SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 2, 1994
Commission file number 1-7349
BALL CORPORATION
State of Indiana 35-0160610
345 South High Street, P.O. Box 2407
Muncie, IN 47307-0407
317/747-6100
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [ X ]
No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at September 30, 1994
----------------- ---------------------------------
Common Stock,
without par value 29,812,232 shares
Ball Corporation and Subsidiaries
QUARTERLY REPORT ON FORM 10-Q
For the period ended October 2, 1994
INDEX
Page Number
-----------
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Unaudited Condensed Consolidated Statement of
Income for the three and nine month periods
ended October 2, 1994, and October 3, 1993 3
Unaudited Condensed Consolidated Balance Sheet
at October 2, 1994, and December 31, 1993 4
Unaudited Condensed Consolidated Statement of
Cash Flows for the nine month periods ended
October 2, 1994, and October 3, 1993 5
Notes to Unaudited Condensed Consolidated
Financial Statements 6 - 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 - 10
PART II. OTHER INFORMATION 11
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Ball Corporation and Subsidiaries
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Millions of dollars except per share amounts)
Three months ended Nine months ended
------------------ --------------------
Oct. 2, Oct. 3, Oct. 2, Oct. 3,
1994 1993 1994 1993
------ -------- -------- --------
Net sales $717.5 $ 680.2 $1,981.4 $1,876.1
------ -------- -------- --------
Costs and expenses
Cost of sales 636.0 612.1 1,773.2 1,688.0
General and administrative expenses 24.4 27.3 68.6 74.3
Selling and product development
expenses 7.2 6.8 21.1 19.0
Restructuring and other 2.3 14.0 2.3 14.0
Interest expense 10.5 11.6 31.9 35.8
------ -------- -------- --------
680.4 671.8 1,897.1 1,831.1
------ -------- -------- --------
Income from continuing operations
before taxes on income 37.1 8.4 84.3 45.0
Provision for taxes on income (13.8) (3.8) (31.3) (17.2)
Minority interest (1.1) (1.1) (3.2) (2.9)
Equity in earnings of affiliates 1.1 0.3 1.2 1.3
------ -------- -------- --------
Net income from:
Continuing operations 23.3 3.8 51.0 26.2
Alltrista operations -- -- -- 2.1
------ -------- -------- --------
Net income before cumulative effect
of changes in accounting principles 23.3 3.8 51.0 28.3
Cumulative effect of changes in
accounting principles, net of tax benefit -- -- -- (34.7)
------ -------- -------- --------
Net income (loss) 23.3 3.8 51.0 (6.4)
Preferred dividends, net of tax benefit (0.8) (0.8) (2.4) (2.4)
------ -------- -------- --------
Net earnings (loss) attributable to
common shareholders $ 22.5 $ 3.0 $ 48.6 $ (8.8)
====== ======== ======== ========
Earnings (loss) per share of common stock:
Continuing operations $ 0.76 $ 0.10 $ 1.64 $ 0.84
Alltrista operations -- -- -- 0.07
Cumulative effect of changes in
accounting principles, net of tax benefit -- -- -- (1.22)
------ -------- -------- --------
$ 0.76 $ 0.10 $ 1.64 $ (0.31)
====== ======== ======== ========
Fully diluted earnings (loss) per share:
Continuing operations $ 0.71 $ 0.10 $ 1.54 $ 0.83
Alltrista operations -- -- -- 0.07
Cumulative effect of changes in
accounting principles, net of tax benefit -- -- -- (1.21)
benefit ------ -------- -------- --------
$ 0.71 $ 0.10 $ 1.54 $ (0.31)
====== ======== ======== ========
Cash dividends declared per common share $ 0.15 $ 0.31 $ 0.45 $ 0.93
====== ======== ======== ========
See accompanying notes to unaudited condensed consolidated financial statements.
Ball Corporation and Subsidiaries
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
(Millions of dollars)
October 2, December 31,
1994 1993
-------- --------
ASSETS
Current assets
Cash and temporary investments $ 9.6 $ 8.2
Accounts receivable, net 262.3 191.3
Inventories
Raw materials and supplies 106.6 99.8
Work in process and finished goods 270.2 309.5
Current deferred taxes on income and prepaid expenses 61.6 83.3
-------- --------
Total current assets 710.3 692.1
-------- --------
Property, plant and equipment, at cost 1,485.9 1,449.3
Accumulated depreciation (702.5) (626.6)
-------- --------
783.4 822.7
-------- --------
Goodwill and purchased intangible assets, net 98.5 101.5
-------- --------
Other assets 184.2 179.3
-------- --------
$1,776.4 $1,795.6
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt and current portion of long-term debt $ 146.8 $ 123.9
Accounts payable 187.6 157.3
Salaries, wages and accrued employee benefits 97.0 85.8
Other current liabilities 72.8 84.2
-------- --------
Total current liabilities 504.2 451.2
-------- --------
Noncurrent liabilities
Long-term debt 402.7 513.3
Deferred taxes on income 60.5 65.1
Employee benefits and other 193.8 191.4
-------- --------
Total noncurrent liabilities 657.0 769.8
-------- --------
Contingencies
Minority interest 15.2 15.9
-------- --------
Shareholders' equity
Series B ESOP Convertible Preferred Stock 68.1 68.7
Unearned compensation - ESOP (57.4) (58.6)
-------- --------
Preferred shareholder's equity 10.7 10.1
-------- --------
Common stock (issued 30,833,660 shares - 1994;
30,258,169 shares - 1993) 256.1 241.5
Retained earnings 364.4 332.2
Treasury stock, at cost (1,032,327 shares - 1994;
811,545 shares - 1993) (31.2) (25.1)
-------- --------
Common shareholders' equity 589.3 548.6
-------- --------
$1,776.4 $1,795.6
======== ========
See accompanying notes to unaudited condensed consolidated financial statements.
Ball Corporation and Subsidiaries
UNAUDITED CONDENSED CONSOLIDATED
STATEMENT OF CASH FLOWS
(Millions of dollars)
Nine months ended
-------------------
Oct. 2, Oct. 3,
1994 1993
------- -------
Cash flows from operating activities
Net income (loss) $ 51.0 $ (6.4)
Reconciliation of net income (loss) to net cash
provided by operating activities:
Net income from Alltrista operations -- (2.1)
Cumulative effect of changes in accounting
principles, net of tax benefit -- 34.7
Restructuring and other 2.3 14.0
Depreciation and amortization 94.0 86.5
Other, net 4.9 (5.6)
Changes in working capital components excluding
effects of acquisitions and Alltrista operations (4.6) (71.2)
Sale of trade accounts receivable -- 66.5
------ -------
Net cash provided by operating activities 147.6 116.4
------ -------
Cash flows from financing activities
Changes in long-term debt, including changes in
amounts outstanding under revolving credit
agreements (74.7) 116.4
Principal payments of long-term debt (including
refinancing of $101.6 million of Heekin
indebtedness in 1993) (43.3) (159.3)
Net change in short-term debt 33.9 28.6
Common and preferred dividends (16.4) (29.0)
Net proceeds from issuance of common stock under
various employee and shareholder plans 14.6 17.7
Other, net (6.8) (5.0)
------ -------
Net cash used in financing activities (92.7) (30.6)
------ -------
Cash flows from investing activities
Additions to property, plant and equipment (59.4) (88.7)
Net cash provided to Alltrista operations -- (8.0)
Investment in packaging affiliates (2.9) (7.7)
Investment in company-owned life insurance, net 5.6 19.1
Other, net 3.2 (1.4)
------ -------
Net cash used in investing activities (53.5) (86.7)
------ -------
Net increase (decrease) in cash 1.4 (0.9)
Cash and temporary investments:
Beginning of period 8.2 14.5
------ -------
End of period $ 9.6 $ 13.6
====== =======
See accompanying notes to unaudited condensed consolidated financial statements.
Ball Corporation and Subsidiaries
October 2, 1994
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. General.
The accompanying unaudited condensed consolidated financial statements have been
prepared by the company without audit. Certain information and footnote
disclosures, including significant accounting policies, normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. However, the company believes that
the financial statements reflect all adjustments which are necessary for a fair
statement of the results for the interim period. Results of operations for the
periods shown are not necessarily indicative of results for the year,
particularly in view of some seasonality in packaging operations. It is
suggested that these unaudited condensed consolidated financial statements and
accompanying notes be read in conjunction with the consolidated financial
statements and the notes thereto included in the company's latest annual report.
2. Reclassifications.
Certain prior year amounts have been reclassified in order to conform with the
1994 presentation of the consolidated statement of income. The operating costs
and expenses category was expanded. In addition, freight expense was
reclassified from cost of sales and is reported as a reduction in sales.
Warehousing and shipping expense was reclassified from selling and product
development expenses and is reported as an increase in cost of sales. These
changes did not effect reported net income or per share amounts.
3. Ball Packaging Products Canada, Inc. (Ball Canada).
Prior to the acquisition on April 19, 1991, of the lenders' position in the term
debt and 100 percent ownership of Ball Canada, the company had owned indirectly
50 percent of Ball Canada through a joint venture holding company owned equally
with Onex Corporation (Onex). The 1988 Joint Venture Agreement had included a
provision under which Onex, beginning in late 1993, could "put" to the company
all of its equity in the holding company at a price based upon the holding
company's fair value. Onex has since claimed that its "put" option entitled it
to a minimum value founded on Onex's original investment of approximately $22.0
million. On December 9, 1993, Onex served notice on the company that Onex was
exercising its alleged right under the Joint Venture Agreement to require the
company to purchase all of the holding company shares owned or controlled by
Onex, directly or indirectly, for an amount including "approximately $40
million" in respect of the Class A-2 Preference Shares owned by Onex in the
holding company. Such "$40 million" is expressed in Canadian dollars and would
represent approximately $30 million at the December 31, 1993, exchange rate.
The company's position is that it has no obligation to purchase any shares from
Onex or to pay Onex any amount for such shares, since, among other things, the
Joint Venture Agreement, which included the "put" option, is terminated. On
January 24, 1994, the Ontario Court (General Division Commercial List) ordered
that Onex's August 1993 Application for Rectification to reform the Joint
Venture Agreement document be stayed, and the Court referred the parties to
arbitration on the matter. Under date of January 31, 1994, Onex provided a
Notice of Appeal of the Court's order. On July 19, 1994, Onex gave notice to the
Court and the company that it was voluntarily abandoning the appeal. Onex is now
pursuing its claim in arbitration before the International Chamber of Commerce.
The company filed its answer and counterclaim on September 12, 1994. The company
believes that it has meritorious defenses against Onex's claims, although,
because of the uncertainties inherent in the arbitration process, it is unable
to predict the outcome of such arbitration or other litigation as may arise.
4. Shareholders' Equity.
Issued and outstanding shares of the Series B ESOP Convertible Preferred Stock
(ESOP Preferred) were 1,828,098 shares at October 2, 1994, and 1,870,085 shares
at December 31, 1993.
5. Contingencies.
The Environmental Protection Agency has designated the company as a potentially
responsible party, along with numerous other companies, for the cleanup of
several hazardous waste sites. However, the company's information at this time
does not indicate that these matters will have a material, adverse effect upon
financial condition, results of operations, capital expenditures or competitive
position of the company.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Consolidated net sales of $717.5 million for the third quarter of 1994 increased
5.5 percent compared to the third quarter of 1993. For the nine month period
ended October 2, 1994, net sales increased 5.6 percent to $2.0 billion. The
increases in net sales were due principally to the inclusion of Heekin results
for the full period in 1994 and increased sales in the commercial glass
container business as well as the Canadian metal packaging business. Heekin's
results in 1993 were included in consolidated results of operations from the
March 19, 1993, acquisition date. Consolidated operating earnings for the third
quarter of 1994 increased to $47.6 million from $20.0 million in the third
quarter of 1993. For the year-to-date period, consolidated operating earnings
increased 43.8 percent to $116.2 million from the comparable period in 1993. The
1993 consolidated operating earnings included a $14.0 million pretax charge
($8.5 million after tax or 29 cents per share) for the third quarter related to
write-downs of certain inventories in the aerospace and communications segment
to net realizable value. The 1994 consolidated operating earnings included a
$2.3 million pretax charge ($1.4 million after tax or five cents per share) for
costs associated with the foreclosure in September of certain assets of the
former visual imaging generating business which was sold in May. Excluding this
$14.0 million charge in 1993 and the $2.3 million charge in 1994, consolidated
operating earnings would have increased 46.8% and 25.0% for the three-month and
nine-month periods, respectively. These increases were due to improved domestic
beverage container and aerospace and communications results, as well as improved
results for the commercial glass business.
Consolidated interest expense for the third quarter and nine month periods of
1994 was $10.5 million and $31.9 million, respectively, compared to $11.6
million and $35.8 million for the third quarter and nine month periods of 1993.
The decreases were attributable to a reduction in the average level of
borrowings partially offset by the impact of higher average interest rates.
Net income from continuing operations increased from $3.8 million for the third
quarter of 1993 to $23.3 million for the same period in 1994. Year-to-date net
income from continuing operations increased from $26.2 million in 1993 to $51.0
million in 1994. The improved results of both periods are primarily due to the
aforementioned factors and include after-tax foreclosure costs of $1.4 million,
or five cents per share, in 1994 as well as $1.4 million in equity income from
the company's Chinese metal packaging joint venture, FTB Packaging Ltd., which
has moved from start-up to profitable operations. Net income from continuing
operations in 1993 includes an after tax charge of $8.5 million for inventory
write-downs. Earnings per share from continuing operations increased to 76 cents
per share for the third quarter from 10 cents in 1993, reflecting the higher net
income from continuing operations. For the first nine months of 1994, earnings
per share from continuing operations increased from 84 cents in 1993 to $1.64.
Net income improved from $3.8 million in the third quarter of 1993 to $23.3
million in the 1994 third period. Year-to-date net income improved from a loss
of $6.4 million in 1993 to net earnings of $51.0 million in 1994. The 1993
nine-month period included $2.1 million of net income from the discontinued
Alltrista operations, which were spun off April 2, 1993, and an after tax charge
of $34.7 million representing the cumulative effect of new accounting standards
adopted as of January 1, 1993.
Business Segments
The packaging segment reported increased sales of 6.7 percent for the
year-to-date period of 1994 compared to the year earlier period due primarily to
the full-period consolidation of Heekin's sales in 1994 and increased sales in
the glass packaging business. Third quarter sales increased 5.7 percent
reflecting higher sales for the Canadian metal packaging business as well as the
glass packaging business. Operating earnings improved for the third quarter and
nine month periods of 1994 as a result of substantially improved domestic
beverage container results and improved results in the commercial glass
container business.
Within the packaging segment, sales in the metal container business increased
3.6 percent and 6.5 percent for the three-month and nine-month periods,
respectively, due to the inclusion of Heekin's sales and improved shipments of
metal beverage containers. Sales in the domestic metal beverage container
business declined in 1994 despite higher year-to-date unit volumes due to
reduced selling prices. Sales in the Canadian metal beverage container business
increased reflecting higher unit volumes. Operating earnings improved in the
metal beverage container business reflecting strong customer demand, higher
utilization rates and favorable scrap pricing. Earnings in the metal food
container business declined for the three-month and nine-month periods
reflecting negative pricing pressures and the impact of a steel mill fire at a
supplier's plant, despite higher shipments and cost and workforce reduction
efforts. During the third quarter of 1994, the company completed the sale of its
metal decorating and coating facility in Alsip, Illinois. In addition, the
company closed its Augusta, Wisconsin plant in August 1994. The impact of these
sales on the company's financial position and results of operations was
immaterial. The company reached a technology license agreement with Containers
Packaging of Australia to provide metal beverage container manufacturing
technology effective October 1, 1994, in exchange for annual royalties. The
company has also entered into a new joint venture accord in the Philippines with
San Miguel Corporation and Yamamura Glass Ltd. to build a beverage can and end
plant which should commence operations in 1996. Ball will have a six percent
interest in the new company.
The glass business reported increased sales of 11.0 percent for the third
quarter and 7.2 percent for the year-to-date period due to higher unit volumes
reflecting strong seasonal demand. Operating earnings increased for the quarter
and year-to-date periods due to improved sales and higher plant utilization, the
effects of which more than offset increases in freight and warehousing costs. In
addition, the third quarter of 1993 reflected lower earnings due to quality
difficulties and the slow start-up of operations at the expanded Ruston,
Louisiana plant. In August 1994, the Company closed its glass container
manufacturing facility in Asheville, North Carolina and, on November 1, closed
its Okmulgee, Oklahoma glass facility. These plant closures had no material
impact on the company's financial position or results of operations in 1994 as a
result of provisions recorded for that purpose during the fourth quarter of
1993.
Operating results of the aerospace and communications segment also improved
considerably, notwithstanding a year-to-date decline in sales of 3.5 percent in
1994 compared to 1993. A pretax charge of $14.0 million was recorded in the
third quarter of 1993 largely to write down certain inventories to net
realizable value. Excluding this $14.0 million charge, operating results for
1994 still exceeded 1993 operating results. This improvement was due to cost and
workforce reductions. In September 1994, the company foreclosed on its security
interest with regard to certain assets of the visual imaging generating product
line which was sold to SDI Virtual Realty Corporation in May. As a result of the
foreclosure, SDI's San Diego assets were returned to the company. A $2.3 million
pretax charge was recorded in the third quarter of 1994 for estimated costs
related to this foreclosure. Although year-to-date sales in the aerospace and
communications segment are lower in 1994 compared to 1993, sales increased 3.3%
for the third quarter of 1994 reflecting a stronger business environment for
aerospace operations. Backlog at the quarter end was approximately $293 million
compared to $305 million at December 31, 1993, and $266 million at the end of
the second quarter of 1994. The company signed a definitive agreement with
Datum Inc. in October 1994 for the sale of its Efratom Division to
Datum for approximately $26.5 million to be paid in a combination of cash and
Datum common stock. The company is currently exploring various strategic
options for the remaining aerospace and communications segment. Such options
include, among other things, a sale of the business, formation of a joint
venture or retention of the business.
RESTRUCTURING AND OTHER RESERVES
In 1993, the company recorded aggregate restructuring and other reserves of
$108.7 million pretax in the third and fourth quarters. The amounts provided
included $52.5 million pretax for asset write-offs and write-downs to net
realizable values. Charges to the reserves were $19.6 million in 1993. For the
three months and nine months ended October 2, 1994, charges to the reserves
were $3.5 million and $15.7 million, respectively. These charges included costs
associated with plant closings of $2.7 million and $4.6 million for the quarter
and year-to-date, respectively. Also included in the year-to-date charges are
costs related to the disposal of the visual imaging product line of $5.7 million
and $2.1 million for the net book value of machinery and equipment made obsolete
by changing package specifications in the beverage container industry.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The increase in working capital for 1994 (as reported in the cash flow
statement) was $2.3 million compared to $71.2 million in the first nine months
of 1993. The increased net income was the primary factor contributing to the
increase in cash provided by operations in 1994 of $147.6 million compared to
$116.4 million in 1993. The working capital ratio was 2.0 at October 2,
1994, compared to 2.1 at December 31, 1993.
Total debt decreased by $87.7 million to $549.5 million at October 2, 1994, from
$637.2 million at December 31, 1993, resulting in a decrease of the
debt-to-total capitalization ratio to 47.2 percent at October 2, 1994, from 52.6
percent as of December 31, 1993. In September 1993, the company entered into an
agreement with a financial institution for the sale of trade accounts receivable
amounting to $66.5 million. The ongoing effect of this sale in 1994 resulted in
reduced receivables and borrowings relative to the year-earlier quarter and
year-to-date periods. Included in general and administrative costs in 1994 is
$2.2 million in fees related to this agreement compared to $0.1 million in 1993.
As of October 2, 1994, the company had committed credit facilities of $300
million with various banks consisting of a $150 million, three-year facility
and $150 million of 364-day facilities. Uncommitted credit facilities from
various banks of approximately $400 million, of which $127 million was
outstanding, and a Canadian dollar commercial paper facility of
approximately $89 million, of which $86 million was outstanding, also were
available.
The company's board of directors approved a resolution in late July authorizing
the repurchase of an additional 1.5 million common shares under an existing
share repurchase program. Approximately 8 percent or 2.4 million of the
company's outstanding common shares are now authorized for repurchase under the
program.
The company anticipates total 1994 capital spending of approximately $100
million concentrated within the packaging segment.
The Environmental Protection Agency has designated the company as a potentially
responsible party, along with numerous other companies, for the cleanup of
several hazardous waste sites. However, the company's information at this time
does not indicate that these matters will have a material, adverse effect upon
financial condition, results of operations, capital expenditures or competitive
position of the company.
PART II. OTHER INFORMATION
Item 1. Legal proceedings
There were no events required to be reported under Item 1 for the quarter
ending October 2, 1994.
Item 2. Changes in securities
There were no events required to be reported under Item 2 for the quarter ending
October 2, 1994.
Item 3. Defaults upon senior securities
There were no events required to be reported under Item 3 for the quarter ending
October 2, 1994.
Item 4. Submission of matters to a vote of security holders
There were no events required to be reported under Item 4 for the quarter ending
October 2, 1994.
Item 5. Other information
There were no events required to be reported under Item 5 for the quarter ending
October 2, 1994.
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
10.1 Ball Corporation Supplemental Executive Retirement Plan
10.2 Ball Corporation Split Dollar Life Insurance Plan
10.3 Form of Severance Benefit Agreement dated August 1, 1994,
between Ball Corporation and Executive Officers of Ball
Corporation
11.1 Statement Re: Computation of Earnings per Share
27.1 Financial Data Schedule
(b) Reports on Form 8-K
A Current Report on Form 8-K, dated September 8, 1994, was filed
September 13, 1994, announcing the foreclosure on the company's security
interest with regard to certain assets sold to SDI Virtual Reality
Corporation in May.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Ball Corporation
(Registrant)
By: /s/ R. David Hoover
R. David Hoover
Senior Vice President and
Chief Financial Officer
Date: November 15, 1994
Ball Corporation and Subsidiaries
QUARTERLY REPORT ON FORM 10-Q
October 2, 1994
EXHIBIT INDEX
Description Exhibit
Ball Corporation Supplemental Executive Retirement
Plan EX-10.1
Ball Corporation Split Dollar Life Insurance Plan EX-10.2
Form of Severance Benefit Agreement dated August 1, EX-10.3
1994, between Ball Corporation and Executive
Officers of Ball Corporation
Statement Re: Computation of Earnings per Share EX-11.1
Financial Data Schedule EX-27.1