UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission File Number 1-7349
Ball Corporation
State of Indiana 35-0160610
10 Longs Peak Drive, P.O. Box 5000
Broomfield, Colorado 80021-2510
Registrant's telephone number, including area code: (303) 469-3131
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- --------------------------------- --------------------------------
Common Stock, without par value New York Stock Exchange, Inc.
Chicago Stock Exchange, Inc.
Pacific Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: NONE
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant was $1,244.9 million based upon the closing market price on March 1,
1999 (excluding Series B ESOP Convertible Preferred Stock of the registrant,
which series is not publicly traded and which has an aggregate liquidation
preference of $57.2 million).
Number of shares outstanding as of the latest practicable date.
Class Outstanding at March 1, 1999
- ---------------------------------- --------------------------------
Common Stock, without par value 30,224,047
DOCUMENTS INCORPORATED BY REFERENCE
1. Annual Report to Shareholders for the year ended December 31, 1998, to the
extent indicated in Parts I, II, and IV. Except as to information
specifically incorporated, the 1998 Annual Report to Shareholders is not to
be deemed filed as part of this Form 10-K Annual Report.
2. Proxy statement filed with the Commission dated March 15, 1999, to the
extent indicated in Part III.
<PAGE>
PART I
Item 1. Business
Ball Corporation is an Indiana corporation organized in 1880 and incorporated in
1922. Its principal executive offices are located at 10 Longs Peak Drive,
Broomfield, Colorado 80021-2510. The terms "Ball" and the "Company" as used
herein refer to Ball Corporation and its consolidated subsidiaries.
Ball is a manufacturer of metal and plastic packaging, primarily for beverages
and foods, and a supplier of aerospace and other technologies and services to
commercial and governmental customers.
The following sections of the 1998 Annual Report to Shareholders contain
financial and other information concerning Company business developments and
operations, and are incorporated herein by reference: the notes to the financial
statements "Discontinued Operations," "Business Segment Information,"
"Headquarters Relocation, Plant Closures, Dispositions and Other Costs,"
"Acquisitions," and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Recent Business Developments
On August 10, 1998, Ball acquired substantially all the assets and assumed
certain liabilities of the North American beverage can manufacturing business of
Reynolds Metals Company (Acquisition). In connection with the Acquisition, the
Company is developing plans for manufacturing integration, including capacity
consolidations and other cost saving measures, and announced during the fourth
quarter its intent to close two of the acquired plants during early 1999. Also
during 1998, Ball relocated its corporate headquarters to an existing
company-owned building in Colorado.
Other Information Pertaining to the Business of the Company
The Company's businesses are comprised of two segments: (1) packaging and
(2) aerospace and technologies.
Packaging Segment
Ball's principal business is the manufacture and sale of rigid packaging
products, primarily for beverages and foods. Packaging products are sold in
highly competitive markets, primarily based on quality, service, and price. The
majority of the Company's packaging sales are made directly to relatively few
major companies having leading market positions in packaged beverage and food
businesses. Packaging segment sales to PepsiCo, Inc., and affiliates, and
Coca-Cola and affiliates, represented approximately 15 percent and 10 percent,
respectively, of consolidated 1998 net sales. Worldwide sales to all bottlers of
Pepsi-Cola and Coca-Cola branded beverages, including licensee members which
utilize consolidated purchasing groups, comprised approximately 40 percent of
consolidated net sales in 1998. Ball believes that its competitors exhibit
similar customer concentrations.
The rigid packaging business is capital intensive, requiring significant
investments in machinery and equipment. Profitability is sensitive to production
volumes, labor and the costs of certain raw materials, such as aluminum, steel
and plastic resin.
Raw materials used by the Company's packaging businesses are generally available
from several sources. Ball has secured what it considers to be adequate supplies
of raw materials and is not experiencing any shortages. The Company's
manufacturing facilities are dependent, in varying degrees, upon the
availability of process energy, such as natural gas and electricity. While
certain of these energy sources may become increasingly in short supply or
halted due to external factors, including Year 2000 noncompliance by suppliers,
the Company cannot predict the effects, if any, of such occurrences on its
future operations.
Research and development efforts in these businesses generally seek to improve
manufacturing efficiencies and lower unit costs, principally raw material costs,
by reducing the material content of containers while improving or maintaining
other physical properties such as material strength. In addition, research and
development efforts are directed toward the development of new sizes and types
of both metal and plastic beverage containers.
North American Metal Beverage Containers
On August 10, 1998, Ball acquired substantially all the assets and assumed
certain liabilities of the North American beverage can manufacturing business of
Reynolds Metals Company (Acquisition). With the Acquisition, Ball expanded its
product line to include specialty cans and became the largest metal beverage can
producer in North America with an estimated annual production capacity of 36
billion cans.
Metal beverage containers and ends represent Ball's largest product line,
accounting for approximately 55 percent of 1998 consolidated net sales. After
closing two of the acquired plants in early 1999, decorated two-piece aluminum
beverage cans are currently being produced at 19 manufacturing facilities in the
U.S., two facilities in Canada and one in Puerto Rico; ends are produced within
five of the U.S. facilities. Metal beverage containers are sold primarily to
fillers of carbonated soft drinks, beer and other beverages under long-term
supply or annual contracts. Sales volumes of metal beverage cans and ends tends
to be highest during the period between April and September.
The Company estimates that its North American metal beverage container shipments
would have been approximately 34 percent (on a pro forma basis assuming the
inclusion of shipments from the acquired plants for a full year) of total U.S.
and Canadian shipments for metal beverage containers. The Company estimates that
its three largest competitors together represent substantially all of the
remaining market.
The U.S. metal beverage container industry experienced demand growth at an
average rate of approximately 1.5 percent since 1990. During this same period,
the soft drink segment added over 16 billion units while the beer segment lost
approximately six billion units (largely to glass packaging). In 1998 and 1997,
industry-wide shipments increased approximately 2.2 percent and 1.6 percent,
respectively.
In Canada, metal beverage containers have captured significantly lower
percentages of the packaged beverage market than in the U.S., particularly in
the packaged beer market, in which the market share of metal containers has been
hindered by trade barriers and restrictive taxes within Canada.
Beverage container industry production capacity in the U.S. and Canada exceeds
demand, which creates a competitive environment. Ball began consolidation of can
and end manufacturing capacity into fewer, more efficient facilities with the
closure of two of the recently acquired plants in early 1999. The Company is
developing plans for further integration, including capacity consolidations and
other cost saving measures.
The aluminum beverage can continues to compete aggressively with other packaging
materials in the beer and soft drink markets. The glass bottle has shown
resilience in the packaged beer market while soft drink market use of the PET
bottle has grown.
North American Metal Food Containers
Two-piece and three-piece steel food containers are manufactured in the U.S. and
Canada and sold primarily to food processors in the Midwestern United States and
Canada. In 1998 metal food container sales comprised approximately 17 percent of
consolidated net sales. Sales volumes of metal food containers tend to be
highest from June through October as a result of seasonal vegetable and salmon
packs.
Recent consolidations within the commercial metal food container industry have
reduced the number of competitors. Currently, Ball has one principal competitor
in Canada and two primary competitors in the U.S. metal food container market.
Approximately 35 billion steel food cans were shipped in the U.S. and Canada in
1998, of which more than 4.8 billion, or approximately 14 percent, were shipped
by Ball.
In the metal food container industry, manufacturing capacity in North America
significantly exceeds market demand, resulting in a highly competitive market.
During 1996, Ball closed three facilities in North America.
North American Plastic Containers
Polyethylene terephthalate (PET) packaging is Ball's newest product line, with
1998 net sales of approximately $219 million. 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 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.
Demand for containers made of PET has increased in the beverage packaging market
and is expected to increase in the food packaging market with improved
technology and adequate supplies of PET resin. While PET beverage containers
compete against both metal and glass, the historical increase in the PET market
share has come primarily at the expense of glass containers and through new
market introductions. In 1994 the domestic plastic container market reached $5.5
billion in sales, surpassing the size of the glass container market for the
first time. The latest projections available indicate that the growth in the PET
market over the next two years is expected to be between 10 and 15 percent.
Competition in this industry includes two national suppliers and several
regional suppliers and self-manufacturers (primarily Coca-Cola). Price, service
and quality are deciding competitive factors. Increasingly, the ability to
produce customized, differentiated plastic containers is an important
competitive factor.
During the early 1990s, PET resin usage grew to the point that in 1995 the
demand for PET resins in North America exceeded supply. However, the expansion
of the global PET resin market since 1995 has resulted in resin prices
decreasing significantly since that time. These lower prices have been passed on
to the customer, resulting in lower sales price per unit.
Ball has secured long-term customer supply agreements, principally for
carbonated beverage and water containers. Other products such as juice and beer
containers are potential candidates for expanding the business.
International Packaging Operations
As part of Ball's initiative to expand its presence internationally, in early
1997 the Company acquired a controlling interest in M.C. Packaging (Hong Kong)
Limited (M. C. Packaging) through Ball's majority-owned subsidiary, FTB
Packaging Limited (FTB Packaging). 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.
With the acquisition of M.C. Packaging, FTB Packaging is the largest beverage
can manufacturer in the People's Republic of China (PRC), supplying
approximately half of the two-piece aluminum beverage cans used in the PRC.
Capacity has grown rapidly in the PRC, resulting in a supply/demand imbalance.
Additionally, uncertainty in the Asian financial markets has resulted in a
decrease in exports of Company products from Hong Kong to other Asian countries.
As per capita consumption in the PRC is significantly lower than in more
developed countries and per capita income in the PRC is rising, there is
significant potential for strong demand growth. In the interim, however, Ball
has elected to delay the start-up of two facilities originally expected to
become operational in 1998 and to close, in the early part of 1999, two of its
plants located in the PRC and remove from service certain manufacturing
equipment at a third plant.
FTB Packaging and M.C. Packaging combined operate more than 20 manufacturing
ventures in the PRC. The Beijing manufacturing facility is one of the most
technologically advanced plants in the PRC with the fastest line-speed capacity
in that country. FTB Packaging's 35 percent owned affiliate, Sanshui Jianlibao
FTB Packaging Limited, is the largest can manufacturing facility in the PRC in
terms of production capacity. For more information on operations in the PRC, see
Item 2, Properties, and Exhibit 21.1, Subsidiary List.
The Company has a minority equity position in a joint venture that manufactures
two-piece beverage cans in the Philippines. It is also a 50 percent equity owner
of a joint venture with BBM Participacoes S.A. to produce two-piece aluminum
cans and ends in Brazil. The affiliate in Brazil has a can plant which became
operational in early 1997 and an end plant which became operational in late
1997. Ball also participates in joint ventures in Thailand, Russia and Taiwan.
The Company also provides manufacturing technology and assistance to numerous
can manufacturers around the world.
Aerospace and Technologies Segment
The aerospace and technologies segment consists of two divisions: the Aerospace
Systems Division, and the Telecommunication Products Division. Sales in the
aerospace and technologies segment accounted for approximately 13 percent of
consolidated net sales in 1998.
The majority of the Company's aerospace business involves work under relatively
short-term contracts (generally one to five years) for the National Aeronautics
and Space Administration (NASA), the U.S. Department of Defense (DoD) and
foreign governments. Contracts funded by the various agencies of the federal
government represented approximately 90 percent of this segment's sales in 1998.
Within aerospace systems, industry trends have not changed significantly, with
Department of Defense and NASA budgets remaining relatively flat. However, there
is a growing worldwide market for commercial space activities, and Ball believes
there are significant international opportunities in which the Company could
participate. With the continuing consolidation of the industry, competition for
business will remain strong.
Aerospace Systems
A full-service aerospace and defense organization, the Aerospace Systems
Division provides hardware, software and services to a wide range of U.S. and
international customers, with an emphasis on space science, environment and
Earth sciences, defense, manned missions and exploration.
Space systems include the design, manufacture and test of satellites, ground
systems, launch vehicles and payloads (including integration), as well as
satellite ground station control hardware and software. Electro-optics products
for spacecraft guidance, control instruments and sensors and defense subsystems
for surveillance, warning, target identification and attitude control in
military and civilian space applications continue to be a niche market for the
division.
Primary cryogenics products include cryogenic systems for reactant storage and
sensor cooling devices such as closed-cycle mechanical refrigerators and
open-cycle solid and liquid cryogens.
The division has gained prominence in the star trackers market as an industry
leader in general-purpose stellar attitude sensors, producing a unique
multi-mission, man-rated star tracker for the space shuttle. Fast-steering
mirrors provide precise stabilization and pointing of optical lines of sight and
offer potential commercial applications such as laser surgery and optical
computing.
Additionally, this division provides diversified technical services and products
to federal and local government agencies, prime contractors and commercial
organizations for a broad range of information warfare, electronic warfare,
avionics, intelligence, training and space systems problems. These same skills
developed for defense and aerospace programs are now being applied to
transportation markets.
Among the 1998 highlights was the launch of the Ball-built GEOSAT Follow-On
operational radar altimeter satellite in February. Ball Aerospace and COM DEV
International, Ltd. of Canada formed Laser Communications International (LCI) to
develop laser communication terminals for satellite communication systems. The
Ball-built NICMOS instrument aboard the Hubble Space Telescope revealed the
faintest galaxies ever seen and possibly the farthest known objects in the
universe. Work was completed on the QuickSCAT spacecraft, NASA's first Rapid
Spacecraft Acquisition award and Ball's first commercial spacecraft product. The
division was awarded three separate Earth Science missions from NASA to build
hardware to study clouds, aerosols and volcanic ash and their effects on the
Earth's dynamic systems. The division received its ISO 9001 certification in
December.
Telecommunication Products
This division develops and manufactures antenna, communication and video
products and systems for space, aeronautical, land and marine applications for
military and specialized civil markets.
Among the 1998 milestones was the introduction of a new product called
jeTVision, which enables airplane passengers to view the same real-time
television programming available in their homes. The Wireless Communications
Products unit unveiled its new eXsite family of PCS Base Station Antennas for
polarization diversity applications. The Wireless Communications Products unit
is a provider of high-performance antennas for cellular, PCS, wireless local
loop and mobile satellite services.
Backlog
Backlog of the aerospace and technologies segment was approximately $296 million
at December 31, 1998, and $267 million at December 31, 1997, and consists of the
aggregate contract value of firm orders, excluding amounts previously recognized
as revenue. The 1998 backlog includes approximately $194 million which is
expected to be billed during 1999, with the remainder expected to be billed
thereafter. Unfunded amounts included in backlog for certain firm government
orders which are subject to annual funding were approximately $144 million at
December 31, 1998. Year-to-year comparisons of backlog are not necessarily
indicative of the trend of future operations.
The Company's aerospace and technologies segment has contracts with the U.S.
Government which have standard termination provisions. The government retains
the right to terminate contracts at its convenience. However, if contracts are
terminated, Ball is entitled to be reimbursed for allowable costs and profits to
the date of termination relating to authorized work performed to such date. U.S.
Government contracts are also subject to reduction or modification in the event
of changes in government requirements or budgetary constraints.
Patents
In the opinion of the Company, none of its active patents is essential to the
successful operation of its business as a whole.
Research and Development
The "Research and Development" note in the 1998 Annual Report to Shareholders
contains information on Company research and development activity and is
incorporated herein by reference.
Environment
Aluminum, steel and PET containers are recyclable, and significant amounts of
used containers are being recycled and diverted from the solid waste stream.
Using the most recent data available, in 1997 approximately 67 percent of
aluminum containers and 61 percent of steel cans sold in the U.S. were recycled.
In 1997, again the most recent data available, approximately 25 percent of the
PET soft drink containers, and approximately 24 percent of all plastic
containers, sold in the U.S. were recycled.
Compliance with federal, state and local laws relating to protection of the
environment has not had a material, adverse effect upon capital expenditures,
earnings or competitive position of the Company. As more fully described under
Item 3, Legal Proceedings, the U. S. Environmental Protection Agency and various
state environmental agencies have 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.
Legislation which would prohibit, tax or restrict the sale or use of certain
types of containers, and would require diversion of solid wastes such as
packaging materials from disposal in landfills, has been or may be introduced in
the U.S. Congress and the Canadian Parliament, in state and Canadian provincial
legislatures and other legislative bodies. While container legislation has been
adopted in a few jurisdictions, similar legislation has been defeated in public
referenda in several other states, in local elections and in many state and
local legislative sessions. The Company anticipates that continuing efforts will
be made to consider and adopt such legislation in many jurisdictions in the
future. If such legislation was widely adopted, it could have a material adverse
effect on the business of the Company, as well as on the container manufacturing
industry generally, in view of the Company's substantial North American sales
and investment in metal and PET container manufacture.
Employees
At the end of February 1999, the Company employed approximately 12,100 people
worldwide.
Item 2. Properties
The Company's properties described below are well maintained, considered
adequate and being utilized for their intended purposes.
The Corporate headquarters are located in Broomfield, Colorado. The offices for
metal packaging operations are 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.
Ball Aerospace & Technologies Corp. offices are located in Boulder and
Broomfield, Colorado. The Colorado-based operations of this business occupy a
variety of Company owned and leased facilities in Boulder, Broomfield and
Westminster, which together aggregate approximately 1,200,000 square feet of
office, laboratory, research and development, engineering and test, and
manufacturing space. Other aerospace and technologies operations include
facilities in California, Georgia, New Mexico, Ohio, Texas and Virginia.
Information regarding the approximate size of the manufacturing locations for
significant packaging operations which are owned by the Company, except where
indicated otherwise, follows. Facilities in the process of being shut down have
been excluded from the list. 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.
<PAGE>
Approximate
Floor Space in
Plant Location Square Feet
Metal packaging manufacturing facilities:
North America
Blytheville, Arkansas (leased) 29,000
Springdale, Arkansas 290,000
Richmond, British Columbia 194,000
Fairfield, California 340,000
Torrance, California 265,000
Golden, Colorado 500,000
Tampa, Florida 512,000
Moultrie, Georgia 152,000
Kapolei, Hawaii 132,000
Monticello, Indiana 356,000
Kansas City, Missouri 225,000
Saratoga Springs, New York 153,000
Wallkill, NY 314,000
Reidsville, North Carolina 287,000
Salisbury, North Carolina 162,000
Columbus, Ohio 167,000
Findlay, Ohio 733,000
Burlington, Ontario 308,000
Hamilton, Ontario 360,000
Whitby, Ontario 200,000
Guayama, Puerto Rico 225,000
Baie d'Urfe, Quebec 211,000
Chestnut Hill, Tennessee 300,000
Conroe, Texas 180,000
Fort Worth, Texas 161,000
Bristol, Virginia 241,000
Williamsburg, Virginia 400,000
Seattle, Washington 166,000
Weirton, West Virginia (leased) 85,000
DeForest, Wisconsin 45,000
Milwaukee, Wisconsin 161,000
Asia
Beijing, PRC 272,000
E-zhou, Hubei (Wuhan), PRC 193,000
Hong Kong, PRC 453,000
Panyu, PRC 207,000
Shenzhen, PRC 271,000
Tianjin, PRC 318,000
Xi'an, PRC 251,000
Zhuhai, PRC 180,000
<PAGE>
Approximate
Floor Space in
Plant Location Square Feet
Plastic packaging manufacturing facilities:
North America
Chino, California (leased) 240,000
Ames, Iowa (leased) 250,000
Delran, New Jersey (leased) 450,000
Baldwinsville, New York (leased) 240,000
Asia
Hong Kong, PRC (leased) 46,000
Taicang, Jiangsu, PRC (leased) 126,000
Tianjin, PRC 42,000
Tianjin, PRC (leased) 5,000
In addition to the consolidated manufacturing facilities, the Company has
ownership interests of 50 percent or less in packaging affiliates located in the
PRC, Brazil, Thailand, Taiwan and the Philippines.
Item 3. Legal Proceedings
As previously reported, the U.S. Environmental Protection Agency (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
Company was served with a lawsuit filed by the City and County of Denver
(Denver) and Waste Management of Colorado, Inc., 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, the Company was
served with a third-party complaint filed by S.W. Shattuck Chemical Company,
Inc., 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 Denver, Chemical Waste Management, Inc., and Waste Management of
Colorado, Inc. (collectively Waste), pursuant to which Denver and 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 relating to actions seeking
contributions or remedial costs from the Company for the cleanup of the site.
Several other companies which are defendants in the above-referenced lawsuits
had already entered into the settlement and indemnification agreement with
Denver and Waste. Waste Management, Inc., has agreed to guarantee the
obligations for Chemical Waste Management, Inc., and Waste Management of
Colorado, Inc. Denver and Waste 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
wastes 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, there are no Lowry Landfill actions in which the Company is
actively involved. 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 upon the financial condition of the Company.
As previously reported, the Company has been notified by Chrysler Corporation
(Chrysler) that Chrysler, Ford Motor Company (Ford), 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 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 (Division) or it predecessors. The
suit sought injunctive relief and unspecified damages. Chrysler notified the
Company that the Division may have indemnification responsibilities to Chrysler.
The Company responded to Chrysler that it appeared at that time 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. On August 20, 1997, the U.S. Court of Appeals for the Federal
Circuit denied Ford's petition for permission to appeal. The Company believes
that the issues in this case have been settled and that this case is now
concluded. In addition, under an agreement in connection with the spin-off of
Alltrista Corporation from Ball in 1993, Alltrista has agreed to indemnify Ball
for liabilities arising from this matter. Based on this information, the Company
believes that this case and the Company's alleged indirect involvement as a
machine vision inspection system supplier to Chrysler will not result in any
material adverse effect upon the financial condition of the Company.
As previously reported, on April 24, 1992, the Company was notified by the
Muncie Race Track Steering Committee (Steering Committee) that the Company,
through its former Consumer Products Division and former Zinc Products Division,
may be a PRP with respect to waste disposal at the Muncie Race Track Site
located in Delaware County, Indiana. The Steering Committee alleges that the
Company was a contributor to the site. The Steering Committee requested that the
Company pay two percent of the cleanup 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 indicate 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.
As previously reported, on August 1, 1997, the EPA sent notice of potential
liability letters to 19 owners, operators, and waste generators concerning past
activities at 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 cleanup 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 which it has 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 issued Administrative Orders. 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 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.
As previously reported, the Company was notified on June 19, 1989, that the EPA
has designated the Company and numerous other companies as PRPs responsible for
the cleanup of certain hazardous wastes that were released at the Spectron,
Inc., site located in Elkton, Maryland. In December 1989, the Company, along
with other companies whose alleged hazardous waste contributions to the
Spectron, Inc., site were considered to be de minimis, entered into a settlement
agreement with the EPA for cleanup costs incurred in connection with the removal
action of aboveground site areas. By a letter dated September 29, 1995, the
Company along with other above-described PRPs, were notified by the EPA that it
was negotiating with the large volume PRPs another consent order for performance
of a site environmental study as a prerequisite to long-term remediation. The
EPA and the large-volume PRPs have stated that a second de minimis buyout for
settlement of liability for performance of all environmental studies and site
remediation is being formulated and an offer to participate therein has been
made to the Company. The Company has joined with a group of de minimis PRPs to
negotiate a reduction (i.e., a lower price per gallon assessment) in the
proposed de minimis settlement offer. The Company's information at this time
does not indicate that this matter will have a material adverse effect upon its
financial condition.
As previously reported, the Company has received information that it has been
named a PRP with respect to the Solvents Recovery Site located in Southington,
Connecticut. According to the information received by the Company, it is alleged
that the Company contributed approximately .08816 percent of the waste
contributed to the site on a volumetric basis. The Company has responded and has
investigated the accuracy of the total volume alleged to be attributable to the
Company. The Company joined the PRP group during 1993. In February 1995, the
Company executed a trust agreement whereby certain contributions will be made to
fund the administration of an ongoing work group. The group members finalized an
Administrative Order on Consent for Removal Action and Remedial
Investigation/Feasibility Study on February 6, 1997, pursuant to which the group
members will perform a removal action and completion of a remedial investigation
and feasibility study in connection with 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.
As previously reported, 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 Container Corporation (Ball Glass)], the assets of which
were contributed in September 1995 into a joint venture with Compagnie de
Saint-Gobain (Saint-Gobain), now known as Ball-Foster Glass Container Co.,
L.L.C., and wholly owned by Saint Gobain, received a general notification letter
and information request from the EPA, Region IX, notifying Ball Glass that it
may have a potential liability as defined in Section 107(a) of the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA) with respect to
the San Gabriel Valley areas 1-4 Superfund Sites located in Los Angeles County,
California. The EPA requested certain information from Ball Glass, and Ball
Glass responded. The Company received notice from the City of El Monte that,
pursuant to a proposed city economic redevelopment plan, the City proposed to
commence groundwater cleanup by a pump and treat remediation process. A PRP
group organized and drafted a PRP group agreement, which Ball Glass executed.
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 cleanup, and the interim allocation arrangement between PRP group
members to fund the remedial investigation. The interim allocation approach
requires that any payment will be based upon contribution to pollution. Ball's
interim allocation is 5.79%. The administrative consent order was executed by
the PRP group and the EPA. The EPA also accepted the statement of work for the
remedial investigation phase of the cleanup. The PRP 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 copies of all environmental studies conducted at the plant, the majority of
which had already been furnished to the State of California. The EPA then
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 funded the RI/FS. The environmental consulting firm retained
by the PRP group submitted to the EPA its Feasibility Study Technical Memorandum
1 concerning the site. Five potential remedial action plans were identified in
the study ranging from no action to an extensive groundwater remediation project
for both shallow and deep aquifers. The cost of such remedies range from minimal
costs for no action to between $10.5 to 25 million for the three groundwater
pump and treat options proposed. The PRP group is negotiating with the EPA over
the remedy selections for the Record of Decision and has formed an allocation
committee for making final allocation of remediation costs between group
members. The EPA has informally told the PRP group that it will likely choose
the most extensive of the proposed remedies for incorporation into the Record of
Decision. The PRP group believes the selection of such a remedy is premature in
that the PRP group is still evaluating additional remedial options. The PRP
group is commencing the final allocation process but 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.
As previously reported, in March of 1992, William Hallahan, an employee at the
Company's metal beverage container plant in Saratoga Springs, New York, filed a
workers' compensation claim alleging that he suffers from a form of leukemia
that was caused by his exposure to certain chemicals used in the plant. The
Company denied the charge, and hearings on the matter were held before the
Workers' Compensation Board of the State of New York. The testimony was
concluded in April 1996. On January 14, 1997, the Administrative Law Judge
(ALJ) filed his Memorandum of Decision finding in favor of the claimant. The
decision was appealed, and the Workers' Compensation Board remanded the case
back to the ALJ for further findings. The ALJ entered a decision against the
Company on January 8, 1998, as corrected on February 2, 1998 and February 4,
1998. The Company appealed all of the decisions to the Appeals Bureau of the
Workers' Compensation Board on February 6, 1998. Based on the information
available to the Company at this time, the Company believes that this matter
will not result in any material adverse effect upon the financial condition of
the Company.
As previously reported, on or about December 31, 1992, William Hallahan and his
wife filed suit in the Supreme Court of the State of New York, County of
Saratoga, against certain manufacturers of solvents, coatings and equipment
including Somerset Technologies Inc. and Belvac Production Machinery seeking
damages in the amount of $15 million for allegedly causing leukemia by exposing
him to harmful toxins. Somerset and Belvac filed third-party complaints seeking
contribution from the Company for damages that they might be required to pay
William Hallahan. Based upon information available to the Company at this time,
the Company believes that this matter will not have a material adverse effect
upon the financial condition of the Company.
As previously reported, 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 in the 193rd Judicial District Court of
Dallas County, Texas. The suit alleges 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., American 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. (filed on January 2, 1996 in the District Court of
Smith County, Texas, dismissed but appealed); and Steich v. Akzo et al., (filed
March 4, 1996 in the 241st Judicial District Court of Smith County, Texas,
voluntarily dismissed without prejudice); and Adams v. Akzo et al (filed August
30, 1996 in the 236th Judicial District Court of Tarrant County, Texas). The
Company is a party defendant in each lawsuit. The Company has denied the
allegations of each complaint and is defending each matter. 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 these
matters.
As previously reported, 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 5, 1995, and July 20, 1995. Daiei further alleges that the metal
containers were defectively assembled and sealed by EBC at its production
facility in Evansville, Indiana, upon a machine which was inspected by
representatives of Ball. Daiei further alleges that 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 approximately $6.0 million. 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 effect upon the financial condition of the Company.
Item 4. Submission of Matters to Vote of Security Holders
There were no matters submitted to the security holders during the fourth
quarter of 1998.
Part II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
Ball Corporation common stock (BLL) is traded on the New York, Chicago and
Pacific Stock Exchanges. There were 6,923 common shareholders of record
on March 1, 1999.
Other information required by Item 5 appears under the caption, "Quarterly Stock
Prices and Dividends," in the 1998 Annual Report to Shareholders and is
incorporated herein by reference.
Item 6. Selected Financial Data
The information required by Item 6 for the five years ended December 31, 1998,
appearing in the section titled, "Five-Year Review of Selected Financial Data,"
of the 1998 Annual Report to Shareholders is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" of the 1998 Annual Report to Shareholders is incorporated herein by
reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The information required by Item 7A appears under the caption, "Financial and
Derivative Instruments and Risk Managment," within the "Management's Discussion
and Analysis of Financial Condition and Results of Operations" section of the
1998 Annual Report to Shareholders, which is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements and notes thereto of the 1998 Annual
Report to Shareholders, together with the report thereon of
PricewaterhouseCoopers LLP, dated January 27, 1999, included in the 1998 Annual
Report to Shareholders, are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There were no matters required to be reported under this item.
Part III
Item 10. Directors and Executive Officers of the Registrant
The executive officers of the Company as of December 31, 1998 were as
follows:
1. George A. Sissel, 62, Chairman and Chief Executive Officer, since January
1998; Chairman, President and Chief Executive Officer, 1996-1998; President
and Chief Executive Officer, 1995-1996; Acting President and Chief
Executive Officer, 1994-1995; Senior Vice President, Corporate Affairs;
Corporate Secretary and General Counsel, 1993-1995; Senior Vice President,
Corporate Secretary and General Counsel, 1987-1993; Vice President,
Corporate Secretary and General Counsel, 1981-1987.
2. R. David Hoover, 53, Vice Chairman and Chief Financial Officer, since
January 1998; Executive Vice President and Chief Financial Officer,
1997-1998; Executive Vice President, Chief Financial Officer and Treasurer,
1996-1997; Executive Vice President and Chief Financial Officer, 1995-1996;
Senior Vice President and Chief Financial Officer, 1992-1995; Vice
President and Treasurer, 1988-1992; Assistant Treasurer, 1987-1988; Vice
President, Finance and Administration, Technical Products, 1985-1987; Vice
President, Finance and Administration, Management Services Division,
1983-1985.
3. George A. Matsik, 59, President; Chief Operating Officer, Packaging
Operations, since January 1998; Executive Vice President and Chief
Operating Officer, Packaging Operations, 1997-1998; Chief Operating
Officer, Packaging Operations, 1996-1997; President, International
Packaging Operations, 1995-1996.
4. Donald C. Lewis, 56, Vice President and General Counsel, since April 1998;
Vice President, Assistant Corporate Secretary and General Counsel,
1997-1998; General Counsel and Assistant Corporate Secretary, 1995-1997;
Associate General Counsel and Assistant Corporate Secretary, 1990-1995;
Associate General Counsel, 1983-1990; Assistant General Counsel, 1980-1983;
Senior Attorney, 1978-1980; General Attorney, 1974-1978.
5. Albert R. Schlesinger, 57, Vice President and Controller, since January
1987; Assistant Controller, 1976-1986.
6. Raymond J. Seabrook, 47, Senior Vice President, Finance, since April 1998;
Vice President, Planning and Control, 1996-1998; Vice President and
Treasurer, 1992-1996; Senior Vice President and Chief Financial Officer,
Ball Packaging Products Canada, Inc., 1988-1992.
7. Harold L. Sohn, 52, Vice President, Corporate Relations, since March 1993;
Director, Industry Affairs, Packaging Products, 1988-1993.
8. David A. Westerlund, 48, Senior Vice President, Administration, since April
1998; Vice President, Administration, 1997-1998; Vice President, Human
Resources, 1994-1997; Senior Director, Corporate Human Resources, July
1994-December 1994; Vice President, Human Resources and Administration,
Ball Glass Container Corporation, 1988-1994; Vice President, Human
Resources, Ball-InCon Glass Packaging Corp., 1987-1988.
Other information required by Item 10 appearing under the caption, "Director
Nominees and Continuing Directors," on pages 3 through 5 and under the caption,
"Section 16(a) Beneficial Ownership Reporting Compliance" on page 15 of the
Company's proxy statement filed pursuant to Regulation 14A dated March 15, 1999,
is incorporated herein by reference.
Item 11. Executive Compensation
The information required by Item 11 appearing under the caption, "Executive
Compensation," on pages 7 through 13 of the Company's proxy statement filed
pursuant to Regulation 14A dated March 15, 1999, is incorporated herein by
reference. Additionally, the Merger Related, Special Incentive Plan for
Operating Executives was created, in part, to incentivize the successful
integration of the Reynolds Metals Company can division into the Ball
Corporation Metal Beverage Operations. The Plan provides for certain cash
incentive payments if certain performance criteria are met over a 39-month
period beginning October 1, 1998. Payments over the 39 months at target
performance under this Plan should approximate $7 million. No named executive
officer participates in any cash incentive payment under the Plan.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by Item 12 appearing under the caption, "Voting
Securities and Principal Shareholders," on pages 1 and 2 of the Company's proxy
statement filed pursuant to Regulation 14A dated March 15, 1999, is incorporated
herein by reference.
Item 13. Certain Relationships and Related Transactions
The information required by Item 13 appearing under the caption, "Relationship
with Independent Public Accountants and Certain Other Relationships and Related
Transactions," on page 15 of the Company's proxy statement filed pursuant to
Regulation 14A dated March 15, 1999, is incorporated herein by reference.
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) Financial Statements:
The following documents included in the 1998 Annual Report to Shareholders
are incorporated by reference in Part II, Item 8:
Consolidated statement of income - Years ended December 31, 1998, 1997
and 1996
Consolidated balance sheet - December 31, 1998 and 1997
Consolidated statement of cash flows - Years ended December 31, 1998,
1997 and 1996
Consolidated statement of changes in shareholders' equity
and comprehensive income (loss) - Years ended December 31, 1998, 1997
and 1996
Notes to consolidated financial statements
Report of independent accountants
(2) Financial Statement Schedules:
There were no financial statement schedules required under this item.
(3) Exhibits:
See the Index to Exhibits which appears at the end of this document and
which is incorporated by reference herein.
(b) Reports on Form 8-K:
The registrant filed or amended reports on Form 8-K as follows:
A Current Report on Form 8-K was filed December 17, 1998, reporting under
Item 5 of Regulation S-X an announcement by Ball Corporation of its intent
to close two metal beverage can plants in the U.S. and two in the People's
Republic of China.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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/George A. Sissel
-----------------------------------------
George A. Sissel, Chairman and
Chief Executive Officer
March 29, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated below.
(1) Principal Executive Officer:
Chairman and Chief Executive
/s/George A. Sissel Officer
-----------------------------------------
George A. Sissel March 29, 1999
(2) Principal Financial Accounting Officer:
Vice Chairman and Chief
/s/R. David Hoover Financial Officer
-----------------------------------------
R. David Hoover March 29, 1999
(3) Controller:
/s/Albert R. Schlesinger Vice President and Controller
-----------------------------------------
Albert R. Schlesinger March 29, 1999
(4) A Majority of the Board of Directors:
/s/Frank A. Bracken * Director
-----------------------------------------
Frank A. Bracken March 29, 1999
/s/Howard M. Dean * Director
-----------------------------------------
Howard M. Dean March 29, 1999
/s/John T. Hackett * Director
-----------------------------------------
John T. Hackett March 29, 1999
/s/R. David Hoover * Director
-----------------------------------------
R. David Hoover March 29, 1999
/s/John F. Lehman * Director
-----------------------------------------
John F. Lehman March 29, 1999
/s/George McFadden * Director
-----------------------------------------
George McFadden March 29, 1999
/s/Ruel C. Mercure, Jr. * Director
-----------------------------------------
Ruel C. Mercure, Jr. March 29, 1999
/s/Jan Nicholson * Director
-----------------------------------------
Jan Nicholson March 29, 1999
Chairman, Chief Executive
/s/George A. Sissel * Officer and Director
-----------------------------------------
George A. Sissel March 29, 1999
/s/William P. Stiritz * Director
-----------------------------------------
William P. Stiritz March 29, 1999
*By George A. Sissel as Attorney-in-Fact pursuant to a Limited Power of Attorney
executed by the directors listed above, which Power of Attorney has been filed
with the Securities and Exchange Commission.
By: /s/George A. Sissel
-----------------------------------------
George A. Sissel
As Attorney-in-Fact
March 29, 1999
<PAGE>
Ball Corporation and Subsidiaries
Annual Report on Form 10-K
For the year ended December 31, 1998
Index to Exhibits
Exhibit
Number Description of Exhibit
------- --------------------------------------------------------------------
3.i Amended Articles of Incorporation as of November 26, 1990
(filed by incorporation by reference to the Current Report on
Form 8-K dated November 30, 1990) filed December 13, 1990.
3.ii Bylaws of Ball Corporation as amended September 26, 1998. (Filed
herewith.)
4.1(a) Senior Note Indenture, dated August 10, 1998, among Ball
Corporation, certain subsidiary guarantors of Ball Corporation
and The Bank of New York, as Senior Note Trustee (filed by
incorporation by reference to the Current Report on Form 8-K
dated August 10, 1998) filed August 25, 1998.
4.1(b) Senior Registration Rights Agreement, dated August 10, 1998,
among Ball Corporation, Lehman Brothers Inc., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, BancAmerica Robertson
Stephens, First Chicago Capital Markets, Inc. and certain
subsidiary guarantors of Ball Corporation (filed by incorporation
by reference to the Current Report on Form 8-K dated August 10,
1998) filed August 25, 1998.
4.2(a) Senior Subordinated Note Indenture, dated August 10, 1998, among
Ball Corporation, certain subsidiary guarantors of Ball Corporation
and The Bank of New York, as Senior Subordinated Note Trustee
(filed by incorporation by reference to the Current Report on Form
8-K dated August 10, 1998) filed August 25, 1998.
4.2(b) Senior Subordinated Registration Rights Agreement, dated August 10,
1998, among Ball Corporation, Lehman Brothers Inc., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, BancAmerica Robertson
Stephens, First Chicago Capital Markets, Inc. and certain subsidiary
guarantors of Ball Corporation (filed by incorporation by
reference to the Current Report on Form 8-K dated August 10,
1998) filed August 25, 1998.
4.3 Dividend distribution payable to shareholders of record on
August 4, 2006, of one preferred stock purchase right for each
outstanding share of common stock under the Rights Agreement
dated as of July 24, 1996, between the Company and The First
Chicago Trust Company of New York (filed by incorporation by
reference to the Form 8-A Registration Statement, No. 1-7349,
dated August 1, 1996, and filed August 2, 1996, and to the
Company's Form 8-K Report dated February 13, 1996, and filed
February 14, 1996).
10.1 1980 Stock Option and Stock Appreciation Rights Plan, as
amended, 1983 Stock Option and Stock Appreciation Rights Plan
(filed by incorporation by reference to the Form S-8
Registration Statement, No. 2-82925) filed April 27, 1983.
10.2 1988 Restricted Stock Plan and 1988 Stock Option and Stock
Appreciation Rights Plan (filed by incorporation by reference
to the Form S-8 Registration Statement, No. 33-21506) filed
April 27, 1988.
10.3 Ball Corporation Deferred Incentive Compensation Plan (filed by
incorporation by reference to the Annual Report on Form 10-K
for the year ended December 31, 1987) filed March 25, 1988.
10.4 Ball Corporation 1986 Deferred Compensation Plan, as amended
July 1, 1994 (filed by incorporation by reference to the
Quarterly Report on Form 10-Q for the quarter ended July 3,
1994) filed August 17, 1994.
<PAGE>
Exhibit
Number Description of Exhibit
------- --------------------------------------------------------------------
10.5 Ball Corporation 1988 Deferred Compensation Plan, as amended
July 1, 1994 (filed by incorporation by reference to the
Quarterly Report on Form 10-Q for the quarter ended July 3,
1994) filed August 17, 1994.
10.6 Ball Corporation 1989 Deferred Compensation Plan, as amended
July 1, 1994 (filed by incorporation by reference to the
Quarterly Report on Form 10-Q for the quarter ended July 3,
1994) filed August 17, 1994.
10.7 Amended and Restated Form of Severance Benefit Agreement which
exists between the Company and its executive officers,
effective as of August 1, 1994 and as amended on January 24,
1996, (filed by incorporation by reference to the Quarterly
Report on Form 10-Q for the quarter ended March 22 , 1996)
filed May 15, 1996.
10.8 Stock Purchase Agreement dated as of June 29, 1989, between
Ball Corporation and Mellon Bank, N.A. (filed by incorporation
by reference to the Quarterly Report on Form 10-Q for the
quarter ended July 2, 1989) filed August 15, 1989.
10.9 Ball Corporation 1986 Deferred Compensation Plan for Directors,
as amended October 27, 1987 (filed by incorporation by
reference to the Annual Report on Form 10-K for the year ended
December 31, 1990) filed April 1, 1991.
10.10 1991 Restricted Stock Plan for Nonemployee Directors of Ball
Corporation (filed by incorporation by reference to the Form
S-8 Registration Statement, No. 33-40199) filed April 26, 1991.
10.11 Ball Corporation Economic Value Added Incentive Compensation
Plan dated January 1, 1994 (filed by incorporation by reference
to the Annual Report on Form 10-K for the year ended December
31, 1994) filed March 29, 1995.
10.12 Ball Corporation 1997 Stock Incentive Plan (filed by
incorporation by reference to the Form S-8 Registration
Statement, No. 333-26361), filed May 1, 1997.
10.13 Agreement and Plan of Merger among Ball Corporation, Ball Sub Corp.
and Heekin Can, Inc. dated as of December 1, 1992, and as amended
as of December 28, 1992 (filed by incorporation by reference to the
Registration Statement on Form S-4, No. 33-58516) filed
February 19, 1993.
10.14 Distribution Agreement between Ball Corporation and Alltrista
(filed by incorporation by reference to the Alltrista
Corporation Form 8, Amendment No. 3 to Form 10, No. 0-21052,
dated December 31, 1992) filed March 17, 1993.
10.15 1993 Stock Option Plan (filed by incorporation by reference to the
Form S-8 Registration Statement, No. 33-61986) filed April 30, 1993.
<PAGE>
Exhibit
Number Description of Exhibit
------- --------------------------------------------------------------------
10.16 Retirement Agreement dated June 17, 1994, between Delmont A.
Davis and Ball Corporation (filed by incorporation by reference
to the Quarterly Report on Form 10-Q for the quarter ended July
3, 1994) filed August 17, 1994.
10.17 Ball-InCon Glass Packaging Corp. Deferred Compensation Plan, as
amended July 1, 1994 (filed by incorporation by reference to
the Quarterly Report on Form 10-Q for the quarter ended July 3,
1994) filed August 17, 1994.
10.18 Retention Agreement dated June 22, 1994, between Donovan B.
Hicks and Ball Corporation (filed by incorporation by reference
to the Quarterly Report on Form 10-Q for the quarter ended July
3, 1994) filed August 17, 1994.
10.19 Ball Corporation Supplemental Executive Retirement Plan (filed
by incorporation by reference to the Quarterly Report on Form
10-Q for the quarter ended October 2, 1994) filed November 15,
1994.
10.20 Ball Corporation Split Dollar Life Insurance Plan (filed by
incorporation by reference to the Quarterly Report on Form 10-Q
for the quarter ended October 2, 1994) filed November 15, 1994.
10.21 Ball Corporation Long-Term Cash Incentive Plan, dated October
25, 1994, as amended October 23, 1996 (filed by incorporation
by reference to the Quarterly Report on Form 10-Q for the
quarter ended September 29, 1996) filed November 13, 1996.
10.22a Ball Corporation Merger Related, Special Incentive Plan for
Operating Executives which provides for Stock Option grants in
which the five named executive officers participate and which
grants are referred to in the Executive Compensation section in
the Ball Corporation Proxy Statement dated March 15, 1999. (The
form of the option grants is filed herewith).
10.22b Ball Corporation Merger Related, Special Incentive Plan for
Operating Executives which provides for Restricted Stock grant
in which the five named executive officers participate and
which grants are referred to in the Executive Compensation
section of the Ball Corporation Proxy Statement dated March 15,
1999. (The form of the restricted grants is filed herewith.)
10.22c Ball Corporation Merger Related Special Incentive Plan for
Operating Executives which provides for certain cash incentive
payments based upon the attainment of certain performance
criteria. This plan is referred to in Item 11, the Executive
Compensation section of this Form 10-K. (The form of the plan
is filed herewith.)
10.23 Asset Purchase Agreement dated June 26, 1995, among Foster
Ball, L.L.C. (since renamed Ball-Foster Glass Container Co.,
L.L.C.), Ball Glass Container Corporation and Ball Corporation
(filed by incorporation by reference to the Current Report on
Form 8-K dated September 15, 1995) filed September 29, 1995.
<PAGE>
Exhibit
Number Description of Exhibit
-------- --------------------------------------------------------------------
10.24 Foster Ball, L.L.C. (since renamed Ball-Foster Glass Container Co.,
L.L.C.) Amended and Restated Limited Liability Company Agreement
dated June 26, 1995, among Saint-Gobain Holdings I Corp., BG
Holdings I, Inc. and BG Holdings II, Inc. (filed by incorporation
by reference to the Current Report on Form 8-K dated September 15,
1995) filed September 29, 1995.
10.25 Asset Purchase Agreement dated August 10, 1998, among Ball
Corporation and its Ball Metal Beverage Container Corp. and
Reynolds Metals Company (filed by incorporation by reference to
the Current Report on Form 8-K dated August 10, 1998) filed
August 25, 1998.
10.26 Part-Time Employment, Retirement and Consulting Services
Agreement between Duane E. Emerson and Ball Corporation dated
January 14, 1997 (filed by incorporation by reference to the
Annual Report on Form 10-K for the year ended December 31,
1998) filed March 31, 1998.
10.27 Agreement and General Release between David B. Sheldon and Ball
Corporation dated February 7, 1997 (filed by incorporation by
reference to the Annual Report on Form 10-K for the year ended
December 31, 1998) filed March 31, 1998.
10.28 Consulting Agreement between The Cygnus Enterprise Development
Corp. (for which Donovan B. Hicks is managing partner) and Ball
Corporation dated January 1, 1997 (filed by incorporation by
reference to the Annual Report on Form 10-K for the year ended
December 31, 1998) filed March 31, 1998.
10.29 Form of Severance Agreement (Change of Control Agreement) which
exists between the Company and its executive officers (filed by
incorporation by reference to the Annual Report on Form 10-K
for the year ended December 31, 1988) filed March 25, 1989.
11.1 Statement re: Computation of Earnings Per Share (filed by
incorporation by reference to the notes to the consolidated
financial statements, "Earnings Per Share," in the 1998 Annual
Report to Shareholders). (Filed herewith.)
12.1 Statement re: Computation of Ratio of Earnings to Fixed Charges.
(Filed herewith.)
13.1 Ball Corporation 1998 Annual Report to Shareholders (The Annual
Report to Shareholders, except for those portions thereof
incorporated by reference, is furnished for the information of
the Commission and is not to be deemed filed as part of this
Form 10-K.) (Filed herewith.)
18.1 Letter re: Change in Accounting Principles. (Filed by
incorporation by reference to the Quarterly Report on Form 10-Q for
the quarterly period ended July 2, 1995) filed August 15, 1995.
<PAGE>
Exhibit
Number Description of Exhibit
-------- --------------------------------------------------------------------
21.1 List of Subsidiaries of Ball Corporation. (Filed herewith.)
23.1 Consent of Independent Accountants. (Filed herewith.)
24.1 Limited Power of Attorney. (Filed herewith.)
27.1 Financial Data Schedule for the year ended December 31, 1998.
(Filed herewith.)
99.1 Specimen Certificate of Common Stock (filed by incorporation by
reference to the Annual Report on Form 10-K for the year ended
December 31, 1979) filed March 24, 1980.
99.2 Cautionary statement for purposes of the "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995, as
amended. (Filed herewith.)
Exhibit 3.ii
Bylaws
of
Ball Corporation
(As of December 9, 1998)
Article One
Capital Stock
Section A. Classes of Stock. The capital stock of the corporation shall
consist of shares of such kinds and classes, with such designations and such
relative rights, preferences, qualifications, limitations and restrictions,
including voting rights, and for such consideration as shall be stated in or
determined in accordance with the Amended Articles of Incorporation and any
amendment or amendments thereof, or the Indiana Business Corporation Law.
Consistent with the Indiana Business Corporation Law, capital stock of the
corporation owned by the corporation may be referred to and accounted for as
treasury stock.
Section B. Certificates for Shares. All share certificates shall be
consecutively numbered as issued and shall be signed by the chairman and the
corporate secretary or assistant corporate secretary of the corporation.
Section C. Transfer of Shares. The shares of the capital stock of the
corporation shall be transferred only on the books of the corporation by the
holder thereof, or by his attorney, upon the surrender and cancellation of the
stock certificate, whereupon a new certificate shall be issued to the
transferee. The transfer and assignment of such shares of stock shall be subject
to the laws of the State of Indiana. The board of directors shall have the right
to appoint and employ one or more stock registrars and/or transfer agents in the
State of Indiana or in any other state.
Section D. Control Share Acquisition Statute Inapplicable. Chapter 42 of
the Indiana Business Corporation Law (IC 23-1-42) shall not apply to control
share acquisitions of shares of the corporation.
Article Two
Shareholders
Section A. Annual Meetings. The regular annual meeting of the shareholders
of the corporation shall be held on the fourth Wednesday in April of each year,
or on such other date within a reasonable interval after the close of the
corporation's last fiscal year as may be designated from time to time by the
board of directors, for the election of the directors of the corporation, and
for the transaction of such other business as is authorized or required to be
transacted by the shareholders.
Section B. Special Meetings. Special meetings of the shareholders may be
called by the chairman of the board or by the board of directors or as otherwise
may be required by law.
Section C. Time and Place of Meetings. All meetings of the shareholders
shall be held at the principal office of the corporation or at such other place
within or without the State of Indiana and at such time as may be designated
from time to time by the board of directors.
Article Three
Directors
Section A. Number and Terms of Office. The business of the corporation
shall be controlled and managed in accordance with the Indiana Business
Corporation Law by a board of ten directors, divided into classes as provided in
the Amended Articles of Incorporation.
Section B. Eligibility. No person shall be eligible for election or
reelection as a director after having attained the age of seventy prior to or on
the day of election or reelection. A director who attains the age of seventy
during his term of office shall be eligible to serve only until the annual
meeting of shareholders of the corporation next following such director's
seventieth birthday.
Section C. Regular Meetings. The regular annual meeting of the board of
directors shall be held immediately after the adjournment of each annual meeting
of the shareholders. Regular quarterly meetings of the board of directors shall
be held on the fourth Wednesday of January, July, and October of each year, or
on such other date as may be designated from time to time by the board of
directors.
Section D. Special Meetings. Special meetings of the board of directors may
be called at any time by the chairman of the board or by the board, by giving to
each director an oral or written notice setting the time, place and purpose of
holding such meetings.
Section E. Time and Place of Meetings. All meetings of the board of
directors shall be held at the principal office of the corporation, or at such
other place within or without the State of Indiana and at such time as may be
designated from time to time by the board of directors.
Section F. Notices. Any notice, of meetings or otherwise, which is given or
is required to be given to any director may be in the form of oral notice.
Section G. Committees. The board of directors is expressly authorized to
create committees and appoint members of the board of directors to serve on
them, as follows:
(1) Temporary and standing committees, including an executive committee,
and the respective chairmen thereof, may be appointed by the board of directors,
from time to time. The board of directors may invest such committees with such
powers and limit the authority of such committees as it may see fit, subject to
conditions as it may prescribe. The executive committee shall consist of three
or more members of the board. All other committees shall consist of one or more
members of the board. All committees so appointed shall keep regular minutes of
the transactions of their meetings, shall cause them to be recorded in books
kept for that purpose in the office of the corporation, and shall report the
same to the board of directors at its next meeting. Within its area of
responsibility, each committee shall have and exercise all of the authority of
the board of directors, except as limited by the board of directors or by law,
and shall have the power to authorize the execution of an affixation of the seal
of the corporation to all papers or documents which may require it.
(2) Neither the designation of any of the foregoing committees or the
delegation thereto of authority shall operate to relieve the board of directors,
or any member thereof, of any responsibility imposed by law.
Section H. Loans to Directors. Except as consistent with the Indiana
Business Corporation Law, the corporation shall not lend money to or guarantee
the obligation of any director of the corporation.
Article Four
Officers
Section A. Election and Term of Office. The officers of the corporation
shall be elected by the board of directors at the regular annual meeting of the
board, unless the board shall otherwise determine, and shall consist of a
chairman of the board of directors, if so designated as an officer by the board,
a president, one or more vice presidents (any one or more of whom may be
designated "corporate," "group," or other functionally described vice
president), a corporate secretary, a treasurer, and, if so elected by the board,
may include a vice-chairman of the board of directors and one or more assistant
secretaries and assistant treasurers. The board of directors shall, from time to
time, designate either the chairman of the board of directors, the president or,
if elected, the vice-chairman of the board of directors, as the chief executive
officer of the corporation, who shall have general supervision of the affairs of
the corporation. The board of directors may, from time to time, designate a
chief operating officer and a chief financial officer from among the officers of
the corporation. Each officer shall continue in office until his successor shall
have been duly elected and qualified or until removed in the manner hereinafter
provided. Vacancies occasioned by any cause in any one or more of such offices
may be filled for the unexpired portion of the term by the board of directors at
any regular or special meeting of the board.
Section B. Chairman of the Board. The chairman of the board shall be chosen
from among the directors and shall preside at all meetings of the board of
directors and shareholders. He shall confer from time to time with members of
the board and the officers of the corporation and shall perform such other
duties as may be assigned to him by the board. Except where by law the signature
of the president is required, the chairman of the board shall possess the same
power as the president to sign all certificates, contracts, and other
instruments of the corporation which may be authorized by the board of
directors. During the absence or disability of the president, if the president
has been designated chief executive officer, the chairman of the board shall act
as the chief executive officer of the corporation and shall exercise all the
powers and discharge all the duties of the president.
Section C. Vice-Chairman of the Board. The vice-chairman of the board, if
elected, shall be chosen from among the directors and shall, in the absence of
the chairman of the board, preside at all meetings of the shareholders and
directors. He shall have and exercise the powers and duties of the chairman of
the board in the event of the chairman's absence or inability to act or during a
vacancy in the office of chairman of the board. He shall possess the same power
as the chairman to sign all certificates, contracts, and other instruments of
the corporation which may be authorized by the board of directors. He shall also
have such other duties and responsibilities as shall be assigned to him by the
board of directors or chairman.
Section D. The President. The president and his duties shall be subject to
the control of the board of directors and, if the chairman of the board has been
designated chief executive officer, to the control of the chairman of the board.
The president shall have the power to sign and execute all deeds, mortgages,
bonds, contracts, and other instruments of the corporation as authorized by the
board of directors, except in cases where the signing and execution thereof
shall be expressly designated by the board of directors or by these bylaws to
some other officer, official or agent of the corporation. The president shall
perform all duties incident to the office of president and such other duties as
are properly required of him by the bylaws. During the absence or disability of
the chairman of the board and the vice-chairman of the board, the president
shall exercise all the powers and discharge all the duties of the chairman of
the board.
Section E. The Vice Presidents. The vice presidents shall possess the same
power as the president to sign all certificates, contracts, and other
instruments of the corporation which may be authorized by the board of
directors, except where by law the signature of the president is required. All
vice presidents shall perform such duties as may from time to time be assigned
to them by the board of directors, the chairman of the board, and the president.
In the event of the absence or disability of the president, and at the request
of the chairman of the board, or in his absence or disability, at the request of
the vice-chairman of the board, or in his absence or disability at the request
of the board of directors, the vice presidents in the order designated by the
chairman of the board, or in his absence or disability by the vice-chairman of
the board, or in his absence or disability by the board of directors, shall
perform all of the duties of the president, and when so acting they shall have
all of the powers of and be subject to the restrictions upon the president and
shall act as a member of, or as a chairman of, any standing or special committee
of which the president is a member or chairman by designation or ex officio.
Section F. The Corporate Secretary. The corporate secretary of the
corporation shall:
(1) Keep the minutes of the meetings of the shareholders and the board of
directors in books provided for that purpose.
(2) See that all notices are duly given in accordance with the provisions
of these bylaws and as required by law.
(3) Be custodian of the records and of the seal of the corporation and see
that the seal is affixed to all documents, the execution of which on behalf of
the corporation under its seal is duly authorized in accordance with the
provisions of these bylaws.
(4) Keep a register of the post office address of each shareholder, which
shall be furnished to the corporate secretary at his request by such
shareholder, and make all proper changes in such register, retaining and filing
his authority for all such entries.
(5) See that the books, reports, statements, certificates and all other
documents and records required by law are properly kept, filed, and
authenticated.
(6) In general, perform all duties incident to the office of corporate
secretary and such other duties as may from time to time be assigned to him by
the board of directors.
(7) In case of absence or disability of the corporate secretary, the
assistant secretaries, in the order designated by the chief executive officer,
shall perform the duties of corporate secretary.
Section G. The Treasurer. The treasurer of the corporation shall:
(1) Give bond for the faithful discharge of his duties if required by the
board of directors.
(2) Have the charge and custody of, and be responsible for, all funds and
securities of the corporation, and deposit all such funds in the name of the
corporation in such banks, trust companies, or other depositories as shall be
selected in accordance with the provisions of these bylaws.
(3) At all reasonable times, exhibit his books of account and records, and
cause to be exhibited the books of account and records of any corporation a
majority of whose stock is owned by the corporation, to any of the directors of
the corporation upon application during business hours at the office of this
corporation or such other corporation where such books and records are kept.
(4) Render a statement of the conditions of the finances of the corporation
at all regular meetings of the board of directors, and a full financial report
at the annual meeting of the shareholders, if called upon so to do.
(5) Receive and give receipts for monies due and payable to the corporation
from any source whatsoever.
(6) In general, perform all of the duties incident to the office of
treasurer and such other duties as may from time to time be assigned to him by
the board of directors.
(7) In case of absence or disability of the treasurer, the assistant
treasurers, in the order designated by the chief executive officer, shall
perform the duties of treasurer.
(8) All acts affecting the treasurer's duties and responsibilities shall be
subject to the review and approval of the corporation's chief financial officer.
Article Five
Corporate Seal
The corporate seal of the corporation shall be a round, metal disc with the
words "Ball Corporation" around the outer margin thereof, and the words
"Corporate Seal," in the center thereof, so mounted that it may be used to
impress words in raised letters upon paper.
Article Six
Amendment
These bylaws may be altered, added to, amended, or repealed by the board of
directors of the corporation at any regular or special meeting thereof.
Exhibit 12.1
Ratio of Earnings to Fixed Charges
Ball Corporation and Subsidiaries
<TABLE>
<CAPTION>
- ------------------------------------------ ----------- ----------- ----------- ------------ ------------
(dollars in millions) 1998 1997 1996 1995 1994
- ------------------------------------------ ----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Income from continuing operations before
taxes on income $ 27.3 $ 85.9 $ 29.6 $ 76.9 $ 95.9
Plus:
Interest expensed and capitalized 80.9 57.9 45.4 41.3 43.2
Interest expense within rent 15.4 12.7 9.1 5.6 11.6
Amortization of capitalized interest 2.1 2.6 2.1 1.9 1.9
Distributed income of equity investees 2.5 6.9 - 0.4 0.7
Less:
Interest capitalized (2.3) (4.4) (6.6) (3.5) (2.2)
----------- ----------- ----------- ------------ ------------
Adjusted earnings 125.9 161.6 79.6 122.6 151.1
Fixed charges 96.3 70.6 54.5 46.9 54.8
Ratio of earnings to fixed charges 1.3x 2.3x 1.5x 2.6x 2.8x
- ------------------------------------------ ----------- ----------- ----------- ------------ ------------
</TABLE>
Exhibit 10.22a
PERSONAL & CONFIDENTIAL
RE: Option to purchase ______ Non-Qualified Stock Option shares of Ball
Corporation Common Stock at $35.00 per share, being 100 percent of the
fair market value on the effective date of September 23, 1998.
Dear _____:
It is my pleasure to inform you that the Human Resources Committee of the Board
of Directors of Ball Corporation has granted you the referenced stock option as
a "special" grant issued under the Ball Corporation 1997 Stock Incentive Plan
(the "Plan"). These options become exercisable after stock trading prices have
reached increasing "indexing" levels. This grant, with its indexing feature,
signals to our investors the commitment of Ball Corporation and its management
to shareholder value creation.
Except as enumerated below, this special stock option grant encompasses the same
features as Ball's routine stock option grants, including a ten-year term.
Your special option, however, unlike routine options, becomes exercisable in
full five years from the date of grant, except to the extent that all or a
portion of the shares shall have become exercisable earlier. The options may
become exercisable earlier than five years from the date of grant, as soon as,
but not until, the following requirements regarding Ball's Common Stock trading
prices are met:
When the Ball stock price reaches an index price of $45 per share, 50
percent of your special option shares will become exercisable. When the
Ball stock price reaches an index price of $52 per share, another 25
percent of your special option shares will become exercisable. When the
Ball stock price reaches an index price of $60 per share, the remaining 25
percent of your special option shares will become exercisable. The index
price will be achieved when the Corporation's stock has closed for ten
consecutive trading days on the New York Stock Exchange Composite listing
at or above $45, $52, or $60 per share, respectively. Once the appropriate
index price requirements have been met, your option will be exercisable at
$35.00 per share. During the first five years from the date of grant, you
may not exercise any portion of your special option shares except for the
portion for which an index price requirement has been met.
In the event of a change in control of the Corporation (as defined in the
Plan), any special stock options which remain outstanding at the time of
such change in control shall become immediately exercisable in full without
regard to the years that have elapsed from the date of grant and regardless
of whether any indexing levels have been achieved.
If your employment with Ball Corporation terminates for any reason, except
as noted below, during the 39-month period from October 1, 1998, to
December 31, 2001, the number of special option shares granted to you will
be reduced ratably. The option shares for which the indexing level has been
achieved plus the option shares remaining after your ratable reduction will
be considered as earned by you. The ratable reduction shall be calculated
only on those shares for which the indexing level has not been achieved.
The basis of reduction will be the total number of shares for which the
indexing level has not been achieved, multiplied by the total number of
full months served during the above-referenced period divided by 39. If you
are retirement eligible when your employment with the Corporation
terminates, the shares earned as of the date of your retirement will
continue to become exercisable, to the extent not already exercisable,
according to the terms specified above, and your special option grant will
remain active until the expiration date of September 23, 2008.
If you are terminated during the 39-month period above for "Cause" or if
your employment with the Corporation terminates for any reason (except
death or disability) before you are retirement eligible, the shares not
already exercisable as of your termination date are forfeited on the date
of termination. In these events you may, but only within the 30-day period
immediately following such termination of employment, exercise your special
option shares to the extent you were entitled to exercise at the date of
your termination.
If you die or become disabled while still an active employee of the
Corporation, the shares ratably earned as of the date of your death or
disability will continue to become exercisable according to the terms
specified above, and may be exercised during that period by the person or
persons to whom your rights pass by will or by the applicable laws of
descent and distribution.
In no event may your special option shares be exercised after the
expiration date of September 23, 2008.
When you exercise your option, you must pay the Corporation an amount equal to
the exercise price of the option multiplied by the number of shares you wish to
acquire. The exercise price of the option may be satisfied by a personal check
or with shares of Ball Corporation Common Stock which you already own. You must
also at that time pay the Corporation for any taxes it is obligated to withhold
upon your exercise of the Non-Qualified option shares, either by personal check
or through share retention.
The Plan and Prospectus set forth all terms and conditions which control this
option, except for the unique features which are described in the points above.
Please execute this option agreement by signing both copies of this letter.
Return one copy to the Corporate Secretary's Department in the envelope
provided. By doing so, you acknowledge receipt of your option and your agreement
to abide by the terms and conditions of the Plan. Be sure to keep your copy of
the special stock option agreement along with the enclosed Plan and Prospectus.
Please refer to the Prospectus for a discussion of the tax consequences of
exercising an option. You should consult your own tax advisor regarding your
individual situation.
These special stock options reflect our Board's commitment to incentivize the
Corporation's senior management to deliver significant returns to our
shareholders in the form of stock price appreciation.
Congratulations on your selection and for accepting the challenge represented by
this special stock option award.
Sincerely,
ACKNOWLEDGED AND ACCEPTED:
Employee:
----------------------------
Address:
----------------------------
----------------------------
Date:
----------------------------
Exhibit 10.22b
Dear ________:
Effective September 23, 1998, you were awarded _______ restricted shares of Ball
Corporation Common Stock under the terms of the Corporation's 1997 Stock
Incentive Plan. We have instructed our transfer agent, First Chicago Trust
Company of New York, to issue restricted certificates in your name representing
these shares. The certificates will be mailed to the Corporate Secretary's
Department and will be held in the vault at Corporate Headquarters until the
restrictions lapse, at which time certificates for unrestricted shares will be
issued and mailed to you. You will receive quarterly an amount equal to the
quarterly dividends, and you will be able to vote the shares at the annual
shareholders' meetings.
This restricted stock award reflects our Board's commitment to incentivize the
Corporation's senior management to deliver significant returns to our
shareholders in the form of stock price appreciation.
Lapse of Restrictions Based on Performance
The restrictions will lapse in full seven years from the date of the award. The
restrictions may lapse earlier than seven years from the date of the award based
on achievement of performance goals for the Ball Corporation Metal Beverage
Container Operations as outlined below:
<PAGE>
Performance Goals
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
15-Month 27-Month 39-Month
Performance Performance Performance
Period Ending Period Ending Period Ending
December 31, 1999 December 31, 2000 December 31, 2001
------------------------------------------------------------------------------------------------------------------
Performance
Measure Threshold Target Threshold Target Threshold Target
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cumulative
EBIT
------------------------------------------------------------------------------------------------------------------
Cumulative
Cash Flow
------------------------------------------------------------------------------------------------------------------
</TABLE>
Depending upon actual performance for each of the Performance Periods above,
restrictions may lapse at the end of each Performance Period as follows:
Percentage of Shares Released Based on
Performance During Performance Periods
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
15-Month 27-Month 39-Month
Performance Performance Performance
Period Ending Period Ending Period Ending
December 31, 1999 December 31, 2000 December 31, 2001
----------------- ----------------- -----------------
Performance Level Performance Level Performance Level
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Percent of
Shares
Released Threshold Target Threshold Target Threshold Target
- ---------------------------------------------------------------------------------------------------------------------------------
Based upon
Cumulative
EBIT
zero to 13% zero to 32.5%* zero to 65%*
------------------------------------------------------------------------------------------------------------------
Based upon
Cumulative
Cash Flow zero to 7% zero to 17.5%* zero to 35%*
------------------------------------------------------------------------------------------------------------------
</TABLE>
*Minus the number of shares, if any, previously released pursuant to this award.
For each Performance Period, if actual performance under each measure is greater
than Threshold Performance, but is less than Target Performance, restrictions
shall lapse and restricted shares shall be released pursuant to the table above
determined on a straight line interpolation between Threshold Performance and
Target Performance levels.
Three Performance Periods Defined:
The term "Performance Period' means the Fifteen-Month Performance Period, the
Twenty Seven-Month Performance Period, or the Thirty Nine-Month Performance
Period, as applicable and as follows:
The term "Fifteen-Month Performance Period" means the period that
begins on October 1, 1998, and ends on December 31, 1999.
The term "Twenty Seven-Month Performance Period" means the period that
begins on October 1, 1998, and ends on December 31, 2000.
The term "Thirty Nine-Month Performance Period" means the period that
begins on October 1, 1998, and ends on December 31, 2001.
Cumulative EBIT and Cash Flow Defined.
"Cumulative EBIT" means, with respect to any Performance Period, the cumulative
revenues of the Corporation's Metal Beverage Container operations for such
Performance Period minus the cumulative expenses of the Corporation's Metal
Beverage Container operations for such Performance Period (including, without
limitation, expenses for this Agreement and any other similar or dissimilar
compensation arrangement), excluding interest expense and provisions for taxes
based on income and without giving effect to any extraordinary gains or losses,
or gains or losses from sales of assets other than inventory sold in the
ordinary course of business, all as determined in accordance with generally
accepted accounting principles and as included in the audited financial
statements of the Corporation and its consolidated subsidiaries for such
Performance Period.
"Cumulative Cash Flow" means, with respect to any Performance Period, Cumulative
EBIT for such Performance Period with the following additions and deductions: a)
add an amount equal to the cumulative charges for depreciation and amortization
of the Corporation's Metal Beverage Container operations for such Performance
Period, and b) add an amount equal to the cumulative decreases in year-end
working capital of the Corporation's Metal Beverage Container operations in such
Performance Period, and c) deduct an amount equal to the cumulative capital
expenditures of the Corporation's Metal Beverage Container operations for such
Performance Period, and d) deduct an amount equal to the cumulative increases in
year-end working capital of the Corporation's Metal Beverage Container
operations in such Performance Period, all as determined in accordance with
generally accepted accounting principles and as included in the audited
financial statements of the Corporation and its consolidated subsidiaries for
such Performance Period. For purposes of b. and d. above, working capital means
current assets minus current liabilities, and any increase or decrease in
year-end working capital shall be measured from the most recent previous
December 31, except that any increase or decrease in such working capital during
the period ending December 31, 1998, shall be measured from September 30, 1998.
Termination of Employment
If your employment with Ball Corporation terminates for any reason, except as
noted below, during the 39-month Performance Period from October 1, 1998, to
December 31, 2001, the number of restricted shares awarded to you will be
reduced ratably. The basis of reduction will be the total number of restricted
shares multiplied by the total number of full months served during the
above-referenced Performance Period divided by 39. If you are retirement
eligible when your employment with the Corporation terminates, the restricted
shares ratably earned as of the date of your retirement will continue to have
restrictions lapse according to the terms specified above so long as you do not
compete with Ball Corporation by accepting employment with Crown Cork and Seal,
American National Can or Metal Container Corporation. In the event that you do
compete as outlined above, your rights to the shares that are still subject to
restrictions as of the date you commence such employment or consultancy shall
terminate on such commencement without payment of consideration by the
Corporation.
If you are terminated from employment during the 39-month Performance Period for
"Cause" or if your employment with the Corporation terminates for any reason
(except death or disability) before you are retirement eligible, your rights to
the shares still subject to restrictions as of your termination date shall
terminate without payment of consideration by the Corporation.
If you die or become disabled while still an active employee of the Corporation,
the shares ratably earned as of the date of your death or disability will
continue to have restrictions lapse according to the terms specified above, and
rights pass to those shares by will or by the applicable laws of descent and
distribution.
Congratulations on your selection and for accepting the challenge represented by
this restricted stock award.
Sincerely,
Exhibit 10.22c
Memorandum
- --------------------------------------------------------------------------------
SUBJECT: Merger Related, Special Incentive Plan for Operating Executives
I am pleased to advise you that you have been selected to participate in the
Merger Related, Special Incentive Plan for Operating Executives ("Plan"). This
program is available only to selected executives and senior managers who are in
a position to impact significantly the successful integration of the Reynolds
Metals Company can division into our Metal Beverage Operations, or to enhance
and sustain the success of our other business units while the integration
efforts proceed.
The terms of the Plan are as follows:
1. (a) Payment Contingent. Except as provided otherwise by paragraph 4 below,
this Plan will pay you an amount of money determined in accordance with the
provisions of paragraph 2 below, if (and only if) (i) the Company's Metal
Beverage Container Operations exceeds the Threshold EBIT Goal or the Threshold
Cash Flow Goal for a Performance Period (as such terms are defined in paragraphs
1(b) and 1(c) below), and (ii) you are continuously employed full time by the
Company from the effective date of this Plan, October 1, 1998, until the close
of such Performance Period in your current position or another position eligible
for inclusion in this Plan. If the Company's Metal Beverage Container Operations
exceeds the Threshold EBIT Goal or the Threshold Cash Flow Goal for none of the
Performance Periods, or if you are not continuously employed full time by the
Company as provided above from October 1, 1998, until the close of a Performance
Period for which the Company's Metal Beverage Container Operations exceeds the
Threshold EBIT Goal or the Threshold Cash Flow Goal, you will not be paid any
amount of money pursuant to this Plan, unless paragraph 4 below expressly
provides otherwise.
(b) Performance Periods Defined.
(i) The term "Performance Period" means the Fifteen Month Performance
Period, the Twenty-Seven Month Performance Period, or the Thirty-Nine Month
Performance Period as hereafter defined;
(ii) The term "Fifteen Month Performance Period" means the period that
begins on October 1, 1998, and that ends on December 31, 1999;
(iii) The term "Twenty-Seven Month Performance Period" means the period
that begins on October 1, 1998, and that ends on December 31, 2000; and
(iv) The term "Thirty-Nine Month Performance Period" means the period that
begins on October 1, 1998, and that ends on December 31, 2001.
(c) Cumulative EBIT and Cash Flow Defined.
(i) "Cumulative EBIT" means, with respect to any Performance Period, the
cumulative earnings before interest and taxes of the Company's Metal Beverage
Container Operations for such Performance Period (including, without limitation,
expenses for this Plan and any other similar or dissimilar compensation
arrangement). Such amount will exclude all interest and provisions for taxes
based on income and without giving effect to any extraordinary gains or losses,
or gains or losses from sales of assets other than inventory sold in the
ordinary course of business, all as determined in accordance with generally
accepted accounting principles and as included in the audited financial
statements of the Company and its consolidated subsidiaries for such Performance
Period; and
(ii) "Cumulative Cash Flow" means, with respect to any Performance Period,
Cumulative EBIT for such Performance Period as defined in paragraph 1(c)(i)
above with the following additions and deductions: (a) add an amount equal to
the cumulative charges for depreciation and amortization of the Company's Metal
Beverage Container Operations for such Performance Period, (b) add an amount
equal to the cumulative decreases in working capital of the Company's Metal
Beverage Container Operations in such Performance Period, (c) deduct an amount
equal to the cumulative capital expenditures (including cash rationalization
costs) of the Company's Metal Beverage Container Operations for such Performance
Period, and (d) deduct an amount equal to the cumulative increases in working
capital of the Company's Metal Beverage Container Operations in such Performance
Period, all as determined in accordance with generally accepted accounting
principles and as included in the audited financial statements of the Company
and its consolidated subsidiaries for such Performance Period. For purposes of
(b) and (d) above, any increase or decrease in working capital shall be measured
from September 30, 1998 to the end of the Performance Period.
2. Special Incentive Plan Award Opportunity and Performance Goals
(a) For the Thirty-Nine Month Performance Period your award opportunity
("Special Incentive Factor") is [__________] of your average annual base salary
earned in calendar years 1999, 2000, and 2001. Actual awards (including interim
awards) under this Plan may range from zero to 150% of your Special Incentive
Factor and are based on achievement of performance goals for the Company's Metal
Beverage Container Operations as outlined below:
Cumulative Performance Goals
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
15-Month 27-Month 39-Month
Performance Performance Performance
Period Ending Period Ending Period Ending
December 31, 1999 December 31, 2000 December 31, 2001
------------------------------------------------------------------------------------------------------------------
Performance
Measure Threshold Target Maximum Threshold Target Maximum Threshold Target Maximum
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cumulative
EBIT
------------------------------------------------------------------------------------------------------------------
Cumulative
Cash Flow
------------------------------------------------------------------------------------------------------------------
</TABLE>
Depending upon actual cumulative performance for each of the Performance Periods
above, interim awards may be made at the end of each Performance Period as
follows:
Percentage of Special Incentive Factor Awarded Based on
Actual Cumulative Performance During Performance Periods
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
15-Month 27-Month 39-Month
Performance Performance Performance
Period Ending Period Ending Period Ending
December 31, 1999 December 31, 2000 December 31, 2001
Performance Level Performance Level Performance Level
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Percent of
Special
Incentive
Factor
Awarded
Threshold Target Maximum Threshold Target Maximum Threshold Target Maximum
- ---------------------------------------------------------------------------------------------------------------------------------
Based upon
Cumulative
EBIT
zero to 13% to 19.5% zero to 32.5%* to 48.75%* zero to 65%* to 97.5%*
------------------------------------------------------------------------------------------------------------------
Based upon
Cumulative
Cash Flow zero to 7% to 10.5% zero to 17.5%* to 26.25%* zero to 35%* to 52.5%*
------------------------------------------------------------------------------------------------------------------
</TABLE>
*Minus awards, if any, previously made under this Special Incentive Plan.
For each Performance Period, if actual performance under each measure is greater
than Threshold Performance, but is less than Target Performance, awards shall be
calculated pursuant to the table above, determined on a straight line
interpolation between Threshold Performance and Target Performance levels. For
each Performance Period, if actual performance under each measure is greater
than Target Performance, but is less than Maximum Performance, awards shall be
calculated pursuant to the table above, determined on a straight line
interpolation between Target Performance and Maximum Performance levels.
Payment of amounts earned under this Plan with respect to any Performance Period
shall take place on or before March 15 of the calendar year next following the
close of such Performance Period.
3. Payment Contingent on Continued Service with the Company. Except to the
extent otherwise expressly provided by paragraph 4, in order to be eligible to
receive an award under this Plan, you must be employed full time by of the
Company from October 1, 1998, until the close of the Performance Period in
respect of which the payment is to be made. If your full-time employment by of
the Company terminates for any reason before the close of the Performance Period
in respect of which a payment is to be made pursuant to any of the preceding
paragraph, then, except to the extent otherwise expressly provided by paragraph
4 below, upon such termination of employment you shall relinquish any right to
be paid any money that would otherwise thereafter be paid to you pursuant to
this Plan in respect of such Performance Period.
4. Exception for Certain Terminations of Service during Performance Period. If,
before the close of the Thirty-Nine Month Performance Period, you cease to be
continuously employed full time by of the Company by reason of early or normal
retirement, as defined in the Company's Pension Plan for Salaried Employees, or
for any other reason (including, but not limited to, by reason of your being
transferred to a position not eligible for inclusion in this Plan) except (a)
cause, or (b) your voluntary termination of employment, then, the Company will
pay you (or your Beneficiary, in the case of your death) the amount of money
which would have been paid to you pursuant to paragraph 2 if your full-time
employment and participation in the Plan had continued until the close of the
Thirty-Nine Month Performance Period, multiplied by a fraction the numerator of
which shall be the number of full months of continuous full-time employment that
you actually served during the Thirty-Nine Month Performance Period, and the
denominator of which shall be 39 months. Any money payable pursuant to the
preceding sentence shall be paid at the same time, on the same terms, and
subject to the same conditions that would have applied if your full-time
employment and participation in the Plan had continued until the close of the
Thirty-Nine Month Performance Period.
5. Withholding. All amounts of money that are payable pursuant to this Plan
shall be subject to the withholding of such amounts as the Company may, in its
sole discretion, determine are required to be withheld or collected under the
laws or regulations of any governmental authority, whether federal, state, or
local and whether domestic or foreign.
6. Administration, Interpretation, and Construction. The terms and conditions of
the Plan shall be administered, interpreted, and construed by the Human
Resources Committee of the Board of Directors of the Company ("Human Resources
Committee"), whose decisions shall be final, binding, and conclusive. Without
limiting the generality of the foregoing, any determination as to whether or not
your employment has been terminated for cause, or has been terminated
voluntarily by you, or whether you have transferred to a position not eligible
for participation, shall be made in the good faith but otherwise absolute
discretion of the Human Resources Committee.
7. No Employment Rights. No provision of the Plan shall confer upon you any
right to continue in the employ of the Company or any subsidiary of the Company,
or shall in any way affect the right and power of the Company or any subsidiary
of the Company to terminate your employment at any time for any reason or no
reason, or shall impose upon the Company or any subsidiary of the Company, any
liability not expressly provided for in the Plan if your employment is so
terminated.
8. Rights Not Transferable. No rights under this Plan, contingent or otherwise,
shall be assignable or transferable other than to a "Beneficiary" (as hereafter
defined) upon your death, either voluntarily, or, to the full extent permitted
by law, involuntarily, by way of encumbrance, pledge, attachment, levy, or
charge of any nature. Any attempt to transfer, assign, encumber, pledge, attach,
levy upon, or charge any rights under the Plan, other than to a Beneficiary in
the event of your death, shall be null, void, and of no force or effect and, in
the event of any such attempt, the Human Resources Committee may terminate your
participation in the Plan. For this purpose, a "Beneficiary" shall mean a person
or entity (including a trust or estate), designated in writing by you on the
attached form or similar document to whom amounts that would have otherwise been
made to you shall pass in the event of your death. If no such person or entity
has been so designated, or if no person or entity so designated is alive or in
existence at the time any amount becomes payable pursuant to this Plan, your
"Beneficiary" shall mean the legal representative of your estate.
Exhibit 13.1
<PAGE>
Consolidated Statement of Income
Ball Corporation and Subsidiaries
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------
(dollars in millions except per share amounts) 1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Net sales $2,896.4 $2,388.5 $2,184.4
------------- ------------- -------------
Costs and expenses
Cost of sales (excluding depreciation and amortization) 2,425.5 2,015.6 1,926.0
Selling and administrative expenses 136.5 125.0 81.0
Depreciation and amortization 154.6 117.5 93.5
Headquarters relocation, plant closures, dispositions
and other costs 73.9 (9.0) 21.0
Interest expense 78.6 53.5 33.3
------------- ------------- -------------
2,869.1 2,302.6 2,154.8
------------- ------------- -------------
Income from continuing operations before taxes on income 27.3 85.9 29.6
Provision for income tax expense (8.8) (32.0) (7.2)
Minority interests 7.9 5.1 0.2
Equity in earnings (losses) of affiliates 5.6 (0.7) (9.5)
------------- ------------- -------------
Net income before extraordinary item and accounting change from:
Continuing operations 32.0 58.3 13.1
Discontinued operations -- -- 11.1
------------- ------------- -------------
Net income before extraordinary item and accounting change 32.0 58.3 24.2
Extraordinary loss from early debt extinguishment, net of tax
benefit (12.1) -- --
Cumulative effect of change in accounting for start-up costs,
net of tax benefit (3.3) -- --
------------- ------------- -------------
Net income 16.6 58.3 24.2
Preferred dividends, net of tax benefit (2.8) (2.8) (2.9)
------------- ------------- -------------
Net earnings attributable to common shareholders $ 13.8 $ 55.5 $ 21.3
============= ============= =============
Net earnings per common share before extraordinary item and
accounting change from:
Continuing operations $ 0.96 $ 1.84 $ 0.34
Discontinued operations -- -- 0.36
------------- ------------- -------------
Net earnings per common share before extraordinary item and
accounting change 0.96 1.84 0.70
Extraordinary loss from early debt extinguishment, net of tax
benefit (0.40) -- --
Cumulative effect of change in accounting for start-up
costs, net of tax benefit (0.11) -- --
------------- ------------- -------------
Earnings per common share $ 0.45 $ 1.84 $ 0.70
============= ============= =============
Diluted earnings per share before extraordinary item and
accounting change from:
Continuing operations $ 0.91 $ 1.74 $ 0.34
Discontinued operations -- -- 0.34
------------- ------------- -------------
Net income before extraordinary item and accounting change 0.91 1.74 0.68
Extraordinary loss from early debt extinguishment, net of tax
benefit (0.37) -- --
Cumulative effect of change in accounting for start-up
costs, net of tax benefit (0.10) -- --
------------- ------------- -------------
Diluted earnings per share $ 0.44 $ 1.74 $ 0.68
============= ============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
Consolidated Balance Sheet
Ball Corporation and Subsidiaries
<TABLE>
<CAPTION>
December 31,
-------------------------------
(dollars in millions) 1998 1997
------------- -------------
<S> <C> <C>
Assets
Current assets
Cash and temporary investments $ 34.0 $ 25.5
Accounts receivable, net 273.5 301.4
Inventories, net 483.8 413.3
Deferred income tax benefits and prepaid expenses 94.3 57.9
------------- -------------
Total current assets 885.6 798.1
------------- -------------
Property, plant and equipment, net 1,174.4 919.5
Goodwill and other assets 794.8 372.5
------------- -------------
$2,854.8 $2,090.1
============= =============
Liabilities and Shareholders' Equity
Current liabilities
Short-term debt and current portion of long-term debt $ 126.8 $ 407.0
Accounts payable 350.3 258.6
Salaries, wages and accrued employee benefits 97.1 78.3
Other current liabilities 113.4 93.9
------------- -------------
Total current liabilities 687.6 837.8
------------- -------------
Long-term debt 1,229.8 366.1
Employee benefit obligations, deferred income taxes and other
noncurrent liabilities 290.7 200.3
------------- -------------
Total noncurrent liabilities 1,520.5 566.4
------------- -------------
Contingencies
Minority interests 24.4 51.7
------------- -------------
Shareholders' equity
Series B ESOP Convertible Preferred Stock 57.2 59.9
Unearned compensation - ESOP (29.5) (37.0)
------------- -------------
Preferred shareholder's equity 27.7 22.9
------------- -------------
Common stock (34,859,636 shares issued - 1998;
33,759,234 shares issued - 1997) 368.4 336.9
Retained earnings 397.9 402.3
Accumulated other comprehensive loss (31.7) (22.8)
Treasury stock, at cost (4,404,758 shares - 1998; 3,539,574
shares - 1997) (140.0) (105.1)
------------- -------------
Common shareholders' equity 594.6 611.3
------------- -------------
Total shareholders' equity 622.3 634.2
------------- -------------
$2,854.8 $2,090.1
============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
Consolidated Statement of Cash Flows
Ball Corporation and Subsidiaries
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------
(dollars in millions) 1998 1997 1996
------------- -------------- -------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income from continuing operations $ 16.6 $ 58.3 $ 13.1
Reconciliation of net income from continuing operations
to net cash provided by operating activities:
Depreciation and amortization 154.6 117.5 93.5
Headquarters relocation, plant closures, dispositions and
other costs 60.9 (9.0) 21.0
Extraordinary loss from early debt extinguishment 19.9 -- --
Other (24.4) 19.3 14.0
Working capital changes, excluding effects of acquisitions
and dispositions:
Accounts receivable 93.9 (15.5) (62.4)
Inventories 27.7 (33.4) 3.2
Accounts payable 54.7 (2.1) 19.0
Other, net (16.8) 8.4 (17.1)
------------- -------------- -------------
Net cash provided by operating activities 387.1 143.5 84.3
------------- -------------- -------------
Cash Flows from Investing Activities
Additions to property, plant and equipment (84.2) (97.7) (196.1)
Acquisition of Reynolds' beverage can manufacturing net
assets, including a $39.0 million incentive loan,
transaction and other costs (838.4) -- --
Other acquisitions, net of cash acquired -- (202.7) --
Investments in and advances to affiliates, net (2.2) (11.2) (27.7)
Net cash flows from:
Discontinued operations -- -- 188.1
Proceeds from sale of other businesses, net -- 31.1 41.3
Other 9.7 29.6 (24.0)
------------- -------------- -------------
Net cash used in investing activities (915.1) (250.9) (18.4)
------------- -------------- -------------
Cash Flows from Financing Activities
Increase in long-term borrowings 1,310.4 2.4 167.6
Principal payments of long-term borrowings (487.8) (76.9) (66.6)
Debt issuance costs (28.9) -- --
Debt prepayment costs (17.5) -- --
Net change in short-term borrowings (203.3) 72.0 12.9
Common and preferred dividends (22.7) (22.9) (22.8)
Proceeds from issuance of common stock under
various employee and shareholder plans 31.5 21.7 21.4
Acquisitions of treasury stock (34.9) (32.1) (10.3)
Other (10.3) (0.5) (4.0)
------------- -------------- -------------
Net cash provided by (used in) financing activities 536.5 (36.3) 98.2
------------- -------------- -------------
Net Increase (Decrease) in Cash 8.5 (143.7) 164.1
Cash and temporary investments at beginning of year 25.5 169.2 5.1
------------- -------------- -------------
Cash and Temporary Investments at End of Year $ 34.0 $ 25.5 $ 169.2
============= ============== =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
Consolidated Statements of Changes in Shareholders' Equity and Comprehensive
Income Ball Corporation and Subsidiaries
<TABLE>
<CAPTION>
Number of Shares Year ended December 31,
(in thousands) (dollars in millions)
1998 1997 1996 1998 1997 1996
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Series B ESOP Convertible
Preferred Stock
Balance, beginning of year 1,635 1,681 1,787 $ 59.9 $ 61.7 $ 65.6
Shares retired (48) (46) (106) (2.7) (1.8) (3.9)
---------- ---------- ---------- ---------- ---------- ----------
Balance, end of year 1,587 1,635 1,681 $ 57.2 $ 59.9 $ 61.7
========== ========== ========== ========== ========== ==========
Unearned Compensation - ESOP
Balance, beginning of year $(37.0) $(44.0) $(50.4)
Amortization 7.5 7.0 6.4
---------- ---------- ----------
Balance, end of year $(29.5) $(37.0) $(44.0)
========== ========== ==========
Common Stock
Balance, beginning of year 33,759 32,977 32,173 $336.9 $315.2 $293.8
Shares issued for stock options and
other employee and shareholder stock
plans less shares exchanged 1,101 782 804 31.5 21.7 21.4
---------- ---------- ---------- ---------- ---------- ----------
Balance, end of year 34,860 33,759 32,977 $368.4 $336.9 $315.2
========== ========== ========== ========== ========== ==========
Retained Earnings
Balance, beginning of year $402.3 $365.2 $362.0
Net income for the year 16.6 58.3 24.2
Common dividends (18.2) (18.4) (18.1)
Preferred dividends, net of tax benefit (2.8) (2.8) (2.9)
---------- ---------- ----------
Balance, end of year $397.9 $402.3 $365.2
========== ========== ==========
Treasury Stock
Balance, beginning of year (3,540) (2,458) (2,058) $ (105.1) $(73.0) $(62.7)
Shares reacquired (865) (1,082) (400) (34.9) (32.1) (10.3)
---------- ---------- ---------- ---------- ---------- ----------
Balance, end of year (4,405) (3,540) (2,458) $(140.0) $(105.1) $(73.0)
========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
As of and for the Year Ended December 31,
------------------------------------------------------------------------------------------
(dollars in millions) 1998 1997 1996
------------------------------------------------------------------------------------------
Accumulated Accumulated Accumulated
Other Other Other
Comprehensive Comprehensive Comprehensive Comprehensive Comprehensive Comprehensive
Income Loss Income Loss Income Loss
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Comprehensive Income (Loss)
Balance, beginning of year $ (22.8) $ (20.7) $ (25.6)
Net income for the year $ 16.6 $ 58.3 $ 24.2
---------- ---------- ----------
Foreign currency translation adjustment (7.7) (2.6) (0.5)
Minimum pension liability adjustment,
net of tax (1.2) 0.5 5.4
---------- ---------- ----------
Other comprehensive income (loss) (8.9) (8.9) (2.1) (2.1) 4.9 4.9
---------- ---------- ----------
Comprehensive income $ 7.7 $ 56.2 $ 29.1
========== ---------- ========== ---------- ========== ----------
Balance, end of year $ (31.7) $ (22.8) $ (20.7)
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<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 its controlled affiliates in which it holds a majority equity position
(collectively, Ball or the Company). Investments in 20 percent through 50
percent owned affiliated companies 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.
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.
Reclassifications
Certain prior year amounts have been reclassified in order to conform with the
current year presentation.
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. Translation gains and losses are
reported as a component of common shareholders' equity.
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.
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, up to 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 recorded within the accompanying balance sheet and
related to the ESOP is reduced as the principal of the guaranteed ESOP notes is
amortized.
Earnings Per Share
Earnings per common share are computed by dividing the net earnings 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 attributable to common shareholders are adjusted for additional
ESOP contributions which would be required if the ESOP Preferred was converted
to common shares and exclude the tax benefit of deductible common dividends upon
the assumed conversion of the ESOP Preferred.
New Accounting Pronouncements
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. The company
also adopted SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information," and SFAS No. 132, "Employers' Disclosures about Pensions
and Other Postretirement Benefits," in 1998. See the "Business Segment
Information" note for information regarding SFAS No. 131 and the "Pension and
Other Postretirement and Postemployment Benefits" note for information regarding
SFAS No. 132.
During the fourth quarter of 1998, Ball adopted Statement of Position (SOP)
No. 98-5, "Reporting on the Costs of Start-Up Activities," in advance of its
required 1999 implementation date. SOP No. 98-5 requires that costs of start-up
activities and organizational costs, as defined, be expensed as incurred. In
accordance with this statement, the Company recorded an after-tax charge to
earnings of approximately $3.3 million (11 cents per share), retroactive to
January 1, 1998, representing the cumulative effect of this change in accounting
on prior years.
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.
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.
Business Segment Information
The Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information," during the fourth quarter of 1998. SFAS No. 131
establishes standards for reporting information about operating segments in
annual financial statements and requires 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. Ball's operations are organized along its
product lines and include two segments - the packaging segment and the aerospace
and technologies segment.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. Prior year segment information
has been restated to conform to the requirements of SFAS No. 131.
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 consolidated packaging operations are located in and
serve North America (the U.S. and Canada) and Asia, primarily the People's
Republic of China (PRC). Packaging operations in the U.S. have increased as a
result of the August 1998 acquisition of the North American beverage can
manufacturing business of Reynolds Metals Company. Operations in Asia have also
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 both
businesses are included within the packaging segment since their acquisition
dates. 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 "Acquisitions" and
"Headquarters Relocation, Plant Closures, Dispositions and Other Costs" notes
for additional information regarding these and other transactions affecting
segment results.
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 "Headquarters Relocation, Plant
Closures, Dispositions and Other Costs" note for information regarding
transactions affecting segment results.
<PAGE>
<TABLE>
<CAPTION>
Summary of Business by Segment
(dollars in millions) 1998 1997 1996
------------ ----------- -----------
<S> <C> <C> <C>
Net Sales
Packaging $2,533.8 $1,989.8 $1,822.1
Aerospace and technologies 362.6 398.7 362.3
------------ ----------- -----------
Consolidated net sales $2,896.4 $2,388.5 $2,184.4
============ =========== ===========
Earnings before interest and taxes
Packaging $ 164.7 $ 108.3 $ 57.6
Plant closures, dispositions and other costs (1) (56.2) (3.0) (21.0)
------------ ----------- -----------
Total packaging 108.5 105.3 36.6
------------ ----------- -----------
Aerospace and technologies 30.4 34.0 31.4
------------ ----------- -----------
Segment earnings before interest and taxes 138.9 139.3 68.0
Headquarters relocation costs (17.7) -- --
Corporate undistributed expenses, net (15.3) (11.9) (5.1)
Dispositions and other (1) -- 12.0 --
------------ ----------- -----------
Earnings from continuing operations before interest and taxes
105.9 139.4 62.9
Interest expense (78.6) (53.5) (33.3)
Provision for income tax expense (8.8) (32.0) (7.2)
Minority interests 7.9 5.1 0.2
Equity in earnings (losses) of affiliates 5.6 (0.7) (9.5)
------------ ----------- -----------
Consolidated net income from continuing operations
before extraordinary item and accounting change $ 32.0 $ 58.3 $ 13.1
============ =========== ===========
Depreciation and Amortization
Packaging $ 135.4 $ 101.4 $ 78.9
Aerospace and technologies 15.0 14.3 12.5
------------ ----------- -----------
Segment depreciation and amortization 150.4 115.7 91.4
Corporate 4.2 1.8 2.1
------------ ----------- -----------
Consolidated depreciation and amortization $ 154.6 $ 117.5 $ 93.5
============ =========== ===========
Net Investment
Packaging $1,164.3 $ 1,088.5 $ 863.2
Aerospace and technologies 143.5 126.6 99.8
------------ ----------- -----------
Segment net investment 1,307.8 1,215.1 963.0
Corporate net investment and eliminations (685.5) (580.9) (358.6)
------------ ----------- -----------
Consolidated net investment $ 622.3 $ 634.2 $ 604.4
============ =========== ===========
Investments in Equity Affiliates
Packaging $ 80.9 $ 74.5 $ 66.9
Aerospace and technologies -- -- --
------------ ----------- -----------
Segment investments in equity affiliates 80.9 74.5 66.9
Corporate -- -- 14.0
------------ ----------- -----------
Consolidated investments in equity affiliates $ 80.9 $ 74.5 $ 80.9
============ =========== ===========
Property, Plant and Equipment Additions
Packaging $ 63.7 $ 75.7 $ 179.7
Aerospace and technologies 17.2 18.6 15.1
------------ ----------- -----------
Segment property, plant and equipment additions 80.9 94.3 194.8
Corporate 3.3 3.4 1.3
------------ ----------- -----------
Consolidated property, plant and equipment additions $ 84.2 $ 97.7 $ 196.1
============ =========== ===========
</TABLE>
(1) Refer to the "Headquarters Relocation, Plant Closures, Dispositions and
Other Costs" note.
<PAGE>
Financial data segmented by geographic area is provided below.
Summary of Net Sales by Geographic Area
<TABLE>
<CAPTION>
(dollars in millions) U.S. Other (1) Consolidated
------------ ------------ --------------
<S> <C> <C> <C>
1998 $ 2,449.5 $ 446.9 $ 2,896.4
1997 1,888.9 499.6 2,388.5
1996 1,826.3 358.1 2,184.4
</TABLE>
(1) Includes the Company's net sales in the PRC and Canada, intercompany
eliminations and other.
Summary of Long-lived Assets by Geographic Area
<TABLE>
<CAPTION>
(dollars in millions) U.S. PRC Other (1) Consolidated
------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
1998 $ 1,763.2 $ 369.3 $ (163.3) $ 1,969.2
1997 972.4 465.5 (145.9) 1,292.0
1996 792.7 108.6 32.9 934.2
</TABLE>
(1) Includes the Company's long-lived assets in Canada, intercompany
eliminations and other.
Major Customers
Packaging segment sales to PepsiCo, Inc., and affiliates represented
approximately 15 percent of consolidated net sales in 1998 and 12 percent of
consolidated net sales in 1997 and 1996. Sales to Coca-Cola and affiliates
represented 10 percent of consolidated net sales in 1998 and less than 10
percent in 1997 and 1996. Sales to Anheuser-Busch Companies, Inc., represented
less than 10 percent of consolidated net sales in 1998 and 1997 and
approximately 11 percent of consolidated net sales in 1996. Sales to all
bottlers of Pepsi-Cola and Coca-Cola branded beverages comprised approximately
40 percent of consolidated net sales in 1998 and 36 percent of consolidated net
sales in both 1997 and 1996. Sales to various U.S. government agencies by the
aerospace and technologies segment, either as a prime contractor or as a
subcontractor, represented approximately 11 percent, 14 percent and 15 percent
of consolidated net sales in 1998, 1997 and 1996, respectively.
Acquisitions
Metal Beverage Container Manufacturing Business
On August 10, 1998, Ball acquired substantially all the assets and assumed
certain liabilities of the North American beverage can manufacturing business of
Reynolds Metals Company (Acquisition) for approximately $745.4 million costs,
before a refundable incentive loan of $39.0 million, a preliminary working
capital adjustment of an additional $40.1 million and transaction costs. The
acquisition has been accounted for as a purchase, with its results included in
the Company's consolidated financial statements effective with the acquisition.
The assets acquired consisted largely of 16 plants in 12 states and Puerto
Rico, as well as a headquarters facility in Richmond, Virginia. During the
fourth quarter of 1998, the Company closed the Richmond facility and
consolidated the headquarters operations at the Company's offices near Denver,
Colorado. In addition, the Company announced that it intends to close two of the
acquired plants during the first quarter of 1999 and is developing plans for
further integration, including capacity consolidations and other cost saving
measures. As a result, the Company has initially provided $56.8 million in the
opening balance sheet as an estimate of the related costs of integration and
consolidation. Upon finalization of the plan, which is expected within 1999,
adjustments to the estimated costs, if any, will be reflected as a change in
goodwill.
As a part of the acquired asset valuation and purchase price allocation
process, approximately $388.4 million has been preliminarily assigned to
goodwill.
<PAGE>
Following is a summary of the net assets acquired:
(dollars in millions)
Total assets $ 971.8
Less liabilities assumed:
Current liabilities 70.4
Long-term liabilities 115.9
-----------
Net assets acquired 785.5
Incentive loan 39.0
Transaction costs 13.9
-----------
Total consideration $ 838.4
===========
The following unaudited pro forma consolidated results of operations have
been prepared as if the Acquisition had occurred as of January 1, 1997. The pro
forma 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>
Year ended December 31,
-----------------------------
(dollars in millions except per share amounts) 1998 1997
----------- -------------
<S> <C> <C>
Net sales $ 3,667.9 $ 3,581.2
Net income 30.2 45.7
Net earnings attributable to common shareholders 27.4 42.9
Earnings per common share, including accounting change 0.90 1.42
Diluted earnings per share, including accounting change 0.84 1.35
</TABLE>
Pro forma adjustments include increased interest expense related to
incremental borrowings used to finance the Acquisition, the amortization of
goodwill, decreased depreciation expense on plant and equipment based on
extended useful lives partially offset by increased fair values, and the
elimination of the extraordinary loss on early debt extinguishment. Pro forma
results exclude anticipated synergies.
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,
previously held by Lam Soon (Hong Kong) Limited and the general public, for
approximately $179.7 million. M.C. Packaging manufactures 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 purchase price allocation included provisions for
costs incurred in 1997 and 1998 for severance, relocation and other integration
and consolidation activities of approximately $2.0 million. As a part of the
acquired asset valuation and purchase price allocation process, approximately
$132.6 million has been assigned to goodwill.
Following is a summary of the net assets acquired:
(dollars in millions)
Total assets, including cash of $18.8 million $ 470.3
Less liabilities assumed:
Current liabilities (other than debt) 56.9
Total debt 198.0
Other long-term liabilities and minority interests 35.7
-----------
Net assets acquired $ 179.7
===========
<PAGE>
The following unaudited pro forma consolidated results of operations have
been prepared as if the acquisition of M.C. Packaging had occurred as of January
1, 1996. The pro forma results are not necessarily indicative of the actual
results that would have occurred had the acquisition been in effect for the
period presented, nor are they necessarily indicative of the results that may be
obtained in the future:
(dollars in millions except per share amounts) 1996 (2)
--------------
Net sales $ 2,366.4
Net income 1.1
Net loss attributable to common shareholders (1.8)
Loss per common share (1)
(0.06)
(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.
In addition to increased interest expense related to incremental borrowings
used to finance the acquisition and the amortization of goodwill, pro forma
results include preacquisition charges of $6.2 million (20 cents per share),
after taxes and minority interests, in connection with preacquisition inventory,
accounts receivable and other items which management believed were at abnormally
high levels not anticipated in the future.
During 1998, FTB Packaging purchased substantially all of the remaining
direct and indirect minority interests in M.C. Packaging.
PET Container Assets
In the third quarter of 1997, the Company acquired certain PET container assets
for approximately $42.7 million from Brunswick Container Corporation, 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 "Headquarters Relocation, Plant Closures, Dispositions and
Other Costs" note for additional information regarding these plant closures.
Headquarters Relocation, Plant Closures, Dispositions and Other Costs
The following table summarizes the transaction gains and losses in connection
with the headquarters relocation, plant closures, dispositions and other charges
included in the consolidated statement of income.
(dollars in millions except per share amounts) Pretax Gain (Loss)
------------------------
1998
Headquarters relocation $(17.7)
Plant closings and other costs (56.2)
---------------
$(73.9)
===============
1997
Sale of investment in Datum $ 11.7
Plant closing (3.0)
Disposition and write-down of equity investments 0.3
---------------
$ 9.0
===============
1996
Sale of U.S. aerosol business $ (3.3)
Plant closings and other (17.7)
---------------
$(21.0)
===============
<PAGE>
1998
In February 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 recorded a charge in 1998 of $17.7
million ($10.8 million after tax or 36 cents per share), primarily for
employee-related costs which were substantially paid by the end of the year.
In December 1998, the Company announced its intention to close, in the
early part of 1999, two of its plants located in the PRC and remove from service
manufacturing equipment at a third plant. The actions are being taken to address
current industry over capacity and uncertainty in the Asian financial markets
which has resulted in a decrease in exports of Company products from Hong Kong
to other Asian countries.
The Company's preliminary estimates include a $52.0 million largely
non-cash charge to write down equipment, goodwill and other assets to net
realizable values and $4.2 million of other costs. Fair value of the assets was
determined based on management estimates. Further adjustments, if any, to the
preliminary estimates will be reflected as an adjustment to current period
earnings. The total after-tax effect of the estimated plant closings and other
costs was a loss of $31.4 million ($1.03 per share).
1997
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. 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.
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 and 1996.
The net after-tax effect of the 1997 transactions was a gain of $5.0
million (16 cents per share).
1996
In the fourth quarter of 1996, Ball sold its U.S. aerosol container
manufacturing business, with net assets of approximately $47.6 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.
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 have been completed.
In 1994, the Company formed EarthWatch, Incorporated (EarthWatch), which 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. During 1996, EarthWatch was reincorporated in Delaware as EarthWatch
Incorporated (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 through
1998. Ball has no commitments to provide further equity or debt financing to
EarthWatch beyond its investment to date, but continues to assess its options
with respect to EarthWatch. Ball Aerospace & Technologies Corp. has agreed to
produce satellites and instruments for EarthWatch.
The after-tax effect of the 1996 transactions was a loss of $24.7 million
(82 cents per share).
Discontinued Operations
In September 1995, the Company sold substantially all of the assets of Ball
Glass Container Corporation, 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. The net income attributable to
the business was reported as discontinued operations in 1996 and included
interest expense of $5.5 million. With the October 1996 sale, Ball no longer
participates in the glass packaging business.
Accounts Receivable
Accounts receivable are net of an allowance for doubtful accounts of $15.7
million and $12.2 million at December 31, 1998 and 1997, respectively.
Sale of Trade Accounts Receivable
A receivables sales agreement provides for the ongoing, revolving sale of a
designated pool of trade accounts receivable of Ball's U.S. packaging
businesses. In December 1998, the designated pool of receivables was increased
to provide for sales of up to $125 million from the previous amount of $75
million. Net funds received from the sale of the accounts receivable totaled
$122.5 million and $65.9 million at December 31, 1998 and 1997, respectively.
Fees incurred in connection with the sale of accounts receivable, which are
included in selling and administrative expenses, totaled $4.0 million in each of
1998 and 1997 and $3.7 million in 1996.
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 $76.1 million and $63.7 million at December 31,
1998 and 1997, respectively, and include unbilled amounts representing revenue
earned but not yet billable of $44.2 million and $28.0 million, respectively.
Approximately $10 million of unbilled receivables at December 31, 1998, is
expected to be collected after one year.
Inventories
Inventories at December 31 consisted of the following:
(dollars in millions) 1998 1997
------------- -------------
Raw materials and supplies $131.2 $184.9
Work in process and finished goods 352.6 228.4
============= =============
$483.8 $413.3
============= =============
Approximately 39 percent and 37 percent of total inventories at December
31, 1998 and 1997, respectively, were valued using LIFO accounting. Inventories
at December 31, 1998 and 1997, would have been $2.6 million and $9.9 million
higher, respectively, than the reported amounts if the FIFO method, which
approximates replacement cost, had been used for all inventories.
Property, Plant and Equipment
Property, plant and equipment at December 31 consisted of the following:
(dollars in millions) 1998 1997
------------ -------------
Land $ 62.2 $ 42.5
Buildings 410.5 330.5
Machinery and equipment 1,410.2 1,183.1
------------ -------------
1,882.9 1,556.1
Accumulated depreciation (708.5) (636.6)
------------ -------------
$ 1,174.4 $ 919.5
============ =============
<PAGE>
Goodwill and Other Assets
The composition of other assets at December 31 was as follows:
(dollars in millions) 1998 1997
------------ -------------
Goodwill (1) $ 555.9 $ 194.8
Investments in affiliates 80.9 74.5
Other 158.0 103.2
------------ -------------
$ 794.8 $ 372.5
============ =============
(1) Goodwill is net of accumulated amortization of $28.9 million and $20.6
million at December 31, 1998 and 1997, respectively.
Company-Owned Life Insurance
The Company has purchased insurance on the lives of certain employees. Premiums
were approximately $6 million in each of three years ended December 31, 1998,
1997 and 1996. Amounts in the consolidated statement of cash flows represent net
cash flows from this program, including policy loans of approximately $11
million in 1998 and $10 million in each of 1997 and 1996 and partial withdrawals
of approximately $9 million in 1998 and $22 million in 1997.
Debt and Interest Costs
Short-term debt at December 31 consisted of the following:
<TABLE>
<CAPTION>
1998 1997
---------------------------------- -----------------------------------
Weighted Weighted
Average Average
(dollars in millions) Outstanding Rate Outstanding Rate
----------------- ------------- ----------------- --------------
<S> <C> <C> <C> <C>
U.S. bank facilities $ -- -- $ 85.5 5.8%
Canadian dollar commercial paper -- -- 40.9 3.4%
Asian bank facilities (1) 70.6 7.4% 181.9 7.0%
----------------- -----------------
$ 70.6 $308.3
================= =================
</TABLE>
(1) Facilities for FTB Packaging and affiliates in U.S. and Asian currencies.
Borrowings are without recourse to Ball Corporation.
<PAGE>
<TABLE>
<CAPTION>
Long-term debt at December 31 consisted of the following:
(dollars in millions) 1998 1997
---------- ----------
<S> <C> <C>
Notes Payable
7.75% Senior Notes due August 2006 $ 300.0 $ --
8.25% Senior Subordinated Notes due August 2008 250.0 --
Senior Credit Facility:
Term Loan A (7.188% at year end) due August 2004 350.0 --
Term Loan B (7.563% at year end) due March 2006 200.0 --
Revolving credit facility (7.188% weighted average at year end) 80.0 --
Private placements:
6.29% to 6.82% serial installment notes (6.71% weighted average in 1997) due
through 2008 -- 147.1
8.09% to 8.75% serial installment notes (8.54% weighted average in 1997) due
through 2012 -- 90.6
8.20% to 8.57% serial notes (8.36% weighted average in 1997)
due 1999 through 2000 -- 60.0
10.00% serial note due 1998 -- 20.0
Floating rate notes (6.25% to 7.56% at year end 1998) due through 2002 (1) 48.2 75.1
Industrial Development Revenue Bonds
Floating rates (4.1% to 4.3% at year end 1998) due through 2011 27.1 31.5
ESOP Debt Guarantee
9.23% installment notes due through 1999 (8.38% in 1997) 4.4 11.9
9.60% installment note due 1999 through 2001 (8.75% in 1997) 25.1 25.1
Other 1.2 3.5
---------- ----------
1,286.0 464.8
Less: Current portion of long-term debt 56.2 98.7
---------- ----------
$1,229.8 $ 366.1
========== ==========
</TABLE>
(1) U.S. dollar denominated notes issued by FTB Packaging and subsidiaries.
In connection with the Acquisition in 1998, the Company refinanced
approximately $521.9 million of its existing debt and, as a result, recorded an
after-tax extraordinary charge from the early extinguishment of debt of
approximately $12.1 million (40 cents per share). 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. The Senior Subordinated Notes,
which are due August 1, 2008, also are unsecured, rank subordinate to existing
and future senior debt of the Company and are guaranteed by certain of the
Company's domestic subsidiaries.
The Company offered to exchange the Senior Notes and Senior Subordinated
Notes. The offer expired on January 27, 1999, at which time all of the notes had
been exchanged. The terms of the new notes are substantially identical in all
respects (including principal amount, interest rate, maturity, ranking and
covenant restrictions) to the terms of the notes for which they were exchanged
except that the new notes are registered under the Securities Act of 1933, as
amended, and therefore are not subject to certain restrictions on transfer
except as described in the Prospectus for the Exchange Offer. The note
agreements provide that if the new 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 (Term Loan A)
provided the Company with $350.0 million and matures in August 2004. The second
term loan (Term Loan B) provided the Company with $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 participating lenders. The remainder matures in August 2004.
The Senior Credit Facility bears interest at variable rates, is guaranteed by
certain of the Company's domestic subsidiaries, and contains certain covenants
and restrictions including, among other things, restrictions on the incurrence
of additional indebtedness and the payment of dividends. Ball pays a facility
fee on the committed facilities. In addition, all amounts outstanding under the
Senior Credit Facility are secured by (1) a pledge of 100 percent of the stock
owned by the Company of its direct and indirect majority-owned domestic
subsidiaries and (2) a pledge of 65 percent of the stock owned by the Company of
certain foreign subsidiaries.
In Asia, FTB Packaging, including M.C. Packaging, had short-term
uncommitted credit facilities of approximately $198 million, of which $70.6
million was outstanding at December 31, 1998.
Fixed-term debt in the PRC at year end 1998 included approximately $48.2
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, 1998, are $56.2 million, $61.0 million, $73.4 million, $70.6 million and
$87.0 million for the years ending December 31, 1999 through 2003, respectively,
and $937.8 million thereafter.
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 $14.2 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 $70.8 million
were outstanding at December 31, 1998. Ball also has provided a completion
guarantee representing 50 percent of the $50.8 million of debt issued by the
Company's Brazilian joint venture to fund the construction of facilities. ESOP
debt represents borrowings by the trust for the Ball-sponsored ESOP which 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.
The Company was not in default of any loan agreement at December 31, 1998,
and has met all payment obligations. However, Latapack-Ball Embalagens Ltda.
(Latapack-Ball), the Company's 50 percent owned equity affiliate in Brazil, was
in noncompliance with certain financial ratio provisions, including current
ratio, under a fixed term loan agreement of which $50.8 million was outstanding
at year end. Latapack-Ball has requested a waiver from the lender in respect of
the noncompliance.
<TABLE>
<CAPTION>
A summary of total interest cost paid and accrued follows:
(dollars in millions) 1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Interest costs $ 80.9 $ 57.9 $ 39.9
Amounts capitalized (2.3) (4.4) (6.6)
------------- ------------- -------------
Interest expense $ 78.6 $ 53.5 $ 33.3
============= ============= =============
Interest paid during the year (1) $ 63.3 $ 53.9 $ 37.3
============= ============= =============
</TABLE>
(1) Includes $5.5 million for 1996 allocated to discontinued operations.
Subsidiary Guarantees of Debt
The Senior Notes and the Senior Subordinated Notes issued in conjunction with
the Reynolds acquisition 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 December 31, 1998 and 1997 and for the years ended
December 31, 1998, 1997 and 1996 (in millions of dollars).
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
-----------------------------------------------------------------------------
December 31, 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 $ 11.6 $ 0.5 $ 21.9 $ - $ 34.0
Accounts receivable, net 3.5 194.1 75.9 - 273.5
Inventories, net - 382.5 101.3 - 483.8
Deferred income tax benefits and
prepaid expenses (2.0) 76.9 19.4 - 94.3
-------------- ------------- ---------------- ------------- --------------
Total current assets 13.1 654.0 218.5 - 885.6
-------------- ------------- ---------------- ------------- --------------
Property, plant and equipment, at cost 35.5 1,471.5 375.9 - 1,882.9
Accumulated depreciation (19.8) (606.0) (82.7) - (708.5)
-------------- ------------- ---------------- ------------- --------------
15.7 865.5 293.2 - 1,174.4
-------------- ------------- ---------------- ------------- --------------
Investment in subsidiaries 1,241.2 0.7 4.8 (1,246.7) -
Investment in affiliates 5.8 2.2 72.9 - 80.9
Goodwill, net - 431.1 124.8 - 555.9
Other assets 97.1 42.5 18.4 - 158.0
-------------- ------------- ---------------- ------------- --------------
$ 1,372.9 $ 1,996.0 $ 732.6 $ (1,246.7) $ 2,854.8
============== ============= ================ ============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt and current portion
of long-term debt $ 31.1 $ - $ 95.7 $ - $ 126.8
Accounts payable 48.3 251.2 50.8 - 350.3
Salaries and wages 14.1 75.1 7.9 - 97.1
Other current liabilities (50.7) 121.7 42.4 - 113.4
-------------- ------------- ---------------- ------------- --------------
Total current liabilities 42.8 448.0 196.8 - 687.6
-------------- ------------- ---------------- ------------- --------------
Long-term debt 1,195.4 10.5 23.9 - 1,229.8
Intercompany borrowings (596.6) 477.3 119.3 - -
Employee benefit obligations, deferred
income taxes and other 109.0 126.5 55.2 - 290.7
-------------- ------------- ---------------- ------------- --------------
Total noncurrent liabilities 707.8 614.3 198.4 - 1,520.5
-------------- ------------- ---------------- ------------- --------------
Contingencies
Minority interests - - 24.4 - 24.4
-------------- ------------- ---------------- ------------- --------------
Shareholders' equity
Series B ESOP Convertible Preferred
Stock 57.2 - - - 57.2
Convertible preferred stock - - 174.6 (174.6) -
Unearned compensation - ESOP (29.5) - - - (29.5)
-------------- ------------- ---------------- ------------- --------------
Preferred shareholders' equity 27.7 - 174.6 (174.6) 27.7
-------------- ------------- ---------------- ------------- --------------
Common stock (34,859,636 shares
issued) 368.4 821.7 187.9 (1,009.6) 368.4
Retained earnings 397.9 114.3 (24.5) (89.8) 397.9
Accumulated other comprehensive loss (31.7) (2.3) (25.0) 27.3 (31.7)
Treasury stock, at cost (4,404,758
shares) (140.0) - - - (140.0)
-------------- ------------- ---------------- ------------- --------------
Common shareholders' equity 594.6 933.7 138.4 (1,072.1) 594.6
-------------- ------------- ---------------- ------------- --------------
Total shareholders' equity 622.3 933.7 313.0 (1,246.7) 622.3
-------------- ------------- ---------------- ------------- --------------
$ 1,372.9 $ 1,996.0 $ 732.6 $ (1,246.7) $ 2,854.8
============== ============= ================ ============= ==============
</TABLE>
<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 - 274.6 138.7 - 413.3
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
------------- -------------- ---------------- -------------- --------------
Long-term debt 46.5 294.1 25.5 - 366.1
Intercompany borrowings 302.7 (364.2) 61.5 - -
Employee benefit obligations, deferred
income taxes and other 91.6 52.4 56.3 - 200.3
------------- -------------- ---------------- -------------- --------------
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>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME
-----------------------------------------------------------------------------
For the Year Ended December 31, 1998
-----------------------------------------------------------------------------
Ball Guarantor Non-Guarantor Eliminating Consolidated
Corporation Subsidiaries Subsidiaries Adjustments Total
------------- -------------- ---------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Net sales $ - $ 2,685.6 $ 451.1 $ (240.3) $ 2,896.4
Costs and expenses
Cost of sales (excluding
depreciation and amortization) - 2,287.4 378.4 (240.3) 2,425.5
Selling and administrative expenses 14.3 92.9 29.3 - 136.5
Depreciation and amortization 4.2 118.2 32.2 - 154.6
Relocation, plant closures and other
costs 17.7 - 56.2 - 73.9
Interest expense 52.7 8.3 17.6 - 78.6
Equity in earnings of subsidiaries (15.1) - - 15.1 -
Corporate allocations (45.3) 45.3 - - -
------------- -------------- ---------------- -------------- --------------
28.5 2,552.1 513.7 (225.2) 2,869.1
------------- -------------- ---------------- -------------- --------------
Income (loss) before taxes on income (28.5) 133.5 (62.6) (15.1) 27.3
Provision for taxes on income 47.0 (47.9) (7.9) - (8.8)
Minority interests - - 7.9 - 7.9
Equity in earnings (losses) of
affiliates (0.7) - 6.3 - 5.6
------------- -------------- ---------------- -------------- --------------
Net income (loss) before extraordinary
item and accounting change 17.8 85.6 (56.3) (15.1) 32.0
Extraordinary loss from early debt
extinguishment, net of tax benefit (1.2) (10.9) - - (12.1)
Cumulative effect of change in
accounting, net of tax benefit - (1.8) (1.5) - (3.3)
------------- -------------- ---------------- -------------- --------------
Net income (loss) 16.6 72.9 (57.8) (15.1) 16.6
Preferred dividends, net of tax benefit (2.8) - - - (2.8)
------------- -------------- ---------------- -------------- --------------
Earnings (loss) attributable to common
shareholders $ 13.8 $ 72.9 $ (57.8) $ (15.1) $ 13.8
============= ============== ================ ============== ==============
</TABLE>
<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 (excluding
depreciation and amortization) - 1,866.6 420.4 (271.4) 2,015.6
Selling and administrative expenses 0.2 97.4 27.4 - 125.0
Depreciation and amortization 1.2 86.3 30.0 - 117.5
Net gain on dispositions 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 (loss) before taxes on income 50.2 95.4 3.1 (62.8) 85.9
Provision for taxes on income 7.9 (31.5) (8.4) - (32.0)
Minority interests - - 5.1 - 5.1
Equity in earnings (losses) of
affiliates 0.2 1.3 (2.2) - (0.7)
------------- -------------- ---------------- -------------- --------------
Net income (loss) 58.3 65.2 (2.4) (62.8) 58.3
Preferred dividends, net of tax benefit (2.8) - - - (2.8)
------------- -------------- ---------------- -------------- --------------
Earnings (loss) attributable to common
shareholders $ 55.5 $ 65.2 $ (2.4) $ (62.8) $ 55.5
============= ============== ================ ============== ==============
</TABLE>
<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 (excluding
depreciation and amortization) - 1,903.3 321.6 (298.9) 1,926.0
Selling and administrative expenses (12.1) 84.1 9.0 - 81.0
Depreciation and amortization 5.3 75.5 12.7 - 93.5
Net gain on dispositions 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 (loss) before taxes on income 10.1 17.8 7.6 (5.9) 29.6
Provision for taxes on income 3.0 (5.4) (4.8) - (7.2)
Minority interests - - 0.2 - 0.2
Equity in earnings (losses) of
affiliates - (11.8) 2.3 - (9.5)
------------- -------------- ---------------- -------------- --------------
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)
------------- -------------- ---------------- -------------- --------------
Earnings (loss) attributable to common
shareholders $ 21.3 $ 12.8 $ 5.3 $ (18.1) $ 21.3
============= ============== ================ ============== ==============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
-----------------------------------------------------------------------------
For the Year Ended December 31, 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) $ 16.6 $ 72.9 $ (57.8) $ (15.1) $ 16.6
Reconciliation of net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization 4.2 118.2 32.2 - 154.6
Relocation and plant closure and
related costs 4.7 - 56.2 - 60.9
Extraordinary loss from early debt
extinguishment 2.0 17.9 - - 19.9
Equity earnings of subsidiaries (15.1) - - 15.1 -
Other, net (18.6) 7.0 (12.8) - (24.4)
Changes in working capital
components, excluding effect of
acquisitions 25.0 119.6 14.9 - 159.5
------------- -------------- ---------------- -------------- --------------
Net cash provided by (used in)
operating activities 18.8 335.6 32.7 - 387.1
------------- -------------- ---------------- -------------- --------------
Cash flows from investing activities
Additions to property, plant and
equipment (3.3) (68.7) (12.2) - (84.2)
Acquisitions, net of cash acquired (15.5) (822.9) - - (838.4)
Investments in and advances to
affiliates, net (948.2) 895.3 50.7 - (2.2)
Intercompany capital contributions
and transactions (75.5) - 75.5 - -
Other, net (5.0) 2.7 12.0 - 9.7
------------- -------------- ---------------- -------------- --------------
Net cash provided by (used in)
investing activities (1,047.5) 6.4 126.0 - (915.1)
------------- -------------- ---------------- -------------- --------------
Cash flows from financing activities
Increase in long-term borrowings 1,310.0 0.4 - 1,310.4
Principal payments on long-term
borrowings (130.3) (323.2) (34.3) - (487.8)
Debt issuance costs (28.9) - - (28.9)
Debt prepayment costs - (17.5) - (17.5)
Net change in short-term debt (85.5) - (117.8) - (203.3)
Common and preferred dividends (22.7) - - - (22.7)
Net proceeds from issuance of common
stock under various employee and
shareholder plans 31.5 - - - 31.5
Acquisitions of treasury stock (34.9) - - - (34.9)
Other, net (3.1) (1.7) (5.5) - (10.3)
------------- -------------- ---------------- -------------- --------------
Net cash provided by (used in)
financing activities 1,036.1 (342.0) (157.6) - 536.5
------------- -------------- ---------------- -------------- --------------
Net increase (decrease) in cash 7.4 - 1.1 - 8.5
Cash and temporary investments:
Beginning of period 4.2 0.5 20.8 - 25.5
------------- -------------- ---------------- -------------- --------------
End of period $ 11.6 $ 0.5 $ 21.9 $ - $ 34.0
============= ============== ================ ============== ==============
</TABLE>
<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) $ 58.3 $ 65.2 $ (2.4) $ (62.8) $ 58.3
Reconciliation of net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization 1.2 86.3 30.0 - 117.5
Dispositions and other 4.1 (13.1) - - (9.0)
Equity earnings of subsidiaries (62.8) - - 62.8 -
Other, net (0.7) 19.0 1.0 - 19.3
Changes in working capital
components, excluding effect of
acquisitions 20.3 (60.2) (2.7) - (42.6)
------------- -------------- ---------------- -------------- --------------
Net cash provided by (used in)
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)
Investments in and advances to
affiliates, net 0.7 - (11.9) - (11.2)
Intercompany capital contributions
and transactions (252.4) 37.2 215.2 - -
Proceeds from sale of other
businesses, net - 31.1 - - 31.1
Other, net 27.8 (10.7) 12.5 - 29.6
------------- -------------- ---------------- -------------- --------------
Net cash provided by (used in)
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)
Net 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, net (1.0) (0.1) 0.6 - (0.5)
------------- -------------- ---------------- -------------- --------------
Net cash provided by (used in)
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>
<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 $ 13.1 $ 0.6 $ 5.3 $ (5.9) $ 13.1
operations
Reconciliation of net income (loss)
to net cash 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
Equity earnings of subsidiaries (5.9) - - 5.9 -
Other, net 14.0 (0.9) 0.9 - 14.0
Changes in working capital
components, excluding effect of
acquisitions (5.4) (38.6) (13.3) - (57.3)
------------- -------------- ---------------- -------------- --------------
Net cash provided by (used in)
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)
Investments 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 - -
Net cash flows from discontinued
operations - 188.1 - - 188.1
Proceeds from sale of other
businesses, net - 41.3 - - 41.3
Other, net (10.4) (4.6) (9.0) - (24.0)
------------- -------------- ---------------- -------------- --------------
Net cash provided by (used in)
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)
Net 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, net (3.3) (0.7) - - (4.0)
------------- -------------- ---------------- -------------- --------------
Net cash provided by (used in)
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>
<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,
collars and options to manage the Company's mix of floating and fixed-rate debt
between a minimum and maximum percentage, which is set by policy. The Company's
objective in managing its exposure to foreign currency fluctuations is to
protect foreign cash flow and reduce earnings volatility associated with foreign
exchange rate changes.
Unrealized losses on forward contracts under these agreements are recorded
in the balance sheet as other current liabilities. Realized gains/losses from
hedges are classified in the income statement consistent with accounting
treatment of the item being hedged. The Company accrues the differential for
interest rate swaps to be paid or received under these agreements as adjustments
to interest expense over the lives of the swaps. Gains and losses upon the early
termination of swap agreements are deferred in long-term liabilities and
amortized as an adjustment to interest expense over the remaining term of the
agreement.
Interest Rate Risk
Interest rate instruments held by the Company at December 31, 1998 and 1997,
included pay-floating, pay-fixed interest rate swaps, interest rate collars and
swaption 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. Swap agreements expire in
one to eight years.
Interest rate swap agreements outstanding at December 31, 1998, had
notional amounts of $10 million at a floating rate and $528 million at a fixed
rate, or a net fixed position of $518 million. At December 31, 1997, these
agreements 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. Floating
rate agreements with notional amounts of $55 million at December 31, 1997,
included an interest rate floor. The Company also entered into an interest rate
collar agreement in 1998 with a notional amount of $100 million.
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 termination of the contracts at December 31, 1998 and
1997, taking into account any unrealized gains and losses on open contracts.
<TABLE>
<CAPTION>
1998 1997
------------------------ -----------------------
Carrying Fair Carrying Fair
(dollars in millions) Amount Value Amount Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Long-term debt $1,286.0 $1,280.1 $ 464.8 $484.2
Unrealized net loss on derivative
contracts relating to debt -- 1.5 -- 1.2
</TABLE>
Exchange Rate Risk
The Company's foreign currency risk exposure results from fluctuating currency
exchange rates, primarily the strengthening of the U.S. dollar against the Hong
Kong dollar, Canadian dollar, Chinese renminbi, Thai baht and Brazilian real.
The Company faces currency exposure that arises from translating the results of
its global operations and maintaining U.S. dollar debt and payables. The Company
uses forward contracts to manage its foreign currency exposures and, as a
result, gains and losses on these derivative positions offset, in part, the
impact of currency fluctuations on the existing assets and liabilities. At
December 31, 1998, the notional amount of the Company's foreign exchange risk
management contracts, net of notional amounts of contracts with counterparties
against which the Company has the legal right of offset, was $100 million. The
fair value of these contracts as of December 31, 1998 was $(4.5) million.
In January 1999, the Brazilian government changed its monetary policy,
causing the Brazilian real to devalue. At that time, the Company did not expect
that the after-tax effect of the currency devaluation would have a significant
impact on the Company's consolidated earnings. However, the Brazilian real
continues to be volatile and actual results may differ based on future events.
In early July 1997, the government of Thailand changed its monetary policy
to no longer peg the Thai baht to the U.S. dollar. As a result, the Company
recorded a loss of $3.2 million, or 11 cents per share, 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.
Leases
The Company leases warehousing and manufacturing space and certain manufacturing
equipment, primarily within the packaging segment, and office space, primarily
within the aerospace and technologies segment. 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
facilities and 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.
Total noncancellable operating leases in effect at December 31, 1998, require
rental payments of $34.1 million, $28.4 million, $20.6 million, $5.5 million and
$2.3 million for the years 1999 through 2003, respectively, and $9.0 million for
all years thereafter. Lease expense for all operating leases was $38.5 million,
$34.7 million and $28.9 million in 1998, 1997 and 1996, respectively.
Taxes on Income
The amounts of income (losses) from continuing operations before income taxes by
national jurisdiction follow:
<TABLE>
<CAPTION>
(dollars in millions) 1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
U.S. $ 89.6 $ 82.4 $ 17.9
Foreign (62.3) 3.5 11.7
------------- ------------- -------------
$ 27.3 $ 85.9 $ 29.6
============= ============= =============
</TABLE>
The provision for income tax expense (benefit) for continuing operations was as
follows:
<TABLE>
<CAPTION>
(dollars in millions) 1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Current
U.S. $ 7.6 $ 9.3 $ (7.2)
State and local 2.8 2.2 --
Foreign 6.0 3.4 2.0
------------- ------------- -------------
Total current 16.4 14.9 (5.2)
------------- ------------- -------------
Deferred
U.S. (8.1) 10.6 8.4
State and local (1.6) 2.2 1.3
Foreign 2.1 4.3 2.7
------------- ------------- -------------
Total deferred (7.6) 17.1 12.4
------------- ------------- -------------
Provision for income tax expense $ 8.8 $ 32.0 $ 7.2
============= ============= =============
</TABLE>
The provision for income tax expense recorded within the consolidated
statement of income 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) 1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Statutory U.S. federal income tax $ 9.6 $ 30.1 $ 10.3
Increase (decrease) due to:
Company-owned life insurance (5.2) (6.2) (6.0)
Research and development tax credits (2.9) (2.5) (6.0)
Tax effects of foreign operations 9.4 8.0 4.7
Basis difference on sale of assets -- 0.4 2.1
State and local income taxes, net 0.8 2.9 0.9
Other, net (2.9) (0.7) 1.2
------------- ------------- -------------
Provision for income tax expense $ 8.8 $ 32.0 $ 7.2
============= ============= =============
Effective income tax rate expressed as a percentage
of pretax income from continuing operations 32.2% 37.2% 24.3%
============= ============= =============
</TABLE>
<PAGE>
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 1998 and
1997, the Company settled tax credit matters for years 1991 through 1995, and
recorded additional credits.
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.
The significant components of deferred tax assets and liabilities at
December 31 were:
(dollars in millions) 1998 1997
------------- -------------
Deferred tax assets:
Deferred compensation $ (23.7) $ (21.8)
Accrued employee benefits (58.0) (34.8)
Plant closure costs (37.6) (7.8)
Other (58.0) (37.4)
------------- -------------
Total deferred tax assets (177.3) (101.8)
------------- -------------
Deferred tax liabilities:
Depreciation 114.9 99.8
Other 20.6 27.3
------------- -------------
Total deferred tax liabilities 135.5 127.1
------------- -------------
Net deferred tax (asset) liability $ (41.8) $ 25.3
============= =============
Net income tax payments were $20.5 million and $4.2 million for 1998 and
1997, respectively. In 1996, net income taxes refunded were $14.2 million.
Pension and Other Postretirement and Postemployment 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.
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.
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.
<PAGE>
An analysis of the change in benefit accruals for 1998 and 1997 follows:
<TABLE>
<CAPTION>
Other Postretirement
Pension Benefits Benefits
----------------------------- ---------------------------
(dollars in millions) 1998 1997 1998 1997
------------ ------------ ----------- -----------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $ 336.6 $ 308.7 $ 60.4 $ 57.9
Service cost 10.5 8.3 1.0 0.5
Interest cost 26.1 24.1 4.9 4.4
Benefits paid (20.8) (19.9) (3.0) (3.9)
Net actuarial loss (gain) 29.1 16.3 (1.9) 2.1
Business combinations or acquisitions 42.7 -- 31.4 --
Other, net (2.1) (0.9) (1.1) (0.6)
------------ ------------ ----------- -----------
Benefit obligation at end of year 422.1 336.6 91.7 60.4
------------ ------------ ----------- -----------
Change in plan assets:
Fair value of assets at beginning of year 364.3 318.5 -- --
Actual return on plan assets 51.6 61.7 -- --
Employer contributions 13.7 6.6 2.9 3.8
Benefits paid (20.8) (19.9) (3.0) (3.9)
Business combinations or acquisitions 14.6 -- -- --
Other, net (4.2) (2.6) 0.1 0.1
------------ ------------ ----------- -----------
Fair value of assets at end of year 419.2 364.3 -- --
------------ ------------ ----------- -----------
Funded status (2.9) 27.7 (91.7) (60.4)
Unrecognized net actuarial loss (gain) 18.0 6.9 (2.8) (0.8)
Unrecognized prior service cost 8.3 7.1 0.7 0.7
Unrecognized transition asset (6.7) (10.0) -- --
------------ ------------ ----------- -----------
Prepaid (accrued) benefit cost $ 16.7 $ 31.7 $ (93.8) $ (60.5)
============ ============ =========== ===========
Amounts recognized in the balance sheet consist of:
Pension Benefits Other Benefits
----------------------------- ---------------------------
(dollars in millions) 1998 1997 1998 1997
------------ ------------ ----------- -----------
Prepaid benefit cost $ 46.4 $ 37.4 $ -- $ --
Accrued benefit liability (40.8) (10.6) (93.8) (60.5)
Intangible asset 6.6 2.0 -- --
Accumulated other comprehensive income 4.5 2.9 -- --
------------ ------------ ----------- -----------
Net amount recognized $ 16.7 $ 31.7 $ (93.8) $ (60.5)
============ ============ =========== ============
</TABLE>
Components of net periodic benefit cost were:
<TABLE>
<CAPTION>
Pension Benefits Other Postretirement Benefits
---------------------------------- ----------------------------------
(dollars in millions) 1998 1997 1996 1998 1997 1996
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Service Cost $ 10.5 $ 8.3 $ 7.9 $ 1.0 $ 0.5 $ 0.8
Interest Cost 26.1 24.1 27.4 4.9 4.4 4.9
Expected return on plan assets (35.5) (32.4) (33.5) -- -- --
Amortization of prior service cost 1.1 0.9 0.8 -- -- --
Amortization of transition asset (3.2) (3.2) (3.2) -- -- --
Recognized net actuarial loss (gain) 1.3 0.8 2.2 (0.3) (0.1) (0.1)
---------- ---------- ---------- ---------- ---------- ----------
Net periodic benefit cost 0.3 (1.5) 1.6 5.6 4.8 5.6
Expense of defined contribution plans 0.6 0.6 0.7 -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Net periodic benefit cost $ 0.9 $ (0.9) $ 2.3 $ 5.6 $ 4.8 $ 5.6
========== ========== ========== ========== ========== ==========
</TABLE>
<PAGE>
Weighted-average assumptions at December 31 were:
<TABLE>
<CAPTION>
Pension Benefits Other Postretirement Benefits
---------------------------------- ----------------------------------
1998 1997 1996 1998 1997 1996
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Discount rate 7.00% 7.50% 8.05% 7.00% 7.50% 8.07%
Rate of compensation increase 3.33% 4.00% 4.00% N/A N/A N/A
Expected long-term rates of return on
assets 10.79% 10.79% 10.75% N/A N/A N/A
</TABLE>
For measurement purposes at December 31, 1998, the U.S. and Canadian plans
utilized net health trend rates of 7 percent and 8.5 percent, respectively, for
pre-65 benefits and 6.7 percent and 8.5 percent, respectively, for post-65
benefits for 1999. Trend rates for U.S. plans were assumed to decrease to 4.5
percent by 2001 for pre-65 benefits and by 2003 for post-65 benefits and remain
at this level in subsequent years. Trend rates for Canadian plans for pre-65 and
post-65 benefits were assumed to decrease to 3.5 percent by 2004 and remain at
this level in subsequent years.
For pension plans, the net actuarial loss (gain) in excess of a 10 percent
corridor, the prior service cost and the transition asset are being amortized on
a straight-line basis from the date recognized over the average remaining
service period of active participants at the date established on a straight-line
basis. For other postretirement benefits, the 10 percent corridor on actuarial
gains and losses is not used and the amortization of gains and losses is over 10
years.
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were $133.3 million, $132.0 million and $92.1 million,
respectively, as of December 31, 1998.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plan. A one percentage point change in
assumed health care cost trend rates would increase or decrease the total of
service and interest cost by approximately $0.2 million and the postretirement
benefit obligation by approximately $2.0 million.
The additional minimum liability, less related intangible asset, was
recognized net of tax benefits as a component of shareholders' equity within
accumulated other comprehensive loss.
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.
Other Benefit Plans
Effective January 1, 1996, substantially all employees within the Company's
aerospace and technologies segment 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 $1.6 million, $4.1 million and $3.5
million in compensation expense in 1998, 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 through an
employer matching contribution. Cash contributions to the ESOP trust, including
preferred dividends, are used to service the ESOP debt and were $10.7 million in
1998 and $10.6 million in each of 1997 and 1996. Interest paid by the ESOP trust
for its borrowings was $3.3 million, $3.6 million and $4.2 million for 1998,
1997 and 1996, respectively.
Shareholders' Equity
At December 31, 1998, 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.
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, 1998, 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 toward the purchase of the Company's common stock. Company
contributions for this plan were approximately $1.6 million in 1998, $1.5
million in 1997 and $1.6 million in 1996.
Accumulated Other Comprehensive Loss
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income," 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 other 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 balance sheet. The composition of accumulated other
comprehensive loss is as follows:
(dollars in millions)
Accumulated
Foreign Minimum Other
Currency Pension Comprehensive
Translation Liability Loss
-------------- ------------ -----------------
December 31, 1995 $ (17.8) $ (7.8) $ (25.6)
1996 Change (0.5) 5.4 4.9
-------------- ------------- -----------------
December 31, 1996 (18.3) (2.4) (20.7)
1997 Change (2.6) 0.5 (2.1)
-------------- ------------- -----------------
December 31, 1997 (20.9) (1.9) (22.8)
1998 Change (7.7) (1.2) (8.9)
-------------- ------------- -----------------
December 31, 1998 $ (28.6) $ (3.1) $ (31.7)
============== ============= =================
The minimum pension liability component of other comprehensive income
(loss) is presented net of related tax expense (benefit) of $(0.4) million, $0.4
million and $3.6 million for the years ended December 31, 1998, 1997 and 1996,
respectively. No tax benefit has been provided on the foreign currency
translation loss component for any period as the undistributed earnings of the
Company's foreign investments will continue to be reinvested.
Stock Options and Restricted Shares
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
10 years from date of grant. Tier A options are exercisable in four equal
installments commencing one year from date of grant, with the exception of
certain Tier A options granted in 1998, which become exercisable after the
Company's common stock price reaches specified prices for 10 consecutive days,
or at the end of five years, whichever comes first. Tier B options vest at the
date of grant, and are exercisable after the Company's common stock price closes
at or above a target price of $50 per share for 10 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.
The Company also granted 130,000 shares of restricted stock to certain
management employees during 1998. Restrictions on these shares lapse in phases
based on the Company achieving certain standards of performance or at the end of
seven years, whichever comes first.
<PAGE>
A summary of stock option activity for the years ended December 31 follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------- --------------------------- ----------------------------
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 1,754,298 $27.223 1,801,074 $27.222 1,403,822 $28.468
Tier A options exercised (332,594) 26.981 (219,750) 26.002 (84,547) 25.024
Tier B options exercised (38,000) 24.375 (20,000) 24.375 -- --
Tier A options granted 822,300 36.738 306,000 26.592 285,000 24.375
Tier B options granted -- -- 15,000 25.625 307,000 24.375
Tier A options canceled (42,608) 29.378 (113,026) 28.542 (110,201) 29.490
Tier B options canceled -- -- (15,000) 24.375 -- --
------------- -------------- --------------
Outstanding at end of year 2,163,396 30.884 1,754,298 27.223 1,801,074 27.222
------------- -------------- --------------
Exercisable at end of year 743,671 28.555 855,923 28.120 923,449 27.465
------------- -------------- --------------
Reserved for future grants 2,360,056 3,295,948 512,358
------------- -------------- --------------
</TABLE>
Additional information regarding options outstanding at December 31, 1998,
follows:
<TABLE>
<CAPTION>
Exercise Price Range
-------------------------------------------------------------
$23.99 - $26.375 $26.625 - $35.00 $35.625 - $44.313 Total
<S> <C> <C> <C> <C>
Number of options outstanding 728,830 824,269 610,297 2,163,396
Weighted average exercise price $ 24.847 $ 31.317 $ 37.509 $ 30.884
Weighted average remaining contractual
life 6.0 years 7.9 years 8.5 years 7.5 years
Number of shares exercisable 363,330 251,394 128,947 743,671
Weighted average exercise price $ 25.245 $ 29.682 $ 35.683 $ 28.555
</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 1998,
1997 and 1996 have estimated weighted average fair values, at the date of grant,
of $10.73 per share, $7.06 per share and $8.67 per share, respectively. Under
the same methodology, Tier B options granted during 1997 and 1996 have estimated
weighted average 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>
1998 Grants 1997 Grants 1996 Grants
---------------- ---------------- -----------------
<S> <C> <C> <C>
Expected dividend yield 1.31% 2.33% 2.33%
Expected stock price volatility 25.34% 23.32% 24.26%
Risk-free interest rate 5.21% 6.75% 6.77%
Expected life of options 5.3 years 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 basic earnings per share would have been:
<TABLE>
<CAPTION>
(dollars in millions except per share As reported Pro forma
amounts) ----------------------------- -------------------------------
Net income Per share Net income Per share
------------ ------------ --------------- -----------
<S> <C> <C> <C> <C>
Year ended December 31, 1998 $ 16.6 $ 0.45 $ 14.3 $ 0.38
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
</TABLE>
<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) 1998 1997 1996
-------------- ------------- ------------
<S> <C> <C> <C>
Earnings per Common Share
Net income from continuing operations before extraordinary item
and accounting change $ 32.0 $ 58.3 $ 13.1
Extraordinary loss from early debt extinguishment, net of tax
benefit (12.1) -- --
Cumulative effect of change in accounting for start-up costs, net
of tax benefit (3.3) -- --
-------------- ------------- ------------
Net income from continuing operations 16.6 58.3 13.1
Preferred dividends, net of tax benefit (2.8) (2.8) (2.9)
-------------- ------------- ------------
Income from continuing operations
attributable to common shareholders $ 13.8 $ 55.5 $ 10.2
============== ============= ============
Weighted average common shares (000s) 30,388 30,234 30,314
============== ============= ============
Net earnings per common share:
Net income before extraordinary item and accounting change $ 0.96 $ 1.84 $ 0.34
Extraordinary loss, net of tax benefit (0.40) -- --
Cumulative effect of accounting change, net of tax benefit (0.11) -- --
-------------- ------------- ------------
Earnings per common share $ 0.45 $ 1.84 $ 0.34
============== ============= ============
Diluted Earnings per Share
Net income from continuing operations before extraordinary item
and accounting change $ 32.0 $ 58.3 $ 13.1
Extraordinary loss from early debt extinguishment, net of tax
benefit (12.1) -- --
Cumulative effect of change in accounting for start-up costs, net
of tax benefit (3.3) -- --
-------------- ------------- ------------
Net income from continuing operations 16.6 58.3 13.1
Adjustments for deemed ESOP cash contribution
in lieu of the ESOP Preferred dividend (2.1) (2.1) (2.2)
-------------- ------------- ------------
Adjusted income from continuing operations
attributable to common shareholders $ 14.5 $ 56.2 $ 10.9
============== ============= ============
Weighted average common shares (000s) 30,388 30,234 30,314
Effect of dilutive securities:
Dilutive effect of stock options 338 165 37
Common shares issuable upon conversion
of the ESOP Preferred stock 1,866 1,912 1,984
-------------- ------------- ------------
Weighted average shares applicable
to diluted earnings per share 32,592 32,311 32,335
============== ============= ============
Diluted earnings per share:
Net income before extraordinary item and accounting change $ 0.91 $ 1.74 $ 0.34
Extraordinary loss, net of tax benefit (0.37) -- --
Cumulative effect of accounting change, net of tax benefit (0.10) -- --
-------------- ------------- ------------
Diluted earnings per share $ 0.44 $ 1.74 $ 0.34
============== ============= ============
</TABLE>
<PAGE>
The following options have been excluded from the computation of the
diluted earnings per share calculation since they were anti-dilutive (i.e., the
exercise price exceeded the average common stock price for the year):
<TABLE>
<CAPTION>
Exercise Price Expiration 1998 1997 1996
---------------- -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
$ 29.350 2002 -- -- 141,000
32.000 2003 -- 128,000 151,000
35.625 2005 -- 194,000 219,000
44.313 2008 120,000 -- --
------------- -------------- -------------
120,000 322,000 511,000
Other 4,000 6,000 54,000
------------- -------------- -------------
Total 124,000 328,000 565,000
============= ============== =============
</TABLE>
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 $23.7 million, $22.2
million and $18.1 million for the years 1998, 1997 and 1996, respectively.
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 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. Since that time, the Defense Contract Audit Agency (DCAA) has issued a
Draft Audit Report disallowing a portion of the Company's ESOP costs for 1994
through 1997 on the asserted basis that the Company's dividend contributions to
the ESOP do not constitute allowable deferred compensation. The Draft Audit
Report takes the position that the disallowance is not covered by the pending
decision by the ASBCA. While the outcome of the trial or the audit 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.
<PAGE>
Quarterly Results of Operations (Unaudited)
1998 Quarterly Information
In the first quarter, Ball announced that it would relocate its corporate
headquarters to Broomfield, Colorado. The relocation resulted in total charges
of $17.7 million which were recorded over the course of the year. The Company
acquired certain assets of the North American beverage can manufacturing
business of Reynolds Metals Company during the third quarter, which
significantly increased its metal beverage container operations in the U.S. In
connection with the Acquisition, the Company refinanced approximately $521.9
million of its debt and, as a result, recorded an after-tax extraordinary loss
from early debt extinguishment of approximately $12.1 million (40 cents per
share). In the fourth quarter, Ball announced its intention to close two of the
acquired plants as well as two plants in the PRC. In connection with the PRC
plant closures and related costs, the Company recorded a pre-tax charge of
approximately $56.2 million ($31.4 million after tax or $1.03 per share). The
closure of the acquired plants is being accounted for as part of the Acquisition
without a charge to earnings. Also during the fourth quarter, Ball adopted SOP
No. 98-5, "Reporting on the Costs of Start-Up Activities," in advance of its
required 1999 implementation date and, as a result, recorded an after-tax charge
to earnings of approximately $3.3 million (11 cents per share), retroactive to
January 1, 1998, representing the cumulative effect on prior years of this
change in accounting.
1997 Quarterly Information
The first quarter included a 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
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 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
"Headquarters Relocation, Plant Closures, Dispositions and Other Costs" note for
additional information.
<PAGE>
(dollars in millions except per share amounts)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1998
Net sales $ 549.7 $ 645.6 $ 859.2 $ 841.9 $2,896.4
---------- ---------- ---------- ---------- ----------
Gross profit(1) 58.5 76.8 101.9 97.0 334.2
---------- ---------- ---------- ---------- ----------
Net income (loss) before extraordinary item
and accounting change 5.5 19.2 25.2 (17.9) 32.0
Extraordinary loss from early debt
extinguishment, net of tax benefit -- -- (12.1) -- (12.1)
Cumulative effect of change in accounting for
start-up costs, net of tax benefit (3.3) -- -- -- (3.3)
---------- ---------- ---------- ---------- ----------
Net income (loss) 2.2 19.2 13.1 (17.9) 16.6
Preferred dividends, net of tax benefit (0.7) (0.7) (0.7) (0.7) (2.8)
---------- ---------- ---------- ---------- ----------
Net earnings (loss) attributable to
common shareholders $ 1.5 $ 18.5 $ 12.4 $ (18.6) $ 13.8
========== ========== ========== ========== ==========
Net earnings (loss) per common share:
Net income (loss) before extraordinary item
and accounting change $ 0.16 $ 0.61 $ 0.80 $ (0.61) $ 0.96
Extraordinary loss from early debt
extinguishment, net of tax benefit -- -- (0.40) -- (0.40)
Cumulative effect of change in accounting,
net of tax benefit (0.11) -- -- -- (0.11)
---------- ---------- ---------- ---------- ----------
Earnings (loss) per common share $ 0.05 $ 0.61 $ 0.40 $ (0.61) $ 0.45
========== ========== ========== ========== ==========
Diluted earnings (loss) per share:
Net income (loss) before extraordinary item
and accounting change $ 0.15 $ 0.58 $ 0.75 $ (0.61) $ 0.91
Extraordinary loss from early debt
extinguishment, net of tax benefit -- -- (0.37) -- (0.37)
Cumulative effect of change in accounting,
net of tax benefit (0.10) -- -- -- (0.10)
---------- ---------- ---------- ---------- ----------
Diluted earnings (loss) per share $ 0.05 $ 0.58 $ 0.38 $ (0.61) $ 0.44
========== ========== ========== ========== ==========
1997
Net sales $ 479.8 $ 643.7 $ 690.2 $ 574.8 $2,388.5
---------- ---------- ---------- ---------- ----------
Gross profit(1) 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
========== ========== ========== ========== ==========
</TABLE>
(1) Gross profit is shown after depreciation and amortization of $136.7 million
and $105.6 million for the years ended December 31, 1998 and 1997,
respectively.
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 the fourth quarter of 1998 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.
Report of Management on Financial Statements
The consolidated financial statements contained in this annual report to
shareholders are the responsibility of management. These financial statements
have been prepared in conformity with generally accepted accounting principles
and, necessarily, include certain amounts based on management's informed
judgments and estimates. Future events could affect these judgments and
estimates.
In fulfilling its responsibility for the integrity of financial
information, management maintains and relies upon a system of internal control
which is designated to provide reasonable assurance that assets are safeguarded
from unauthorized use or disposition, that transactions are executed in
accordance with management's authorization and that transactions are properly
recorded to permit the preparation of reliable financial statements in all
material respects. To assure the continuing effectiveness of the system of
internal control and to maintain a climate in which such controls can be
effective, management establishes and communicates appropriate written policies
and procedures; carefully selects, trains and develops qualified personnel;
maintains an organizational structure that provides clearly defined lines of
responsibility, appropriate delegation of authority and segregation of duties;
and maintains a continuous program of internal audits with appropriate
management follow-up. Company policies concerning use of corporate assets and
conflicts of interest, which require employees to maintain the highest ethical
and legal standards in their conduct of the Company's business, are important
elements of the internal control system.
The board of directors oversees management's administration of Company
financial reporting practices, internal controls and the preparation of the
consolidated financial statements through its audit committee, which is composed
entirely of outside directors. The audit committee meets periodically with
representatives of management, Company internal audit and PricewaterhouseCoopers
LLP to review the scope and results of audit work, the adequacy of internal
controls and the quality of financial reporting. PricewaterhouseCoopers LLP and
Company internal audit have direct access to the audit committee, and the
opportunity to meet the committee without management present, to assure a free
discussion of the results of their work and audit findings.
George A. Sissel R. David Hoover
Chairman and Chief Executive Officer Vice Chairman and Chief Financial Officer
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, of cash flows, of changes in shareholders'
equity and comprehensive income present fairly, in all material respects, the
financial position of Ball Corporation and its subsidiaries at December 31, 1998
and 1997, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1998, 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 audits 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.
As discussed in the Significant Accounting Policies note to the financial
statements, the Company adopted in 1998 Statement of Position 98-5, "Reporting
on the Costs of Start-up Activities."
PricewaterhouseCoopers LLP
Indianapolis, Indiana
January 27, 1999
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Ball Corporation and Subsidiaries
Management's discussion and analysis should be read in conjunction with the
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
Ball significantly increased its metal beverage container operations in the U.S.
in 1998 when it acquired substantially all of the assets of the North American
beverage container operations of Reynolds Metals Company. In connection with the
acquisition, the Company refinanced the majority of its outstanding debt, which
resulted in an extraordinary charge for the early extinguishment of debt. As
part of Ball's comprehensive program to improve profits, cash flows and
operating efficiencies, the Company announced that it intends to close two of
the acquired plants as well as two plants in the PRC. Also during 1998, the
Company relocated its corporate headquarters to an existing company-owned
building in Colorado.
International operations were expanded with the 1997 acquisition of M.C.
Packaging (Hong Kong) Limited (M.C. Packaging), the construction of metal
container plants in the PRC, and, through joint ventures, investments in metal
beverage container plants in Brazil and Thailand. Ball entered the polyethylene
terephthalate (PET) plastic container business, beginning in 1995 with the
construction of a pilot line and research and development center, and currently
operates four multi-line manufacturing facilities. During 1997 and 1996, the
Company consolidated operations within its North American metal packaging
business to reduce costs and increase efficiency, permanently discontinuing
manufacturing operations at three food container facilities and a Canadian metal
beverage container manufacturing facility and by eliminating certain
administrative positions within these lines of business. Ball also exited the
glass container business and sold a time and frequency measurement device
business and a U.S. aerosol can manufacturing business.
Acquisitions
On August 10, 1998, Ball acquired substantially all the assets and assumed
certain liabilities of the North American beverage can manufacturing business of
Reynolds Metals Company (Acquisition) for approximately $745.4 million, before a
refundable incentive loan of $39.0 million, a preliminary working capital
adjustment of an additional $40.1 million and transaction costs. With the
Acquisition, Ball became the largest metal beverage can producer in North
America with an estimated annual production capacity of 36 billion cans.
The assets acquired consisted largely of 16 plants in 12 states and Puerto
Rico, as well as a headquarters facility in Richmond, Virginia. During the
fourth quarter of 1998, the Company closed the Richmond facility and
consolidated the headquarters operations at the Company's offices near Denver,
Colorado. In addition, the Company announced that it intends to close two of the
acquired plants during the first quarter of 1999 and that it is developing plans
for further integration, including capacity consolidations and other cost saving
measures. As a result, the Company has initially provided $56.8 million in the
opening balance sheet as an estimate of the related costs of integration and
consolidation. Upon finalization of the plan, which is expected within 1999,
adjustments to the estimated costs, if any, will be reflected as a change in
goodwill. As a part of the acquired asset valuation and purchase price
allocation process, approximately $388.4 million has been preliminarily assigned
to goodwill.
During 1997, the Company acquired approximately 75 percent of M.C.
Packaging through Ball's Hong Kong-based subsidiary, FTB Packaging Limited (FTB
Packaging), for approximately $179.7 million in cash. M.C. Packaging, with net
sales of approximately $149 million included in Ball's 1997 consolidated
results, operates 13 manufacturing facilities in the PRC. During 1998, FTB
Packaging purchased substantially all of the remaining direct and indirect
minority interests in M.C. Packaging. M.C. Packaging manufactures 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, Ball estimates that it supplies over 50 percent of the metal
beverage containers used in the PRC. The acquisition was accounted for as a
purchase and the results of M.C. Packaging are included within the packaging
segment from the acquisition date in early 1997. As a part of the acquired asset
valuation and purchase price allocation process, approximately $132.6 million
has been assigned to goodwill.
In the third quarter of 1997, Ball acquired certain PET container
manufacturing assets from Brunswick Container Corporation 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 Transactions
In connection with the announcement in December 1998 to close two plants and
take other actions in the PRC, the Company recorded a pre-tax charge of $56.2
million($31.4 million after tax or $1.03 per share) as a preliminary estimate of
the related costs. Also during 1998, the Company relocated its corporate
headquarters to an existing company-owned building in Broomfield, Colorado,
resulting in a pre-tax charge of $17.7 million ($10.8 million after tax or 36
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) for the closure of a
small PET container manufacturing facility.
In October 1996, the Company sold the net assets 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. Ball also recorded a pretax
charge of $17.7 million ($11.0 million after tax or 37 cents per share) in 1996
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 this segment.
Ball sold its equity investment in Datum Inc. (Datum), a time and frequency
measurement device business, in the first half of 1997 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). Ball's share of Datum's earnings under the equity
method of accounting were $0.5 million in 1997 and a loss of $0.2 million in
1996.
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 and 1996.
In 1994, the Company formed EarthWatch, Incorporated (EarthWatch), which 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. During 1996, EarthWatch was reincorporated in Delaware as EarthWatch
Incorporated (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 through
1998. Ball has no commitments to provide further equity or debt financing to
EarthWatch beyond its investment to date, but continues to assess its options
with respect to EarthWatch. Ball Aerospace & Technologies Corp. has agreed to
produce satellites and instruments for 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 Ball 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.
Consolidated Sales and Earnings
Ball's operations are organized along its product lines and include two segments
- - the packaging segment and the aerospace and technologies segment. The
following table summarizes the results of these two segments:
<TABLE>
<CAPTION>
(dollars in millions) 1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net Sales
North American Metal Beverage $1,603.2 $1,106.9 $1,173.5
North American Metal Food 486.2 481.6 512.0
Plastics 219.1 153.0 56.3
International 225.3 248.3 80.3
---------- ---------- ----------
Total packaging 2,533.8 1,989.8 1,822.1
Aerospace and technologies 362.6 398.7 362.3
---------- ---------- ----------
Consolidated net sales $2,896.4 $2,388.5 $2,184.4
========== ========== ==========
Operating Earnings
Packaging $ 164.7 $ 108.3 $ 57.6
Plant closures, dispositions and other costs (56.2) (3.0) (21.0)
---------- ---------- ----------
Total packaging 108.5 105.3 36.6
Aerospace and technologies 30.4 34.0 31.4
---------- ---------- ----------
Consolidated operating earnings $ 138.9 $ 139.3 $ 68.0
========== ========== ==========
</TABLE>
Packaging Segment
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 the PRC). Packaging operations
in the U.S. have increased as a result of the plants acquired in 1998.
Operations in Asia have also increased as a result of the early 1997 acquisition
of a controlling interest in M.C. Packaging.
North American Metal Beverage Containers
Sales for Ball's North American metal beverage container business, which
represented approximately 63 percent of segment sales in 1998, increased
significantly in comparison to 1997 and 1996. Excluding the effects of the
additional sales from the acquired plants, the increase over 1997 was
approximately 6.5 percent reflecting new customer commitments and strong soft
drink industry demand. Sales in 1997 decreased approximately 5.7 percent
compared to 1996 due partially to the lower cost of aluminum can sheet, which
was passed on to the customer through formula pricing, combined with a decrease
of approximately 3.5 percent in 1997 shipments compared to 1996. The decrease in
can shipments in 1997 reflected the reduction in Ball's metal beverage container
capacity as a result of discontinuing manufacturing at a Canadian facility and
the full year effects of converting a U.S. metal beverage container line to a
two-piece food container line. U.S. and Canadian industry shipments of metal
beverage containers increased an estimated 2.2 percent in 1998 and 1.6 percent
in 1997. 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, would have been approximately 34 percent (on a pro forma
basis assuming the inclusion of shipments from the acquired plants for a full
year) compared to 17 percent in both 1997 and 1996 (on a historical basis) based
on publicly available industry information.
Earnings attributable to North American metal beverage containers improved
in 1998 compared to 1997 and 1996. Excluding the effects of the acquired plants,
other factors contributing to the increase included lower inventory carrying
costs and reduced production costs coupled with the improved efficiencies
realized upon completion over the three year period of project work begun in
1995 to convert to smaller diameter ends and to lightweight cans and ends.
North American Metal Food Containers
North American metal food container sales, which comprised approximately 19
percent of 1998 segment sales, rose slightly compared to 1997. Excluding $36.6
million of sales in 1996 from the aerosol can business, sales in this product
line increased 2.3 percent in 1998 and 1.3 percent in 1997 over 1996. The
increases in 1998 and 1997, excluding aerosol can sales in 1996, were the result
of lower shipments to salmon can customers being offset by increased shipments
to customers for other food products. The increase in 1998 was realized despite
the overall downturn in industry shipments due to adverse crop conditions. Ball
estimates that its North American metal food container shipments were
approximately 14 percent of total U.S. and Canadian metal food container
shipments in 1998, 1997 and 1996, based on publicly available industry
information.
Operating earnings attributable to North American metal food containers
declined in 1998 compared to 1997. Earnings declined due in large part to
reduced salmon can volumes (primarily the result of a Canadian government
imposed ban on commercial salmon fishing) and the effects of a strike in a
Canadian facility. Comparing 1997 to 1996, earnings attributable to North
American metal food containers improved, due in part to the closure of a
higher-cost operating facility late in 1996, and to improved productivity and
quality.
North American PET Containers
Sales of PET containers have increased steadily over the three-year period. The
increase in 1998 included additional sales from new business acquired in the
third quarter of 1997 as well as higher production capacity due to the first
full year of operations of an East Coast plant. Sales in 1997 compared to 1996
reflect the start-up of two manufacturing facilities in 1997, plus the
additional sales from the new Brunswick business. In both 1998 and 1997, the
continued promotion of metal cans by major soft drink companies and lower than
forecasted sales by non-soft drink customers were reflected in lower than
expected sales for the business.
Improved operating results in 1998 were due to increased sales, the
elimination of costs incurred in 1997 related to start-up operations in the
Eastern United States and the Midwest, and a nonrecurring charge in 1997 from
the closure of a small PET container manufacturing facility.
International Packaging Operations
Sales within the international packaging businesses in 1998 were comprised of
the consolidated sales of FTB Packaging, including M.C. Packaging, and revenues
from royalties and technical services to licensees. Sales within the
international packaging operations declined in 1998 by approximately nine
percent after increasing significantly in 1997 compared to 1996. Sales within
the PRC have been negatively affected by a soft metal beverage container market
combined with lower pricing resulting from current industry over capacity. The
PRC market has also been affected by uncertainty in the Asian financial markets
which has resulted in a decrease in exports of Company products from Hong Kong
to other Asian countries. Earnings from consolidated international operations in
1998 reflect the impact of lower pricing and lower volumes. During the fourth
quarter of 1998, the Company announced that it will close two can plants in the
PRC, remove certain equipment from service and take other actions to reduce
costs and streamline operations. The Company's preliminary estimate of costs to
close the two plants and related actions resulted in a fourth quarter pretax
charge of $56.2 million ($31.4 million after tax or $1.03 per share).
Aerospace and Technologies Segment
The sales reduction in the aerospace and technologies segment from 1997 to 1998
reflects, in large part, temporarily reduced activity in connection with certain
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, by comparison, the
inclusion in the first half of 1997 of one-time early delivery incentives earned
in connection with telecommunications products.
Sales and earnings for 1997 increased compared to 1996 in both the
aerospace systems division and telecommunications products division. The higher
sales and earnings in aerospace systems reflected growth in several programs, as
well as the start-up of several 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.
Sales to the U.S. government, either as a prime contractor or as a
subcontractor, represented approximately 90 percent, 87 percent and 91 percent
of segment sales in 1998, 1997 and 1996, respectively. Within aerospace systems,
industry trends have not changed significantly, with Department of Defense and
NASA budgets remaining relatively flat. However, there is a growing worldwide
market for commercial space activities, and Ball believes there are significant
international opportunities in which the Company could participate.
Consolidation in the industry continues and there is strong competition for
business. Backlog for the aerospace and technologies segment at December 31,
1998 and 1997, was approximately $296 million and $267 million, respectively.
Year-to-year comparisons of backlog are not necessarily indicative of the trend
of future operations.
Interest and Taxes
Interest expense increased to $78.6 million in 1998, compared to $53.5 million
in 1997 and $33.3 million in 1996. The increase in total interest cost in 1998
compared to 1997 was largely attributable to the additional debt associated with
the Acquisition. The increase in total interest cost in 1997 compared to 1996
was primarily a result of the acquisition and consolidation of M.C. Packaging.
Ball's consolidated effective income tax rate was 32.2 percent in 1998,
compared to 37.2 percent in 1997 and 24.3 percent in 1996. The lower tax rate
for 1998 compared to 1997 is largely attributed to the settlement of various
issues with taxing authorities partially offset by the net tax effects of
foreign operations. The lower rate for 1996 compared to 1997 was primarily
attributable to the effect of a 1996 refund for tax credits recognized by the
Company after the Internal Revenue Service concurred with Ball's position
regarding creditable cost of research and development. In 1998 and 1997, the
Company settled tax credit matters for years 1991 through 1995, and recorded
additional credits. 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.
Results of Equity Affiliates
Equity earnings in affiliates are largely attributable to equity investments in
the PRC, Thailand and Brazil. Equity in earnings of affiliates increased in 1998
to $5.6 million compared to equity in losses of $0.7 million in 1997. The
improved results in 1998 reflect the effects of the strengthening of the Thai
baht and reduced start-up costs compared to 1997 when operations of certain
affiliates in Brazil, Thailand and the PRC began.
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 in 1996. Ball's share of the net
earnings from other equity affiliates were $2.8 million in 1996, primarily from
Ball's Pacific Rim equity affiliates. In 1996, start-up operating costs
associated with new investments in Brazil and Thailand reduced earnings.
Other Items
Consolidated selling, product development and general and administrative
expenses were $136.5 million, $125.0 million and $81.0 million for 1998, 1997
and 1996, respectively. Higher consolidated general and administrative expenses
in 1998 compared to 1997 were due partially to the additional costs associated
with the acquired plants, including salaries and interim administrative support.
Also contributing to the increase were higher performance-based compensation
costs. Lower consolidated general and administrative expenses in 1996 compared
to 1997 were due, in large part, to lower performance-based compensation costs
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 M.C.
Packaging, which was acquired in early 1997, as well as those costs attributable
to other facilities in the PRC.
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).
Also, in 1998, the Company adopted SOP No. 98-5, "Reporting on the Costs of
Start-Up Activities," in advance of its required 1999 implementation date. SOP
No. 98-5 requires that costs of start-up activities and organizational costs, as
defined, be expensed as incurred. In accordance with this statement, the Company
recorded an after-tax charge to earnings of approximately $3.3 million (11 cents
per share), retroactive to January 1, 1998, representing the cumulative effect
of this change in accounting on prior years.
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 Ball, for approximately $338 million in
cash, and those of Foster-Forbes. Concurrent with the sale of Ball Glass to
Ball-Foster, Ball acquired its 42 percent investment in Ball-Foster for $180.6
million in cash. 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.
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 Ball's
remaining interest in Ball-Foster.
Financial Position, Liquidity and Capital Resources
Cash flow from continuing operations increased to $387.1 million in 1998
compared to $143.5 million in 1997 and $84.3 million in 1996. The increases in
1998 and 1997 resulted primarily from improved operating results within North
America and a reduction in the cash used for working capital.
Capital expenditures, excluding effects of business acquisitions and
dispositions, were $84.2 million, $97.7 million and $196.1 million in 1998, 1997
and 1996, respectively. Spending in 1998, 1997 and 1996 included approximately
$24 million, $16 million and $75 million, respectively, for Ball's PET container
business. Spending in 1997 also included amounts to complete two new metal
packaging plants in the PRC, as well as spending within M.C. Packaging. Capital
expenditures in 1996 included the conversion of metal beverage plant equipment
to meet 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. In 1999 total capital spending and
investments are anticipated to be approximately $155 million.
Premiums on company-owned life insurance were approximately $6 million for
each of the three years ended December 31, 1998, 1997 and 1996. Amounts in the
consolidated statement of cash flows represent net cash flows from this program,
including policy loans of approximately $11 million in 1998 and $10 million in
each of 1997 and 1996, and partial withdrawals from the cash value of the
policies of approximately $9 million in 1998 and $22 million in 1997.
Debt at December 31, 1998, increased $583.5 million to $1,356.6 million
from $773.1 million at year end 1997, while cash and temporary investments
increased from $25.5 million at year end 1997 to $34.0 million at December 31,
1998. The increase in debt was primarily due to the additional borrowings in
connection with the Acquisition. Consolidated debt-to-total capitalization
increased to 67.7 percent at December 31, 1998, from 53.0 percent at year end
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 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 Senior Subordinated Notes,
which are due August 1, 2008, also are unsecured, rank subordinate to existing
and future senior debt of the Company and are guaranteed by certain of the
Company's domestic subsidiaries. Both note agreements contain certain covenants
and restrictions, including, among other things, restrictions on the incurrence
of additional indebtedness and the payment of dividends.
The Company offered to exchange the Senior Notes and Senior Subordinated
Notes. The offer expired on January 27, 1999, at which time all of the notes had
been exchanged. The terms of the new notes are substantially identical in all
respects (including principal amount, interest rate, maturity, ranking and
covenant restrictions) to the terms of the notes for which they were exchanged
except that the new notes are registered under the Securities Act of 1933, as
amended, and therefore are not subject to certain restrictions on transfer
except as described in the Prospectus for the Exchange Offer. The note
agreements provide that if the new 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 provided the
Company with $350.0 million and matures in August 2004. The second term loan
provided the Company with $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 participating lenders. The remainder matures in August 2004. The Senior
Credit Facility bears interest at variable rates, is guaranteed by certain of
the Company's domestic subsidiaries 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 owned by the Company of its direct and indirect
majority-owned domestic subsidiaries and (2) a pledge of 65 percent of the stock
owned by the Company of certain foreign subsidiaries.
In Asia, FTB Packaging, including M.C. Packaging, had short-term
uncommitted credit facilities of approximately $198 million, of which $70.6
million was outstanding at December 31, 1998.
A receivables sales agreement provides for the ongoing, revolving sale of a
designated pool of trade accounts receivable of Ball's U.S. packaging
businesses. In December 1998, the designated pool of receivables was increased
to provide for sales of up to $125 million from the previous amount of $75
million. Net funds received from the sale of the accounts receivable totaled
$122.5 million and $65.9 million at December 31, 1998 and 1997, respectively.
Fees incurred in connection with the sale of accounts receivable, which are
included in general and administrative expenses, totaled $4.0 million in each of
1998 and 1997 and $3.7 million in 1996.
Cash dividends paid on common stock in 1998, 1997 and 1996 were 60 cents
per share each year.
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,
collars and options to manage the Company's mix of floating and fixed-rate debt
between a minimum and maximum percentage, which is set by policy. The Company's
objective in managing its exposure to foreign currency fluctuations is to
protect foreign cash flow and reduce earnings volatility associated with foreign
exchange rate changes.
Unrealized losses on forward contracts under these agreements are recorded
in the balance sheet as other current liabilities. Realized gains/losses from
hedges are classified in the income statement consistent with accounting
treatment of the item being hedged. The Company accrues the differential for
interest rate swaps to be paid or received under these agreements as adjustments
to interest expense over the lives of the swaps. Gains and losses upon the early
termination of swap agreements are deferred in long-term liabilities and
amortized as an adjustment to interest expense over the remaining term of the
agreement.
The Company has estimated its market risk exposure using sensitivity
analysis. Market risk exposure has been defined as the change in fair value of a
derivative instrument assuming a hypothetical 10 percent adverse change in
market prices or rates. The results of the sensitivity analyses are summarized
below. Actual changes in market prices or rates may differ from hypothetical
changes.
Interest Rate Risk
Interest rate instruments held by the Company at December 31, 1998 and 1997,
included pay-floating, pay-fixed interest rate swaps, interest rate collars and
swaption 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. Swap agreements expire in
one to eight years.
Interest rate swap agreements outstanding at December 31, 1998, had
notional amounts of $10 million at a floating rate and $528 million at a fixed
rate, or a net fixed position of $518 million. At December 31, 1997, these
agreements 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. Floating
rate agreements with notional amounts of $55 million at December 31, 1997,
included an interest rate floor. The Company also entered into an interest rate
collar agreement in 1998 with a notional amount of $100 million.
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.
Based on the Company's interest rate exposure at December 31, 1998, assumed
floating rate debt levels throughout 1999 and the effects of derivative
instruments, a 10 percent change in interest rates could have an estimated $2
million impact on earnings over a one year period. Actual results may vary based
on actual changes in market prices and rates.
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 termination of the contracts at December 31, 1998 and
1997, taking into account any unrealized gains and losses on open contracts.
<TABLE>
<CAPTION>
1998 1997
-------------------------- --------------------------
Carrying Fair Carrying Fair
(dollars in millions) Amount Value Amount Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Long-term debt $1,286.0 $1,280.1 $ 464.8 $484.2
Unrealized net loss on derivative
contracts relating to debt -- 1.5 -- 1.2
</TABLE>
Exchange Rate Risk
The Company's foreign currency risk exposure results from fluctuating currency
exchange rates, primarily the strengthening of the U.S. dollar against the Hong
Kong dollar, Canadian dollar, Chinese renminbi, Thai baht and Brazilian real.
The Company faces currency exposure that arises from translating the results of
its global operations and maintaining U.S. dollar debt and payables. The Company
uses forward contracts to manage its foreign currency exposures and, as a
result, gains and losses on these derivative positions offset, in part, the
impact of currency fluctuations on the existing assets and liabilities. At
December 31, 1998, the notional amount of the Company's foreign exchange risk
management contracts, net of notional amounts of contracts with counterparties
against which the Company has the legal right of offset, was $100 million. The
fair value of these contracts as of December 31, 1998 was $(4.5) million.
Considering the Company's derivative financial instruments outstanding at
December 31, 1998, and the currency exposures, a hypothetical 10 percent
weakening in the exchange rates compared to the U.S. dollar could have an
estimated $3 million impact on earnings over a one year period. Actual changes
in market prices or rates may differ from hypothetical changes.
In January 1999, the Brazilian government changed its monetary policy,
causing the Brazilian real to devalue. At that time, the Company did not expect
that the after-tax effect of the currency devaluation would have a significant
impact on the Company's consolidated earnings. However, the Brazilian real
continues to be volatile and actual results may differ based on future events.
In early July 1997, the government of Thailand changed its monetary policy
to no longer peg the Thai baht to the U.S. dollar. As a result, the Company
recorded a loss of $3.2 million, or 11 cents per share, 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.
New Accounting Pronouncements
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. The company
also adopted SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information," and SFAS No. 132, "Employers' Disclosures about Pensions
and Other Postretirement Benefits," in 1998. See the "Business Segment
Information" note for information regarding SFAS No. 131 and the "Pension and
Other Postretirement and Postemployment Benefits" note for information regarding
SFAS No. 132.
During the fourth quarter of 1998, Ball adopted Statement of Position (SOP)
No. 98-5, "Reporting on the Costs of Start-Up Activities," in advance of its
required 1999 implementation date. SOP No. 98-5 requires that costs of start-up
activities and organizational costs, as defined, be expensed as incurred. In
accordance with this statement, the Company recorded an after-tax charge to
earnings of approximately $3.3 million (11 cents per share), retroactive to
January 1, 1998, representing the cumulative effect on prior years of this
change in accounting.
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. 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.
Contingencies
Year 2000 Systems Review
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.
Over the course of the past several years, systems installations, upgrades
and enhancements were performed by the Company in the ordinary course of
business with attention given to Year 2000 matters. As a result, when the formal
Year 2000 program was instituted in 1996, many of the Year 2000 matters
potentially affecting the Company had either been resolved or were near
resolution. The program currently in effect was instituted to make the remaining
software and systems Year 2000 compliant in time to minimize any significant
negative effects on operations and is divided into six major phases: (1) project
initiation, (2) awareness, (3) assessment, (4) remediation, (5) testing and (6)
contingency planning. 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. As of February, 1999, the Company estimated that the program was
80 to 90 percent complete with regard to critical systems and completion of the
entire project is on target for mid to late 1999. International operations, for
the most part, are following the U.S. program and international joint venture
operations are being assessed.
Because most of the Company's efforts were initiated to address specific
business requirements or to stay technologically current, it is difficult to
quantify costs incurred solely in conjunction with the Year 2000 project.
However, certain incremental costs of approximately $2 million have been
identified, including the purchase of software to manage the project, software
to check personal computer hardware and software compliance, and contractor
assistance. All such costs, and any future costs, are being funded through
operating cash flows.
Ball relies on third party suppliers for raw materials, water, utilities,
transportation, banking and other key services. The inability of principal
suppliers, including utilities, to be Year 2000 ready could result in delays in
product deliveries from such suppliers and disrupt the Company's ability to
supply its products. Ball's review program includes efforts to evaluate the
status of suppliers' and customers' efforts, including but not limited to
questionnaires, as a means of identifying risk. None of the suppliers contacted
to date have indicated any compliance issues. However, the replies indicate that
most suppliers, vendors and customers will not provide any assurance that they
will be Year 2000 compliant.
A worst-case scenario for the Company with respect to the Year 2000 issue
could be the failure of either a critical vendor or the Company's manufacturing
and information systems. Such failures could result in temporary production
outages and lost sales and profits.
The Company is developing contingency plans intended to mitigate the
possible disruption of business operations that may result from external third
party Year 2000 issues. Such plans may include accelerating raw material
delivery schedules, increasing finished good inventory levels, securing
alternate sources of supply, adjusting facility shut-down and start-up schedules
and other appropriate measures. The Company is currently prioritizing critical
systems and intends to have its contingency plans in place by the end of the
second quarter of 1999. The contingency plans and related cost estimates will be
refined as additional information becomes available.
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 Company is unable to determine whether the
consequences of Year 2000 failures will have a material impact on the Company's
results of operations, liquidity or financial condition. However, 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
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 for the materials used in the manufacture of its
products, and changing capital markets. Where practicable, Ball 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 December 31, 1998,
and has met all payment obligations. However, Latapack-Ball Embalagens Ltda.
(Latapack-Ball), the Company's 50 percent owned equity affiliate in Brazil, was
in noncompliance with certain financial ratio provisions, including current
ratio, under a fixed term loan agreement of which $50.8 million was outstanding
at year end. Latapack-Ball has requested a waiver from the lender in respect of
the noncompliance.
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 Employee Stock Ownership Plan (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 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. Since that time, the Defense Contract
Audit Agency (DCAA) has issued a Draft Audit Report disallowing a portion of the
Company's ESOP costs for 1994 through 1997 on the asserted basis that the
Company's dividend contributions to the ESOP do not constitute allowable
deferred compensation. The Draft Audit Report takes the position that the
disallowance is not covered by the pending decision by the ASBCA. While the
outcome of the trial or the audit 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.
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.
The U.S. economy and the Company have experienced minor general inflation
during the past several years. Management believes that evaluation of Ball's
performance during the periods covered by these consolidated financial
statements should be based upon historical financial statements.
Forward-Looking Statements
The Company has made certain forward-looking statements in this annual report
relating to market growth, increases in market shares, total shareholder return,
improved earnings, positive cash flow, technology upgrades and international
market expansion, among others. 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; boycotts;
litigation involving antitrust, intellectual property, consumer and other
issues; 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; 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
readiness; and, 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>
<TABLE>
<CAPTION>
Five-Year Review of Selected Financial Data
Ball Corporation and Subsidiaries
- ---------------------------------------------- ------------ ------------ ------------ ------------ ------------
(dollars in millions except per share amounts) 1998 1997 1996 1995 1994
- ---------------------------------------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $2,896.4 $2,388.5 $2,184.4 $2,045.8 $1,842.8
Net income (loss) from:
Continuing operations (1) $32.0 $58.3 $13.1 $51.9 $64.0
Discontinued operations - - 11.1 (70.5) 9.0
Net income (loss) before cumulative
effect of accounting change 32.0 58.3 24.2 (18.6) 73.0
Extraordinary item, net of tax benefit (12.1) - - - -
Cumulative effect of accounting
change, net of tax benefit (3.3) - - - -
Net income (loss) (1) 16.6 58.3 24.2 (18.6) 73.0
Preferred dividends, net of tax benefit (2.8) (2.8) (2.9) (3.1) (3.2)
Net earnings (loss) attributable to common
shareholders $13.8 $55.5 $21.3 $(21.7) $69.8
Return on average common shareholders'
equity 2.3% 9.3% 3.7% (3.7)% 12.1%
- ---------------------------------------------- ------------ ------------ ------------ ------------ ------------
Per share of common stock:
Earnings (loss) from:
Continuing operations (1) $0.96 $1.84 $0.34 $1.63 $2.05
Discontinued operations - - 0.36 (2.35) 0.30
Earnings (loss) before extraordinary
item and cumulative effect of
accounting change 0.96 1.84 0.70 (0.72) 2.35
Extraordinary item, net of tax benefit (0.40) - - - -
Cumulative effect of accounting
change, net of tax benefit (2) (0.11) - - - -
Earnings (loss) $0.45 $1.84 $0.70 $(0.72) $2.35
Cash dividends 0.60 0.60 0.60 0.60 0.60
Book value 19.52 20.23 19.22 18.84 20.25
Market value 45 3/4 35 3/8 26 1/4 27 3/4 31 1/2
Annual return to common shareholders (3) 31.4% 37.4% (3.2)% (10.2)% 6.4%
Weighted average common
shares outstanding (000s) 30,388 30,234 30,314 30,024 29,662
- ---------------------------------------------- ------------ ------------ ------------ ------------ ------------
Diluted earnings (loss) per share:
Earnings (loss) from: (4)
Continuing operations (1) $0.91 $1.74 $0.34 $1.54 $1.93
Discontinued operations - - 0.34 (2.18) 0.28
Earnings (loss) before extraordinary
item and cumulative effect of
accounting change 0.91 1.74 0.68 (0.64) 2.21
Extraordinary item, net of tax benefit (0.37) - - - -
Cumulative effect of accounting change,
net of tax benefit (2) (0.10) - - - -
Earnings (loss) $0.44 $1.74 $0.68 $(0.64) $2.21
Diluted weighted average common
shares outstanding (000s) 32,592 32,311 32,335 32,312 31,902
- ---------------------------------------------- ------------ ------------ ------------ ------------ ------------
Property, plant and equipment additions $84.2 $97.7 $196.1 $178.9 $41.3
Depreciation 140.4 110.0 88.1 75.5 75.5
Working capital 198.0 (39.7) 255.6 77.3 56.9
Current ratio 1.29 0.95 1.50 1.16 1.14
Total assets $2,854.8 $2,090.1 $1,700.8 $1,614.0 $1,631.9
Total interest bearing debt and capital
lease obligations (5) 1,356.6 773.1 582.9 475.4 493.7
Common shareholders' equity 594.6 611.3 586.7 567.5 604.8
Total capitalization (5) 2,003.2 1,459.0 1,194.3 1,064.1 1,126.5
Debt-to-total capitalization (5) 67.7% 53.0% 48.8% 44.7% 43.8%
- ---------------------------------------------- ------------ ------------ ------------ ------------ ------------
</TABLE>
(1) Includes the effect of a change in 1995 to the LIFO method of accounting of
$17.1 million ($10.4 million after tax or 35 cents per share).
(2) See the notes to the Consolidated Financial Statements.
(3) Change in stock price plus dividend yield assuming reinvestment of
dividends.
(4) In 1995, the assumed conversion of preferred stock and exercise of stock
options resulted in a dilutive effect on continuing operations.
Accordingly, the diluted loss per share amounts are required to be used for
discontinued operations, resulting in a lower total loss per share than the
loss per common share.
(5) Includes amounts attributed to discontinued operations.
<PAGE>
Quarterly Stock Prices and Dividends
Quarterly prices for the company's common stock, as reported on the composite
tape, and quarterly dividends in 1998 and 1997 were:
<TABLE>
<CAPTION>
1998 1997
1st 2nd 3rd 4th 1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High 35 11/16 40 15/16 47 15/16 46 1/8 27 3/4 30 3/4 36 1/8 39
Low 29 13/16 32 3/8 28 5/8 28 15/16 23 3/4 25 1/4 29 3/16 31 3/16
Dividends .15 .15 .15 .15 .15 .15 .15 .15
</TABLE>
Exhibit 21.1
SUBSIDIARY LIST (1)
Ball Corporation and Subsidiaries
The following is a list of subsidiaries of Ball Corporation (an Indiana
Corporation).
<TABLE>
<CAPTION>
State or Country
of Incorporation Percentage
Name or Organization Ownership (2)
<S> <C> <C>
Ball Capital Corp. Colorado 100%
Ball Packaging Corp. Colorado 100%
Ball Asia Pacific Limited Colorado 100%
Ball Plastic Container Corp. Colorado 100%
Ball Metal Food Container Corp. Delaware 100%
Ball Metal Beverage Container Corp. Colorado 100%
Latas de Aluminio Ball, Inc. Delaware 100%
Ball Metal Packaging Sales Corp. Colorado 100%
Ball Aerospace & Technologies Corp. Delaware 100%
Ball Aerospace - (Australia), Pty Ltd. Australia 100%
Ball Systems Technology Limited United Kingdom 100%
Ball Technology Services Corporation California 100%
Ball Packaging Products Canada Inc. Canada 100%
FTB Packaging Limited Hong Kong 97%
Beijing FTB Packaging Limited PRC 82%
FTB Tooling & Engineering Ltd. Hong Kong 97%
Fully Tech Industrial Ltd. Hong Kong 98%
Greater China Trading Ltd. Cayman Islands 97%
Hubei FTB Packaging Limited PRC 89%
Ningbo FTB Can Company Limited PRC 73%
Xi'an Kunlun FTB Packaging Limited PRC 58%
Zhuhai FTB Packaging Limited PRC 73%
M.C. Packaging (Hong Kong) Limited Hong Kong 97%
MCP Beverage Packaging Limited Hong Kong 97%
MCP Industries Limited Hong Kong 97%
Plasco Limited Hong Kong 68%
Hainan M.C. Packaging Limited PRC 87%
Panyu MCP Industries Limited PRC 87%
Shenzhen M.C. Packaging Limited PRC 58%
Tianjin M.C. Packaging Limited PRC 78%
Hemei Containers (Tianjin) Co. Ltd. PRC 66%
Suzhou M.C. Beverage Packaging Co. Ltd. PRC 53%
Tianjin MCP Cap Manufacture Company Limited PRC 78%
Tianjin MCP Industries Limited PRC 78%
Zhongfu (Taicang) Plastics Products Co. Ltd. PRC 68%
GPT Global Packaging Technology AB Sweden 100%
</TABLE>
<PAGE>
The following is a list of affiliates of Ball Corporation included in the
financial statements under the equity and cost accounting methods:
<TABLE>
<CAPTION>
State or Country
of Incorporation Percentage
Name or Organization Ownership (2)
<S> <C> <C>
EarthWatch Incorporated Delaware 47%
San Miguel Yamamura Ball Corp. Philippines 6%
Lam Soon-Ball Yamamura Taiwan 8%
Latapack-Ball Embalagens Ltda. Brazil 50%
Centrotampa Embalagens Ltda. Brazil 50%
Thai Beverage Can Ltd. Thailand 40%
The following are owned indirectly through FTB Packaging Limited
and M. C. Packaging (Hong Kong) Limited:
Sanshui Jianlibao FTB Packaging Limited PRC 34%
Zhongshan Yedao Drinks Limited PRC 25%
Norinco-MCP (Hong Kong) Limited Hong Kong 25%
Guangzhou M.C. Packaging Limited PRC 29%
Maoming Norinco MCP Company Limited PRC 22%
Qindao M.C. Packaging Limited PRC 39%
Richmond Systempak Limited Hong Kong 32%
Shenzhen Norinco-MCP Company Limited PRC 29%
Beijing Shente Container Co. Ltd. PRC 22%
Hangzhou Cofco-M.C. Packaging Company Limited PRC 24%
</TABLE>
(1) In accordance with Regulation S-K, Item 601(b)(22)(ii), the names of
certain subsidiaries have been omitted from the foregoing lists. The
unnamed subsidiaries, considered in the aggregate as a single subsidiary,
would not constitute a significant subsidiary, as defined in Regulation
S-X, Rule 1-02(v).
(2) Represents the Registrant's direct and/or indirect ownership in each of the
subsidiaries' voting capital share.
Exhibit 23.1
Consent of Independent Accountants
We hereby consent to the incorporation by reference in each Prospectus
constituting part of each Post-Effective Amendment No. 1 on Form S-3 to Form
S-16 Registration Statement (Registration Nos. 2-62247 and 2-65638) and in each
Prospectus constituting part of each Form S-3 Registration Statement or
Post-Effective Amendment (Registration Nos. 33-3027, 33-16674, 33-19035,
33-40196 and 33-58741) and in each Form S-8 Registration Statement or
Post-Effective Amendment (Registration Nos. 33-21506, 33-40199, 33-37548,
33-28064, 33-15639, 33-61986, 33-51121, 333-26361 and 333-32393) and in Form S-4
Registration Statement and Post-Effective Amendment No. 1 (Registration No.
333-66847) of Ball Corporation of our report dated January 27, 1999, appearing
in Exhibit 13.1 of Ball Corporation's Annual Report on Form 10-K for the year
ended December 31, 1998.
/s/ PRICEWATERHOUSECOOPERS LLP
Indianapolis, Indiana
March 29 , 1999
Exhibit 24.1
Form 10-K
Limited Power of Attorney
KNOW ALL MEN BY THESE PRESENTS that the undersigned directors and officers
of Ball Corporation, an Indiana corporation, hereby constitute and appoint R.
David Hoover, Albert R. Schlesinger, and George A. Sissel, and any one or all of
them, the true and lawful agents and attorneys-in-fact of the undersigned with
full power and authority in said agents and attorneys-in-fact, and in any one or
more of them, to sign for the undersigned and in their respective names as
directors and officers of the Corporation the Form 10-K of the Corporation to be
filed with the Securities and Exchange Commission, Washington, D.C., under the
Securities Exchange Act of 1934, as amended, and to sign any amendment to such
Form 10-K, hereby ratifying and confirming all acts taken by such agents and
attorneys-in-fact or any one of them, as herein authorized.
Date: March 29, 1999
------------------------------------
/s/ R. David Hoover /s/ Frank A. Bracken
- ------------------------------------- --------------------------------------
R. David Hoover Officer Frank A. Bracken Director
/s/ Albert R. Schlesinger /s/ Howard M. Dean
- ------------------------------------- --------------------------------------
Albert R. Schlesinger Officer Howard M. Dean Director
/s/ George A. Sissel /s/ John T. Hackett
- ------------------------------------- --------------------------------------
George A. Sissel Officer John T. Hackett Director
/s/ R. David Hoover
--------------------------------------
R. David Hoover Director
/s/ John F. Lehman
--------------------------------------
John F. Lehman Director
/s/ George McFadden
--------------------------------------
George McFadden Director
/s/ Ruel C. Mercure, Jr.
--------------------------------------
Ruel C. Mercure, Jr. Director
/s/ Jan Nicholson
--------------------------------------
Jan Nicholson Director
/s/ George A. Sissel
--------------------------------------
George A. Sissel Director
/s/ William P. Stiritz
--------------------------------------
William P. Stiritz Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27.1
BALL CORPORATION
FINANCIAL DATA SCHEDULE
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 34,000
<SECURITIES> 0
<RECEIVABLES> 273,500
<ALLOWANCES> 0
<INVENTORY> 483,800
<CURRENT-ASSETS> 885,600
<PP&E> 1,882,900
<DEPRECIATION> 708,500
<TOTAL-ASSETS> 2,854,800
<CURRENT-LIABILITIES> 687,600
<BONDS> 1,229,800
0
27,700
<COMMON> 368,400
<OTHER-SE> 226,200
<TOTAL-LIABILITY-AND-EQUITY> 2,854,800
<SALES> 2,896,400
<TOTAL-REVENUES> 2,896,400
<CGS> 2,562,200
<TOTAL-COSTS> 2,562,200
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 78,600
<INCOME-PRETAX> 27,300
<INCOME-TAX> 8,800
<INCOME-CONTINUING> 32,000
<DISCONTINUED> 0
<EXTRAORDINARY> (12,100)
<CHANGES> (3,300)
<NET-INCOME> 16,600
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0.44
</TABLE>
Exhibit 99.2
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; boycotts, litigation involving
antitrust, intellectual property, consumer and other issues; 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.
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.
