UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 28, 1998
Commission file number 1-7349
BALL CORPORATION
State of Indiana 35-0160610
10 Longs Peak Drive, P.O. Box 5000
Broomfield, CO 80038-5000
303/469-3131
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at June 28, 1998
- - ----------------------------------- -----------------------------------
Common Stock, without par value 30,495,627 shares
<PAGE>
Ball Corporation and Subsidiaries
QUARTERLY REPORT ON FORM 10-Q
For the period ended June 28, 1998
INDEX
Page Number
-----------
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Unaudited Condensed Consolidated Statement of
Income for the three and six month periods ended
June 28, 1998 and June 29, 1997 3
Unaudited Condensed Consolidated Balance Sheet at
June 28, 1998 and December 31, 1997 4
Unaudited Condensed Consolidated Statement of
Cash Flows for the six month periods ended June 28,
1998 and June 29, 1997 5
Notes to Unaudited Condensed Consolidated
Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. OTHER INFORMATION 16
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Ball Corporation and Subsidiaries
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Millions of dollars except per share amounts)
<TABLE>
<CAPTION>
Three months ended Six months ended
----------------------------- -------------------------------
June 28, June 29, June 28, June 29,
1998 1997 1998 1997
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 645.6 $ 643.7 $ 1,195.3 $ 1,123.5
------------ ------------ ------------- -------------
Costs and expenses
Cost of sales 568.8 572.8 1,060.0 1,004.4
General and administrative expenses 25.4 27.9 53.8 54.6
Selling and product development expenses
5.0 5.2 10.0 8.9
Relocation costs 4.0 -- 10.3 --
Dispositions and other -- (7.5) -- (8.7)
Interest expense 13.4 15.4 26.1 25.3
------------ ------------ ------------- -------------
616.6 613.8 1,160.2 1,084.5
------------ ------------ ------------- -------------
Income before taxes on income 29.0 29.9 35.1 39.0
Provision for taxes on income (12.2) (11.9) (15.3) (14.7)
Minority interests 1.4 2.3 4.0 3.9
Equity in earnings (losses) of affiliates 0.8 0.5 0.5 (0.4)
------------ ------------ ------------- -------------
Net income 19.0 20.8 24.3 27.8
Preferred dividends, net of tax benefit (0.7) (0.7) (1.4) (1.4)
------------ ------------ ------------- -------------
Earnings available to common shareholders
$ 18.3 $ 20.1 $ 22.9 $ 26.4
============ ============ ============= =============
Earnings per share of common stock $ 0.60 $ 0.67 $ 0.76 $ 0.87
============ ============ ============= =============
Diluted earnings per share $ 0.57 $ 0.63 $ 0.72 $ 0.83
============ ============ ============= =============
Cash dividends declared per common share
$ 0.15 $ 0.15 $ 0.30 $ 0.30
============ ============ ============= =============
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
<PAGE>
Ball Corporation and Subsidiaries
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
(Millions of dollars)
<TABLE>
<CAPTION>
June 28, December 31,
1998 1997
------------------ -------------------
<S> <C> <C>
ASSETS
Current assets
Cash and temporary investments $ 68.4 $ 25.5
Accounts receivable, net 339.2 301.4
Inventories, net
Raw materials and supplies 145.6 184.9
Work in process and finished goods 245.0 228.4
Deferred income tax benefits and prepaid expenses 56.6 57.9
------------------ ------------------
Total current assets 854.8 798.1
------------------ ------------------
Property, plant and equipment, at cost 1,546.0 1,556.1
Accumulated depreciation (680.2) (636.6)
------------------ ------------------
865.8 919.5
------------------ ------------------
Investment in affiliates 75.6 74.5
Goodwill, net 212.8 194.8
Other assets 104.5 103.2
------------------ ------------------
$ 2,113.5 $ 2,090.1
================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt and current portion of long-term debt $ 430.4 $ 407.0
Accounts payable 270.7 258.6
Salaries and wages 61.5 78.3
Other current liabilities 94.0 93.9
------------------ ------------------
Total current liabilities 856.6 837.8
------------------ ------------------
Noncurrent liabilities
Long-term debt 354.6 366.1
Deferred income taxes 62.2 60.5
Employee benefit obligations and other 143.4 139.8
------------------ ------------------
Total noncurrent liabilities 560.2 566.4
------------------ ------------------
Contingencies
Minority interests 41.3 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 34,261,735 shares - 1998;
33,759,234 shares - 1997) 352.4 336.9
Retained earnings 416.1 402.3
Accumulated other comprehensive loss (25.6) (22.8)
Treasury stock, at cost (3,766,108 shares - 1998;
3,539,574 shares - 1997) (113.3) (105.1)
------------------ ------------------
Common shareholders' equity 629.6 611.3
------------------ ------------------
Total shareholders' equity 655.4 634.2
------------------ ------------------
$ 2,113.5 $ 2,090.1
================== ==================
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
<PAGE>
Ball Corporation and Subsidiaries
UNAUDITED CONDENSED CONSOLIDATED
STATEMENT OF CASH FLOWS
(Millions of dollars)
<TABLE>
<CAPTION>
Six months ended
-------------------------------------
June 28, June 29,
1998 1997
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 24.3 $ 27.8
Reconciliation of net income
to net cash provided by (used in) operating activities:
Depreciation and amortization 65.9 54.4
Relocation costs 10.3 --
Other, net (2.5) (3.3)
Changes in working capital components,
excluding effect of acquisition (25.7) (95.6)
---------------- ----------------
Net cash provided by (used in) operating activities 72.3 (16.7)
---------------- ----------------
Cash flows from investing activities
Additions to property, plant and equipment (37.7) (59.4)
Investments in and advances to affiliates (2.8) (18.3)
Acquisition of M. C. Packaging, net of cash acquired -- (156.3)
Proceeds from sale of equity investment -- 26.2
Net cash from company-owned life insurance 2.5 15.0
Other, net (0.9) 6.5
---------------- ----------------
Net cash used in investing activities (38.9) (186.3)
---------------- ----------------
Cash flows from financing activities
Net change in long-term debt (24.3) (24.6)
Net change in short-term debt 40.9 104.7
Common and preferred dividends (12.0) (11.8)
Net proceeds from issuance of common stock under various employee and
shareholder plans 15.4 8.5
Acquisitions of treasury stock (8.2) (16.9)
Preferred stock retired (0.5) (0.8)
Other, net (1.8) 2.6
---------------- ----------------
Net cash provided by financing activities 9.5 61.7
---------------- ----------------
Net increase (decrease) in cash 42.9 (141.3)
Cash and temporary investments:
Beginning of period 25.5 169.2
================ ================
End of period $ 68.4 $ 27.9
================ ================
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
<PAGE>
Ball Corporation and Subsidiaries
June 28, 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," and SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information." See the
note, "Shareholders' Equity" for information regarding SFAS No. 130. SFAS No.
131 establishes standards for reporting information about operating segments in
annual financial statements and requires interim reporting of selected operating
segments information 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 is effective for Ball in 1998. This statement
does not affect the measurement or recognition of such plans.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
establishes accounting and reporting standards for derivative instruments and is
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.
SOP No. 98-5, "Reporting on the Costs of Start-Up Activities," requires costs of
start-up activities 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.
Reynolds Global Can Business
In April 1998, Ball and Reynolds Metals Company (Reynolds) signed a definitive
agreement, under which Ball would acquire substantially all of Reynolds' global
aluminum beverage container manufacturing business for a total purchase price of
approximately $820 million. In June 1998, Ball and Reynolds stated that the
agreement previously announced would not include Reynolds' 34.9 percent interest
in Latas de Aluminio S.A. (Latasa), a South American beverage can manufacturer.
As a result, the purchase price of $820 million in that agreement, which
included Latasa, will be reduced to approximately $746 million.
Ball will acquire all of Reynolds' North American beverage can manufacturing
assets, which consist largely of 16 plants in 12 states and Puerto Rico.
Simultaneous with the transaction, the Company will refinance certain currently
outstanding debt at favorable rates.
Difficulties in obtaining the third party consents and waivers necessary for the
purchase of Latasa in a timely manner resulted in the decision to remove it from
the main transaction. Reynolds intends to work with Latasa's other stockholders
to agree upon and implement a process that will permit the sale of Reynolds'
interest in Latasa in the near future. Ball continues to be interested in
acquiring those shares.
Ball and Reynolds have agreed to discuss further the possible later acquisition
by Ball of Reynolds' minority interest in a can manufacturing company in Saudi
Arabia.
Relocation and Other.
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 $20
million ($12.2 million after tax or 40 cents per share). Generally accepted
accounting principles do not permit financial statement recognition of certain
costs, such as employee relocation, until they are incurred. Therefore the
Company recorded pretax charges of $6.3 million ($3.8 million after tax or 13
cents per share) and $4.0 million ($2.4 million after tax or eight cents per
share) for costs paid or incurred in the first and second quarters of 1998,
respectively, and to reflect the estimated net realizable values of certain
properties and assets in Muncie, Indiana, the previous location of the corporate
headquarters. It is anticipated that the remainder of the relocation costs will
be recorded and paid largely in the second half of 1998.
Sale of Investment and Other.
The Company sold its equity investment in a technology business in the first
half of 1997. The first and second quarters of 1997 included pretax gains of
$1.2 million ($0.7 million after tax or two cents per share) and $10.5 million
($6.4 million after tax or 21 cents per share), respectively.
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.
<PAGE>
Shareholders' Equity.
The Company adopted SFAS No. 130, "Reporting Comprehensive Income," effective
January 1, 1998. 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 (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 June 28, 1998 is
primarily the cumulative adjustment for foreign currency translation and
additional minimum pension liability.
Total comprehensive income for the three and six month periods of 1998 is $16.9
million and $21.5 million, respectively, and $21.7 million and $29.2 million,
for the comparative periods of 1997, respectively. The difference between net
income and comprehensive income for the three and six month periods of 1998 and
1997 is the adjustment for foreign currency translation.
Issued and outstanding shares of the Series B ESOP Convertible Preferred Stock
were 1,616,667 shares at June 28, 1998, and 1,635,410 shares at December 31,
1997.
<PAGE>
Earnings Per Share.
The following table provides additional information on the computation of
earnings per share amounts:
<TABLE>
<CAPTION>
Three months ended Six months ended
----------------------------------- ---------------------------------------
(dollars in millions except
per share amounts) June 28, June 29, June 28, June 29,
1998 1997 1998 1997
--------------- ---------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Earnings per Common Share
Net income $ 19.0 $ 20.8 $ 24.3 $ 27.8
Preferred dividends, net of tax benefit
(0.7) (0.7) (1.4) (1.4)
--------------- ---------------- ----------------- ------------------
Net earnings available to common
shareholders $ 18.3 $ 20.1 $ 22.9 $ 26.4
--------------- ---------------- ----------------- ------------------
Weighted average common shares (000s)
30,322 30,212 30,264 30,328
--------------- ---------------- ----------------- ------------------
Earnings per common share $ 0.60 $ 0.67 $ 0.76 $ 0.87
=============== ================ ================= ==================
Diluted Earnings per Share
Net income $ 19.0 $ 20.8 $ 24.3 $ 27.8
Adjustment for deemed ESOP cash
contribution in lieu of the ESOP
Preferred dividend (0.5) (0.5) (1.1) (1.0)
--------------- ---------------- ----------------- ------------------
Adjusted net earnings available to common
shareholders $ 18.5 $ 20.3 $ 23.2 $ 26.8
--------------- ---------------- ----------------- ------------------
Weighted average common shares (000s)
30,322 30,212 30,264 30,328
Effect of dilutive stock options 282 90 224 62
Common shares issuable upon conversion of
the ESOP Preferred stock
1,869 1,911 1,879 1,924
--------------- ---------------- ----------------- ------------------
Weighted average shares applicable
to diluted earnings per share 32,473 32,213 32,367 32,314
--------------- ---------------- ----------------- ------------------
Diluted earnings per share $ 0.57 $ 0.63 $ 0.72 $ 0.83
=============== ================ ================= ==================
</TABLE>
Subsequent Event.
On August 10, 1998, Ball completed its acquisition of the domestic beverage can
business assets of Reynolds for approximately $746 million in cash.
Contingencies.
In the ordinary course of business, the Company is subject to various risks and
uncertainties due, in part, to the competitive nature of the industries in which
Ball participates, its operations in developing markets outside the U.S.,
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 June 28, 1998, and has
met all payment obligations. M.C. Packaging was, however, in noncompliance with
certain financial ratio provisions under a fixed term loan agreement, of which
approximately $34 million was outstanding at quarter end. Effective August 4,
1998, the fixed term loan agreement was amended. The amendment resulted in a
waiver of the previously reported covenant noncompliance issues.
The U.S. government is disputing the Company's claim to recoverability of
reimbursed costs associated with Ball's Employee Stock Ownership Plan for fiscal
years 1989 through 1995, as well as the corresponding prospective costs accrued
after 1995. In October 1995, the Company filed its complaint before the Armed
Services Board of Contract Appeals (ASBCA) seeking final adjudication of this
matter. Trial before the ASBCA was conducted in January 1997. While the outcome
of the trial is not yet known, the Company's information at this time does not
indicate that this matter will have a material, adverse effect upon financial
condition, results of operations or competitive position of the Company. For
additional information regarding this matter, refer to the Company's latest
annual report.
From time to time, the Company is subject to routine litigation incident to its
business. Additionally, the U.S. Environmental Protection Agency has designated
Ball as a potentially responsible party, along with numerous other companies,
for the cleanup of several hazardous waste sites. However, the Company's
information at this time does not indicate that these matters will have a
material, adverse effect upon financial condition, results of operations,
capital expenditures or competitive position of the Company.
<PAGE>
Item 2. 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.
ACQUISITION
In April 1998, Ball and Reynolds Metals Company (Reynolds) signed a definitive
agreement, under which Ball would acquire substantially all of Reynolds' global
aluminum beverage container manufacturing business for a total purchase price of
approximately $820 million. In June 1998, Ball and Reynolds stated that the
agreement previously announced would not include Reynolds' 34.9 percent interest
in Latas de Aluminio S.A. (Latasa), a South American beverage can manufacturer.
As a result, the purchase price of $820 million in that agreement, which
included Latasa, will be reduced to approximately $746 million.
Ball will acquire all of Reynolds' North American beverage can manufacturing
assets, which consist largely of 16 plants in 12 states and Puerto Rico.
Simultaneous with the transaction, the Company will refinance certain currently
outstanding debt at favorable rates.
Difficulties in obtaining the third party consents and waivers necessary for the
purchase of Latasa in a timely manner resulted in the decision to remove it from
the main transaction. Reynolds intends to work with Latasa's other stockholders
to agree upon and implement a process that will permit the sale of Reynolds'
interest in Latasa in the near future. Ball continues to be interested in
acquiring those shares.
Ball and Reynolds have agreed to discuss further the possible later acquisition
by Ball of Reynolds' minority interest in a can manufacturing company in Saudi
Arabia.
RESULTS OF OPERATIONS
Consolidated Results
Consolidated net sales of $645.6 million for the second quarter of 1998
increased slightly compared to the second quarter of 1997. For the first six
months of 1998, consolidated net sales were $1.2 billion, an increase of 6.4
percent over the same period for 1997. The increased sales reflect the increased
volume from both the plastic and metal beverage container operations, partially
offset by lower sales from the aerospace and technologies segment.
Net earnings available to common shareholders of $18.3 million, or 60 cents per
share, for the second quarter of 1998 included a pretax charge of $4.0 million
($2.4 million after tax or eight cents per share) for the relocation of the
Company's corporate office. Net earnings available to common shareholders of
$20.1 million, or 67 cents per share for the second quarter of 1997 included a
net after-tax gain of $5.4 million, or 18 cents per share, largely the result of
the sale of an interest in a technology business and recognition of certain
research and development tax credits. Excluding these, on a comparable basis,
earnings from operations for the quarter rose from 49 cents per share in 1997 to
68 cents per share in 1998, an increase of 39 percent.
For the first half of 1998, earnings available to common shareholders were $22.9
million, or 76 cents per share, including an after-tax charge of $6.3 million,
or 21 cents per share, for costs incurred in connection with the relocation of
the corporate headquarters. In the first half of 1997, earnings were $26.4
million, or 87 cents per share, including a net after-tax gain of $7.8 million,
or 25 cents per share, largely attributable to the sale of the interest in the
technology business and to the tax credits.
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 $20
million ($12.2 million after tax or 40 cents per share). Generally accepted
accounting principles do not permit financial statement recognition of certain
costs, such as employee relocation, until they are incurred. Therefore the
Company recorded pretax charges of $6.3 million ($3.8 million after tax or 13
cents per share) and $4.0 million ($2.4 million after tax or eight cents per
share) for costs paid or incurred in the first and second quarters of 1998,
respectively, and to reflect the estimated net realizable values of certain
properties and assets in Muncie, Indiana, the previous location of the corporate
headquarters. It is anticipated that the remainder of the relocation costs will
be recorded and paid largely in the second half of 1998.
The Company sold its investment in a technology business in the first half of
1997. The first and second quarters of 1997 included pretax gains of $1.2
million ($0.7 million after tax or two cents per share) and $10.5 million ($6.4
million after tax or 21 cents per share), respectively.
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 second quarter and the first half of 1998
was $13.4 million and $26.1 million, respectively, compared to $15.4 million and
$25.3 million, for the same periods of 1997, respectively. The second quarter
decrease is largely attributable to a decrease in the average level of
short-term borrowings. Interest expense increased slightly for the six month
period primarily resulting from higher 1998 interest rates, partially offset by
a decrease in the average level of short-term borrowings outstanding.
Ball's consolidated effective income tax rate was 42.1 percent for the second
quarter of 1998 compared to 39.8 percent for the 1997 second quarter. For the
first half of 1998, the effective tax rate was 43.6 percent compared to 37.7
percent for 1997. The lower 1997 effective tax rates reflect a reduction in
taxes attributable to creditable costs of U.S. research and development of $1.7
million (five cents per share) and $0.8 million (three cents per share) for the
first and second quarters, respectively. Excluding the tax credits, the
consolidated effective income tax rates for the second quarter and first half of
1997 would have been 42.5 percent and 43.9 percent, respectively.
Results of Equity Affiliates
Equity in earnings of affiliates for the second quarter of 1998 were $0.8
million compared to $0.5 million for the 1997 second quarter. For the six month
periods, equity in earnings of affiliates were $0.5 million and a loss of $0.4
million for 1998 and 1997, respectively. Equity earnings in affiliates are
largely attributable to equity investments in China, Thailand and Brazil. Since
a change in Thailand's monetary policy in early July 1997, the Thai baht has
depreciated significantly versus the U.S. dollar. Since the end of the first
quarter, the Thai baht has strengthened against the U.S. dollar, such that the
first quarter loss has been offset. However, the Thai baht remains volatile, and
there can be no assurance that the current trend will continue. Results for
1997, include the effects of costs for start-up operations in Brazil, Thailand
and China, as well as lower earnings from certain equity affiliates reflecting
the market softness in China which continues in 1998.
<PAGE>
Business Segments
Packaging
Packaging segment net sales were $562.0 million for the second quarter of 1998
compared to $540.3 million in the second quarter of 1997. Six month period net
sales were $1,023.1 million and $922.3 million for 1998 and 1997, respectively.
Segment operating earnings for the three month period of 1998 increased from
1997 largely as a result of improved earnings both within the North American
metal beverage business and the plastic container operations. Segment operating
earnings increased in the six month period of 1998 compared to the same period
of 1997 as a result of improved earnings within the combined North American
metal food and beverage container businesses and reduced operating losses within
the plastic container business resulting from improved operating efficiencies,
both partially offset by lower results within FTB packaging operations.
Within the packaging segment, sales in the combined North American metal
container business increased 3.5 percent and 6.3 percent for the three and six
month periods, respectively. The increase in sales resulted from higher
shipments of metal beverage containers in both 1998 periods, which were
partially offset by lower second quarter shipments within the metal food
container business, due in large part, to reduced salmon can volumes. The lower
metal food can shipments also resulted in lower second quarter operating
earnings. However, year-to-date 1998 sales for the metal food can business
remained at a higher level than the prior year due to the strong first quarter
shipments. Operating earnings for the six month period in both the North
American metal food and beverage container businesses increased compared to
1997, due in part to improved operating efficiencies and increased shipments.
Plastic container sales for the six months represented approximately nine
percent of consolidated 1998 net sales compared to five percent in 1997. The
1998 second quarter plastic container operations were significantly improved
over the same period in 1997. The business operated at a loss for the 1998
year-to-date period, though at a significantly reduced level from 1997. Costs
associated with the start-up of new plants in Iowa and New Jersey contributed to
the operating loss in 1997. Ball acquired certain manufacturing assets of
Brunswick Container in early July 1997 and began supplying PET bottles to the
Honickman Group of bottling companies under a multi-year contract.
Sales within Ball's FTB Packaging operations increased for the first half of
1998 compared to the same period of 1997. Sales during the 1998 second quarter
decreased from the second quarter of 1997, while operating earnings increased
from 1997. Year-to-date operating losses for 1998 continue to reflect the soft
metal beverage container market in China, as well as lower pricing resulting
from the current supply/demand imbalance in that area.
Aerospace and Technologies
Sales in the aerospace and technologies segment for the second quarter and six
month periods of 1998 decreased to $83.6 million and $172.2 million,
respectively, compared to $103.4 million and $201.2 million in 1997. The sales
reduction from 1997 to 1998 reflects, in large part, reduced activity in
connection with a classified program and the unusually strong demand in 1997 for
certain telecommunications equipment and related products. Demand for those
products in 1998 returned to more normal levels. Operating earnings also
decreased in 1998 compared to 1997, reflecting both the effects of lower 1998
sales and a strong demand for certain higher margin telecommunications equipment
in 1997, including one-time early delivery incentives earned. Backlog at the end
of June 1998 was approximately $352 million compared to approximately $267
million at December 31, 1997, and $310 million at the end of the June 1997.
Year-to-year comparisons of backlog are not necessarily indicative of the trend
of future operations.
<PAGE>
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations in 1998 of $72.3 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. Capital
spending of $37.7 million in the first six months of 1998 is below depreciation
of $60.6 million. Total 1998 capital spending is expected to be approximately
$95 million.
Total debt was $785.0 million at June 28, 1998 compared to $773.1 million at
December 31, 1997. Debt-to-total capitalization ratio was 53.0 percent at both
June 28, 1998 and December 31, 1997.
In the U.S., the Company has committed revolving credit agreements totaling $320
million consisting of a five-year facility for $150 million and 364-day
facilities for $170 million. Simultaneous with the Reynolds transaction, the
Company will refinance certain currently outstanding debt at favorable rates.
The Company has a Canadian dollar 364-day credit facility available for
committed short-term funds of approximately $50 million at June 1998. At quarter
end, approximately $14.3 million was outstanding related to this program. The
Company also has short-term uncommitted credit facilities in the U.S. of
approximately $326 million, and, in Asia, FTB Packaging, including M.C.
Packaging, had short-term uncommitted credit facilities of approximately $251
million at the end of the 1998 second quarter. At June 28, 1998, the Company has
$162.5 million and $164.6 million outstanding under these facilities,
respectively.
The Company has a receivable 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. Net funds received under
this agreement and a similar agreement in the prior year totaled $65.9 million
and $66.5 million as of June 28, 1998 and June 29, 1997, respectively. Fees
related to this agreement for the three and six month periods of 1998 were $1.0
million and $1.9 million, respectively, and $0.9 million and $1.8 million for
the same periods in 1997. These fees are a component of general and
administrative expenses.
OTHER
Ball 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.,
changing commodity prices of the materials used in the manufacture of its
products, and changing capital markets. Where practicable, Ball attempts to
reduce these risks and uncertainties.
The Company has recognized its share of exchange gains and losses primarily
related to U.S. dollar denominated debt held by its 40 percent equity affiliate
in Thailand. The Company also has U.S. dollar denominated debt in China, and in
Brazil, through its 50 percent owned affiliate. In addition, Ball 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 June 28, 1998, and has
met all payment obligations. M.C. Packaging was, however, in noncompliance with
certain financial ratio provisions under a fixed term loan agreement, of which
approximately $34 million was outstanding at quarter end. Effective August 4,
1998, the fixed term loan agreement was amended. The amendment resulted in a
waiver of the previously reported covenant noncompliance issues.
<PAGE>
The U.S. government is disputing the company's claim to recoverability of
reimbursed costs associated with Ball's Employee Stock Ownership Plan for fiscal
years 1989 through 1995, as well as the corresponding prospective costs accrued
after 1995. In October 1995, the Company filed its complaint before the Armed
Services Board of Contract Appeals (ASBCA) seeking final adjudication of this
matter. Trial before the ASBCA was conducted in January 1997. While the outcome
of the trial is not yet known, the Company's information at this time does not
indicate that this matter will have a material, adverse effect upon financial
condition, results of operations or competitive position of the Company. For
additional information regarding this matter, refer to the Company's latest
annual report.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
reported amounts of revenues and expenses during the reporting period. Future
events could affect these estimates.
As is commonly known, there is a potential issue facing many companies today
regarding the ability of information systems to accommodate the year 2000. Ball
is evaluating its information systems and believes that all critical systems
can, or will be able to, accommodate the coming century, without material
adverse effect on the Company's financial condition, results of operations,
capital spending or competitive position.
From time to time, the Company is subject to routine litigation incident to its
business. Additionally, the U.S. Environmental Protection Agency has designated
Ball as a potentially responsible party, along with numerous other companies,
for the cleanup of several hazardous waste sites. However, the Company's
information at this time does not indicate that these matters will have a
material, adverse effect upon financial condition, results of operations,
capital expenditures or competitive position of the Company.
FORWARD-LOOKING STATEMENTS
The Company has made or implied certain forward-looking statements in this
report. These forward-looking statements represent the Company's goals and are
based on certain assumptions and estimates regarding the worldwide economy,
specific industry technological innovations, industry competitive activity,
interest rates, capital expenditures, pricing, currency movements, product
introductions, and the development of certain domestic and international
markets. Some factors that could cause the Company's actual results or outcomes
to differ materially from those discussed in the forward-looking statements
include, but are not limited to, fluctuation in customer growth and demand; the
weather; fuel costs and availability; regulatory action; federal and state
legislation; interest rates; labor strikes; maintenance and capital
expenditures; local economic conditions; the authorization and control over the
availability of government contracts and the nature and continuation of those
contracts and related services provided thereunder; the success or lack of
success of the satellite launches and business of EarthWatch; the devaluation of
international currencies; and the ability to obtain adequate credit resources
for foreseeable financing requirements of the Company's businesses; the
inability of the Company to achieve year 2000 compliance; the ability of the
Company to acquire other businesses. If the Company's assumptions and estimates
are incorrect, or if it is unable to achieve its goals, then the Company's
actual performance could vary materially from those goals expressed or implied
in the forward-looking statements.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There were no events required to be reported under Item 1 for the quarter ending
June 28, 1998.
Item 2. Changes in securities
There were no events required to be reported under Item 2 for the quarter ending
June 28, 1998.
Item 3. Defaults upon senior securities
There were no events required to be reported under Item 3 for the quarter ending
June 28, 1998.
Item 4. Submission of matters to a vote of security holders
The Company held the Annual Meeting of Shareholders on April 22, 1998. Matters
voted upon by proxy were: the election of three directors for three-year terms
expiring in 2001; and, the ratification of the appointment of
PricewaterhouseCoopers LLP as independent accountants for 1998. The results of
the vote are as follows:
For Against/Withheld Abstained/Broker Non-Vote
--- ---------------- -------------------------
Election of directors for terms
expiring in 2001:
Frank A. Bracken 28,879,070 362,639 --
John F. Lehman 28,105,762 1,135,947 --
George A. Sissel 28,857,490 384,219 --
Appointment of PricewaterhouseCoopers
LLP as independent accountants
for 1998
28,564,244 117,412 96,453
Item 5. Other information
Shareholders should be advised that under Rule 14a-4(c)(1) that where a
shareholder has not sought inclusion of a proposal in the Company's Proxy
Statement, that if a shareholder fails to notify the Company at least forty-five
(45) days prior to the month and day of mailing the prior year's Proxy
Statement, then the management proxies would be allowed to use their
discretionary voting authority, if such proposal is raised at the Annual
Meeting, without any discussion of the matter in the Proxy Statement. The
Company's prior year Proxy Statement was mailed on March 16, 1998. Therefore,
any proposals must be received by the Company forty-five (45) days prior to that
date, or by January 30, 1999.
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
99.1 Safe Harbor Statement Under the Private Securities Litigation
Reform Act of 1995, as amended.
(b) Reports on Form 8-K
A Current Report on Form 8-K filed July 29, 1998, reporting under Item
5 an announcement by Ball Corporation and Reynolds Metals Company which
stated that the Hart-Scott-Rodino waiting period regarding Ball's
purchase of Reynolds' North American aluminum beverage can and end
assets expired on July 21, 1998.
A Current Report on Form 8-K filed June 12, 1998, reporting under Item
5 an announcement by Ball Corporation and Reynolds Metals Company which
stated that the previously announced agreements by which Ball will
purchase substantially all of Reynolds' global beverage can business
will not include Reynolds' 34.9 percent interest in Latas de Aluminio
S.A, a South American beverage can manufacturer.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Ball Corporation
(Registrant)
By: /s/ R. David Hoover
----------------------
R. David Hoover
Vice Chairman
and Chief Financial Officer
Date: August 12, 1998
<PAGE>
Ball Corporation and Subsidiaries
QUARTERLY REPORT ON FORM 10-Q
June 28, 1998
EXHIBIT INDEX
Description Exhibit
----------- -------
Financial Data Schedule (Filed herewith.) EX-27.1
Safe Harbor Statement Under the Private Securities
Litigation Reform Act of 1995, as amended.
(Filed herewith.)
EX-99.1
<PAGE>
<TABLE> <S> <C>
<ARTICLE>5
<LEGEND>
EXHIBIT 27.1
BALL CORPORATION
FINANCIAL DATA SCHEDULE
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED
JUNE 28, 1998 AND THE UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE
28, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-28-1998
<CASH> 68,400
<SECURITIES> 0
<RECEIVABLES> 339,200
<ALLOWANCES> 0
<INVENTORY> 390,600
<CURRENT-ASSETS> 854,800
<PP&E> 1,546,000
<DEPRECIATION> 680,200
<TOTAL-ASSETS> 2,113,500
<CURRENT-LIABILITIES> 856,600
<BONDS> 354,600
0
25,800
<COMMON> 352,400
<OTHER-SE> 277,200
<TOTAL-LIABILITY-AND-EQUITY> 2,113,500
<SALES> 1,195,300
<TOTAL-REVENUES> 1,195,300
<CGS> 1,060,000
<TOTAL-COSTS> 1,060,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,100
<INCOME-PRETAX> 35,100
<INCOME-TAX> 15,300
<INCOME-CONTINUING> 24,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,300
<EPS-PRIMARY> 0.76
<EPS-DILUTED> 0.72
<PAGE>
</TABLE>
Exhibit 99.1
Safe Harbor Statement Under the Private Securities
Litigation Reform Act of 1995
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 (the Reform Act), Ball is hereby filing cautionary
statements identifying important factors that could cause Ball's actual results
to differ materially from those projected in forward-looking statements of Ball.
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements, and many of these statements are
contained in Part I, Item 2, "Business.". The Reform Act defines forward-looking
statements as statements that express or imply an expectation or belief and
contain a projection, plan or assumption with regard to, among other things,
future revenues, income, earnings per share or capital structure. Such
statements of future events or performance involve estimates, assumptions, and
uncertainties and are qualified in their entirety by reference to, and are
accompanied by, the following important factors that could cause Ball's actual
results to differ materially from those contained in forward-looking statements
made by or on behalf of Ball.
Some important factors that could cause Ball's actual results or outcomes to
differ materially from those discussed in the forward-looking statements
include, but are not limited to, fluctuation in customer growth and demand,
weather, fuel costs and availability, regulatory action, Federal and State
legislation, interest rates, labor strikes, maintenance and capital expenditures
and local economic conditions. In addition, Ball's ability to have available an
appropriate amount of production capacity in a timely manner can significantly
impact Ball's financial performance. The timing of deregulation and competition,
product development and introductions and technology changes are also important
potential factors. Other important factors include the following:
Difficulties in obtaining raw materials, supplies, power and natural resources
needed for the production of metal and plastic containers as well as
telecommunications and aerospace products could affect Ball's ability to ship
containers and telecommunications and aerospace products.
The pricing of raw materials, supplies, power and natural resources needed for
the production of metal and plastic containers as well as telecommunications and
aerospace products, pricing and ability to sell scrap associated with the
production of metal containers and the effect of changes in the cost of
warehousing the Company's products could adversely affect the Company's
financial performance.
Technological or market acceptance issues regarding the business of EarthWatch,
performance failures and related contracts or subcontracts, the success or lack
of success of the satellite launches and business of EarthWatch, the failure of
EarthWatch to receive additional financing needed for EarthWatch to continue to
make payments, or any events which would require the Company to provide
additional financial support for EarthWatch Incorporated.
The inability to achieve technological advances in the Company's businesses. The
inability of the Company to achieve year 2000 compliance.
Cancellation or termination of government contracts for the U.S. Government,
other customers or other government contractors.
<PAGE>
The effects of, and changes in, laws, regulations, other activities of
governments (including political situations and inflationary economies),
agencies and similar organizations, including, but not limited to, those
effecting frequency, use and availability of metal and plastic containers, the
authorization and control over the availability of government contracts and the
nature and continuation of those contracts and the related services provided
thereunder, the use of remote sensing data and changes in domestic and
international tax laws could negatively impact the Company's financial
performance.
The effects of changes in the Company's organization or in the compensation
and/or benefit plans; any changes in agreements regarding investments or joint
ventures in which the Company has an investment; the ability of the Company to
acquire other businesses; the amount, type or cost of the Company's financing
and changes to that financing, could adversely impact Ball's financial
performance.
Risks involved in purchasing and selling products and services and receiving
payments in currencies other than the U.S. dollar. The devaluation of
international currencies and the ability to obtain adequate credit resources for
foreseeable financing requirements of the Company's businesses.
<PAGE>
