency translation loss component of other
comprehensive income for any period as the undistributed earnings of the
Company's foreign investments will continue to be reinvested.
STOCK OPTIONS
The Company has several stock option plans under which options to purchase
shares of common stock have been granted to officers and key employees of Ball
at the market value of the stock at the date of grant. Payment must be made at
the time of exercise in cash or with shares of stock owned by the option holder,
which are valued at fair market value on the date exercised. Options terminate
ten years from date of grant. Tier A options are exercisable in four equal
installments commencing one year from date of grant. Tier B options vest at the
date of grant, and are exercisable after the Company's common stock price closes
at or above $50 per share for ten consecutive days. The target stock price is
adjusted based on a compounded annual growth rate of 7.5 percent for individuals
retiring prior to the expiration of the options.
F-36
<PAGE>
A summary of stock option activity for the years ended December 31 follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- --------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER OF EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year.......... 1,801,074 $ 27.222 1,403,822 $ 28.468 1,779,448 $ 26.534
Tier A options exercised................ (219,750) $ 26.002 (84,547) $ 25.024 (495,405) $ 25.046
Tier B options exercised................ (20,000) $ 24.375 -- -- -- --
Tier A options granted.................. 306,000 $ 26.592 285,000 $ 24.375 295,700 $ 35.625
Tier B options granted.................. 15,000 $ 25.625 307,000 $ 24.375 -- --
Tier A options canceled................. (113,026) $ 28.542 (110,201) $ 29.490 (175,921) $ 30.571
Tier B options canceled................. (15,000) $ 24.375 -- -- -- --
---------- ---------- ----------
Outstanding at end of year................ 1,754,298 $ 27.223 1,801,074 $ 27.222 1,403,822 $ 28.468
---------- ---------- ----------
Exercisable at end of year................ 855,923 $ 28.120 923,449 $ 27.465 875,813 $ 26.522
---------- ---------- ----------
Reserved for future grants................ 3,295,948 512,358 1,003,057
---------- ---------- ----------
</TABLE>
Additional information regarding options outstanding at December 31, 1997,
follows:
<TABLE>
<CAPTION>
EXERCISE PRICE RANGE
------------------------------------------
$22.76-$24.42 $25.625-$29.35 $32.00-$38.50 TOTAL
------------ ------------- ------------- ----------
<S> <C> <C> <C> <C>
Number of options outstanding........................... 720,530 706,241 327,527 1,754,298
Weighted average exercise price....................... $ 24.302 $ 26.947 $ 34.242 $27.223
Remaining contractual life............................ 6.6 years 6.7 years 6.5 years 6.6 years
Number of shares exercisable.......................... 270,405 348,491 237,027 855,923
Weighted average exercise price....................... $ 24.182 $ 27.372 $ 33.714 $28.120
</TABLE>
These options cannot be traded in any equity market. However, based on the
Black-Scholes option pricing model, adapted for use in valuing compensatory
stock options in accordance with SFAS No. 123, Tier A options granted in 1997
and 1996 have estimated weighted fair values, at the date of grant, of $7.06 per
share and $8.67 per share, respectively. Under the same methodology, Tier B
options granted during 1997 and 1996 have estimated fair values, at the date of
grant, of $8.54 per share and $8.56 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 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:
<TABLE>
<CAPTION>
1997 GRANTS 1996 GRANTS
----------- -----------
<S> <C> <C>
Expected dividend yield................................................................ 2.33% 2.33%
Expected stock price volatility........................................................ 23.32% 24.26%
Risk-free interest rate................................................................ 6.75% 6.77%
Expected life of options............................................................... 5.12 years 6.96 years
</TABLE>
Ball accounts for its stock-based employee compensation programs using the
intrinsic value method prescribed by APB Opinion No. 25, "Accounting for Stock
Issued to Employees." If Ball had elected to recognize compensation based upon
the calculated fair value of the options granted after 1994, pro forma net
income and earnings per share would have been:
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
-------------------------- --------------------------
NET INCOME NET INCOME
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) (LOSS) PER SHARE (LOSS) PER SHARE
------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Year ended December 31, 1997...................................... $ 58.3 $ 1.84 $ 57.0 $ 1.79
Year ended December 31, 1996...................................... 24.2 0.70 23.3 0.67
Year ended December 31, 1995...................................... (18.6) (0.72) (19.1) (0.74)
</TABLE>
F-37
<PAGE>
EARNINGS PER SHARE
The following table provides additional information on the computation of
earnings per share amounts from continuing operations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) 1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
EARNINGS PER COMMON SHARE
Net income from continuing operations................................................ $ 58.3 $ 13.1 $ 51.9
Preferred dividends, net of tax benefit............................................ (2.8) (2.9) (3.1)
--------- --------- ---------
Income from continuing operations attributable to common shareholders................ $ 55.5 $ 10.2 $ 48.8
--------- --------- ---------
Weighted average common shares (000S) 30,234 30,314 30,024
--------- --------- ---------
Earnings per common share............................................................ $ 1.84 $ 0.34 $ 1.63
--------- --------- ---------
--------- --------- ---------
DILUTED EARNINGS PER SHARE
Net income from continuing operations $ 58.3 $ 13.1 $ 51.9
Adjustments for deemed ESOP cash contribution in lieu of the ESOP Preferred
dividend......................................................................... (2.1) (2.2) (2.0)
--------- --------- ---------
Adjusted income from continuing operations attributable to common shareholders....... $ 56.2 $ 10.9 $ 49.9
--------- --------- ---------
Weighted average common shares (000S)................................................ 30,234 30,314 30,024
Effect of dilutive securities:
Dilutive effect of stock options................................................... 165 37 203
Common shares issuable upon conversion of the ESOP Preferred stock................. 1,912 1,984 2,085
--------- --------- ---------
Weighted average shares applicable to diluted earnings per share..................... 32,311 32,335 32,312
--------- --------- ---------
Diluted earnings per share........................................................... $ 1.74 $ 0.34 $ 1.54
--------- --------- ---------
--------- --------- ---------
</TABLE>
Options outstanding during each of the three years which were anti-dilutive
(i.e., the exercise price exceeded the average common stock price during the
year) have been excluded from the computation of the diluted earnings per share.
For 1997, approximately 328,000 options outstanding at year end were excluded
from the computation. Of these options approximately 194,000 options had an
exercise price of $35.625 and expire in 2005 and 128,000 options had an exercise
price of $32.00 and expire in 2003. Options outstanding at December 31, 1996,
which were excluded from the computation totaled approximately 565,000,
comprised principally of 141,000 options with an exercise price of $29.35
expiring in 2002, 151,000 options with an exercise price of $32.00 expiring in
2003, and 219,000 options with an exercise price of $35.625 expiring in 2005.
The remaining anti-dilutive options expire at various dates through 2004 and
have a weighted average exercise price of $29.936 per share. For 1995,
anti-dilutive options outstanding totaled approximately 256,000, comprised
primarily of 242,000 options expiring in 2005 at an exercise price of $35.625.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred in connection with
the Company's internal programs for the development of products and processes.
Costs incurred in connection with these programs amounted to $22.2 million,
$18.1 million and $13.4 million for the years 1997, 1996 and 1995, respectively.
F-38
<PAGE>
CONTINGENCIES
The U.S. government is disputing the Company's claim to recoverability (by
means of allocation to government contracts) of reimbursed costs associated with
Ball's ESOP for fiscal years 1989 through 1995, as well as the corresponding
prospective costs accrued after 1995. The government will not reimburse the
Company for disputed ESOP expenses incurred or accrued after 1995. A deferred
payment agreement for the costs reimbursed through 1995 was entered into between
the government and Ball. On October 10, 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.
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.
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
1997 QUARTERLY INFORMATION
The first quarter included a pretax gain of $1.2 million ($0.7 million after
tax or two cents per share) for shares of Datum sold in the first quarter. An
additional pretax gain of $10.5 million ($6.4 million after tax or 21 cents per
share) was recorded in the second quarter for the sale of the remaining Datum
shares. The second quarter also included a $3.0 million pretax charge ($1.8
million after tax or six cents per share) for the closure of a small PET
container manufacturing facility. The Company also recorded research and
development tax credits in the first and second quarters of $1.7 million (five
cents per share) and $0.8 million (three cents per share), respectively. In the
fourth quarter, Ball disposed of or wrote down to estimated net realizable value
certain equity investments resulting in a net pretax gain of $0.3 million. See
the note, "Dispositions and Other," for additional information.
1996 QUARTERLY INFORMATION
Results included a first quarter charge of $2.8 million ($1.7 million after
tax or six cents per share) for employee termination costs primarily within the
metal packaging business.
As described in the note, "Taxes on Income," in 1996 Ball received a refund
in connection with research and development tax credits attributable to prior
years. Further, as a result of legislation enacted in the third quarter of 1996,
Ball was required to exclude from deductible expenses a portion of the interest
incurred in connection with its company-owned life insurance program,
retroactive to January 1, 1996. The net effect of these tax matters was an
increase in net income from continuing operations in the third quarter of $4.3
million (14 cents per share).
Fourth quarter charges of $18.2 million ($13.7 million after tax or 45 cents
per share) included the loss on the sale of the aerosol business, provision for
the closure of a metal food can manufacturing facility, and write-down to net
realizable value of certain metal beverage container manufacturing equipment
removed from service. In addition, the Company recorded an after-tax charge of
$9.3 million (31 cents per share) in the fourth quarter related to Ball's
investment in EarthWatch. See the note, "Dispositions and Other," for further
information.
F-39
<PAGE>
Discontinued operations included a 1996 fourth quarter pretax gain of $24.1
million ($13.2 million after tax or 43 cents per share) for the sale of the
Company's investment in Ball-Foster. See the note, "Discontinued Operations,"
for further information.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) QUARTER QUARTER QUARTER QUARTER TOTAL
----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
1997
Net sales.................................................... $ 479.8 $ 643.7 $ 690.2 $ 574.8 $ 2,388.5
----------- ----------- ----------- ----------- ---------
Gross profit................................................. 48.2 70.9 85.0 63.2 267.3
----------- ----------- ----------- ----------- ---------
Net income................................................... 7.0 20.8 22.7 7.8 58.3
Preferred dividends, net of tax benefit...................... (0.7) (0.7) (0.7) (0.7) (2.8)
----------- ----------- ----------- ----------- ---------
Net earnings attributable to common shareholders........... $ 6.3 $ 20.1 $ 22.0 $ 7.1 $ 55.5
----------- ----------- ----------- ----------- ---------
Earnings per share of common stock........................... $ 0.21 $ 0.67 $ 0.73 $ 0.24 $ 1.84
----------- ----------- ----------- ----------- ---------
----------- ----------- ----------- ----------- ---------
Diluted earnings per share................................... $ 0.20 $ 0.63 $ 0.68 $ 0.23 $ 1.74
----------- ----------- ----------- ----------- ---------
----------- ----------- ----------- ----------- ---------
1996
Net sales.................................................... $ 462.0 $ 600.1 $ 622.2 $ 500.1 $ 2,184.4
----------- ----------- ----------- ----------- ---------
Gross profit................................................. 37.5 52.2 55.5 31.9 177.1
----------- ----------- ----------- ----------- ---------
Net income (loss) from:
Continuing operations........................................ 6.8 13.3 19.4 (26.4) 13.1
Discontinued operations...................................... (1.3) (1.5) 0.7 13.2 11.1
----------- ----------- ----------- ----------- ---------
Net income (loss)............................................ 5.5 11.8 20.1 (13.2) 24.2
Preferred dividends, net of tax benefit...................... (0.8) (0.7) (0.7) (0.7) (2.9)
----------- ----------- ----------- ----------- ---------
Net earnings (loss) attributable to common shareholders.... $ 4.7 $ 11.1 $ 19.4 $ (13.9) $ 21.3
----------- ----------- ----------- ----------- ---------
Earnings (loss) per share of common stock:
Continuing operations........................................ $ 0.20 $ 0.42 $ 0.62 $ (0.89) $ 0.34
Discontinued operations...................................... (0.04) (0.05) 0.02 0.43 0.36
----------- ----------- ----------- ----------- ---------
$ 0.16 $ 0.37 $ 0.64 $ (0.46) $ 0.70
----------- ----------- ----------- ----------- ---------
----------- ----------- ----------- ----------- ---------
Diluted earnings (loss) per share:
Continuing operations........................................ $ 0.19 $ 0.40 $ 0.58 $ (0.89) $ 0.34
Discontinued operations...................................... (0.04) (0.05) 0.02 0.43 0.34
----------- ----------- ----------- ----------- ---------
$ 0.15 $ 0.35 $ 0.60 $ (0.46) $ 0.68
----------- ----------- ----------- ----------- ---------
----------- ----------- ----------- ----------- ---------
</TABLE>
Earnings per share calculations for each quarter are based on the weighted
average shares outstanding for that period. As a result, the sum of the
quarterly amounts may not equal the annual earnings per share amount. The
diluted loss per share in fourth quarter of 1996 is the same as the net loss per
common share because the assumed exercise of stock options and conversion of the
ESOP Preferred stock would have been antidilutive for continuing operations.
F-40
<PAGE>
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 27, SEPTEMBER 28, SEPTEMBER 27, SEPTEMBER 28,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales............................................ $ 859.2 $ 690.2 $ 2,054.5 $ 1,813.7
------ ------ ------------- -------------
Costs and expenses
Cost of sales........................................ 757.3 605.2 1,817.3 1,609.6
General and administrative expenses.................. 34.6 28.2 88.4 82.8
Selling and product development expenses............. 5.0 3.9 15.0 12.8
Relocation costs..................................... 4.7 -- 15.0 --
Net gain on dispositions............................. -- -- -- (8.7)
Interest expense..................................... 22.4 14.3 48.5 39.6
------ ------ ------------- -------------
824.0 651.6 1,984.2 1,736.1
------ ------ ------------- -------------
Income before taxes on income........................ 35.2 38.6 70.3 77.6
Provision for taxes on income........................ (12.1) (14.1) (27.4) (28.8)
Minority interests................................... 1.1 (0.1) 5.1 3.8
Equity in earnings (losses) of affiliates............ 0.7 (1.7) 1.2 (2.1)
------ ------ ------------- -------------
Net income before extraordinary item................. 24.9 22.7 49.2 50.5
Extraordinary loss from early debt extinguishment,
net of tax.......................................... (12.1) -- (12.1) --
------ ------ ------------- -------------
Net income........................................... 12.8 22.7 37.1 50.5
Preferred dividends, net of tax benefit.............. (0.7) (0.7) (2.1) (2.1)
------ ------ ------------- -------------
Earnings attributable to common shareholders......... $ 12.1 $ 22.0 $ 35.0 $ 48.4
------ ------ ------------- -------------
------ ------ ------------- -------------
Net earnings per common share:
Net income before extraordinary item............... $ 0.80 $ 0.73 $ 1.55 $ 1.60
Extraordinary loss from early debt extinguishment,
net of tax....................................... (0.40) -- (0.40) --
------ ------ ------------- -------------
Earnings per common share.......................... $ 0.40 $ 0.73 $ 1.15 $ 1.60
------ ------ ------------- -------------
------ ------ ------------- -------------
Diluted earnings per share:
Net income before extraordinary item............... $ 0.75 $ 0.68 $ 1.46 $ 1.51
Extraordinary loss from early debt extinguishment,
net of tax....................................... (0.37) -- (0.37) --
------ ------ ------------- -------------
Diluted earnings per share......................... $ 0.38 $ 0.68 $ 1.09 $ 1.51
------ ------ ------------- -------------
------ ------ ------------- -------------
Cash dividends declared per common share............. $ 0.15 $ 0.15 $ 0.45 $ 0.45
------ ------ ------------- -------------
------ ------ ------------- -------------
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-41
<PAGE>
BALL CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
SEPTEMBER 27, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash and temporary investments.................................................... $ 34.0 $ 25.5
Accounts receivable, net.......................................................... 480.0 301.4
Inventories, net
Raw materials and supplies...................................................... 150.5 184.9
Work in process and finished goods.............................................. 290.1 228.4
Deferred income tax benefits and prepaid expenses................................. 56.2 57.9
------------- ------------
Total current assets........................................................ 1,010.8 798.1
------------- ------------
Property, plant and equipment, at cost.............................................. 2,004.2 1,556.1
Accumulated depreciation............................................................ (709.5) (636.6)
------------- ------------
1,294.7 919.5
------------- ------------
Investment in affiliates............................................................ 74.7 74.5
Goodwill, net....................................................................... 519.2 194.8
Other assets........................................................................ 143.8 103.2
------------- ------------
$ 3,043.2 $ 2,090.1
------------- ------------
------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt and current portion of long-term debt............................. $ 204.8 $ 407.0
Accounts payable.................................................................. 407.6 258.6
Salaries and wages................................................................ 85.4 78.3
Other current liabilities......................................................... 114.6 93.9
------------- ------------
Total current liabilities................................................... 812.4 837.8
------------- ------------
Noncurrent liabilities
Long-term debt.................................................................... 1,259.9 366.1
Deferred income taxes............................................................. 20.7 60.5
Employee benefit obligations and other............................................ 249.8 139.8
------------- ------------
Total noncurrent liabilities................................................ 1,530.4 566.4
------------- ------------
Contingencies
Minority interests.................................................................. 35.7 51.7
------------- ------------
Shareholders' equity
Series B ESOP Convertible Preferred Stock......................................... 59.4 59.9
Unearned compensation -- ESOP..................................................... (33.6) (37.0)
------------- ------------
Preferred shareholder's equity.................................................. 25.8 22.9
------------- ------------
Common stock (issued 34,676,545 shares -- 1998; 33,759,234 shares -- 1997)........ 362.1 336.9
Retained earnings................................................................. 423.6 402.3
Accumulated other comprehensive loss.............................................. (29.1) (22.8)
Treasury stock, at cost (3,874,847 shares -- 1998; 3,539,574 shares -- 1997)...... (117.7) (105.1)
------------- ------------
Common shareholders' equity..................................................... 638.9 611.3
------------- ------------
Total shareholders' equity.................................................. 664.7 634.2
------------- ------------
$ 3,043.2 $ 2,090.1
------------- ------------
------------- ------------
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-42
<PAGE>
BALL CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------
SEPTEMBER 27, SEPTEMBER 28,
1998 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities
Net income........................................................................ $ 37.1 $ 50.5
Reconciliation of net income to net cash provided by operating activities:
Depreciation and amortization................................................... 105.3 86.0
Relocation costs................................................................ 8.0 --
Other, net...................................................................... 1.2 (1.0)
Changes in working capital components, excluding effect of acquisitions......... 48.4 (61.4)
------------- -------------
Net cash provided by operating activities................................... 200.0 74.1
------------- -------------
Cash flows from investing activities
Additions to property, plant and equipment........................................ (51.7) (83.5)
Acquisition of Reynolds' net assets, including transaction and other costs, net of
cash acquired................................................................... (794.3) --
Acquisition of M. C. Packaging, net of cash acquired.............................. -- (159.4)
Acquisition of PET manufacturing assets........................................... -- (40.4)
Investments in and advances to affiliates......................................... (0.9) (14.2)
Proceeds from sale of equity investment........................................... 1.1 26.2
Net cash from company-owned life insurance........................................ 1.4 14.0
Other, net........................................................................ (5.5) 11.2
------------- -------------
Net cash used in investing activities....................................... (849.9) (246.1)
------------- -------------
Cash flows from financing activities
Net change in long-term debt...................................................... 844.9 (45.9)
Net change in short-term debt..................................................... (148.3) 102.5
Debt issuance costs............................................................... (28.9) --
Common and preferred dividends.................................................... (15.9) (16.1)
Net proceeds from issuance of common stock under various employee and shareholder
plans........................................................................... 25.2 15.6
Acquisitions of treasury stock.................................................... (12.6) (25.8)
Other, net........................................................................ (6.0) 0.6
------------- -------------
Net cash provided by financing activities................................... 658.4 30.9
------------- -------------
Net increase (decrease) in cash................................................... 8.5 (141.1)
Cash and temporary investments:
Beginning of period............................................................. 25.5 169.2
------------- -------------
End of period................................................................... $ 34.0 $ 28.1
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-43
<PAGE>
Ball Corporation and Subsidiaries
September 27, 1998
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 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. However, the Company believes that the financial statements reflect
all adjustments which are of a normal recurring nature and 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.
RECLASSIFICATIONS.
Certain prior year amounts have been reclassified in order to conform with
the 1998 presentation.
NEW ACCOUNTING STANDARDS.
Effective January 1, 1998, Ball adopted Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income." See the
"Shareholders Equity" note for information regarding SFAS No. 130.
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information," establishes standards for reporting information about operating
segments in annual financial statements and is effective for Ball in the 1998
year-end reporting. Interim reporting under this pronouncement will be effective
for Ball in 1999.
SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits," standardizes disclosure requirements for pensions and
other postretirement benefit plans and will be effective for Ball in the 1998
year-end reporting. This statement does not affect the measurement or
recognition of such plans.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," essentially requires all derivatives to be recorded on the balance
sheet at fair value and establishes new accounting practices for hedge
instruments. The statement will be effective for Ball in 2000. The effect, if
any, of adopting this standard has not yet been determined.
Statement of Position (SOP) No. 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," establishes new accounting and
reporting standards for the costs of computer software developed or obtained for
internal use and is effective for Ball in 1999. The effect, if any, of adopting
this standard has not yet been determined.
F-44
<PAGE>
SOP No. 98-5, "Reporting on the Costs of Start-Up Activities," requires
costs of start-up activities and organizational costs, as defined, to be
expensed as incurred and is effective for Ball in 1999. The effect, if any, of
adopting this standard has not yet been determined.
ACQUISITIONS AND RELATED DEBT REFINANCING.
On August 10, 1998, Ball acquired substantially all the assets and assumed
certain liabilities of the domestic beverage can manufacturing business of
Reynolds Metals Company ("Reynolds") for a total purchase price of $745.4
million, subject to certain adjustments. The acquisition of Reynolds has been
accounted for as a purchase and, accordingly, its results of operations are
included in the consolidated financial statements since the date of acquisition.
The assets acquired consist largely of 16 plants in 12 states and Puerto
Rico, as well as a headquarters facility in Richmond, Virginia. The Company has
announced that it will close the Richmond facility and consolidate headquarters
operations at its offices near Denver, Colorado. In addition, the Company is
assessing possible further integration opportunities and has initially recorded
a $52.0 million liability, before tax effects, as a part of the valuation
process. Upon finalization of the plan, adjustments to the liability will be
reflected in the allocation of the purchase price.
In connection with the acquisition, the Company refinanced approximately
$521.9 million of its existing debt and, as a result, recorded an extraordinary
charge from the early extinguishment of debt of approximately $12.1 million (40
cents per share), net of related income tax benefit.
The acquisition and the refinancing, including related costs, were financed
with a placement of $300.0 million in 7.75% Senior Notes, $250.0 million in
8.25% Senior Subordinated Notes and approximately $808.2 million from a Senior
Credit Facility.
The Senior Notes, which are due August 1, 2006, are unsecured, rank senior
to the Company's subordinated debt and are guaranteed on a senior basis by
certain of the Company's domestic subsidiaries (see the "Subsidiary Guarantees
of Debt" note). The Senior Subordinated Notes, which are due August 1, 2008, are
also unsecured, rank subordinate to existing and future senior debt of the
Company and are guaranteed by certain subsidiaries of the Company (see the
"Subsidiary Guarantees of Debt" note). Both note agreements contain certain
covenants and restrictions including, among other things, restrictions on the
incurrence of additional indebtedness and the payment of dividends.
Pursuant to this Prospectus, the Company is offering to exchange the Senior
Notes and the Senior Subordinated Notes. The terms of the Exchange Notes will be
substantially identical in all respects (including principal amount, interest
rate, maturity, ranking and covenant restrictions) to the terms of the
outstanding Notes for which they will be exchanged except that the Exchange
Notes will be registered under the Securities Act of 1933, as amended, and
therefore will not be subject to certain restrictions on transfer except as
described in the Prospectus. The Indentures provide that if the Exchange Notes
are assigned investment grade ratings and the Company is not in default, certain
covenant restrictions will be suspended.
The Senior Credit Facility is comprised of three separate facilities, two
term loans and a revolving credit facility. The first term loan provides the
Company with up to $350.0 million and matures in August, 2004. The second term
loan provides the Company with up to $200.0 million and matures in March, 2006.
Both term loans are payable in quarterly installments beginning in March, 1999.
The revolving credit facility provides the Company with up to $650.0 million, of
which $150.0 million is available for a period of 364 days, renewable for
another 364 days from the current termination date at the option of the Company
and the participating lenders. The remainder is comprised of letters of credit
with an expiration date of up to one year and revolving loans which mature in
August, 2004. The Senior Credit Facility bears interest at variable rates, is
guaranteed by certain subsidiaries of the Company (see the "Subsidiary
Guarantees of Debt" note) and contains certain covenants and restrictions
including, among other things, restrictions on
F-45
<PAGE>
the incurrence of additional indebtedness and the payment of dividends. In
addition, all amounts outstanding under the Senior Credit Facility are secured
by (1) a pledge of 100 percent of the stock of the Company's direct and indirect
majority-owned domestic subsidiaries and (2) a pledge of 65 percent of the stock
of certain foreign subsidiaries.
The following unaudited pro forma consolidated results of operations have
been prepared as if the acquisition of Reynolds had occurred as of January 1,
1997. The pro forma consolidated results are not necessarily indicative of the
actual results that would have occurred had the acquisition been in effect for
the periods presented, nor are they necessarily indicative of the results that
may be obtained in the future:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------
SEPTEMBER 27, SEPTEMBER 28,
1998 1997
------------- -------------
<S> <C> <C>
(IN MILLIONS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
Net sales........................................................................... $ 2,826.0 $ 2,741.4
Net income.......................................................................... 48.1 41.0
Net earnings attributable to common shareholders.................................... 46.0 38.9
Earnings per common share........................................................... 1.52 1.29
Diluted earnings per share.......................................................... 1.43 1.22
</TABLE>
During 1998, FTB Packaging Limited purchased substantially all of the
remaining direct and indirect minority interest in M.C. Packaging (Hong Kong)
Limited which represented less than ten percent of the outstanding shares of
M.C. Packaging (Hong Kong) Limited.
SUBSIDIARY GUARANTEES OF DEBT.
The Senior Notes and the Senior Subordinated Notes, issued in conjunction
with the Reynolds acquisition (see the "Acquisitions and Related Debt
Refinancing" note) are guaranteed by certain of the Company's domestic, wholly
owned subsidiaries on a full, unconditional, and joint and several basis. The
following is summarized condensed consolidating financial information for the
Company, segregating the guarantor subsidiaries and non-guarantor subsidiaries,
as of September 27, 1998 and December 31, 1997 and for the nine-month periods
ended September 27, 1998 and September 28, 1997 (in millions of dollars).
F-46
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
-------------------------------------------------------------------
SEPTEMBER 27, 1998
-------------------------------------------------------------------
BALL GUARANTOR NON-GUARANTOR ELIMINATING CONSOLIDATED
CORPORATION SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL
----------- ----------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and temporary investments.......... $ 10.5 $ 0.4 $ 23.1 $ -- $ 34.0
Accounts receivable, net................ 4.4 389.0 86.6 -- 480.0
Inventories, net
Raw materials and supplies............ -- 92.2 58.3 -- 150.5
Work in process and finished goods.... -- 239.7 50.4 -- 290.1
Deferred income tax benefits and prepaid
expenses.............................. (16.3) 60.4 12.1 -- 56.2
----------- ----------- -------------- ----------- ------------
Total current assets.................. (1.4) 781.7 230.5 -- 1,010.8
----------- ----------- -------------- ----------- ------------
Property, plant and equipment, at cost.... 38.3 1,510.9 455.0 -- 2,004.2
Accumulated depreciation.................. (22.8) (580.0) (106.7) -- (709.5)
----------- ----------- -------------- ----------- ------------
15.5 930.9 348.3 -- 1,294.7
----------- ----------- -------------- ----------- ------------
Investment in subsidiaries................ 1,281.2 -- -- (1,281.2) --
Investment in affiliates.................. 2.8 2.7 69.2 -- 74.7
Goodwill, net............................. -- 369.2 150.0 -- 519.2
Other assets.............................. 80.3 44.4 19.1 -- 143.8
----------- ----------- -------------- ----------- ------------
$ 1,378.4 $ 2,128.9 $ 817.1 $(1,281.2) $ 3,043.2
----------- ----------- -------------- ----------- ------------
----------- ----------- -------------- ----------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt and current portion of
long-term debt........................ $ 69.1 $ -- $ 135.7 $ -- $ 204.8
Accounts payable........................ 62.5 292.4 52.7 -- 407.6
Salaries and wages...................... 11.6 65.4 8.4 -- 85.4
Other current liabilities............... (22.9) 88.1 49.4 -- 114.6
----------- ----------- -------------- ----------- ------------
Total current liabilities............. 120.3 445.9 246.2 -- 812.4
----------- ----------- -------------- ----------- ------------
Noncurrent liabilities
Long-term debt.......................... 1,220.8 10.3 28.8 -- 1,259.9
Intercompany borrowings................. (728.1) 639.2 88.9 -- --
Deferred income taxes................... 7.9 (30.3) 43.1 -- 20.7
Employee benefit obligations and other.. 92.8 143.3 13.7 -- 249.8
----------- ----------- -------------- ----------- ------------
Total noncurrent liabilities.......... 593.4 762.5 174.5 -- 1,530.4
----------- ----------- -------------- ----------- ------------
Contingencies
Minority interests........................ -- -- 35.7 -- 35.7
----------- ----------- -------------- ----------- ------------
Shareholders' equity
Series B ESOP Convertible Preferred
Stock................................. 59.4 -- -- -- 59.4
Convertible preferred stock............. -- -- 169.8 (169.8) --
Unearned compensation - ESOP............ (33.6) -- -- -- (33.6)
----------- ----------- -------------- ----------- ------------
Preferred shareholders' equity........ 25.8 -- 169.8 (169.8) 25.8
----------- ----------- -------------- ----------- ------------
Common stock (34,676,545 shares issued)... 362.1 821.9 188.0 (1,009.9) 362.1
Retained earnings......................... 423.6 100.7 26.2 (126.9) 423.6
Accumulated other comprehensive loss...... (29.1) (2.1) (23.3) 25.4 (29.1)
Treasury stock, at cost (3,874,847
shares)................................. (117.7) -- -- -- (117.7)
----------- ----------- -------------- ----------- ------------
Common shareholders' equity............. 638.9 920.5 190.9 (1,111.4) 638.9
----------- ----------- -------------- ----------- ------------
Total shareholders' equity............ 664.7 920.5 360.7 (1,281.2) 664.7
----------- ----------- -------------- ----------- ------------
$ 1,378.4 $ 2,128.9 $ 817.1 $(1,281.2) $ 3,043.2
----------- ----------- -------------- ----------- ------------
----------- ----------- -------------- ----------- ------------
</TABLE>
F-47
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
-------------------------------------------------------------------
DECEMBER 31, 1997
-------------------------------------------------------------------
BALL GUARANTOR NON-GUARANTOR ELIMINATING CONSOLIDATED
CORPORATION SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL
----------- ----------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and temporary investments.......... $ 4.2 $ 0.5 $ 20.8 $ -- $ 25.5
Accounts receivable, net................ 2.8 191.5 107.1 -- 301.4
Inventories, net
Raw materials and supplies............ -- 113.5 71.4 -- 184.9
Work in process and finished goods.... -- 161.1 67.3 -- 228.4
Deferred income tax benefits and prepaid
expenses.............................. (22.0) 62.9 17.0 -- 57.9
----------- ----------- -------------- ----------- ------------
Total current assets.................. (15.0) 529.5 283.6 -- 798.1
----------- ----------- -------------- ----------- ------------
Property, plant and equipment, at cost.. 36.6 1,049.6 469.9 -- 1,556.1
Accumulated depreciation................ (21.7) (525.3) (89.6) -- (636.6)
----------- ----------- -------------- ----------- ------------
14.9 524.3 380.3 -- 919.5
----------- ----------- -------------- ----------- ------------
Investment in subsidiaries................ 1,094.0 -- -- (1,094.0)
Investment in affiliates.................. 5.1 -- 69.4 -- 74.5
Goodwill, net............................. -- 50.0 144.8 -- 194.8
Other assets.............................. 53.4 34.4 15.4 -- 103.2
----------- ----------- -------------- ----------- ------------
$ 1,152.4 $ 1,138.2 $ 893.5 $(1,094.0) $ 2,090.1
----------- ----------- -------------- ----------- ------------
----------- ----------- -------------- ----------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt and current portion of
long-term debt........................ $ 93.4 $ 39.1 $ 274.5 $ -- $ 407.0
Accounts payable........................ 7.1 179.4 72.1 -- 258.6
Salaries and wages...................... 16.1 55.2 7.0 -- 78.3
Other current liabilities............... (39.2) 85.4 47.7 -- 93.9
----------- ----------- -------------- ----------- ------------
Total current liabilities............. 77.4 359.1 401.3 -- 837.8
----------- ----------- -------------- ----------- ------------
Noncurrent liabilities
Long-term debt.......................... 46.5 294.1 25.5 -- 366.1
Intercompany borrowings................. 302.7 (364.2) 61.5 -- --
Deferred income taxes................... 7.3 10.4 42.8 -- 60.5
Employee benefit obligations and other.. 84.3 42.0 13.5 -- 139.8
----------- ----------- -------------- ----------- ------------
Total noncurrent liabilities.......... 440.8 (17.7) 143.3 -- 566.4
----------- ----------- -------------- ----------- ------------
Contingencies
Minority interests........................ -- -- 51.7 -- 51.7
----------- ----------- -------------- ----------- ------------
Shareholders' equity
Series B ESOP Convertible Preferred
Stock................................. 59.9 -- -- -- 59.9
Convertible preferred stock............. -- -- 94.3 (94.3) --
Unearned compensation - ESOP............ (37.0) -- -- -- (37.0)
----------- ----------- -------------- ----------- ------------
Preferred shareholders' equity.......... 22.9 -- 94.3 (94.3) 22.9
----------- ----------- -------------- ----------- ------------
Common stock (33,759,234 shares issued)... 336.9 756.1 188.0 (944.1) 336.9
Retained earnings......................... 402.3 41.4 33.3 (74.7) 402.3
Accumulated other comprehensive loss...... (22.8) (0.7) (18.4) 19.1 (22.8)
Treasury stock, at cost (3,539,574
shares)................................. (105.1) -- -- -- (105.1)
----------- ----------- -------------- ----------- ------------
Common shareholders' equity............. 611.3 796.8 202.9 (999.7) 611.3
----------- ----------- -------------- ----------- ------------
Total shareholders' equity............ 634.2 796.8 297.2 (1,094.0) 634.2
----------- ----------- -------------- ----------- ------------
$ 1,152.4 $ 1,138.2 $ 893.5 $(1,094.0) $ 2,090.1
----------- ----------- -------------- ----------- ------------
----------- ----------- -------------- ----------- ------------
</TABLE>
F-48
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME
----------------------------------------------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 27, 1998
----------------------------------------------------------------------
BALL GUARANTOR NON-GUARANTOR ELIMINATING CONSOLIDATED
CORPORATION SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL
------------- ----------- --------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net sales $ -- $ 1,886.2 $ 355.2 $ (186.9) $ 2,054.5
Costs and expenses
Cost of sales........................... -- 1,684.9 319.3 (186.9) 1,817.3
General and administrative expenses..... 1.1 60.6 26.7 -- 88.4
Selling and product development
expenses.............................. -- 12.8 2.2 -- 15.0
Relocation costs........................ 15.0 -- -- -- 15.0
Interest expense........................ 36.5 (2.9) 14.9 -- 48.5
Equity in earnings of subsidiaries...... (52.2) -- -- 52.2 --
Corporate allocations................... (22.0) 22.0 -- -- --
------ ----------- ------ ----------- ------------
(21.6) 1,777.4 363.1 (134.7) 1,984.2
------ ----------- ------ ----------- ------------
Income (loss) before taxes on income...... 21.6 108.8 (7.9) (52.2) 70.3
Provision for taxes on income............. 16.4 (38.4) (5.4) -- (27.4)
Minority interests........................ -- -- 5.1 -- 5.1
Equity in earnings of affiliates.......... 0.1 -- 1.1 -- 1.2
------ ----------- ------ ----------- ------------
Net income (loss) before extraordinary
item.................................... 38.1 70.4 (7.1) (52.2) 49.2
Extraordinary loss from early debt
extinguishment, net of tax.............. (1.0) (11.1) -- -- (12.1)
------ ----------- ------ ----------- ------------
Net income (loss)......................... 37.1 59.3 (7.1) (52.2) 37.1
Preferred dividends, net of tax benefit... (2.1) -- -- -- (2.1)
------ ----------- ------ ----------- ------------
Earnings (loss) attributable to common
shareholders............................ $ 35.0 $ 59.3 $ (7.1) $ (52.2) $ 35.0
------ ----------- ------ ----------- ------------
------ ----------- ------ ----------- ------------
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME
--------------------------------------------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 28, 1997
--------------------------------------------------------------------
BALL GUARANTOR NON-GUARANTOR ELIMINATING CONSOLIDATED
CORPORATION SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL
----------- ----------- --------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net sales................................. $ -- $ 1,635.9 $ 391.0 $ (213.2) $ 1,813.7
Costs and expenses
Cost of sales........................... -- 1,476.3 346.5 (213.2) 1,609.6
General and administrative expenses..... (1.2) 64.4 19.6 -- 82.8
Selling and product development
expenses.............................. -- 10.8 2.0 -- 12.8
Net gain on dispositions................ -- (8.7) -- -- (8.7)
Interest expense........................ 23.7 (0.5) 16.4 -- 39.6
Equity in earnings of subsidiaries...... (49.4) -- -- 49.4 --
Corporate allocations................... (19.3) 19.3 -- -- --
----------- ----------- ------ ----------- ------------
(46.2) 1,561.6 384.5 (163.8) 1,736.1
----------- ----------- ------ ----------- ------------
Income (loss) before taxes on income...... 46.2 74.3 6.5 (49.4) 77.6
Provision for taxes on income............. 4.2 (25.4) (7.6) -- (28.8)
Minority interests........................ -- -- 3.8 -- 3.8
Equity in earnings (loss) of affiliates... 0.1 1.0 (3.2) -- (2.1)
----------- ----------- ------ ----------- ------------
Net income (loss)......................... 50.5 49.9 (0.5) (49.4) 50.5
Preferred dividends, net of tax benefit... (2.1) -- -- -- (2.1)
----------- ----------- ------ ----------- ------------
Earnings (loss) attributable to common
shareholders............................ $ 48.4 $ 49.9 $ (0.5) $ (49.4) $ 48.4
----------- ----------- ------ ----------- ------------
----------- ----------- ------ ----------- ------------
</TABLE>
F-49
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
--------------------------------------------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 27, 1998
--------------------------------------------------------------------
BALL GUARANTOR NON-GUARANTOR ELIMINATING CONSOLIDATED
CORPORATION SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL
----------- ----------- --------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net income (loss)....................... $ 37.1 $ 59.3 $ (7.1) $ (52.2) $ 37.1
Reconciliation of net income (loss) to
net cash provided by operating
activities:
Depreciation and amortization......... 2.2 78.7 24.4 -- 105.3
Relocation costs...................... 8.0 -- -- -- 8.0
Equity earnings of subsidiaries....... (52.2) -- -- 52.2 --
Other, net............................ 5.6 0.2 (4.6) -- 1.2
Changes in working capital components,
excluding effect of acquisitions.... 51.4 (44.5) 41.5 -- 48.4
----------- ----------- ------ ----------- ------------
Net cash provided by (used in)
operating activities.............. 52.1 93.7 54.2 -- 200.0
----------- ----------- ------ ----------- ------------
Cash flows from investing activities
Additions to property, plant and
equipment............................. (2.2) (39.4) (10.1) -- (51.7)
Acquisitions, net of cash acquired...... (14.6) (779.7) -- -- (794.3)
Investments in and advances to
affiliates, net....................... (1,074.9) 1,048.9 25.1 -- (0.9)
Intercompany capital contributions and
transactions.......................... (75.5) -- 75.5 -- --
Proceeds from sale of equity
investments........................... -- -- 1.1 -- 1.1
Net cash from company-owned life
insurance............................. 0.7 0.7 -- -- 1.4
Other, net.............................. (0.1) (1.4) (4.0) -- (5.5)
----------- ----------- ------ ----------- ------------
Net cash provided by (used in)
investing activities................ (1,166.6) 229.1 87.6 -- (849.9)
----------- ----------- ------ ----------- ------------
Cash flows from financing activities
Net change in long-term debt............ 1,194.2 (322.9) (26.4) -- 844.9
Net change in short-term debt........... (40.7) -- (107.6) -- (148.3)
Debt issuance costs..................... (28.9) -- -- -- (28.9)
Common and preferred dividends.......... (15.9) -- -- -- (15.9)
Net proceeds from issuance of common
stock under various employee and
shareholder plans..................... 25.2 -- -- -- 25.2
Acquisitions of treasury stock.......... (12.6) -- -- -- (12.6)
Other, net.............................. (0.5) -- (5.5) -- (6.0)
----------- ----------- ------ ----------- ------------
Net cash provided by (used in)
financing activities................ 1,120.8 (322.9) (139.5) -- 658.4
----------- ----------- ------ ----------- ------------
Net increase (decrease) in cash......... 6.3 (0.1) 2.3 -- 8.5
Cash and temporary investments:
Beginning of period................. 4.2 0.5 20.8 -- 25.5
----------- ----------- ------ ----------- ------------
End of period....................... $ 10.5 $ 0.4 $ 23.1 $ -- $ 34.0
----------- ----------- ------ ----------- ------------
----------- ----------- ------ ----------- ------------
</TABLE>
F-50
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
--------------------------------------------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 28, 1997
--------------------------------------------------------------------
BALL GUARANTOR NON-GUARANTOR ELIMINATING CONSOLIDATED
CORPORATION SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS TOTAL
----------- ----------- --------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net income (loss)....................... $ 50.5 $ 49.9 $ (0.5) $ (49.4) $ 50.5
Reconciliation of net income (loss) to
net cash provided by operating
activities:
Depreciation and amortization......... 1.1 63.4 21.5 -- 86.0
Equity earnings of subsidiaries....... (49.4) -- -- 49.4 --
Other, net............................ (0.6) (7.5) 7.1 -- (1.0)
Changes in working capital components,
excluding effect of acquisitions.... 15.3 (72.8) (3.9) -- (61.4)
----------- ----------- ------ ----------- ------------
Net cash provided by (used in)
operating activities.............. 16.9 33.0 24.2 -- 74.1
----------- ----------- ------ ----------- ------------
Cash flows from investing activities
Additions to property, plant and
equipment............................. (2.8) (51.9) (28.8) -- (83.5)
Acquisitions, net of cash acquired...... -- (40.4) (159.4) -- (199.8)
Investments in and advances to
affiliates, net....................... (57.3) 79.8 (36.7) -- (14.2)
Intercompany capital contributions and
transactions.......................... (185.5) -- 185.5 -- --
Proceeds from sale of equity
investments........................... -- 26.2 -- -- 26.2
Net cash from company-owned life
insurance............................. 11.0 3.0 -- -- 14.0
Other, net.............................. 17.4 (14.6) 8.4 -- 11.2
----------- ----------- ------ ----------- ------------
Net cash provided by (used in) investing
activities............................ (217.2) 2.1 (31.0) -- (246.1)
----------- ----------- ------ ----------- ------------
Cash flows from financing activities
Net change in long-term debt............ (0.4) (35.1) (10.4) -- (45.9)
Net change in short-term debt........... 73.0 -- 29.5 -- 102.5
Common and preferred dividends.......... (16.2) -- 0.1 -- (16.1)
Net proceeds from issuance of common
stock under various employee and
shareholder plans..................... 15.6 -- -- -- 15.6
Acquisitions of treasury stock.......... (25.8) -- -- -- (25.8)
Other, net.............................. (0.9) -- 1.5 -- 0.6
----------- ----------- ------ ----------- ------------
Net cash provided by (used in)
financing activities................ 45.3 (35.1) 20.7 -- 30.9
----------- ----------- ------ ----------- ------------
Net increase (decrease) in cash........... (155.0) -- 13.9 -- (141.1)
Cash and temporary investments:
Beginning of period................... 159.6 0.5 9.1 -- 169.2
----------- ----------- ------ ----------- ------------
End of period......................... $ 4.6 $ 0.5 $ 23.0 $ -- $ 28.1
----------- ----------- ------ ----------- ------------
----------- ----------- ------ ----------- ------------
</TABLE>
F-51
<PAGE>
RELOCATION COSTS.
In February 1998, Ball announced that it would relocate its corporate
headquarters to an existing company-owned building in Broomfield, Colorado. The
total cost of the headquarters relocation is estimated to be approximately $19.0
million ($11.5 million after tax or 38 cents per share). Generally accepted
accounting principles do not permit financial statement recognition of certain
costs, such as employee relocation, until they are paid or incurred. Therefore,
the Company recorded pretax charges of $4.7 million ($2.9 million after tax or 9
cents per share) and $15.0 million ($9.1 million after tax or 30 cents per
share), primarily for relocation costs paid or incurred in the three and nine
month periods ended September 27, 1998, respectively. It is anticipated that the
remainder of the relocation costs will be paid and recorded largely by the end
of the year.
DISPOSITIONS.
The Company sold its equity investment in a technology business during the
first half of 1997 and included a pretax gain of $11.7 million ($7.1 million
after tax or 23 cents per share). In the second quarter of 1997, the Company
recorded a pretax charge of $3.0 million ($1.8 million after tax or six cents
per share) to close a small PET container manufacturing plant in connection with
the acquisition of certain PET container manufacturing assets.
SHAREHOLDERS' EQUITY.
The Company adopted SFAS No. 130, "Reporting Comprehensive Income,"
effective January 1, 1998 which requires the Company to report the changes in
shareholders' equity from all sources during the period other than those
resulting from investments by shareholders (i.e., issuance or repurchase of
common shares and dividends). Although adoption of this standard has not
resulted in any change to the historic basis of the determination of earnings or
shareholders' equity, the comprehensive income components recorded under
generally accepted accounting principles and previously included under the
category "retained earnings" are displayed as "accumulated other comprehensive
loss" within the unaudited condensed consolidated balance sheet. The composition
of accumulated other comprehensive loss at September 27, 1998 and December 31,
1997 is primarily the cumulative adjustment for foreign currency translation and
additional minimum pension liability.
Total comprehensive income for the three and nine month periods ended
September 27, 1998 is $9.3 million and $30.8 million, respectively, and $21.1
million and $50.3 million, for the comparative periods of 1997, respectively.
The difference between net income and comprehensive income is primarily the
adjustment for foreign currency translation.
Issued and outstanding shares of the Series B ESOP Convertible Preferred
Stock were 1,616,667 shares at September 27, 1998, and 1,635,410 shares at
December 31, 1997.
F-52
<PAGE>
EARNINGS PER SHARE.
The following table provides additional information on the computation of
earnings per share amounts:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------- ----------------------------
SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 27, SEPTEMBER 28,
(MILLIONS OF DOLLARS EXCEPT PER SHARE AMOUNTS) 1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
EARNINGS PER COMMON SHARE
Net income before extraordinary item................. $ 24.9 $ 22.7 $ 49.2 $ 50.5
Extraordinary loss from early debt extinguishment,
net of tax......................................... (12.1) -- (12.1) --
------------- ------------- ------------- -------------
Net income........................................... 12.8 22.7 37.1 50.5
Preferred dividends, net of tax benefits............. (0.7) (0.7) (2.1) (2.1)
------------- ------------- ------------- -------------
Net earnings attributable to common shareholders..... $ 12.1 $ 22.0 $ 35.0 $ 48.4
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average common shares (000S)................ 30,505 30,135 30,345 30,263
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Earnings per common share before extraordinary
item............................................... $ 0.80 $ 0.73 $ 1.55 $ 1.60
Extraordinary loss from early debt extinguishment,
net of tax......................................... (0.40) -- (0.40) --
------------- ------------- ------------- -------------
Earnings per common share............................ $ 0.40 $ 0.73 $ 1.15 $ 1.60
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
DILUTED EARNINGS PER SHARE
Net income before extraordinary item................. $ 24.9 $ 22.7 $ 49.2 $ 50.5
Extraordinary loss from early debt extinguishment,
net of tax......................................... (12.1) -- (12.1) --
------------- ------------- ------------- -------------
Net income........................................... 12.8 22.7 37.1 50.5
Adjustment for deemed ESOP cash contribution in lieu
of the ESOP Preferred dividend..................... (0.5) (0.6) (1.6) (1.6)
------------- ------------- ------------- -------------
Net earnings attributable to common shareholders..... $ 12.3 $ 22.1 $ 35.5 $ 48.9
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average common shares (000S)................ 30,505 30,135 30,345 30,263
Effect of dilutive stock options..................... 292 228 246 114
Common shares issuable upon conversion of the ESOP
Preferred stock.................................... 1,868 1,911 1,875 1,920
------------- ------------- ------------- -------------
Weighted average shares applicable to diluted
earnings per share................................. 32,665 32,274 32,466 32,297
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Earnings per common share before extraordinary
item............................................... $ 0.75 $ 0.68 $ 1.46 $ 1.51
Extraordinary loss from early debt extinguishment,
net of tax......................................... (0.37) -- (0.37) --
------------- ------------- ------------- -------------
Diluted earnings per share........................... $ 0.38 $ 0.68 $ 1.09 $ 1.51
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
F-53
<PAGE>
CONTINGENCIES.
The Company is subject to various risks and uncertainties in the ordinary
course of business due, in part, to the competitive nature of the industries in
which Ball participates, its operations in developing markets outside the U.S.,
changing commodity prices for the materials used in the manufacture of its
products, and changing capital markets. Where practicable, the Company attempts
to reduce these risks and uncertainties, through the establishment of risk
management policies and procedures, including, at times, the use of certain
derivative financial instruments.
The Company was not in default of any loan agreement at September 27, 1998,
and has met all payment obligations.
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 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 the financial condition, results of
operations, capital expenditures or competitive position of the Company.
F-54
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Reynolds Metals Company
We have audited the accompanying combined balance sheets of North American
Can Operations (a component of Reynolds Metals Company) as defined in Note 1
(the "Operation") as of December 31, 1997 and 1996, and the related combined
statements of income and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Operation's management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of the Operation, as
defined in Note 1, at December 31, 1997 and 1996, and the combined results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Richmond, Virginia
April 28, 1998
F-55
<PAGE>
NORTH AMERICAN CAN OPERATIONS
(A COMPONENT OF REYNOLDS METALS COMPANY)
COMBINED BALANCE SHEET
(IN MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Customer receivables, less allowances of $0.2 (1996-$0.1)............................... $ 54.5 $ 49.7
Receivables from Reynolds' Latin American affiliate..................................... 6.2 5.0
Inventories............................................................................. 115.8 95.5
Deferred taxes.......................................................................... 4.6 7.7
Other................................................................................... 3.3 3.1
--------- ---------
Total current assets...................................................................... 184.4 161.0
Property, plant and equipment............................................................. 741.1 730.3
Less allowances for depreciation and amortization......................................... 404.5 355.3
--------- ---------
336.6 375.0
Assets held for sale...................................................................... 6.2 8.0
Other assets.............................................................................. 38.9 38.6
--------- ---------
Total assets................................................................................ $ 566.1 $ 582.6
--------- ---------
--------- ---------
LIABILITIES AND OWNER'S EQUITY
Current liabilities:
Accounts payable........................................................................ $ 26.9 $ 35.3
Accounts payable -- Reynolds plant locations (net)...................................... 43.2 34.9
Accrued compensation and related amounts................................................ 10.4 12.2
Restructuring liabilities............................................................... 4.6 10.1
Other liabilities....................................................................... 4.6 4.3
--------- ---------
Total current liabilities................................................................. 89.7 96.8
Long-term debt............................................................................ 54.4 54.6
Deferred taxes............................................................................ 38.5 31.7
Restructuring liabilities................................................................. -- 8.8
Environmental liabilities................................................................. 8.5 8.8
Owner's equity............................................................................ 375.0 381.9
Contingent liabilities....................................................................
--------- ---------
Total liabilities and owner's equity........................................................ $ 566.1 $ 582.6
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
F-56
<PAGE>
NORTH AMERICAN CAN OPERATIONS
(A COMPONENT OF REYNOLDS METALS COMPANY)
COMBINED STATEMENT OF INCOME
(IN MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES
Net sales................................................................ $ 1,182.8 $ 1,146.4 $ 1,211.5
Net sales to Reynolds' Latin American affiliate.......................... 9.9 10.2 33.9
---------- ---------- ----------
1,192.7 1,156.6 1,245.4
COSTS AND EXPENSES
Cost of products sold.................................................... 1,053.2 1,066.8 1,096.1
Selling, administrative and general...................................... 32.1 33.9 36.2
Depreciation and amortization............................................ 56.7 53.8 53.4
Interest................................................................. 2.1 -- 0.9
Operational restructuring costs.......................................... -- 37.2 15.9
---------- ---------- ----------
1,144.1 1,191.7 1,202.5
EARNINGS
Income (loss) before income taxes........................................ 48.6 (35.1) 42.9
Taxes on income (credit)................................................. 19.9 (13.0) 17.6
---------- ---------- ----------
NET INCOME (LOSS).......................................................... $ 28.7 $ (22.1) $ 25.3
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes.
F-57
<PAGE>
NORTH AMERICAN CAN OPERATIONS
(A COMPONENT OF REYNOLDS METALS COMPANY)
COMBINED STATEMENT OF CASH FLOWS
(IN MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)..................................................................... $ 28.7 $ (22.1) $ 25.3
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization....................................................... 56.7 53.8 53.4
Operational restructuring costs..................................................... -- 37.2 15.9
Operational restructuring payments.................................................. (9.1) (2.5) (1.8)
Deferred taxes...................................................................... 9.9 (4.4) (0.3)
Changes in operating assets and liabilities:
Decrease (increase) in receivables................................................ (6.0) 21.9 6.5
Decrease (increase) in inventories................................................ (20.3) 35.4 (33.1)
Increase (decrease) in payables................................................... (1.6) (26.4) 12.7
Other............................................................................. (1.9) 2.6 (3.6)
--------- --------- ---------
Net cash provided by operating activities............................................... 56.4 95.5 75.0
INVESTING ACTIVITIES:
Expenditures for property, plant and equipment........................................ (21.3) (67.9) (59.1)
Proceeds from sales of assets......................................................... 0.7 6.7 --
--------- --------- ---------
Net cash used in investing activities................................................... (20.6) (61.2) (59.1)
FINANCING ACTIVITIES:
Cash changes in owner's equity........................................................ (35.6) (34.1) (15.6)
Debt payments......................................................................... (0.2) (0.2) (0.3)
--------- --------- ---------
Net cash used in financing activities................................................... (35.8) (34.3) (15.9)
--------- --------- ---------
CASH AT BEGINNING AND END OF PERIOD..................................................... $ -- $ -- $ --
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes.
F-58
<PAGE>
NORTH AMERICAN CAN OPERATIONS
(A COMPONENT OF REYNOLDS METALS COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THE TABLES, DOLLARS ARE MILLIONS)
1. BASIS OF PRESENTATION
North American Can Operations is a component of Reynolds Metals Company
("Reynolds") that primarily produces aluminum beverage cans and ends. The North
American Can Operations (the "Operation") consist of 15 can and end plants in
the U.S. and a can plant in Puerto Rico.
The accompanying special-purpose combined financial statements have been
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission for inclusion in a registration statement of
Ball Corporation. They have been prepared on a historical cost basis from the
books and records of the Operation and Reynolds on the basis of established
accounting methods, practices, procedures and policies (see Note 2) and the
accounting judgments and estimation methodologies used by the Operation and
Reynolds.
The combined statement of income includes all items of revenue and income
generated by the Operation, all items of expense directly incurred by it and
expenses charged or allocated to it by Reynolds in the normal course of
business. In addition, certain Reynolds corporate expenses were allocated by
Reynolds to the Operation for the sole purpose of preparing these
special-purpose combined financial statements. For additional information
concerning expenses charged or allocated to the Operation by Reynolds, see Note
3.
The Operation's results have been included in Reynolds' combined U.S.
federal and applicable state income tax returns. The amount of taxes payable or
receivable due to/from Reynolds for 1997, 1996 and 1995 is included as a
component of Owner's Equity and equals the current provision for taxes (see Note
7). The provision for income taxes, the related assets and liabilities and the
disclosures in the footnotes are presented as if the Operation had filed
separate tax returns and are in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes."
The debt of the Operation consists of obligations that are specifically
identifiable with associated capital expenditures of the Operation. No other
debt of Reynolds (or related interest expense) has been allocated to the
Operation.
Because of the special purpose of the Operation's combined financial
statements and the significant related party transactions (as described in Note
3), these special-purpose combined financial statements may not necessarily be
indicative of the combined financial position, results of operations or cash
flows that would have resulted if the Operation had been operated as a separate
entity. Management believes that the accounting judgments, estimations and
allocations made in preparing these special-purpose combined financial
statements were reasonable.
2. ACCOUNTING POLICIES
PRINCIPLES OF COMBINATION
These special-purpose combined financial statements include the accounts of
the Operation after eliminating profits and losses on transactions within the
Operation.
REVENUE RECOGNITION
Revenues are recognized when products are shipped and ownership risk and
title pass to the customer.
F-59
<PAGE>
2. ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
Inventories are stated at the lower of cost or market. Inventory costs were
determined by the first-in, first-out method and principally consist of finished
goods.
DEPRECIATION AND AMORTIZATION
The straight-line method is used to depreciate plant and equipment over
their estimated useful lives (buildings -- 10 to 40 years, machinery and
equipment -- 5 to 20 years).
ENVIRONMENTAL EXPENDITURES
Remediation costs are accrued when it is probable that such efforts will be
required and the related costs can be reasonably estimated.
STATEMENT OF CASH FLOWS
Reynolds utilizes a centralized cash management system for all of its
domestic operations, including the Operation. Cash receipts are transferred to
Reynolds while the cash disbursements are made by Reynolds on behalf of the
Operation, each on a current basis. The net cash generated by the Operation in
the combined statement of cash flows is reflected as a change in the Owner's
Equity account.
USE OF ESTIMATES
Generally accepted accounting principles require management to make
estimates and assumptions that affect assets and liabilities, contingent assets
and liabilities, and revenues and expenses. Actual results could differ from
those estimates.
3. RELATED PARTY TRANSACTIONS
REYNOLDS' LATIN AMERICAN AFFILIATE
The Operation sells cans to a Reynolds' affiliate that produces and markets
cans in Latin America. The Operation sells cans to the affiliate, as necessary,
to cover production shortages.
NET INVENTORY PURCHASES FROM REYNOLDS
Reynolds has been a primary supplier of aluminum sheet to the Operation. The
Operation also sells aluminum scrap to Reynolds (which is accounted for as a
credit to aluminum sheet purchases). The following is a summary of these
transactions (which were made at market prices) for each of the last three
years.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Aluminum sheet purchases......................................... $ 539.5 $ 517.7 $ 468.6
Aluminum scrap sales............................................. (31.3) (30.8) (38.5)
--------- --------- ---------
Total.......................................................... $ 508.2 $ 486.9 $ 430.1
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-60
<PAGE>
3. RELATED PARTY TRANSACTIONS (CONTINUED)
OPERATING EXPENSES
The expenses charged or allocated to the Operation by Reynolds in the normal
course of business consist of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Employee benefits:
Pensions....................................................... $ 7.8 $ 6.6 $ 6.4
Other postretirement benefits.................................. 4.0 5.1 5.8
Insurance -- principally medical for active personnel.......... 17.0 17.8 16.0
Workers' compensation............................................ 4.0 3.9 3.3
Information system usage......................................... 2.1 2.4 2.1
Other............................................................ 3.0 2.5 3.0
--------- --------- ---------
$ 37.9 $ 38.3 $ 36.6
--------- --------- ---------
--------- --------- ---------
</TABLE>
Reynolds maintains several noncontributory defined benefit pension plans
(including the Operation, Reynolds and certain consolidated subsidiaries of
Reynolds) that cover substantially all of the Operation's employees. Plans
covering salaried employees provide pension benefits based on a formula. The
formula considers length of service and earnings during years of service. Plans
covering hourly employees generally provide a specific amount of benefits for
each year of service.
Reynolds also maintains postretirement benefits plans (including the
Operation, Reynolds and certain consolidated subsidiaries of Reynolds) that
provide most of the Operation's retired employees with health care and life
insurance benefits. Substantially all employees may become eligible for these
benefits if they work for the Operation until retirement age.
The Operation recognizes employee benefit costs based on allocations from
Reynolds. These allocations were determined in a fair and equitable manner and
have been consistently applied to the Operation and to Reynolds' other
operations. Information system usage is charged based on actual computer time
used by the Operation.
ALLOCATION OF CORPORATE SELLING, ADMINISTRATIVE AND GENERAL EXPENSES
In addition to the operating expenses discussed above, certain Reynolds
corporate expenses were allocated to the Operation by Reynolds for the sole
purpose of preparing these special-purpose combined financial statements. These
expenses were allocated to the Operation based on the relationship of the
aggregate of the Operation's net sales, fixed assets and equity investments
compared to that of Reynolds. These expenses amounted to $13.7 million in 1997
($12.1 million in 1996 and $17.3 million in 1995).
ACCOUNTS PAYABLE
Accounts Payable -- Reynolds plant locations (net) reflects the net
liability to Reynolds for purchases of aluminum sheet less the receivable from
Reynolds for sales of scrap. The net liability assumes normal payment terms
existed between Reynolds and the Operation. All other related party transactions
are accounted for as changes to the Owner's Equity account.
4. OPERATIONAL RESTRUCTURING COSTS
The operational restructuring costs for 1996 and 1995 resulted from the
closings and modernizations of certain domestic can plants of the Operation. Two
plants were closed as their capacities were in excess of
F-61
<PAGE>
4. OPERATIONAL RESTRUCTURING COSTS (CONTINUED)
the Operation's customer needs. Productivity gains from modernizations within
the Operation's can-making system and slower overall growth in the domestic can
market lead to this rationalization. The significant components of these costs
were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Employee termination costs................................................... $ 30.3 $ 2.4
Asset revaluations........................................................... 5.2 10.2
Other........................................................................ 1.7 3.3
--------- ---------
$ 37.2 $ 15.9
--------- ---------
--------- ---------
</TABLE>
The employee termination costs represent approximately 475 personnel
(principally hourly employees). Included in the employee termination amount for
1996 is $18.9 million related to pension and other post-retirement liabilities.
As these liabilities will be funded over time by Reynolds, the amounts are
included as a component of Owner's Equity in the combined balance sheet. Most of
the remaining cash requirements were paid as of the end of 1997, with the
balance ($4.6 million) to be paid in 1998.
The asset revaluations were for assets to be sold (property, plant and
equipment) as a result of the restructuring of operations. These assets were
revalued to their estimated recoverable value.
5. PROPERTY, PLANT AND EQUIPMENT (AT COST)
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Land and land improvements................................................. $ 19.2 $ 19.2
Buildings.................................................................. 93.2 85.8
Machinery and equipment.................................................... 621.5 588.0
Construction in progress................................................... 7.2 37.3
--------- ---------
741.1 730.3
Less allowances for depreciation and amortization.......................... 404.5 355.3
--------- ---------
Net property, plant and equipment.......................................... $ 336.6 $ 375.0
--------- ---------
--------- ---------
</TABLE>
6. FINANCING ARRANGEMENTS
The Operation's debt at December 31, 1997 consists of $49.2 million of
industrial and environmental control revenue bonds (including $41.2 million at
the Puerto Rico can plant) and a mortgage of $5.4 million (which includes $0.2
million in Other current liabilities in the Combined Balance Sheet).
The industrial and environmental control revenue bonds bear interest at a
variable rate (averaging approximately 3.8% at December 31, 1997). These bonds
require principal repayments in a lump sum in 2013 ($41.2 million) and 2015
($8.0 million). Letters of credit issued to Reynolds by banks support these
bonds. The mortgage bears interest at a fixed rate of 10%. The mortgage requires
principal repayments through 2009 (approximately $0.2 to $0.3 million a year for
the next five years).
Interest expense incurred was $2.6 million in 1997 ($2.8 million in 1996 and
$3.0 million in 1995). Interest capitalized amounted to $0.5 million in 1997
($2.8 million in 1996 and $2.1 million in 1995).
F-62
<PAGE>
6. FINANCING ARRANGEMENTS (CONTINUED)
The financing arrangements contain compliance requirements, such as
maintaining and operating the associated facilities in good repair during their
useful lives. Upon the occurrence of certain events, including cessation of
operation of the Puerto Rican plant, the maturities of the Operation's debt
could be accelerated. These requirements do not inhibit operations or the use of
fixed assets. At December 31, 1997, the Operation met all such compliance
requirements.
The fair value of the Operation's debt was approximately equal to book value
at the end of 1997 and 1996.
7. TAXES ON INCOME
The significant components of the provision for taxes on income (credit)
were:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal........................................................... $ 9.1 $ (8.0) $ 14.9
State............................................................. 0.9 (0.6) 3.0
--------- --------- ---------
Total current..................................................... 10.0 (8.6) 17.9
--------- --------- ---------
Deferred:
Federal........................................................... 7.4 (2.8) (0.2)
State............................................................. 2.5 (1.6) (0.1)
--------- --------- ---------
Total deferred.................................................... 9.9 (4.4) (0.3)
--------- --------- ---------
Total............................................................... $ 19.9 $ (13.0) $ 17.6
--------- --------- ---------
--------- --------- ---------
</TABLE>
The effective income tax rate varied from the statutory rate as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Federal statutory rate................................................. 35% (35)% 35%
State income taxes..................................................... 4 (4) 4
Goodwill and other..................................................... 2 2 2
--- --- ---
Effective rate......................................................... 41% (37)% 41%
--- --- ---
--- --- ---
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. At December 31, 1997, the
Operation had $7.9 million (1996 -- $14.9 million) of deferred tax
F-63
<PAGE>
7. TAXES ON INCOME (CONTINUED)
assets and $41.8 million (1996 -- $38.9 million) of deferred tax liabilities.
The significant components of deferred tax assets and liabilities reflected in
the combined balance sheet are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------------------------
1997 1996
-------------------------- --------------------------
CURRENT NONCURRENT CURRENT NONCURRENT
ASSET LIABILITY ASSET LIABILITY
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Tax over book depreciation...................... $ -- $ 41.8 $ -- $ 38.9
Environmental and restructuring costs........... 1.8 (3.3) 4.0 (7.2)
Other........................................... 2.8 -- 3.7 --
--- ----- --- -----
Total........................................... $ 4.6 $ 38.5 $ 7.7 $ 31.7
--- ----- --- -----
--- ----- --- -----
</TABLE>
Included in the Operation is a corporation (Latas de Aluminio Reynolds,
Inc.) which for all years joined in the filing of a U.S. federal consolidated
income tax return with Reynolds and its affiliated group members. Each entity
included in a consolidated return is severally liable for any resultant tax
reflected on such consolidated return.
8. CONTINGENT LIABILITIES
LEGAL
Various suits, claims and actions are pending against the Operation. In the
opinion of management, after consultation with legal counsel, disposition of
these suits, claims and actions, either individually or in the aggregate, will
not have a material adverse effect on the Operation's competitive or financial
position or its expected ongoing results of operations.
ENVIRONMENTAL
The Operation is involved in various environmental improvement activities
resulting from past operations including where Reynolds has been designated as a
potentially responsible party ("PRP"), with others, at various Environmental
Protection Agency-designated Superfund sites.
Amounts have been recorded (on an undiscounted basis) which, in management's
best estimate, will be sufficient to satisfy anticipated costs of known
remediation requirements. At December 31, 1997, the accrual for environmental
remediation costs was $8.4 million. This amount is expected to be spent over the
next 10 to 15 years with the majority to be spent by the year 2002.
Estimated environmental remediation costs are developed after considering,
among other things, the following:
- currently available technological solutions
- alternative cleanup methods
- risk-based assessments of the contamination
- estimated proportionate share of remediation costs (if applicable)
The Operation may also use external consultants, and consider, when
available, estimates by other PRPs and governmental agencies and information
regarding the financial viability of other PRPs. Based on information currently
available, the Operation believes it is unlikely that it will incur substantial
additional costs as a result of failure by other PRPs to satisfy their
responsibilities for remediation costs.
F-64
<PAGE>
8. CONTINGENT LIABILITIES (CONTINUED)
Estimated costs for future environmental compliance and remediation are
necessarily imprecise because of factors such as:
- continuing evolution of environmental laws and regulatory requirements
- availability and application of technology
- identification of presently unknown remediation requirements
- cost allocations among PRPs
Further, it is not possible to predict the amount or timing of future costs
of environmental remediation that may subsequently be determined. Based on
information presently available, such future costs are not expected to have a
material adverse effect on the Operation's competitive or financial position or
its expected ongoing results of operations.
9. OTHER
MAJOR CUSTOMERS
The Operation has two major customers. Sales to Philip Morris Companies,
Inc. ("PM") represented 45% of customer net sales in 1997 (47% in 1996 and 41%
in 1995). The combined sales to Coca-Cola bottlers (as a group) represented 20%
of customer net sales in 1997 (19% in 1996 and 20% in 1995). At December 31,
1997, receivables from PM and the Coca-Cola bottlers (as a group) were 21% and
10%, respectively, as a percentage of total customer receivables.
RESEARCH AND DEVELOPMENT
The Operation incurred $6.1 million in research and development costs in
1997 ($7.2 million in 1996 and $6.6 million in 1995).
CONSIGNMENT INVENTORIES
The Operation holds certain materials (principally aluminum sheet inventory)
at its facilities on consignment from Reynolds and certain outside vendors. At
December 31, 1997, the total value of aluminum sheet inventory on consignment
was $23.9 million ($14.4 million at December 31, 1996). Under these consignment
agreements, the Operation takes title to the materials at the time they are
placed into the production process. Additionally, any consignment inventory held
in excess of certain periods of time (whether used or not) becomes the
Operation's inventory. Aluminum sheet inventory on consignment from Reynolds at
December 31, 1997 totaled $18.1 million ($10.9 million at December 31, 1996).
F-65
<PAGE>
NORTH AMERICAN CAN OPERATIONS
(A COMPONENT OF REYNOLDS METALS COMPANY)
COMBINED BALANCE SHEET
(IN MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31,
1997
JUNE 30, -------------
1998 (NOTE)
-----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Customer receivables, less allowances of $0.2 (1997 - $0.2)....................... $ 84.5 $ 54.5
Receivables from Reynolds' Latin American affiliate............................... 4.7 6.2
Inventories....................................................................... 98.2 115.8
Deferred taxes.................................................................... 4.1 4.6
Other............................................................................. 2.4 3.3
----------- ------
Total current assets................................................................ 193.9 184.4
Property, plant and equipment....................................................... 739.5 741.1
Less allowances for depreciation and amortization................................... 423.8 404.5
----------- ------
315.7 336.6
Assets held for sale................................................................ 6.1 6.2
Other assets........................................................................ 37.7 38.9
----------- ------
Total assets.......................................................................... $ 553.4 $ 566.1
----------- ------
----------- ------
LIABILITIES AND OWNER'S EQUITY
Current liabilities:
Accounts payable.................................................................. $ 35.6 $ 26.9
Accounts payable - Reynolds plant locations (net)................................. 44.9 43.2
Accrued compensation and related amounts.......................................... 14.4 10.4
Restructuring liabilities......................................................... 3.0 4.6
Other liabilities................................................................. 4.3 4.6
----------- ------
Total current liabilities........................................................... 102.2 89.7
Long-term debt...................................................................... 54.3 54.4
Deferred taxes...................................................................... 39.1 38.5
Environmental liabilities........................................................... 8.4 8.5
Owner's equity...................................................................... 349.4 375.0
Contingent liabilities..............................................................
----------- ------
Total liabilities and owner's equity.................................................. $ 553.4 $ 566.1
----------- ------
----------- ------
</TABLE>
Note: The combined balance sheet at December 31, 1997 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See accompanying notes.
F-66
<PAGE>
NORTH AMERICAN CAN OPERATIONS
(A COMPONENT OF REYNOLDS METALS COMPANY)
COMBINED STATEMENT OF INCOME
(IN MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30
--------------------
1998 1997
--------- ---------
<S> <C> <C>
REVENUES
Net sales.................................................................................... $ 627.6 $ 619.3
Net sales to Reynolds' Latin American affiliate.............................................. 2.2 6.3
--------- ---------
629.8 625.6
COSTS AND EXPENSES
Cost of products sold........................................................................ 554.4 557.1
Selling, administrative and general.......................................................... 16.5 15.6
Depreciation and amortization................................................................ 28.7 27.9
Interest..................................................................................... 1.2 0.9
--------- ---------
600.8 601.5
--------- ---------
EARNINGS
Income before income taxes................................................................... 29.0 24.1
Taxes on income.............................................................................. 11.7 9.8
--------- ---------
NET INCOME..................................................................................... $ 17.3 $ 14.3
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
F-67
<PAGE>
NORTH AMERICAN CAN OPERATIONS
(A COMPONENT OF REYNOLDS METALS COMPANY)
COMBINED STATEMENT OF CASH FLOWS
(IN MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30
--------------------
1998 1997
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income..................................................................................... $ 17.3 $ 14.3
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization................................................................ 28.7 27.9
Operational restructuring payments........................................................... (1.6) (5.7)
Deferred taxes............................................................................... 1.1 5.3
Changes in operating assets and liabilities:
Increase in receivables.................................................................... (28.5) (33.5)
Decrease in inventories.................................................................... 17.6 28.0
Increase in payables....................................................................... 14.1 4.4
Other...................................................................................... (0.2) (2.4)
--------- ---------
Net cash provided by operating activities........................................................ 48.5 38.3
INVESTING ACTIVITIES:
Expenditures for property, plant and equipment................................................. (7.2) (13.4)
Proceeds from sales of assets.................................................................. 1.7 0.3
--------- ---------
Net cash used in investing activities............................................................ (5.5) (13.1)
FINANCING ACTIVITIES:
Cash changes in owner's equity................................................................. (42.9) (25.1)
Debt payments.................................................................................. (0.1) (0.1)
--------- ---------
Net cash used in financing activities............................................................ (43.0) (25.2)
--------- ---------
CASH AT BEGINNING AND END OF PERIOD.............................................................. $ -- $ --
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
F-68
<PAGE>
NORTH AMERICAN CAN OPERATIONS
(A COMPONENT OF REYNOLDS METALS COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
North American Can Operations is a component of Reynolds Metals Company
("Reynolds") that primarily produces aluminum beverage cans and ends. The North
American Can Operations (the "Operation") consist of 15 can and end plants in
the U.S. and a can plant in Puerto Rico.
The accompanying unaudited special-purpose interim combined financial
statements are presented in accordance with generally accepted accounting
principles for interim financial statements and have been prepared on a basis
consistent with the annual statements. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management of
the Operation, the statements include all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation. Operating
results for the interim period of 1998 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1998. For further
information, refer to the special-purpose combined financial statements and
footnotes thereto included in North American Can Operations' report for the year
ended December 31, 1997.
2. CONTINGENT LIABILITIES
ENVIRONMENTAL
The Operation is involved in various environmental improvement activities
resulting from past operations including where Reynolds has been designated as a
potentially responsible party ("PRP"), with others, at various Environmental
Protection Agency-designated Superfund sites.
Amounts have been recorded (on an undiscounted basis) which, in management's
best estimate, will be sufficient to satisfy anticipated costs of known
remediation requirements.
Estimated costs for future environmental compliance and remediation are
necessarily imprecise because of factors such as:
- continuing evolution of environmental laws and regulatory requirements
- availability and application of technology
- identification of presently unknown remediation requirements
- cost allocations among PRPs
Further, it is not possible to predict the amount or timing of future costs
of environmental remediation that may subsequently be determined. Based on
information presently available, such future costs are not expected to have a
material adverse effect on the Operation's competitive or financial position or
its expected ongoing results of operations.
3. SUBSEQUENT EVENT
On August 10, 1998, the Operation was sold to Ball Corporation.
F-69
<PAGE>
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- --------------------------------------------------------------------------------
UNTIL JULY 26, 1999, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
---------
<S> <C>
Prospectus Summary............................. 1
Risk Factors................................... 17
The Exchange Offer............................. 24
The Transactions............................... 32
Recent Developments............................ 33
Sources and Uses of Funds...................... 34
Capitalization................................. 35
Unaudited Pro Forma Condensed Combined
Financial Data............................... 36
Selected Financial Data........................ 40
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 43
Business....................................... 59
Management..................................... 73
Ownership of Capital Stock..................... 76
Description of Certain Indebtedness............ 77
Description of the Exchange Notes.............. 80
Certain Federal Income Tax Consequences........ 116
Plan of Distribution........................... 119
Legal Matters.................................. 119
Experts........................................ 120
Where You Can Find More Information............ 120
Information Incorporated by Reference.......... 121
Index to Financial Statements.................. F-1
</TABLE>
$550,000,000
[LOGO]
BALL CORPORATION
$300,000,000
7 3/4% SENIOR NOTES DUE 2006
$250,000,000
8 1/4% SENIOR SUBORDINATED NOTES DUE 2008
-------------------
PROSPECTUS
December 21, 1998
---------------------
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