UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 1, 2000
--------------------
Commission file number 1-7349
BALL CORPORATION
State of Indiana 35-0160610
10 Longs Peak Drive, P.O. Box 5000
Broomfield, CO 80021-2510
303/469-3131
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 29, 2000
------------------ ---------------------------------
Common Stock, 28,273,649 shares
without par value
<PAGE>
Ball Corporation and Subsidiaries
QUARTERLY REPORT ON FORM 10-Q
For the period ended October 1, 2000
INDEX
Page Number
-------------
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Unaudited Condensed Consolidated Statements
of Earnings for the Three- and Nine-Month Periods
Ended October 1, 2000, and October 3, 1999 3
Unaudited Condensed Consolidated Balance Sheets at
October 1, 2000, and December 31, 1999 4
Unaudited Condensed Consolidated Statements of
Cash Flows for the Nine-Month Periods Ended
October 1, 2000, and October 3, 1999 5
Notes to Unaudited Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 18
PART II. OTHER INFORMATION 20
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
<TABLE>
Ball Corporation and Subsidiaries
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
($ in millions, except per share amounts)
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------------- -----------------------------------
October 1, 2000 October 3, 1999 October 1, 2000 October 3, 1999
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------------------
Net sales $ 961.3 $ 991.6 $ 2,740.1 $ 2,790.9
---------------------------------------------------------------------------------------------------------------------------
Costs and expenses
Cost of sales (excluding depreciation
and amortization) 794.2 824.5 2,276.7 2,334.3
Depreciation and amortization (Notes 7 and 8) 39.3 40.8 118.6 122.0
Business consolidation costs and other (Note 4) (7.0) - 76.4 -
Selling and administrative expenses 37.3 36.7 103.3 104.4
Receivable securitization fees and
product development (Note 9) 3.5 3.2 10.9 10.0
----------------- ----------------- ----------------- -----------------
867.3 905.2 2,585.9 2,570.7
---------------------------------------------------------------------------------------------------------------------------
Earnings before interest and taxes 94.0 86.4 154.2 220.2
---------------------------------------------------------------------------------------------------------------------------
Interest expense 24.4 26.5 71.6 82.0
----------------- ----------------- ----------------- -----------------
Earnings before taxes 69.6 59.9 82.6 138.2
Provision for taxes (24.3) (22.7) (31.7) (52.4)
Minority interests (0.3) (0.8) 2.1 (1.3)
Equity in net results of affiliates (0.5) 0.6 (3.9) 0.2
----------------- ----------------- ----------------- -----------------
Net earnings 44.5 37.0 49.1 84.7
Preferred dividends, net of tax (0.6) (0.6) (1.9) (2.0)
---------------------------------------------------------------------------------------------------------------------------
Earnings attributable to common shareholders $ 43.9 $ 36.4 $ 47.2 $ 82.7
---------------------------------------------------------------------------------------------------------------------------
Basic earnings per share (Note 11) $ 1.52 $ 1.21 $ 1.61 $ 2.73
================= ================= ================= =================
Diluted earnings per share (Note 11) $ 1.43 $ 1.13 $ 1.52 $ 2.55
================= ================= ================= =================
Cash dividends declared per common share $ 0.15 $ 0.15 $ 0.45 $ 0.45
================= ================= ================= =================
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
<PAGE>
<TABLE>
Ball Corporation and Subsidiaries
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
($ in millions)
<CAPTION>
October 1, 2000 December 31, 1999
-------------------- -------------------
<S> <C> <C>
ASSETS
Current assets
Cash and temporary investments $ 27.4 $ 35.8
Accounts receivable, net 393.9 220.2
Inventories, net (Note 6) 528.2 565.9
Deferred income tax benefits and prepaid expenses 82.1 73.9
-------------------- -------------------
Total current assets 1,031.6 895.8
Property, plant and equipment, net (Note 7) 1,023.9 1,121.2
Goodwill and other assets (Note 8) 657.3 715.1
-------------------- -------------------
Total Assets $ 2,712.8 $ 2,732.1
==================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt and current portion of long-term debt (Note 9) $ 147.8 $ 104.0
Accounts payable 346.7 345.5
Salaries, wages and accrued employee benefits 102.6 114.7
Other current liabilities 86.5 105.9
-------------------- -------------------
Total current liabilities 683.6 670.1
Long-term debt (Note 9) 1,064.5 1,092.7
Employee benefit obligations, deferred income taxes and
other noncurrent liabilities 264.9 258.7
-------------------- -------------------
Total liabilities 2,013.0 2,021.5
-------------------- -------------------
Contingencies (Note 12)
Minority interests 14.1 19.7
-------------------- -------------------
Shareholders' equity (Note 10):
Series B ESOP Convertible Preferred Stock 53.4 56.2
Unearned compensation - ESOP (15.7) (20.5)
-------------------- -------------------
Preferred shareholder's equity 37.7 35.7
-------------------- -------------------
Common stock (36,632,270 shares issued - 2000;
35,849,778 shares issued - 1999) 439.1 413.0
Retained earnings 508.1 481.2
Accumulated other comprehensive loss (29.5) (26.7)
Treasury stock, at cost (7,786,543 shares - 2000;
6,032,651 shares - 1999) (269.7) (212.3)
-------------------- -------------------
Common shareholders' equity 648.0 655.2
-------------------- -------------------
Total shareholders' equity 685.7 690.9
-------------------- -------------------
Total Liabilities and Shareholders' Equity $ 2,712.8 $ 2,732.1
==================== ===================
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
<PAGE>
<TABLE>
Ball Corporation and Subsidiaries
UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
($ in millions)
<CAPTION>
Nine Months Ended
------------------------------------------
October 1, 2000 October 3, 1999
-------------------- -------------------
<S> <C> <C>
Cash flows from operating activities
Net earnings $ 49.1 $ 84.7
Noncash charges to net earnings:
Depreciation and amortization 118.6 122.0
Business consolidation costs, net of related effect on results in
equity affiliates and minority interests 81.3 -
Deferred income taxes (4.3) 30.9
Other, net (14.6) 8.6
Changes in working capital components (181.2) (130.5)
-------------------- -------------------
Net cash provided by operating activities 48.9 115.7
-------------------- -------------------
Cash flows from investing activities
Additions to property, plant and equipment (69.8) (69.1)
Incentive loan receipts and other, net 41.9 3.7
-------------------- -------------------
Net cash used in investing activities (27.9) (65.4)
-------------------- -------------------
Cash flows from financing activities
Long-term borrowings 30.0 50.0
Repayments of long-term borrowings (41.7) (54.4)
Change in short-term borrowings 33.1 (13.6)
Common and preferred dividends (15.4) (15.9)
Net proceeds from issuance of common stock under
various employee and shareholder plans 25.9 30.8
Acquisitions of treasury stock (57.4) (48.1)
Other, net (3.9) (2.5)
-------------------- -------------------
Net cash used in financing activities (29.4) (53.7)
-------------------- -------------------
Net Change in Cash and Temporary Investments (8.4) (3.4)
Cash and Temporary Investments - Beginning of Period 35.8 34.0
-------------------- -------------------
Cash and Temporary Investments - End of Period $ 27.4 $ 30.6
==================== ===================
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
<PAGE>
Ball Corporation and Subsidiaries
October 1, 2000
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. General
The accompanying condensed consolidated financial statements include the
accounts of Ball Corporation and its controlled affiliates (collectively, Ball
or the Company) and have been prepared by the Company without audit. Certain
information and footnote disclosures, including significant accounting policies,
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements, and reported amounts of
revenues and expenses during the reporting period. Future events could affect
these estimates. However, the Company believes that the financial statements
reflect all adjustments which are of a normal recurring nature and are necessary
for a fair statement of the results for the interim period.
Results of operations for the periods shown are not necessarily indicative of
results for the year, particularly in view of the seasonality in the packaging
segment. It is suggested that these unaudited condensed consolidated financial
statements and accompanying notes be read in conjunction with the consolidated
financial statements and the notes thereto included in the Company's latest
annual report.
Certain prior-year amounts have been reclassified in order to conform with the
current-year presentation.
2. New Accounting Standards
Statement of Financial Accounting Standards (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. In June 1999, SFAS No. 137 was
issued to defer the effective date of SFAS No. 133 by one year. SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities -
an Amendment of FASB Statement 133," was issued in June 2000. Both SFAS No. 133
and SFAS No. 138, a partial amendment of SFAS No. 133, will be effective for
Ball in 2001. The Company is in the process of determining the impact on
earnings of adopting these standards.
Staff Accounting Bulletin (SAB) No. 101, which was issued by the U.S. Securities
and Exchange Commission, provides guidance on the recognition, presentation and
disclosure of revenue in the financial statements. SAB 101, as amended by SAB
Nos. 101A and 101B, will be effective for Ball in the fourth quarter of 2000.
The Company does not expect the adoption of this guidance to have any effect on
its results.
The Emerging Issues Task Force (EITF) reached a consensus in September on a
portion of Issue No. 00-10, "Accounting for Shipping and Handling Fees and
Costs," which will require companies to report shipping and handling fees and
costs as a component of cost of sales. The effect, if any, of applying the
guideline will result only in offsetting increases in sales and cost of sales
and will be done for all periods shown for comparative purposes, beginning with
the fourth quarter of 2000.
3. Business Segment Information
Ball's operations are organized along its product lines in two segments - the
packaging segment and the aerospace and technologies segment. The accounting
policies of the segments are the same as those in the unaudited condensed
consolidated financial statements.
<PAGE>
The packaging segment includes the lines of 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). Ball also has investments in packaging
companies located in the PRC, Brazil and Thailand which are accounted for using
the equity method.
The aerospace and technologies segment includes civil space systems, defense
systems, commercial space operations, commercial products and technologies,
systems engineering services, advanced antenna and video systems and products
and technology.
<TABLE>
<CAPTION>
Summary of Business by Segment Three Months Ended Nine Months Ended
----------------------------------- -----------------------------------
($ in millions) October 1, 2000 October 3, 1999 October 1, 2000 October 3, 1999
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net Sales
North American metal beverage containers $ 552.8 $ 592.9 $ 1,687.0 $ 1,753.1
North American metal food containers 186.5 186.9 427.1 398.1
North American plastic beverage containers 67.5 64.9 190.2 180.4
International metal and plastic containers 60.2 52.5 165.8 167.5
----------------- ----------------- ----------------- -----------------
Packaging $ 867.0 $ 897.2 $ 2,470.1 $ 2,499.1
Aerospace and technologies 94.3 94.4 270.0 291.8
----------------- ----------------- ----------------- -----------------
Consolidated net sales $ 961.3 $ 991.6 $ 2,740.1 $ 2,790.9
================= ================= ================= =================
Consolidated Net Earnings
Packaging $ 82.3 $ 88.5 $ 226.2 $ 222.7
Business consolidation costs (Note 4) - - (83.4) -
----------------- ----------------- ----------------- -----------------
82.3 88.5 142.8 222.7
----------------- ----------------- ----------------- -----------------
Aerospace and technologies 9.4 6.6 19.4 19.3
ESOP settlement (Note 4) 7.0 - 7.0 -
----------------- ----------------- ----------------- -----------------
16.4 6.6 26.4 19.3
----------------- ----------------- ----------------- -----------------
Segment earnings before interest and taxes 98.7 95.1 169.2 242.0
Corporate undistributed expenses, net (4.7) (8.7) (15.0) (21.8)
----------------- ----------------- ----------------- -----------------
Earnings before interest and taxes 94.0 86.4 154.2 220.2
Interest expense (24.4) (26.5) (71.6) (82.0)
Provision for taxes (24.3) (22.7) (31.7) (52.4)
Minority interests (0.3) (0.8) 2.1 (1.3)
Equity in net results of affiliates (0.5) 0.6 (3.9) 0.2
----------------- ----------------- ----------------- -----------------
Consolidated net earnings $ 44.5 $ 37.0 $ 49.1 $ 84.7
================= ================= ================= =================
</TABLE>
<TABLE>
<CAPTION>
October 1, 2000 December 31, 1999
-------------------- -------------------
<S> <C> <C>
Net Investment
Packaging $ 1,379.0 $ 1,319.7
Aerospace and technologies 178.3 161.6
-------------------- -------------------
Segment net investment 1,557.3 1,481.3
Consolidating eliminations and other (871.6) (790.4)
-------------------- -------------------
Consolidated net investment $ 685.7 $ 690.9
==================== ===================
</TABLE>
<PAGE>
4. Business Consolidation Costs and Other
On April 3, 2000, the Armed Services Board of Contract Appeals sustained the
Company's claim to recoverability of costs associated with Ball's Employee Stock
Ownership Plan (ESOP) for fiscal years beginning in 1989, and the time frame for
the U.S. government to file an appeal expired in August 2000. Therefore, during
the third quarter, the Company recognized previously disallowed costs of
approximately $7 million (approximately $4 million after tax or 13 cents per
diluted share) related to the ESOP matter.
The Company recorded an $83.4 million pretax charge ($55 million after tax,
minority interests and equity earnings impacts) in the second quarter of 2000
for packaging business consolidation and investment exit activities expected to
be completed by the spring of 2001. The charge includes costs associated with
the permanent closure of one beverage can facility in the U.S. and one in the
PRC, the elimination of food and beverage can manufacturing capacity at two
locations in Canada, the consolidation of general line production capacity in
the PRC and the write-down to net realizable value of certain equity investments
primarily related to a beverage can manufacturing joint venture in Russia.
The $83.4 million charge included (1) $43.9 million for the write-down of fixed
assets held for sale and related spare parts inventory to estimated net
realizable value, including estimated costs to sell, (2) $9 million for
severance, supplemental unemployment and other related benefits, substantially
all of which is related to the termination of 321 manufacturing and
administrative employees in the U.S. and Canada, (3) $14.3 million for
contractual pension and retirement obligations which have been included in the
appropriate liability accounts, (4) $5.4 million for the write-down of goodwill
associated with the closed PRC plant, (5) $8.2 million for the write-down of
equity investments and (6) $2.6 million for other assets and consolidation
costs. Approximately $21 million of the charge will require cash payments,
offset by $26 million of tax benefits. Of the $43.9 million fixed asset write
down, $34.3 million relates to Canada and the PRC. The carrying value of the
remaining fixed assets held for sale at October 1, 2000, was $3 million.
Subsequent changes to the estimated costs of business consolidations, if any,
will be included in current-period earnings.
The following table summarizes the activity related to the plant closing costs
recorded during 2000:
<TABLE>
<CAPTION>
Pension and
($ in millions) Other Post- Other
Fixed Assets/ Employee Retirement Equity Assets/
Spare Parts Costs Obligations Investments Costs Total
-------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Charge to earnings in second
quarter 2000 $ 43.9 $ 9.0 $ 14.3 $ 8.2 $ 8.0 $ 83.4
Payments - (2.4) - - (0.8) (3.2)
Transfers and adjustments to
assets to reflect estimated
realizable values (43.9) - - (8.2) (6.8) (58.9)
Transfers and adjustments to
liabilities - - (14.3) - - (14.3)
-------------- -------------- -------------- -------------- -------------- --------------
Balance at October 1, 2000 $ - $ 6.6 $ - $ - $ 0.4 $ 7.0
============== ============== ============== ============== ============== ==============
</TABLE>
Also during the second quarter, the Company resolved favorably certain state and
federal tax matters related to prior years' transactions. As a result, the
second quarter tax benefit was increased by $2.3 million.
<PAGE>
During the last quarter of 1998, the Company announced the closure of two of its
plants located in the PRC and removed from service manufacturing equipment at a
third plant. The actions resulted in a $56.2 million, largely noncash, charge in
1998, primarily for the write down to net realizable value of fixed assets,
goodwill and other assets. The carrying value of the remaining fixed assets held
for sale at October 1, 2000 was $3.5 million.
5. 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). In connection with the Acquisition, the
Company provided $51.3 million in the opening balance sheet for the costs of
integrating the acquired business, which included the closure of a headquarters
facility and three plants. Included within the $51.3 million was $22.8 million
in pension and other postretirement benefit liabilities. The former headquarters
facility and two of the three plants have been sold. The third plant and certain
equipment remain for sale. Employees of the closed facilities, primarily
comprised of manufacturing and support personnel, have been terminated with
certain benefits continuing in accordance with contractual provisions. The
carrying value of the fixed assets remaining for sale at October 1, 2000 was
approximately $17.3 million. Subsequent increases in actual costs, if any, will
be included in current-period earnings, and decreases, if any, will result in a
reduction of goodwill.
The following table summarizes the year-to-date activity related to the
remaining integration costs associated with the Acquisition:
($ in millions) Employee Other Exit
Severance Costs Total
----------- ----------- -----------
Balance at December 31, 1999 $ 12.8 $ 2.2 $ 15.0
Payments made (3.6) (1.4) (5.0)
Reclassification of prior-period payments - 1.6 1.6
----------- ----------- -----------
Balance at October 1, 2000 $ 9.2 $ 2.4 $ 11.6
=========== =========== ===========
6. Inventories
($ in millions) October 1, December 31,
2000 1999
---------------- ----------------
Raw materials and supplies $ 161.4 $ 238.0
Work in process and finished goods 366.8 327.9
---------------- ----------------
$ 528.2 $ 565.9
================ ================
7. Property, Plant and Equipment
($ in millions) October 1, December 31,
2000 1999
---------------- ----------------
Land $ 58.5 $ 61.6
Buildings 441.5 433.6
Machinery and equipment 1,420.4 1,439.4
---------------- ----------------
1,920.4 1,934.6
Accumulated depreciation (896.5) (813.4)
---------------- ----------------
$ 1,023.9 $ 1,121.2
================ ================
Depreciation expense amounted to $105.9 million and $107.5 million for the
nine-month periods ended October 1, 2000, and October 3, 1999, respectively.
<PAGE>
8. Goodwill and Other Assets
($ in millions) October 1, December 31,
2000 1999
---------------- ----------------
Goodwill (net of accumulated amortization
of $51.1 at October 1, 2000 and $41.9
at December 31, 1999) $ 450.0 $ 482.9
Investments in affiliates 66.1 81.3
Prepaid pension costs and other 141.2 150.9
---------------- ----------------
$ 657.3 $ 715.1
================ ================
Total amortization expense, including goodwill, amounted to $12.7 million and
$14.5 million for the nine-month periods ended October 1, 2000, and October 3,
1999, respectively. Goodwill amortization for the same periods was $9.5 million
and $10.4 million, respectively.
9. Debt and Receivables Sales Agreement
Debt includes $300 million of 7.75% Senior Notes due in 2006, $250 million of
8.25% Senior Subordinated Notes due in 2008 and borrowings under a Senior Credit
Facility, which bear interest at variable rates. At October 1, 2000,
approximately $480 million was available under the revolving credit facility
portion of the Senior Credit Facility.
The Senior Notes, Senior Subordinated Notes and Senior Credit Facility
agreements are guaranteed on a full, unconditional and joint and several basis
by certain of the Company's domestic wholly owned subsidiaries and contain
certain covenants and restrictions including, among other things, limits on the
incurrence of additional indebtedness and limits on the amount of restricted
payments, such as dividends and share repurchases. Exhibit 20.1 contains
condensed, consolidating financial information for the Company, segregating the
guarantor subsidiaries and non-guarantor subsidiaries. Separate financial
statements for the guarantor subsidiaries and the non-guarantor subsidiaries are
not presented because management has determined that such financial statements
would not be material to investors.
The Company was not in default of any loan agreement at October 1, 2000, and has
met all payment obligations. Latapack-Ball Embalagens Ltda. (Latapack-Ball), the
Company's 50 percent-owned equity affiliate in Brazil, was in noncompliance with
certain financial provisions, including current and debt-to-equity ratios, under
a fixed-term loan agreement of which $40.7 million was outstanding at the
quarter end. Latapack-Ball has received waivers from the lender in respect of
the noncompliance covering the periods prior to July 1, 2000, and has requested
a further waiver in respect of the noncompliance during the third quarter.
A receivables sales agreement provides for the ongoing, revolving sale of a
designated pool of trade accounts receivable of Ball's U.S. packaging
operations, up to $125 million. Net funds received from the sale of the accounts
receivable totaled $122.5 million at October 1, 2000, and October 3, 1999. Fees
incurred in connection with the sale of accounts receivable totaled $2.2 million
and $6.3 million for the third quarter and nine months of 2000, respectively,
and $1.8 million and $5.1 million for the same periods in 1999, respectively.
10. Shareholders' Equity
The composition of the accumulated other comprehensive loss at October 1, 2000,
and December 31, 1999, is primarily the cumulative effect of foreign currency
translation and additional minimum pension liability. Issued and outstanding
shares of the Series B ESOP Convertible Preferred Stock were 1,453,864 shares at
October 1, 2000, and 1,530,411 shares at December 31, 1999.
<PAGE>
The following table summarizes total comprehensive income for the third quarter
and first nine months of 2000 and for the comparative periods of 1999.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------------- -----------------------------------
($ in millions) October 1, 2000 October 3, 1999 October 1, 2000 October 3, 1999
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Comprehensive Earnings
Net earnings $ 44.5 $ 37.0 $ 49.1 $ 84.7
Foreign currency translation adjustment 0.2 (1.3) (2.8) 2.3
----------------- ----------------- ----------------- -----------------
Comprehensive earnings $ 44.7 $ 35.7 $ 46.3 $ 87.0
================= ================= ================= =================
</TABLE>
11. Earnings Per Share
The following table provides additional information on the computation of
earnings per share amounts:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------------- -----------------------------------
($ in millions, except per share amounts) October 1, 2000 October 3, 1999 October 1, 2000 October 3, 1999
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Basic Earnings per Share
Net earnings $ 44.5 $ 37.0 $ 49.1 $ 84.7
Preferred dividends, net of tax (0.6) (0.6) (1.9) (2.0)
----------------- ----------------- ----------------- -----------------
Earnings attributable to common shareholders $ 43.9 $ 36.4 $ 47.2 $ 82.7
================= ================= ================= =================
Weighted average common shares (000s) 28,914 30,181 29,358 30,249
================= ================= ================= =================
Basic earnings per share $ 1.52 $ 1.21 $ 1.61 $ 2.73
================= ================= ================= =================
Diluted Earnings per Share
Net earnings $ 44.5 $ 37.0 $ 49.1 $ 84.7
Adjustment for deemed ESOP cash contribution in
lieu of the ESOP Preferred dividend (0.5) (0.5) (1.4) (1.5)
----------------- ----------------- ----------------- -----------------
Earnings attributable to common shareholders $ 44.0 $ 36.5 $ 47.7 $ 83.2
================= ================= ================= =================
Weighted average common shares (000s) 28,914 30,181 29,358 30,249
Effect of dilutive stock options 264 475 264 561
Common shares issuable upon conversion of the
ESOP Preferred stock 1,708 1,802 1,735 1,815
----------------- ----------------- ----------------- -----------------
Weighted average shares applicable
to diluted earnings per share 30,886 32,458 31,357 32,625
================= ================= ================= =================
Diluted earnings per share $ 1.43 $ 1.13 $ 1.52 $ 2.55
================= ================= ================= =================
</TABLE>
12. 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.
<PAGE>
As previously reported, on April 3, 2000, the Armed Services Board of Contract
Appeals sustained the Company's claim to recoverability of costs associated with
Ball's ESOP for fiscal years beginning in 1989. See Note 4 for additional
information.
From time to time, the Company is subject to routine litigation incident to its
business. Additionally, the U.S. Environmental Protection Agency has designated
Ball as a potentially responsible party, along with numerous other companies,
for the cleanup of several hazardous waste sites. However, the Company's
information at this time does not indicate that these matters will have a
material adverse effect upon the liquidity, results of operations or financial
condition of the Company.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's discussion and analysis should be read in conjunction with the
unaudited condensed consolidated financial statements and the accompanying
notes. Ball Corporation and subsidiaries are referred to collectively as "Ball"
or the "Company" in the following discussion and analysis.
RESULTS OF OPERATIONS
Consolidated Sales and Earnings
Ball's operations are organized along its product lines in two segments:
(1) packaging and (2) aerospace and technologies.
Packaging Segment
The packaging segment includes metal and PET (polyethylene terephthalate)
container products, primarily used 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 People's Republic of China (PRC). Packaging
segment sales were 3.4 percent lower in the third quarter of 2000 compared to
1999 and 1.8 percent lower in the first nine months. Excluding the charge taken
in the second quarter of 2000 for business consolidation costs, segment
operating margins were 9.5 percent for the third quarter of 2000 and 9 percent
for the first nine months compared to 9.9 percent and 8.9 percent for the same
periods in 1999. For additional information, see Summary of Business by Segment
in Note 3 accompanying the consolidated financial statements included within
Item 1.
North American metal beverage container sales, which represented approximately
68 percent of segment sales in the first nine months of 2000, decreased
4 percent in comparison to the first nine months of 1999. The decrease was due
to lower soft drink container shipments, experienced industry-wide, plant
closings discussed in Note 4 accompanying the consolidated financial statements
included within Item 1 and lower selling prices driven by a highly
competitive environment. The decrease was partially offset by higher aluminum
prices passed through to certain customers.
At the end of the second quarter of 2000, the Company ceased production at one
of its beverage can manufacturing facilities due to industry overcapacity and
unacceptable pricing. In addition, a production line in Richmond, British
Columbia, ceased operation in October 2000, for which a provision was made as
part of the second quarter business consolidations charge. During the first
quarter of 2000, Ball closed an acquired aluminum beverage can plant in Tampa
and began operation of a new, high-speed production line in its other Tampa
plant.
North American metal food container sales, which comprised approximately
19 percent of segment sales in the first nine months of 2000,
increased approximately 7 percent over the same period in 1999. This
increase was the result of volume gains with several customers, including
ConAgra Grocery Products Company (ConAgra), a new customer in the Eastern U.S.
This overall sales gain was achieved in spite of less than expected salmon and
vegetable pack sales.
Plastic container sales, which comprised approximately 8 percent of segment
sales in the first nine months of 2000, increased approximately 5 percent
compared to the same period in 1999. The increase was primarily due to the
pass-through of increased resin prices and was achieved despite Ball's decision
to not accept an opportunity to sell approximately 240 million units because of
unacceptable pricing. The sales mix continues to be weighted primarily toward
carbonated soft drink and water containers. Plastic beer containers manufactured
by Ball, which utilize a multi-layer technology, are currently being tested by
several Ball customers.
<PAGE>
Sales levels were comparable in the PRC with lower operating earnings compared
to 1999. The PRC can industry continues to suffer from overcapacity, lower
pricing and higher metal costs.
Aerospace and Technologies Segment
The aerospace and technologies segment had lower sales but comparable earnings,
excluding the ESOP litigation settlement, for the first nine months of 2000. The
completion of several programs and the delay of several new program starts
contributed to the lower sales results. Earnings results were higher for the
third quarter due to margin improvements on projects. Backlog at the end of the
third quarter of 2000 was approximately $373 million compared to a backlog of
$346 million at the end of 1999. Year-to-year comparisons of backlog are not
necessarily indicative of the trend of future operations. For additional
information, see Summary of Business by Segment in Note 3 accompanying the
consolidated financial statements included within Item 1.
Selling and Administrative Expenses
Consolidated selling and administrative expenses in 2000 were comparable to
1999, which included a $4.7 million charge in April 1999 in connection with an
executive stock option grant which vested when the Company's closing stock price
reached specified levels. Excluding this stock compensation charge, expenses
were higher in the first nine months of 2000 compared to 1999 due in large part
to higher estimated employee compensation and benefit accruals. Undistributed
corporate expenses were lower for both the quarter and year-to-date compared to
the same periods in 1999 largely due to higher allocations to the operations and
reduced incentive compensation accruals in 2000.
Interest and Taxes
Consolidated interest expense for the third quarter and first nine months of
2000 was $24.4 million and $71.6 million, respectively, compared to $26.5
million and $82 million for the same periods in 1999, respectively. The decrease
is attributable to lower average debt levels combined with increased capitalized
interest due to the Tampa plant expansion. A higher percentage of fixed debt at
lower rates, partially as a result of fixing certain previously floating rate
debt through the use of derivative instruments, also contributed to the
decrease.
Ball's higher consolidated effective income tax rate for the first nine months
of 2000, as compared to the same period in 1999, primarily reflects the impact
of currently unrealized capital losses in connection with the write-down of
equity investments and the effects of nondeductible goodwill included in the
second quarter charge for business consolidation costs and investment exit
activities. This was partially offset by the effects of the favorable resolution
during the period of certain prior years' federal and state tax matters for $2.3
million. For the third quarter of 2000, the lower effective rate, as compared to
the same period in the prior year, reflects the effects of the resolution of tax
matters as a result of normal audit cycles concluding.
The year-to-date effective income tax rate for 2000 showing the tax effect of
business consolidation costs and favorable tax settlements in the second quarter
is illustrated below:
<TABLE>
<CAPTION>
Effect of Business
Before Business Consolidation Costs
Consolidation and State Tax
Costs Settlement Total
------------------- ------------------- -------------------
<S> <C> <C> <C>
Income tax provision (benefit) $ 60.2 $ (28.5) $ 31.7
Pretax earnings (loss) 166.0 (83.4) 82.6
Effective income tax rate 36.3% 34.2% 38.4%
</TABLE>
The Company expects its effective tax rate, before the effects of unusual items,
to be approximately 36 percent for the year.
<PAGE>
Results of Equity Affiliates and Minority Interests
Minority interests' share of losses was $2.1 million for the first nine months
of 2000, compared to their share of income of $1.3 million for the same period
in 1999. The loss in 2000 primarily reflects the minority share of the charge
for business consolidations in the PRC recorded in the second quarter.
Equity in the net results of affiliates is largely attributable to that from
investments in the PRC, Thailand and Brazil. Results were a loss of $3.9 million
in the first nine months of 2000, compared to earnings of $0.2 million for the
same period in 1999. Results in Brazil were hampered by the impact of currency
hedging losses and slower domestic sales, while lower results in the PRC reflect
the continued effects of excess capacity in the industry, coupled with higher
metal costs relative to last year.
Other Items
On April 3, 2000, the Armed Services Board of Contract Appeals sustained the
Company's claim to recoverability of costs associated with Ball's ESOP. See Note
4 accompanying the consolidated financial statements included within Item 1.
The Company recorded an $83.4 million pretax charge ($55 million after tax,
minority interests and equity earnings impacts) in the second quarter for
packaging business consolidation and investment exit activities. The charge
includes costs associated with the permanent closure of two beverage can
facilities, the elimination or consolidation of certain production lines and the
write-down to net realizable value of certain international equity investments.
The actions to be taken, which are expected to completed by the spring of 2001,
are largely the result of improved operating efficiencies throughout Ball's
packaging business and are consistent with the Company's objective to keep
manufacturing costs low. Additional details about the business consolidation and
investment exit activities are provided in Note 4 accompanying the consolidated
financial statements included within Item 1.
The following table summarizes the plant closing costs, the settlement of the
ESOP litigation and the favorable tax settlements included in the consolidated
statement of earnings for the nine months ended October 1, 2000:
<TABLE>
<CAPTION>
Pre-Tax Tax Equity Net
($ in millions) Income Benefits Minority Earnings in Earnings
(Charge) (Expense) Interests Affiliates Impact
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Plant closing costs $ (83.4) $ 26.2 $ 3.0 $ (0.8) $ (55.0)
ESOP settlement 7.0 (2.7) - - 4.3
Resolution of prior years' tax
matters - 2.3 - - 2.3
------------- ------------- ------------- ------------- -------------
$ (76.4) $ 25.8 $ 3.0 $ (0.8) $ (48.4)
============= ============= ============= ============= =============
</TABLE>
In connection with the Acquisition in 1998, discussed in Note 5 accompanying the
consolidated financial statements included within Item 1, the Company provided
$51.3 million in the opening balance sheet for the costs of integrating the
acquired business, which included the closure of a headquarters facility and
three plants. The employees have been terminated and the former headquarters
facility and two of the three plants have been sold as of October 2000. The
third plant and certain equipment remain for sale. Also during 1998, the Company
announced the closure of two of its plants located in the PRC and removed from
service manufacturing equipment at a third plant. The actions resulted in a
$56.2 million, largely noncash, charge in 1998, primarily for the write-down to
net realizable value of fixed assets, goodwill and other assets. Additional
details about the reserves associated with these activities are provided in
Notes 4 and 5 of the accompanying notes to the consolidated financial statements
included within Item 1.
<PAGE>
Details of recently promulgated accounting and reporting standards which may
affect the Company are provided in Note 2 accompanying the consolidated
financial statements included within Item 1.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The $48.9 million of cash provided by operations in the first nine months of
2000 reflected seasonally increased working capital partially offset by the
largely noncash charge taken in the second quarter for business consolidation
costs. Capital spending of $69.8 million in the first nine months of 2000 was
below depreciation of $105.9 million. Capital spending is expected to be
approximately $110 million for the year.
Total debt increased to $1,212.3 million at October 1, 2000, compared to
$1,196.7 million at December 31, 1999, primarily due to seasonal financing for
the normal increase in accounts receivable as well as the Company's repurchase
of its common shares, net of proceeds from common shares issued in connection
with employee stock plans. Total debt is expected to be approximately $70 to $80
million lower by year end than it was at December 31, 1999, as a result of
expected strong collections of accounts receivable in the fourth quarter,
partially offset by a planned build in inventories and approximately $20 million
of additional repurchases of the Company's common shares, net of proceeds from
common shares issued. The debt-to-total capitalization ratio of 63.4 percent at
October 1, 2000, rose slightly from 62.7 percent at December 31, 1999, due to
the seasonal working capital requirements.
Debt includes $300 million of 7.75% Senior Notes due in 2006, $250 million of
8.25% Senior Subordinated Notes due in 2008 and borrowings under a Senior Credit
Facility, which bear interest at variable rates. At October 1, 2000,
approximately $480 million was available under the revolving credit facility
portion of the Senior Credit Facility.
Ball Asia Pacific Holdings Limited and its consolidated subsidiaries had
short-term uncommitted credit facilities of approximately $116 million at the
end of the third quarter, of which $58.6 million was outstanding at October 1,
2000.
A receivables sales agreement provides for the ongoing, revolving sale of a
designated pool of trade accounts receivable of Ball's U.S. packaging
operations, up to $125 million. Net funds received from the sale of the accounts
receivable totaled $122.5 million at October 1, 2000, and October 3, 1999.
The Company was not in default of any loan agreement at October 1, 2000, and has
met all payment obligations. However, its 50 percent-owned equity affiliate in
Brazil is in noncompliance with certain financial provisions. Latapack-Ball has
received waivers from the lender in respect of the noncompliance covering the
periods prior to July 1, 2000, and has requested a further waiver in respect of
the noncompliance during the third quarter.
Additional details about the Company's debt and receivables sales agreement are
available in Note 9 accompanying the consolidated financial statements included
within Item 1.
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.
<PAGE>
As previously reported, on April 3, 2000, the Armed Services Board of Contract
Appeals sustained the Company's claim to recoverability of costs associated with
Ball's ESOP for fiscal years beginning in 1989. See Note 4 accompanying the
consolidated financial statements included within Item 1 for additional
information.
From time to time, the Company is subject to routine litigation incident to its
business. Additionally, the U.S. Environmental Protection Agency has designated
Ball as a potentially responsible party, along with numerous other companies,
for the cleanup of several hazardous waste sites. However, the Company's
information at this time does not indicate that these matters will have a
material adverse effect upon the liquidity, results of operations or financial
condition of the Company.
<PAGE>
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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, fluctuations in foreign currencies and the
Company's common share repurchase program. The Company's objective in managing
its exposure to commodity price changes is to limit the impact of raw material
price changes on earnings and cash flow through arrangements with customers and
suppliers and, at times, through the use of certain derivative instruments, such
as options and forward contracts, 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.
The Company primarily manages the commodity price risk in connection with market
price fluctuations of aluminum by entering into customer sales contracts for
cans and ends which include aluminum-based pricing terms which consider price
fluctuations under its commercial supply contracts for aluminum purchases. The
terms include "band" pricing where there is an upper and lower limit, a fixed
price or only an upper limit to the aluminum component pricing. This matched
pricing affects substantially all of the Company's North American metal beverage
packaging net sales. The Company also, at times, uses certain derivative
instruments such as option and forward contracts to hedge commodity price risk.
Unrealized losses on foreign exchange forward contracts are recorded in the
balance sheet as other current liabilities. Realized gains/losses from hedges
are classified in the income statement consistent with the 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 changes 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 as of October 1,
2000, did not differ materially from the amounts reported as of December 31,
1999. Actual changes in market prices or rates may differ from hypothetical
changes.
FORWARD-LOOKING STATEMENTS
The Company has made or implied certain forward-looking statements in this
report. These forward-looking statements represent the Company's goals and are
based on certain assumptions and estimates regarding the worldwide economy,
specific industry technological innovations, industry competitive activity,
interest rates, capital expenditures, pricing, currency movements, product
introductions and the development of certain domestic and international markets.
Some factors that could cause the Company's actual results or outcomes to differ
materially from those discussed in the forward-looking statements include, but
are not limited to, fluctuation in customer growth and demand; insufficient
production capacity; the weather; power and natural resource costs and
availability; shortages in and pricing of raw materials; competition in pricing
and the possible decrease in, or loss of, sales resulting therefrom; loss of
profitability and plant closures; 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, funding and
availability of government contracts and the nature and continuation of those
contracts and related services provided thereunder; the success or lack of
<PAGE>
success of satellite launches and the businesses and governments associated with
the launches; international business risks such as the devaluation of
international currencies; the ability or inability to obtain adequate credit
resources for foreseeable financing requirements of the Company's businesses and
to satisfy the resulting credit obligations and unsuccessful acquisitions, joint
ventures or divestitures. If the Company's assumptions and estimates are
incorrect, or if it is unable to achieve its goals, then the Company's actual
performance could vary materially from those goals expressed or implied in the
forward-looking statements.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On March 3, 2000, Pechiney Plastic Packaging, Inc., and Pechiney Emballage
Flexible Europe (Pechiney) filed a lawsuit against Kortec, Inc.; Crown Cork &
Seal Company, Inc.; Crown Cork & Seal Technologies Corporation and Ball Plastic
Container Corp. in the U.S. District Court for the District of Massachusetts.
Pechiney alleges that the defendants have infringed two of its patents with
respect to methods and apparatus for injection molding and injection blow
molding multi-layer plastic containers. Pechiney seeks an injunction and
damages. Kortec is a supplier to Ball Plastic Container Corp. of equipment for
use in manufacturing multi-layered plastic bottles. Kortec has agreed to defend
Ball Plastic Container Corp. against the claims for infringement of patents
arising out of the purchase and use of such equipment purchased from Kortec and
has assumed the defense of the action. The discovery process has begun. Based
upon the information, or lack thereof, available to the Company at the present
time, the Company is unable to express an opinion as to the actual exposure of
the Company; however, the Company does not believe that this matter will have a
material adverse affect upon the liquidity, results of operations or financial
condition of the Company.
On January 27, 1999, Plastic Solutions of Texas, Inc. (PST) and Kurt H. Ruppman,
Sr. (Ruppman) filed a Statement of Claim with the American Arbitration
Association alleging the Company breached a contract between the Company and PST
and Ruppman relating to the grant of a license under certain patents and
technology owned by PST and Ruppman relating to the use of cryogenics in the
manufacture of hot fill PET bottles. The Company has denied the allegations of
the complaint. An arbitration hearing commenced on March 7, 2000, and has
continued on a periodic basis since, but both parties have completed their case
in chief and provided any rebuttal evidence. Final arguments were presented, and
the arbitrator has the case under advisement. Based upon the information, or
lack thereof, available to the Company at the present time, the Company is
unable to express an opinion to the actual exposure of the Company; however, the
Company does not believe that this matter will have a material adverse effect
upon the liquidity, results of operations or financial condition of the Company.
Item 2. Changes in Securities
There were no events required to be reported under Item 2 for the quarter ending
October 1, 2000.
Item 3. Defaults Upon Senior Securities
There were no events required to be reported under Item 3 for the quarter ending
October 1, 2000.
Item 4. Submission of Matters to a Vote of Security Holders
There were no events required to be reported under Item 4 for the quarter ending
October 1, 2000.
Item 5. Other Information
There were no events required to be reported under Item 5 for the quarter ending
October 1, 2000.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
20.1 Subsidiary Guarantees of Debt
27.1 Financial Data Schedule
99.1 Safe Harbor Statement Under the Private Securities
Litigation Reform Act of 1995, as amended
(b) Reports on Form 8-K
There were no Current Reports on Form 8-K filed during the quarter
ending October 1, 2000.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Ball Corporation
(Registrant)
By: /s/ Raymond J. Seabrook
------------------------------
Raymond J. Seabrook
Senior Vice President and
Chief Financial Officer
Date: November 15, 2000
<PAGE>
Ball Corporation and Subsidiaries
QUARTERLY REPORT ON FORM 10-Q
October 1, 2000
EXHIBIT INDEX
Description Exhibit
----------- -------
Subsidiary Guarantees of Debt (Filed herewith.) EX-20.1
Financial Data Schedule (Filed herewith.) EX-27.1
Safe Harbor Statement Under the Private Securities
Litigation Reform Act of 1995, as amended (Filed herewith.) EX-99.1
