UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
☒ |
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For the quarterly period ended SeptemberQuarterly Period Ended June 30, 20172018
or
◻ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 001-07349
BALL CORPORATION
State of Indiana (State or other jurisdiction of incorporation or | 35-0160610 (I.R.S. Employer Identification No.) |
10 Longs Peak Drive, P.O. Box 5000 Broomfield, CO 80021-2510 (Address of registrant’s principal executive office) | 80021-2510 (Zip Code) |
Registrant’s telephone number, including area code: 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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ☒ | Accelerated filer ☐ |
Non-accelerated filer ☐(Do not check if a smaller reporting company) | Smaller reporting company☐ |
| Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ 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 |
Common Stock, without par value |
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Ball Corporation
QUARTERLY REPORT ON FORM 10-Q
For the period ended SeptemberJune 30, 20172018
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| Notes to the Unaudited Condensed Consolidated Financial Statements |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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2
BALL CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
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| Three Months Ended September 30, |
| Nine Months Ended September 30, |
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| Three Months Ended June 30, |
| Six Months Ended June 30, |
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($ in millions, except per share amounts) |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
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| 2018 |
| 2017 |
| 2018 |
| 2017 |
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Net sales |
| $ | 2,908 |
| $ | 2,752 |
| $ | 8,236 |
| $ | 6,537 |
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| $ | 3,101 |
| $ | 2,855 |
| $ | 5,886 |
| $ | 5,328 |
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Costs and expenses |
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Cost of sales (excluding depreciation and amortization) |
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| (2,338) |
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| (2,275) |
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| (6,583) |
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| (5,288) |
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| (2,484) |
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| (2,270) |
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| (4,721) |
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| (4,245) |
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Depreciation and amortization |
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| (162) |
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| (147) |
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| (539) |
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| (299) |
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| (178) |
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| (229) |
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| (358) |
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| (377) |
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Selling, general and administrative |
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| (127) |
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| (135) |
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| (398) |
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| (348) |
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| (127) |
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| (128) |
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| (239) |
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| (271) |
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Business consolidation and other activities |
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| (157) |
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| (63) |
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| (253) |
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| (302) |
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| (69) |
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| (41) |
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| (99) |
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| (96) |
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| (2,784) |
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| (2,620) |
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| (7,773) |
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| (6,237) |
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| (2,858) |
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| (2,668) |
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| (5,417) |
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| (4,989) |
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Earnings before interest and taxes |
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| 124 |
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| 132 |
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| 463 |
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| 300 |
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| 243 |
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| 187 |
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| 469 |
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| 339 |
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Interest expense |
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| (74) |
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| (80) |
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| (216) |
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| (159) |
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| (77) |
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| (74) |
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| (150) |
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| (142) |
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Debt refinancing and other costs |
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| — |
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| (2) |
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| (1) |
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| (108) |
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| — |
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| (1) |
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| (1) |
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| (1) |
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Total interest expense |
|
| (74) |
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| (82) |
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| (217) |
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| (267) |
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| (77) |
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| (75) |
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| (151) |
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| (143) |
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Earnings before taxes |
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| 50 |
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| 50 |
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| 246 |
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| 33 |
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| 166 |
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| 112 |
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| 318 |
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| 196 |
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Tax (provision) benefit |
|
| (4) |
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| (23) |
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| (48) |
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| 174 |
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| (46) |
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| (22) |
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| (80) |
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| (44) |
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Equity in results of affiliates, net of tax |
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| 5 |
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| 7 |
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| 23 |
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| 6 |
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| — |
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| 10 |
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| 7 |
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| 18 |
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Net earnings |
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| 51 |
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| 34 |
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| 221 |
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| 213 |
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| 120 |
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| 100 |
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| 245 |
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| 170 |
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Net earnings attributable to noncontrolling interests |
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| (3) |
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| (3) |
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| (6) |
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| (3) |
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| (1) |
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| (1) |
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| (1) |
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| (3) |
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Net earnings attributable to Ball Corporation |
| $ | 48 |
| $ | 31 |
| $ | 215 |
| $ | 210 |
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| $ | 119 |
| $ | 99 |
| $ | 244 |
| $ | 167 |
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Earnings per share: |
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Basic |
| $ | 0.14 |
| $ | 0.09 |
| $ | 0.61 |
| $ | 0.69 |
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| $ | 0.34 |
| $ | 0.28 |
| $ | 0.70 |
| $ | 0.48 |
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Diluted |
| $ | 0.13 |
| $ | 0.09 |
| $ | 0.60 |
| $ | 0.67 |
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| $ | 0.34 |
| $ | 0.28 |
| $ | 0.68 |
| $ | 0.47 |
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Weighted average shares outstanding: (000s) |
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Basic |
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| 350,327 |
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| 349,128 |
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| 350,481 |
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| 305,756 |
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| 348,221 |
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| 351,066 |
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| 349,212 |
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| 350,560 |
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Diluted |
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| 358,556 |
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| 355,404 |
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| 358,492 |
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| 312,176 |
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| 354,904 |
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| 358,979 |
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| 356,276 |
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| 358,506 |
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Cash dividends declared and paid, per share |
| $ | 0.10 |
| $ | 0.10 |
| $ | 0.20 |
| $ | 0.165 |
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See accompanying notes to the unaudited condensed consolidated financial statements.
1
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BALL CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)
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| Three Months Ended June 30, |
| Six Months Ended June 30, |
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($ in millions) |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
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Net earnings |
| $ | 120 |
| $ | 100 |
| $ | 245 |
| $ | 170 |
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Other comprehensive earnings (loss): |
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Foreign currency translation adjustment |
|
| (121) |
|
| (71) |
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| (110) |
|
| 13 |
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Pension and other postretirement benefits |
|
| 3 |
|
| (24) |
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| 19 |
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| (18) |
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Effective financial derivatives |
|
| 32 |
|
| (35) |
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| (20) |
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| 16 |
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Total other comprehensive earnings (loss) |
|
| (86) |
|
| (130) |
|
| (111) |
|
| 11 |
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Income tax (provision) benefit |
|
| (8) |
|
| 24 |
|
| — |
|
| 11 |
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Total other comprehensive earnings (loss), net of tax |
|
| (94) |
|
| (106) |
|
| (111) |
|
| 22 |
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Total comprehensive earnings (loss) |
|
| 26 |
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| (6) |
|
| 134 |
|
| 192 |
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Comprehensive (earnings) loss attributable to noncontrolling interests |
|
| (1) |
|
| (1) |
|
| (1) |
|
| (3) |
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Comprehensive earnings (loss) attributable to Ball Corporation |
| $ | 25 |
| $ | (7) |
| $ | 133 |
| $ | 189 |
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See accompanying notes to the unaudited condensed consolidated financial statements.
2
BALL CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
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| June 30, |
| December 31, |
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($ in millions) |
| 2018 |
| 2017 |
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Assets |
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Current assets |
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Cash and cash equivalents |
| $ | 549 |
| $ | 448 |
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Receivables, net |
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| 2,013 |
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| 1,634 |
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Inventories, net |
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| 1,257 |
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| 1,526 |
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Other current assets |
|
| 206 |
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| 145 |
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Assets held for sale |
|
| 850 |
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| 5 |
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Total current assets |
|
| 4,875 |
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| 3,758 |
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Noncurrent assets |
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Property, plant and equipment, net |
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| 4,473 |
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| 4,610 |
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Goodwill |
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| 4,516 |
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| 4,933 |
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Intangible assets, net |
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| 2,305 |
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| 2,462 |
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Other assets |
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| 1,366 |
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| 1,406 |
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Total assets |
| $ | 17,535 |
| $ | 17,169 |
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Liabilities and Shareholders' Equity |
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Current liabilities |
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Short-term debt and current portion of long-term debt |
| $ | 176 |
| $ | 453 |
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Accounts payable |
|
| 2,739 |
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| 2,762 |
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Accrued employee costs |
|
| 256 |
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| 352 |
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Other current liabilities |
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| 558 |
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| 540 |
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Liabilities held for sale |
|
| 225 |
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| — |
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Total current liabilities |
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| 3,954 |
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| 4,107 |
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Noncurrent liabilities |
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Long-term debt |
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| 7,171 |
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| 6,518 |
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Employee benefit obligations |
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| 1,452 |
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| 1,463 |
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Deferred taxes |
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| 666 |
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| 695 |
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Other liabilities |
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| 297 |
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| 340 |
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Total liabilities |
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| 13,540 |
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| 13,123 |
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Shareholders' equity |
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Common stock (672,069,984 shares issued - 2018; 670,576,215 shares issued - 2017) |
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| 1,120 |
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| 1,084 |
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Retained earnings |
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| 5,199 |
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| 4,987 |
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Accumulated other comprehensive earnings (loss) |
|
| (767) |
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| (656) |
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Treasury stock, at cost (325,459,294 shares - 2018; 320,694,598 shares - 2017) |
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| (1,663) |
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| (1,474) |
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Total Ball Corporation shareholders' equity |
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| 3,889 |
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| 3,941 |
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Noncontrolling interests |
|
| 106 |
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| 105 |
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Total shareholders' equity |
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| 3,995 |
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| 4,046 |
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Total liabilities and shareholders' equity |
| $ | 17,535 |
| $ | 17,169 |
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See accompanying notes to the unaudited condensed consolidated financial statements.
3
BALL CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)
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| Three Months Ended September 30, |
| Nine Months Ended September 30, |
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($ in millions) |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
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Net earnings |
| $ | 51 |
| $ | 34 |
| $ | 221 |
| $ | 213 |
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Other comprehensive earnings (loss): |
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Foreign currency translation adjustment |
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| 3 |
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| (17) |
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| 16 |
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| (17) |
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Pension and other postretirement benefits |
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| 19 |
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| 5 |
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| 1 |
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| 68 |
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Effective financial derivatives |
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| (7) |
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| (17) |
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| 9 |
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| (6) |
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Total other comprehensive earnings (loss) |
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| 15 |
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| (29) |
|
| 26 |
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| 45 |
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Income tax (provision) benefit |
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| (20) |
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| 5 |
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| (9) |
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| (22) |
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Total other comprehensive earnings (loss), net of tax |
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| (5) |
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| (24) |
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| 17 |
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| 23 |
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Total comprehensive earnings |
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| 46 |
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| 10 |
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| 238 |
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| 236 |
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Comprehensive (earnings) loss attributable to noncontrolling interests |
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| (4) |
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| (3) |
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| (7) |
|
| (3) |
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Comprehensive earnings (loss) attributable to Ball Corporation |
| $ | 42 |
| $ | 7 |
| $ | 231 |
| $ | 233 |
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See accompanying notes to the unaudited condensed consolidated financial statements.
4
BALL CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETSCASH FLOWS
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| September 30, |
| December 31, |
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($ in millions) |
| 2017 |
| 2016 |
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Assets |
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Current assets |
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Cash and cash equivalents |
| $ | 556 |
| $ | 597 |
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Receivables, net |
|
| 1,793 |
|
| 1,491 |
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Inventories, net |
|
| 1,433 |
|
| 1,413 |
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Other current assets |
|
| 148 |
|
| 152 |
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Total current assets |
|
| 3,930 |
|
| 3,653 |
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Noncurrent assets |
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Property, plant and equipment, net |
|
| 4,525 |
|
| 4,387 |
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Goodwill |
|
| 4,908 |
|
| 5,095 |
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Intangible assets, net |
|
| 2,490 |
|
| 1,934 |
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Other assets |
|
| 1,150 |
|
| 1,104 |
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Total assets |
| $ | 17,003 |
| $ | 16,173 |
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Liabilities and Shareholders' Equity |
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|
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Current liabilities |
|
|
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Short-term debt and current portion of long-term debt |
| $ | 452 |
| $ | 222 |
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Accounts payable |
|
| 2,419 |
|
| 2,033 |
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Accrued employee costs |
|
| 298 |
|
| 315 |
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Other current liabilities |
|
| 609 |
|
| 399 |
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Total current liabilities |
|
| 3,778 |
|
| 2,969 |
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Noncurrent liabilities |
|
|
|
|
|
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Long-term debt |
|
| 7,104 |
|
| 7,310 |
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Employee benefit obligations |
|
| 1,406 |
|
| 1,497 |
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Deferred taxes |
|
| 655 |
|
| 439 |
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Other liabilities |
|
| 422 |
|
| 417 |
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Total liabilities |
|
| 13,365 |
|
| 12,632 |
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|
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Shareholders' equity |
|
|
|
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|
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Common stock (670,349,807 shares issued - 2017; 668,504,350 shares issued - 2016) (a) |
|
| 1,072 |
|
| 1,038 |
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Retained earnings |
|
| 4,863 |
|
| 4,739 |
|
Accumulated other comprehensive earnings (loss) |
|
| (925) |
|
| (941) |
|
Treasury stock, at cost (320,498,748 shares - 2017; 318,774,098 shares - 2016) (a) |
|
| (1,481) |
|
| (1,401) |
|
Total Ball Corporation shareholders' equity |
|
| 3,529 |
|
| 3,435 |
|
Noncontrolling interests |
|
| 109 |
|
| 106 |
|
Total shareholders' equity |
|
| 3,638 |
|
| 3,541 |
|
Total liabilities and shareholders' equity |
| $ | 17,003 |
| $ | 16,173 |
|
|
|
|
|
|
|
|
|
|
| Six Months Ended June 30, |
| ||||
($ in millions) |
| 2018 |
| 2017 |
| ||
|
|
|
|
|
|
|
|
Cash Flows from Operating Activities |
|
|
|
|
|
|
|
Net earnings |
| $ | 245 |
| $ | 170 |
|
Adjustments to reconcile net earnings to cash provided by (used in) continuing operating activities: |
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 358 |
|
| 377 |
|
Business consolidation and other activities |
|
| 99 |
|
| 96 |
|
Deferred tax provision (benefit) |
|
| 37 |
|
| (59) |
|
Other, net (a) |
|
| 48 |
|
| (147) |
|
Changes in working capital components, net of dispositions (b) |
|
| (353) |
|
| (176) |
|
Cash provided by (used in) operating activities (a) |
|
| 434 |
|
| 261 |
|
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
Capital expenditures |
|
| (444) |
|
| (240) |
|
Business dispositions, net of cash sold |
|
| (45) |
|
| 31 |
|
Other, net |
|
| 39 |
|
| 2 |
|
Cash provided by (used in) investing activities |
|
| (450) |
|
| (207) |
|
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
Long-term borrowings |
|
| 1,426 |
|
| 290 |
|
Repayments of long-term borrowings |
|
| (840) |
|
| (561) |
|
Net change in short-term borrowings |
|
| (165) |
|
| 91 |
|
Proceeds from issuances of common stock, net of shares used for taxes |
|
| 9 |
|
| 14 |
|
Acquisitions of treasury stock |
|
| (184) |
|
| (3) |
|
Common stock dividends |
|
| (70) |
|
| (58) |
|
Other, net |
|
| (12) |
|
| (1) |
|
Cash provided by (used in) financing activities |
|
| 164 |
|
| (228) |
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
| (50) |
|
| 8 |
|
|
|
|
|
|
|
|
|
Change in cash, cash equivalents and restricted cash (a) |
|
| 98 |
|
| (166) |
|
Cash, cash equivalents and restricted cash - beginning of period (a) |
|
| 459 |
|
| 607 |
|
Cash, cash equivalents and restricted cash - end of period (a) |
| $ | 557 |
| $ | 441 |
|
(a) | Amounts in |
See accompanying notes to the unaudited condensed consolidated financial statements.
5
BALL CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
| Nine Months Ended September 30, | ||||
($ in millions) |
| 2017 |
| 2016 | ||
|
|
|
|
|
|
|
Cash Flows from Operating Activities |
|
|
|
|
|
|
Net earnings |
| $ | 221 |
| $ | 213 |
Adjustments to reconcile net earnings to cash provided by (used in) continuing operating activities: |
|
|
|
|
|
|
Depreciation and amortization |
|
| 539 |
|
| 299 |
Business consolidation and other activities |
|
| 253 |
|
| 302 |
Deferred tax provision (benefit) |
|
| — |
|
| (165) |
Other, net |
|
| (229) |
|
| 78 |
Changes in working capital components, net of acquisitions and dispositions (a) |
|
| (37) |
|
| (1,160) |
Cash provided by (used in) operating activities |
|
| 747 |
|
| (433) |
Cash Flows from Investing Activities |
|
|
|
|
|
|
Capital expenditures |
|
| (404) |
|
| (398) |
Business acquisitions, net of cash acquired |
|
| — |
|
| (3,379) |
Business dispositions, net of cash sold |
|
| 31 |
|
| 2,941 |
Decrease in restricted cash |
|
| — |
|
| 1,966 |
Settlement of Rexam acquisition related derivatives |
|
| — |
|
| (252) |
Other, net |
|
| 3 |
|
| 2 |
Cash provided by (used in) investing activities |
|
| (370) |
|
| 880 |
Cash Flows from Financing Activities |
|
|
|
|
|
|
Long-term borrowings |
|
| 440 |
|
| 4,370 |
Repayments of long-term borrowings |
|
| (909) |
|
| (4,348) |
Net change in short-term borrowings |
|
| 220 |
|
| 156 |
Proceeds from issuances of common stock, net of shares used for taxes |
|
| 18 |
|
| 38 |
Acquisitions of treasury stock |
|
| (103) |
|
| (98) |
Common stock dividends |
|
| (93) |
|
| (60) |
Other, net |
|
| (2) |
|
| (15) |
Cash provided by (used in) financing activities |
|
| (429) |
|
| 43 |
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
| 11 |
|
| (69) |
|
|
|
|
|
|
|
Change in cash and cash equivalents |
|
| (41) |
|
| 421 |
Cash and cash equivalents - beginning of period |
|
| 597 |
|
| 224 |
Cash and cash equivalents - end of period |
| $ | 556 |
| $ | 645 |
| Includes payments of costs associated with the acquisition of Rexam and the related sale of |
See accompanying notes to the unaudited condensed consolidated financial statements.
64
The accompanying unaudited condensed consolidated financial statements include the accounts of Ball Corporation and its controlled affiliates, including its consolidated variable interest entities (collectively Ball, the company, we or our)., and have been prepared by the company. Certain information and footnote disclosures, including critical and significant accounting policies normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP),accounting principles, have been condensed or omitted for this quarterly presentation.
Results of operations for the periods shown are not necessarily indicative of results expected for the full year, particularly in view of the seasonality in ourthe packaging segments and the variability of contract revenuessales in the company’s aerospace segment and the acquisition of Rexam PLC (Rexam) and divestiture of certain assets and liabilities of the combined business (the Divestment Business) on June 30, 2016.segment. These unaudited condensed consolidated financial statements and accompanying notes should be read in conjunction with the consolidated financial statements and the notes thereto included in the company’s AnnualCurrent Report on Form 10-K8-K filed on March 2, 2017,6, 2018, pursuant to Section 13 of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 20162017 (annual report).
The preparation of financial statements in conformity with U.S. GAAPaccounting principles generally accepted in the United States of America (U.S. GAAP) requires Ball’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and reported amounts of revenuessales and expenses during the reporting periods. These estimates are based on historical experience and various assumptions believed to be reasonable under the circumstances. Ball’s management evaluates these estimates on an ongoing basis and adjusts or revises the estimates as circumstances change. As future events and their impacts cannot be determined with precision, actual results may differ from these estimates. In the opinion of management, the financial statements reflect all adjustments necessary to fairly state the results of the periods presented.
Certain prior periodyear amounts have been reclassified in order to conform to the current periodyear presentation.
Revision
2. Accounting Pronouncements
Recently Adopted Accounting Standards
Revenue from Contracts with Customers
On January 1, 2018, Ball adopted Accounting Standard Codification 606, “Revenue from Contracts with Customers,” and all related amendments (collectively, the new revenue standard) applying the modified retrospective method to all contracts that were not completed as of January 1, 2018. The cumulative effect of initially applying the Third Quarter 2016new revenue standard was recognized as an adjustment to the retained earnings balance as of January 1, 2018. Comparative periods have not been restated and continue to be reported under the accounting standards in effect for those periods.
5
During the third and fourth quarters of 2016, Ball identified errors in the determination
The cumulative effect of the tax basischanges made to the consolidated January 1, 2018, balance sheet for the gain on the saleadoption of the Divestment business,new revenue standard is as follows:
|
|
|
|
|
|
|
|
|
|
($ in millions) |
| Balance at December 31, 2017 |
| Adjustments Due to Adoption |
| Balance at January 1, | |||
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
Receivables, net |
| $ | 1,634 |
| $ | 307 |
| $ | 1,941 |
Inventories, net |
|
| 1,526 |
|
| (241) |
|
| 1,285 |
Other current assets |
|
| 150 |
|
| (4) |
|
| 146 |
Liabilities |
|
|
|
|
|
|
|
|
|
Other current liabilities |
|
| 540 |
|
| 17 |
|
| 557 |
Deferred taxes |
|
| 695 |
|
| 7 |
|
| 702 |
Shareholders' equity |
|
|
|
|
|
|
|
|
|
Retained earnings |
|
| 4,987 |
|
| 37 |
|
| 5,024 |
Accumulated other comprehensive earnings (loss) |
|
| (656) |
|
| 1 |
|
| (655) |
In accordance with the release of deferred taxes related to the acquisition of Rexam for the step-up of inventory value, the amount of gain reported on the saledisclosure requirements of the Divestment Business, payroll taxes for compensation arrangements associated withnew revenue standard, the Rexam acquisition, and net sales and costimpact of sales that were recorded gross instead of net in theadoption on our consolidated statement of earnings. earnings and balance sheet was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
| Three Months Ended June 30, 2018 |
| Six Months Ended June 30, 2018 | |||||||||||||||||
($ in millions, except per share amounts) |
| As Reported |
| Balances Without Adoption |
| Effect of Change Higher (Lower) |
| As Reported |
| Balances Without Adoption |
| Effect of Change Higher (Lower) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Net sales |
| $ | 3,101 |
| $ | 3,143 |
| $ | (42) |
| $ | 5,886 |
| $ | 5,895 |
| $ | (9) | |||
Cost of sales (excluding depreciation and amortization) |
|
| (2,484) |
|
| (2,522) |
|
| 38 |
|
| (4,721) |
|
| (4,728) |
|
| 7 | |||
Earnings before interest and taxes |
|
| 243 |
|
| 247 |
|
| (4) |
|
| 469 |
|
| 471 |
|
| (2) | |||
Tax (provision) benefit |
|
| (46) |
|
| (45) |
|
| (1) |
|
| (80) |
|
| (79) |
|
| (1) | |||
Net earnings attributable to Ball Corporation |
|
| 119 |
|
| 124 |
|
| (5) |
|
| 244 |
|
| 247 |
|
| (3) | |||
Basic earnings per share |
|
| 0.34 |
|
| 0.36 |
|
| (0.02) |
|
| 0.70 |
|
| 0.71 |
|
| (0.01) | |||
Diluted earnings per share |
|
| 0.34 |
|
| 0.35 |
|
| (0.01) |
|
| 0.68 |
|
| 0.69 |
|
| (0.01) | |||
|
|
|
|
|
|
|
|
|
|
|
| June 30, 2018 | |||||||
($ in millions) |
| As Reported |
| Balances Without Adoption |
| Effect of Change | |||
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
Receivables, net |
| $ | 2,013 |
| $ | 1,722 |
| $ | 291 |
Inventories, net |
|
| 1,257 |
|
| 1,489 |
|
| (232) |
Other current assets |
|
| 206 |
|
| 210 |
|
| (4) |
Liabilities |
|
|
|
|
|
|
|
|
|
Other current liabilities |
|
| 558 |
|
| 545 |
|
| 13 |
Deferred taxes |
|
| 666 |
|
| 659 |
|
| 7 |
Shareholders' equity |
|
|
|
|
|
|
|
|
|
Retained earnings |
|
| 5,199 |
|
| 5,165 |
|
| 34 |
Accumulated other comprehensive earnings (loss) |
|
| (767) |
|
| (768) |
|
| 1 |
6
The corrections of these errors impactedfollowing summarizes the significant changes to the company’s unaudited condensed consolidated financial statements forstatement of earnings and consolidated balance sheet as a result of the secondnew revenue standard adopted on January 1, 2018, compared to if the company had continued to recognize sales under the previous revenue recognition guidance:
· | For the metal beverage packaging segments and, to a lesser extent, in our food and aerosol packaging segment, the new revenue standard accelerated the recognition of certain sales to be over time such that a portion of sales was recognized prior to shipment or delivery of goods. The accelerated recognition of sales also caused the company’s inventory to decrease with an offsetting increase to unbilled receivables to the extent the amounts had not yet been invoiced to the customer and right to payment was unconditional. |
· | For the aerospace segment, sales from the majority of the company’s contracts continue to be recognized over time under the “cost-to-cost” method based on the continuous transfer of control to the customer, which is consistent with how sales were recognized under previous revenue recognition guidance. Therefore, no cumulative adjustment was required to be made upon adoption. |
· | Ball recognized a contract liability when the customer’s payment, or Ball’s unconditional right to that consideration, preceded the company’s performance. |
Share-Based Compensation
In May 2017, amendments to existing accounting guidance were issued to provide clarity and third quartersreduce diversity in practice, cost and complexity when applying stock compensation accounting guidance regarding modifications to the terms or conditions of 2016.a share-based payment award. The company assessedamendments specify that all changes to the applicableterms and conditions of a share-based payment award will require an entity to apply modification accounting unless all of the following are met: (1) the fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified, (2) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified and (3) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The guidance issued bywas applied prospectively on January 1, 2018, and it did not have an impact on the Securities and Exchange Commission (SEC) and the Financial Accounting Standards Board (FASB) and concluded these misstatements were not material, individually or in the aggregate, to Ball’scompany’s unaudited condensed consolidated financial statements for the aforementioned interim periods. Accordingly, the correction of these immaterial errors was reflected in the quarterly unaudited financial data included within our 2016 annual report. These revisions have been reflected in the comparative 2016 condensed consolidated financial statements.
Pension and Postretirement Benefit Costs
In March 2017, amendments to existing accounting guidance were issued to change the presentation of net periodic pension cost and net periodic postretirement benefit cost. Employers are required to report the service cost component in the same line item as other compensation costs arising from services rendered by the associated employees during the period. The following table reconcilesother components of net periodic pension cost and net periodic postretirement benefit cost are required to be presented in the amounts as previouslyincome statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. The amendments also permit only the service cost component of net benefit cost to be eligible for capitalization. This guidance was adopted by the company on January 1, 2018, and the capitalization of the service cost component was applied on a prospective basis. Curtailment and settlement losses are reported by the company in business consolidation and other activities. All other non-service components are immaterial and will be presented in selling, general and administrative (SG&A) expenses beginning in 2018. These non-service costs were reported in both cost of sales and SG&A in prior periods; however, due to immateriality in all prior periods presented, no retrospective adjustments were considered necessary. Such costs were $6 million and $12 million for the three and ninesix months ended SeptemberJune 30, 2016,2017, respectively, and $21 million for the full year 2017.
Sales of Nonfinancial Assets
In February 2017, amendments to existing accounting guidance were issued to clarify the scope and to add guidance for partial sales of nonfinancial assets. The guidance requires that all entities account for the derecognition of a business in accordance with guidance for consolidation, including instances in which the business is considered to be in substance real estate. This guidance was applied on January 1, 2018, using a modified retrospective approach and did not have a material impact on the company’s unaudited condensed consolidated financial statements to the corresponding revised amounts presented herein:statements.
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions, except per share amounts) |
| Three Months Ended September 30, 2016 |
| Nine Months Ended September 30, 2016 | ||||||||||||||
2016 |
| As Previously Reported |
| Adjustments (a) |
| As Revised |
| As Previously Reported |
| Adjustments (a) |
| As Revised | ||||||
Net sales |
| $ | 2,815 |
| $ | (63) |
| $ | 2,752 |
| $ | 6,600 |
| $ | (63) |
| $ | 6,537 |
Cost of sales (excluding depreciation and amortization) |
|
| (2,338) |
|
| 63 |
|
| (2,275) |
|
| (5,351) |
|
| 63 |
|
| (5,288) |
Business consolidation and other activities |
|
| (79) |
|
| 16 |
|
| (63) |
|
| (319) |
|
| 17 |
|
| (302) |
Earnings before interest and taxes |
|
| 116 |
|
| 16 |
|
| 132 |
|
| 283 |
|
| 17 |
|
| 300 |
Earnings before taxes |
|
| 34 |
|
| 16 |
|
| 50 |
|
| 16 |
|
| 17 |
|
| 33 |
Tax (provision) benefit |
|
| (38) |
|
| 15 |
|
| (23) |
|
| 191 |
|
| (17) |
|
| 174 |
Net earnings |
|
| 3 |
|
| 31 |
|
| 34 |
|
| 213 |
|
| — |
|
| 213 |
Net earnings attributable to Ball Corporation |
|
| — |
|
| 31 |
|
| 31 |
|
| 210 |
|
| — |
|
| 210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share (b) |
|
| — |
|
| 0.09 |
|
| 0.09 |
|
| 0.69 |
|
| — |
|
| 0.69 |
Diluted earnings per share (b) |
|
| — |
|
| 0.09 |
|
| 0.09 |
|
| 0.67 |
|
| — |
|
| 0.67 |
|
|
|
|
|
|
|
|
|
|
The company revised the amounts originally reported for the first nine months of 2016, for the following items:
|
|
|
|
|
|
|
|
2. Accounting Pronouncements
Recently Adopted Accounting StandardsDefinition of a Business
In January 2017, amendments to existing accounting guidance were issued simplifyingto further clarify the definition of a business in determining whether or not a company has acquired or sold a business. The amendments provide a screen to determine when an entity’s subsequent goodwill measurementintegrated set of assets and activities (collectively referred to as a “set”) is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. If the screen is not met, the amendments in this update (1) require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2) remove the evaluation of whether a market participant could replace missing elements. The amendments also narrow the definition of the term “output” so that the term is consistent with how outputs are described in the new guidance for revenue recognition. The guidance was applied prospectively for Ball on January 1, 2018, and did not have an impact on the company’s unaudited condensed consolidated financial statements.
Statement of Cash Flows
In November 2016, accounting guidance was issued requiring the statement of cash flows to reconcile the change in the total of cash, cash equivalents and restricted cash or restricted cash equivalents. This guidance was applied retrospectively on January 1, 2018, and the impact on the 2017 statement of cash flow was not material. The impact on the 2016 statement of cash flows was material due to approximately $2 billion of restricted cash held by eliminating Step 2, which requiresthe company at December 2015, in an acquisition escrow account. In July 2016, the funds in the escrow account were used to pay a hypothetical purchaseportion of the cash component of the acquisition price allocation, from its annual or interim goodwill impairment test. An entity should recognize an impairment chargeof Rexam. The impact on the statement of cash flows for the amount by whichsix months ended June 30, 2017, was a $2 million reduction in cash flows from operating activities.
In August 2016, accounting guidance was issued addressing the carrying amount exceedsfollowing eight specific cash flow issues:
· | Debt prepayment or debt extinguishment costs |
· | Settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing |
· | Contingent consideration payments made after a business combination |
· | Proceeds from the settlement of insurance claims |
· | Proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies) |
· | Distributions received from equity method investees |
· | Beneficial interests in securitization transactions |
· | Separately identifiable cash flows and, for cash flows with aspects of more than one class which are not separately identifiable, classification based on the predominant source for those cash flows |
This guidance was applied retrospectively on January 1, 2018, and did not have a material impact on the reporting unit’s fair value; however,company’s unaudited condensed consolidated statement of cash flows.
Intra-Entity Transfers
In October 2016, amendments to existing accounting guidance were issued that require entities to recognize the loss recognized shouldincome tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs, as opposed to when the asset is sold to an unrelated third party. The amendments also eliminate the exception for an intra-entity transfer of an asset other than inventory. This guidance was applied on a modified retrospective basis on January 1, 2018, and did not exceedhave a material impact on the total amount ofcompany’s unaudited condensed consolidated financial statements.
8
goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. This guidance is required to be applied prospectively on January 1, 2020,
Financial Assets and early adoption is permitted. The company elected to early adopt this guidance effective January 1, 2017, and it did not have an impact on the company’s unaudited condensed consolidated financial statements.Liabilities
In MarchJanuary 2016, final accounting guidance was issued clarifying thaton the assessmentclassification and measurement of whether an embedded contingent put or callfinancial assets and liabilities (equity securities and financial liabilities) under the fair value option is clearly and closely relatedthe presentation and disclosure requirements for financial instruments. Subsequent guidance was issued in February 2018 to the debt host only requires an analysisclarify certain aspects of the four-step decision sequence outlinedguidance issued in January 2016. The guidance modifies how entities measure equity investments and present changes in the accounting standards codification. Consequently, whenfair value of financial liabilities. Under the new guidance, entities have to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and recognize any related changes in fair value in net income unless the investments qualify for the new practicality exception. An exception applies to those equity investments that do not have a contingent put or call option embedded in a debt instrument wouldreadily determinable fair value and do not qualify for the practical expedient to estimate fair value under the guidance and, as such, these investments may be evaluated for possible separate accounting as a derivative instrument, the nature of the exercise contingency would be disregarded. Thismeasured at cost. The guidance was applied on a modified retrospective basis on January 1, 2017, and did not have an impact on the company’s unaudited condensed consolidated financial statements.
In March 2016, final accounting guidance was issued eliminating the requirement to retrospectively apply the equity method in previous periods when an investor initially obtains significant influence over an investee. The new guidance requires the investor to apply the equity method prospectively from the date the investment qualifies for the equity method. The investor will add the carrying value of the existing investment to the cost of the additional investment to determine the initial cost basis of the equity method investment. This guidance was applied prospectively on January 1, 2017,2018, and did not have a material impact on the company’s unaudited condensed consolidated financial statements.statements.
In March 2016, amendments to existing accounting guidance were issued to simplify various aspects related to how share-based payments are accounted for and presented in the consolidated financial statements. The company adopted these amendments on January 1, 2017, as discussed below, which did not have a material impact on the company’s unaudited condensed consolidated financial statements.
|
|
|
|
|
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|
|
In March 2016, accounting guidance was issued regarding the effect of derivative contract novations on existing hedge accounting relationships. The amendments clarify that a change in the counterparty to a derivative instrument designated as a hedging instrument does not in and of itself require dedesignation of that hedging relationship, provided that all other hedge accounting criteria continue to be met. The guidance was applied prospectively on January 1, 2017, and it did not have a material impact on the company’s unaudited condensed consolidated financial statements.
New Accounting Guidance
In August 2017, amendments to existing derivative and hedge accounting guidance were issued to simplify existing guidance in order to allow companies to more accurately present the economic effects of risk management activities in the financial statements. The amendments will more closely align the results of cash flow and fair value hedge accounting with risk management activities through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results in the financial statements. This guidance will be effective for annual reporting periods beginning after December 15, 2018, and early adoption is permitted. The company
9
is currently evaluating the new guidance, with intentions to early adopt in the fourth quarter of 2017. The company does not expect the amendments to have a material impact on its unaudited condensed consolidated financial statements.Share Based Payments
In May 2017,June 2018, amendments to existing accounting guidance were issued to provide clarity and reduce diversity in practice, cost and complexity when applying guidance in Topic 718, Stock Compensation, regarding modifications to the terms or conditions of asimplify share-based payment award.transactions for acquiring goods and services from nonemployees. The amendments specify that all changes to the terms and conditions of aexisting guidance for share-based payment award will require an entitytransactions with employees applies to apply modification accountingall share-based payment transactions in Topic 718, unless all of the following are met: (1) the fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified, (2) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified and (3) the classification of the modified award as an equity instrumentwhich a grantor acquires goods or a liability instrument is the same as the classification of the original award immediately before the original award is modified. This guidance will be effective for annual reporting periods beginning on January 1, 2018, and early adoption is permitted. The company does not expect the amendments to have a material impact on its consolidated financial statements, and the company has not elected to early adopt this new accounting standard.
In March 2017, amendments to existing accounting guidance were issued to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost, which requires employers to report the service cost component in the same line item as other compensation costs arising from services rendered by the associated employees during the period. The other components of net periodic pension and benefit cost are required to be presentedused or consumed in the income statement separately from the service cost component and outside a subtotal of income fromgrantor’s own operations if one is presented.by issuing share-based payment awards. The amendments also permit onlyclarify that existing guidance does not apply to share-based payments used to effectively provide (1) financing to the service cost componentissuer or (2) awards granted in conjunction with selling goods or services to customers as part of net benefit cost to be eligible for capitalization. This guidance is required to be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement and prospectively for the capitalization of the service cost component. Employers can elect a practical expedient that permits use of the amounts disclosed in its pension footnote for prior comparative periods as the estimation basis for applying the retrospective presentation requirements.revenue contracts. The guidance is effective for Ball on January 1, 2019, and is not expected to have a material effect on the company’s consolidated financial statements.
Stranded Tax Effects
In February 2018, accounting guidance was issued to permit the reclassification from accumulated other comprehensive income to retained earnings of stranded tax effects resulting from the U.S. Tax Cuts and early adoptionJobs Act signed into law in December 2017. The guidance is permitted. Theeffective for Ball on January 1, 2019, and the company hasis currently assessing whether or not elected to early adopt the new standard and is currently assessing the impact this guidance will have on its consolidated financial statements.guidance.
In February 2017, amendments to existing accounting guidance were issued to clarify the scope of ASC Subtopic 610-20, Other Income−Gains and Losses from the Derecognition of NonfinancialFinancial Assets and to add guidance for partial sales of nonfinancial assets. The guidance requires that all entities account for the derecognition of a business in accordance with ASC 810, including instances in which the business is considered to be in substance real estate. This guidance is required to be applied on January 1, 2018, using a full retrospective approach or a modified retrospective approach and early adoption is permitted. The company has not elected to early adopt the new standard and is currently assessing the impact that the adoption of this new guidance will have on its consolidated financial statements.
In January 2017, amendments to existing accounting guidance were issued to further clarify the definition of a business in determining whether or not a company has acquired or sold a business. The amendments provide a screen to determine when an integrated set of assets and activities (collectively referred to as a “set”) is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. If the screen is not met, the amendments in this update (1) require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2) remove the evaluation of whether a market participant could replace missing elements. The amendments also narrow the definition of the term “output” so that the term is consistent with how outputs are described in Topic 606. The guidance is required to be applied prospectively for Ball on January 1, 2018, and early adoption is permitted. The company has not elected to early adopt the new standard and does not expect these amendments to have a material impact on its consolidated financial statements.
In November 2016, accounting guidance was issued that will require the statement of cash flows to explain the change in the total of cash, cash equivalents and restricted cash or restricted cash equivalents. In addition, restricted cash and restricted cash equivalents will need to be included in a cash reconciliation of beginning-of-period and end-of-period
10
total amounts shown on the statement of cash flows. This guidance is required to be applied retrospectively on January 1, 2018. The company expects there to be a material impact on its 2016 and 2015 statements of cash flows due to approximately $2 billion of cash received from the issuance of senior notes in December 2015 that the company elected to restrict in an acquisition escrow account. In July 2016, the funds in the escrow account were used to pay a portion of the cash component of the acquisition price of Rexam. The impacts on the company’s 2017 statement of cash flows are not expected to be material.
In October 2016, amendments to existing accounting guidance were issued that will require entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs, as opposed to when the asset is sold to an unrelated third party. The amendments also eliminate the exception for an intra-entity transfer of an asset other than inventory. This guidance is required to be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings on January 1, 2018. The company is currently assessing the impact that the adoption of this new guidance will have on its consolidated financial statements.
In August 2016, accounting guidance was issued addressing the following eight specific cash flow issues:
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This guidance is required to be applied retrospectively on January 1, 2018, and the company does not expect the guidance to have a material impact on its consolidated financial statements.
In June 2016, amendments to existing guidance were issued requiring financial assets or a group of financial assets measured at amortized cost basis to be presented at the net amount expected to be collected when finalized. The allowance for credit losses is a valuation account that will be deducted from the amortized cost basis of the financial asset to present the net carrying value at the amount expected to be collected on the financial asset. This guidance affects loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables and any other financial assets not excluded from the scope that have the contractual right to receive cash. The guidance will be effective on January 1, 2020. The company is currently assessing the impact that the adoption of this new guidance will have on its consolidated financial statements.
Lease Accounting
In February 2016, lease accounting guidance was issued which, for operating leases, will require a lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, on its balance sheet. The guidance also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, generally on a straight-line basis. The guidance will be effective for Ball on January 1, 2019. The company is currently assessing the impact the adoption of this standard will have on its consolidated financial statements and it is expected that a material amount of lease assets and liabilities will be recorded on its consolidated balance sheet.
In January 2016, accounting guidance was issued on the classification and measurement of financial assets and liabilities (equity securities and financial liabilities) under the fair value option and the presentation and disclosure requirements for financial instruments. The guidance modifies how entities measure equity investments and present changes in the fair value of financial liabilities. Under the new guidance, entities will have to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and recognize any related changes in fair value in net income unless the investments qualify for the new practicality exception. An exception will apply to those equity investments that do not have a readily determinable fair value and do not qualify for the practical expedient to estimate fair value under the guidance and, as such, these investments may be measured at cost. The guidance will be
119
effective on January 1, 2018. The company does not expect the guidance to have a material impact on its consolidated financial statements.
New Revenue Guidance
In May 2014, the FASB and International Accounting Standards Board jointlyJuly 2018, targeted improvements were issued new revenue recognition guidanceto provide an additional transition method, which outlines a single comprehensive model foris optional, that allows entities to useapply the new leases standard upon adoption by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in accounting for revenue arising from contracts with customers. The new guidance contains a more robust framework for addressing revenue issues andthe period of adoption. This is intendedin addition to remove inconsistencies inthe existing guidance and improve comparability of revenue recognition practices acrossmodified retrospective transition method that requires entities industries, jurisdictions and capital markets. Underto apply the new standard revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In July 2015, the FASB approved the deferral of the effective date of the new revenue recognition guidance by one year. The new standard is now effective for annual reporting periods beginning after December 15, 2017.
In March 2016, the principal versus agent guidance within the new revenue recognition standard was amended to clarify how an entity should identify the unit of accounting for the principal versus agent evaluation. The new standard requires an entity to determine whether it is a principal or an agent in a transaction in which another party is involved in providing goods or services to a customer by evaluating the nature of its promise to the customer. An entity is a principal and records revenue on a gross basis if it controls the promised good or service before transferring the good or service to the customer. An entity is an agent and records as revenue the net amount it retains for its agency services if its role is to arrange for another entity to provide the goods or services.
In May 2016, narrow scope amendments and practical expedients were issued to clarify the new revenue recognition standard. The amendments clarify the collectability criterion of the revenue standard wherein an entity is allowed to recognize revenue in the amount of consideration received when the following criteria are met: the entity has transferred control of the goods or services, the entity has stopped transferring goods or services, or has no obligation under the contract to transfer additional goods or services and the consideration received from the customer is nonrefundable. The amendments also clarify the following: the fair value of noncash consideration should be measured at contract inception when determining the transaction price, allows an entity to make an accounting policy election to exclude from the transaction price certain types of taxes collected from a customer when the company discloses that policy, for contracts to be considered completed at transition, all (or substantially all) of the revenue must have been recognized under legacy U.S. GAAP, and a practical expedient is provided in which an entity can avoid having to evaluate the effects of each contract modification from contract inception through the beginning of the earliest period presented when accountingin the financial statements. Additionally, the amendments included a lessor-specific practical expedient, by underlying asset class, to not separate nonlease components from the associated lease components, similar to the practical expedient already made available by the standard to lessees. The lessor practical expedient is limited to circumstances in which the nonlease component or components otherwise would be accounted for contracts thatunder the new revenue guidance and both of the following are true: the timing and pattern of transfer are the same for the nonlease component(s) and associated lease component; and the lease component, if accounted for separately, would be classified as an operating lease. Codification improvements were modified prior to adoption under both the full and modified retrospective transition approach.
In December 2016, technical corrections and improvementsalso were issued on a variety of topics within the new revenue recognition standard. The correctionsleasing standard, which represent minor corrections or improvements and are not expected to have a significant impact on accounting practices. The amendments clarify the following: guarantee fees within the scope of Topic 460 are not within the scope of Topic 606, impairment testing for capitalized contract costs should consider both expected contract renewals and extensions and unrecognized consideration already received along with expected future consideration, the sequence of impairment testing for assets within the scope of different topics, allowance of an accounting policy election to determine the provision for losses at the performance obligation level instead of the contract level, exclude all topics within Topic 944 from the scope of Topic 606, allow exemptions from the disclosures of remaining performance obligations, disclosure of prior-period performance obligations pertains to all performance obligations and is not limited to those with corresponding contract balances, and better aligns accounting guidance and examples within the guidance.
The new guidance will be effective for Ball on January 1, 2018, and will supersede the current revenue recognition guidance, including industry-specific guidance. Entities
We have the option of using either a full retrospective or modified retrospective approach for the adoption of the standard. We currently anticipate adopting the standard on January 1, 2018, using the modified retrospective method.
We established a cross-functional implementation team, which includes representatives from all of our business segments. We utilizedare utilizing a bottoms-up approach to analyze the impact of the new standard on our contracts with customers
12
by reviewing our current accounting policies and practiceslease population, including completeness, to identify potential differencesaccounting, data and other operational changes that would result from applying the requirements ofmight be required under the new standard to revenues arising from such contracts.guidance. In addition, we are in the process of identifying the appropriateassessing changes to our business processes, systems and controls to support recognition and disclosure under the standard upon adoption.
We believe the most significant impact The guidance will be in the way we accounteffective for revenue in our global metal beverage packaging segmentsBall on January 1, 2019, and toit is expected that a lesser extent, in our foodmaterial amount of lease assets and aerosol packaging segment. We currently recognize revenue from many of our contracts in these segments when the four established criteria of revenue recognition under the current guidance have been met, generally occurring upon shipment or delivery of goods. Under the new guidance we expect to recognize revenue from many of these contracts over time, which will accelerate the timing of revenue recognition from these arrangements, such that some portion of revenueliabilities will be recognized prior to shipment or delivery of goods. In addition to accelerating the timing of recording revenue, we expect corresponding decreases in inventories with an offsetting increase to unbilled receivables to the extent the amounts have not yet been invoiced to the customer. recorded on its consolidated balance sheet.
Relative to the aerospace segment, at this time we do not expect the implementation of the new standard to materially impact the manner in which we currently recognize revenue as the standard supports the recognition of revenue over time under the “cost-to-cost” method, which is consistent with the current revenue recognition model utilized for the majority of our contracts in this segment. We expect revenue arising from the majority of our contracts to continue to be recognized over time because of the continuous transfer of control to the customer. However, due to the complexity of most of our aerospace contracts, the actual revenue recognition treatment required under the new standard will be dependent on contract-specific terms and may vary in some instances from recognition over time.
During the remainder of 2017, Ball will continue to design and implement changes to processes, systems and internal controls to be in a position to report under the new accounting standard upon adoption in the first quarter of 2018.
13
3. Business Segment Information
Ball’s operations are organized and reviewed by management along its product lines and geographical areas and presented in the five reportable segments outlined below:
Beverage packaging, North and Central America: Consists of operations in the U.S., Canada and Mexico that manufacture and sell metal beverage containers.containers throughout those countries.
Beverage packaging, South America: Consists of operations in Brazil, Argentina and Chile that manufacture and sell metal beverage containers.containers throughout most of South America.
Beverage packaging, Europe: Consists of operations in numerous countries in Europe, including Russia, that manufacture and sell metal beverage containers.containers throughout most of Europe.
Food and aerosol packaging: Consists of operations in the U.S., Europe, Canada, Mexico, Argentina and India that manufacture and sell steel food and aerosol containers, extruded aluminum aerosol containers and aluminum slugs.
Aerospace: Consists of operations that manufacture and sell aerospace and other related products and provide services used in the defense, civil space and commercial space industries.
OtherAs presented below, other consists of non-reportable segments in Africa, Middle East and Asia (AMEA) and Asia Pacific that manufacture and sell metal beverage containers, undistributed corporate expenses, intercompany eliminations and other business activities.
The accounting policies of the segments are the same as those in the consolidated financial statements and are discussed in Note 1. The company also has investments in operations in Guatemala, Panama, South Korea, the U.S. and Vietnam that are accounted for under the equity method of accounting and, accordingly, those results are not included in segment sales or earnings.
1410
On July 31, 2018, Ball sold its U.S. steel food and steel aerosol packaging business and formed a joint venture, Ball Metalpack. Beginning in the third quarter 2018, Ball’s 49 percent ownership of Ball Metalpack's financial results will be reported in equity in results of affiliates within Ball's consolidated statements of earnings. The financial results of Ball's existing global aluminum aerosol and Argentine tinplate steel aerosol businesses will be reported as a non-reportable segment within Other. For comparative periods, the entire former food and aerosol packaging reportable segment will be reported as a non-reportable segment within Other in the tables of this footnote. At June 30, 2018, the assets and liabilities of the U.S. steel food and steel aerosol business are presented as held for sale on the unaudited condensed consolidated balance sheet.
Summary of Business by Segment
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| Three Months Ended September 30, |
| Nine Months Ended September 30, |
| Three Months Ended June 30, |
| Six Months Ended June 30, |
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($ in millions) |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
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Net sales |
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Beverage packaging, North and Central America |
| $ | 1,080 |
| $ | 1,076 |
| $ | 3,180 |
| $ | 2,653 |
| $ | 1,241 |
| $ | 1,151 |
| $ | 2,276 |
| $ | 2,100 |
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Beverage packaging, South America |
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| 425 |
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| 318 |
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| 1,145 |
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| 577 |
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| 379 |
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| 349 |
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| 838 |
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| 720 |
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Beverage packaging, Europe |
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| 651 |
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| 624 |
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| 1,824 |
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| 1,459 |
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| 703 |
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| 665 |
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| 1,312 |
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| 1,173 |
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Food and aerosol packaging |
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| 321 |
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| 329 |
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| 867 |
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| 911 |
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| 304 |
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| 274 |
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| 579 |
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| 546 |
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Aerospace |
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| 241 |
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| 204 |
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| 734 |
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| 577 |
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| 290 |
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| 257 |
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| 554 |
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| 493 |
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Reportable segment sales |
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| 2,718 |
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| 2,551 |
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| 7,750 |
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| 6,177 |
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| 2,917 |
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| 2,696 |
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| 5,559 |
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| 5,032 |
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Other |
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| 190 |
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| 201 |
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| 486 |
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| 360 |
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| 184 |
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| 159 |
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| 327 |
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| 296 |
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Net sales |
| $ | 2,908 |
| $ | 2,752 |
| $ | 8,236 |
| $ | 6,537 |
| $ | 3,101 |
| $ | 2,855 |
| $ | 5,886 |
| $ | 5,328 |
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Comparable operating earnings |
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Beverage packaging, North and Central America |
| $ | 121 |
| $ | 145 |
| $ | 400 |
| $ | 356 | |||||||||||||
Beverage packaging, South America |
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| 78 |
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| 60 |
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| 205 |
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| 100 | |||||||||||||
Beverage packaging, Europe |
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| 74 |
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| 72 |
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| 184 |
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| 184 | |||||||||||||
Beverage packaging, North and Central America (b) |
| $ | 157 |
| $ | 156 |
| $ | 270 |
| $ | 279 |
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Beverage packaging, South America (b) |
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| 66 |
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| 69 |
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| 164 |
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| 127 |
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Beverage packaging, Europe (b) |
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| 75 |
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| 63 |
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| 135 |
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| 110 |
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Food and aerosol packaging |
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| 30 |
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| 31 |
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| 76 |
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| 84 |
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| 32 |
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| 25 |
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| 55 |
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| 46 |
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Aerospace |
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| 23 |
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| 24 |
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| 70 |
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| 61 |
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| 24 |
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| 26 |
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| 49 |
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| 47 |
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Reportable segment comparable operating earnings |
|
| 326 |
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| 332 |
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| 935 |
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| 785 |
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| 354 |
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| 339 |
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| 673 |
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| 609 |
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Reconciling items |
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Other |
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| (13) |
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| (21) |
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| (65) |
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| (67) |
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| (2) |
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| (21) |
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| (21) |
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| (52) |
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Business consolidation and other activities |
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| (157) |
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| (63) |
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| (253) |
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| (302) |
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| (69) |
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| (41) |
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| (99) |
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| (96) |
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Amortization of acquired Rexam intangibles |
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| (37) |
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| (33) |
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| (120) |
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| (33) |
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| (40) |
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| (51) |
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| (84) |
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| (83) |
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Catch-up depreciation and amortization for 2016 from finalization of Rexam valuation |
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| 5 |
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| — |
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| (34) |
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| — |
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| — |
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| (39) |
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| — |
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| (39) |
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Cost of sales associated with Rexam inventory step-up |
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| — |
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| (83) |
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| — |
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| (83) | |||||||||||||
Earnings before interest and taxes |
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| 124 |
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| 132 |
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| 463 |
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| 300 |
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| 243 |
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| 187 |
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| 469 |
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| 339 |
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Interest expense |
|
| (74) |
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| (80) |
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| (216) |
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| (159) |
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| (77) |
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| (74) |
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| (150) |
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| (142) |
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Debt refinancing and other costs |
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| — |
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| (2) |
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| (1) |
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| (108) |
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| — |
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| (1) |
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| (1) |
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| (1) |
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Total interest expense |
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| (74) |
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| (82) |
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| (217) |
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| (267) |
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| (77) |
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| (75) |
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| (151) |
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| (143) |
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Earnings before taxes |
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| 50 |
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| 50 |
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| 246 |
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| 33 |
| $ | 166 |
| $ | 112 |
| $ | 318 |
| $ | 196 |
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Tax (provision) benefit |
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| (4) |
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| (23) |
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| (48) |
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| 174 | |||||||||||||
Equity in results of affiliates, net of tax |
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| 5 |
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| 7 |
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| 23 |
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| 6 | |||||||||||||
Net earnings |
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| 51 |
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| 34 |
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| 221 |
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| 213 | |||||||||||||
Net earnings attributable to noncontrolling interests |
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| (3) |
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| (3) |
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| (6) |
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| (3) | |||||||||||||
Net earnings attributable to Ball Corporation |
| $ | 48 |
| $ | 31 |
| $ | 215 |
| $ | 210 | |||||||||||||
(a) | Includes undistributed corporate expenses, net, of |
(b) | The three months ended June 30, 2017, includes catch-up depreciation for the three months ended March 31, 2017, from the finalization of |
The company does not disclose total assets by segment as it is not provided to the chief operating decision makers.maker.
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4. Acquisitions and Dispositions
On July 31, 2018, Ball sold its U.S. steel food and steel aerosol packaging business and formed a joint venture, Ball Metalpack. In exchange for the sale of this business, Ball received approximately $600 million in after-tax cash proceeds, subject to customary closing adjustments, as well as 49 percent ownership of Ball Metalpack, which will be reported in other assets as an equity method investment on Ball’s unaudited condensed consolidated balance sheets. This transaction enhances our ability to return additional value to shareholders via share repurchases.
At June 30, 2018, the assets and liabilities of the U.S. steel food and steel aerosol packaging business are presented as held for sale on Ball’s unaudited condensed consolidated balance sheet. Prior to the classification of the assets and liabilities to held for sale, the company assessed the carrying value of certain working capital and other liability balances and then conducted an impairment test of the goodwill and of the other long-lived assets of the U.S. steel food and steel aerosol packaging business. No impairment or other adjustments were required. Upon classification of the assets and liabilities to held for sale, the carrying value of the disposal group as a whole was compared to the fair value of the business less costs to sell. The approach to establish fair value was consistent with that outlined in the critical accounting policy for ‘Recoverability of Goodwill and Intangible Assets’ in our Form 10-K for the year ended December 31, 2017. Following this review, an allowance of $41 million was applied to the carrying value of the assets held for sale. This charge has been presented in business consolidation and other activities in the unaudited condensed consolidated statements of earnings.
The following table summarizes the assets and liabilities of the U.S. steel food and steel aerosol packaging business presented as held for sale:
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($ in millions) | June 30, 2018 | |
Assets: |
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Receivables | $ | 78 |
Inventories |
| 231 |
Property, plant and equipment |
| 192 |
Goodwill |
| 354 |
Other assets |
| 33 |
Allowance for valuation of assets held for sale |
| (41) |
Assets held for sale (a) | $ | 847 |
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Liabilities: |
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Accounts payable | $ | 198 |
Other liabilities |
| 27 |
Liabilities held for sale | $ | 225 |
(a) | At June 30, 2018, the company presented an additional $3 million of assets held for sale that are unrelated to Ball Metalpack. |
The assets sold included nine plants that manufacture and sell steel food and steel aerosol containers. The manufacturing plants were located in Canton and Columbus, Ohio; Milwaukee and Deforest, Wisconsin; Chestnut Hill, Tennessee; Horsham, Pennsylvania; Springdale, Arkansas; and Oakdale, California. The accounting for this transaction is not complete as of the date these financial statements are available for issuance.
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5. Revenue from Contracts with Customers
Disaggregation of Sales
The company disaggregates net sales by reportable segments as disclosed in Note 3, and based on the timing of transfer of control for goods and services as explained below. The transfer of control for goods and services may occur at a point in time or over time; in other words, sales may be recognized over the course of the underlying contract, or they may occur at a single point in time based upon the transfer of control. This distinction is discussed in further detail below. The company determined that disaggregating sales into these categories achieves the disclosure objective to depict how the nature, amount, timing, and uncertainty of sales and cash flows are affected by economic factors. As noted in Note 3, the company’s business consists of five reportable segments, which encompass disaggregated product lines and geographical areas: (1) beverage packaging, North and Central America; (2) beverage packaging, South America; (3) beverage packaging, Europe; (4) food and aerosol packaging; and (5) aerospace.
The following table disaggregates the company’s net sales based on the timing of transfer of control:
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| Three Months Ended June 30, 2018 |
| Six Months Ended June 30, 2018 | ||||||||||||||
($ in millions) |
| Point in Time |
| Over Time |
| Total |
| Point in Time |
| Over Time |
| Total | ||||||
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Total net sales |
| $ | 755 |
| $ | 2,346 |
| $ | 3,101 |
| $ | 1,417 |
| $ | 4,469 |
| $ | 5,886 |
Contract Balances
The company enters into contracts to sell beverage packaging, food and aerosol packaging, and aerospace products. The payment terms and conditions in customer contracts vary. Those customers that prepay are represented by the contract liabilities below until the performance obligations are satisfied. Contract assets would exist when sales have been recorded (i.e., control of the goods or services has been transferred to the customer) but customer payment is contingent on a future event beyond the passage of time (i.e., satisfaction of additional performance obligations). The company does not have any contract assets. Unbilled receivables, which are not classified as contract assets, represent arrangements in which sales have been recorded prior to billing and right to payment is unconditional. The opening and closing balances of the company’s current and noncurrent contract liabilities are as follows:
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| Contracts |
| Contract | ||
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| Liabilities |
| Liabilities | ||
($ in millions) |
| (Current) |
| (Noncurrent) | ||
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Balance at December 31, 2017 |
| $ | 45 |
| $ | — |
Increase |
|
| 20 |
|
| 6 |
Balance at June 30, 2018 |
| $ | 65 |
| $ | 6 |
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During the six months ended June 30, 2018, contract liabilities increased by $26 million, which is net of cash received of $116 million and amounts recognized as sales of $90 million, all of which related to current contract liabilities. The amount of sales recognized in the six months ended June 30, 2018, that were included in the opening contract liabilities balances was $45 million, all of which related to current contract liabilities. The difference between the opening and closing balances of the company’s contract liabilities primarily results from the timing difference between the company’s performance and the customer’s payment. Current contract liabilities are classified within other current liabilities on the unaudited condensed consolidated balance sheet and noncurrent contract liabilities are classified within other liabilities.
The company also recognized sales of $1 million and $5 million in the three and six month periods ended June 30, 2018, respectively, from performance obligations satisfied (or partially satisfied) in prior periods. This amount of sales is a result of changes in the transaction price of the company’s contracts with customers.
13
Contract Costs
The company has determined that there are no material costs that meet the capitalization criteria for costs to obtain or fulfill a contract.
Practical Expedients
For the company’s contracts that have an original duration of one year or less, the company elected the practical expedient applicable to such contracts and has not disclosed the transaction price for the future performance obligations as of the end of each reporting period or when the company expects to recognize sales.
The company has elected the sales tax practical expedient; therefore, sales and other taxes assessed by a governmental authority that are collected concurrent with revenue-producing activities are excluded from the transaction price.
For shipping and handling activities performed after a customer obtains control of the goods, the company has elected to account for these costs as activities to fulfill the promise to transfer the goods; therefore, these activities are not assessed as separate performance obligations.
The company has also elected the significant financing component practical expedient which allows the company to not assess whether the contract has a significant financing component if, at contract inception, the expectation is that the contract duration is less than one year.
Beverage Packaging and Food and Aerosol Products
Performance Obligations
At contract inception, the company assesses the goods and services promised in its contracts with customers and identifies a performance obligation for each promise to transfer goods or services to the customer. The performance obligation may be represented by a good or service (or series of goods or services) that is distinct, or by a series of distinct goods or services that are substantially the same and have the same pattern of transfer to the customer. In each instance, the company treats the promise to transfer the customer goods or services as a single performance obligation.
To identify the performance obligations, the company considers all of the goods or services promised in the contract, regardless of whether they are explicitly stated or are implied by customary business practices.
The company has determined that the following distinct goods and services represent separate performance obligations:
· | Manufacture of food and aerosol containers, which may be generic or unique; |
· | Manufacture of beverage cans, which may be generic or unique; and |
· | Manufacture of beverage, food, and aerosol lids and ends, which may be generic or unique. |
Performance obligations for products with no alternative use are recognized over time, when the company has manufactured a unique item and has an enforceable right to payment. Conversely, generic products with alternative use are recognized at a point in time. Contracts may be short-term or long-term, with varying payment terms. Ball’s payment terms vary by the type and location of the customer and the products or services offered. Customers pay in accordance with negotiated terms, which are typically triggered upon ownership transfer. All payment terms are less than one year. For these contracts, the transaction price is determined upon establishment of the contract that contains the final terms of the sale, including the description, quantity, and price of each product or service purchased.
14
Transaction Price Allocated to Remaining Performance Obligations
In the context of the revenue recognition standard, enforceable contracts are those that have an enforceable right to payment, which Ball typically has once a binding forecast or purchase order (or similar evidence) is in place and Ball produces under the contract. Within Ball’s packaging segments, enforceable contracts as defined all have a duration of less than one year. Contracts that have an original duration of less than one year are excluded from the requirement to disclose remaining performance obligations based on the company’s election to use the practical expedient. The nature of the remaining performance obligations within these contracts, as well as the nature of the variability and how it will be resolved, are described in the section below.
Significant Judgments
Timing of Recognition
Within the beverage packaging and food and aerosol segments, performance obligations are recognized both over time and at a point in time. The determination that sales should be recognized at a point in time most often results from the existence of an alternative use for the product. Cans and ends that are not customized prior to delivery are considered to have alternative use and sales are recognized at the point of control transfer. Determining when control transfer occurs requires management to make judgments that affect the timing of when sales are recognized. The new revenue accounting standard provides five indicators that a customer has obtained control of an asset: 1) present right to payment; 2) transfer of legal title; 3) physical possession; 4) significant risks and rewards of ownership; and 5) customer acceptance. The company considers control to have transferred for these products upon shipment or delivery, depending on the legal terms of the contract, because the company has a present right to payment at that time, the customer has legal title to the asset, the company has transferred physical possession of the asset or the customer has significant risks and rewards of ownership of the asset. The company determines that control transfers to a customer as described above and provides a faithful depiction of the transfer of goods.
For performance obligations related to products that are specialized with no alternative use (e.g., specialized sizes or customer-specific materials, or labeled with customer-specific artwork), the company transfers control and records sales over time. The recognition of sales occurs over time as goods are manufactured and Ball has an enforceable right to payment for those goods, which is an output method. Determining a measure of progress requires management to make judgments that impact the timing of when sales are recognized. The company has determined the above provides a faithful depiction of the transfer of goods to the customer. The number of units manufactured that have an enforceable right to payment is the best measure of depicting the company’s performance as control is transferred. The customer obtains value as each unit is produced against a binding contract.
The enforceable right to payment may be explicit or implied in the contract. If the enforceable right to payment is not explicit in the contract, Ball must consider if there is an implied right based on customer relationships or previous business practices and applicable law. Typically, Ball has an enforceable right to payment of costs plus a reasonable margin once a binding forecast or purchase order (or similar evidence) is in place and Ball produces under the contract.
Determining the Transaction Price including Variable Consideration
In making its determination of stand-alone selling price, Ball maximizes its use of observable inputs. Stand-alone selling price is then used to allocate total consideration proportionally to the various performance obligations within a contract.
To estimate variable consideration, we may apply both the “expected value” method and “most likely amount” method based on the form of variable consideration, according to which method would provide the best prediction of consideration to be received from our customers. The expected value method involves a probability-weighted determination of the expected amount, whereas the most likely amount method identifies the single most likely outcome in a range of possible amounts. In certain cases, both methods may be used within a single contract if multiple forms of variable consideration exist. However, once a method has been applied to one form of variable consideration, it is applied consistently throughout the contract term.
15
4. AcquisitionsThe primary types of variable consideration present in the company’s contracts are per-unit price changes, volume discounts and Dispositionsrebates. Once variable consideration has been estimated, it will be constrained if a significant reversal of the cumulative amounts of sales is probable in the context of the contract.
RexamAerospace
On June 30, 2016, Ball acquired 100 percentPerformance Obligations
At contract inception, the company assesses the goods and services promised in its contracts with customers and identifies a performance obligation for each promise to transfer goods or services to the customer. The performance obligation may be represented by a good or service (or a series of goods or services) that is distinct, or by a series of distinct goods or services that are substantially the same and have the same pattern of transfer to the customer. In each of these scenarios, the company treats the promise to transfer the customer goods or services as a single performance obligation.
To identify its performance obligations, the company considers all of the outstanding sharesgoods or services promised in the contract, regardless of Rexam PLC (Rexam), a U.K. based beverage container manufacturer, for the purchase price of £2.9 billion ($3.8 billion) in cash, and 64.5 million treasury shares of Ball Corporation common stock (valued at $35.70 per share, as adjusted for the two-for-one stock split, for a total share consideration of $2.3 billion). Additionally, the company recorded $24 million of consideration for stock-based compensation. The common shares were valued using the price on the date of acquisition and were presented as a reduction of treasury stock. The cash portion of the acquisition price was paid in July 2016 using proceeds from restricted cash held in escrow and borrowings under the $1.4 billion and €1.1 billion Term A loan facilities obtained in March 2016.whether they are explicitly stated or are implied by customary business practices.
The consummationcompany has determined that the following distinct goods and services represent separate performance obligations:
· | Manufacture and delivery of distinct spacecraft and/or hardware components; |
· | Research reports, for contracts under which such reports are the sole or primary deliverables; |
· | Design, add-on, or special studies for contracts under which such studies have stand-alone value or for which a material right exists due to discounted pricing; and |
· | Warranty and performance guarantees beyond standard repair/replacement. |
Performance obligations with no alternative use are recognized over time, when the company has an enforceable right to payment for efforts completed to-date. Because of sales contract payment schedules, limitations on funding, and contract terms, our sales and accounts receivable generally include amounts that have been earned but not yet billed. Our payment terms vary by the type and location of our customer and the products or services offered. All payment terms are less than one year.
Contracts are often modified to account for changes in contract specifications and requirements. We consider contract modifications to exist when the modification either creates new or revised enforceable rights and obligations. Most of our contract modifications are for goods or services that are not distinct from the existing contract due to the significant integration service provided in the context of the acquisition was subject to, among other things, approval from Ball’s shareholders, approval from Rexam’s shareholders, certain regulatory approvalscontract, and satisfaction of other customary closing conditions. In order to satisfy certain regulatory requirements, the company was required to sell a portion of Ball’s existing beverage packaging business and select beverage can assets of the Divestment Business. The sale of the Divestment Business to Ardagh Group S.A. (Ardagh) was completed concurrently on June 30, 2016, for $3.42 billion, subject to customary closing adjustments and certain transaction service arrangements between Ball and Ardagh during a transition period. The sale agreement with Ardagh in respect of the Divestment Business contains customary representations, warranties, covenants and provisions allocating liabilities, as well as indemnification obligations to and from Ardagh, pursuant to which claims may be made when applicable. A pretax gain on sale of $330 million was recorded within business consolidation and other activities and is subject to finalization of working capital and other items. The company also entered into a supply agreement with Ardagh to manufacture and sell can ends to the Divestment Business in Brazil in exchange for proceeds of $103 million.
As a condition of the sale of the Divestment Business to Ardagh, the company guaranteed a minimum volume of sales for the Divestment Business in 2017, whereby the company was required to pay Ardagh up to $75 million based upon any shortfall of 2017 sales relative to an agreed-upon minimum threshold. During the third quarter of 2017, and pending regulatory approval, the company entered into an agreement with Ardagh to settle all remaining assets, liabilities and other items in the sale of the Divestment Business and concurrently obtained Ardagh’s agreement to the removal of the company’s guarantees of Ardagh’s 2017 sales volumes and any related penalties that could result. Regulatory approval of these agreements was obtained during the fourth quarter of 2017 and, as a result, the company will recognize additional pretax income from the sale of the Divestment Business in the fourth quarter of 2017 of approximately$60 million.
In connection with the sale of the Divestment Business to Ardagh on June 30, 2016, the company provided indemnifications for the uncertain tax positions of the Divestment Business sold to Ardagh. These indemnifications weresuch contract modifications are accounted for as guarantees and the company initially recognizedif they were part of that existing contract. The effect of a liability equal to the fair value of the indemnities. There are no limitationscontract modification on the maximum potential future paymentstransaction price and our measure of progress for the company could be obligatedperformance obligation to make and, basedwhich it relates, is recognized as an adjustment to sales (either as an increase or reduction of sales) on the nature of the indemnified items, the company is unable to reasonably estimate its potential exposure under these items.a cumulative catch-up basis.
DuringTransaction Price Allocated to Remaining Performance Obligations
The table below discloses: (1) the first nine months of 2017, the company recorded $34 million in business consolidation and other activities for an increase in the estimatedaggregate amount of the claims covered by indemnifications for tax matters providedtransaction price allocated to the buyer in relation to the Divestment Business. The estimated valueperformance obligations that are unsatisfied (or partially unsatisfied) as of the claims underend of the reporting period for contracts with an original duration of greater than one year and (2) when the company expects to record sales on these indemnities is $57 million at September 30, 2017, and the liabilities have been recorded in other current liabilities.multi-year contracts.
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($ in millions) |
| Next Twelve Months |
| Thereafter |
| Total | |||
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|
|
Sales expected to be recognized on multi-year contracts in place as of June 30, 2018 |
| $ | 915 |
| $ | 912 |
| $ | 1,827 |
The portion of the Divestment Business composed of Ball's legacy beverage packaging businesses had earnings before taxes as shown below. These earnings before taxes may not be indicative of the earnings before taxes that would be generated by these components of the Divestment Business in future periods. Additionally, due to complexities associated with how Ball's legacy beverage packaging businesses included in the Divestment Business were integrated
16
into Ball Corporation in historical periods, these earnings before taxes may not be indicative of the earnings before taxes of these Divestment Business components had they been operated as a stand-alone business or businesses:
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|
|
| Nine Months Ended | |
($ in millions) |
| September 30, 2016 | |
|
|
|
|
Earnings before taxes |
| $ | 104 |
Earnings before taxes attributable to Ball Corporation |
|
| 104 |
The Rexam portioncontracts with original durations of the Divestment Business is not included inless than one year, which are excluded from the table above based on the company’s election of the practical expedient, are primarily related to contracts where control will be fully transferred to the customers in less than one year. The nature of the remaining performance obligations within these contracts, as well as the financial information is not includednature of the variability and how it will be resolved, are described in Ball’s historical results.the section below.
A totalSignificant Judgments
Timing of 54 manufacturing facilities were acquired from Rexam, including 17 in North America, 20 in Europe, 12 in South AmericaRecognition
Within the aerospace segment, performance obligations are recognized over time. Aerospace contracts involve specialized and fiveunique products that are tailored to the specific needs of the customer, such as a spacecraft or other hardware conforming to the specifications required by the customer, and as such, no alternative use exists. When there is an enforceable right to payment at cost plus reasonable margin for performance completed to date, the sales are recorded over time as the goods are manufactured or services are performed. Determining a measure of progress requires management to make judgments that affect the timing of recording sales. Sales under long-term contracts in the AMEA region. Aaerospace segment are primarily recognized using percentage-of-completion under the cost-to-cost method of accounting, which is an input method. Under this method, the extent of progress towards completion is measured based on the ratio of costs incurred to date versus the total of 22 manufacturing facilities were sold as part of the Divestment Business, including 12 Ball facilities and 10 Rexam facilities. Of these 22 facilities, eight are located in North America, 12 are located in Europe and two are located in Brazil. The company had a total of 75 beverage manufacturing facilities and joint ventures after theestimated costs upon completion of the Rexam acquisitionperformance obligation. The cost-to-cost method best depicts the transfer of assets to the customer as we incur costs on our contracts. The two primary types of long-term sales contracts utilized are cost-type contracts, which are agreements to perform for cost plus an agreed-upon profit component, and salefixed price sales contracts, which are completed for a fixed price. Cost-type sales contracts can have different types of fee arrangements, including fixed-fee, cost, milestone and performance incentive fees, award fees or a combination thereof. At the inception of contract performance, we estimate sales associated with base, incentive and other fees exclusive of any constraint. In other words, we estimate sales to the extent that it is not probable a significant reversal would occur over the period of contract performance. The company has determined that the above provides a faithful depiction of the Divestment Business.transfer of goods to the customer and is the best measure of depicting the company’s performance as control is transferred to customers.
This acquisition aligns with Ball’s DriveDetermining the Transaction Price including Variable Consideration
Due to the unique and customized nature of deliverables within aerospace contracts, a readily observable selling price for 10 vision, including the company’s long-standing capital allocation strategy and EVA philosophy. The combination created the world’s largest suppliera similar good is not typically available; therefore, in making its determination of beverage containers allowingstand-alone selling price, the company to better serve its customers with its enhanced geographic footprint and innovative product offerings. In particular, Ball expectsgenerally applies the acquisition to continue to deliver long-term shareholder value through optimizing global sourcing, reducing general and administrative expenses, sharing best practices to improve production efficiencies and leveraging its footprint to lower freight, logistics and warehousing costs. In addition, further value can continue to be created through balance sheet improvements with“expected cost plus a focusmargin” approach (whereby the transaction price is allocated based on working capital and inventory management and sustainability priorities as a resultthe relative amount of costs plus an appropriate margin). Use of the larger plant network.expected cost plus a margin approach requires Ball to determine the expected costs for each performance obligation, as well as an appropriate margin (i.e., cost to cost percentage of completion). The calculation is made at contract inception to determine the allocation of consideration.
Uncertainty as to the total amount that will be paid by the customer (such as the exact amount of costs that will be incurred and fees that will be earned by Ball Aerospace to satisfy the contractual requirements) gives rise to variable consideration. To estimate variable consideration, we typically apply the “most likely amount” method or the “expected value” method depending on the nature of the variable consideration. The most likely amount method identifies the single most likely outcome in a range of possible amounts, while the expected value method involves a probability-weighted determination of the expected amount. The most likely amount method is used primarily when the possible outcomes are binary (i.e., either the cost/fee will be incurred or it will not). In certain cases, both methods may be used within a single contract if multiple forms of variable consideration exist. However, once a method has been applied to one form of variable consideration, it is applied consistently throughout the contract term.
The acquisition was accounted for as a business combination and its resultsprimary types of operations have been includedvariable consideration present in the company’s consolidated statementscontracts are cost reimbursements, performance award fees, incremental funding and finalization of earnings and cash flows fromgovernment rates. These types of arrangements are most commonly (though not exclusively) estimated based on the date“most likely” method. Once variable consideration has been estimated, it will be constrained if a significant reversal of acquisition. In total, pretax chargesthe cumulative amount of $216 million have been incurred for transaction costs associated with the acquisition which, in accordance with current accounting guidance, were expensed as incurred. The transaction costs are includedsales is probable in the business consolidation and other activities linecontext of the unaudited condensed consolidated statement of earnings.contract.
In connection with the acquisition, Ball assumed Rexam debt of approximately $2.8 billion of which approximately $2.7 billion was extinguished during July and August 2016. The proceeds from the sale of the Divestment Business were partially used to extinguish the assumed Rexam debt.
During the second quarter of 2017, the company finalized the allocation of the purchase price for the Rexam acquisition. The measurement period adjustments to the acquisition fair values and useful lives for acquired identifiable intangible assets and fixed assets were due to the refinement of our valuation models, assumptions and inputs. The updated assumptions and inputs incorporated additional information obtained subsequent to the closing of the transaction related to facts and circumstances that existed as of the acquisition date. The final purchase price allocation changes during the second quarter of 2017 included an increase of $590 million in the value of intangible assets, an increase of $31 million in the value of investments in affiliates and a decrease of $384 million in the value of goodwill. Long-term deferred tax liabilities also increased by $221 million primarily due to the tax effect of these changes to the final purchase price allocation.
The cumulative impacts of all adjustments have been reflected in the unaudited condensed consolidated financial statements as of the six months ended June 30, 2017, which are summarized in the table below:
17
|
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|
|
| June 30, | |
($ in millions) |
| 2016 | |
|
|
|
|
Cash |
| $ | 450 |
Receivables, net |
|
| 778 |
Inventories, net |
|
| 782 |
Other current assets |
|
| 165 |
Assets held for sale (sold to Ardagh on June 30, 2016) |
|
| 911 |
Total current assets |
|
| 3,086 |
|
|
|
|
Property, plant and equipment |
|
| 2,301 |
Goodwill |
|
| 3,415 |
Intangible assets |
|
| 2,478 |
Restricted cash |
|
| 174 |
Other assets |
|
| 490 |
Total assets acquired |
|
| 11,944 |
|
|
|
|
Short-term debt and current portion of long-term debt |
|
| 2,792 |
Accounts payable |
|
| 858 |
Accrued employee costs |
|
| 135 |
Liabilities held for sale (sold to Ardagh on June 30, 2016) |
|
| 7 |
Other current liabilities |
|
| 373 |
Total current liabilities |
|
| 4,165 |
|
|
|
|
Long-term debt |
|
| 28 |
Employee benefit obligations |
|
| 508 |
Deferred taxes and other liabilities |
|
| 993 |
Total liabilities assumed |
|
| 5,694 |
|
|
|
|
Net assets acquired |
|
| 6,250 |
|
|
|
|
Noncontrolling interests |
|
| (90) |
Aggregate value of consideration paid |
| $ | 6,160 |
The following table details the identifiable intangible assets acquired, their fair values6. Business Consolidation and estimated useful lives:
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($ in millions) |
| Fair Value |
| Weighted- |
| |
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Customer relationships |
| $ | 2,437 |
| 17 |
|
Trademarks |
|
| 41 |
| 3 |
|
|
| $ | 2,478 |
|
|
|
Because the acquisition of Rexam was a stock purchase, neither the goodwill nor the intangible assets acquired are deductible under local country corporate tax laws but will generally be deductible in computing earnings and profits for U.S. tax purposes.Other Activities
The following is a summary of business consolidation and other activity (charges)/income included in the unaudited pro formacondensed consolidated resultsstatements of operations (pro forma information) have been prepared as ifearnings:
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| Three Months Ended June 30, |
| Six Months Ended June 30, |
| ||||||||
($ in millions) |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| ||||
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|
|
Beverage packaging, North and Central America |
| $ | 1 |
| $ | (7) |
| $ | (2) |
| $ | (11) |
|
Beverage packaging, South America |
|
| (1) |
|
| (3) |
|
| (1) |
|
| — |
|
Beverage packaging, Europe |
|
| (4) |
|
| (4) |
|
| (14) |
|
| (7) |
|
Food and aerosol packaging |
|
| (47) |
|
| (1) |
|
| (47) |
|
| 9 |
|
Other |
|
| (18) |
|
| (26) |
|
| (35) |
|
| (87) |
|
|
| $ | (69) |
| $ | (41) |
| $ | (99) |
| $ | (96) |
|
2018
Beverage Packaging, North and Central America
During the acquisitionsix months ended June 30, 2018, the company recorded the reversal of Rexam$5 million of expense for revised estimates of charges recorded in prior periods in connection with the previously announced closures of its beverage can manufacturing facilities in Chatsworth, California, and saleLongview, Texas, and its beverage end manufacturing facility in Birmingham, Alabama. The Birmingham plant ceased production during the second quarter of 2018, and the Chatsworth and Longview plants are expected to cease production by the end of the Divestment Business had occurredthird quarter of 2018.
During the six months ended June 30, 2018, the company recorded charges of $2 million related to the closure of its Reidsville, North Carolina, plant, which ceased production in 2017.
Other income and charges in the three and six months ended June 30, 2018, included $1 million of income and $5 million of expense, respectively, for individually insignificant activities.
Beverage Packaging, South America
Charges in the three and six months ended June 30, 2018, included $1 million of expense for individually insignificant activities.
Beverage Packaging, Europe
During the three and six months ended June 30, 2018, the company recorded charges of $2 million and $6 million, respectively, for employee severance and benefits and $1 million and $7 million, respectively, for facility shutdown costs and other costs in connection with the closure of its Recklinghausen, Germany, plant which ceased production during the third quarter of 2017. The majority of the closure costs are expected to be paid by the end of 2018.
Other charges in the three and six months ended June 30, 2018, included $1 million of expense for individually insignificant activities.
Food and aerosol packaging
As discussed in Note 4, during the three and six months ended June 30, 2018, Ball recorded a $41 million loss on transfer of assets that were held for sale as of January 1, 2015. The pro forma information combinesJune 30, 2018.
During the historical resultsthree and six months ended June 30, 2018, the food and aerosol packaging segment recorded charges of Ball$4 million for employee severance and Rexam. The pro forma results are not necessarily indicative of thebenefits, accelerated depreciation and inventory impairment related to manufacturing cost rationalization.
18
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
Other charges in the future.three and six months ended June 30, 2018, included $2 million of expense for individually insignificant activities.
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|
| Nine Months Ended | |
($ in millions, except per share amounts) |
| September 30, 2016 | |
|
|
|
|
Net sales (1) |
| $ | 7,931 |
Net earnings attributable to Ball Corporation (2) |
|
| 187 |
Basic earnings per share |
|
| 0.54 |
Diluted earnings per share |
|
| 0.53 |
Corporate and Other
During the three months ended June 30, 2018, the company recorded the following amounts: |
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|
· |
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· |
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· |
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· |
|
During the six months ended June 30, 2018, the company recorded the following amounts:
· | Expense of $2 million for the |
· | Expense of $15 million for long-term incentive and other compensation arrangements associated with the |
· | Expense of |
· | Expense of $14 million for individually insignificant activities. |
All of these pro forma adjustments were adjusted for2017
Beverage Packaging, North and Central America
During the applicable income tax impacts. Ball has applied enacted statutory tax rates in the U.K. during the period indicated above. Ball used a tax rate of 20 percent to calculate the financingthree and acquisition adjustments for the ninesix months ended SeptemberJune 30, 2016; however, the tax impact on acquisition-related transaction costs already incurred was recorded at a U.S. statutory rate of approximately 37 percent as these transaction costs were incurred in the U.S. These rates may not be reflective of Ball’s effective tax rate for future periods after consummation of the acquisition and sale of the Divestment Business.
Food and Aerosol Paint and General Line Plant
In March 2017, the company soldrecorded charges of $4 million and $7 million, respectively, for employee severance and benefits, facility shutdown costs, asset impairment, accelerated depreciation and disposal costs related to the closure of its paint and general line can manufacturing facility in Hubbard, Ohio, for approximately $32 million in cash and recorded a $15 million gain on the sale.Reidsville, North Carolina, plant.
Wavefront Technologies (Wavefront)Other charges in the three and six months ended June 30, 2017 included $3 million and $4 million, respectively, for individually insignificant activities.
In January 2016,Beverage Packaging, South America
During the three and six months ended June 30, 2017, the company acquired Wavefront located in Annapolis Junction, Maryland,recorded charges of $2 million for total cash considerationprofessional services and other costs associated with the acquisition of $36 million, net of cash acquired. Wavefront provides systems and network engineering, software development software and analytical services for cyber and mission-focused programs to the U.S. government and commercial industry. The financial results of Wavefront have been included in our aerospace segment from the date of acquisition. The acquisition is not material to the company.Rexam.
FoodOther charges in the three and Aerosol Specialty Tin Businesssix months ended June 30, 2017, included expense of $1 million and income of $2 million, respectively, for individually insignificant activities.
In October 2016,Beverage Packaging, Europe
During the six months ended June 30, 2017, the company sold its specialty tin manufacturing facilityrecorded charges of $2 million for professional services and other costs associated with the acquisition of Rexam.
Other charges in Baltimore, Maryland,the three and six months ended June 30, 2017, included expense of $4 million and $5 million, respectively, for approximately $24 million in cash and recorded a $9 million gain on the sale.individually insignificant activities.
19
5. Business ConsolidationFood and Other Activities
The following is a summary of business consolidation and other activity (charges)/income included in the unaudited condensed consolidated statements of earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, | ||||||||
($ in millions) |
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage packaging, North and Central America |
| $ | (34) |
| $ | (6) |
| $ | (45) |
| $ | (12) |
Beverage packaging, South America |
|
| (4) |
|
| (6) |
|
| (4) |
|
| (15) |
Beverage packaging, Europe |
|
| (62) |
|
| (10) |
|
| (69) |
|
| (19) |
Food and aerosol packaging |
|
| (2) |
|
| (4) |
|
| 7 |
|
| (21) |
Other |
|
| (55) |
|
| (37) |
|
| (142) |
|
| (235) |
|
| $ | (157) |
| $ | (63) |
| $ | (253) |
| $ | (302) |
2017
BeverageAerosol Packaging North and Central America
During the third quarter of 2017, the company announced the closure of its beverage can manufacturing facilities in Chatsworth, California,three and Longview, Texas, and its beverage end manufacturing facility in Birmingham, Alabama. The Birmingham and Longview plants are currently expected to cease production by the end of the second quarter of 2018, and the Chatsworth plant is currently expected to cease production by the end of the third quarter of 2018. During the third quarter, the company recorded charges of $29 million for employee severance and benefits and $4 million for facility shutdown costs, asset impairment, accelerated depreciation and other costs related to the closures. The majority of these charges are expected to be paid during the remainder of 2017 and by the end of the third quarter of 2018.
In December 2016, the company announced the closure of its beverage packaging facility in Reidsville, North Carolina, which ceased production during the second quarter of 2017. During the first ninesix months of 2017, the company recorded charges of $7 million for employee severance and benefits, facility shutdown costs, asset impairment, accelerated depreciation and other costs related to the closure of its Reidsville, North Carolina, plant.
Other charges in the third quarter and first nine months of 2017 included $1 million and $5 million, respectively, of individually insignificant activities.
Beverage Packaging, South America
Charges in the third quarter and first nine months of 2017 included $4 million and $4 million, respectively, for individually insignificant activities.
20
Beverage Packaging, Europe
During the first quarter of 2017, the company announced its intent to close its beverage packaging facility in Recklinghausen, Germany, which ceased production on July 31, 2017. During the third quarter of 2017, the company recorded charges of $55 million for employee severance and benefits and $7 million for facility shutdown costs, asset impairment, accelerated depreciation and other costs. The company expects to incur approximately $30 million of additional expense related to the closure. The majority of these charges are expected to be paid during the remainder of 2017 and by the end of 2018.
During the first nine months ofended June 30, 2017, the company recorded charges of $2 million for professional services and other costs associated with the acquisition of Rexam.
Other charges in the first nine months of 2017 included $5 million for individually insignificant activities.
Food and Aerosol Packaging
During the third quarter and first nine months of 2017, the company recorded charges of $1 million and $6 million, respectively, for facility shutdown costs and accelerated depreciation for the closure of its Weirton, West Virginia, plant, which ceased production during the firstsecond quarter of 2017.
In MarchDuring the first quarter of 2017, the company sold its food and aerosol packaging paint and general line can plant in Hubbard, Ohio, and recorded a gain on sale of $15 million.
Other charges in the third quarterthree and first ninesix months ofended June 30, 2017, included income of $1 million and $2expense of $1 million respectively, for individually insignificant activities.
Corporate and Other
During the third quarter ofthree months ended June 30, 2017, the company recorded the following amounts:
· |
|
· | Expense of |
· | Expense of |
· | Expense of |
During the first ninesix months ofended 2017, the company recorded the following amounts:
|
|
· | Expense of $34 million for the estimated amount of claims covered by the indemnification for certain tax matters provided to the buyer in the sale of the Divestment Business. |
· |
|
| A $14 million reduction in the gain recognized in connection with the sale of the Ball portion of the Divestment Business. |
· | Expense of |
· | Expense of $10 million for professional services and other costs associated with the acquisition of Rexam. |
· | Expense of |
21
2016
Beverage Packaging, North and Central America
During the third quarter and first nine months of 2016, the company recorded charges of $2 million and $3 million, respectively, for professional services and other costs associated with the acquisition of Rexam.
During the third quarter and first nine months of 2016, the company recorded charges of $3 million and $4 million, respectively, related to the plant closure in Bristol, Virginia.
Other charges in the third quarter and first nine months of 2016 included $1 million and $5 million, respectively, of individually insignificant activities.
Beverage Packaging, South America
During the third quarter and first nine months of 2016, the company recorded charges of $2 million and $11 million, respectively, for professional services and other costs associated with the acquisition of Rexam.
Other charges in the third quarter and first nine months of 2016 included $4 million of individually insignificant activities.
Beverage Packaging, Europe
During the first nine months of 2016, the company recorded charges of $7 million for professional services and other costs associated with the acquisition of Rexam.
Other charges in the third quarter and first nine months of 2016 included $10 million and $12 million, respectively, of individually insignificant activities.
Food and Aerosol Packaging
During the third quarter and first nine months of 2016, the company recorded charges of $3 million and $14 million, respectively, for employee severance and benefits, facility shutdown costs and asset impairment and disposal costs for the closure of its Weirton, West Virginia, plant.
Other charges in the third quarter and first nine months of 2016, included $1 million and $7 million, respectively, of individually insignificant activities.
Other
During the third quarter of 2016, the company recorded the following amounts:
|
|
|
|
|
|
|
|
During the first nine months of 2016, the company recorded the following charges:
|
|
|
|
22
|
|
|
|
|
|
Following is a summary by segment for the restructuring liabilities recorded in connection with business consolidation activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions) |
| Beverage Packaging, North & Central America |
| Beverage Packaging, South America |
| Beverage Packaging, Europe |
| Food & Aerosol Packaging |
| Other |
| Total | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016 |
| $ | 8 |
| $ | — |
| $ | 4 |
| $ | 6 |
| $ | 2 |
| $ | 20 |
Charges in earnings |
|
| 18 |
|
| 2 |
|
| 55 |
|
| 7 |
|
| 1 |
|
| 83 |
Cash payments and other activity |
|
| (6) |
|
| — |
|
| (13) |
|
| (12) |
|
| (2) |
|
| (33) |
Balance at September 30, 2017 |
| $ | 20 |
| $ | 2 |
| $ | 46 |
| $ | 1 |
| $ | 1 |
| $ | 70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions) |
| Beverage Packaging, North & Central America |
| Beverage Packaging, Europe |
| Food & Aerosol Packaging |
| Total | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2017 |
| $ | 26 |
| $ | 41 |
| $ | 1 |
| $ | 68 |
Charges (credits) in earnings |
|
| (6) |
|
| 13 |
|
| — |
|
| 7 |
Cash payments and other activity |
|
| (1) |
|
| (44) |
|
| (1) |
|
| (46) |
Balance at June 30, 2018 |
| $ | 19 |
| $ | 10 |
| $ | — |
| $ | 29 |
20
7.Cash, Cash Equivalents and Restricted Cash
|
|
|
|
|
|
|
|
| June 30, | ||||
($ in millions) |
| 2018 |
| 2017 | ||
|
|
|
|
|
|
|
Beginning of period: |
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 448 |
| $ | 597 |
Current restricted cash (included in other current assets) |
|
| 10 |
|
| 9 |
Noncurrent restricted cash (included in other assets) |
|
| 1 |
|
| 1 |
Total cash, cash equivalents and restricted cash |
| $ | 459 |
| $ | 607 |
|
|
|
|
|
|
|
End of period: |
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 549 |
| $ | 433 |
Current restricted cash (included in other current assets) |
|
| 8 |
|
| 7 |
Noncurrent restricted cash (included in other assets) |
|
| — |
|
| 1 |
Total cash, cash equivalents and restricted cash |
| $ | 557 |
| $ | 441 |
The company’s restricted cash is primarily related to receivables factoring programs and represents amounts collected from customers not yet remitted to the banks as of the end of the reporting period.
Noncash investing activities include the acquisition of property, plant and equipment (PP&E) for which payment has not been made. These noncash capital expenditures are excluded from the statement of cash flows. The PP&E acquired but not yet paid for amounted to $97 million at June 30, 2018, and $124 million at December 31, 2017.
In connection with the sale of a business in connection with the June 2016 acquisition of Rexam, the company provided indemnifications for uncertain tax positions associated with the business. During the six months ended June 30, 2018, the company made payments of $45 million in relation to these liabilities and reported them within investing activities in the unaudited condensed consolidated statement of cash flows.
6.8. Receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, |
| December 31, |
| June 30, |
| December 31, | ||||
($ in millions) |
| 2017 |
| 2016 |
| 2018 |
| 2017 | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable |
| $ | 1,435 |
| $ | 1,169 |
| $ | 1,259 |
| $ | 1,206 |
Unbilled receivables |
|
| 390 |
|
| 147 | ||||||
Less allowance for doubtful accounts |
|
| (10) |
|
| (11) |
| �� | (9) |
|
| (10) |
Net trade accounts receivable |
|
| 1,425 |
|
| 1,158 |
|
| 1,640 |
|
| 1,343 |
Other receivables |
|
| 368 |
|
| 333 |
|
| 373 |
|
| 291 |
|
| $ | 1,793 |
| $ | 1,491 |
| $ | 2,013 |
| $ | 1,634 |
Unbilled receivables at June 30, 2018, include the effect of adopting new revenue recognition accounting guidance as of January 1, 2018. Further details of the new guidance and its adoption are included in Notes 2 and 5.
The company has entered into several regional committed and uncommitted accounts receivable factoring programs with various financial institutions for certain receivables of the company. The programs are accounted for as true sales of the receivables, without recourse to Ball, and had combined limits of approximately $1 billion$977 million at SeptemberJune 30, 2017.2018. A total of $646$139 million and $596$439 million were soldavailable for sale under suchthese programs as of SeptemberJune 30, 2017,2018, and December 31, 2016,2017, respectively.
7. Inventories
|
|
|
|
|
|
|
|
| September 30, |
| December 31, | ||
($ in millions) |
| 2017 |
| 2016 | ||
|
|
|
|
|
|
|
Raw materials and supplies |
| $ | 654 |
| $ | 607 |
Work-in-process and finished goods |
|
| 820 |
|
| 839 |
Less inventory reserves |
|
| (41) |
|
| (33) |
|
| $ | 1,433 |
| $ | 1,413 |
2321
9. Inventories
|
|
|
|
|
|
|
|
| June 30, |
| December 31, | ||
($ in millions) |
| 2018 |
| 2017 | ||
|
|
|
|
|
|
|
Raw materials and supplies |
| $ | 727 |
| $ | 691 |
Work-in-process and finished goods |
|
| 587 |
|
| 902 |
Less inventory reserves |
|
| (57) |
|
| (67) |
|
| $ | 1,257 |
| $ | 1,526 |
Finished goods at June 30, 2018, include the effect of adopting new revenue recognition accounting guidance as of January 1, 2018. Further details of the new guidance and its adoption are included in Notes 2 and 5.
8.10. Property, Plant and Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, |
| December 31, |
| June 30, |
| December 31, | ||||
($ in millions) |
| 2017 |
| 2016 |
| 2018 |
| 2017 | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Land |
| $ | 173 |
| $ | 105 |
| $ | 170 |
| $ | 172 |
Buildings |
|
| 1,377 |
|
| 1,301 |
|
| 1,318 |
|
| 1,390 |
Machinery and equipment |
|
| 5,075 |
|
| 4,723 |
|
| 5,034 |
|
| 5,282 |
Construction-in-progress |
|
| 549 |
|
| 503 |
|
| 554 |
|
| 542 |
|
|
| 7,174 |
|
| 6,632 |
|
| 7,076 |
|
| 7,386 |
Accumulated depreciation |
|
| (2,649) |
|
| (2,245) |
|
| (2,603) |
|
| (2,776) |
|
| $ | 4,525 |
| $ | 4,387 |
| $ | 4,473 |
| $ | 4,610 |
Property, plant and equipment are stated at historical or acquired cost. Depreciation expense amounted to $113$129 million and $373$254 million for the third quarterthree and first ninesix months of 2017,ended June 30, 2018, respectively, and $105$153 million and $237$260 million for the comparable periods in 2016,2017, respectively. During the three months ended June 30, 2017, cumulative catch-up depreciation recorded as a result of changes in the values and useful lives of fixed assets associated with the finalization of the valuation for the Rexam acquisition was $19$35 million, of which $11 million related to lastthe three months ended March 31, 2017, and $24 million related to the six months ofended December 31, 2016.
9.11. Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions) |
|
|
|
|
|
|
| Food |
|
|
| Other |
| Total | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016 |
| $ | 1,614 |
| $ | 970 |
| $ | 1,632 |
| $ | 599 |
| $ | 40 |
| $ | 240 |
| $ | 5,095 |
Opening balance sheet adjustments |
|
| (337) |
|
| 329 |
|
| (276) |
|
| — |
|
| — |
|
| (68) |
|
| (352) |
Business dispositions |
|
| — |
|
| — |
|
| — |
|
| (9) |
|
| — |
|
| — |
|
| (9) |
Effects of currency exchange rates |
|
| — |
|
| — |
|
| 150 |
|
| 17 |
|
| — |
|
| 7 |
|
| 174 |
Balance at September 30, 2017 |
| $ | 1,277 |
| $ | 1,299 |
| $ | 1,506 |
| $ | 607 |
| $ | 40 |
| $ | 179 |
| $ | 4,908 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions) |
|
|
|
|
|
|
| Food & |
|
|
| Other |
| Total | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2017 |
| $ | 1,275 |
| $ | 1,299 |
| $ | 1,531 |
| $ | 609 |
| $ | 40 |
| $ | 179 |
| $ | 4,933 |
Transfer to assets held for sale |
|
| — |
|
| — |
|
| — |
|
| (354) |
|
| — |
|
|
|
|
| (354) |
Effects of currency exchange |
|
| — |
|
| — |
|
| (58) |
|
| (4) |
|
| — |
|
| (1) |
|
| (63) |
Balance at June 30, 2018 |
| $ | 1,275 |
| $ | 1,299 |
| $ | 1,473 |
| $ | 251 |
| $ | 40 |
| $ | 178 |
| $ | 4,516 |
During the second quarter of 2017, the company finalized the allocation of the purchase price for the Rexam acquisition. The decrease related to goodwill is a result of changes in the fair values and useful lives of fixed assets for the finalization of the valuation of the Rexam acquisition. The company’s annual goodwill impairment test completed in the fourth quarter of 20162017 indicated the fair value of the beverage packaging, Asia (Beverage Asia), reporting unit exceeded its carrying amount by approximately 2324 percent. The current supply of metal beverage packaging exceeds demand in China, resulting in pricing pressure and negative impacts on the profitability of our Beverage Asia reporting unit. If it becomes an expectation that this oversupply situation will continue for an extended period of time, the company may be required to record a noncash impairment charge for some or all of the goodwill associated with the Beverage Asia reporting unit, the total balance of which was $78 million at SeptemberJune 30, 2017.2018.
2422
10.12. Intangible Assets, Net
|
|
|
|
|
|
|
|
| September 30, |
| December 31, | ||
($ in millions) |
| 2017 |
| 2016 | ||
|
|
|
|
|
|
|
Acquired Rexam intangibles (net of accumulated amortization of $203 million at September 30, 2017, and $62 million at December 31, 2016) |
| $ | 2,327 |
| $ | 1,766 |
Capitalized software (net of accumulated amortization of $116 million at September 30, 2017, and $87 million at December 31, 2016) |
|
| 82 |
|
| 79 |
Other intangibles (net of accumulated amortization of $160 million at September 30, 2017, and $143 million at December 31, 2016) |
|
| 81 |
|
| 89 |
|
| $ | 2,490 |
| $ | 1,934 |
|
|
|
|
|
|
|
|
| June 30, |
| December 31, | ||
($ in millions) |
| 2018 |
| 2017 | ||
|
|
|
|
|
|
|
Acquired Rexam intangibles (net of accumulated amortization of $323 million at June 30, 2018, and $246 million at December 31, 2017) |
| $ | 2,181 |
| $ | 2,303 |
Capitalized software (net of accumulated amortization of $135 million at June 30, 2018, and $129 million at December 31, 2017) |
|
| 84 |
|
| 84 |
Other intangibles (net of accumulated amortization of $133 million at June 30, 2018, and $163 million at December 31, 2017) |
|
| 40 |
|
| 75 |
|
| $ | 2,305 |
| $ | 2,462 |
Total amortization expense of intangible assets amounted to $49 million and $166$104 million for the third quarterthree and first ninesix months of 2017,ended June 30, 2018, respectively, and $42$76 million and $62$117 million for the comparable periods in 2016,2017, respectively. During the second quarter ofthree months ended June 30, 2017, cumulative catch-up amortization recorded as a result of the change in the value of intangible assets associated with the finalization of the valuation for the Rexam acquisition was $23 million, of which $8 million related to the three months ended March 31, 2017, and $15 million related to the last six months ofended December 31, 2016.
11.13. Other Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, |
| December 31, |
| June 30, |
| December 31, | ||||
($ in millions) |
| 2017 |
| 2016 |
| 2018 |
| 2017 | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term deferred tax assets |
| $ | 409 |
| $ | 443 |
| $ | 266 |
| $ | 325 |
Long-term pension asset |
|
| 172 |
|
| 147 | ||||||
Long-term pension assets |
|
| 508 |
|
| 504 | ||||||
Investments in affiliates |
|
| 257 |
|
| 204 |
|
| 274 |
|
| 274 |
Company and trust-owned life insurance |
|
| 168 |
|
| 146 |
|
| 174 |
|
| 160 |
Other |
|
| 144 |
|
| 164 |
|
| 144 |
|
| 143 |
|
| $ | 1,150 |
| $ | 1,104 |
| $ | 1,366 |
| $ | 1,406 |
12. Debt and Interest Costs
Long-term debt consisted of the following:
|
|
|
|
|
|
|
|
| September 30, |
| December 31, | ||
($ in millions) |
| 2017 |
| 2016 | ||
|
|
|
|
|
|
|
Senior Notes |
|
|
|
|
|
|
5.25% due July 2025 |
| $ | 1,000 |
| $ | 1,000 |
4.375% due December 2020 |
|
| 1,000 |
|
| 1,000 |
4.00% due November 2023 |
|
| 1,000 |
|
| 1,000 |
4.375%, euro denominated, due December 2023 |
|
| 827 |
|
| 736 |
5.00% due March 2022 |
|
| 750 |
|
| 750 |
3.50%, euro denominated, due December 2020 |
|
| 473 |
|
| 421 |
Senior Credit Facilities, due March 2021 (at variable rates) |
|
|
|
|
|
|
Term A loan, due June 2021 |
|
| 1,330 |
|
| 1,383 |
Term A loan, euro denominated, due June 2021 |
|
| 592 |
|
| 954 |
Multi-currency, U.S. dollar revolver, due March 2021 |
|
| 250 |
|
| 190 |
Other (including debt issuance costs) |
|
| (40) |
|
| (45) |
|
|
| 7,182 |
|
| 7,389 |
Less: Current portion of long-term debt |
|
| (78) |
|
| (79) |
|
| $ | 7,104 |
| $ | 7,310 |
2523
Following is a summary14. Debt and Interest Costs
Long-term debt consisted of debt refinancing and other costs included in the unaudited condensed consolidated statements of earnings:following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, | ||||||||
($ in millions) |
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt Refinancing and Other Costs: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense on 3.5% and 4.375% senior notes |
| $ | — |
| $ | — |
| $ | — |
| $ | (49) |
Refinance of bridge and revolving credit facilities |
|
| — |
|
| — |
|
| — |
|
| (30) |
Economic hedge - interest rate risk |
|
| — |
|
| — |
|
| — |
|
| (20) |
Amortization of unsecured, committed bridge facility financing fees |
|
| — |
|
| — |
|
| — |
|
| (7) |
Individually insignificant items |
|
| — |
|
| (2) |
|
| (1) |
|
| (2) |
|
| $ | — |
| $ | (2) |
| $ | (1) |
| $ | (108) |
|
|
|
|
|
|
|
|
| June 30, |
| December 31, | ||
($ in millions) |
| 2018 |
| 2017 | ||
|
|
|
|
|
|
|
Senior Notes |
|
|
|
|
|
|
5.25% due July 2025 |
| $ | 1,000 |
| $ | 1,000 |
4.375% due December 2020 |
|
| 1,000 |
|
| 1,000 |
4.00% due November 2023 |
|
| 1,000 |
|
| 1,000 |
4.375%, euro denominated, due December 2023 |
|
| 818 |
|
| 840 |
5.00% due March 2022 |
|
| 750 |
|
| 750 |
4.875% due March 2026 |
|
| 750 |
|
| — |
3.50%, euro denominated, due December 2020 |
|
| 467 |
|
| 480 |
Senior Credit Facilities, due March 2021 (at variable rates) |
|
|
|
|
|
|
Term A loan, due June 2021 |
|
| 998 |
|
| 1,313 |
Multi-currency, U.S. dollar revolver, due March 2021 |
|
| 440 |
|
| 285 |
Other (including debt issuance costs) |
|
| (43) |
|
| (37) |
|
|
| 7,180 |
|
| 6,631 |
Less: Current portion of long-term debt |
|
| (9) |
|
| (113) |
|
| $ | 7,171 |
| $ | 6,518 |
The senior credit facilities include long-term, multi-currency committed revolving credit facilities that provide the company with up to the U.S. dollar equivalent of $1.5 billion. At SeptemberJune 30, 2017,2018, taking into account outstanding letters of credit, approximately $1.2$1 billion was available under existing long-term, revolving credit facilities. In addition to these facilities, the company had approximately $936$905 million of short-term uncommitted credit facilities available at SeptemberJune 30, 2017,2018, of which $374$167 million was outstanding and due on demand. At December 31, 2016,2017, the company had $143$340 million outstanding under short-term uncommitted credit facilities.
In March 2018, Ball issued $750 million of 4.875 percent senior notes and used the proceeds to repay $315 million of its Term A loan and outstanding multi-currency revolver and short-term credit facility borrowings.
The fair value of long-term debt was estimated to be $7.5$7.4 billion at SeptemberJune 30, 2017,2018, and $7.7$7.0 billion at December 31, 2016.2017. The fair value reflects the market rates at each period end for debt with credit ratings similar to the company’s ratings and is classified as Level 2 within the fair value hierarchy. 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.
Ball provides letters of credit in the ordinary course of business to secure liabilities recorded in connection with certain self-insurance arrangements. Letters of credit outstanding were $34$28 million at SeptemberJune 30, 2017,2018, and $32$33 million at December 31, 2016.2017.
The company’s senior notes and senior credit facilities are guaranteed on a full, unconditional and joint and several basis by certain of the company’s material subsidiaries. Each of the guarantor subsidiaries is 100 percent owned by Ball Corporation. These guarantees are required in support of these notes and credit facilities, are coterminous with the terms of the respective note indentures and would require performance upon certain events of default referred to in the respective guarantees. Note 1922 includes further details about the company’s debt guarantees and Note 2023 contains further details, as well as required unaudited condensed consolidating financial information for the company, segregating the guarantor subsidiaries and non-guarantor subsidiaries as defined in the debt agreements.
The U.S. note agreements and bank credit agreement contain certain restrictions relating to dividend payments, share repurchases, investments, financial ratios, guarantees and the incurrence of additional indebtedness. The most restrictive covenant is in the company’s bank credit agreement and requires the company to maintain a net debt to EBITDAleverage ratio (as defined) of no greater than 54.25 times at SeptemberJune 30, 2017, which changes to 4 times at December 31, 2017.
2018. The company was in compliance with all loan agreements and debt covenants at SeptemberJune 30, 2017,2018, and December 31, 2016,2017, and has met all debt payment obligations.
24
15. Taxes on Income
On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the Act) was signed into law. In the fourth quarter of 2017, the company recorded tax expense of $83 million for the estimated impact of the mandatory deemed repatriation of its foreign earnings and revaluation of its U.S. deferred tax assets and liabilities. The company’s review of the implications of the Act will be ongoing throughout 2018, and as such, adjustments to any of the previously recorded provisional estimates of the Act’s impact may be required. These provisional estimates recorded are as follows:
· | Reduction of U.S. federal corporate tax rate: The company recorded a provisional increase to tax expense of $52 million in 2017 for the estimated impact of revaluing its net deferred tax asset position in the U.S. at the new 21 percent corporate tax rate. While this remains a reasonable estimate, it may be impacted by other analyses related to the Act, including the calculation of the transition tax; |
· | Transition tax: The company recorded a provisional increase to tax expense of $31 million in 2017 to reflect the impact of the tax on accumulated untaxed earnings and profits (E&P) of certain foreign affiliates. To determine the amount of the transition tax, the amount of the post-1986 E&P and the amount of non-U.S. income taxes paid on such earnings must be calculated for all relevant foreign affiliates. While this estimated impact is reasonable, additional information is being gathered and analyzed in order to more precisely calculate the final impact of the transition tax; |
· | Valuation allowances: The company must assess the impact of the various aspects of the Act on its valuation allowance analyses, including the transition tax. As the company has recorded provisional estimates in 2017 with respect to certain aspects of the Act, any corresponding impacts from changes in valuation allowances are also provisional estimates; and |
· | Cost recovery: The company made a provisional estimate in 2017 of the impact on its current tax expense and deferred tax liabilities associated with the new immediate expensing provisions for certain qualifying expenditures made after September 27, 2017. This estimate will be refined as the necessary computations are completed with respect to the full inventory of all qualifying 2017 expenditures. |
· | Global intangible low-tax income (GILTI): The company has included a provisional estimate in the second quarter of 2018 to increase its annual effective tax rate for the current year impact of the new tax on GILTI. Any subsequent adjustments to this provisional estimate will be reflected on a current basis when determined. |
Based on a detailed analysis of its global income and other tax attributes that has concluded in the current reporting period, the company is now making the accounting policy election to treat taxes due for GILTI and the base erosion anti-abuse tax (BEAT) as a current-period expense as incurred.
With the introduction of a modified territorial tax system in the Act, the company is continuing the review of its previously stated intent to indefinitely reinvest the undistributed earnings of certain of its foreign subsidiaries. As the company does not believe a reasonable estimate of the impact of the Act on its indefinite reinvestment assertion can currently be determined, no provisional estimate has been recorded as allowed by applicable accounting standards. When either a reasonable estimate or the final determination becomes available, the impact will be recorded in the corresponding reporting period, no later than December 2018.
Due to the timing of the enactment and the complexity involved in applying the provisions of the Act, the company made reasonable estimates of the various effects and recorded provisional amounts in the financial statements for the three and six months ended June 30, 2018, and the year ended December 31, 2017. As the company collects and prepares necessary data, and continues to interpret the Act based on any additional guidance issued by the U.S. Treasury Department, the Internal Revenue Service, and other standard-setting bodies, adjustments may be required to the provisional amounts that could materially affect the company’s financial position and results of operations as well as its effective tax rate in the period in which the required adjustments are made. In all cases, the analysis will be completed and any required adjustments will be recorded no later than December 2018.
25
16. Employee Benefit Obligations
|
|
|
|
|
|
|
|
| June 30, |
| December 31, | ||
($ in millions) |
| 2018 |
| 2017 | ||
|
|
|
|
|
|
|
Underfunded defined benefit pension liabilities |
| $ | 945 |
| $ | 945 |
Less: Current portion |
|
| (26) |
|
| (27) |
Long-term defined benefit pension liabilities |
|
| 919 |
|
| 918 |
Long-term retiree medical liabilities |
|
| 195 |
|
| 196 |
Deferred compensation plans |
|
| 264 |
|
| 275 |
Other |
|
| 74 |
|
| 74 |
|
| $ | 1,452 |
| $ | 1,463 |
Components of net periodic benefit cost associated with the company’s defined benefit pension plans were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended June 30, | ||||||||||||||||
|
| 2018 |
| 2017 | ||||||||||||||
($ in millions) |
| U.S. |
| Foreign |
| Total |
| U.S. |
| Foreign |
| Total | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ball-sponsored plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
| $ | 14 |
| $ | 4 |
| $ | 18 |
| $ | 12 |
| $ | 4 |
| $ | 16 |
Interest cost |
|
| 24 |
|
| 18 |
|
| 42 |
|
| 33 |
|
| 22 |
|
| 55 |
Expected return on plan assets |
|
| (28) |
|
| (27) |
|
| (55) |
|
| (33) |
|
| (26) |
|
| (59) |
Amortization of prior service cost |
|
| 1 |
|
| — |
|
| 1 |
|
| 1 |
|
| — |
|
| 1 |
Recognized net actuarial loss |
|
| 9 |
|
| 1 |
|
| 10 |
|
| 8 |
|
| 1 |
|
| 9 |
Net periodic benefit cost for Ball sponsored plans |
|
| 20 |
|
| (4) |
|
| 16 |
|
| 21 |
|
| 1 |
|
| 22 |
Net periodic benefit cost for multi-employer plans |
|
| 1 |
|
| — |
|
| 1 |
|
| 1 |
|
| — |
|
| 1 |
Total net periodic benefit cost |
| $ | 21 |
| $ | (4) |
| $ | 17 |
| $ | 22 |
| $ | 1 |
| $ | 23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months Ended June 30, |
| ||||||||||||||||
|
| 2018 |
| 2017 |
| ||||||||||||||
($ in millions) |
| U.S. |
| Foreign |
| Total |
| U.S. |
| Foreign |
| Total |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ball-sponsored plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
| $ | 27 |
| $ | 8 |
| $ | 35 |
| $ | 24 |
| $ | 8 |
| $ | 32 |
|
Interest cost |
|
| 48 |
|
| 36 |
|
| 84 |
|
| 66 |
|
| 44 |
|
| 110 |
|
Expected return on plan assets |
|
| (55) |
|
| (54) |
|
| (109) |
|
| (66) |
|
| (52) |
|
| (118) |
|
Amortization of prior service cost |
|
| 1 |
|
| — |
|
| 1 |
|
| 1 |
|
| — |
|
| 1 |
|
Recognized net actuarial loss |
|
| 19 |
|
| 2 |
|
| 21 |
|
| 17 |
|
| 2 |
|
| 19 |
|
Net periodic benefit cost for Ball sponsored plans |
|
| 40 |
|
| (8) |
|
| 32 |
|
| 42 |
|
| 2 |
|
| 44 |
|
Net periodic benefit cost for multi-employer plans |
|
| 1 |
|
| — |
|
| 1 |
|
| 2 |
|
| — |
|
| 2 |
|
Total net periodic benefit cost |
| $ | 41 |
| $ | (8) |
| $ | 33 |
| $ | 44 |
| $ | 2 |
| $ | 46 |
|
Non-service pension income totaling $2 million and $3 million for the three and six months ended June 30, 2018, respectively, are included in selling, general, and administrative (SG&A) expenses. Non-service pension costs totaling $6 million and $12 million for the three and six months ended June 30, 2017, respectively, are included in cost of sales and SG&A and, due to immateriality, were not retrospectively adjusted as required by the newly adopted accounting standard for pension and postretirement benefit costs as described in Note 2.
26
13. Employee Benefit Obligations
|
|
|
|
|
|
|
|
| September 30, |
| December 31, | ||
($ in millions) |
| 2017 |
| 2016 | ||
|
|
|
|
|
|
|
Underfunded defined benefit pension liabilities |
| $ | 877 |
| $ | 963 |
Less: Current portion |
|
| (26) |
|
| (25) |
Long-term defined benefit pension liabilities |
|
| 851 |
|
| 938 |
Retiree medical and other postemployment benefits |
|
| 213 |
|
| 226 |
Deferred compensation plans |
|
| 279 |
|
| 272 |
Other |
|
| 63 |
|
| 61 |
|
| $ | 1,406 |
| $ | 1,497 |
Components of net periodic benefit cost associated with the company’s defined benefit pension plans were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended September 30, | ||||||||||||||||
|
| 2017 |
| 2016 | ||||||||||||||
($ in millions) |
| U.S. |
| Foreign |
| Total |
| U.S. |
| Foreign |
| Total | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ball-sponsored plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
| $ | 13 |
| $ | 4 |
| $ | 17 |
| $ | 17 |
| $ | 4 |
| $ | 21 |
Interest cost |
|
| 29 |
|
| 22 |
|
| 51 |
|
| 33 |
|
| 25 |
|
| 58 |
Expected return on plan assets |
|
| (31) |
|
| (26) |
|
| (57) |
|
| (35) |
|
| (31) |
|
| (66) |
Amortization of prior service cost |
|
| 1 |
|
| — |
|
| 1 |
|
| — |
|
| 1 |
|
| 1 |
Recognized net actuarial loss |
|
| 8 |
|
| 1 |
|
| 9 |
|
| 8 |
|
| 1 |
|
| 9 |
Curtailment and settlement losses including special termination benefits |
|
| 43 | (a) |
| — |
|
| 43 |
|
| — |
|
| — |
|
| — |
Total net periodic benefit cost |
| $ | 63 |
| $ | 1 |
| $ | 64 |
| $ | 23 |
| $ | — |
| $ | 23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended September 30, |
| ||||||||||||||||
|
| 2017 |
| 2016 |
| ||||||||||||||
($ in millions) |
| U.S. |
| Foreign |
| Total |
| U.S. |
| Foreign |
| Total |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ball-sponsored plans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
| $ | 37 |
| $ | 12 |
| $ | 49 |
| $ | 41 |
| $ | 10 |
| $ | 51 |
|
Interest cost |
|
| 95 |
|
| 66 |
|
| 161 |
|
| 63 |
|
| 34 |
|
| 97 |
|
Expected return on plan assets |
|
| (97) |
|
| (78) |
|
| (175) |
|
| (71) |
|
| (40) |
|
| (111) |
|
Amortization of prior service cost |
|
| 1 |
|
| — |
|
| 1 |
|
| (1) |
|
| — |
|
| (1) |
|
Recognized net actuarial loss |
|
| 26 |
|
| 3 |
|
| 29 |
|
| 24 |
|
| 4 |
|
| 28 |
|
Curtailment and settlement losses including special termination benefits |
|
| 43 | (a) |
| — |
|
| 43 |
|
| — |
|
| 80 | (b) |
| 80 |
|
Net periodic benefit cost for Ball sponsored plans |
|
| 105 |
|
| 3 |
|
| 108 |
|
| 56 |
|
| 88 |
|
| 144 |
|
Net periodic benefit cost for multi-employer plans |
|
| 2 |
|
| — |
|
| 2 |
|
| 1 |
|
| — |
|
| 1 |
|
Total net periodic benefit cost |
| $ | 107 |
| $ | 3 |
| $ | 110 |
| $ | 57 |
| $ | 88 |
| $ | 145 |
|
|
|
|
|
27
In August 2017, Ball completed the purchase of non-participating group annuity contracts that have transferred to an insurance company for the pension benefit obligation totaling approximately $224 million in the U.S. The purchase of the annuity contracts triggered settlement accounting. Regular lump sums paid in the normal course of plan operations are also included in the total settlement amount. Both of these resulted in the recognition of a loss recorded in business consolidation and other activities from the settlement of $41 million, from accumulated other comprehensive income. The pension obligation was also remeasured during the quarter for the plans impacted.
Contributions to the company’s defined benefit pension plans, not including unfunded German, Swedish and certain U.S. plans, were $182$4 million in the first ninesix months of 20172018 compared to $246$110 million in the first ninesix months of 20162017 and are expected to be in the range of $190$45 million for the full year of 2017.2018. This estimate may change based on any changes to the U.S. Pension Protection Act and actual plan asset performance, among other factors. Included in the 2017 contributions were contributions to acquired Rexam defined benefit pension plans. Payments to participants in the unfunded German, Swedish and certain U.S. plans were $19$10 million in the first ninesix months of 20172018 compared to $18$12 million in the first ninesix months of 20162017 and are expected to be in the range of $22$21 million for the full year of 2017.2018.
14.17. Shareholders’ Equity and Comprehensive Earnings
In April 2017,Under its ongoing share repurchase program, the company’s boardcompany repurchased $175 million of directors declared a two-for-one splitits shares, net of Ball Corporation’s common stockissuances, during the six months ended June 30, 2018, and increasedan additional $124 million was repurchased during July 2018. The company expects net share repurchases for the quarterly cash dividend by 54 percentfull year 2018 to 10 cents on a post-split basis. The stock split was effective as of May 16, 2017.approach $700 million.
In August 2017, in a privately negotiated transaction, Ball entered into an accelerated share repurchase agreement to buy $100 million of its common shares using cash on hand and available borrowings. Theborrowings, and the company advanced the $100received 2.5 million in August 2017, and received 2.2 million shares, which represented approximately 85 percent of the total shares. The agreement is expected to settle during the fourth quarter of 2017.
Accumulated Other Comprehensive Earnings (Loss)
The activity related to accumulated other comprehensive earnings (loss) was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in millions) |
| Foreign |
| Pension and |
| Effective |
| Accumulated |
| Foreign Currency Translation (Net of Tax) |
| Pension and Other Postretirement Benefits (Net of Tax) |
| Effective Derivatives (Net of Tax) |
| Accumulated Other Comprehensive Earnings (Loss) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016 |
| $ | (329) |
| $ | (590) |
| $ | (22) |
| $ | (941) | ||||||||||||
Balance at December 31, 2017 |
| $ | (307) |
| $ | (362) |
| $ | 13 |
| $ | (656) | ||||||||||||
Other comprehensive earnings (loss) before reclassifications |
|
| — |
|
| (52) |
|
| (38) |
|
| (90) |
|
| (111) |
|
| — |
|
| 34 |
|
| (77) |
Amounts reclassified from accumulated other comprehensive earnings (loss) |
|
| — |
|
| 41 |
|
| 65 |
|
| 106 |
|
| — |
|
| 14 |
|
| (48) |
|
| (34) |
Balance at September 30, 2017 |
| $ | (329) |
| $ | (601) |
| $ | 5 |
| $ | (925) | ||||||||||||
Balance at June 30, 2018 |
| $ | (418) |
| $ | (348) |
| $ | (1) |
| $ | (767) | ||||||||||||
2827
The following table provides additional details of the amounts recognized into net earnings from accumulated other comprehensive earnings (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, |
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| ||||||||||||||||
($ in millions) |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) on cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts recorded in net sales |
| $ | — |
| $ | (1) |
| $ | (3) |
| $ | 2 |
| $ | (1) |
| $ | — |
| $ | (4) |
| $ | (3) |
|
Commodity contracts recorded in cost of sales |
|
| 12 |
|
| 2 |
|
| 34 |
|
| (8) |
|
| 18 |
|
| 9 |
|
| 28 |
|
| 17 |
|
Currency exchange contracts recorded in selling, general and administrative |
|
| 1 |
|
| 5 |
|
| (2) |
|
| 3 |
|
| 1 |
|
| — |
|
| 1 |
|
| — |
|
Currency exchange contracts recorded in business consolidation and other activities |
|
| (3) |
|
| — |
|
| — |
|
| — | |||||||||||||
Cross-currency swaps recorded in selling, general and administrative |
|
| (35) |
|
| (7) |
|
| (119) |
|
| (6) |
|
| 59 |
|
| (71) |
|
| 30 |
|
| (84) |
|
Cross-currency swaps recorded in interest expense |
|
| 3 |
|
| — |
|
| 13 |
|
| — |
|
| 3 |
|
| 5 |
|
| 6 |
|
| 10 |
|
Interest rate contracts recorded in interest expense |
|
| — |
|
| (1) |
|
| — |
|
| (1) | |||||||||||||
Commodity and currency exchange contracts attributable to the divestment business recorded in business consolidation and other activities |
|
| — |
|
| — |
|
| — |
|
| (4) | |||||||||||||
Total before tax effect |
|
| (22) |
|
| (2) |
|
| (77) |
|
| (14) |
|
| 80 |
|
| (57) |
|
| 61 |
|
| (60) |
|
Tax benefit (expense) on amounts reclassified into earnings |
|
| 15 |
|
| 2 |
|
| 12 |
|
| 2 |
|
| (18) |
|
| 13 |
|
| (13) |
|
| (2) |
|
Recognized gain (loss) |
| $ | (7) |
| $ | — |
| $ | (65) |
| $ | (12) |
| $ | 62 |
| $ | (44) |
| $ | 48 |
| $ | (62) |
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|
|
Amortization of pension and other postretirement benefits: (a) |
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|
|
Prior service income (expense) |
| $ | (1) |
| $ | — |
| $ | (1) |
| $ | 3 | |||||||||||||
Actuarial gains (losses) (b) |
|
| (48) |
|
| (9) |
|
| (65) |
|
| (108) | |||||||||||||
Actuarial gains (losses) |
|
| (10) |
|
| (8) |
|
| (19) |
|
| (17) |
| ||||||||||||
Total before tax effect |
|
| (49) |
|
| (9) |
|
| (66) |
|
| (105) |
|
| (10) |
|
| (8) |
|
| (19) |
|
| (17) |
|
Tax benefit (expense) on amounts reclassified into earnings |
|
| 19 |
|
| 3 |
|
| 25 |
|
| 29 |
|
| 3 |
|
| 3 |
|
| 5 |
|
| 6 |
|
Recognized gain (loss) |
| $ | (30) |
| $ | (6) |
| $ | (41) |
| $ | (76) |
| $ | (7) |
| $ | (5) |
| $ | (14) |
| $ | (11) |
|
(a) | The pension components are included in the computation of net periodic benefit cost included in Note |
|
|
15.
18. Stock-Based Compensation Programs
The company has shareholder-approved stock plans under which options and stock-settled appreciation rights (SSARs) have been granted to employees at the market value of the company’s stock at the date of grant. In general, options and SSARs are exercisable in four equal installments commencing one year from the date of grant and terminating 10 years from the date of grant. There were 1.12.1 million stock options and SSARs granted in January 2017 and 1.3 million in April 2017 (on a post-stock split basis).2018. These options and SSARs cannot be traded in any equity market. However, based on the Black-Scholes option pricing model, options granted in January 2018, and options and SSARs granted in April 2017, January 2017, July 2016 and January 20162017 have estimated weighted average fair values at the date of grant of $9.07 per share, $7.21 per share, and $8.54 per share, $8.35 per share and $9.29 per share, respectively (reflects the two-for-one stock split effective May 16, 2017).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 or SSAR is exercised. Consequently, there is no assurance the value realized by an employee will approximate the value estimated. The fair values were estimated using the following weighted average assumptions:
|
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|
|
|
|
|
|
| January 2018 |
| April 2017 |
| January 2017 |
|
|
|
|
|
|
|
|
|
Expected dividend yield |
| 1.03 | % | 1.06 | % | 0.68 | % |
Expected stock price volatility |
| 21.98 | % | 18.89 | % | 20.49 | % |
Risk-free interest rate |
| 2.47 | % | 1.95 | % | 2.07 | % |
Expected life of options (in years) |
| 6.10 | years | 5.94 | years | 5.94 | years |
2928
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|
|
|
|
|
|
|
|
|
|
| April 2017 |
| January 2017 |
| July 2016 |
| January 2016 |
|
|
|
|
|
|
|
|
|
|
|
Expected dividend yield |
| 1.06 | % | 0.68 | % | 0.73 | % | 0.79 | % |
Expected stock price volatility |
| 18.89 | % | 20.49 | % | 24.14 | % | 29.25 | % |
Risk-free interest rate |
| 1.95 | % | 2.07 | % | 1.22 | % | 1.57 | % |
Expected life of options (in years) |
| 5.94 | years | 5.94 | years | 6.10 | years | 5.94 | years |
During the first quarter of 20172018 and 2016,2017, the company’s board of directors granted 237,452261,174 and 237,510237,452 performance-contingent restricted stock units (PCEQs) (on a post-stock split basis), respectively, to key employees. These PCEQs vest three years from the date of grant, and the number of shares available at the vesting date is based on the company’s growth in economic value added (EVA®) dollars in excess of the EVA® dollars generated in the calendar year prior to the grant as the minimum threshold, and can range from zero to 200 percent of each participant’s assigned PCEQ award. If the minimum performance goals are not met, the PCEQ will be forfeited. Grants under the plan are being accounted for as equity awards and compensation expense is recorded based upon the most probable outcome using the closing market price of the shares at the grant date. On a quarterly and annual basis, the company reassesses the probability of the goals being met and adjusts compensation expense as appropriate.
Also during the first quarter of 2017, the company’s board of directors granted 1.1 million performance-contingent restricted stock units (on a post-stock split basis) to employees related to the Special Acquisition-Related Incentive Plan. The number of shares issued at the vesting date in January 2020 will be based on the company’s achievement of cumulative EVA® and Cash Flow performance goals through the vesting date and can range from zero to 200 percent of each participant’s assigned award. If the minimum performance goals are not met, the awards will be forfeited. Grants under the plan are being accounted for as equity awards and compensation expense is recorded based upon the most probable outcome using the closing market price of the shares at the grant date. On a quarterly basis, the company reassesses the probability of the goals being met and adjusts compensation expense as appropriate.
16.19. Earnings and Dividends Per Share
|
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|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, | ||||||||
($ in millions, except per share amounts; shares in thousands) |
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to Ball Corporation |
| $ | 48 |
| $ | 31 |
| $ | 215 |
| $ | 210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares (a) |
|
| 350,327 |
|
| 349,128 |
|
| 350,481 |
|
| 305,756 |
Effect of dilutive securities (a) |
|
| 8,229 |
|
| 6,276 |
|
| 8,011 |
|
| 6,420 |
Weighted average shares applicable to diluted earnings per share (a) |
|
| 358,556 |
|
| 355,404 |
|
| 358,492 |
|
| 312,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Per basic share (a) |
| $ | 0.14 |
| $ | 0.09 |
| $ | 0.61 |
| $ | 0.69 |
Per diluted share (a) |
| $ | 0.13 |
| $ | 0.09 |
| $ | 0.60 |
| $ | 0.67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| ||||||||
($ in millions, except per share amounts; shares in thousands) |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to Ball Corporation |
| $ | 119 |
| $ | 99 |
| $ | 244 |
| $ | 167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares |
|
| 348,221 |
|
| 351,066 |
|
| 349,212 |
|
| 350,560 |
|
Effect of dilutive securities |
|
| 6,683 |
|
| 7,913 |
|
| 7,064 |
|
| 7,946 |
|
Weighted average shares applicable to diluted earnings per share |
|
| 354,904 |
|
| 358,979 |
|
| 356,276 |
|
| 358,506 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per basic share |
| $ | 0.34 |
| $ | 0.28 |
| $ | 0.70 |
| $ | 0.48 |
|
Per diluted share |
| $ | 0.34 |
| $ | 0.28 |
| $ | 0.68 |
| $ | 0.47 |
|
Certain outstanding options were excluded from the diluted earnings per share calculation because they were anti-dilutive (i.e., their assumed conversion into common stock would increase rather than decrease earnings per share). The options excluded totaled 5 million for both the three and six months ended June 30, 2018. The options excluded totaled 3 million and 5 million for the third quarterthree and first ninesix months ofended June 30, 2017, respectively. The options excluded totaled 2 million and 4 million, respectively, for the third quarter and first nine months of 2016.
The company declared and paid dividends of $0.10 per share in both the third quarter and second quarter of 2017. The company declared and paid dividends of $0.065 per share in the first quarter of 2017 and each of the first three quarters of 2016, respectively.
30
17.20. Financial Instruments and Risk Management
The company employs established risk management policies and procedures, which seek to reduce the company’s commercial risk exposure to fluctuations in commodity prices, interest rates, currency exchange rates and prices of the company’s common stock with regard to common share repurchases and the company’s deferred compensation stock plan. However, there can be no assurance these policies and procedures will be successful. Although the instruments utilized involve varying degrees of credit, market and interest risk, the counterparties to the agreements are expected to perform fully under the terms of the agreements. The company monitors counterparty credit risk, including lenders, on a regular basis, but Ball cannot be certain that all risks will be discerned or that its risk management policies and procedures will always be effective. Additionally, in the event of default under the company’s master derivative agreements, the non-defaulting party has the option to offset any amounts owed with regard to open derivative positions.
Commodity Price Risk
Aluminum
The company manages commodity price risk in connection with market price fluctuations of aluminum ingot through two different methods. First, the company enters into container sales contracts that include aluminum ingot-based pricing terms that generally reflect the same price fluctuations under commercial purchase contracts for aluminum sheet. The terms include fixed, floating or pass through aluminum ingot component pricing. Second, the company uses certain derivative instruments, such asincluding option and forward contracts as economic and cash flow hedges of commodity price risk where there are material differences between sales and purchase contracted pricing and volume.
29
At SeptemberJune 30, 2017,2018, the company had aluminum contracts limiting its aluminum exposure with notional amounts of approximately $732$784 million, all of which $707 million received hedge accounting treatment. The aluminum contracts, which are recorded at fair value, include economic derivative instruments that are undesignated, as well as cash flow hedges that offset sales and purchase contracts of various terms and lengths. Cash flow hedges relate to forecasted transactions that will occur within the next threetwo years. Included in shareholders’ equity at SeptemberJune 30, 2017,2018, within accumulated other comprehensive earnings (loss), is a net after-tax gain of $24$28 million associated with these contracts. A net after-tax gain of $19$27 million is expected to be recognized in the consolidated statement of earnings during the next 12 months, the majority of which will be offset by pricing changes in sales and purchase contracts, thus resulting in little or no earnings impact to Ball.
Steel
Most sales contracts involving our steel products either include provisions permitting the company to pass through some or all steel cost changes incurred, or they incorporate annually negotiated steel prices.
Interest Rate Risk
The company’s objective in managing exposure to interest rate changes is to minimize the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, the company may use a variety of interest rate swaps, collars and options to manage our mix of floating and fixed-rate debt. At SeptemberJune 30, 2017,2018, the company had outstanding interest rate swap and option contracts with notional amounts of approximately $1$1.1 billion paying fixed rates expiring within the next year.two years.
Currency Exchange Rate Risk
The company’s objective in managing exposure to currency fluctuations is to limit the exposure of cash flows and earnings from changes associated with currency exchange rate changes through the use of various derivative contracts. In addition, at times the company manages earnings translation volatility through the use of currency option strategies, and the change in the fair value of those options is recorded in the company’s net earnings. The company’s currency translation risk results from the currencies in which we transact business. The company faces currency exposures in its global operations as a result of various factors including intercompany currency denominated loans, selling our products
31
in various currencies, purchasing raw materials and equipment in various currencies and tax exposures not denominated in the functional currency. Sales contracts are negotiated with customers to reflect cost changes and, where there is not an exchange pass-through arrangement, the company uses forward and option contracts to manage currency exposures. At SeptemberJune 30, 2017,2018, the company had outstanding exchange rate forward contracts and option contracts with notional amounts totaling approximately $2$2.15 billion. Approximately $3$1 million of net after-tax gainloss related to these contracts is included in accumulated other comprehensive earnings at SeptemberJune 30, 2017,2018, the majority of which a net gain of $2 million is expected to be recognized in the unaudited condensed consolidated statement of earnings during the next 12 months. The contracts outstanding at SeptemberJune 30, 2017,2018, expire within the next two years.
Additionally, the company entered into a $1 billion cross-currency swap contract to partially mitigate the risk associated with foreign currency denominated intercompany debt incurred in the third quarter of 2016. Approximately $22$28 million of net after-tax loss related to this contract is included in accumulated other comprehensive earnings at SeptemberJune 30, 2017, the amount2018, of which isthe amount expected to be recognized during the next 12 months is dependent on fluctuationsupon changes in currency exchange rates. As of SeptemberJune 30, 2017,2018, the fair value of the cross-currency swap was a $96$92 million loss. The contract expires in December 2020.within the next three years.
30
Common Stock Price Risk
The company’s deferred compensation stock program is subject to variable plan accounting and, accordingly, is marked to fair value using the company’s closing stock price at the end of the related reporting period. The company entered into total return swaps to reduce the company’s earnings exposure to these fair value fluctuations that will be outstanding through June 2018March 2019 and that have a combined notional value of 2.72.6 million shares. Based on the current number of shares in the program, each $1 change in the company’s stock price has an insignificant impact on pretax earnings, net of the impact of related derivatives. As of SeptemberJune 30, 2017,2018, the fair value of the swap was a $2$4 million gain.loss.
Collateral Calls
The company’s agreements with its financial counterparties require the company to post collateral in certain circumstances when the negative mark to fair value of the derivative contracts exceeds specified levels. Additionally, the company has collateral posting arrangements with certain customers on these derivative contracts. The cash flows of the margin calls, if any, are shown within the investing section of the company’s consolidated statements of cash flows. As of SeptemberJune 30, 2017,2018, and December 31, 2016,2017, the aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position was $15$9 million and $44$27 million, respectively, and no collateral was required to be posted.
Fair Value Measurements
The company has classified all applicable financial derivative assets and liabilities as Level 2 within the fair value hierarchy as of SeptemberJune 30, 2017,2018, and December 31, 2016,2017, and presented those values in the tables below. The
32
company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.
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| September 30, 2017 |
| December 31, 2016 |
|
| June 30, 2018 | |||||||||||||||||||||
($ in millions) |
| Derivatives |
| Derivatives not |
| Total |
| Derivatives |
| Derivatives not |
| Total | Balance Sheet Location |
| Derivatives |
| Derivatives not |
| Total | |||||||||
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Assets: |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts |
|
| $ | 40 |
| $ | 6 |
| $ | 46 | ||||||||||||||||||
Foreign currency contracts |
|
|
| 1 |
|
| 23 |
|
| 24 | ||||||||||||||||||
Total current derivative contracts | Other current assets |
| $ | 41 |
| $ | 29 |
| $ | 70 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Commodity contracts |
|
| $ | 3 |
| $ | — |
| $ | 3 | ||||||||||||||||||
Total noncurrent derivative contracts | Other noncurrent assets |
| $ | 3 |
| $ | — |
| $ | 3 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Commodity contracts |
| $ | 38 |
| $ | 2 |
| $ | 40 |
| $ | 17 |
| $ | 1 |
| $ | 18 |
|
| $ | 3 |
| $ | 4 |
| $ | 7 |
Foreign currency contracts |
|
| 3 |
|
| 7 |
|
| 10 |
|
| 1 |
|
| — |
|
| 1 |
|
|
| 1 |
|
| 5 |
|
| 6 |
Interest rate and other contracts |
|
| — |
|
| 2 |
|
| 2 |
|
| — |
|
| 21 |
|
| 21 |
|
|
| — |
|
| 4 |
|
| 4 |
Total current derivative contracts |
| $ | 41 |
| $ | 11 |
| $ | 52 |
| $ | 18 |
| $ | 22 |
| $ | 40 | Other current liabilities |
| $ | 4 |
| $ | 13 |
| $ | 17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts |
| $ | 6 |
| $ | — |
| $ | 6 |
| $ | 7 |
| $ | — |
| $ | 7 |
|
| $ | 2 |
| $ | — |
| $ | 2 |
Interest rate and other contracts |
|
| 1 |
|
| — |
|
| 1 |
|
| 39 |
|
| — |
|
| 39 |
|
|
| 92 |
|
| — |
|
| 92 |
Total noncurrent derivative contracts |
| $ | 7 |
| $ | — |
| $ | 7 |
| $ | 46 |
| $ | — |
| $ | 46 | Other noncurrent liabilities |
| $ | 94 |
| $ | — |
| $ | 94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Commodity contracts |
| $ | 13 |
| $ | 1 |
| $ | 14 |
| $ | 3 |
| $ | — |
| $ | 3 | ||||||||||
Foreign currency contracts |
|
| 1 |
|
| 16 |
|
| 17 |
|
| — |
|
| 22 |
|
| 22 | ||||||||||
Total current derivative contracts |
| $ | 14 |
| $ | 17 |
| $ | 31 |
| $ | 3 |
| $ | 22 |
| $ | 25 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Total noncurrent foreign currency derivative contracts |
| $ | 96 |
| $ | — |
| $ | 96 |
| $ | — |
| $ | — |
| $ | — | ||||||||||
31
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2017 | |||||||
|
|
| Derivatives |
| Derivatives not |
| Total | |||
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
Commodity contracts |
|
| $ | 46 |
| $ | 3 |
| $ | 49 |
Foreign currency contracts |
|
|
| 5 |
|
| 10 |
|
| 15 |
Total current derivative contracts | Other current assets |
| $ | 51 |
| $ | 13 |
| $ | 64 |
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts |
|
| $ | 6 |
| $ | — |
| $ | 6 |
Total noncurrent derivative contracts | Other noncurrent assets |
| $ | 6 |
| $ | — |
| $ | 6 |
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
Commodity contracts |
|
| $ | 4 |
| $ | 4 |
| $ | 8 |
Foreign currency contracts |
|
|
| — |
|
| 21 |
|
| 21 |
Interest rate and other contracts |
|
|
| — |
|
| 2 |
|
| 2 |
Total current derivative contracts | Other current liabilities |
| $ | 4 |
| $ | 27 |
| $ | 31 |
|
|
|
|
|
|
|
|
|
|
|
Interest rate and other contracts |
|
| $ | 117 |
| $ | 3 |
| $ | 120 |
Total noncurrent derivative contracts | Other noncurrent liabilities |
| $ | 117 |
| $ | 3 |
| $ | 120 |
The company uses closing spot and forward market prices as published by the London Metal Exchange, the Chicago Mercantile Exchange, Reuters and Bloomberg to determine the fair value of any outstanding aluminum, currency, energy, inflation and interest rate spot and forward contracts. Option contracts are valued using a Black-Scholes model with observable market inputs for aluminum, currency and interest rates. We value each of our financial instruments either internally using a single valuation technique or from a reliable observable market source. The company does not adjust the value of its financial instruments except in determining the fair value of a trade that settles in the future by discounting the value to its present value using 12-montha12-month LIBOR rate as the discount factor. Ball performs validations of ourits internally derived fair values reported for our financial instruments on a quarterly basis utilizing counterparty valuation statements. Additionally, the company evaluates counterparty creditworthiness and, as of SeptemberJune 30, 2017,2018, has not identified any circumstances requiring the reported values of ourits financial instruments to be adjusted.
3332
The following table provides the effects of derivative instruments in the consolidated statement of earnings and on accumulated other comprehensive earnings (loss):
|
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|
| Three Months Ended September 30, |
|
|
|
| Three Months Ended June 30, |
| ||||||||||||||||||||
|
|
|
| 2017 |
| 2016 |
|
|
|
| 2018 |
| 2017 |
| ||||||||||||||||
($ in millions) |
| Location of Gain (Loss) |
| Cash Flow |
| Gain (Loss) on |
| Cash Flow |
| Gain (Loss) on |
|
| Location of Gain (Loss) |
| Cash Flow |
| Gain (Loss) on |
| Cash Flow |
| Gain (Loss) on |
| ||||||||
|
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|
Commodity contracts - manage exposure to customer pricing |
| Net sales |
| $ | — |
| $ | (1) |
| $ | (1) |
| $ | — |
|
| Net sales |
| $ | (1) |
| $ | — |
| $ | — |
| $ | — |
|
Commodity contracts - manage exposure to supplier pricing |
| Cost of sales |
|
| 12 |
|
| (2) |
|
| 2 |
|
| (4) |
|
| Cost of sales |
|
| 18 |
|
| 4 |
|
| 9 |
|
| (4) |
|
Interest rate contracts - manage exposure for outstanding debt |
| Interest expense |
|
| — |
|
| — |
|
| (1) |
|
| — |
| |||||||||||||||
Foreign currency contracts - manage general exposure with the business |
| Selling, general and administrative |
|
| 1 |
|
| (34) |
|
| 5 |
|
| (18) |
|
| Selling, general and administrative |
|
| 1 |
|
| 68 |
|
| — |
|
| (14) |
|
Foreign currency contracts - manage exposure for proposed acquisition of Rexam |
| Business consolidation and other activities |
|
| (3) |
|
| — |
|
| — |
|
| (12) |
| |||||||||||||||
Cross-currency swaps - manage intercompany currency exposure within the business |
| Selling, general and administrative |
|
| (35) |
|
| — |
|
| (7) |
|
| — |
|
| Selling, general and administrative |
|
| 59 |
|
| — |
|
| (71) |
|
| — |
|
Cross-currency swaps - manage intercompany currency exposure within the business |
| Interest expense |
|
| 3 |
|
| — |
|
| — |
|
| — |
|
| Interest expense |
|
| 3 |
|
| — |
|
| 5 |
|
| — |
|
Equity and inflation contracts |
| Selling, general and administrative |
|
| — |
|
| (3) |
|
| — |
|
| 10 |
| |||||||||||||||
Equity contracts |
| Selling, general and administrative |
|
| — |
|
| (11) |
|
| — |
|
| 13 |
| |||||||||||||||
Total |
|
|
| $ | (22) |
| $ | (40) |
| $ | (2) |
| $ | (24) |
|
|
|
| $ | 80 |
| $ | 61 |
| $ | (57) |
| $ | (5) |
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
| Six Months Ended June 30, | ||||||||||||
|
|
|
| 2018 |
| 2017 | ||||||||||
($ in millions) |
| Location of Gain (Loss) |
| Cash Flow |
| Gain (Loss) on |
| Cash Flow |
| Gain (Loss) on | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Commodity contracts - manage exposure to customer pricing |
| Net sales |
| $ | (4) |
| $ | 1 |
| $ | (3) |
| $ | (2) | ||
Commodity contracts - manage exposure to supplier pricing |
| Cost of sales |
|
| 28 |
|
| 4 |
|
| 17 |
|
| (3) | ||
Foreign currency contracts - manage general exposure with the business |
| Selling, general and administrative |
|
| 1 |
|
| 57 |
|
| — |
|
| (29) | ||
Cross-currency swaps - manage intercompany currency exposure within the business |
| Selling, general and administrative |
|
| 30 |
|
| — |
|
| (84) |
|
| — | ||
Cross-currency swaps - manage intercompany currency exposure within the business |
| Interest expense |
|
| 6 |
|
| — |
|
| 10 |
|
| — | ||
Equity contracts |
| Selling, general and administrative |
|
| — |
|
| (7) |
|
| — |
|
| 10 | ||
Total |
|
|
| $ | 61 |
| $ | 55 |
| $ | (60) |
| $ | (24) | ||
The changes in accumulated other comprehensive earnings (loss) for effective derivatives were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| ||||||||
($ in millions) |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassified into earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts |
| $ | (17) |
| $ | (9) |
| $ | (24) |
| $ | (14) |
|
Cross-currency swap contracts |
|
| (62) |
|
| 66 |
|
| (36) |
|
| 74 |
|
Currency exchange contracts |
|
| (1) |
|
| — |
|
| (1) |
|
| — |
|
Change in fair value of cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts |
|
| 42 |
|
| (28) |
|
| 12 |
|
| 23 |
|
Interest rate contracts |
|
| — |
|
| — |
|
| — |
|
| 1 |
|
Cross-currency swap contracts |
|
| 71 |
|
| (66) |
|
| 32 |
|
| (69) |
|
Currency exchange contracts |
|
| (2) |
|
| 2 |
|
| (3) |
|
| 1 |
|
Foreign currency and tax impacts |
|
| (2) |
|
| 15 |
|
| 6 |
|
| 21 |
|
|
| $ | 29 |
| $ | (20) |
| $ | (14) |
| $ | 37 |
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended September 30, | ||||||||||
|
|
|
| 2017 |
| 2016 | ||||||||
($ in millions) |
| Location of Gain (Loss) |
| Cash Flow |
| Gain (Loss) on |
| Cash Flow |
| Gain (Loss) on | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts - manage exposure to customer pricing |
| Net sales |
| $ | (3) |
| $ | (3) |
| $ | 2 |
| $ | — |
Commodity contracts - manage exposure to supplier pricing |
| Cost of sales |
|
| 34 |
|
| (5) |
|
| (8) |
|
| (4) |
Interest rate contracts - manage exposure for outstanding debt |
| Interest expense |
|
| — |
|
| — |
|
| (1) |
|
| — |
Interest rate contracts - manage exposure for forecasted Rexam financing |
| Debt refinancing and other costs |
|
| — |
|
| — |
|
| — |
|
| (20) |
Foreign currency contracts - manage general exposure with the business |
| Selling, general and administrative |
|
| (2) |
|
| (63) |
|
| 3 |
|
| 18 |
Foreign currency contracts - manage exposure for acquisition of Rexam |
| Business consolidation and other activities |
|
| — |
|
| — |
|
| — |
|
| (191) |
Cross-currency swaps - manage exposure for acquisition of Rexam |
| Business consolidation and other activities |
|
| — |
|
| — |
|
| — |
|
| (4) |
Cross-currency swaps - manage intercompany currency exposure within the business |
| Selling, general and administrative |
|
| (119) |
|
| — |
|
| (6) |
|
| — |
Cross-currency swaps - manage intercompany currency exposure within the business |
| Interest expense |
|
| 13 |
|
| — |
|
| — |
|
| — |
Commodity contracts and currency exchange contracts - attributed to the Divestment Business |
| Business consolidation and other activities |
|
| — |
|
| — |
|
| (4) |
|
| — |
Equity contracts |
| Selling, general and administrative |
|
| — |
|
| 8 |
|
| — |
|
| 9 |
Total |
|
|
| $ | (77) |
| $ | (63) |
| $ | (14) |
| $ | (192) |
35
The changes in accumulated other comprehensive earnings (loss) for effective derivatives were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, | ||||||||
($ in millions) |
| 2017 |
| 2016 |
| 2017 |
| 2016 | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassified into earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts |
| $ | (12) |
| $ | (1) |
| $ | (31) |
| $ | 6 |
Cross-currency swap contracts |
|
| 32 |
|
| 7 |
|
| 106 |
|
| 6 |
Interest rate contracts |
|
| — |
|
| 1 |
|
| — |
|
| 1 |
Commodity and currency exchange contracts attributed to the divestment business |
|
| — |
|
| — |
|
| — |
|
| 4 |
Currency exchange contracts |
|
| 2 |
|
| (5) |
|
| 2 |
|
| (3) |
Change in fair value of cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts |
|
| 14 |
|
| 1 |
|
| 43 |
|
| 7 |
Interest rate contracts |
|
| — |
|
| — |
|
| 1 |
|
| (1) |
Cross-currency swap contracts |
|
| (47) |
|
| (23) |
|
| (116) |
|
| (28) |
Currency exchange contracts |
|
| 3 |
|
| 3 |
|
| 4 |
|
| 3 |
Foreign currency and tax impacts |
|
| (2) |
|
| 9 |
|
| 18 |
|
| 7 |
|
| $ | (10) |
| $ | (8) |
| $ | 27 |
| $ | 2 |
18.21. Contingencies
Ball is subject to numerous lawsuits, claims or proceedings arising out of the ordinary course of business, including actions related to:to product liability,liability; personal injury,injury; the use and performance of company products; warranty matters; patent, trademark or other intellectual property infringement; contractual liability,liability; the conduct of the company’s business; tax reporting in domestic and foreign jurisdictions; workplace safety and environmental and other matters. The company has also been identified as a potentially responsible party (PRP) at several waste disposal sites under U.S. federal and related state environmental statutes and regulations and may have joint and several liability for any investigation and remediation costs incurred with respect to such sites. In addition, we have received claims alleging that employees in certain plants have suffered damages due to exposure to alleged workplace hazards. Some of these lawsuits, claims and proceedings involve substantial amounts, including as described below, and some of the environmental proceedings involve potential monetary costs or sanctions that may be material. Ball has denied liability with respect to many of these lawsuits, claims and proceedings and is vigorously defending such lawsuits, claims and proceedings. The company carries various forms of commercial, property and casualty, and other forms of insurance; however, such insurance may not be applicable or adequate to cover the costs associated with a judgment against Ball with respect to these lawsuits, claims and proceedings. The company estimates that potential liabilities for all currently known and estimable environmental matters are approximately $45$35 million in the aggregate and have been included in other current liabilities and other noncurrent liabilities at SeptemberJune 30, 2017.2018.
As previously reported, the U.S. Environmental Protection Agency (USEPA) considers the company a PRP with respect to the Lowry Landfill site located east of Denver, Colorado. In 1992, the company was served with a lawsuit filed by the City and County of Denver (Denver) and Waste Management of Colorado, Inc., seeking contributions from the company and approximately 38 other companies. The company filed its answer denying the allegations of the complaint. Subsequently in 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.
Also in 1992, Ball entered into a settlement and indemnification agreement with Chemical Waste Management, Inc., and Waste Management of Colorado, Inc. (collectively Waste Management) and Denver pursuant to which Waste Management and Denver dismissed their lawsuit against the company, and Waste Management 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 clean-up of the site. Waste Management, Inc., has agreed to guarantee the obligations of Waste Management. Waste Management and Denver may
36
seek additional payments from the company if the response costs related to the site exceed $319 million. In 2003 Waste Management, Inc., indicated that the cost of the site clean-up might exceed $319 million in 2030, approximately three years before the projected completion of the project. In January 2015,February 2018, Waste Management reported that total project costs to datethrough 2016 were approximately $140$142 million. The company might also be responsible for payments (based on 1992 dollars) for any additional wastes that may have been disposed of by the company at the site but which are identified after the execution of the settlement agreement. While remediating the site, contaminants were encountered, which could add an additional clean-up cost of approximately $10 million. This additional clean-up cost could, in turn, add approximately $1 million to total site costs for the PRP group. 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 this time, we do not believe that this matter will have a material adverse effect upon the liquidity, results of operations or financial condition of the company.
35
In November 2012, the USEPA wrote to the company asserting that it is one of at least 50 PRPs with respect to the Lower Duwamish site located in Seattle, Washington, based on the company’s ownership of a glass container plant prior to 1995, and notifying the company of a proposed remediation action plan. An allocator has beenA site was selected to begin data review on over 30 industrial companies and government entities and at least two PRP groups have begun to discussbeen discussing various allocation proposals, and this process may last approximately one more year. During the third quarter of 2014, the PRP groups voted to include 20 new members.proposals. The USEPA issued the site Record of Decision (ROD) onin December 2, 2014. Ball submitted its initial responses to the allocator’s questionnaire in March 2015, and after reviewing submissions from the PRPs alleging deficiencies in certain of Ball’s responses, the allocator denied certain of the allegations and directed the company to answer others, to which Ball responded during the fourth quarter of 2016. A group of de minimis PRPs, including Ball, have retained a technical consultant to assist with their positions vis-à-vis larger PRPs.PRPs, and further presentations were made to the site allocator during the fourth quarter of 2017 and the first quarter of 2018. Total site remediation costs of $342 million, to cover remediation of approximately 200 acres of river bottom, are expected according to the proposed remediation action plan, which does not include $100 million that has already been spent, and which will be allocated among the numerous PRPs in due course. Based on the information available to the company at this time, we do not believe that this matter will have a material adverse effect upon the liquidity, results of operations or financial condition of the company.
In February 2012, Ball Metal Beverage Container Corp. (BMBCC) filed an action against Crown Packaging Technology, Inc. (Crown) in the U.S. District Court for the Southern District of Ohio seeking a declaratory judgment that the manufacture, sale and use of certain ends by BMBCC and its customers do not infringe certain claims of Crown’s U.S. patents. Crown subsequently filed a counterclaim alleging infringement of certain claims in these patents seeking unspecified monetary damages, fees and declaratory and injunctive relief. The District Court issued a claim construction order at the end of December 2015 and held a scheduling conference on February 10, 2016, to determine the timeline for future steps in the litigation. The case was stayed by mutual agreement of the parties into the third quarter of 2016, during which Crown made preparations for its discovery with respect to certain ends previously produced by Rexam, and such discovery began during the first half of 2017. The parties attempted to mediate the case on August 1, 2017, but no progress was made, and the case continues as scheduled.scheduled, with discovery expected to continue through the third quarter of 2018. Based on the information available to the company at the present time, the company does not believe that this matter will have a material adverse effect upon the liquidity, results of operations or financial condition of the company.
On September 16, 1971, Rexham Corporation (Rexham) was incorporated as a wholly owned subsidiary of Riegel Paper Company (Riegel). On September 23, 1971, Riegel, Federal Paper Board Company (Federal) and Rexham entered into an Agreement and Plan of Reorganization (the 1971 Agreement) pursuant to which Riegel spun-off its packaging business into the newly formed Rexham. Federal retained Riegel’s paper group pursuant to a merger with Riegel. International Paper Company (International Paper) and Georgia Pacific Corporation (Georgia Pacific) are successors to Riegel. Image Products Group, LLC (IPG) is the successor to Rexham. Rexam Inc. (RI) sold IPG to Sun Coating Acquisition Corp. (Sun) in 2002 and agreed to indemnify Sun and IPG for certain environmental liabilities of Rexham.
On November 4, 2011, International Paper and Georgia Pacific filed a complaint against RI and IPG alleging that pursuant to the 1971 Agreement, IPG and RI are liable for 50 percent of the clean-up costs at the Crown Vantage Landfill (the Site). The Site is an inactive industrial landfill on the Delaware River in Hunterdon County, New Jersey, that was operated by Riegel and its successors from the 1930s to the 1970s. The USEPA conducted an emergency clean-up at the Site after a 2004 flood exposed drums and other waste. Georgia Pacific took over the clean-up at the Site.
37
Georgia Pacific later sued International Paper as a successor to Riegel. Georgia Pacific and International Paper entered into a settlement agreement under which International Paper accepted responsibility for the Site. The litigation against IPG and RI centers on the interpretation of the 1971 Agreement and whether it allocated the Site liabilities to the paper group of Riegel, which merged with and into Federal, a predecessor of International Paper, or to the packaging group of Riegel, which was spun off to Rexham.
Georgia Pacific and International Paper claim they have incurred past costs at the Site of approximately $14 million, and that Rexam’s share of these costs is approximately $7 million. Georgia Pacific and International Paper have also asserted that they have incurred approximately $30 million in remediation costs at the Curtis Specialty Papers Superfund site, the former paper mill adjacent to the Site. In addition, Georgia Pacific, International Paper and the EPA have claimed that Rexam is responsible for certain other non-material amounts associated with the Curtis Papers site and related former paper mill sites.
In the fourth quarter of 2016, representatives of Ball/Rexam and Georgia Pacific and International Paper participated in a court ordered mediation in an attempt to resolve this matter. No resolution was reached. During the second quarter of 2017, the court placed the case on administratively terminated status pending ongoing discussions among the parties. In October 2017, the parties concluded a settlement agreement pursuant to which the litigation was dismissed and Georgia Pacific and International Paper released Rexam Inc., IPG and their respective affiliates from all remediation and clean-up costs and other environmental claims and liabilities in respect of the Crown Vantage Landfill, the Curtis Papers Superfund site and other former Riegel paper mill properties in New Jersey, and these matters are now substantially concluded.
A former Rexam Personal Care site in Annecy, France, was found in 2003 to be contaminated following a leak of chlorinated solvents (TCE) from an underground feedline. The site underwent extensive investigation and an active remediation treatment system was put in place in 2006. The business operating from the site was sold to Albea in 2013 and in turn to a French company CATIDOM (operating as Reboul). Reboul vacated the site in September 2014, and the site reverted back to Rexam during the first quarter of 2015. As part of the site closure regulatory requirements, a new regulatory permit (Prefectoral Order) was issued in June 2016, which includes requirements to undertake a cost-benefit analysis and pilot studies of further treatment for the known residual solvent contamination following the shutdown of the current on-site treatment system. A new management plan will be proposed to the French Environmental Authorities (DREAL) later this year or during 2018. Based on the information available to the company at this time, we do not believe that this matter will have a material adverse effect upon the liquidity, results of operations or financial condition of the company.
The company’s operations in Brazil are involved in various governmental assessments, principally related to claims for taxes on the internal transfer of inventory, gross revenuesales taxes and indirect tax incentives. The company does not believe that the ultimate resolution of these matters will materially impact the company’s results of operations, financial position or cash flows. Under customary local regulations, the company’s Brazilian subsidiaries may need to post cash or other collateral if the process to challenge any administrative assessment proceeds to the Brazilian court system; however, the level of any potential cash or collateral required would not significantly impact the liquidity of those subsidiaries or Ball Corporation.
19.During the first quarter of 2017, the Brazilian Supreme Court (the Court) ruled against the Brazilian tax authorities in a leading case related to the computation of certain indirect taxes. The Court ruled that the indirect tax base should not include a value-added tax known as “ICMS.” By removing the ICMS from the tax base, the Court effectively eliminated a “tax on tax.”
36
The Court decision, in principle, affects all applicable judicial proceedings in progress. However, after publication of the decision in October 2017, the Brazilian tax authorities filed an appeal seeking clarification of certain matters, including the amount of ICMS to which taxpayers would be entitled in order to reduce their indirect tax base (i.e., the gross rate or net rate). The appeal also requested a modulation of the decision’s effects, which may limit its impact on taxpayers.
Our Brazilian subsidiaries have paid to the Brazilian tax authorities the gross amounts of certain indirect taxes (which included ICMS in their tax base) and have filed lawsuits in 2014 and 2015, in order to challenge the legislation regarding those taxes. Pursuant to these lawsuits, we have requested reimbursement of prior excess tax payments. Taking into consideration that the Court may settle different premises for ICMS exclusion, which will be resolved only after the pending appeal is decided, we believe the outcome of this matter is uncertain at this time. The resolution of the appeal may result in a material reimbursement to the company from the Brazilian government, the amount of which cannot be estimated at this time.
22. Indemnifications and Guarantees
General Guarantees
The company or its appropriate consolidated direct or indirect subsidiaries, including Rexam and its subsidiaries, have made certain indemnities, commitments and guarantees under which the specified entity may be required to make payments in relation to certain transactions. These indemnities, commitments and guarantees include indemnities to the customers of the subsidiaries in connection with the sales of their packaging and aerospace products and services; guarantees to suppliers of subsidiaries of the company guaranteeing the performance of the respective entity under a purchase agreement, construction contract or other commitment; guarantees in respect of certain foreign subsidiaries’ pension plans; indemnities for liabilities associated with the infringement of third partythird-party patents, trademarks or copyrights under various types of agreements; indemnities to various lessors in connection with facility, equipment, furniture and other personal property leases for certain claims arising from such leases; indemnities to governmental agencies in
38
connection with the issuance of a permit or license to the company or a subsidiary; indemnities pursuant to agreements relating to certain joint ventures; indemnities in connection with the sale of businesses or substantially all of the assets and specified liabilities of businesses; and indemnities to directors, officers and employees of the company to the extent permitted under the laws of the State of Indiana and the United States of America. The duration of these indemnities, commitments and guarantees varies and, in certain cases, is indefinite.
In addition, many of these indemnities, commitments and guarantees do not provide for any limitation on the maximum potential future payments the company could be obligated to make. As such, the company is unable to reasonably estimate its potential exposure under these items.
Other than the indemnifications provided in connection with the sale of the Divestment Business, the company has not recorded any material liabilities for these indemnities, commitments and guarantees in the accompanying consolidated balance sheets. The company does, however, accrue for payments under promissory notes and other evidences of incurred indebtedness and for losses for any known contingent liability, including those that may arise from indemnifications, commitments and guarantees, when future payment is both reasonably estimable and probable. Finally, the company carries specific and general liability insurance policies and has obtained indemnities, commitments and guarantees from third partythird-party purchasers, sellers and other contracting parties, which the company believes would, in certain circumstances, provide recourse to any claims arising from these indemnifications, commitments and guarantees.
37
Debt Guarantees
The company’s and its subsidiaries’ obligations under the senior notes and senior credit facilities (or, in the case of U.S. domiciled foreign subsidiaries under the senior credit facilities, the obligations of foreign credit parties only) are guaranteed on a full, unconditional and joint and several basis by certain of the company’s domestic subsidiaries and the domestic subsidiary borrowers, and obligations of other guarantors and the subsidiary borrowers under the senior credit facilities are guaranteed by the company, in each case with certain exceptions and subject to grace periods. These guarantees are required in support of the senior notes and senior credit facilities referred to above, are coterminous with the terms of the respective note indentures, senior notes and credit agreement and could be enforced by the holders of the obligations thereunder during the continuation of an event of default under the note indentures, the senior notes or the credit agreement or any other loan document in respect thereof. The maximum potential amounts which could be required to be paid under such guarantees are essentially equal to the then outstanding obligations under the respective senior notes or the credit agreement (or, in the case of U.S. domiciled foreign subsidiaries under the senior credit facilities, the obligations of foreign credit parties only), with certain exceptions. All obligations under the guarantees of the senior credit facilities are secured, with certain exceptions and subject to certain grace periods, by a valid first priority perfected lien or pledge on (i) 100 percent of the capital stock of each of the company's material wholly owned domestic subsidiaries directly owned by the company or any of its wholly owned domestic subsidiaries and
(ii) 65 percent of the capital stock of each of the company's material wholly owned first-tier foreign subsidiaries directly owned by the company or any of its wholly owned domestic subsidiaries. In addition, the obligations of certain foreign borrowers and foreign pledgors under the loan documents will be secured, with certain exceptions and subject to certain grace periods, by a valid first priority perfected lien or pledge on 100 percent of the capital stock of certain of the company's material wholly owned foreign subsidiaries and material wholly owned U.S. domiciled foreign subsidiaries directly owned by the company or any of its wholly owned material subsidiaries. The company is not in default under the above senior notes or senior credit facilities. The unaudited condensed consolidating financial information for the guarantor and non-guarantor subsidiaries is presented in Note 20.23. Separate financial statements for the guarantor subsidiaries and the non-guarantor subsidiaries are not presented because management has determined that such financial statements are not required byunder the currentSecurities and Exchange Commission (SEC) regulations.
20.23. Subsidiary Guarantees of Debt
The following unaudited condensed consolidating financial information is presented in accordance with SEC Regulations S‑X Rule 3-10, unaudited Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered, and comprises two separate and distinct presentations. Amounts for the third quarter and first nine months of 2016, have been revised for the adjustments identified and recorded as of December 31, 2016. Refer to Note 1for further details.
39
Registered. For purposes of eachthe presentation of unaudited condensed consolidating financial information, the subsidiaries of the company providing the guarantees are referred to as the guarantor subsidiaries, and subsidiaries of the company other than the guarantor subsidiaries are referred to as the non-guarantor subsidiaries. The eliminating adjustments substantively consist of intercompany transactions and the elimination of equity investments and earnings of subsidiaries. Separate financial statements for the guarantor subsidiaries and the non-guarantor subsidiaries are not presented because management has determined that such financial statements are not required.
Guarantees Relating to Shelf Registration Statementrequired under SEC regulations.
The first presentation of unaudited condensed consolidating financial information relates to the Registration Statementcompany’s senior notes are guaranteed on Form S-3 registering debt securities of the company and thea full and unconditional joint and several guarantees of such debt securities by certain 100 percent owned domestic subsidiaries of the company. The following is unaudited condensed consolidating financial information for the company, segregating the guarantor subsidiaries and non-guarantor subsidiaries, as of September 30, 2017, and December 31, 2016, and for the third quarter and first nine months of 2017 and 2016. The unaudited condensed consolidating financial information presented below is not necessarily indicative of the financial position, results of operations, earnings or cash flows of the company or any of the company’s subsidiaries on a stand-alone basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Unaudited Condensed Consolidating Statement of Earnings |
| |||||||||||||
| Three Months Ended September 30, 2017 |
| |||||||||||||
($ in millions) | Ball |
| Guarantor |
| Non-Guarantor |
| Eliminating |
| Consolidated |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales | $ | — |
| $ | 1,232 |
| $ | 1,694 |
| $ | (18) |
| $ | 2,908 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (excluding depreciation and amortization) |
| — |
|
| (1,003) |
|
| (1,353) |
|
| 18 |
|
| (2,338) |
|
Depreciation and amortization |
| (1) |
|
| (38) |
|
| (123) |
|
| — |
|
| (162) |
|
Selling, general and administrative |
| (41) |
|
| (40) |
|
| (46) |
|
| — |
|
| (127) |
|
Business consolidation and other activities |
| (18) |
|
| (35) |
|
| (104) |
|
| — |
|
| (157) |
|
Equity in results of subsidiaries |
| 72 |
|
| (29) |
|
| — |
|
| (43) |
|
| — |
|
Intercompany |
| 79 |
|
| (42) |
|
| (37) |
|
| — |
|
| — |
|
|
| 91 |
|
| (1,187) |
|
| (1,663) |
|
| (25) |
|
| (2,784) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before interest and taxes |
| 91 |
|
| 45 |
|
| 31 |
|
| (43) |
|
| 124 |
|
Interest expense |
| (71) |
|
| 1 |
|
| (4) |
|
| — |
|
| (74) |
|
Debt refinancing and other costs |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
Total interest expense |
| (71) |
|
| 1 |
|
| (4) |
|
| — |
|
| (74) |
|
Earnings (loss) before taxes |
| 20 |
|
| 46 |
|
| 27 |
|
| (43) |
|
| 50 |
|
Tax (provision) benefit |
| 28 |
|
| (19) |
|
| (13) |
|
| — |
|
| (4) |
|
Equity in results of affiliates, net of tax |
| — |
|
| — |
|
| 5 |
|
| — |
|
| 5 |
|
Net earnings (loss) |
| 48 |
|
| 27 |
|
| 19 |
|
| (43) |
|
| 51 |
|
Less net earnings attributable to noncontrolling interests |
| — |
|
| — |
|
| (3) |
|
| — |
|
| (3) |
|
Net earnings (loss) attributable to Ball Corporation | $ | 48 |
| $ | 27 |
| $ | 16 |
| $ | (43) |
| $ | 48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive earnings (loss) attributable to Ball Corporation | $ | 42 |
| $ | 21 |
| $ | 13 |
| $ | (34) |
| $ | 42 |
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Unaudited Condensed Consolidating Statement of Earnings |
| |||||||||||||
| Three Months Ended September 30, 2016 |
| |||||||||||||
($ in millions) | Ball |
| Guarantor |
| Non-Guarantor |
| Eliminating |
| Consolidated |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales | $ | — |
| $ | 1,214 |
| $ | 1,626 |
| $ | (88) |
| $ | 2,752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (excluding depreciation and amortization) |
| — |
|
| (992) |
|
| (1,371) |
|
| 88 |
|
| (2,275) |
|
Depreciation and amortization |
| (2) |
|
| (33) |
|
| (112) |
|
| — |
|
| (147) |
|
Selling, general and administrative |
| (31) |
|
| (43) |
|
| (61) |
|
| — |
|
| (135) |
|
Business consolidation and other activities |
| (154) |
|
| (7) |
|
| 98 |
|
| — |
|
| (63) |
|
Equity in results of subsidiaries |
| 339 |
|
| 39 |
|
| — |
|
| (378) |
|
| — |
|
Intercompany |
| 78 |
|
| (44) |
|
| (34) |
|
| — |
|
| — |
|
|
| 230 |
|
| (1,080) |
|
| (1,480) |
|
| (290) |
|
| (2,620) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before interest and taxes |
| 230 |
|
| 134 |
|
| 146 |
|
| (378) |
|
| 132 |
|
Interest expense |
| (66) |
|
| — |
|
| (14) |
|
| — |
|
| (80) |
|
Debt refinancing and other costs |
| — |
|
| — |
|
| (2) |
|
| — |
|
| (2) |
|
Total interest expense |
| (66) |
|
| — |
|
| (16) |
|
| — |
|
| (82) |
|
Earnings (loss) before taxes |
| 164 |
|
| 134 |
|
| 130 |
|
| (378) |
|
| 50 |
|
Tax (provision) benefit |
| (133) |
|
| 56 |
|
| 54 |
|
| — |
|
| (23) |
|
Equity in results of affiliates, net of tax |
| — |
|
| 1 |
|
| 6 |
|
| — |
|
| 7 |
|
Net earnings (loss) |
| 31 |
|
| 191 |
|
| 190 |
|
| (378) |
|
| 34 |
|
Less net earnings attributable to noncontrolling interests |
| — |
|
| — |
|
| (3) |
|
| — |
|
| (3) |
|
Net earnings (loss) attributable to Ball Corporation | $ | 31 |
| $ | 191 |
| $ | 187 |
| $ | (378) |
| $ | 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive earnings (loss) attributable to Ball Corporation | $ | 7 |
| $ | 171 |
| $ | 167 |
| $ | (338) |
| $ | 7 |
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Unaudited Condensed Consolidating Statement of Earnings |
| |||||||||||||
| Nine Months Ended September 30, 2017 |
| |||||||||||||
($ in millions) | Ball |
| Guarantor |
| Non-Guarantor |
| Eliminating |
| Consolidated |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales | $ | — |
| $ | 3,620 |
| $ | 4,698 |
| $ | (82) |
| $ | 8,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (excluding depreciation and amortization) |
| — |
|
| (2,972) |
|
| (3,693) |
|
| 82 |
|
| (6,583) |
|
Depreciation and amortization |
| (5) |
|
| (111) |
|
| (423) |
|
| — |
|
| (539) |
|
Selling, general and administrative |
| (141) |
|
| (118) |
|
| (139) |
|
| — |
|
| (398) |
|
Business consolidation and other activities |
| (82) |
|
| (38) |
|
| (133) |
|
| — |
|
| (253) |
|
Equity in results of subsidiaries |
| 343 |
|
| (23) |
|
| — |
|
| (320) |
|
| — |
|
Intercompany |
| 241 |
|
| (129) |
|
| (112) |
|
| — |
|
| — |
|
|
| 356 |
|
| (3,391) |
|
| (4,500) |
|
| (238) |
|
| (7,773) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before interest and taxes |
| 356 |
|
| 229 |
|
| 198 |
|
| (320) |
|
| 463 |
|
Interest expense |
| (205) |
|
| 4 |
|
| (15) |
|
| — |
|
| (216) |
|
Debt refinancing and other costs |
| — |
|
| — |
|
| (1) |
|
| — |
|
| (1) |
|
Total interest expense |
| (205) |
|
| 4 |
|
| (16) |
|
| — |
|
| (217) |
|
Earnings (loss) before taxes |
| 151 |
|
| 233 |
|
| 182 |
|
| (320) |
|
| 246 |
|
Tax (provision) benefit |
| 64 |
|
| (83) |
|
| (29) |
|
| — |
|
| (48) |
|
Equity in results of affiliates, net of tax |
| — |
|
| 1 |
|
| 22 |
|
| — |
|
| 23 |
|
Net earnings |
| 215 |
|
| 151 |
|
| 175 |
|
| (320) |
|
| 221 |
|
Less net earnings attributable to noncontrolling interests |
| — |
|
| — |
|
| (6) |
|
| — |
|
| (6) |
|
Net earnings attributable to Ball Corporation | $ | 215 |
| $ | 151 |
| $ | 169 |
| $ | (320) |
| $ | 215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive earnings (loss) attributable to Ball Corporation | $ | 231 |
| $ | 137 |
| $ | 146 |
| $ | (283) |
| $ | 231 |
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Unaudited Condensed Consolidating Statement of Earnings |
| |||||||||||||
| Nine Months Ended September 30, 2016 | ||||||||||||||
($ in millions) | Ball |
| Guarantor |
| Non-Guarantor |
| Eliminating |
| Consolidated |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales | $ | — |
| $ | 3,495 |
| $ | 3,213 |
| $ | (171) |
| $ | 6,537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (excluding depreciation and amortization) |
| — |
|
| (2,854) |
|
| (2,605) |
|
| 171 |
|
| (5,288) |
|
Depreciation and amortization |
| (4) |
|
| (104) |
|
| (191) |
|
| — |
|
| (299) |
|
Selling, general and administrative |
| (63) |
|
| (126) |
|
| (159) |
|
| — |
|
| (348) |
|
Business consolidation and other activities |
| 355 |
|
| (30) |
|
| (627) |
|
| — |
|
| (302) |
|
Equity in results of subsidiaries |
| (57) |
|
| 359 |
|
| — |
|
| (302) |
|
| — |
|
Intercompany |
| 189 |
|
| (131) |
|
| (58) |
|
| — |
|
| — |
|
|
| 420 |
|
| (2,886) |
|
| (3,640) |
|
| (131) |
|
| (6,237) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before interest and taxes |
| 420 |
|
| 609 |
|
| (427) |
|
| (302) |
|
| 300 |
|
Interest expense |
| (141) |
|
| (1) |
|
| (17) |
|
| — |
|
| (159) |
|
Debt refinancing and other costs |
| (97) |
|
| — |
|
| (11) |
|
| — |
|
| (108) |
|
Total interest expense |
| (238) |
|
| (1) |
|
| (28) |
|
| — |
|
| (267) |
|
Earnings (loss) before taxes |
| 182 |
|
| 608 |
|
| (455) |
|
| (302) |
|
| 33 |
|
Tax (provision) benefit |
| 28 |
|
| 6 |
|
| 140 |
|
| — |
|
| 174 |
|
Equity in results of affiliates, net of tax |
| — |
|
| — |
|
| 6 |
|
| — |
|
| 6 |
|
Net earnings |
| 210 |
|
| 614 |
|
| (309) |
|
| (302) |
|
| 213 |
|
Less net earnings attributable to noncontrolling interests |
| — |
|
| — |
|
| (3) |
|
| — |
|
| (3) |
|
Net earnings attributable to Ball Corporation | $ | 210 |
| $ | 614 |
| $ | (312) |
| $ | (302) |
| $ | 210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive earnings (loss) attributable to Ball Corporation | $ | 233 |
| $ | 651 |
| $ | (306) |
| $ | (345) |
| $ | 233 |
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Unaudited Condensed Consolidating Balance Sheet |
| |||||||||||||
| September 30, 2017 |
| |||||||||||||
($ in millions) | Ball |
| Guarantor |
| Non-Guarantor |
| Eliminating |
| Consolidated |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents | $ | 6 |
| $ | — |
| $ | 550 |
| $ | — |
| $ | 556 |
|
Receivables, net |
| 69 |
|
| 416 |
|
| 1,308 |
|
| — |
|
| 1,793 |
|
Intercompany receivables |
| 45 |
|
| 120 |
|
| 959 |
|
| (1,124) |
|
| — |
|
Inventories, net |
| — |
|
| 545 |
|
| 888 |
|
| — |
|
| 1,433 |
|
Other current assets |
| 32 |
|
| 32 |
|
| 84 |
|
| — |
|
| 148 |
|
Total current assets |
| 152 |
|
| 1,113 |
|
| 3,789 |
|
| (1,124) |
|
| 3,930 |
|
Noncurrent assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
| 21 |
|
| 1,193 |
|
| 3,311 |
|
| — |
|
| 4,525 |
|
Investment in subsidiaries |
| 8,147 |
|
| 2,242 |
|
| 79 |
|
| (10,468) |
|
| — |
|
Goodwill |
| — |
|
| 981 |
|
| 3,927 |
|
| — |
|
| 4,908 |
|
Intangible assets, net |
| 17 |
|
| 68 |
|
| 2,405 |
|
| — |
|
| 2,490 |
|
Other assets |
| 38 |
|
| 22 |
|
| 1,090 |
|
| — |
|
| 1,150 |
|
Total assets | $ | 8,375 |
| $ | 5,619 |
| $ | 14,601 |
| $ | (11,592) |
| $ | 17,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders' Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt and current portion of long-term debt | $ | 293 |
| $ | — |
| $ | 159 |
| $ | — |
| $ | 452 |
|
Accounts payable |
| 13 |
|
| 887 |
|
| 1,519 |
|
| — |
|
| 2,419 |
|
Intercompany payables |
| 1,014 |
|
| 46 |
|
| 64 |
|
| (1,124) |
|
| — |
|
Accrued employee costs |
| 26 |
|
| 116 |
|
| 156 |
|
| — |
|
| 298 |
|
Other current liabilities |
| 187 |
|
| 67 |
|
| 355 |
|
| — |
|
| 609 |
|
Total current liabilities |
| 1,533 |
|
| 1,116 |
|
| 2,253 |
|
| (1,124) |
|
| 3,778 |
|
Noncurrent liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
| 6,497 |
|
| — |
|
| 607 |
|
| — |
|
| 7,104 |
|
Employee benefit obligations |
| 343 |
|
| 345 |
|
| 718 |
|
| — |
|
| 1,406 |
|
Intercompany long-term notes |
| (3,372) |
|
| 85 |
|
| 3,287 |
|
| — |
|
| — |
|
Deferred taxes |
| (353) |
|
| 206 |
|
| 802 |
|
| — |
|
| 655 |
|
Other liabilities |
| 197 |
|
| 14 |
|
| 211 |
|
| — |
|
| 422 |
|
Total liabilities |
| 4,845 |
|
| 1,766 |
|
| 7,878 |
|
| (1,124) |
|
| 13,365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
| 1,072 |
|
| 635 |
|
| 4,426 |
|
| (5,061) |
|
| 1,072 |
|
Preferred stock |
| — |
|
| — |
|
| 5 |
|
| (5) |
|
| — |
|
Retained earnings |
| 4,864 |
|
| 4,045 |
|
| 2,758 |
|
| (6,804) |
|
| 4,863 |
|
Accumulated other comprehensive earnings (loss) |
| (925) |
|
| (827) |
|
| (575) |
|
| 1,402 |
|
| (925) |
|
Treasury stock, at cost |
| (1,481) |
|
| — |
|
| — |
|
| — |
|
| (1,481) |
|
Total Ball Corporation shareholders' equity |
| 3,530 |
|
| 3,853 |
|
| 6,614 |
|
| (10,468) |
|
| 3,529 |
|
Noncontrolling interests |
| — |
|
| — |
|
| 109 |
|
| — |
|
| 109 |
|
Total shareholders' equity |
| 3,530 |
|
| 3,853 |
|
| 6,723 |
|
| (10,468) |
|
| 3,638 |
|
Total liabilities and shareholders' equity | $ | 8,375 |
| $ | 5,619 |
| $ | 14,601 |
| $ | (11,592) |
| $ | 17,003 |
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Unaudited Condensed Consolidating Balance Sheet |
| |||||||||||||
| December 31, 2016 |
| |||||||||||||
($ in millions) | Ball |
| Guarantor |
| Non-Guarantor |
| Eliminating |
| Consolidated |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents | $ | 2 |
| $ | (11) |
| $ | 606 |
| $ | — |
| $ | 597 |
|
Receivables, net |
| 96 |
|
| 450 |
|
| 945 |
|
| — |
|
| 1,491 |
|
Intercompany receivables |
| 39 |
|
| 125 |
|
| 963 |
|
| (1,127) |
|
| — |
|
Inventories, net |
| — |
|
| 516 |
|
| 897 |
|
| — |
|
| 1,413 |
|
Other current assets |
| 40 |
|
| 33 |
|
| 79 |
|
| — |
|
| 152 |
|
Total current assets |
| 177 |
|
| 1,113 |
|
| 3,490 |
|
| (1,127) |
|
| 3,653 |
|
Noncurrent assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
| 23 |
|
| 1,087 |
|
| 3,277 |
|
| — |
|
| 4,387 |
|
Investment in subsidiaries |
| 7,815 |
|
| 2,289 |
|
| 79 |
|
| (10,183) |
|
| — |
|
Goodwill |
| — |
|
| 990 |
|
| 4,105 |
|
| — |
|
| 5,095 |
|
Intangible assets, net |
| 18 |
|
| 76 |
|
| 1,840 |
|
| — |
|
| 1,934 |
|
Other assets |
| 94 |
|
| 20 |
|
| 990 |
|
| — |
|
| 1,104 |
|
Total assets | $ | 8,127 |
| $ | 5,575 |
| $ | 13,781 |
| $ | (11,310) |
| $ | 16,173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders' Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt and current portion of long-term debt | $ | 141 |
| $ | — |
| $ | 81 |
| $ | — |
| $ | 222 |
|
Accounts payable |
| 18 |
|
| 771 |
|
| 1,244 |
|
| — |
|
| 2,033 |
|
Intercompany payables |
| 1,010 |
|
| 52 |
|
| 65 |
|
| (1,127) |
|
| — |
|
Accrued employee costs |
| 25 |
|
| 135 |
|
| 155 |
|
| — |
|
| 315 |
|
Other current liabilities |
| 138 |
|
| 65 |
|
| 196 |
|
| — |
|
| 399 |
|
Total current liabilities |
| 1,332 |
|
| 1,023 |
|
| 1,741 |
|
| (1,127) |
|
| 2,969 |
|
Noncurrent liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
| 6,337 |
|
| — |
|
| 973 |
|
| — |
|
| 7,310 |
|
Employee benefit obligations |
| 347 |
|
| 440 |
|
| 710 |
|
| — |
|
| 1,497 |
|
Intercompany long-term notes |
| (3,142) |
|
| 178 |
|
| 2,964 |
|
| — |
|
| — |
|
Deferred taxes |
| (308) |
|
| 198 |
|
| 549 |
|
| — |
|
| 439 |
|
Other liabilities |
| 127 |
|
| 20 |
|
| 270 |
|
| — |
|
| 417 |
|
Total liabilities |
| 4,693 |
|
| 1,859 |
|
| 7,207 |
|
| (1,127) |
|
| 12,632 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
| 1,038 |
|
| 635 |
|
| 4,426 |
|
| (5,061) |
|
| 1,038 |
|
Preferred stock |
| — |
|
| — |
|
| 5 |
|
| (5) |
|
| — |
|
Retained earnings |
| 4,739 |
|
| 3,893 |
|
| 2,589 |
|
| (6,482) |
|
| 4,739 |
|
Accumulated other comprehensive earnings (loss) |
| (942) |
|
| (812) |
|
| (552) |
|
| 1,365 |
|
| (941) |
|
Treasury stock, at cost |
| (1,401) |
|
| — |
|
| — |
|
| — |
|
| (1,401) |
|
Total Ball Corporation shareholders' equity |
| 3,434 |
|
| 3,716 |
|
| 6,468 |
|
| (10,183) |
|
| 3,435 |
|
Noncontrolling interests |
| — |
|
| — |
|
| 106 |
|
| — |
|
| 106 |
|
Total shareholders' equity |
| 3,434 |
|
| 3,716 |
|
| 6,574 |
|
| (10,183) |
|
| 3,541 |
|
Total liabilities and shareholders' equity | $ | 8,127 |
| $ | 5,575 |
| $ | 13,781 |
| $ | (11,310) |
| $ | 16,173 |
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
| Unaudited Condensed Consolidating Statement of Cash Flows |
| ||||||||||
| Nine Months Ended September 30, 2017 |
| ||||||||||
($ in millions) | Ball |
| Guarantor |
| Non-Guarantor |
| Consolidated |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) operating activities | $ | 266 |
| $ | 282 |
| $ | 199 |
| $ | 747 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
| (5) |
|
| (232) |
|
| (167) |
|
| (404) |
|
Business dispositions, net of cash sold |
| — |
|
| 31 |
|
| — |
|
| 31 |
|
Other, net |
| 1 |
|
| 27 |
|
| (25) |
|
| 3 |
|
Cash provided by (used in) investing activities |
| (4) |
|
| (174) |
|
| (192) |
|
| (370) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Long-term borrowings |
| 440 |
|
| — |
|
| — |
|
| 440 |
|
Repayments of long-term borrowings |
| (433) |
|
| — |
|
| (476) |
|
| (909) |
|
Net change in short-term borrowings |
| 151 |
|
| — |
|
| 69 |
|
| 220 |
|
Proceeds from issuances of common stock, net of shares used for taxes |
| 18 |
|
| — |
|
| — |
|
| 18 |
|
Acquisitions of treasury stock |
| (103) |
|
| — |
|
| — |
|
| (103) |
|
Common stock dividends |
| (93) |
|
| — |
|
| — |
|
| (93) |
|
Intercompany |
| (231) |
|
| (95) |
|
| 326 |
|
| — |
|
Other, net |
| — |
|
| (2) |
|
| — |
|
| (2) |
|
Cash provided by (used in) financing activities |
| (251) |
|
| (97) |
|
| (81) |
|
| (429) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
| (7) |
|
| — |
|
| 18 |
|
| 11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents |
| 4 |
|
| 11 |
|
| (56) |
|
| (41) |
|
Cash and cash equivalents – beginning of period |
| 2 |
|
| (11) |
|
| 606 |
|
| 597 |
|
Cash and cash equivalents – end of period | $ | 6 |
| $ | — |
| $ | 550 |
| $ | 556 |
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
| Unaudited Condensed Consolidating Statement of Cash Flows |
| ||||||||||
| Nine Months Ended September 30, 2016 |
| ||||||||||
($ in millions) | Ball |
| Guarantor |
| Non-Guarantor |
| Consolidated |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) operating activities | $ | (385) |
| $ | 155 |
| $ | (203) |
| $ | (433) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
| (10) |
|
| (170) |
|
| (218) |
|
| (398) |
|
Business acquisition, net of cash acquired |
| 2,303 |
|
| (36) |
|
| (5,646) |
|
| (3,379) |
|
Business dispositions, net of cash sold |
| 1,010 |
|
| — |
|
| 1,931 |
|
| 2,941 |
|
Decrease in restricted cash |
| 1,966 |
|
| — |
|
| — |
|
| 1,966 |
|
Settlement of Rexam acquisition related derivatives |
| (252) |
|
| — |
|
| — |
|
| (252) |
|
Other, net |
| — |
|
| 7 |
|
| (5) |
|
| 2 |
|
Cash flows from investing continuing operations |
| 5,017 |
|
| (199) |
|
| (3,938) |
|
| 880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Long-term borrowings |
| 2,610 |
|
| — |
|
| 1,760 |
|
| 4,370 |
|
Repayments of long-term borrowings |
| (921) |
|
| — |
|
| (3,427) |
|
| (4,348) |
|
Net change in short-term borrowings |
| 200 |
|
| — |
|
| (44) |
|
| 156 |
|
Proceeds from issuances of common stock, net of shares used for taxes |
| 38 |
|
| — |
|
| — |
|
| 38 |
|
Acquisitions of treasury stock |
| (98) |
|
| — |
|
| — |
|
| (98) |
|
Common stock dividends |
| (60) |
|
| — |
|
| — |
|
| (60) |
|
Intercompany |
| (6,351) |
|
| 46 |
|
| 6,305 |
|
| — |
|
Other, net |
| (5) |
|
| (1) |
|
| (9) |
|
| (15) |
|
Cash provided by (used in) financing activities |
| (4,587) |
|
| 45 |
|
| 4,585 |
|
| 43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
| 4 |
|
| — |
|
| (73) |
|
| (69) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents |
| 49 |
|
| 1 |
|
| 371 |
|
| 421 |
|
Cash and cash equivalents – beginning of period |
| 5 |
|
| — |
|
| 219 |
|
| 224 |
|
Cash and cash equivalents – end of period | $ | 54 |
| $ | 1 |
| $ | 590 |
| $ | 645 |
|
47
Guarantees Relating to Senior Notes
The second presentation of unaudited condensed consolidating financial information relates to the existing senior notes issued by the company and the full and unconditional guarantee of such senior notes on a joint and several basis by certain domestic subsidiaries of the company. Each of the guarantor subsidiaries is 100 percent owned by the company. As described in the supplemental indentures governing the company’s existing senior notes, the senior notes are to be guaranteed by any of the company’s domestic subsidiaries that guarantee any other indebtedness of the company. The following is unaudited condensed consolidating financial information for the company, segregating the guarantor subsidiaries and non-guarantor subsidiaries, as of SeptemberJune 30, 2017,2018, and December 31, 2016,2017, and for the three and six months ended June 30, 2018 and 2017. The information for the three and six months ended June 30, 2017, has been retrospectively adjusted to reflect the addition of three new subsidiary guarantors of the company’s debt obligations in March 2018 and for transfers of ownership of group companies from a non-guarantor subsidiary to the parent. As part of the July 31, 2018, sale of the U.S. steel food and steel aerosol business, certain guarantor subsidiaries transferred to Ball Metalpack ceased to be guarantors of Ball’s debt obligations. This change will be reflected beginning in the third quarter and first nine months of 2017 and 2016.2018. The unaudited condensed unaudited consolidating financial information presented below is not necessarily indicative of the financial position, results of operations, earnings or cash flows of the company or any of the company’s subsidiaries on a stand-alone basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Unaudited Condensed Consolidating Statement of Earnings | |||||||||||||
| Three Months Ended September 30, 2017 | |||||||||||||
($ in millions) | Ball |
| Guarantor |
| Non-Guarantor |
| Eliminating |
| Consolidated | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales | $ | — |
| $ | 1,232 |
| $ | 1,694 |
| $ | (18) |
| $ | 2,908 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (excluding depreciation and amortization) |
| — |
|
| (1,003) |
|
| (1,353) |
|
| 18 |
|
| (2,338) |
Depreciation and amortization |
| (1) |
|
| (38) |
|
| (123) |
|
| — |
|
| (162) |
Selling, general and administrative |
| (41) |
|
| (31) |
|
| (55) |
|
| — |
|
| (127) |
Business consolidation and other activities |
| (18) |
|
| (37) |
|
| (102) |
|
| — |
|
| (157) |
Equity in results of subsidiaries |
| 72 |
|
| (52) |
|
| (28) |
|
| 8 |
|
| — |
Intercompany |
| 79 |
|
| (40) |
|
| (39) |
|
| — |
|
| — |
|
| 91 |
|
| (1,201) |
|
| (1,700) |
|
| 26 |
|
| (2,784) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before interest and taxes |
| 91 |
|
| 31 |
|
| (6) |
|
| 8 |
|
| 124 |
Interest expense |
| (71) |
|
| 1 |
|
| (4) |
|
| — |
|
| (74) |
Debt refinancing and other costs |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Total interest expense |
| (71) |
|
| 1 |
|
| (4) |
|
| — |
|
| (74) |
Earnings (loss) before taxes |
| 20 |
|
| 32 |
|
| (10) |
|
| 8 |
|
| 50 |
Tax (provision) benefit |
| 28 |
|
| (19) |
|
| (13) |
|
| — |
|
| (4) |
Equity in results of affiliates, net of tax |
| — |
|
| — |
|
| 5 |
|
| — |
|
| 5 |
Net earnings (loss) |
| 48 |
|
| 13 |
|
| (18) |
|
| 8 |
|
| 51 |
Less net earnings attributable to noncontrolling interests |
| — |
|
| — |
|
| (3) |
|
| — |
|
| (3) |
Net earnings (loss) attributable to Ball Corporation | $ | 48 |
| $ | 13 |
| $ | (21) |
| $ | 8 |
| $ | 48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive earnings (loss) attributable to Ball Corporation | $ | 42 |
| $ | 12 |
| $ | (25) |
| $ | 13 |
| $ | 42 |
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Unaudited Condensed Consolidating Statement of Earnings | |||||||||||||
| Three Months Ended September 30, 2016 | |||||||||||||
($ in millions) | Ball |
| Guarantor |
| Non-Guarantor |
| Eliminating |
| Consolidated | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales | $ | — |
| $ | 1,214 |
| $ | 1,626 |
| $ | (88) |
| $ | 2,752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (excluding depreciation and amortization) |
| — |
|
| (992) |
|
| (1,371) |
|
| 88 |
|
| (2,275) |
Depreciation and amortization |
| (2) |
|
| (33) |
|
| (112) |
|
| — |
|
| (147) |
Selling, general and administrative |
| (31) |
|
| (46) |
|
| (58) |
|
| — |
|
| (135) |
Business consolidation and other activities |
| (154) |
|
| (10) |
|
| 101 |
|
| — |
|
| (63) |
Equity in results of subsidiaries |
| 339 |
|
| 258 |
|
| 91 |
|
| (688) |
|
| — |
Intercompany |
| 78 |
|
| (52) |
|
| (26) |
|
| — |
|
| — |
|
| 230 |
|
| (875) |
|
| (1,375) |
|
| (600) |
|
| (2,620) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before interest and taxes |
| 230 |
|
| 339 |
|
| 251 |
|
| (688) |
|
| 132 |
Interest expense |
| (66) |
|
| — |
|
| (14) |
|
| — |
|
| (80) |
Debt refinancing and other costs |
| — |
|
| — |
|
| (2) |
|
| — |
|
| (2) |
Total interest expense |
| (66) |
|
| — |
|
| (16) |
|
| — |
|
| (82) |
Earnings (loss) before taxes |
| 164 |
|
| 339 |
|
| 235 |
|
| (688) |
|
| 50 |
Tax (provision) benefit |
| (133) |
|
| (56) |
|
| 166 |
|
| — |
|
| (23) |
Equity in results of affiliates, net of tax |
| — |
|
| 1 |
|
| 6 |
|
| — |
|
| 7 |
Net earnings (loss) |
| 31 |
|
| 284 |
|
| 407 |
|
| (688) |
|
| 34 |
Less net earnings attributable to noncontrolling interests |
| — |
|
| — |
|
| (3) |
|
| — |
|
| (3) |
Net earnings (loss) attributable to Ball Corporation | $ | 31 |
| $ | 284 |
| $ | 404 |
| $ | (688) |
| $ | 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive earnings (loss) attributable to Ball Corporation | $ | 7 |
| $ | 265 |
| $ | 386 |
| $ | (651) |
| $ | 7 |
49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Unaudited Condensed Consolidating Statement of Earnings | |||||||||||||
| Nine Months Ended September 30, 2017 | |||||||||||||
($ in millions) | Ball |
| Guarantor |
| Non-Guarantor |
| Eliminating |
| Consolidated | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales | $ | — |
| $ | 3,620 |
| $ | 4,698 |
| $ | (82) |
| $ | 8,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (excluding depreciation and amortization) |
| — |
|
| (2,973) |
|
| (3,692) |
|
| 82 |
|
| (6,583) |
Depreciation and amortization |
| (5) |
|
| (111) |
|
| (423) |
|
| — |
|
| (539) |
Selling, general and administrative |
| (141) |
|
| (88) |
|
| (169) |
|
| — |
|
| (398) |
Business consolidation and other activities |
| (82) |
|
| (42) |
|
| (129) |
|
| — |
|
| (253) |
Equity in results of subsidiaries |
| 343 |
|
| (35) |
|
| (29) |
|
| (279) |
|
| — |
Intercompany |
| 241 |
|
| (123) |
|
| (118) |
|
| — |
|
| — |
|
| 356 |
|
| (3,372) |
|
| (4,560) |
|
| (197) |
|
| (7,773) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before interest and taxes |
| 356 |
|
| 248 |
|
| 138 |
|
| (279) |
|
| 463 |
Interest expense |
| (205) |
|
| 4 |
|
| (15) |
|
| — |
|
| (216) |
Debt refinancing and other costs |
| — |
|
| — |
|
| (1) |
|
| — |
|
| (1) |
Total interest expense |
| (205) |
|
| 4 |
|
| (16) |
|
| — |
|
| (217) |
Earnings (loss) before taxes |
| 151 |
|
| 252 |
|
| 122 |
|
| (279) |
|
| 246 |
Tax (provision) benefit |
| 64 |
|
| (83) |
|
| (29) |
|
| — |
|
| (48) |
Equity in results of affiliates, net of tax |
| — |
|
| 1 |
|
| 22 |
|
| — |
|
| 23 |
Net earnings |
| 215 |
|
| 170 |
|
| 115 |
|
| (279) |
|
| 221 |
Less net earnings attributable to noncontrolling interests |
| — |
|
| — |
|
| (6) |
|
| — |
|
| (6) |
Net earnings attributable to Ball Corporation | $ | 215 |
| $ | 170 |
| $ | 109 |
| $ | (279) |
| $ | 215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive earnings (loss) attributable to Ball Corporation | $ | 231 |
| $ | 166 |
| $ | 90 |
| $ | (256) |
| $ | 231 |
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Unaudited Condensed Consolidating Statement of Earnings |
| |||||||||||||
| Nine Months Ended September 30, 2016 | ||||||||||||||
($ in millions) | Ball |
| Guarantor |
| Non-Guarantor |
| Eliminating |
| Consolidated |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales | $ | — |
| $ | 3,495 |
| $ | 3,213 |
| $ | (171) |
| $ | 6,537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (excluding depreciation and amortization) |
| — |
|
| (2,854) |
|
| (2,605) |
|
| 171 |
|
| (5,288) |
|
Depreciation and amortization |
| (4) |
|
| (104) |
|
| (191) |
|
| — |
|
| (299) |
|
Selling, general and administrative |
| (63) |
|
| (129) |
|
| (156) |
|
| — |
|
| (348) |
|
Business consolidation and other activities |
| 355 |
|
| (32) |
|
| (625) |
|
| — |
|
| (302) |
|
Equity in results of subsidiaries |
| (57) |
|
| (247) |
|
| (721) |
|
| 1,025 |
|
| — |
|
Intercompany |
| 189 |
|
| (136) |
|
| (53) |
|
| — |
|
| — |
|
|
| 420 |
|
| (3,502) |
|
| (4,351) |
|
| 1,196 |
|
| (6,237) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before interest and taxes |
| 420 |
|
| (7) |
|
| (1,138) |
|
| 1,025 |
|
| 300 |
|
Interest expense |
| (141) |
|
| (1) |
|
| (17) |
|
| — |
|
| (159) |
|
Debt refinancing and other costs |
| (97) |
|
| — |
|
| (11) |
|
| — |
|
| (108) |
|
Total interest expense |
| (238) |
|
| (1) |
|
| (28) |
|
| — |
|
| (267) |
|
Earnings (loss) before taxes |
| 182 |
|
| (8) |
|
| (1,166) |
|
| 1,025 |
|
| 33 |
|
Tax (provision) benefit |
| 28 |
|
| (108) |
|
| 254 |
|
| — |
|
| 174 |
|
Equity in results of affiliates, net of tax |
| — |
|
| — |
|
| 6 |
|
| — |
|
| 6 |
|
Net earnings |
| 210 |
|
| (116) |
|
| (906) |
|
| 1,025 |
|
| 213 |
|
Less net earnings attributable to noncontrolling interests |
| — |
|
| — |
|
| (3) |
|
| — |
|
| (3) |
|
Net earnings attributable to Ball Corporation | $ | 210 |
| $ | (116) |
| $ | (909) |
| $ | 1,025 |
| $ | 210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive earnings (loss) attributable to Ball Corporation | $ | 233 |
| $ | (85) |
| $ | (901) |
| $ | 986 |
| $ | 233 |
|
5138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Unaudited Condensed Consolidating Balance Sheet | |||||||||||||
| September 30, 2017 | |||||||||||||
($ in millions) | Ball |
| Guarantor |
| Non-Guarantor |
| Eliminating |
| Consolidated | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents | $ | 6 |
| $ | — |
| $ | 550 |
| $ | — |
| $ | 556 |
Receivables, net |
| 69 |
|
| 417 |
|
| 1,307 |
|
| — |
|
| 1,793 |
Intercompany receivables |
| 45 |
|
| 510 |
|
| 959 |
|
| (1,514) |
|
| — |
Inventories, net |
| — |
|
| 545 |
|
| 888 |
|
| — |
|
| 1,433 |
Other current assets |
| 32 |
|
| 38 |
|
| 78 |
|
| — |
|
| 148 |
Total current assets |
| 152 |
|
| 1,510 |
|
| 3,782 |
|
| (1,514) |
|
| 3,930 |
Noncurrent assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
| 21 |
|
| 1,193 |
|
| 3,311 |
|
| — |
|
| 4,525 |
Investment in subsidiaries |
| 8,147 |
|
| 4,235 |
|
| 403 |
|
| (12,785) |
|
| — |
Goodwill |
| — |
|
| 981 |
|
| 3,927 |
|
| — |
|
| 4,908 |
Intangible assets, net |
| 17 |
|
| 67 |
|
| 2,406 |
|
| — |
|
| 2,490 |
Other assets |
| 38 |
|
| 300 |
|
| 812 |
|
| — |
|
| 1,150 |
Total assets | $ | 8,375 |
| $ | 8,286 |
| $ | 14,641 |
| $ | (14,299) |
| $ | 17,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders' Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt and current portion of long-term debt | $ | 293 |
| $ | — |
| $ | 159 |
| $ | — |
| $ | 452 |
Accounts payable |
| 13 |
|
| 887 |
|
| 1,519 |
|
| — |
|
| 2,419 |
Intercompany payables |
| 1,014 |
|
| 47 |
|
| 453 |
|
| (1,514) |
|
| — |
Accrued employee costs |
| 26 |
|
| 126 |
|
| 146 |
|
| — |
|
| 298 |
Other current liabilities |
| 187 |
|
| 71 |
|
| 351 |
|
| — |
|
| 609 |
Total current liabilities |
| 1,533 |
|
| 1,131 |
|
| 2,628 |
|
| (1,514) |
|
| 3,778 |
Noncurrent liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
| 6,497 |
|
| — |
|
| 607 |
|
| — |
|
| 7,104 |
Employee benefit obligations |
| 343 |
|
| 641 |
|
| 422 |
|
| — |
|
| 1,406 |
Intercompany long-term notes |
| (3,372) |
|
| 1,959 |
|
| 1,414 |
|
| (1) |
|
| — |
Deferred taxes |
| (353) |
|
| 239 |
|
| 769 |
|
| — |
|
| 655 |
Other liabilities |
| 197 |
|
| 29 |
|
| 196 |
|
| — |
|
| 422 |
Total liabilities |
| 4,845 |
|
| 3,999 |
|
| 6,036 |
|
| (1,515) |
|
| 13,365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
| 1,072 |
|
| 1,128 |
|
| 6,293 |
|
| (7,421) |
|
| 1,072 |
Preferred stock |
| — |
|
| — |
|
| 5 |
|
| (5) |
|
| — |
Retained earnings |
| 4,864 |
|
| 4,001 |
|
| 2,769 |
|
| (6,771) |
|
| 4,863 |
Accumulated other comprehensive earnings (loss) |
| (925) |
|
| (842) |
|
| (571) |
|
| 1,413 |
|
| (925) |
Treasury stock, at cost |
| (1,481) |
|
| — |
|
| — |
|
| — |
|
| (1,481) |
Total Ball Corporation shareholders' equity |
| 3,530 |
|
| 4,287 |
|
| 8,496 |
|
| (12,784) |
|
| 3,529 |
Noncontrolling interests |
| — |
|
| — |
|
| 109 |
|
| — |
|
| 109 |
Total shareholders' equity |
| 3,530 |
|
| 4,287 |
|
| 8,605 |
|
| (12,784) |
|
| 3,638 |
Total liabilities and shareholders' equity | $ | 8,375 |
| $ | 8,286 |
| $ | 14,641 |
| $ | (14,299) |
| $ | 17,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Unaudited Condensed Consolidating Statement of Earnings |
| |||||||||||||
|
| Three Months Ended June 30, 2018 |
| |||||||||||||
($ in millions) |
| Ball |
| Guarantor |
| Non-Guarantor |
| Eliminating |
| Consolidated |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | — |
| $ | 1,802 |
| $ | 1,515 |
| $ | (216) |
| $ | 3,101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (excluding depreciation and amortization) |
|
| — |
|
| (1,524) |
|
| (1,176) |
|
| 216 |
|
| (2,484) |
|
Depreciation and amortization |
|
| (2) |
|
| (52) |
|
| (124) |
|
| — |
|
| (178) |
|
Selling, general and administrative |
|
| — |
|
| (73) |
|
| (54) |
|
| — |
|
| (127) |
|
Business consolidation and other activities |
|
| (4) |
|
| (48) |
|
| (17) |
|
| — |
|
| (69) |
|
Equity in results of subsidiaries |
|
| 103 |
|
| 19 |
|
| — |
|
| (122) |
|
| — |
|
Intercompany |
|
| 94 |
|
| (110) |
|
| 16 |
|
| — |
|
| — |
|
|
|
| 191 |
|
| (1,788) |
|
| (1,355) |
|
| 94 |
|
| (2,858) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before interest and taxes |
|
| 191 |
|
| 14 |
|
| 160 |
|
| (122) |
|
| 243 |
|
Interest expense |
|
| (80) |
|
| 4 |
|
| (1) |
|
| — |
|
| (77) |
|
Debt refinancing and other costs |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
Total interest expense |
|
| (80) |
|
| 4 |
|
| (1) |
|
| — |
|
| (77) |
|
Earnings (loss) before taxes |
|
| 111 |
|
| 18 |
|
| 159 |
|
| (122) |
|
| 166 |
|
Tax (provision) benefit |
|
| 8 |
|
| (15) |
|
| (39) |
|
| — |
|
| (46) |
|
Equity in results of affiliates, net of tax |
|
| - |
|
| (5) |
|
| 5 |
|
| - |
|
| - |
|
Net earnings (loss) |
|
| 119 |
|
| (2) |
|
| 125 |
|
| (122) |
|
| 120 |
|
Less net earnings attributable to noncontrolling interests |
|
| — |
|
| — |
|
| (1) |
|
| — |
|
| (1) |
|
Net earnings (loss) attributable to Ball Corporation |
| $ | 119 |
| $ | (2) |
| $ | 124 |
| $ | (122) |
| $ | 119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive earnings (loss) attributable to Ball Corporation |
| $ | 25 |
| $ | (112) |
| $ | 13 |
| $ | 99 |
| $ | 25 |
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Unaudited Condensed Consolidating Statement of Earnings |
| |||||||||||||
|
| Three Months Ended June 30, 2017 |
| |||||||||||||
($ in millions) |
| Ball |
| Guarantor |
| Non-Guarantor |
| Eliminating |
| Consolidated |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | - |
| $ | 1,492 |
| $ | 1,416 |
| $ | (53) |
| $ | 2,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (excluding depreciation and amortization) |
|
| — |
|
| (1,254) |
|
| (1,069) |
|
| 53 |
|
| (2,270) |
|
Depreciation and amortization |
|
| (2) |
|
| (53) |
|
| (174) |
|
| — |
|
| (229) |
|
Selling, general and administrative |
|
| (55) |
|
| (28) |
|
| (45) |
|
| — |
|
| (128) |
|
Business consolidation and other activities |
|
| (14) |
|
| (11) |
|
| (16) |
|
| — |
|
| (41) |
|
Equity in results of subsidiaries |
|
| 148 |
|
| 4 |
|
| — |
|
| (152) |
|
| — |
|
Intercompany |
|
| 81 |
|
| (42) |
|
| (39) |
|
| — |
|
| — |
|
|
|
| 158 |
|
| (1,384) |
|
| (1,343) |
|
| (99) |
|
| (2,668) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before interest and taxes |
|
| 158 |
|
| 108 |
|
| 73 |
|
| (152) |
|
| 187 |
|
Interest expense |
|
| (68) |
|
| 1 |
|
| (7) |
|
| — |
|
| (74) |
|
Debt refinancing and other costs |
|
| — |
|
| — |
|
| (1) |
|
| — |
|
| (1) |
|
Total interest expense |
|
| (68) |
|
| 1 |
|
| (8) |
|
| — |
|
| (75) |
|
Earnings (loss) before taxes |
|
| 90 |
|
| 109 |
|
| 65 |
|
| (152) |
|
| 112 |
|
Tax (provision) benefit |
|
| 9 |
|
| (24) |
|
| (7) |
|
| — |
|
| (22) |
|
Equity in results of affiliates, net of tax |
|
| — |
|
| 5 |
|
| 5 |
|
| — |
|
| 10 |
|
Net earnings (loss) |
|
| 99 |
|
| 90 |
|
| 63 |
|
| (152) |
|
| 100 |
|
Less net earnings attributable to noncontrolling interests |
|
| — |
|
| — |
|
| (1) |
|
| — |
|
| (1) |
|
Net earnings (loss) attributable to Ball Corporation |
| $ | 99 |
| $ | 90 |
| $ | 62 |
| $ | (152) |
| $ | 99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive earnings (loss) attributable to Ball Corporation |
| $ | (7) |
| $ | (16) |
| $ | (40) |
| $ | 56 |
| $ | (7) |
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Condensed Consolidating Statement of Earnings |
| |||||||||||||
|
| For the Six Months Ended June 30, 2018 |
| |||||||||||||
($ in millions) |
| Ball |
| Guarantor |
| Non-Guarantor Subsidiaries |
| Eliminating |
| Consolidated |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | — |
| $ | 3,337 |
| $ | 2,947 |
| $ | (398) |
| $ | 5,886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (excluding depreciation and amortization) |
|
| — |
|
| (2,830) |
|
| (2,289) |
|
| 398 |
|
| (4,721) |
|
Depreciation and amortization |
|
| (3) |
|
| (104) |
|
| (251) |
|
| — |
|
| (358) |
|
Selling, general and administrative |
|
| (34) |
|
| (114) |
|
| (91) |
|
| — |
|
| (239) |
|
Business consolidation and other activities |
|
| (17) |
|
| (54) |
|
| (28) |
|
| — |
|
| (99) |
|
Equity in results of subsidiaries |
|
| 265 |
|
| 53 |
|
| — |
|
| (318) |
|
| — |
|
Intercompany |
|
| 176 |
|
| (152) |
|
| (24) |
|
| — |
|
| — |
|
|
|
| 387 |
|
| (3,201) |
|
| (2,683) |
|
| 80 |
|
| (5,417) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before interest and taxes |
|
| 387 |
|
| 136 |
|
| 264 |
|
| (318) |
|
| 469 |
|
Interest expense |
|
| (156) |
|
| 7 |
|
| (1) |
|
| — |
|
| (150) |
|
Debt refinancing and other costs |
|
| (1) |
|
| — |
|
| — |
|
| — |
|
| (1) |
|
Total interest expense |
|
| (157) |
|
| 7 |
|
| (1) |
|
| — |
|
| (151) |
|
Earnings (loss) before taxes |
|
| 230 |
|
| 143 |
|
| 263 |
|
| (318) |
|
| 318 |
|
Tax (provision) benefit |
|
| 14 |
|
| (32) |
|
| (62) |
|
| — |
|
| (80) |
|
Equity in results of affiliates, net of tax |
|
| — |
|
| (2) |
|
| 9 |
|
| — |
|
| 7 |
|
Net earnings |
|
| 244 |
|
| 109 |
|
| 210 |
|
| (318) |
|
| 245 |
|
Less net earnings attributable to noncontrolling interests |
|
| — |
|
| — |
|
| (1) |
|
| — |
|
| (1) |
|
Net earnings attributable to Ball Corporation |
| $ | 244 |
| $ | 109 |
| $ | 209 |
| $ | (318) |
| $ | 244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive earnings (loss) attributable to Ball Corporation |
| $ | 133 |
| $ | (4) |
| $ | 97 |
| $ | (93) |
| $ | 133 |
|
5241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Unaudited Condensed Consolidating Balance Sheet | |||||||||||||
| December 31, 2016 | |||||||||||||
($ in millions) | Ball |
| Guarantor |
| Non-Guarantor |
| Eliminating |
| Consolidated | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents | $ | 2 |
| $ | (11) |
| $ | 606 |
| $ | — |
| $ | 597 |
Receivables, net |
| 96 |
|
| 450 |
|
| 945 |
|
| — |
|
| 1,491 |
Intercompany receivables |
| 39 |
|
| 467 |
|
| 963 |
|
| (1,469) |
|
| — |
Inventories, net |
| — |
|
| 516 |
|
| 897 |
|
| — |
|
| 1,413 |
Other current assets |
| 40 |
|
| 39 |
|
| 73 |
|
| — |
|
| 152 |
Total current assets |
| 177 |
|
| 1,461 |
|
| 3,484 |
|
| (1,469) |
|
| 3,653 |
Noncurrent assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
| 23 |
|
| 1,087 |
|
| 3,277 |
|
| — |
|
| 4,387 |
Investment in subsidiaries |
| 7,815 |
|
| 4,291 |
|
| 423 |
|
| (12,529) |
|
| — |
Goodwill |
| — |
|
| 985 |
|
| 4,110 |
|
| — |
|
| 5,095 |
Intangible assets, net |
| 18 |
|
| 76 |
|
| 1,840 |
|
| — |
|
| 1,934 |
Other assets |
| 94 |
|
| 306 |
|
| 704 |
|
| — |
|
| 1,104 |
Total assets | $ | 8,127 |
| $ | 8,206 |
| $ | 13,838 |
| $ | (13,998) |
| $ | 16,173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders' Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt and current portion of long-term debt | $ | 141 |
| $ | — |
| $ | 81 |
| $ | — |
| $ | 222 |
Accounts payable |
| 18 |
|
| 772 |
|
| 1,243 |
|
| — |
|
| 2,033 |
Intercompany payables |
| 1,010 |
|
| 53 |
|
| 408 |
|
| (1,471) |
|
| — |
Accrued employee costs |
| 25 |
|
| 152 |
|
| 138 |
|
| — |
|
| 315 |
Other current liabilities |
| 138 |
|
| 69 |
|
| 192 |
|
| — |
|
| 399 |
Total current liabilities |
| 1,332 |
|
| 1,046 |
|
| 2,062 |
|
| (1,471) |
|
| 2,969 |
Noncurrent liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
| 6,337 |
|
| — |
|
| 973 |
|
| — |
|
| 7,310 |
Employee benefit obligations |
| 347 |
|
| 760 |
|
| 390 |
|
| — |
|
| 1,497 |
Intercompany long-term notes |
| (3,142) |
|
| 2,018 |
|
| 1,122 |
|
| 2 |
|
| — |
Deferred taxes |
| (308) |
|
| 232 |
|
| 515 |
|
| — |
|
| 439 |
Other liabilities |
| 127 |
|
| 35 |
|
| 255 |
|
| — |
|
| 417 |
Total liabilities |
| 4,693 |
|
| 4,091 |
|
| 5,317 |
|
| (1,469) |
|
| 12,632 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
| 1,038 |
|
| 1,120 |
|
| 6,301 |
|
| (7,421) |
|
| 1,038 |
Preferred stock |
| — |
|
| — |
|
| 5 |
|
| (5) |
|
| — |
Retained earnings |
| 4,739 |
|
| 3,832 |
|
| 2,661 |
|
| (6,493) |
|
| 4,739 |
Accumulated other comprehensive earnings (loss) |
| (942) |
|
| (837) |
|
| (552) |
|
| 1,390 |
|
| (941) |
Treasury stock, at cost |
| (1,401) |
|
| — |
|
| — |
|
| — |
|
| (1,401) |
Total Ball Corporation shareholders' equity |
| 3,434 |
|
| 4,115 |
|
| 8,415 |
|
| (12,529) |
|
| 3,435 |
Noncontrolling interests |
| — |
|
| — |
|
| 106 |
|
| — |
|
| 106 |
Total shareholders' equity |
| 3,434 |
|
| 4,115 |
|
| 8,521 |
|
| (12,529) |
|
| 3,541 |
Total liabilities and shareholders' equity | $ | 8,127 |
| $ | 8,206 |
| $ | 13,838 |
| $ | (13,998) |
| $ | 16,173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Condensed Consolidating Statement of Earnings |
| |||||||||||||
|
| For the Six Months Ended June 30, 2017 | ||||||||||||||
($ in millions) |
| Ball |
| Guarantor |
| Non-Guarantor Subsidiaries |
| Eliminating |
| Consolidated |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | — |
| $ | 2,779 |
| $ | 2,618 |
| $ | (69) |
| $ | 5,328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (excluding depreciation and amortization) |
|
| — |
|
| (2,316) |
|
| (1,998) |
|
| 69 |
|
| (4,245) |
|
Depreciation and amortization |
|
| (3) |
|
| (101) |
|
| (273) |
|
| — |
|
| (377) |
|
Selling, general and administrative |
|
| (100) |
|
| (76) |
|
| (95) |
|
| — |
|
| (271) |
|
Business consolidation and other activities |
|
| (64) |
|
| (5) |
|
| (27) |
|
| — |
|
| (96) |
|
Equity in results of subsidiaries |
|
| 270 |
|
| 11 |
|
| — |
|
| (281) |
|
| — |
|
Intercompany |
|
| 162 |
|
| (83) |
|
| (79) |
|
| — |
|
| — |
|
|
|
| 265 |
|
| (2,570) |
|
| (2,472) |
|
| (212) |
|
| (4,989) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before interest and taxes |
|
| 265 |
|
| 209 |
|
| 146 |
|
| (281) |
|
| 339 |
|
Interest expense |
|
| (134) |
|
| 2 |
|
| (10) |
|
| — |
|
| (142) |
|
Debt refinancing and other costs |
|
| — |
|
| — |
|
| (1) |
|
| — |
|
| (1) |
|
Total interest expense |
|
| (134) |
|
| 2 |
|
| (11) |
|
| — |
|
| (143) |
|
Earnings (loss) before taxes |
|
| 131 |
|
| 211 |
|
| 135 |
|
| (281) |
|
| 196 |
|
Tax (provision) benefit |
|
| 36 |
|
| (63) |
|
| (17) |
|
| — |
|
| (44) |
|
Equity in results of affiliates, net of tax |
|
| — |
|
| 8 |
|
| 10 |
|
| — |
|
| 18 |
|
Net earnings |
|
| 167 |
|
| 156 |
|
| 128 |
|
| (281) |
|
| 170 |
|
Less net earnings attributable to noncontrolling interests |
|
| — |
|
| — |
|
| (3) |
|
| — |
|
| (3) |
|
Net earnings attributable to Ball Corporation |
| $ | 167 |
| $ | 156 |
| $ | 125 |
| $ | (281) |
| $ | 167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive earnings (loss) attributable to Ball Corporation |
| $ | 189 |
| $ | 153 |
| $ | 100 |
| $ | (253) |
| $ | 189 |
|
5342
|
|
|
|
|
|
|
|
|
|
|
|
| Unaudited Condensed Consolidating Statement of Cash Flows | ||||||||||
| Nine Months Ended September 30, 2017 | ||||||||||
($ in millions) | Ball |
| Guarantor |
| Non-Guarantor |
| Consolidated | ||||
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) operating activities | $ | 266 |
| $ | 290 |
| $ | 191 |
| $ | 747 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
| (5) |
|
| (232) |
|
| (167) |
|
| (404) |
Proceeds from dispositions, net of cash sold |
| — |
|
| 31 |
|
| — |
|
| 31 |
Other, net |
| 1 |
|
| 33 |
|
| (31) |
|
| 3 |
Cash provided by (used in) investing activities |
| (4) |
|
| (168) |
|
| (198) |
|
| (370) |
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
Long-term borrowings |
| 440 |
|
| — |
|
| — |
|
| 440 |
Repayments of long-term borrowings |
| (433) |
|
| — |
|
| (476) |
|
| (909) |
Net change in short-term borrowings |
| 151 |
|
| — |
|
| 69 |
|
| 220 |
Proceeds from issuances of common stock, net of shares used for taxes |
| 18 |
|
| — |
|
| — |
|
| 18 |
Acquisitions of treasury stock |
| (103) |
|
| — |
|
| — |
|
| (103) |
Common stock dividends |
| (93) |
|
| — |
|
| — |
|
| (93) |
Intercompany |
| (231) |
|
| (109) |
|
| 340 |
|
| — |
Other, net |
| — |
|
| (2) |
|
| — |
|
| (2) |
Cash provided by (used in) financing activities |
| (251) |
|
| (111) |
|
| (67) |
|
| (429) |
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
| (7) |
|
| — |
|
| 18 |
|
| 11 |
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents |
| 4 |
|
| 11 |
|
| (56) |
|
| (41) |
Cash and cash equivalents – beginning of period |
| 2 |
|
| (11) |
|
| 606 |
|
| 597 |
Cash and cash equivalents – end of period | $ | 6 |
| $ | — |
| $ | 550 |
| $ | 556 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Condensed Consolidating Balance Sheet |
| |||||||||||||
|
| June 30, 2018 |
| |||||||||||||
($ in millions) |
| Ball |
| Guarantor |
| Non-Guarantor |
| Eliminating |
| Consolidated |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 34 |
| $ | 1 |
| $ | 514 |
| $ | — |
| $ | 549 |
|
Receivables, net |
|
| 10 |
|
| 507 |
|
| 1,496 |
|
| — |
|
| 2,013 |
|
Intercompany receivables |
|
| 52 |
|
| 517 |
|
| 1,732 |
|
| (2,301) |
|
| — |
|
Inventories, net |
|
| — |
|
| 497 |
|
| 760 |
|
| — |
|
| 1,257 |
|
Other current assets |
|
| 35 |
|
| 42 |
|
| 129 |
|
| — |
|
| 206 |
|
Assets held for sale |
|
| — |
|
| 849 |
|
| 1 |
|
| — |
|
| 850 |
|
Total current assets |
|
| 131 |
|
| 2,413 |
|
| 4,632 |
|
| (2,301) |
|
| 4,875 |
|
Noncurrent assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
| 20 |
|
| 1,306 |
|
| 3,147 |
|
| — |
|
| 4,473 |
|
Investment in subsidiaries |
|
| 10,546 |
|
| 3,818 |
|
| (99) |
|
| (14,265) |
|
| — |
|
Goodwill |
|
| — |
|
| 1,191 |
|
| 3,325 |
|
| — |
|
| 4,516 |
|
Intangible assets, net |
|
| 16 |
|
| 428 |
|
| 1,861 |
|
| — |
|
| 2,305 |
|
Other assets |
|
| 168 |
|
| 281 |
|
| 917 |
|
| — |
|
| 1,366 |
|
Total assets |
| $ | 10,881 |
| $ | 9,437 |
| $ | 13,783 |
| $ | (16,566) |
| $ | 17,535 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders' Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt and current portion of long-term debt |
| $ | 135 |
| $ | 1 |
| $ | 40 |
| $ | — |
| $ | 176 |
|
Accounts payable |
|
| 15 |
|
| 885 |
|
| 1,839 |
|
| — |
|
| 2,739 |
|
Intercompany payables |
|
| 1,488 |
|
| 129 |
|
| 683 |
|
| (2,300) |
|
| — |
|
Accrued employee costs |
|
| 14 |
|
| 145 |
|
| 97 |
|
| — |
|
| 256 |
|
Other current liabilities |
|
| 166 |
|
| 123 |
|
| 269 |
|
| — |
|
| 558 |
|
Liabilities held for sale |
|
| — |
|
| 225 |
|
| — |
|
| — |
|
| 225 |
|
Total current liabilities |
|
| 1,818 |
|
| 1,508 |
|
| 2,928 |
|
| (2,300) |
|
| 3,954 |
|
Noncurrent liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
| 7,160 |
|
| 1 |
|
| 10 |
|
| — |
|
| 7,171 |
|
Employee benefit obligations |
|
| 323 |
|
| 825 |
|
| 304 |
|
| — |
|
| 1,452 |
|
Intercompany long-term notes |
|
| (2,307) |
|
| 774 |
|
| 1,533 |
|
| — |
|
| — |
|
Deferred taxes |
|
| (113) |
|
| 100 |
|
| 679 |
|
| — |
|
| 666 |
|
Other liabilities |
|
| 111 |
|
| 50 |
|
| 136 |
|
| — |
|
| 297 |
|
Total liabilities |
|
| 6,992 |
|
| 3,258 |
|
| 5,590 |
|
| (2,300) |
|
| 13,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
| 1,120 |
|
| 2,523 |
|
| 5,305 |
|
| (7,828) |
|
| 1,120 |
|
Preferred stock |
|
| — |
|
| — |
|
| 5 |
|
| (5) |
|
| — |
|
Retained earnings |
|
| 5,199 |
|
| 4,344 |
|
| 3,163 |
|
| (7,507) |
|
| 5,199 |
|
Accumulated other comprehensive earnings (loss) |
|
| (767) |
|
| (688) |
|
| (386) |
|
| 1,074 |
|
| (767) |
|
Treasury stock, at cost |
|
| (1,663) |
|
| — |
|
| — |
|
| — |
|
| (1,663) |
|
Total Ball Corporation shareholders' equity |
|
| 3,889 |
|
| 6,179 |
|
| 8,087 |
|
| (14,266) |
|
| 3,889 |
|
Noncontrolling interests |
|
| — |
|
| — |
|
| 106 |
|
| — |
|
| 106 |
|
Total shareholders' equity |
|
| 3,889 |
|
| 6,179 |
|
| 8,193 |
|
| (14,266) |
|
| 3,995 |
|
Total liabilities and shareholders' equity |
| $ | 10,881 |
| $ | 9,437 |
| $ | 13,783 |
| $ | (16,566) |
| $ | 17,535 |
|
5443
|
|
|
|
|
|
|
|
|
|
|
|
| Unaudited Condensed Consolidating Statement of Cash Flows | ||||||||||
| Nine Months Ended September 30, 2016 | ||||||||||
($ in millions) | Ball |
| Guarantor |
| Non-Guarantor |
| Consolidated | ||||
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) operating activities | $ | (385) |
| $ | 144 |
| $ | (192) |
| $ | (433) |
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
| (10) |
|
| (170) |
|
| (218) |
|
| (398) |
Business acquisition, net of cash acquired |
| 2,303 |
|
| (1,674) |
|
| (4,008) |
|
| (3,379) |
Proceeds from dispositions, net of cash sold |
| 1,010 |
|
| — |
|
| 1,931 |
|
| 2,941 |
Decrease in restricted cash |
| 1,966 |
|
| — |
|
| — |
|
| 1,966 |
Settlement of Rexam acquisition related derivatives |
| (252) |
|
| — |
|
| — |
|
| (252) |
Other, net |
| — |
|
| 7 |
|
| (5) |
|
| 2 |
Cash provided by (used in) investing activities |
| 5,017 |
|
| (1,837) |
|
| (2,300) |
|
| 880 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
Long-term borrowings |
| 2,610 |
|
| — |
|
| 1,760 |
|
| 4,370 |
Repayments of long-term borrowings |
| (921) |
|
| — |
|
| (3,427) |
|
| (4,348) |
Net change in short-term borrowings |
| 200 |
|
| (30) |
|
| (14) |
|
| 156 |
Proceeds from issuances of common stock, net of shares used for taxes |
| 38 |
|
| — |
|
| — |
|
| 38 |
Acquisitions of treasury stock |
| (98) |
|
| — |
|
| — |
|
| (98) |
Common stock dividends |
| (60) |
|
| — |
|
| — |
|
| (60) |
Intercompany |
| (6,351) |
|
| 1,722 |
|
| 4,629 |
|
| — |
Other, net |
| (5) |
|
| (1) |
|
| (9) |
|
| (15) |
Cash provided by (used in) financing activities |
| (4,587) |
|
| 1,691 |
|
| 2,939 |
|
| 43 |
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
| 4 |
|
| 3 |
|
| (76) |
|
| (69) |
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents |
| 49 |
| �� | 1 |
|
| 371 |
|
| 421 |
Cash and cash equivalents – beginning of period |
| 5 |
|
| — |
|
| 219 |
|
| 224 |
Cash and cash equivalents – end of period | $ | 54 |
| $ | 1 |
| $ | 590 |
| $ | 645 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Condensed Consolidating Balance Sheet |
| |||||||||||||
|
| December 31, 2017 |
| |||||||||||||
($ in millions) |
| Ball |
| Guarantor |
| Non-Guarantor |
| Eliminating |
| Consolidated |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 5 |
| $ | — |
| $ | 443 |
| $ | — |
| $ | 448 |
|
Receivables, net |
|
| 3 |
|
| 260 |
|
| 1,371 |
|
| — |
|
| 1,634 |
|
Intercompany receivables |
|
| 39 |
|
| 1,285 |
|
| 102 |
|
| (1,426) |
|
| — |
|
Inventories, net |
|
| — |
|
| 673 |
|
| 853 |
|
| — |
|
| 1,526 |
|
Other current assets |
|
| 9 |
|
| 48 |
|
| 88 |
|
| — |
|
| 145 |
|
Assets held for sale |
|
| — |
|
| 4 |
|
| 1 |
|
| — |
|
| 5 |
|
Total current assets |
|
| 56 |
|
| 2,270 |
|
| 2,858 |
|
| (1,426) |
|
| 3,758 |
|
Noncurrent assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
| 20 |
|
| 1,364 |
|
| 3,226 |
|
| — |
|
| 4,610 |
|
Investment in subsidiaries |
|
| 8,639 |
|
| 3,885 |
|
| 470 |
|
| (12,994) |
|
| — |
|
Goodwill |
|
| — |
|
| 1,545 |
|
| 3,388 |
|
| — |
|
| 4,933 |
|
Intangible assets, net |
|
| 15 |
|
| 470 |
|
| 1,977 |
|
| — |
|
| 2,462 |
|
Other assets |
|
| 185 |
|
| 282 |
|
| 939 |
|
| — |
|
| 1,406 |
|
Total assets |
| $ | 8,915 |
| $ | 9,816 |
| $ | 12,858 |
| $ | (14,420) |
| $ | 17,169 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders' Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt and current portion of long-term debt |
| $ | 351 |
| $ | — |
| $ | 102 |
| $ | — |
| $ | 453 |
|
Accounts payable |
|
| 14 |
|
| 1,084 |
|
| 1,664 |
|
| — |
|
| 2,762 |
|
Intercompany payables |
|
| 705 |
|
| 82 |
|
| 639 |
|
| (1,426) |
|
| — |
|
Accrued employee costs |
|
| 28 |
|
| 182 |
|
| 142 |
|
| — |
|
| 352 |
|
Other current liabilities |
|
| 170 |
|
| 111 |
|
| 259 |
|
| — |
|
| 540 |
|
Total current liabilities |
|
| 1,268 |
|
| 1,459 |
|
| 2,806 |
|
| (1,426) |
|
| 4,107 |
|
Noncurrent liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
| 6,504 |
|
| — |
|
| 14 |
|
| — |
|
| 6,518 |
|
Employee benefit obligations |
|
| 333 |
|
| 811 |
|
| 319 |
|
| — |
|
| 1,463 |
|
Intercompany long-term notes |
|
| (3,172) |
|
| 1,305 |
|
| 1,867 |
|
| — |
|
| — |
|
Deferred taxes |
|
| (109) |
|
| 107 |
|
| 697 |
|
| — |
|
| 695 |
|
Other liabilities |
|
| 150 |
|
| 50 |
|
| 140 |
|
| — |
|
| 340 |
|
Total liabilities |
|
| 4,974 |
|
| 3,732 |
|
| 5,843 |
|
| (1,426) |
|
| 13,123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
| 1,084 |
|
| 2,463 |
|
| 4,286 |
|
| (6,749) |
|
| 1,084 |
|
Preferred stock |
|
| — |
|
| — |
|
| 5 |
|
| (5) |
|
| — |
|
Retained earnings |
|
| 4,987 |
|
| 4,196 |
|
| 2,893 |
|
| (7,089) |
|
| 4,987 |
|
Accumulated other comprehensive earnings (loss) |
|
| (656) |
|
| (575) |
|
| (274) |
|
| 849 |
|
| (656) |
|
Treasury stock, at cost |
|
| (1,474) |
|
| — |
|
| — |
|
| — |
|
| (1,474) |
|
Total Ball Corporation shareholders' equity |
|
| 3,941 |
|
| 6,084 |
|
| 6,910 |
|
| (12,994) |
|
| 3,941 |
|
Noncontrolling interests |
|
| — |
|
| — |
|
| 105 |
|
| — |
|
| 105 |
|
Total shareholders' equity |
|
| 3,941 |
|
| 6,084 |
|
| 7,015 |
|
| (12,994) |
|
| 4,046 |
|
Total liabilities and shareholders' equity |
| $ | 8,915 |
| $ | 9,816 |
| $ | 12,858 |
| $ | (14,420) |
| $ | 17,169 |
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Condensed Consolidating Statement of Cash Flows |
| ||||||||||
|
| For the Six Months Ended June 30, 2018 |
| ||||||||||
($ in millions) |
| Ball |
| Guarantor |
| Non-Guarantor |
| Consolidated |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) operating activities |
| $ | (59) |
| $ | (120) |
| $ | 613 |
| $ | 434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
| (4) |
|
| (265) |
|
| (175) |
|
| (444) |
|
Business dispositions, net of cash sold |
|
| (45) |
|
| — |
|
| — |
|
| (45) |
|
Other, net |
|
| — |
|
| 10 |
|
| 29 |
|
| 39 |
|
Cash provided by (used in) investing activities |
|
| (49) |
|
| (255) |
|
| (146) |
|
| (450) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term borrowings |
|
| 1,425 |
|
| 1 |
|
| — |
|
| 1,426 |
|
Repayments of long-term borrowings |
|
| (835) |
|
| (1) |
|
| (4) |
|
| (840) |
|
Net change in short-term borrowings |
|
| (111) |
|
| — |
|
| (54) |
|
| (165) |
|
Proceeds from issuances of common stock, net of shares used for taxes |
|
| 9 |
|
| — |
|
| — |
|
| 9 |
|
Acquisitions of treasury stock |
|
| (184) |
|
| — |
|
| — |
|
| (184) |
|
Common stock dividends |
|
| (70) |
|
| — |
|
| — |
|
| (70) |
|
Intercompany |
|
| (82) |
|
| 377 |
|
| (295) |
|
| — |
|
Other, net |
|
| (11) |
|
| (1) |
|
| — |
|
| (12) |
|
Cash provided by (used in) financing activities |
|
| 141 |
|
| 376 |
|
| (353) |
|
| 164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
| (4) |
|
| — |
|
| (46) |
|
| (50) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash, cash equivalents and restricted cash |
|
| 29 |
|
| 1 |
|
| 68 |
|
| 98 |
|
Cash, cash equivalents and restricted cash – beginning of period |
|
| 5 |
|
| — |
|
| 454 |
|
| 459 |
|
Cash, cash equivalents and restricted cash – end of period |
| $ | 34 |
| $ | 1 |
| $ | 522 |
| $ | 557 |
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Condensed Consolidating Statement of Cash Flows |
| ||||||||||
|
| For the Six Months Ended June 30, 2017 |
| ||||||||||
($ in millions) |
| Ball |
| Guarantor |
| Non-Guarantor |
| Consolidated |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) operating activities |
| $ | 219 |
| $ | 196 |
| $ | (154) |
| $ | 261 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
| (15) |
|
| (139) |
|
| (86) |
|
| (240) |
|
Business dispositions, net of cash sold |
|
| — |
|
| 31 |
|
| — |
|
| 31 |
|
Other, net |
|
| 2 |
|
| 16 |
|
| (16) |
|
| 2 |
|
Cash provided by (used in) investing activities |
|
| (13) |
|
| (92) |
|
| (102) |
|
| (207) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term borrowings |
|
| 290 |
|
| — |
|
| — |
|
| 290 |
|
Repayments of long-term borrowings |
|
| (325) |
|
| — |
|
| (236) |
|
| (561) |
|
Net change in short-term borrowings |
|
| 131 |
|
| 1 |
|
| (41) |
|
| 91 |
|
Proceeds from issuances of common stock, net of shares used for taxes |
|
| 14 |
|
| — |
|
| — |
|
| 14 |
|
Acquisitions of treasury stock |
|
| (3) |
|
| — |
|
| — |
|
| (3) |
|
Common stock dividends |
|
| (58) |
|
| — |
|
| — |
|
| (58) |
|
Intercompany |
|
| (252) |
|
| (92) |
|
| 344 |
|
| — |
|
Other, net |
|
| — |
|
| (1) |
|
| — |
|
| (1) |
|
Cash provided by (used in) financing activities |
|
| (203) |
|
| (92) |
|
| 67 |
|
| (228) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
| — |
|
| — |
|
| 8 |
|
| 8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash, cash equivalents and restricted cash |
|
| 3 |
|
| 12 |
|
| (181) |
|
| (166) |
|
Cash, cash equivalents and restricted cash – beginning of period |
|
| 1 |
|
| (10) |
|
| 616 |
|
| 607 |
|
Cash, cash equivalents and restricted cash – end of period |
| $ | 4 |
| $ | 2 |
| $ | 435 |
| $ | 441 |
|
5546
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 consolidated financial statements and accompanying notes included in Item 21 of this Quarterly Report on Form 10-Q, which include additional information about our accounting policies, practices and the transactions underlying our financial results. The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires us to make estimates and assumptions that affect the reported amounts in our consolidated financial statements and the accompanying notes including various claims and contingencies related to lawsuits, taxes, environmental and other matters arising during the normal course of business. We apply our best judgment, our knowledge of existing facts and circumstances and actions that we may undertake in the future in determining the estimates that affect our consolidated financial statements. We evaluate our estimates on an ongoing basis using our historical experience, as well as other factors we believe appropriate under the circumstances, such as current economic conditions, and adjust or revise our estimates as circumstances change. As future events and their effects cannot be determined with precision, actual results may differ from these estimates. Ball Corporation and its subsidiaries are referred to collectively as “Ball Corporation,” “Ball,” “the company,” “we” or “our” in the following discussion and analysis.
OVERVIEW
Business Overview and Industry Trends
Ball Corporation is one of the world’s leading suppliers of metal packaging to the beverage, food, personal care and household products industries. Our packaging products are produced for a variety of end uses, are manufactured in facilities around the world and are competitive with other substrates, such as plastics and glass. In the rigid packaging industry, sales and earnings can be increased by reducing costs, increasing prices, developing new products, expanding volumes and making strategic acquisitions. We also provide aerospace and other technologies and services to governmental and commercial customers.customers, including national defense hardware, antenna and video tactical solutions, civil and operational space hardware and system engineering services.
We sell our packaging products mainly to large, multinational beverage, food, personal care and household products companies with which we have developed long-term relationships. This is evidenced by our high customer retention and our large number of long-term supply contracts. While we have a diversified customer base, we sell a majoritysignificant portion of our packaging products to relatively few major companies in North, Central and South America, Europe, Asia, the Middle East and Africa,brands, as do our equity joint ventures in Guatemala, Panama, South Korea, the U.S. and Vietnam.well as to numerous regional customers. The overall metal container industry is growing globally and is expected to continue to grow in the medium to long term despite the North American industry seeing a continued declinehaving seen recent declines in standard-sized aluminum beverage packaging for the carbonated soft drink market. The primary customers for the products and services provided by our aerospace segment are U.S. government agencies or their prime contractors.
We purchase our raw materials from relatively few suppliers. We also have exposure to inflation, in particular the rising costs of raw materials, as well as other direct cost inputs. We mitigate our exposure to the changes in the costs of metal through the inclusion of provisions in contracts covering the majority of our volumes to pass through metal price changes, and freight costs, as well as through the use of derivative instruments. The pass-through provisions generally result in proportional increases or decreases in sales and costs with a greatly reduced impact, if any, on net earnings. Because of our customer and supplier concentration, our business, financial condition and results of operations could be adversely affected by the loss, insolvency or bankruptcy of a major customer or supplier or a change in a supply agreement with a major customer or supplier, although our contract provisions generally mitigate the risk of customer loss, and our long-term relationships represent a known, stable customer base.
We recognize sales under long-term contracts inThe majority of the aerospace segment using percentage-of-completionbusiness involves work under contracts, generally from one to five years in duration, as a prime contractor or subcontractor for various U.S. government agencies. Intense competition and long operating cycles are key characteristics of the cost-to-cost methodcompany’s aerospace and defense industry where it is common for work on major programs to be shared among a number of accounting. Throughoutcompanies. A company competing to be a prime contractor may, upon ultimate award of the period of contract performance, we regularly reevaluate and, if necessary, revise our estimates of aerospace total contract revenue, total contract cost and progress toward completion. Because of contract payment schedules, limitations on funding and other contract terms, our sales and accounts receivableto a competitor, become a subcontractor for this segment include amounts that have been earned but not yet billed.the ultimate prime contracting company.
5647
Corporate Strategy
Our Drive for 10 vision encompasses five strategic levers that are key to growing our business and achieving long-term success. Since launching Drive for 10 in 2011, we have made progress on each of the levers as follows:
· | Maximizing value in our existing businesses by rationalizing standard beverage container and end capacity in North America and Europe, and expanding specialty container production to meet current demand; leveraging plant floor systems in our beverage facilities to improve efficiencies and reduce costs; consolidating and/or closing multiple beverage and food and aerosol packaging facilities to gain efficiencies; and in the aerosol business, installing new extruded aluminum aerosol lines in our |
· | Expanding further into new products and capabilities through our acquisition of Sonoco’s metal end and closure manufacturing facilities in Canton, Ohio, in February 2015; successfully commercializing extruded aluminum aerosol packaging that utilizes |
· | Aligning ourselves with the right customers and markets by investing capital to meet continued growth for specialty beverage containers throughout our global network, which represent |
· | Broadening our geographic reach with our acquisition of Rexam and our new investments in a beverage manufacturing facility in Myanmar, as well as an extruded aluminum aerosol manufacturing facility in India and the construction of |
· | Leveraging our technological expertise in packaging innovation, including the introduction of next-generation aluminum bottle-shaping technologies, the introduction of a new two-piece, lightweight steel aerosol can, G3 |
These ongoing business developments and the successful acquisition of Rexam completed on June 30,in 2016 help us stay close to our customers while expanding and/or sustaining our industry positions and global reach with major beverage, food, personal care, household products and aerospace customers.
RESULTS OF CONSOLIDATED OPERATIONS
Management’s discussion and analysis for the results of operations on a consolidated and segment basis include a quantification of factors that had a material impact. Other factors that did not have a material impact, but that are significant to understand the results, are qualitatively described.
Consolidated Sales and Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, |
|
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| |||||||||||||||||
($ in millions) |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
|
| 2018 |
| 2017 |
| 2018 |
| 2017 |
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net sales |
| $ | 2,908 |
| $ | 2,752 |
| $ | 8,236 |
| $ | 6,537 |
|
| $ | 3,101 |
| $ | 2,855 |
| $ | 5,886 |
| $ | 5,328 |
| |
Net earnings attributable to Ball Corporation |
|
| 48 |
|
| 31 |
|
| 215 |
|
| 210 |
|
|
| 119 |
|
| 99 |
|
| 244 |
|
| 167 |
| |
Net earnings attributable to Ball Corporation as a % of consolidated net sales |
|
| 2 | % |
| 1 | % |
| 3 | % |
| 3 | % |
|
| 4 | % |
| 3 | % |
| 4 | % |
| 3 | % |
|
48
Sales forin the third quarter of 2017 were higherthree months ended June 30, 2018, increased compared to the same period in 20162017 primarily as a result of increased metal input prices, higher prices and favorable product mix for our North and Central America segment, favorable product mix for our South America segment, favorable foreign exchange rates and increased sales in the aerospace segment. Net earnings for the three months ended June 30, 2018, increased compared to the same period in 2017 primarily due to increased earnings related to higher volumes, higher pricing, favorable manufacturing performance, favorable foreign exchange rates and the absence of catch-up depreciation and amortization as realized in the prior year, partially offset by higher tax expense and higher business consolidation and other charges.
Sales in the six months ended June 30, 2018, increased compared to the same period in 2017 primarily as a result of increased sales volumes for our South America and Europe segments, higher pricing and favorable product mix for our North and Central America segment, favorable product mix for our South America segment, favorable foreign exchange rate changes and increased sales in the aerospace segment. Net earnings for the third quarter of 2017 were highersix months ended June 30, 2018, increased compared to the same period in 2016 primarily2017 due to increased earnings related to higher sales volumes in theour South America segment lower corporate costs, $83 million in cost of sales for the step-up of inventory related to the acquired Rexam business included
57
in the third quarter of 2016 and $19 million of lower taxes, which werefavorable manufacturing performance, partially offset by $94 million higher business consolidation and other activities in the third quarter of 2017.
Sales for the first nine months of 2017 were higher compared to the same period in 2016 primarily as a result of 2017 including nine months of sales volumes from the acquired Rexam business while 2016 included six months of sales volumes from the company’s legacy business, a significant portion of which was sold with the Divestment Business, and three months of sales volumes from the acquired Rexam business, increased sales volumes during the third quarter of 2017 in the South America and Europe segments and $157 million of increased sales in the aerospace segment. Net earnings for the first nine months of 2017 were higher compared to the same period in 2016 primarily due 2017 including nine months of earnings from the acquired Rexam business while 2016 included six months of lower earnings from the company’s legacy business, the significant portion of which was sold with the Divestment Business, and three months of earnings from the acquired Rexam business, $107 million lower debt refinancing and other costs in 2017, $83 million in cost of sales for inventory related to the acquired Rexam business included in the third quarter of 2016, and $49 million lower business consolidation and other activities in 2017. These impacts on net earnings were partially offset by a $222 million higher tax provision in 2017, due to income tax benefits in 2016 associated with the restructure of Brazil legal entities as a result of the sale of the Divestment Business, the tax benefit on the transaction costs and derivative costs of the Rexam acquisition and sale of the Divestment Business in 2016 and $57 million higher interest expense in 2017 associated with higher average debt levels for the acquisition of Rexam.expense.
Cost of Sales (Excluding Depreciation and Amortization)
Cost of sales, excluding depreciation and amortization, was $2,338$2,484 million and $6,583$4,721 million for the third quarterthree and first ninesix months of 2017,ended June 30, 2018, respectively, compared to $2,275$2,270 million and $5,288$4,245 million for the same periods in 2016.2017. These amounts represented 80 percent of consolidated net sales for both the third quarterthree and first ninesix months of 2017,ended June 30, 2018 and 83 percent and 81 percent for the same periods in 2016. Cost of sales in the third quarter of 2016 included $83 million for the step-up of inventory related to the acquired Rexam business.2017.
Depreciation and Amortization
Depreciation and amortization expense was $162$178 million and $539$358 million for the third quarterthree and first ninesix months of 2017,ended June 30, 2018, respectively, compared to $147$229 million and $299$377 million for the same periods in 2016.2017. These amounts represented 6 percent and 7 percent of consolidated net sales infor both the third quarterthree and first ninesix months of 2017, respectively,ended June 30, 2018, and 58 percent and 7 percent for each of the same periods in 2016. The increase in depreciation and amortization for the third quarter and first nine months of 2017, was the result of increased depreciation of fixed assets and amortization of intangible assets following the Rexam acquisition. 2017. During the second quarter ofthree months ended June 30, 2017, the company finalized the valuationfair values of the assets acquired in the Rexam acquisition.acquisition resulting in higher depreciation and amortization. As a result, depreciation and amortization for the ninethree months ended SeptemberJune 30, 2017, included a cumulative catch-up adjustment of $34$58 million, of which $39 million was related to the six months ended December 31, 2016, and $19 million related to the last sixthree months of 2016.ended March 31, 2017.
Selling, General and Administrative
Selling, general and administrative (SG&A) expenses were $127 million and $398$239 millionfor the third quarterthree and first ninesix months of 2017ended June 30, 2018, respectively, , respectively, compared to $135 million$128 and $348$271 million for the same periods in 2016.2017. These amounts represented 4 percent and 5 percent of consolidated net sales for each of the third quarterthree and first ninesix months of 2017, respectively,ended June 30, 2018, and 4 percent and 5 percent for both of the same periods in 2016. The increaseeach of 2017. Contributing to the lower SG&A expenses in SG&A2018 were reduced employee compensation plan costs, for the first nine months of 2017, was primarilyfavorable currency exchange rate effects and lower costs due to additional SG&A fromoffice closures and other cost-out initiatives implemented by the company in relation to the acquired Rexam business which is being reduced over time.business.
Business Consolidation Costs and Other Activities
Business consolidation and other activities were $157$69 million and $253$99 million for the third quarterthree and first ninesix months of 2017,ended June 30, 2018, respectively, compared to $63$41 million and $302$96 million for the same period in 2017. These amounts represented 2 percent of consolidated net sales for each of the three and six months ended June 30, 2018, and 1 percent and 2 percent for the same periods in 2017. The increase for the three and six months ended June 30, 2018, was primarily due to the loss on transfer of assets that were held for sale as of June 30, 2018, partially offset by lower restructuring costs for plant closures.
Interest Expense
Total interest expense was $77 million and $151 million for the three and six months ended June 30, 2018, respectively, compared to $75 million and $143 million for the same periods in 2016. These amounts represented 5 percent and 3 percent2017. Interest expense as a percentage of consolidated net sales for the third quarter and first nine months of 2017, respectively, and 2 percent and 5average monthly borrowings was 4 percent for each of the same periods in 2016.three and six months ended June 30 of both 2018 and 2017.
The year-over-year increase in business consolidation and other activities for the third quarter of 2017, compared to the same period in 2016, was primarily due to an increase of $92 million related to completed and pending plant closures and an increase of $41 million related to the settlement of certain Ball U.S. defined benefit pension plans, which were
5849
partially offset by a decrease of $52 million in Rexam transaction related costs and Rexam acquisition related compensation arrangements.
The year-over-year decrease in business consolidation and other activities for the first nine months of 2017, compared to the same period in 2016, was primarily due to a decrease of $377 million in Rexam transaction costs and Rexam acquisition related compensation arrangements and a decrease of $174 million in currency exchange losses associated with the Rexam acquisition. These impacts were partially offset by a decrease of $330 million in the gain recognized in connection with the sale of the Ball portion of the Divestment Business, an increase of $99 million related to completed and pending plant closures, an increase of $41 million related to the settlement of certain Ball U.S. defined benefit pension plans and an increase of $34 million for indemnification of certain tax matters provided to the buyer in the sale of the Divestment Business.
Interest Expense
Total interest expense was $74 million and $217 million for the third quarter and first nine months of 2017, respectively, compared to $82 million and $267 million for the same periods in 2016. Interest expense, excluding debt refinancing and other costs, as a percentage of average monthly borrowings was 4 percent for both the three and nine months ended September 30, 2017, compared to 4 percent for each of the same periods in 2016.
Debt refinancing and other costs were $1 million for the first nine months of 2017, compared to $108 million for the same period in 2016. The amount for the first nine months of 2016, consisted mainly of charges to fund a portion of the cash component of the Rexam acquisition purchase price as follows: (1) interest expense of $49 million on the 3.5 percent and 4.375 percent senior notes, (2) fair value changes of $20 million on derivative instruments designed to mitigate risks of interest rate changes with debt issuances, (3) refinancing of the bridge and revolving credit facilities of $30 million and (4) the amortization of $7 million in deferred financing fees on the Bridge Facility.
Income Taxes
The effective tax rate is affected by recurring items such as income earned in foreign jurisdictions with tax rates that differ from the U.S. tax rate and by discrete items that may occur in any given year but are not consistent from year to year. The effective income tax rate for the third quarterthree and first ninesix months of 2017,ended June 30, 2018, respectively, was 827.7 percent and 2025.2 percent respectively, compared to 4619.6 percent and negative 52722.4 percent for the same periods in 2016.2017. The increase of 8.1 percentage points and 2.8 percentage points for the three and six months ended June 30, 2018, respectively, was primarily due to the new U.S. tax on global low-tax intangible income (GILTI), as well as the revaluation in 2018 of deferred tax assets in Brazil due to fluctuations in foreign currency exchange rates.
ForAs compared to the third quarter and first nine months of 2017,statutory tax rate, the effective tax rate for the three and six months ended June 30, 2018, was increased by 4.1 percentage points and 2.1 percentage points, respectively, for the revaluation of deferred tax assets in Brazil due to fluctuations in foreign currency exchange rates. Also, as compared to the statutory tax rate, the effective tax rate for the three and the six months ended June 30, 2018, was reduced by 9 percent1.3 percentage points and 7 percent,2.8 percentage points, respectively, for the discrete tax benefit associated with the adoption in the first quarter of 2017 of amendments to existing accounting guidance for stock-based compensation. This item will continue to create a discrete tax impact in future reporting periods based upon the amount of share-based compensation payments, madeincreased by the company. The effective tax rate was further reduced by 34 percent1.9 percentage points and 11 percent,2.6 percentage points, respectively, for the impact of GILTI and, after taking into account the recently reduced U.S. tax rate, an increase of 2.0 percentage points and 2.4 percentage points, respectively, for the foreign tax rate differential versus the U.S. tax rate and by 3 percent and 2 percent, respectively, for the impact of the U.S. R&D credit. The effective tax rate was increased by 21 percent and 6 percent, respectively, for various other one-time items, primarily related to discrete transactions which are not expected to recur in future periods. The full-year 2017 effective income tax rate is expected to be approximately 23 percent.
In the third quarter and the first nine months of 2016, the effective tax rate increased 19 percent and 29 percent, respectively as it was determined that the post-acquisition taxable income in the U.K. will not be sufficient to allow for the recording of a tax benefit with respect to the interest expense on the Rexam acquisition indebtedness.
In the second quarter of 2016, a number of legal entities in Brazil were restructured resulting in a tax benefit from an increase in the local tax value of various assets. The impact on the effective tax rate was a reduction of 438 percent in the first nine months of 2016.
The company completed the acquisition of Rexam and the divestiture of certain assets and liabilities of the combined business on June 30, 2016. Gains on the Ball portion of the non-U.S. divestitures were either exempt from tax or subject to tax at rates lower than the U.S. tax rates. The impact on the effective tax rate was a reduction of 585 percent in the first nine months of 2016.
59
The items above were partially offset by a variety of factors with the most significant being non-deductible transaction costs associated with the completion of the Rexam acquisition in the second quarter, which resulted in the recording of an estimate of the non-deductible portion of the transaction costs incurred. The impact on the effective tax rate was an increase of 176 percent in the first nine months of 2016.rate.
RESULTS OF BUSINESS SEGMENTS
Segment Results
Ball’s operations are organized and reviewed by management along its product lines and geographical areas and presented in the five reportable segments discussed below.
On July 31, 2018, Ball sold its U.S. steel food and steel aerosol packaging business and formed a joint venture, Ball Metalpack. In exchange for the sale of these assets, Ball received approximately $600 million in after-tax cash proceeds, subject to customary closing adjustments, as well as 49 percent ownership of Ball Metalpack, which will be reported as an equity method investment within other assets on Ball’s unaudited condensed consolidated balance sheets. At June 30, 2018, these assets and liabilities are presented as held for sale on the unaudited condensed consolidated balance sheets.
Beginning in the third quarter 2018, the remaining global aluminum aerosol and Argentine steel aerosol businesses of the legacy food and aerosol packaging segment will be reported as a non-reportable segment within Other in the tables of this section. For comparative periods, the entire former food and aerosol packaging reportable segment will be reported as a non-reportable segment within Other in the tables of this section.
50
Beverage Packaging, North and Central America
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| Three Months Ended September 30, |
| Nine Months Ended September 30, |
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| Three Months Ended June 30, |
| Six Months Ended June 30, |
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($ in millions) |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
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| 2018 |
| 2017 |
| 2018 |
| 2017 |
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Net sales |
| $ | 1,080 |
| $ | 1,076 |
| $ | 3,180 |
| $ | 2,653 |
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| $ | 1,241 |
| $ | 1,151 |
| $ | 2,276 |
| $ | 2,100 |
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Comparable operating earnings |
| $ | 121 |
| $ | 145 |
| $ | 400 |
| $ | 356 |
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| $ | 157 |
| $ | 156 |
| $ | 270 |
| $ | 279 |
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Business consolidation and other activities (a) |
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| (34) |
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| (6) |
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| (45) |
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| (12) |
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| 1 |
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| (7) |
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| (2) |
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| (11) |
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Amortization of acquired Rexam intangibles |
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| (7) |
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| (6) |
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| (23) |
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| (6) |
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| (6) |
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| (10) |
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| (16) |
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| (16) |
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Catch-up depreciation and amortization for 2016 from finalization of Rexam valuation (b) |
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| — |
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| — |
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| (6) |
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| — |
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| — |
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| (6) |
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| — |
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| (6) |
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Cost of sales associated with Rexam inventory step-up |
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| — |
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| (10) |
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| — |
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| (10) |
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Total segment earnings |
| $ | 80 |
| $ | 123 |
| $ | 326 |
| $ | 328 |
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| $ | 152 |
| $ | 133 |
| $ | 252 |
| $ | 246 |
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Comparable operating earnings as a % of segment net sales |
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| 11 | % |
| 13 | % |
| 13 | % |
| 13 | % |
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| 13 | % |
| 14 | % |
| 12 | % |
| 13 | % |
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(a) | Further details of these items are included in Note |
(b) | Catch-up depreciation and amortization of $6 million related to the |
The beverage packaging, North and Central America, segment consists of operations located in the U.S., Canada and Mexico that manufacture aluminum containers used in beverage packaging. Duringpackaging in those countries. In 2017, the firstcompany announced that the Birmingham, Alabama; Chatsworth, California; and Longview, Texas, beverage packaging plants will cease production in 2018. In order to serve growing customer demand for specialty cans in the southwestern U.S., the company constructed a multi-line beverage packaging facility in Goodyear, Arizona, which began production in the second quarter of 2016, our beverage manufacturing facility in Monterrey, Mexico, began production.2018. Our beverage endcan manufacturing facilityfacilities in Bristol, Virginia,Reidsville, North Carolina, and Birmingham, Alabama, ceased production at the end of June 2016. Our2017 and June 2018, respectively, and the beverage can manufacturing facilityfacilities in Reidsville, North Carolina, ceasedChatsworth, California, and Longview, Texas, are expected to cease production atby the end of June 2017. the third quarter of 2018.
Segment sales for the third quarterthree and first ninesix months of 2017ended June 30, 2018, respectively, were $4$90 million and $527$176 million higher respectively, compared to the same periods in 2016.2017. The increase in sales for the third quarter of 2017,three months ended June 30, 2018, was primarily due to higher metal input prices.prices of $63 million, higher pricing, favorable sales mix, and other pass-through items, partially offset by lower volumes. The first nineincrease for the six months ended June 30, 2018, was primarily due to higher metal input prices of 2017 included nine months of$121 million, higher pricing, favorable sales volumes from the acquired Rexam business, compared to 2016 which included three months ofmix, and other pass-through items, partially offset by lower volumes.We cannot predict future changes in metal input prices and beverage can sales volumes from the acquired Rexam business.volumes.
Comparable operating earnings were relatively flat for the third quarter and first ninethree months of 2017ended June 30, 2018. Comparable operating earnings for the six months ended June 30, 2018, were $24$9 million lower and $44 million higher, respectively, compared to the same period in 2016. The decrease in earnings for the third quarter of 2017, was primarily due to unfavorable product mix and unfavorable manufacturing performance and higher freight and other costs causedassociated with our multi-plant network optimization program, plant start-up costs and lower sales volumes, partially offset by two U.S. hurricanes in the quarter. The first nine months of 2017 included nine months of earningssavings from the acquired Rexam business, compared to 2016 which included three months of earnings from the acquired Rexam business.2017 Reidsville plant closure.
6051
Beverage Packaging, South America
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| Three Months Ended September 30, |
| Nine Months Ended September 30, |
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| Three Months Ended June 30, |
| Six Months Ended June 30, |
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($ in millions) |
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Net sales |
| $ | 425 |
| $ | 318 |
| $ | 1,145 |
| $ | 577 |
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| $ | 379 |
| $ | 349 |
| $ | 838 |
| $ | 720 |
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Comparable operating earnings |
| $ | 78 |
| $ | 60 |
| $ | 205 |
| $ | 100 |
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| $ | 66 |
| $ | 69 |
| $ | 164 |
| $ | 127 |
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Business consolidation and other activities (a) |
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| (6) |
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| (4) |
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| (15) |
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| (3) |
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Amortization of acquired Rexam intangibles |
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| (13) |
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| (9) |
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| (42) |
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| (9) |
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| (14) |
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| (21) |
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| (28) |
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| (29) |
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Catch-up depreciation and amortization for 2016 from finalization of Rexam valuation (b) |
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Total segment earnings |
| $ | 61 |
| $ | 25 |
| $ | 145 |
| $ | 56 |
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| $ | 51 |
| $ | 31 |
| $ | 135 |
| $ | 84 |
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Comparable operating earnings as a % of segment net sales |
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| 18 | % |
| 19 | % |
| 18 | % |
| 17 | % |
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| 17 | % |
| 20 | % |
| 20 | % |
| 18 | % |
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(a) | Further details of these items are included in Note |
(b) | Catch-up depreciation and amortization of $14 million related to the |
The beverage packaging, South America, segment consists of operations located in Brazil, Argentina and Chile that manufacture aluminum containers used in beverage packaging.packaging across South America. To support contracted volumes for aluminum beverage packaging across Paraguay, Argentina and Bolivia, the company plans to construct a one-line beverage can and end manufacturing plant in Paraguay, and to add capacity to our Buenos Aires, Argentina, and Santiago, Chile, facilities. The Paraguay plant is expected to begin production in the second half of 2019. The company ceased operations at the Cuiabá, Brazil, beverage packaging plant in July 2018 and expects to relocate equipment from the Cuiabá plant to our other existing facilities in South America.
Segment sales for the third quarterthree and first ninesix months of 2017,ended June 30, 2018, respectively, were $107$30 million and $568$118 million higher respectively, compared to the same periods in 2016.2017. The increase for the third quarter of 2017three months ended June 30, 2018, was primarily due to higher can and end volumes of $60 million, which was partially offset by regional pricing pressures and the loss of 11 days of sales resulting from a Brazilian trucking labor strike. The increase for the six months ended June 30, 2018, was primarily related to higher can and end volumes of $118 million, favorable product mix and additional revenue from the end sales agreement with the divested business, partially offset by regional pricing pressures and the loss of 11 days of sales resulting from a Brazilian trucking labor strike.
Comparable operating earnings for the three and six months ended June 30, 2018, respectively, were $3 million lower and $37 million higher compared to the same periods in 2017. The decrease for the three months ended June 30, 2018, was primarily due to the loss of 11 days of sales resulting from a Brazilian trucking labor strike, which were partially offset by increased can and end volumes. The increase for the six months ended June 30, 2018, was primarily related to the end sales agreement with the business divested in 2016, an increase of $107 million in can and end volumes, and favorable product mix. The first nine months of 2017 included nine months of sales volumes from the acquired Rexam business while the first nine months of 2016 included six months of sales volumes from the company’s legacy business, the significant portion of which was sold with the Divestment Business and three months of sales volumes from the acquired Rexam business. The increased sales volumes during the third quarter of 2017, also contributed to the increase in sales during the first nine months of 2017.
Comparable operating earnings for the third quarter and first nine months of 2017 were $18 million and $105 million higher, respectively, compared to the same periods in 2016. The increase for the third quarter of 2017 was primarily due to an increase of $20 million in can and end volumes. The first nine months of 2017 included nine months of earnings from the acquired Rexam business while the first nine months of 2016 included six months of earnings from the company’s legacy business, the significant portion of which was sold with the Divestment Business and three months of earnings from the acquired Rexam business.manufacturing performance, partially offset by regional pricing pressures.
6152
Beverage Packaging, Europe
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| Three Months Ended September 30, |
| Nine Months Ended September 30, |
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| Three Months Ended June 30, |
| Six Months Ended June 30, |
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($ in millions) |
| 2017 |
| 2016 |
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Net sales |
| $ | 651 |
| $ | 624 |
| $ | 1,824 |
| $ | 1,459 |
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| $ | 703 |
| $ | 665 |
| $ | 1,312 |
| $ | 1,173 |
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Comparable operating earnings |
| $ | 74 |
| $ | 72 |
| $ | 184 |
| $ | 184 |
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| $ | 75 |
| $ | 63 |
| $ | 135 |
| $ | 110 |
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Business consolidation and other activities (a) |
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| (62) |
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| (10) |
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| (69) |
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| (19) |
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| (4) |
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| (4) |
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| (14) |
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| (7) |
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Amortization of acquired Rexam intangibles |
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| (16) |
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| (15) |
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| (50) |
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| (15) |
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| (18) |
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| (19) |
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| (36) |
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| (34) |
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Catch-up depreciation and amortization for 2016 from finalization of Rexam valuation (b) |
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| (18) |
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| — |
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| (18) |
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| (18) |
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Cost of sales associated with Rexam inventory step-up |
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| — |
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| (46) |
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| (46) |
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Total segment earnings |
| $ | (4) |
| $ | 1 |
| $ | 47 |
| $ | 104 |
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| $ | 53 |
| $ | 22 |
| $ | 85 |
| $ | 51 |
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Comparable operating earnings as a % of segment net sales |
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| 11 | % |
| 12 | % |
| 10 | % |
| 13 | % |
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| 11 | % |
| 9 | % |
| 10 | % |
| 9 | % |
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(a) | Further details of these items are included in Note |
(b) | Catch-up depreciation and amortization of $18 million related to the |
The beverage packaging, Europe, segment includes the manufacture and sale of metal beverage containers in facilities located throughout Europe, including Russia. To support growth for beverage cans in the Iberian Peninsula, the company is constructingconstructed a two-line, aluminum beverage can manufacturing facility near Madrid, Spain, with a majority of the facility’s capacity secured under a long-term customer contract. The facility is expected to be fully operationalbegan initial commercial production on one line in July 2018 and will produce multiple can sizes. On July 31,sizes once it is fully operational. In the third quarter of 2017, our beverage packaging container and end production facilities in Recklinghausen, Germany, ceased production.
Segment sales for the third quarterthree and first ninesix months of 2017ended June 30, 2018, respectively, were $27$38 million and $365$139 million higher respectively, compared to the same periods in 2016.2017. The increase in sales for the third quarter of 2017three and six months ended June 30, 2018, respectively, was primarily related to increased sales volumes and favorable currency exchange effects.rates and higher sales volumes. The first nine monthsimpact of 2017 included nine months of sales volumes fromfavorable currency exchange rates was approximately $93 million for the acquired Rexam business while the first nine months of 2016 included six months of sales volumes from the company’s legacy European business, the significant portion of which was sold with the Divestment Business and three months of sales volumes from the acquired Rexam business.ended June 30, 2018.
Comparable operating earnings for the third quarterthree and first ninesix months of 2017ended June 30, 2018, respectively, were $2$12 million higher and flat, respectively,$25 million higher compared to the same periods in 2016.2017. The increase for the third quarter of 2017three and six months ended June 30, 2018, respectively, was primarily due to increased sales volumes, which werefavorable currency exchange rates and operational efficiencies from plant network optimization, partially offset by lower net pricing.higher costs and a continuation of previously contracted price decreases. The first nineresults for the three months of 2017 included nine months of earningsended June 30, 2018, also benefitted in comparison to prior year from the acquired Rexam business whileeffect on the first nine monthsprior year results of 2016 included six months of earnings from the company’s legacy European business, the significant portion of which was sold with the Divestment Business. Additionally, the first nine months of 2017 included $24$8 million of increasedcatch-up depreciation recorded in the second quarter of 2017 related to the finalization of the fixed asset valuations and useful lives for the Rexam acquisition and three months of earnings from the acquired Rexam business.
62
first quarter.
Food and Aerosol Packaging
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| Three Months Ended September 30, |
| Nine Months Ended September 30, |
|
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| |||||||||||||||||
($ in millions) |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
|
| 2018 |
| 2017 |
| 2018 |
| 2017 |
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| ||||||||
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| |
Net sales |
| $ | 321 |
| $ | 329 |
| $ | 867 |
| $ | 911 |
|
| $ | 304 |
| $ | 274 |
| $ | 579 |
| $ | 546 |
| |
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| |
Comparable operating earnings |
| $ | 30 |
| $ | 31 |
| $ | 76 |
| $ | 84 |
|
| $ | 32 |
| $ | 25 |
| $ | 55 |
| $ | 46 |
| |
Business consolidation and other activities (a) |
|
| (2) |
|
| (4) |
|
| 7 |
|
| (21) |
|
|
| (47) |
|
| (1) |
|
| (47) |
|
| 9 |
| |
Total segment earnings |
| $ | 28 |
| $ | 27 |
| $ | 83 |
| $ | 63 |
|
| $ | (15) |
| $ | 24 |
| $ | 8 |
| $ | 55 |
| |
Comparable operating earnings as a % of segment net sales |
|
| 9 | % |
| 9 | % |
| 9 | % |
| 9 | % |
|
| 11 | % |
| 9 | % |
| 9 | % |
| 8 | % |
|
(a) | Further details of these items are included in Note |
53
The food and aerosol packaging segment consists of operations located in the U.S., Europe, Canada, Mexico, Argentina and India that manufacture and sell steel food and aerosol containers,, extruded aluminum aerosol containers and slugs. In March 2017, we sold our paint and general line can facility in Hubbard, Ohio. Our food and aerosol packaging flat sheet production and end-making facility in Weirton, West Virginia, ceased production in the second quarter of 2017.
On July 31, 2018, Ball sold its U.S. steel food and steel aerosol packaging business and formed a joint venture, Ball Metalpack. See footnote 4 for further details. Effective July 1, 2018, the Argentine tinplate business will be accounted for as operating in a highly inflationary economy, which is not expected to have a material impact on the consolidated financial statements.
Segment sales for the third quarterthree and first ninesix months of 2017ended June 30, 2018, respectively, were $8$30 million and $44$33 million lower, respectively,higher compared to the same periods in 2016. The decrease in2017 due to the third quartereffect of 2017 was due primarily to lower food can sales volumes which were partially offset by higher metal input prices. The decrease in the first nine months of 2017 was due primarily to lower food can sales volumesprices and the sale of the company’s Baltimore, Maryland, and Hubbard, Ohio, plants.favorable currency exchange rates.
Comparable operating earnings for the third quarterthree and first ninesix months of 2017ended June 30, 2018, respectively, were flat$7 million and $8$9 million lower, respectively,higher compared to the same periods in 2016. The third quarter of 2017 remained flat, primarily due to higherimproved manufacturing efficiencies from our aerosol production, partially offset byperformance and lower food can volumes. The decrease in the first nine months of 2017 was primarily due to further food can volume and price erosion and startup costs for our new flat sheet operations in Canton, Ohio, during the first six months of 2017, which were partially offset by favorable aerosol product mix.operating costs.
Aerospace
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| Three Months Ended September 30, |
| Nine Months Ended September 30, |
|
| Three Months Ended June 30, |
| Six Months Ended June 30, |
|
| ||||||||||||||||
($ in millions) |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
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| 2018 |
| 2017 |
| 2018 |
| 2017 |
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Net sales |
| $ | 241 |
| $ | 204 |
| $ | 734 |
| $ | 577 |
|
| $ | 290 |
| $ | 257 |
| $ | 554 |
| $ | 493 |
|
|
Comparable operating earnings |
|
| 23 |
|
| 24 |
|
| 70 |
|
| 61 |
|
|
| 24 |
|
| 26 |
|
| 49 |
|
| 47 |
|
|
Comparable operating earnings as a % of segment net sales |
|
| 10 | % |
| 12 | % |
| 10 | % |
| 11 | % |
|
| 8 | % |
| 10 | % |
| 9 | % |
| 10 | % |
|
The aerospace segment consists of the manufacture and sale of aerospace and other related products and services provided for the defense, civil space and commercial space industries.
Segment sales for the third quarterthree and first ninesix months of 2017ended June 30, 2018, respectively, were $37$33 million and $157$61 million higher compared to the same periods in 2017 and comparable operating earnings were $2 million lower and $2 million higher for the three and six months ended June 30, 2018, respectively, compared to the same periods in 2016, and comparable operating earnings were flat and $8 million higher, respectively.2017. The increasechanges in sales for the third quarterthree and first ninesix months of 2017 wasended June 30, 2018, respectively, were primarily the result of an increase in sales from significant U.S. national defense contracts. Comparable operating earnings for the three and six months ended June 30, 2018, were relatively flat.
The aerospace sales contract mix for the first ninesix months of 2017ended June 30, 2018, consisted of 6368 percent cost-type contracts, which are billed at our costs plus an agreed upon and/or earned profit component, and 3229 percent fixed-price contracts. The remaining sales were for time and materials contracts. Contracted backlog was $1.2$1.86 billion at SeptemberJune 30, 2017,2018, compared to $1.4$1.75 billion at December 31, 2016, and $1.4 billion at September 30, 2016.2017. The backlog at SeptemberJune 30, 2017,2018, consisted of 7475 percent cost-type contracts. Comparisons of backlog are not necessarily indicative of the trend of future operations due to the nature of varying delivery and milestone schedules on contracts, funding of programs and the uncertainty of timing of future contract awards.
63
Additional Segment Information
For additional information regarding our segments, see the business segment information in Note 3 accompanying the unaudited condensed consolidated financial statements included within Item 1 of this report. The charges recorded for business consolidation and other activities were based on estimates by management and were developed from information available at the time the amounts were recognized. If actual outcomes vary from thethese estimates, the differences will be reflected in current period earnings in the statement of earnings and identified as business consolidation gains and losses. Additional details about our business consolidation and other activities, as well as the associated costs, are provided in Note 56 to the unaudited condensed consolidated financial statements included within Item 1 of this report on Form 10-Q.
54
NEW ACCOUNTING PRONOUNCEMENTS
For information regarding recent accounting pronouncements, see Note 2 to the unaudited condensed consolidated financial statements within Item 1 of this report on Form 10-Q.
Management Performance Measures
Management internally uses various measures to evaluate company performance such as comparable operating earnings (earnings before interest, taxes and business consolidation and other non-comparable costs); comparable net earnings (earnings before business consolidation costs and other non-comparable costs after-tax)after tax); return on average invested capital (net operating earnings after tax over the relevant performance period divided by average invested capital over the same period); economic value added (EVA®) dollars (net operating earnings after tax less a capital charge on average invested capital employed); earnings before interest and taxes (EBIT); earnings before interest, taxes, depreciation and amortization (EBITDA); and diluted earnings per share. Management also uses free cash flow (generally defined by the company as cash flow from operating activities less capital expenditures) as a measure to evaluate the company’s liquidity. We believe this information is also useful to investors as it provides insight into the earnings and cash flow criteria management uses to make strategic decisions. These financial measures may be adjusted at times for items that affect comparability between periods such as business consolidation costs and gains or losses on acquisitions and dispositions.
Nonfinancial measures in the packaging businesses include production efficiency and spoilage rates; quality control figures; environmental, health and safety statistics; production and sales volumes; asset utilization rates and measures of sustainability. Additional measures used to evaluate financial performance in the aerospace segment include contract revenuesales realization, award and incentive fees realized, proposal win rates and backlog (including awarded, contracted and funded backlog).
The following financial measurements are on a non-U.S. GAAP basis and should be considered in connection with the unaudited condensed consolidated financial statements within Item 1 of this report. Non-U.S. GAAP measures should not be considered in isolation and should not be considered superior to, or a substitute for, financial measures calculated in accordance with U.S. GAAP. A presentation of earnings in accordance with U.S. GAAP is available in Item 1 of this report.
64
Based on the above definitions, our calculation of comparable operating earnings is summarized below:
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|
| Three Months Ended September 30, |
| Nine Months Ended September 30, |
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| ||||||||||||||||
($ in millions) |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| ||||||||
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|
Net earnings attributable to Ball Corporation |
| $ | 48 |
| $ | 31 |
| $ | 215 |
| $ | 210 |
| $ | 119 |
| $ | 99 |
| $ | 244 |
| $ | 167 |
|
Add: Net earnings attributable to noncontrolling interests |
|
| 3 |
|
| 3 |
|
| 6 |
|
| 3 |
|
| 1 |
|
| 1 |
|
| 1 |
|
| 3 |
|
Net earnings |
|
| 51 |
|
| 34 |
|
| 221 |
|
| 213 |
|
| 120 |
|
| 100 |
|
| 245 |
|
| 170 |
|
Less: Equity in results of affiliates, net of tax |
|
| (5) |
|
| (7) |
|
| (23) |
|
| (6) |
|
| — |
|
| (10) |
|
| (7) |
|
| (18) |
|
Add: Tax provision (benefit) |
|
| 4 |
|
| 23 |
|
| 48 |
|
| (174) |
|
| 46 |
|
| 22 |
|
| 80 |
|
| 44 |
|
Earnings before taxes, as reported |
|
| 50 |
|
| 50 |
|
| 246 |
|
| 33 |
|
| 166 |
|
| 112 |
|
| 318 |
|
| 196 |
|
Add: Total interest expense |
|
| 74 |
|
| 82 |
|
| 217 |
|
| 267 |
|
| 77 |
|
| 75 |
|
| 151 |
|
| 143 |
|
Earnings before interest and taxes |
|
| 124 |
|
| 132 |
|
| 463 |
|
| 300 |
|
| 243 |
|
| 187 |
|
| 469 |
|
| 339 |
|
Add: Business consolidation and other activities |
|
| 157 |
|
| 63 |
|
| 253 |
|
| 302 |
|
| 69 |
|
| 41 |
|
| 99 |
|
| 96 |
|
Add: Amortization of acquired Rexam intangibles |
|
| 37 |
|
| 33 |
|
| 120 |
|
| 33 |
|
| 40 |
|
| 51 |
|
| 84 |
|
| 83 |
|
Add: Catch-up depreciation and amortization for 2016 from finalization of Rexam valuation |
|
| (5) |
|
| — |
|
| 34 |
|
| — |
|
| — |
|
| 39 |
|
| — |
|
| 39 |
|
Add: Cost of sales associated with Rexam inventory step-up |
|
| — |
|
| 83 |
|
| — |
|
| 83 | |||||||||||||
Comparable operating earnings |
| $ | 313 |
| $ | 311 |
| $ | 870 |
| $ | 718 |
| $ | 352 |
| $ | 318 |
| $ | 652 |
| $ | 557 |
|
(a) | Catch-up depreciation and amortization of |
55
Our calculation of comparable net earnings is summarized below:
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|
| Three Months Ended September 30, |
| Nine Months Ended September 30, |
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| ||||||||||||||||
($ in millions, except per share amounts) |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| ||||||||
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|
Net earnings attributable to Ball Corporation |
| $ | 48 |
| $ | 31 |
| $ | 215 |
| $ | 210 |
| $ | 119 |
| $ | 99 |
| $ | 244 |
| $ | 167 |
|
Add: Business consolidation and other activities |
|
| 157 |
|
| 63 |
|
| 253 |
|
| 302 |
|
| 69 |
|
| 41 |
|
| 99 |
|
| 96 |
|
Add: Amortization of acquired Rexam intangibles |
|
| 37 |
|
| 33 |
|
| 120 |
|
| 33 |
|
| 40 |
|
| 51 |
|
| 84 |
|
| 83 |
|
Add: Catch-up depreciation and amortization for 2016 from finalization of Rexam valuation |
|
| (5) |
|
| — |
|
| 34 |
|
| — |
|
| — |
|
| 39 |
|
| — |
|
| 39 |
|
Add: Cost of sales associated with Rexam inventory step-up |
|
| — |
|
| 83 |
|
| — |
|
| 83 | |||||||||||||
Add: Debt refinancing and other costs |
|
| — |
|
| 2 |
|
| 1 |
|
| 108 |
|
| — |
|
| 1 |
|
| 1 |
|
| 1 |
|
Less: Tax effect on above items |
|
| (49) |
|
| (41) |
|
| (108) |
|
| (329) | |||||||||||||
Less: Noncomparable taxes |
|
| (21) |
|
| (41) |
|
| (41) |
|
| (59) |
| ||||||||||||
Comparable net earnings |
| $ | 188 |
| $ | 171 |
| $ | 515 |
| $ | 407 |
| $ | 207 |
| $ | 190 |
| $ | 387 |
| $ | 327 |
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
Per diluted share, as reported (b) |
| $ | 0.13 |
| $ | 0.09 |
| $ | 0.60 |
| $ | 0.67 | |||||||||||||
Per diluted share, comparable basis (b) |
| $ | 0.52 |
| $ | 0.48 |
| $ | 1.44 |
| $ | 1.30 | |||||||||||||
Per diluted share, as reported |
| $ | 0.34 |
| $ | 0.28 |
| $ | 0.68 |
| $ | 0.47 |
| ||||||||||||
Per diluted share, comparable basis |
| $ | 0.58 |
| $ | 0.53 |
| $ | 1.09 |
| $ | 0.91 |
| ||||||||||||
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| ||||||||||||
Weighted average diluted shares outstanding (000s) |
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(a) | Catch-up depreciation and amortization of |
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|
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash Flows and Capital Expenditures
Our primary sources of liquidity are cash provided by operating activities and external borrowings. We believe that cash flows from operations and cash provided by short-term, long-term and committed revolver borrowings, when necessary,
65
will be sufficient to meet our ongoing operating requirements, scheduled principal and interest payments on debt, dividend payments and anticipated capital expenditures. The following summarizes our cash flows:
|
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|
|
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|
|
|
|
| |
|
| Nine Months Ended September 30, |
| Six Months Ended June 30, |
| ||||||||
($ in millions) |
| 2017 |
| 2016 |
| 2018 |
| 2017 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used in) operating activities |
| $ | 747 |
| $ | (433) |
| $ | 434 |
| $ | 261 |
|
Cash flows provided by (used in) investing activities |
|
| (370) |
|
| 880 |
|
| (450) |
|
| (207) |
|
Cash flows provided by (used in) financing activities |
|
| (429) |
|
| 43 |
|
| 164 |
|
| (228) |
|
Cash flows provided by operations were higher in 20172018 compared to 2016,2017, primarily due to improved working capital. Also, the nine months ended September 30, 2016, included additional working capital requirements of the acquired Rexam businesses of approximately $300 million; payments of professional feeshigher earnings and employee costs related to the acquisition of Rexam and sale of the Divestment Business of approximately $315 million; $64 million of additionallower pension funding; $90 million of payments to settle derivatives associated with the acquired Rexam business; and $50 million of additional interest payments associated with the financing of the Rexam acquisition, which werecontributions, partially offset by increased fundinghigher working capital outflows. The impact of pensions during 2017. Working capital changes in 2017 included lower annualizedworking capital on operating cash flows for the six months ended June 30, 2018, was $353 million. Excluding the impact of the new revenue recognition standard and the transfer of U.S food and steel aerosol assets and liabilities to held for sale, receivables increased by $166 million as increased sales and growth in taxes and other amounts receivable outweighed flat days sales outstanding. Inventory increased by $194 million as cost of sales increased and seasonal inventory build slightly increased days inventory outstanding in 2017 of 45 days compared(from 61 to 48 days in 2016, lower annualized inventory days on hand of 53 days in 2017 compared to 57 days in 2016 and higher annualized days63). Days payable outstanding decreased slightly during the six months (from 110 to 108), the effect of 89 dayswhich was offset by the increase in 2017 comparedcost of sales leading to 75 daysan increase in 2016.payables of $175 million. Accrued employee costs also decreased during the six months by $86 million.
We have entered into several regional committed and uncommitted accounts receivable factoring programs with various financial institutions for certain receivables of the company. The programs are accounted for as true sales of the receivables, without recourse to Ball, and had combined limits of approximately $1 billion$977 million at SeptemberJune 30, 2017.2018. A total of $646$139 million and $596$439 million were soldavailable for sale under such programs as of SeptemberJune 30, 2017,2018, and December 31, 2016,2017, respectively.
56
Contributions to the company’s defined benefit pension plans, not including unfunded German, Swedish and certain U.S. plans, were $182$4 million in the first ninesix and months of 20172018 compared to $246$110 million in the first ninesix months of 20162017 and are expected to be in the range of $190$45 million for the full year of 2017.2018. This estimate may change based on any changes to the U.S. Pension Protection Act and actual plan asset performance, among other factors. Included in the 2017 contributions were contributions to acquired Rexam defined benefit pension plans. Payments to participants in the unfunded German, Swedish and certain U.S. plans were $19$10 million in the first ninesix months of 20172018 compared to $18$12 million in the first ninesix months of 20162017 and are expected to be in the range of $22$21 million for the full year of 2017.2018.
We expect 20172018 capital expenditures for property, plant and equipment to be in the range of $550$700 million, and approximately $450$370 million was contractually committed as of SeptemberJune 30, 2017.2018. Capital expenditures are expected to be funded by cash flows from operations.
As of SeptemberJune 30, 2017,2018, approximately $550$513 million of our cash was held outside of the U.S. In the event that we would need to utilize any of the cash held outside of the U.S. for purposes within the U.S., there are no material legal or other economic restrictions regarding the repatriation of cash from any of the countries outside the U.S. where we have cash, other than market liquidity constraints that limit the ability to convert the U.S. dollar equivalent of $39 millioninto other currencies Egyptian pounds held by the company in Egypt into other currencies.with a U.S. dollar equivalent value of $41 million. The company believes its U.S. operating cash flows; the $1.2 billion availableflows, as well as availability under the company’sits long-term, revolving credit facilities; the $188 million available under other U.S.-basedfacilities, uncommitted short-term credit facilities;facilities and availability under U.S.-based committed and uncommitted accounts receivable factoring programs will be sufficient to meet the cash requirements of the U.S. portion of the company’s ongoing operations, scheduled principal and interest payments on U.S. debt, dividend payments, capital expenditures and other U.S. cash requirements. If foreign funds would beare needed for our U.S. cash requirements and we are unable to provide the funds through intercompany financing arrangements, we willwould be required to accrue and pay U.S. taxes, net of applicable foreign tax credits, to repatriate funds from foreign locations where the company has previously asserted indefinite reinvestment of funds outside the U.S. However, it continues to beWith the company’sintroduction of a modified territorial tax system in the recently enacted U.S. Tax Cuts and Jobs Act, the company is currently reviewing its previously stated intent to permanently reinvest these foreign amounts outside the U.S., As the company does not believe a reasonable estimate of the impact of the U.S. Tax Cuts and our current plans do not demonstrateJobs Act on its indefinite reinvestment assertion can be determined at present, no provisional estimate is recorded in the financial statements for the period ended June 30, 2018. When either a need to repatriatereasonable estimate or the foreign amounts to fund our U.S. cash requirements.final determination becomes available, the impact will be recorded in that same reporting period. The final determination will be made and the impact will be recorded no later than December 2018.
Based on its previous indefinite reinvestment assertion, the company has not provided deferred taxes on earnings in certain non-U.S. subsidiaries because such earnings were intended to be indefinitely reinvested in its international operations. While it is not practical to estimate the additional taxes that may become payable if these earnings were remitted to the U.S., as a result of the company’s inclusion of a provisional transition tax estimate, U.S. tax has been accrued with respect to this amount.
66
Share Repurchases
The company’s share repurchases, net of issuances, totaled $85$175 million inof net repurchases during the first ninesix months ended June 30, 2018, compared to $11 million of 2017, and $60 million innet issuances during the same period of 2016.2017. Share repurchases are completed using cash on hand and available borrowings.
In August 2017, in a privately negotiated transaction, Ball entered into an accelerated share repurchase agreement to buy $100 million of its common shares using cash on handborrowings and available borrowings. The company advanced the $100 million in August 2017, and received 2.2 million shares, which represented approximately 85 percent of the total shares. The agreement isare expected to settle duringapproach $700 million, net of issuances, for the fourth quarter of 2017.full year 2018.
Debt Facilities and Refinancing
Given our cash flow projections and unused credit facilities that are available until March 2021, our liquidity is strong and is expected to meet our ongoing cash and debt service requirements. Interest-bearing debt of $7.6$7.3 billion and $7.0 billion was outstanding at both SeptemberJune 30, 2017,2018, and December 31, 2016.2017, respectively.
At SeptemberJune 30, 2017,2018, taking into account outstanding letters of credit, approximately $1.2$1 billion was available under existing long-term, revolving credit facilities. In addition to these facilities, the company had approximately $936$905 million of short-term uncommitted credit facilities available at Septemberas of June 30, 2017,2018, of which $374$167 million was outstanding and due on demand. At December 31, 2016,2017, the company had $143$340 million outstanding under short-term uncommitted credit facilities.
In March 2018, Ball issued $750 million of 4.875 percent senior notes and used the proceeds to repay $315 million of its Term A loan and outstanding multi-currency revolver and short-term credit facility borrowings.
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While ongoing financial and economic conditions in certain areas may raise concerns about credit risk with counterparties to derivative transactions, the company mitigates its exposure by allocating the risk among various counterparties and limiting exposure to any one party. We also monitor the credit ratings of our suppliers, customers, lenders and counterparties on a regular basis.
We were in compliance with all loan agreements at SeptemberJune 30, 2017,2018, and for all prior years presented, and have met all debt payment obligations. The U.S. note agreements and bank credit agreement contain certain restrictions relating to dividends, investments, financial ratios, guarantees and the incurrence of additional indebtedness. The most restrictive covenant is in the company’s bank credit agreement and requires the company to maintain a net debt to EBITDAleverage ratio (as defined) of no greater than 54.25 times at SeptemberJune 30, 2017, which changes to 4 times at December 31, 2017.2018. As of SeptemberJune 30, 2017,2018, approximately $1.6 billion of the amounts disclosed as available under the company’s long-term multi-currency committed revolving facilities and short-term uncommitted credit facilities are available without violating our existing debt covenants. Additional details aboutregarding our debt are available in Note 1214 accompanying the unaudited condensed consolidated financial statements within Item 1 of this report.
CONTINGENCIES, INDEMNIFICATIONS AND GUARANTEES
Details about the company’s contingencies, indemnifications and guarantees are available in Notes 1821 and 1922 accompanying the unaudited condensed consolidated financial statements included within Item 1 of this report. The company is routinely subject to litigation incident to operating its businesses, and has been designated by various federal and state environmental agencies as a potentially responsible party, along with numerous other companies, for the clean-up of several hazardous waste sites, including in respect of sites related to alleged activities of certain Rexam subsidiaries. The company believes the matters identified will not have a material adverse effect upon the liquidity, results of operations or financial condition of the company. Details of the company’s legal proceedings are included in Note 2221 to the consolidated financial statements within Item 8 of the company’s AnnualCurrent Report on Form 10-K.8-K filed on March 6, 2018.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the ordinary course of business, the company employs established risk management policies and procedures, which seek to reduce our exposure to fluctuations in commodity prices, interest rates, exchange currencies and prices of the company’s common stock in regard to common share repurchases and the company’s deferred compensation stock plan, although there can be no assurance that these policies and procedures will be successful. The company mitigates its exposure by spreading the risk among various counterparties, thus limiting exposure with any one party. The company also monitors the credit ratings of its suppliers, customers, lenders and counterparties on a regular basis. Further details are available in Item 7A within Ball’s 20162017 annual report filed on March 2, 2017,February 28, 2018, and in Note 1720 accompanying the
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unaudited condensed consolidated financial statements included within Item 1 of this report.
In November 2016, Egypt’s central bank elected to allow their currency, the Egyptian pound, to float more freely in the market resulting in a devaluation of the Egyptian pound from 8.9 to approximately 17 per U.S. dollar, an approximate 90 percent devaluation. The currency market for the Egyptian pound continues to be volatile and the actual impact that will be recorded in the company’s results will change based on the movement in the exchange rate and changes in the ongoing business activities.
Item 4. CONTROLS AND PROCEDURES
Disclosure ControlsOur chief executive officer and Procedures
Ball Corporation has establishedchief financial officer participated in management’s evaluation of our disclosure controls and procedures, to ensure that information required to be disclosedas defined by us in the reports that we file or submit under the Securities and Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms, and that such information is accumulated and communicated to management of the company, including its Chief Executive Officer (CEO) and Chief Financial Officer (CFO)Commission (SEC), as appropriate to allow timely decisions regarding required disclosure.
Ball Corporation, under the supervision of the CEO and CFO of the company, has conducted an evaluation of the effectiveness of the design and operation of the company’s disclosure controls and procedures as of the end of the period covered by this Form 10-Q. Based on this evaluation, the CEOreport and the CFO have concluded that our disclosure controls and procedures were not effective because ofeffective. Other than the items described below, there were no material weakness described in Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2016, which continuedchanges to exist as of September 30, 2017.
Management has concluded that, notwithstanding the material weakness described above,internal controls during the company’s unaudited condensed consolidated financial statements in this Form 10-Q fairly stated, in all material respects, our financial position, resultsfirst six months of operations and cash flows as of the dates, and for the periods presented, in conformity with U.S. GAAP.
Inherent Limitations of Internal Controls
Our management, including the CEO and CFO, believes that any disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of internal control are met. Further, the design of internal controls must consider the benefits of controls relative to their costs. Inherent limitations within internal controls include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple errors or mistakes. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by unauthorized override of controls. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with associated policies or procedures. While the objective of the design of any system of controls is to provide reasonable assurance of the effectiveness of controls, such design is also based in part upon certain assumptions about the likelihood of future events and such assumptions, while reasonable, may not take into account all potential future conditions. Thus, even effective internal control over financial reporting can only provide reasonable assurance of achieving their objectives. Therefore, because of the inherent limitations in cost effective internal controls, misstatements due to error or fraud may occur and may not be prevented or detected.
Remediation Plan for Material Weakness
During 2017, our management, with the oversight of the Audit Committee of our board of directors, has been engaged in efforts to remediate the material weakness identified. While certain remedial actions are in process, remedial controls have now been designed and implemented to address any future transactions that meet these criteria. The remediation efforts taken in 2017, outlined below, are intended to both address the identified material weakness and enhance our overall financial control environment.
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Remediation Activity
Management has performed a review of all locations to determine where the currency utilized for local tax purposes differs from the reporting unit’s functional currency under U.S. GAAP and has compiled an inventory of all the locations that could have significant basis differences resulting from currency fluctuations which could be realizable through significant and unusual/infrequent transactions. Further, management will monitor this list for completeness on a recurring basis.
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Remediation Activity
Management has designed and implemented a new control to ensure that statutory tax provisions are completed and reviewed timely following significant, unusual and/or infrequent transactions.
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Remediation Activity
Beginning in the quarter ended March 31, 2017, we implemented enhanced control procedures, including additional reviews and approvals, over our quarterly effective tax rate calculation. This includes additional scrutiny over significant and unusual/infrequently occurring transactions that may cause discrete tax matters.
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Remediation Activity
Management has evaluated the tax accounting resource requirements and has taken remedial action to ensure the appropriate combination of personnel and technology are deployed to address the remediation activities outlined above.
The material weakness will not be considered fully remediated until the applicable remedial controls have operated for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
We are designing and implementing the measures described above with the goal of remediation of the control deficiencies we have identified and strengthening our internal control over financial reporting.Management is committed to continuous improvement of the company’s internal control over financial reporting and will continue to diligently review the company’s internal control over financial reporting. As management continues to evaluate and work to improve internal control over financial reporting, the company may determine to take additional measures to address control deficiencies or determine to modify certain of the remediation measures described above.
Changes in Internal Control Over Financial Reporting
As described above under Remediation Plan for Material Weakness, we are in the process of implementing changes to our internal control over financial reporting that occurred during the quarter ended September 30, 2017,2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Changes in Internal Control over Financial Reporting (ICFR)
On January 1, 2018, Ball adopted the new revenue recognition accounting standard, “Revenue from Contracts with Customers.” As a result, we made additions and/or modifications to policies, procedures, and controls that have materially affected our internal control over financial reporting, including changes to accounting policies and procedures, operational processes and documentation practices.
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FORWARD-LOOKING STATEMENTS
This report contains “forward-looking” statements concerning future events and financial performance. Words such as “expects,” “anticipates,” “estimates,” “believes,” “targets,” “likely” and similar expressions typically identify forward-looking statements, which are generally any statements other than statements of historical fact. Such statements are based on current expectations or views of the future and are subject to risks and uncertainties, which could cause actual results or events to differ materially from those expressed or implied. Readers of this report should therefore not place undue reliance upon any forward-looking statements and any of such statements should be read in conjunction with, and, qualified in their entirety by, the cautionary statements referenced below. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or
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otherwise. Key factors, risks and uncertainties that could cause actual outcomes and results to be different are summarized in filings with the Securities and Exchange Commission, including Exhibit 99 in our Form 10-K, which are available on our website and at www.sec.gov.www.sec.gov. Some factors that could cause the company’s actual results or outcomes to differ materially from those discussed include, but are not limited to the following: a) in our packaging segments: product demand fluctuations; availability/cost of raw materials; competitive packaging, pricing and substitution; changes in climate and weather; competitive activity; failure to achieve synergies, productivity improvements or cost reductions; mandatory deposit or other restrictive packaging laws; customer and supplier consolidation, power and supply chain influence; changes in major customer or supplier contracts or a loss of a major customer or supplier; political instability and sanctions; currency controls; and changes in foreign exchange or tax rates;rates, including due to the effects of the 2017 U.S. Tax Cuts and Jobs Act; and tariffs or other governmental actions in any country affecting goods produced by us or in our supply chain, including imported raw materials, such as pursuant to section 232 of the U.S. Trade Expansion Act of 1962; b) in our aerospace segment: funding, authorization, availability and returns of government and commercial contracts; and delays, extensions and technical uncertainties affecting segment contracts; c) in the company as a whole, those listed plus: changes in senior management; regulatory action or issues including tax, environmental, health and workplace safety, including U.S. FDA and other actions or public concerns affecting products filled in our containers, or chemicals or substances used in raw materials or in the manufacturing process; technological developments and innovations; litigation; strikes; labor cost changes; rates of return on assets of the company's defined benefit retirement plans; pension changes; uncertainties surrounding geopolitical events and governmental policies both in the U.S. and in other countries, including the U.S. government elections, budget, sequestration and debt limit; reduced cash flow; ability to achieve cost-out initiatives and synergies; interest rates affecting our debt; and successful or unsuccessful joint ventures, acquisitions and divestitures, including with respect to the Rexam PLC acquisition and its integration, or the associated divestiture; the effect of the acquisition or the divestiture on our business relationships, operating results and business generally.
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Item 1. Legal Proceedings
There were no events required to be reported under Item 1 for the thirdsecond quarter of 2017,2018, except as discussed in Note 1821 to the unaudited condensed consolidated financial statements within Part I, Item 1 within this report.
Item 1A. Risk Factors
Risk factors affecting the company can be found within Item 1A of the company’s AnnualCurrent Report on Form 10-K (annual report)8-K filed on March 6, 2018, for the year ended December 31, 2016.2017.
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Item 2. Changes in Securities
The following table summarizes the company’s repurchases of its common stock during the thirdsecond quarter of 2017.2018.
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Purchases of Securities | Purchases of Securities | Purchases of Securities | ||||||||||||||||
($ in millions) |
| Total |
| Average |
| Total Number of |
| Maximum Number of |
| Total Number of Shares Purchased (a) |
| Average |
| Total Number of |
| Maximum Number of | ||
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July 1 to July 30, 2017 |
| — |
| $ | — |
| — |
| 20,649,074 | |||||||||
August 1 to August 31, 2017 |
| 2,201,824 |
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| 40.56 |
| 2,201,824 |
| 18,447,250 | |||||||||
September 1 to September 30, 2017 |
| — |
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| — |
| — |
| 18,447,250 | |||||||||
April 1 to April 30, 2018 |
| 1,407,598 |
| $ | 40.12 |
| 1,407,598 |
| 24,821,565 | |||||||||
May 1 to May 31, 2018 |
| 1,579,049 |
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| 38.43 |
| 1,579,049 |
| 23,242,516 | |||||||||
June 1 to June 30, 2018 |
| 1,232,565 |
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| 35.56 |
| 1,232,565 |
| 22,009,951 | |||||||||
Total |
| 2,201,824 |
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| — |
| 2,201,824 |
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| 4,219,212 |
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| 38.15 |
| 4,219,212 |
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(b) | The company has an ongoing repurchase program for which shares are authorized from time to time by Ball’s |
Item 3. Defaults Upon Senior Securities
There were no events required to be reported under Item 3 for the third quarter of 2017.three months ended June 30, 2018.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
There were no events required to be reported under Item 5 for the third quarter of 2017.three months ended June 30, 2018.
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Item 6. Exhibits
10.1 |
| Ball Corporation Deposit Share Program for United States Participants, amended and restated as of July 27, 2016 (filed herewith). |
| 31.1 |
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| 31.2 |
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| 32.1 |
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| 32.2 |
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| 99 |
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| 101 |
| The following materials from the company’s quarterly report on Form 10-Q for the quarter ended |
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Ball Corporation and Subsidiaries
QUARTERLY REPORT ON FORM 10-Q
September 30, 2017
EXHIBIT INDEX
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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) | ||
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By: | /s/ Scott C. Morrison |
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| Scott C. Morrison |
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| Senior Vice President and Chief Financial Officer |
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Date: |
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