Exhibit 13.1
------------
ITEMS OF INTEREST TO SHAREHOLDERS
QUARTERLY STOCK PRICES AND DIVIDENDS
Quarterly sales prices for the company's common stock, as reported on the
composite tape, and quarterly dividends in 1994 and 1993 were:
1994 1993
1st 2nd 3rd 4th 1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
------- ------- ------- ------- ------- ------- ------- -------
High 30 3/8 30 1/2 28 3/8 32 1/8 37 1/4 35 1/2 32 1/4 31 1/4
Low 24 3/8 24 3/4 24 3/8 27 1/4 33 3/4 27 7/8 27 3/8 25 1/8
Dividends .15 .15 .15 .15 .31 .31 .31 .31
SELECTED FINANCIAL DATA
BALL CORPORATION AND SUBSIDIARIES
(dollars in millions except per
share amounts) 1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
Net sales $ 2,594.7 $ 2,433.8 $ 2,169.3 $ 2,018.4 $ 1,120.9
Net income (loss) from:
Continuing operations 73.0 (32.5) 60.9 60.6 40.6
Alltrista operations -- 2.1 6.2 3.6 7.6
Net income (loss) before cumulative effect
of accounting changes 73.0 (30.4) 67.1 64.2 48.2
Cumulative effect of accounting changes,
net of tax benefit -- (34.7) -- -- --
Net income (loss) 73.0 (65.1) 67.1 64.2 48.2
Preferred dividends, net of tax benefit (3.2) (3.2) (3.4) (8.3) (3.8)
Net earnings (loss) attributable to common
shareholders 69.8 (68.3) 63.7 55.9 44.4
Return on average common
shareholders' equity 12.1% (11.6)% 11.1% 12.3% 11.3%
--------- ---------- --------- --------- ---------
Per share of common stock
Continuing operations $ 2.35 $ (1.24) $ 2.21 $ 2.26 $ 1.69
Alltrista operations -- .07 .24 .16 .34
Earnings (loss) before cumulative
effect of accounting changes 2.35 (1.17) 2.45 2.42 2.03
Cumulative effect of accounting changes,
net of tax benefit -- (1.21) -- -- --
Earnings (loss) (1) 2.35 (2.38) 2.45 2.42 2.03
Cash dividends 0.60 1.24 1.22 1.18 1.14
Book value(2) 20.25 18.63 22.55 21.39 18.28
Market value 31 1/2 30 1/4 35 3/8 38 26 7/8
Annual return to common
shareholders(3) 6.4% 1.1% (3.6)% 46.9% (16.9)%
Common dividend payout 25.5% N.M. 49.8% 48.8% 56.2%
Weighted average common shares
outstanding (000s) 29,662 28,712 26,039 23,125 21,886
--------- ---------- --------- --------- ----------
Fully diluted earnings (loss) per share(4)
Continuing operations $ 2.20 $ (1.24) $ 2.09 $ 2.11 $ 1.59
Alltrista operations -- .07 .22 .14 .32
Earnings (loss) before cumulative
effect of accounting changes 2.20 (1.17) 2.31 2.25 1.91
Cumulative effect of accounting changes,
net of tax benefit -- (1.21) -- -- --
Earnings (loss) 2.20 (2.38) 2.31 2.25 1.91
Fully diluted weighted average shares
outstanding (000s) 32,062 28,712 28,223 25,408 23,975
--------- ---------- --------- --------- ---------
Property, plant and equipment additions $ 94.5 $ 140.9 $ 110.2 $ 87.3 $ 20.7
Depreciation 121.8 110.0 98.7 88.4 43.3
Working capital 198.4 240.9 260.1 136.6 178.7
Current ratio 1.40 1.53 1.72 1.33 1.61
Total assets $ 1,759.8 $ 1,795.6 $ 1,563.9 $ 1,432.0 $ 1,194.3
Total interest bearing debt and lease
obligations(5) 493.7 637.2 616.5 492.8 488.1
Common shareholders' equity 604.8 548.6 596.0 551.2 403.9
Total capitalization 1,126.5 1,211.8 1,237.5 1,129.1 958.8
Debt-to-total capitalization(5) 43.8% 52.6% 49.8% 43.6% 50.9%
--------- ---------- --------- --------- ---------
<FN>
N.M. Not meaningful.
(1) Based upon weighted average common shares outstanding.
(2) Based upon common shares outstanding at end of year.
(3) Change in stock price plus dividend yield assuming reinvestment of
dividends. In 1993 the Alltrista distribution is included
based upon a value of $4.25 per share of company common stock.
(4) Fully diluted earnings per share in 1993 is the same as earnings per common
share because the assumed exercise of stock options and conversion of
preferred stock would have been antidilutive. The dilutive effect of stock
options prior to 1988 was insignificant.
(5) Including, in years prior to 1993, debt allocated to Alltrista.
</FN>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BALL CORPORATION AND SUBSIDIARIES
Management's discussion and analysis should be read in conjunction with the
consolidated financial statements and the accompanying notes.
CONSOLIDATED RESULTS
Consolidated net sales in 1994 increased to $2.6 billion from $2.4 billion in
1993 and $2.2 billion in 1992 due primarily to the inclusion of net sales of
Heekin Can, Inc. (Heekin) for a full period in 1994 and improved sales in the
commercial glass container and metal beverage container businesses. In 1993 the
inclusion of Heekin sales from March 19, 1993, the date of acquisition,
contributed to the increase in net sales compared to 1992.
Consolidated 1994 operating earnings of $172.4 million increased from the
1993 level of $3.1 million. Improved operating performance in both the
packaging and the aerospace and communications businesses, coupled with the
effect of the 1993 charge for restructuring and other, accounted for the
improvement. Before consideration of the restructuring and other charges,
business segment operating earnings were 62 percent higher in 1994. Included
in 1994 operating results is a net charge of $6.8 million related to the
September 1994 foreclosure of certain assets of the visual image generation
systems (VIGS) business, which had been sold in May, and a one-time charge
associated with the early retirement of two former employees, partially offset
by a gain on the sale of a portion of the Taiwan joint venture interest.
Consolidated 1993 operating earnings of $3.1 million declined from the 1992
level of $142.9 million largely as a result of restructuring and other
charges. Business segment operating earnings in 1993, excluding the
restructuring and other charges, were approximately 24 percent less than
comparable 1992 business segment operating earnings.
Interest expense decreased to $42.3 million in 1994 from $45.9 million in 1993.
The 1994 decrease was due to a reduction in the average level of borrowings,
offset partially by higher rates on interest-sensitive borrowings. The increase
in 1993 interest expense compared to $37.2 million in 1992 was due to a higher
volume of borrowings, a result primarily of the assumed Heekin indebtedness and
the full-year effect of higher fixed-rate long-term debt borrowed late in 1992.
These effects were offset partially by lower rates on interest-sensitive
borrowings. Interest capitalized amounted to $2.2 million, $1.7 million, and
$1.0 million in 1994, 1993 and 1992, respectively.
The company's consolidated effective income tax rates were 37.3 percent, 41.2
percent, and 37.3 percent in 1994, 1993 and 1992, respectively. The greatest
factor contributing to the year-to-year changes in the effective income tax
rates has been the varying levels of earnings and losses given that the amounts
of nontaxable income and nondeductible expense have remained relatively constant
over the three-year period.
Equity in earnings of packaging affiliates of $2.5 million, $1.3 million and
$0.6 million in 1994, 1993 and 1992, respectively, represents the company's
share of earnings of Pacific Rim joint ventures including the company's majority
owned Chinese metal packaging business, FTB Packaging Ltd.
Net income from Alltrista operations was $2.1 million and $6.2 million in 1993
and 1992, respectively. Alltrista 1993 net income represents the earnings of
that business through the date of the spin-off to shareholders.
Net earnings attributable to common shareholders increased to $69.8 million in
1994, compared to a net loss of $68.3 million in 1993. This increase was the
result of improved net income in 1994 and, in 1993, the combined effects of the
aforementioned restructuring and other charges, lower segment operating
earnings, and a net charge of $34.7 million for the cumulative effect of changes
in accounting for postretirement and postemployment benefits.
Net earnings per share of common stock of $2.35 improved in 1994, compared to
the 1993 net loss of $2.38 per share. The 1993 per share amount reflects the
effects of a loss of $1.24 from continuing operations and a charge of $1.21 in
connection with the changes in accounting principles. Per share results for 1993
also were affected by the additional common shares issued to acquire Heekin.
Fully diluted earnings per share from continuing operations were $2.20 in 1994
and $2.09 in 1992. In 1993 the loss per share on a fully diluted basis was the
same as the net loss per common share because the assumed exercise of stock
options and conversion of preferred stock would have been antidilutive.
BUSINESS SEGMENTS
Packaging
---------
Packaging segment net sales represented 89.7 percent of 1994 consolidated net
sales and increased to $2.3 billion compared to $2.2 billion and $1.9 billion in
1993 and 1992, respectively. The 1994 increase was due primarily to the
inclusion of Heekin sales for the full period in 1994 and increases in
commercial glass container and metal beverage container sales. Heekin's results
in 1993 were included in consolidated results of operations from the March 1993
acquisition date. Segment operating earnings were $153.3 million, $28.9 million,
and $121.2 million for 1994, 1993 and 1992, respectively. Before consideration
of restructuring and other charges, 1993 operating results were $105.6 million.
Metal packaging sales in 1994 increased 7.5 percent to $1.6 billion primarily
due to the full-year consolidation of Heekin sales and improved sales volumes of
both beverage and food containers. Selling prices declined in 1994 due to
industry competition. Operating earnings increased in 1994 primarily due to
higher sales in the beverage container business which also achieved unit cost
reductions as a result of higher volumes and significantly higher prices for the
sale of aluminum process scrap.
In 1993 metal packaging sales increased 27.1 percent to $1.5 billion as a result
of the Heekin sales and higher domestic sales of beverage containers. Metal
packaging 1993 operating earnings declined due primarily to restructuring and
other charges of $25.3 million. Before such charges, earnings increased due to
the positive contribution of Heekin and improved Ball Packaging Products Canada,
Inc. (Ball Canada) earnings, offset partially by domestic beverage container
results which declined despite higher sales.
Sales of domestic and Canadian beverage cans and ends improved in 1994 compared
to 1993 reflecting higher beverage can shipments despite pricing erosion.
Shortages of glass and plastic beverage containers contributed to increased
volumes in the metal segment of the industry. Operating results of the metal
beverage container business improved in 1994 due to higher unit sales volumes,
productivity gain programs, aggressive cost containment programs implemented
late in 1993, reduced freight and warehousing expenses, and recoveries from the
sale of aluminum scrap.
Domestic and Canadian metal beverage can and end sales in 1993 increased
modestly as a result of higher unit volumes, the effects of which more than
offset reduced selling prices. In Canada, beverage container sales and unit
volumes increased reflecting improved demand for soft drink containers and
relatively stable volumes of beer containers. Despite increases in domestic
sales, operating results of the metal beverage container business declined as
the beneficial effects of higher volumes and lower raw material prices were more
than offset by reduced selling prices and higher spending. Outside warehousing
expenses increased due to the higher levels of inventory carried until the
fourth quarter and high warehousing cost in several market areas.
Metal food and specialty products sales increased during 1994 reflecting the
inclusion of Heekin sales for the full period in 1994 and increased shipments of
domestic and Canadian food cans, despite depressed industry pricing. Operating
earnings decreased slightly despite higher shipments and work force reductions,
reflecting some volume disruption and overtime due to restructuring of
manufacturing facilities. In addition, a fire in a major steel supplier's mill
resulted in inefficiencies, high spoilage, and dislocation of business. In 1994
the company completed the sale of its metal decorating and coating facility in
Alsip, Illinois, and closed its Augusta, Wisconsin, plant. These actions did not
impact significantly the company's financial position or results of operations.
Total manufacturing capacity was maintained, however, through a combination of
relocating equipment to other facilities and establishing continuous 24-hour
operations in several facilities.
Sales of the metal food and specialty products business more than doubled in
1993 with the addition of the Heekin business. Operating earnings also increased
due to improved Canadian results, as well as the Heekin contribution. Canadian
results reflect the benefit of past productivity investments, prior
restructuring activities, including the midyear completion of the Quebec food
container manufacturing consolidation, and an improved salmon catch in British
Columbia after a very poor 1992 catch. While Heekin made a positive contribution
in 1993, poor weather and flooding throughout the Midwest and erosion of selling
prices reduced its results as compared with its performance prior to
acquisition.
Glass sales in 1994 increased 7.4 percent to $750.6 million, reflecting higher
unit volumes in food and wine products. Overall pricing increased only slightly,
reflecting competitive industry pricing. Net earnings improved substantially
over 1993, excluding the effect of the 1993 restructuring charge. The strong
performance in 1994 was attributable to increased sales, higher plant
utilization rates, increased productivity and labor efficiency. The Ruston,
Louisiana, manufacturing facility operated at an improved level of capacity
utilization in 1994 compared to 1993. Total plant utilization for all glass
facilities increased from 86 percent in 1993 to 92 percent in 1994 as a result
of increased demand and consolidating capacity. The company continued to rebuild
furnaces in 1994. In conjunction with the company's restructuring plan, glass
container manufacturing facilities were closed during 1994 in Asheville, North
Carolina, and Okmulgee, Oklahoma. These plant closures did not have a
significant impact on the company's financial position or results of operations
in 1994 as a result of provisions recorded for that purpose in 1993.
Glass packaging sales decreased 2.4 percent in 1993 to $698.7 million compared
to $715.8 million in 1992, and the glass container business recorded a loss,
after restructuring and other charges. Before consideration of the restructuring
charge, the business was profitable. However, operating earnings declined
compared to 1992. Contributing factors to the 1993 performance included the
difficult start-up of expanded manufacturing facilities in Ruston, Louisiana,
increased maintenance spending, and freight and warehousing costs. Reduced unit
volumes and lower capacity utilization also were significant negative factors
which resulted from lower demand by certain customers in the core food packaging
segment and extended shutdowns at the end of 1993 to reduce inventories.
Aerospace and Communications
----------------------------
Net sales in the aerospace and communications business segment of $268.0 million
in 1994 decreased less than one percent from 1993. Prior year sales included
$6.2 million from the VIGS unit. Sales improved in both the Telecommunication
Products Division and the Aerospace Systems Division, reflecting increased sales
by the Efratom time and frequency device unit and new contracts awarded in 1994.
Operating earnings in 1994, excluding the effect of the restructuring and other
charges and losses in the VIGS unit in 1993, improved in both divisions over
1993 as a result of increased sales and improved recovery of indirect overhead
costs, primarily in the Telecommunication Products Division. In September 1994
the company foreclosed on its security interest with regard to certain assets of
the VIGS unit which had been sold in May. As a result of the foreclosure, the
related assets were returned to the company. A $4.0 million pretax charge was
recorded in 1994 for estimated costs related to this foreclosure and is included
in operating earnings for the aerospace and communications segment.
Aerospace and communications segment sales for 1993 declined 10.4 percent to
$268.3 million from $299.5 million in 1992. Including restructuring and other
charges of $29.1 million, the segment recorded a loss from operations in 1993.
Excluding the effect of the restructuring and other charges, operating earnings
declined 85 percent to $3.3 million. The impact of reduced federal defense
spending was reflected in lower sales of both the Telecommunication Products
Division, excluding Efratom, and the Aerospace Systems Division. Lower operating
earnings in 1993 reflected reduced sales as well as losses incurred by the VIGS
unit.
Contracts with the federal government represented approximately 78 percent and
77 percent of segment sales in 1994 and 1993, respectively. Backlog of the
aerospace and communications businesses was approximately $322 million at the
end of 1994 versus $305 million at December 31, 1993. The backlog at December
31, 1994, is comprised primarily of orders for cryogenics, space and earth
sciences instruments and equipment.
The company has signed a definitive agreement with Datum Inc. for the sale of
the Efratom unit for approximately $26.5 million to be paid in a combination of
cash and Datum common stock. The sale is expected to take place late in the
first quarter of 1995. In addition, a new subsidiary, EarthWatch, Inc., was
formed in the aerospace and communications segment in late 1994 to serve the
market for satellite-based remote sensing of the earth. During 1994 the company
undertook a study to explore various strategic options for the remaining
aerospace and communications segment. The study was concluded with a decision to
retain the core aerospace and communications business.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations of $240.7 million in 1994 increased from $120.2
million in 1993. The 1993 amount excludes the effects of the sale of $66.5
million of trade accounts receivable. The increased cash flow from operations in
1994 reflects higher annual operating earnings and significantly improved fourth
quarter performance. Operating cash flow in 1993, excluding the effect of the
receivable sale, was essentially unchanged from 1992, as the additional Heekin
operating cash flow was offset by reduced operating performance, principally in
the glass container and aerospace and communications operations.
Working capital at December 31, 1994, excluding short-term debt and the current
portion of long-term debt, was $315.1 million, a decrease of $49.7 million from
the 1993 year end, reflecting increased accounts payable and accrued
liabilities. The current ratio was 1.40 and 1.53 at December 31, 1994 and 1993,
respectively.
Capital expenditures of $94.5 million in 1994 were primarily for conversions of
metal beverage plant equipment to new industry container specifications,
expansion of warehouse space for metal beverage containers, furnace rebuilds and
capacity optimization at certain glass container plants, and productivity
improvement programs in several of the metal food container plants. Property,
plant and equipment expenditures amounted to $140.9 million in 1993 and were
primarily for conversions of metal beverage plant equipment to new industry
specifications, expansion of the Fairfield, California, plant to accommodate
additional business, completion of the Ruston, Louisiana, glass container plant
expansion and the Quebec food container manufacturing consolidation, and a
number of furnace rebuilds in glass container plants. Property, plant and
equipment expenditures amounted to $110.2 million in 1992 and included
completion of a fourth aluminum beverage can line in Saratoga Springs, New York,
consolidation of Quebec food container operations, and expansion of the Ruston,
Louisiana, glass manufacturing facility, as well as normal expenditures for
upgrades of glass forming equipment and furnace rebuilds.
In 1995 total capital spending of approximately $280.0 million is anticipated.
This includes significant amounts for emerging business opportunities, such as
domestic plastics (PET) and metal packaging in China, and spending in existing
businesses, in part to complete the conversion of metal beverage equipment to
the new industry specifications.
Premiums on company owned life insurance were approximately $20.0 million each
year. Amounts in the Consolidated Statement of Cash Flows represent net cash
flows from this program including related tax benefits. The company borrowed
$23.4 million and $37.2 million in 1994 and 1993, respectively, from the
accumulated net cash value.
At December 31, 1994, indebtedness decreased by $143.5 million from the year
earlier to $493.7 million. The reduction in debt was achieved as a result of
positive cash flow from operations. The consolidated debt-to-total
capitalization ratio at December 31, 1994, improved to 43.8 percent compared
with 52.6 percent at December 31, 1993. The improved ratio was primarily the
result of higher earnings, reduced common dividends and the reduction in debt.
The company has revolving facilities of $300.0 million consisting of a $150.0
million, three-year facility and 364-day facilities which amount to $150.0
million.
During 1993 the company took advantage of low prevailing interest rates by
prepaying $20.0 million of serial notes, and by refinancing $108.8 million of
Heekin indebtedness and $17.0 million of industrial development revenue bonds.
The company redeemed the Series C Preferred Stock on January 7, 1992, for $50.3
million. In the last half of 1992, the company borrowed approximately $214.0
million of fixed-rate, long-term debt, the proceeds of which were used to repay
floating-rate, short-term debt. Short-term debt had increased primarily due to
financing the acquisition of the Kerr assets, the redemption of the Series C
Preferred Stock, and the increase in working capital.
Cash dividends paid on common stock in 1994 were $0.60 per share. The reduction
in the common dividend in 1994 from $1.24 paid in 1993 provided improved
financial flexibility and access to capital. Management believes that, absent a
major business dislocation, existing credit resources will be adequate to meet
foreseeable financing requirements of the company's businesses.
RESTRUCTURING AND OTHER CHARGES
In the company's major packaging markets, excess manufacturing capacity and
severe pricing pressures presented significant competitive challenges in recent
years. Although domestic metal beverage container operations have operated at or
near capacity, such has not been the case in the metal food and glass container
businesses, including the Heekin business acquired in 1993. More recently,
reductions in federal defense expenditures and other attempts to curb the
federal budget deficit have created similar market dynamics in the aerospace and
defense industry as the number of new contract bidding opportunities has
declined and existing programs have been curtailed or delayed.
In late 1993 the company developed plans to restructure the company's businesses
in order to adapt the company's manufacturing capabilities and administrative
organizations to meet foreseeable requirements of its packaging and aerospace
markets. These plans involved plant closures to consolidate manufacturing
activities into fewer, more efficient facilities, principally in the glass and
metal food container businesses, and administrative consolidations in the glass,
metal packaging, and aerospace and communications businesses. In addition to the
restructuring plans, decisions were made during 1993 to discontinue two
aerospace and communications segment product lines.
The financial impact of these plans was recognized through restructuring and
other charges recorded in the third and fourth quarters of 1993 in the aggregate
amount of $108.7 million ($66.3 million after tax or $2.31 per share), of which
$76.7 million pertained to the packaging segment, $29.1 million pertained to the
aerospace and communications segment and $2.9 million related to certain
corporate actions, including a $1.6 million charge for transaction costs in
connection with a pending foreign joint venture which management had determined
not to pursue at the time.
Within the packaging segment, $66.3 million represents the estimated cost of
consolidating manufacturing facilities, including recognition of estimated net
realizable values that are less than book amounts of property, plant and
equipment, employment costs such as severance benefits and pension curtailment
losses, and incremental costs associated with the phaseout of facilities to be
closed. During 1994 the company's glass container plants in Asheville, North
Carolina, and Okmulgee, Oklahoma, were closed as part of the restructuring plan,
which reduced the reserve by approximately $14.0 million. The company began to
benefit from operating fewer manufacturing facilities in 1994. The annual plant
utilization rate for the glass container business was 92 percent in 1994
compared to 86 percent in 1993 and 90 percent in 1992. In addition, fixed costs
declined in 1994.
As a result of industry-wide changes in beverage container specifications, a
$9.0 million reserve was established in 1993 primarily for the write-off of
machinery and equipment, the replacement of which began in 1994. This
replacement resulted in a $4.9 million reduction of the reserve.
The Heekin acquisition afforded a number of opportunities to achieve greater
cost economies through consolidation of the headquarters of Heekin, Ball Canada
and domestic metal beverage container operations into a combined metal packaging
management group based in Westminster, Colorado. This group began implementation
in 1993 of common financial and manufacturing management systems throughout the
U.S. and Canadian metal packaging operations, and the consolidation of metal
food container manufacturing capabilities. The Heekin purchase price accounting
included provision for the consolidation of facilities and other costs of
integration, including the closing of the Augusta, Wisconsin, plant which
occurred in August 1994.
In the aerospace and communications segment, costs of $19.4 million associated
with the disposition of the VIGS and all-light-level television (ALLTV) product
lines were reflected in the 1993 reserve and included write-downs of inventory
and fixed assets to net realizable values and incremental costs of phasing out
the VIGS product line within the aerospace and communications segment. The
reserve has been reduced by $14.7 million related to the disposition of these
product lines, including $4.9 million in VIGS operating losses in 1994. VIGS
operating losses amounted to $5.7 million and $6.3 million in 1993 and 1992,
respectively, and were reflected in operating earnings. In May 1994 the company
sold certain assets of the VIGS unit, but foreclosed on its security interest in
the assets in September 1994. As a result of the foreclosure, the assets were
returned to the company. Additional charges to earnings of $4.0 million were
made in 1994 for estimated costs related to the foreclosure.
Costs of administrative consolidations of the Colorado operations and group
headquarters of $9.7 million were charged to the reserve in 1993. A reserve of
$1.9 million remains at December 31, 1994.
At December 31, 1994 and 1993, restructuring and other reserves included in the
Consolidated Balance Sheet totalled $62.8 million and $89.1 million,
respectively. See the note, "Restructuring and Other Charges," in the
accompanying Notes to Consolidated Financial Statements for further information.
Of the total restructuring reserve outstanding at December 31, 1994, $29.0
million will not impact future cash flows apart from related tax benefits. The
remaining $33.8 million represents future pretax cash outflows, the majority of
which is expected to be incurred in 1995. The exact timing of those cash
outflows is dependent upon the pace of facility consolidation. Funding of
certain costs, such as pensions of terminated employees, will occur over an
extended period of time. Management believes that cash flow from operations,
supplemented, if necessary, from existing credit resources, will be sufficient
to fund the net cash outflows associated with the restructuring and other
actions outlined above.
While management has no further plans for restructuring of operations beyond
those described, the company's businesses and competitive posture are evaluated
continually for the purpose of improving financial performance. Accordingly,
there can be no assurance that all of the anticipated benefits of restructuring
will be fully realized or that further restructuring or other measures will not
become necessary in future years.
SPIN-OFF
On April 2, 1993, the company completed the spin-off of seven diversified
businesses by means of a distribution of 100 percent of the common stock of
Alltrista, a then wholly owned subsidiary, to holders of company common stock.
The distributed net assets of Alltrista included the following businesses: the
consumer products division; the zinc products division; the metal decorating and
service division; the industrial systems division; and the plastic products
businesses, consisting of Unimark plastics, industrial plastics and plastic
packaging. Following the distribution, Alltrista operated as an independent,
publicly owned corporation. Accordingly, the results of operations of the
Alltrista businesses have been classified separately from continuing operations
in the accompanying consolidated financial statements. Additional information
regarding the spin-off can be found in the accompanying Notes to Consolidated
Financial Statements.
CHANGES IN ACCOUNTING PRINCIPLES
Effective January 1, 1993, the company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 106,"Employers' Accounting for
Postretirement Benefits Other Than Pensions," and SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." SFAS No. 106 requires that the
company's estimated postretirement benefit obligations be accrued by the dates
at which participants attain eligibility for the benefits. Similarly, SFAS No.
112 mandates accrual accounting for postemployment benefits.
In connection with the adoption of SFAS No. 106, the company elected immediate
recognition of the previously unrecognized transition obligation through a
noncash, pretax charge to earnings as of January 1, 1993, in the amount of $46.0
million ($28.5 million after tax or $0.99 per share), which represents the
cumulative effect on prior years of the change in accounting. The incremental
postretirement benefit expense included in 1993 results of continuing operations
was approximately $3.7 million, excluding the cumulative effect of adoption.
The company's early adoption of SFAS No. 112 for postemployment benefits
resulted in a noncash, pretax charge of $10.0 million ($6.2 million after tax or
$0.22 per share) to recognize the cumulative effect on prior years. Excluding
the cumulative effect of adoption, neither the annual cost nor incremental
impact on after tax earnings was significant.
The company adopted prospectively, from January 1, 1993, SFAS No. 109,
"Accounting for Income Taxes." Previously, income tax accounting followed the
provisions of SFAS No. 96, a predecessor income tax accounting standard adopted
in 1988. Because the effects of the two standards are similar in the company's
circumstances, adoption of SFAS No. 109 had no effect upon the 1993 provision
for income tax benefit or net loss before the cumulative effect of changes in
accounting principles.
OTHER
The U. S. 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.
The company's former joint venture partner, Onex Corporation (Onex), has
demanded that the company purchase the shares held by Onex in a joint venture
holding company through which the partners held their investment in Ball Canada
prior to the company's acquisition of 100 percent ownership. Management believes
that Onex's demand represents approximately $30 million. 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. The company believes that it has meritorious defenses
against Onex's claim. The dispute is in the process of arbitration, and, because
of the uncertainties inherent in that process, the company is unable to predict
its outcome. See the note, "Contingencies," in the accompanying Notes to
Consolidated Financial Statements for further information with respect to this
matter.
The U.S. economy and the company have experienced minor general inflation during
the past several years. Management believes that evaluation of the company's
performance during the periods covered by these consolidated financial
statements should be based upon historical financial statements. Continuing
emphasis on productivity improvement programs, the ongoing profit improvement
programs, and controlled capital spending for facilities and equipment are
management actions that are designed to maximize cash flow and have offset, in
large part, any adverse effects of inflation.
REPORT OF MANAGEMENT ON FINANCIAL STATEMENTS
Management of Ball Corporation is responsible for the preparation and fair
presentation of the consolidated financial statements included in this annual
report to shareholders. The financial statements have been prepared in
conformity with generally accepted accounting principles and, necessarily,
include certain amounts based on management's informed judgments and estimates.
Financial information appearing elsewhere in this annual report is consistent
with the financial statements.
Management is responsible for maintaining an adequate system of internal control
which is designed to provide reasonable assurance that assets are safeguarded
from unauthorized use or disposition, that transactions are executed in
accordance with management's authorization and that transactions are properly
recorded to permit the preparation of reliable financial statements. To assure
the continuing effectiveness of the system of internal control and to maintain a
climate in which such controls can be effective, management establishes and
communicates appropriate written policies and procedu res; carefully selects,
trains and develops qualified personnel; maintains an organizational structure
that provides clearly defined lines of responsibility, appropriate delegation of
authority and segregation of duties; and maintains a continuous program of
internal audits with appropriate managem ent follow-up. Company policies
concerning use of corporate assets and conflicts of interest, which require
employees to maintain the highest ethical and legal standards in their conduct
of the company's business, are important elements of the internal control
system.
The board of directors oversees management's administration of company financial
reporting practices, internal controls and the preparation of the consolidated
financial statements through its audit committee which is composed entirely of
outside directors. The audit committee meets periodically wi th representatives
of management, internal audit and Price Waterhouse to review the scope and
results of audit work, the adequacy of internal controls and the quality of
financial reporting. Price Waterhouse and internal audit have direct access to
the audit committee, and the opportunity to meet t he committee without
management present, to assure a free discussion of the results of their work and
audit findings.
/s/ GEORGE A. SISSEL /s/ R. DAVID HOOVER
George A. Sissel R. David Hoover
Acting President and Chief Senior Vice President and Chief
Executive Officer Financial Officer
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
BALL CORPORATION
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income (loss), of cash flows and of changes in
shareholders' equity present fairly, in all material respects, the financial
position of Ball Corporation and its subsidiaries at December 31, 1994 and 1993,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As discussed in the Taxes on Income and Other Postretirement and Postemployment
Benefits notes to consolidated financial statements, the company adopted
Statements of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," No. 106, "Employers'Accounting for Postretirement Benefits Other Than
Pensions," and No. 112, "Employers' Accounting for Postemployment Benefits,"
effective January 1, 1993.
/s/ PRICE WATERHOUSE LLP
Indianapolis, Indiana
January 23, 1995
CONSOLIDATED STATEMENT OF INCOME (LOSS)
BALL CORPORATION AND SUBSIDIARIES
Year ended December 31,
--------------------------------
(dollars in millions except per share amounts) 1994 1993 1992
-------- -------- --------
Net sales $2,594.7 $2,433.8 $2,169.3
Costs and expenses
Cost of sales 2,311.3 2,209.6 1,919.5
General and administrative expenses 86.1 96.5 87.6
Selling and product development expenses 28.4 24.5 22.7
Restructuring and other 6.8 108.7 --
Interest expense 42.3 45.9 37.2
--------- --------- ---------
2,474.9 2,485.2 2,067.0
--------- --------- ---------
Income (loss) from continuing operations before taxes on
income 119.8 (51.4) 102.3
Provision for income tax (expense) benefit (44.7) 21.2 (38.2)
Minority interest (4.6) (3.6) (3.8)
Equity in earnings of affiliates 2.5 1.3 0.6
--------- --------- ---------
Net income (loss) from:
Continuing operations 73.0 (32.5) 60.9
Alltrista operations -- 2.1 6.2
--------- --------- ---------
Net income (loss) before cumulative effect of changes in
accounting principles 73.0 (30.4) 67.1
Cumulative effect of changes in accounting principles,
net of tax benefit -- (34.7) --
--------- --------- ---------
Net income (loss) 73.0 (65.1) 67.1
Preferred dividends, net of tax benefit (3.2) (3.2) (3.4)
--------- --------- ---------
Net earnings (loss) attributable to common shareholders (69.8) $ (68.3) $ 63.7
========= ========= =========
Net earnings (loss) per share of common stock:
Continuing operations $ 2.35 $ (1.24) $ 2.21
Alltrista operations -- .07 .24
Cumulative effect of changes in accounting principles,
net of tax benefit -- (1.21) --
--------- --------- ---------
$ 2.35 $ (2.38) $ 2.45
========= ========= =========
Fully diluted earnings (loss) per share:
Continuing operations $ 2.20 $ (1.24) $ 2.09
Alltrista operations -- .07 .22
Cumulative effect of changes in accounting principles,
net of tax benefit -- (1.21) --
--------- --------- ---------
$ 2.20 $ (2.38) $ 2.31
========= ========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED BALANCE SHEET
BALL CORPORATION AND SUBSIDIARIES
December 31,
---------------------
(dollars in millions) 1994 1993
--------- ---------
ASSETS
Current assets
Cash and temporary investments $ 10.4 $ 8.2
Accounts receivable, net 204.5 191.3
Inventories, net
Raw materials and supplies 132.3 99.8
Work in process and finished goods 281.7 309.5
Deferred income tax benefits 36.7 53.1
Prepaid expenses 32.5 30.2
--------- ---------
Total current assets 698.1 692.1
--------- ---------
Property, plant and equipment, at cost
Land 34.3 33.3
Buildings 303.4 301.3
Machinery and equipment 1,148.3 1,114.7
--------- ---------
1,486.0 1,449.3
Accumulated depreciation (706.1) (626.6)
--------- ---------
779.9 822.7
--------- ---------
Goodwill and other intangibles, net 93.8 101.5
Net cash surrender value of company owned life insurance 94.7 86.4
Other assets 93.3 92.9
--------- ---------
$1,759.8 $1,795.6
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt and current portion of long-term debt $ 116.7 $ 123.9
Accounts payable 209.2 157.3
Salaries, wages and accrued employee benefits 110.5 85.8
Other current liabilities 63.3 84.2
--------- ---------
Total current liabilities 499.7 451.2
--------- ---------
Noncurrent liabilities
Long-term debt 377.0 513.3
Deferred income taxes 56.6 65.1
Employee benefit obligations, restructuring and other 193.7 191.4
--------- ---------
Total noncurrent liabilities 627.3 769.8
--------- ---------
Contingencies
Minority interest 16.1 15.9
--------- ---------
Shareholders' equity
Series B ESOP Convertible Preferred Stock 67.2 68.7
Unearned compensation - ESOP (55.3) (58.6)
--------- ---------
Preferred shareholder's equity 11.9 10.1
--------- ---------
Common stock (31,034,338 shares issued - 1994;
30,258,169 shares issued - 1993) 261.3 241.5
Retained earnings 378.6 332.2
Treasury stock, at cost (1,166,878 shares - 1994; 811,545 shares - 1993) (35.1) (25.1)
--------- ---------
Common shareholders' equity 604.8 548.6
--------- ---------
$1,759.8 $1,795.6
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
BALL CORPORATION AND SUBSIDIARIES
Year ended December 31,
-----------------------------
(dollars in millions) 1994 1993 1992
------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) from continuing operations before
cumulative effect of changes in accounting principles $ 73.0 $ (32.5) $ 60.9
Reconciliation of net income (loss) to net cash provided by
operating activities
Net provision (payment) for restructuring and other charges (13.2) 102.6 --
Depreciation and amortization 127.0 116.3 105.5
Deferred taxes on income 7.7 (41.8) (1.6)
Other (3.0) (6.0) 0.7
Changes in working capital components excluding effects of
acquisitions and Alltrista operations
Accounts receivable, including $66.5 million proceeds
from sale of trade accounts receivable in 1993 (11.7) 70.2 12.0
Inventories (13.0) 32.4 (65.5)
Other current assets (1.0) 6.8 2.2
Accounts payable 53.8 (19.1) 6.6
Other current liabilities 21.1 (42.2) 1.6
------- -------- --------
Net cash provided by operating activities 240.7 186.7 122.4
------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments of long-term debt, including
refinancing of $108.8 million of Heekin indebtedness in 1993 (45.2) (181.9) (35.1)
Changes in long-term borrowings (74.3) 136.2 239.0
Net change in short-term borrowings (15.0) 26.5 (71.1)
Common and preferred dividends (22.9) (40.8) (37.6)
Proceeds from issuance of common stock under various
employee and shareholder plans 19.8 20.0 21.5
Acquisitions of treasury stock (9.9) (8.6) (0.2)
Redemption of Series C Preferred Stock -- -- (50.3)
Other (1.7) 1.2 (1.1)
------- -------- --------
Net cash (used in) provided by financing activities
(149.2) (47.4) 65.1
------- -------- --------
CASH FLOWS FROM INVESTMENT ACTIVITIES
Additions to property, plant and equipment (94.5) (140.9) (110.2)
Company owned life insurance, net (1.4) 15.5 (23.7)
Investments in packaging affiliates (5.6) (13.7) (6.1)
Net cash (to) from Alltrista operations -- (8.0) 20.9
Purchase of Kerr commercial glass assets -- -- (68.4)
Proceeds from sale of investment 7.0 -- --
Other 5.2 1.5 3.5
------- -------- --------
Net cash used in investment activities (89.3) (145.6) (184.0)
------- -------- --------
Net Increase (Decrease) in Cash 2.2 (6.3) 3.5
Cash and temporary investments at beginning of year 8.2 14.5 11.0
------- -------- --------
Cash and Temporary Investments at End of Year $ 10.4 $ 8.2 $ 14.5
======= ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
BALL CORPORATION AND SUBSIDIARIES
Number of Shares Year ended December 31,
(in thousands) (dollars in millions)
1994 1993 1992 1994 1993 1992
------- ------- ------- -------- ------- -------
SERIES B ESOP CONVERTIBLE PREFERRED STOCK
Balance, beginning of year 1,870 1,893 1,899 $ 68.7 $ 69.6 $ 69.8
Shares issued -- 11 4 -- 0.4 0.2
Shares retired (42) (34) (10) (1.5) (1.3) (0.4)
------- ------- ------- -------- ------- -------
Balance, end of year 1,828 1,870 1,893 $ 67.2 $ 68.7 $ 69.6
======= ======= ======= ======== ======= =======
UNEARNED COMPENSATION - ESOP
Balance, beginning of year $ (58.6) $(61.6) $(64.3)
Amortization 3.3 3.0 2.7
-------- ------- -------
Balance, end of year $ (55.3) $(58.6) $(61.6)
------- ------- ------- ======== ======= =======
COMMON STOCK
Balance, beginning of year 30,258 26,968 26,968 $ 241.5 $130.4 $128.9
Shares issued to acquire Heekin Can, Inc. -- 2,515 -- -- 88.3 --
Shares issued for stock options and
other employee and shareholder stock
plans less shares exchanged 776 775 -- 19.8 22.8 1.5
------- ------- -------- -------- ------- -------
Balance, end of year 31,034 30,258 26,968 $ 261.3 $241.5 $130.4
======= ======= ======== ======== ======= =======
RETAINED EARNINGS
Balance, beginning of year $ 332.2 $482.4 $458.9
Net income (loss) for the year 73.0 (65.1) 67.1
Common dividends (17.8) (35.5) (31.8)
Dividend of Alltrista shares -- (34.5) --
Preferred dividends, net of tax benefit (3.2) (3.2) (3.4)
Foreign currency translation adjustment (6.7) (4.1) (8.4)
Additional minimum pension liability,
net of tax 1.1 (7.8) --
--------- -------- --------
Balance, end of year $ 378.6 $ 332.2 $ 482.4
------- ------- -------- ========= ======== ========
TREASURY STOCK
Balance, beginning of year (812) (539) (1,200) $ (25.1) $ (16.8) $ (36.6)
Shares reacquired (350) (281) (5) (9.9) (8.6) (0.2)
Shares issued for stock options and
other employee and shareholder stock
plans less shares exchanged (5) 8 666 (0.1) 0.3 20.0
------- ------- -------- --------- -------- --------
Balance, end of year (1,167) (812) (539) $ (35.1) $ (25.1) $ (16.8)
======= ======= ======== ========= ======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BALL CORPORATION AND SUBSIDIARIES
SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of Ball Corporation
and majority owned subsidiaries. Investments in 20 percent through 50 percent
owned affiliated companies are included under the equity method where the
company exercises significant influence over operating and financial affairs.
Otherwise, investments are included at cost. Differences between the carrying
amounts of equity investments and the company's interest in underlying net
assets are amortized over periods benefited. All significant intercompany
transactions are eliminated. Certain amounts shown for 1993 and 1992 have been
reclassified to conform to the 1994 presentation.
The results of operations and net assets of the businesses contributed to
Alltrista Corporation, formerly a wholly owned subsidiary, have been segregated
from continuing operations in 1993 and 1992 and are captioned as "Alltrista
operations." See the note, "Spin-Off," for more information regarding this 1993
transaction. All amounts included in the Notes to Consolidated Financial
Statements pertain to continuing operations except where otherwise noted.
Foreign Currency Translation
----------------------------
Foreign currency financial statements of foreign operations where the local
currency is the functional currency are translated using period end exchange
rates for assets and liabilities and average exchange rates during each period
for results of operations and cash flows.
Temporary Investments
---------------------
Temporary investments are considered cash equivalents if original maturities are
three months or less.
Revenue Recognition
-------------------
Sales and earnings are recognized primarily upon shipment of products, except in
the case of long-term government contracts for which revenue is recognized under
the percentage of completion method. Certain of these contracts provide for
fixed and incentive fees which are recorded as they are earned or when incentive
amounts become determinable. Provisions for estimated contract losses are made
in the period that such losses are determined.
Inventories
-----------
Inventories are stated at the lower of cost or market, cost being determined
primarily on the first-in, first-out method.
Depreciation and Amortization
-----------------------------
Depreciation is provided on the straight-line method in amounts sufficient to
amortize the cost of the properties over their estimated useful lives (buildings
- 30 to 50 years; machinery and equipment - 5 to 10 years). Goodwill is
amortized over the periods benefited, generally 40 years.
Taxes on Income
---------------
The company adopted prospectively, from January 1, 1993, Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Under SFAS
No. 109, deferred income taxes reflect the future tax consequences of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each balance sheet date based upon enacted income tax laws
and tax rates. Income tax expense or benefit is provided based on earnings
reported in the financial statements. The provision for income tax expense or
benefit differs from the amounts of income taxes currently payable because
certain items of income and expense included in the consolidated financial
statements are recognized in different time periods by taxing authorities.
Pension Costs
-------------
Pension expense is determined under the provisions of SFAS No. 87, "Employers'
Accounting for Pensions." The cost of pension benefits, including prior service
cost, is recognized over the estimated service periods of employees based upon
respective pension plan benefit provisions.
Other Postretirement and Postemployment Benefits
------------------------------------------------
Effective January 1, 1993, the company adopted the provisions of SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions," and
SFAS No. 112, "Employers' Accounting for Postemployment Benefits."
Postretirement benefit costs subsequent to the change in accounting principles
are accrued on an actuarial basis over the period from the date of hire to the
date of full eligibility for employees and covered dependents who are expected
to qualify for such benefits. Postemployment benefits are accrued when it is
determined that a liability has been incurred. Previously, postretirement and
postemployment benefit costs were recognized as claims were paid or incurred.
Financial Instruments
---------------------
Accrual accounting is applied for financial instruments classified as hedges.
Costs of hedging instruments are deferred as a cost adjustment, or deferred and
amortized as a yield adjustment over the term of the hedging agreement. Gains
and losses on early terminations of derivative financial instruments related to
debt are deferred and amortized as yield adjustments. Deferred gains and losses
related to exchange rate forwards are recognized as cost adjustments of the
purchase or sale transaction.
Employee Stock Ownership Plan
-----------------------------
The company records the cost of its Employee Stock Ownership Plan (ESOP) using
the shares allocated transitional method prescribed by the Financial Accounting
Standards Board's Emerging Issues Task Force, under which the annual pretax cost
of the ESOP, including preferred dividends, approximates program funding.
Compensation and interest components of ESOP cost are included in net income;
preferred dividends, net of related tax benefits, are shown as a reduction from
net income. Unearned compensation-ESOP will be reduced as the principal of the
guaranteed ESOP notes is amortized.
Earnings Per Share of Common Stock
----------------------------------
Earnings per share computations are based upon net earnings (loss) attributable
to common shareholders and the weighted average number of common shares
outstanding each year. Fully diluted earnings per share computations assume that
the Series B ESOP Convertible Preferred Stock was converted into additional
outstanding common shares and that outstanding dilutive stock options were
exercised. In the fully diluted computation, net earnings (loss) attributable to
common shareholders is adjusted for additional ESOP contributions which would be
required if the Series B ESOP Convertible Preferred Stock was converted to
common shares and excludes the tax benefit of deductible common dividends upon
the assumed conversion of the Series B ESOP Preferred Stock. The fully diluted
loss per share in 1993 is the same as the net loss per common share because the
assumed exercise of stock options and conversion of preferred stock would have
been antidilutive.
BUSINESS SEGMENT INFORMATION
The company has two business segments: packaging, and aerospace and
communications. Packaging, the principal segment, was expanded during the
three-year reporting period with the acquisitions of Heekin Can, Inc. (Heekin)
and the commercial glass assets of Kerr Group, Inc. (Kerr), described in the
note, "Acquisitions." The results of these acquired businesses are included in
the packaging segment information below from their respective acquisition dates.
The packaging segment is comprised of the following operations:
Metal - manufacture of metal beverage and food containers, container ends and
specialty products.
Glass - manufacture of glass containers, primarily for use in the commercial
packaging of food, juice, wine and liquor.
The aerospace and communications segment is comprised principally of the
following businesses: electro-optics and cryogenics; space systems;
communication systems; time and frequency devices; and systems engineering.
Packaging segment sales to Anheuser-Busch Companies, Inc. represented
approximately 11 percent of consolidated sales in 1994 and 1993, and 14 percent
of consolidated sales in 1992. Sales to each of the Pepsi-Cola Company and The
Coca-Cola Company and their affiliates were less than 10 percent of consolidated
net sales in 1994 and represented 10 percent of consolidated net sales in 1993
and 1992. Sales to all bottlers of Pepsi-Cola and Coca-Cola branded beverages
comprised approximately 21 percent, 22 percent and 20 percent of consolidated
sales in 1994, 1993 and 1992, respectively. Sales to various U.S. government
agencies by the aerospace and communications segment represented approximately 8
percent of consolidated sales in 1994 and 1993 and 11 percent in 1992.
SUMMARY OF BUSINESS BY SEGMENT
(dollars in millions) 1994 1993 1992
--------- --------- ---------
NET SALES
Packaging
Metal $1,576.1 $1,466.8 $1,154.0
Glass 750.6 698.7 715.8
--------- --------- ---------
Total packaging 2,326.7 2,165.5 1,869.8
Aerospace and communications 268.0 268.3 299.5
--------- --------- ---------
Consolidated net sales 2,594.7 2,433.8 2,169.3
========= ========= =========
INCOME (LOSS)
Packaging 153.3 105.6 121.2
Restructuring and other charges (1) -- (76.7) --
--------- --------- ---------
Total packaging 153.3 28.9 121.2
--------- --------- ---------
Aerospace and communications 23.1 3.3 21.7
Restructuring and other charges (1) (4.0) (29.1) --
--------- --------- ---------
Total aerospace and communications 19.1 (25.8) 21.7
--------- --------- ---------
CONSOLIDATED OPERATING EARNINGS 172.4 3.1 142.9
Corporate expenses, net (7.5) (5.7) (3.4)
Corporate restructuring and other charges (1) (2.8) (2.9) --
Interest expense (42.3) (45.9) (37.2)
--------- --------- ---------
Consolidated income (loss) from continuing operations
before taxes on income 119.8 (51.4) 102.3
========= ========= =========
ASSETS EMPLOYED IN OPERATIONS (2)
Packaging 1,383.9 1,371.8 1,168.5
Aerospace and communications 124.2 145.9 174.7
--------- --------- ---------
Assets employed in operations 1,508.1 1,517.7 1,343.2
Corporate (3) 220.9 248.7 184.0
Investments in packaging affiliates 30.8 29.2 14.6
Net assets of Alltrista operations -- -- 22.1
--------- --------- ---------
Total assets 1,759.8 1,795.6 1,563.9
========= ========= =========
PROPERTY, PLANT AND EQUIPMENT ADDITIONS
Packaging 87.9 128.3 98.2
Aerospace and communications 5.3 10.8 9.5
Corporate 1.3 1.8 2.5
--------- --------- ---------
Total additions 94.5 140.9 110.2
========= ========= =========
DEPRECIATION AND AMORTIZATION
Packaging 112.8 98.9 88.4
Aerospace and communications 11.5 13.1 13.0
Corporate 2.7 4.3 4.1
--------- --------- ---------
Total depreciation and amortization $ 127.0 $ 116.3 $ 105.5
========= ========= =========
<FN>
(1) Refer to the note, "Restructuring and Other Charges."
(2) Includes impairment reserves described in the note, "Restructuring and
Other Charges."
(3) Corporate assets include cash and temporary investments, current deferred
and prepaid income taxes, amounts related to employee benefit plans and
corporate facilities and equipment.
</FN>
The company's major customers and principal facilities are located within the
U.S. and Canada. Financial information by geographic area is provided below.
Inter-area sales from the U.S. were primarily to Canada and generally were
priced with reference to prevailing market prices.
SUMMARY OF BUSINESS BY GEOGRAPHIC AREA
United Canada
(dollars in millions) States and Other Eliminations Consolidated
---------- --------- ------------ ------------
1994
----
Net sales
Sales to unaffiliated customers $ 2,314.9 $ 279.8 $ -- $ 2,594.7
Inter-area sales to affiliates 0.6 1.0 (1.6) --
----------- --------- ------- ---------- -
2,315.5 280.8 (1.6) 2,594.7
=========== ========= ======= ==========
Consolidated operating earnings (1) 152.7 19.7 -- 172.4
=========== ========= ======= ==========
Assets employed in operations $ 1,320.0 $ 193.3 $ (5.2) $ 1,508.1
=========== ========= ======= ==========
1993
----
Net sales
Sales to unaffiliated customers $ 2,165.1 $ 268.7 $ -- $ 2,433.8
Inter-area sales to affiliates 9.3 9.9 (19.2) --
----------- --------- ------- ----------
2,174.4 278.6 (19.2) 2,433.8
=========== ========= ======= ==========
Consolidated operating earnings (1) 3.8 (0.7) -- 3.1
=========== ========= ======= ==========
Assets employed in operations $ 1,287.4 $ 232.8 $ (2.5) $ 1,517.7
=========== ========= ======= ==========
1992
----
Net sales
Sales to unaffiliated customers $ 1,889.6 $ 279.7 $ -- $ 2,169.3
Inter-area sales to affiliates 6.1 2.9 (9.0) --
----------- --------- ------- ----------
1,895.7 282.6 (9.0) 2,169.3
=========== ========= ======= ==========
Consolidated operating earnings 133.3 9.6 -- 142.9
=========== ========= ======= ==========
Assets employed in operations $ 1,111.3 $ 232.8 $ (0.9) $ 1,343.2
=========== ========= ======= ==========
<FN>
(1) Refer to the note, "Restructuring and Other Charges."
</FN>
RESTRUCTURING AND OTHER CHARGES
In late 1993 plans were developed to undertake a number of restructuring actions
which included elimination of excess manufacturing capacity through plant
closures and consolidations, administrative consolidations, and the
discontinuance of two aerospace and communications segment product lines. In
connection therewith, pretax restructuring and other charges were recorded in
the third and fourth quarters of $14.0 million and $94.7 million, respectively,
for an aggregate charge to annual results of operations in 1993 of $108.7
million ($66.3 million after tax or $2.31 per share). A summary of these charges
by business segment and nature of the amounts provided appears below:
Aerospace and
(dollars in millions) Packaging Communications Corporate Total
--------- -------------- --------- ------
Asset write-offs and write-downs to net
realizable values $36.7 $14.2 $1.6 $ 52.5
Employment costs and termination benefits 34.7 1.2 -- 35.9
Other 5.3 13.7 1.3 20.3
----- ----- ---- ------
$76.7 $29.1 $2.9 $108.7
===== ===== ==== ======
Employment costs and termination benefits include the effects of work force
reductions and packaging segment pension curtailment losses of $14.2 million.
Other includes incremental costs associated with the planned phaseout of
facilities to be closed and estimated losses to be incurred prior to the
disposal of closed facilities and discontinued product lines.
At December 31, 1994 and 1993, restructuring and other reserves included in the
consolidated balance sheet and the changes in those reserves were as follows:
Balance Sheet Caption
-----------------------------------------------
Current Noncurrent
(dollars in millions) Assets liabilities liabilities Total
------- ----------- ----------- -------
Restructuring and other charges to
operations in 1993 $ 49.5 $36.7 $22.5 $108.7
Noncash items (11.5) (2.0) -- (13.5)
Cash payments (2.7) (3.4) -- (6.1)
------- ------ ------ -------
Reserve at December 31, 1993 35.3 31.3 22.5 89.1
Additional provision in 1994 -- 4.0 -- 4.0
Noncash items (6.1) (5.7) (1.3) (13.1)
Cash payments (1.4) (15.7) (0.1) (17.2)
------- ------ ------ -------
Reserve at December 31, 1994 $ 27.8 $13.9 $21.1 $ 62.8
======= ====== ====== =======
Included in assets are write-offs and write-downs of property, plant and
equipment and inventory to net realizable value. Employment costs and
termination benefits due to work force reductions are reflected in current
liabilities. Liabilities resulting from pension curtailment losses are included
in noncurrent liabilities. Of the total restructuring and other reserves
outstanding at December 31, 1994, $29.0 million will not impact future cash
flows apart from related tax benefits. The balance of the reserves, $33.8
million, represents future pretax cash outflows, which in large part are
expected to be expended in 1995. Pension funding will occur over an extended
period of time.
In 1994 additional nonrecurring charges were recorded which include $4.0 million
related to the VIGS unit.
DISPOSITION
In October 1994 the company signed a definitive agreement with Datum Inc. for
the sale of the Efratom division for approximately $26.5 million to be paid in a
combination of cash and Datum common stock. Efratom produces time and frequency
devices used in navigation and communication. The sale is expected to take place
in the first quarter of 1995. Total assets of the Efratom division at December
31, 1994 and 1993, were approximately $18.2 million and $16.0 million,
respectively. Operating income for the Efratom division was $3.1 million, $2.7
million and $2.5 million in 1994, 1993 and 1992, respectively.
SPIN-OFF
On March 23, 1993, the company's board of directors declared a dividend and
approved the distribution of 100 percent of the stock of Alltrista Corporation
(Alltrista), then a wholly owned subsidiary of the company, to the holders of
company common stock of record on April 2, 1993. Shareholders received one share
of Alltrista Corporation common stock for each four shares of Ball common stock
held on that date. The dividend distribution of $34.5 million represented the
net assets of $32.2 million, which included bank indebtedness of $75.0 million,
along with transaction costs of $2.3 million. Following the distribution,
Alltrista operated as an independent, publicly owned corporation.
Net sales of Alltrista were $67.4 million in 1993 through the date of
distribution and $268.6 million in 1992, while net income was $2.1 million
through the date of distribution in 1993 and $6.2 million in 1992. Alltrista net
income included interest expense allocated based on assumed indebtedness of
$75.0 million at Ball Corporation's weighted average interest rate for general
borrowings and allocated general and administrative expenses of $1.2 million and
$4.7 million for 1993 and 1992, respectively.
ACQUISITIONS
Heekin Can, Inc.
----------------
On March 19, 1993, the company acquired Heekin through a tax-free exchange of
shares accounted for as a purchase. Heekin is a manufacturer of metal food, pet
food and aerosol containers with 1992 sales of $355.0 million. Each outstanding
share of common stock of Heekin was exchanged for 0.769 shares of common stock
of the company. The consideration amounted to approximately $91.3 million,
consisting of 2,514,630 newly issued shares of the company's common stock which
were exchanged for 3,270,000 issued and outstanding shares of Heekin common
stock valued at $27.00 per share, and transaction costs of approximately $3.0
million. In connection with the acquisition, Ball also assumed $121.9 million of
Heekin indebtedness, of which $108.8 million was refinanced following the
acquisition. The purchase price has been assigned, based upon estimated fair
values, to acquired assets of $326.8 million, including goodwill of $47.0
million, and assumed liabilities of $235.5 million.
The following table illustrates the effects of the acquisition on a pro forma
basis as though it had occurred at January 1, 1993. The unaudited pro forma
combined financial information presented below is provided for informational
purposes only and does not purport to be indicative of the future results or
what the results of operations would have been had the acquisition been effected
on January 1, 1993.
(dollars in millions except per share amounts) 1993
---------
Net sales $2,506.7
=========
Loss from continuing operations before taxes on income (53.1)
=========
Net loss from continuing operations (33.6)
=========
Loss per share from continuing operations (1.26)
=========
Fully diluted loss per share from continuing operations $ (1.26)
=========
Pro forma adjustments include incremental depreciation and amortization relating
to the allocation of the purchase price to property, plant and equipment and
goodwill, adjustment to employee benefit plan costs, principally to reflect
accounting practices and assumptions used by the company to record pension and
postretirement benefit expense, reduction in interest expense to reflect the
effect of refinancing Heekin indebtedness at lower rates available to the
company, and related tax effects.
Kerr Group, Inc. Commercial Glass Assets
----------------------------------------
On February 28, 1992, the company acquired certain assets of the commercial
glass manufacturing operations of Kerr Group, Inc. for $68.4 million. Assets
acquired included inventory, machinery and equipment and certain manufacturing
facilities. The excess of the purchase price over the net book value of the
assets acquired and liabilities assumed has been assigned to long-term assets,
including goodwill of $9.7 million, and will be amortized to expense over
periods corresponding to the useful lives of property, plant and equipment and,
in the case of goodwill, over 40 years.
ACCOUNTS RECEIVABLE
Sale of Trade Accounts Receivable
---------------------------------
In September 1993 the company entered into an agreement to sell, on a revolving
basis without recourse, an undivided percentage ownership interest in a
designated pool of up to $75.0 million of packaging trade accounts receivable.
The current agreement expires in December 1995 and includes an optional one year
extension. The company's retained credit exposure on receivables sold is limited
to $8.5 million.
At December 31, 1994 and 1993, a net amount of $66.5 million of trade
receivables had been sold under the accounts receivable sales program and was
reflected as a reduction of accounts receivable in the accompanying Consolidated
Balance Sheet. Costs of the program are based on certain variable interest
indices and are included in the caption, "General and administrative expenses."
Costs recorded in 1994 and 1993 amounted to $3.0 million and $0.6 million,
respectively.
Receivables in Connection with Long-Term Contracts
--------------------------------------------------
Accounts receivable under long-term contracts, net of reserves, were $47.6
million and $63.5 million at December 31, 1994 and 1993, respectively, and
include gross unbilled amounts representing revenue earned but not yet billable
of $12.4 million and $29.0 million, respectively. Approximately $2.6 million of
gross unbilled receivables at December 31, 1994, is expected to be collected
after one year.
OTHER ASSETS
The composition of other assets at December 31, 1994 and 1993, was as follows:
(dollars in millions) 1994 1993
------ ------
Pension intangibles and deferred expense $45.2 $46.4
Investments in packaging affiliates 30.8 29.2
Other 17.3 17.3
------ ------
Total other assets $93.3 $92.9
====== ======
Company Owned Life Insurance
----------------------------
The company has purchased insurance on the lives of certain groups of employees.
Premiums were approximately $20.0 million each year. Amounts in the Consolidated
Statement of Cash Flows represent net cash flows from this program including
related tax benefits. The company borrowed $23.4 million and $37.2 million in
1994 and 1993, respectively, from the accumulated net cash value. The policies
have been issued by Great-West Life Assurance Company and The Hartford Life
Insurance Company.
DEBT AND INTEREST COSTS
Short-Term Debt
---------------
At December 31, 1994, the company had uncommitted short-term facilities
available of approximately $450.0 million from various banks to provide funding
sources at competitive interest rates. The company's wholly owned Canadian
subsidiary had a Canadian commercial paper facility which provides additional
short-term funds of up to approximately $85.0 million. At December 31, 1994,
short-term debt outstanding consisted of $39.6 million in commercial paper and
$17.0 million under uncommitted short-term facilities with weighted average
interest rates of 6.0 percent and 6.8 percent, respectively. Short-term debt
outstanding at December 31, 1993, was comprised of $38.9 million in commercial
paper and $35.7 million under uncommitted short-term facilities with weighted
average interest rates of 4.2 percent and 3.5 percent, respectively.
Long-Term Debt
--------------
Long-term debt at December 31, 1994 and 1993, consisted of the following:
1994 1993
------ ------
Notes Payable
Private placements:
8.09% to 8.75% serial installment notes (8.50% weighted
average) due 1996 through 2012 $110.0 $110.0
9.35% to 9.66% serial notes (9.56% weighted average) due
through 1998 60.0 80.0
9.65% to 10.00% serial notes (9.95% weighted average) due
through 1998 55.0 65.0
8.20% to 8.57% serial notes (8.35% weighted average) due 1999
through 2000 60.0 60.0
9.18% Canadian note due 1998 21.4 22.7
6.64% notes due 1995 20.0 20.0
8.875% installment notes due through 1998 8.0 10.0
Floating rate bank revolving credit -- 75.0
Industrial Development Revenue Bonds
Floating rates (5.50%-6.54% at December 31, 1994) due through 2011 34.1 34.9
7.00% to 7.75% due through 2009 2.0 11.0
Capital Lease Obligations and Other 10.7 13.7
ESOP Debt Guarantee
8.38% installment notes due through 1999 30.8 35.2
8.75% installment note due 1999 through 2001 25.1 25.1
------- -------
437.1 562.6
Less:
Current portion of long-term debt (60.1) (49.3)
------- -------
$377.0 $513.3
======= =======
During the third quarter of 1994 the company entered into revolving credit
agreements totalling $300.0 million which consist of a $150.0 million three-year
facility and 364-day facilities of $150.0 million in the aggregate. The new
revolving credit agreements provide for various borrowing rate options including
borrowing rates based on a fixed spread over the London Interbank Offered Rate
(LIBOR). The company pays a facility fee on the committed facilities.
The note, bank credit and industrial development revenue bond agreements, and
guaranteed ESOP notes contain similar restrictions relating to dividends,
investments, working capital requirements, guarantees and other borrowings. If
financed with borrowings, the company had approximately $147.0 million available
for payment of dividends and certain investments under these agreements at
December 31, 1994.
ESOP debt represents borrowings by the trust for the company-sponsored ESOP
which have been irrevocably guaranteed by the company.
Maturities of fixed long-term debt obligations excluding the bank credit
agreements are $50.4 million, $56.7 million, $67.4 million and $51.2 million for
the years ending December 31, 1996 through 1999, respectively.
A summary of total interest cost paid and accrued follows:
(dollars in millions) 1994 1993 1992
------ ------ ------
Interest costs $44.5 $47.6 $38.2
Amounts capitalized (2.2) (1.7) (1.0)
------ ------ ------
Interest expense 42.3 45.9 37.2
====== ====== ======
Gross amount paid during year $38.9 $47.1 $33.4
====== ====== ======
At December 31, 1994, letters of credit amounting to $25.4 million were
outstanding, primarily to provide security under insurance arrangements.
FINANCIAL AND DERIVATIVE INSTRUMENTS
The following table presents the carrying amounts and fair values of the
company's financial instruments at December 31, 1994 and 1993, as defined in
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments." Accounts
receivable and accounts payable are not included below because carrying amounts
approximate fair value. Deferred balances related to derivative financial
instruments which hedge interest risks on long-term debt are included in other
noncurrent liabilities.
Rates currently available to the company for loans with similar terms and
maturities are used to estimate the fair value of long-term debt. The fair value
of derivatives generally reflects the estimated amounts that the company would
pay or receive upon termination of the contracts at December 31, 1994 and 1993,
taking into account any unrealized gains or losses of open contracts.
1994 1993
---------------------- ----------------------
Carrying Fair Carrying Fair
(dollars in millions) Amount Value Amount Value
-------- -------- -------- --------
Nonderivatives
Long-term debt $437.1 $448.5 $562.6 $614.6
Derivatives relating to debt
Noncurrent liabilities -- (2.3) -- 0.6
The company enters into derivative financial instruments to manage the costs of
borrowing, foreign exchange rate exposures and commodity price risks and
generally does not hold or issue financial instruments for trading purposes. The
following table summarizes the company's derivative financial instruments at
December 31, 1994 and 1993:
Notional Amount
(dollars in millions) 1994 1993
------------ ------------
Interest rate swaps and swaptions:
Floating rate swaps $109.0 $30.0
Fixed rate offsetting swaps 75.0 --
Exchange rate forwards and futures 3.0 --
The notional amounts of derivatives do not represent amounts exchanged and are
not a measure of the exposure to credit risk. The amounts exchanged are
calculated on the basis of the notional amounts. Although these instruments
involve varying degrees of credit, foreign currency exchange, and interest rate
risk, the counter parties to the agreements are major financial institutions
which are expected to perform fully under the terms of the agreements.
LEASES
Noncancellable operating leases in effect at December 31, 1994, require rental
payments of $18.1 million, $13.3 million, $9.7 million, $6.5 million and $4.9
million for the years 1995 through 1999, respectively, and $25.3 million for
years thereafter. Lease expense for all operating leases was $36.2 million,
$33.2 million and $26.3 million in 1994, 1993 and 1992, respectively.
TAXES ON INCOME
The amounts of income (loss) from continuing operations before income taxes by
national jurisdiction follow:
(dollars in millions) 1994 1993 1992
------- ------- ------
Domestic $104.6 $(44.1) $100.6
Foreign 15.2 (7.3) 1.7
------- ------- ------
$119.8 $(51.4) $102.3
======= ======= ======
The provision for income tax expense (benefit) for continuing operations was
comprised as follows:
(dollars in millions) 1994 1993 1992
------ ------- ------
Current
U.S. $29.2 $ 19.2 $32.7
State and local 6.9 0.8 6.5
Foreign 0.9 0.6 0.6
------ ------- ------
Total current 37.0 20.6 39.8
------ ------- ------
Deferred
U.S. 2.4 (33.8) (1.9)
State and local (0.5) (5.2) (0.5)
Foreign 5.8 (2.8) 0.8
------ ------- ------
Total deferred 7.7 (41.8) (1.6)
------ ------- ------
Total provision for income taxes $44.7 $(21.2) $38.2
====== ======= ======
The reconciliation of the statutory U.S. income tax rate to the effective
income tax rate is as follows:
1994 1993 1992
----- ------- ------
Statutory U.S. federal income tax rate 35.0% (35.0)% 34.0%
Increase (decrease) in rates due to:
Tax effects of company owned life insurance (3.5) (7.1) (3.2)
State and local income taxes, net 3.2 (6.0) 3.8
Other 2.6 6.9 2.7
----- ------ ------
Effective income tax rate 37.3% (41.2)% 37.3%
===== ====== ======
Provision is not made for additional U.S. or foreign taxes on undistributed
earnings of certain international operations where such earnings will continue
to be reinvested. It is not practicable to estimate the additional taxes,
including applicable foreign withholding taxes, that might become payable upon
the eventual remittance of foreign earnings for which no provision has been
made.
Significant components of deferred tax (assets) liabilities follow:
(dollars in millions) 1994 1993
-------- ---------
Gross deferred tax assets
Deferred compensation $ (17.7) $ (13.8)
Accrued employee benefits (43.3) (48.2)
Restructuring and other reserves (25.3) (38.8)
Other (31.2) (35.9)
-------- ---------
Total gross deferred tax assets (117.5) (136.7)
-------- ---------
Gross deferred tax liabilities:
Depreciation 120.5 132.9
Other 16.9 15.8
-------- ---------
Total gross deferred tax liabilities 137.4 148.7
-------- ---------
Net deferred tax liabilities $ 19.9 $ 12.0
======== =========
Total income tax payments, including amounts accrued in prior years, were $18.5
million, $34.7 million and $53.5 million for 1994, 1993 and 1992, respectively.
PENSION BENEFITS
----------------
The company's noncontributory pension plans cover substantially all U.S. and
Canadian employees meeting certain eligibility requirements. The defined benefit
plans for salaried employees provide pension benefits based on employee
compensation and years of service. Plans for hourly employees provide benefits
based on fixed rates for each year of service. The company's policy is to fund
the plans on a current basis to the extent deductible under existing tax laws
and regulations and in amounts sufficient to satisfy statutory funding
requirements. Plan assets consist primarily of fixed income securities and
common stocks.
The composition of pension expense for salaried and hourly employee pension
plans follows:
(dollars in millions) 1994 1993 1992
------ ------ ------
Service cost - benefits earned during the period $12.5 $11.6 $ 9.1
Interest cost on projected benefit obligation 28.8 26.8 21.2
Investment return on plan assets 9.6 (49.0) (20.4)
Net amortization and deferral (39.3) 19.7 (7.2)
------ ------ ------
Net periodic pension expense 11.6 9.1 2.7
Alltrista net periodic pension credit included above - 0.1 0.5
------ ------ ------
Net periodic pension expense of continuing operations 11.6 9.2 3.2
Expense of defined contribution plans 0.9 0.9 1.0
------ ------ ------
Total pension expense $12.5 $10.1 $ 4.2
====== ====== ======
Net curtailment losses of $12.3 million in 1993 were recognized in conjunction
with the decision to rationalize certain packaging operations and in connection
with the Alltrista spin-off.
The funded status of the plans at December 31, 1994 and 1993, was as follows:
1994 1993
-------------------------- --------------------------
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
(dollars in millions) Benefits Assets Benefits Assets
----------- ----------- ----------- -----------
Vested benefit obligation $148.2 $147.9 $155.5 $159.6
Nonvested benefit obligation 5.3 24.5 7.2 26.9
----------- ----------- ----------- -----------
Accumulated benefit obligation 153.5 172.4 162.7 186.5
Effect of projected future compensation 21.5 0.3 27.0 --
----------- ----------- ----------- -----------
Projected benefit obligation 175.0 172.7 189.7 186.5
----------- ----------- ----------- -----------
Plan assets at fair value 188.3 118.5 202.0 123.7
----------- ----------- ----------- -----------
Plan assets in excess of (less than) projected
benefit obligation 13.3 (54.2) 12.3 (62.8)
Unrecognized transitional asset at January 1, 1987,
net of amortization (18.7) (1.8) (22.0) (2.1)
Prior service cost not yet recognized in net periodic
pension cost 2.9 28.4 3.6 29.6
Unrecognized net loss since initial application of
SFAS No. 87 19.3 12.5 22.9 14.8
Minimum pension liability (unfunded accumulated
benefit obligation) -- (39.1) -- (42.3)
----------- ----------- ----------- -----------
Prepaid (accrued) pension cost $ 16.8 $(54.2) $ 16.8 $(62.8)
=========== =========== =========== ===========
Actuarial assumptions used for plan calculations were:
Discount rate 8.75-9.75% 8.75-9.75% 7.5-8.0% 7.5-8.0%
Assumed rate of increase in future compensation 4.0% -- 4.0% --
Expected long-term rates of return on assets 10.5% 10.0-10.5% 10.5% 10.0-10.5%
Where two discount rates are provided in the table above, the higher rate in
each case pertains to the company's Canadian pension plans. A portion of the
Canadian benefit obligation has been funded with a dedicated securities
portfolio having a market value of $16.4 million. The discount rate and expected
long-term rate of return used for this obligation and related asset portfolio
was 9.25 percent in 1994 and 8.75 percent in 1993.
In accordance with the provisions of SFAS No. 87, an additional minimum
liability of $39.1 million and $42.3 million is reflected at December 31, 1994
and 1993, respectively, for plans having unfunded accumulated benefit
obligations. The 1994 and 1993 additional minimum liabilities were offset
partially by intangible assets of $28.4 million and $29.6 million, respectively.
The remainder, $6.7 million in 1994 and $7.8 million in 1993, net of tax, was
recognized as a change in shareholders' equity. The 1994 reduction in the
additional minimum liability and the adjustment to equity were due primarily to
higher discount rates, partially offset by increased actuarial losses.
OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
The company and its subsidiaries sponsor various defined benefit and defined
contribution postretirement benefit plans which provide retirement health care
and life insurance benefits to substantially all employees. In addition,
employees may become eligible, upon termination of active employment prior to
retirement, for long-term disability, medical and life insurance continuation
and other postemployment benefits. All of the company sponsored plans are
unfunded and, with the exception of life insurance benefits, are self-insured.
Effective January 1, 1993, the company adopted two new accounting standards for
these benefit costs, SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," and SFAS No. 112, "Employers' Accounting for
Postemployment Benefits." SFAS No. 106 requires that the company's estimated
postretirement benefit obligations be accrued by the dates at which participants
attain eligibility for the benefits. Similarly, SFAS No. 112 mandates accrual
accounting for postemployment benefits.
Postretirement Medical and Life Insurance Benefits
--------------------------------------------------
Postretirement health care benefits are provided to substantially all of the
company's domestic nonunion, certain salaried and Canadian union employees. In
Canada, the company provides supplemental medical and other benefits in
conjunction with the Canadian national health care plan. Most domestic salaried
employees who retired prior to 1990 are covered by noncontributory defined
benefit medical plans with capped lifetime benefits. Employees who retired
during 1991 and 1992 are covered by similar contributory plans. U.S. employees
retiring after January 1, 1993, are provided a fixed subsidy by the company
toward each retiree's future purchase of medical insurance. Life insurance
benefits are noncontributory. Most employees not covered by company plans are
covered by collective bargaining agreements under which the company contributes
to multiemployer health and welfare plans. The company has no commitments to
increase monetary benefits provided by any of the postretirement benefit plans.
In connection with the adoption of SFAS No. 106, the company elected immediate
recognition of the previously unrecognized transition obligation through a
pretax, noncash charge to earnings as of January 1, 1993, in the amount of $46.0
million ($28.5 million after tax). Since Heekin had adopted SFAS No. 106 prior
to being acquired, its obligation for postretirement benefits was assumed by the
company and was not included in the cumulative effect of adopting the new
accounting standard. The accumulated postretirement benefit obligation (APBO)
represents, at the date of adoption, the full liability for postretirement
benefits expected to be paid with respect to retirees and a pro rata portion of
the benefits expected to be paid with respect to active employees.
Net periodic postretirement benefit cost for continuing operations in 1994 and
1993 included the following components:
1994 1993
----------------------- -----------------------
U.S. Foreign U.S. Foreign
(dollars in millions) Plans Plans Total Plans Plans Total
----- ----- ----- ----- ----- -----
Service cost - benefits attributed to
service during the period $1.4 $0.1 $1.5 $1.3 $ 0.1 $1.4
Interest cost on accumulated
postretirement benefit obligation 4.1 1.2 5.3 4.3 1.1 5.4
Net amortization and deferral 0.6 0.1 0.7 0.1 (0.1) --
----- ---- ---- ---- ------ ----
Net periodic postretirement benefit cost
$6.1 $1.4 $7.5 $5.7 $ 1.1 $6.8
===== ==== ==== ==== ====== ====
Postretirement benefit expense was $7.5 million, $6.8 million and $2.3 million
in 1994, 1993 and 1992, respectively. The incremental expense for continuing
operations in 1993 resulting from adoption of SFAS No. 106 was approximately
$3.7 million, excluding the effect of the transition obligation which was
recognized as the cumulative effect on prior years of the change in accounting.
Contributions to multiemployer plans were $4.0 million, $3.8 million and $2.8
million in 1994, 1993 and 1992, respectively.
The health care cost trend rate used to value the APBO is assumed to decline to
6.0 percent for the U.S. plans and 6.75 percent for the Canadian plans after the
year 2003. A one percentage point increase in the health care cost trend rate
would increase the APBO as of December 31, 1994, by $3.8 million. The impact of
a one percentage point increase in the health care trend rate on the sum of the
service and interest costs in 1994 would have been an increase of $0.4 million.
The status of the company's unfunded postretirement benefit obligation at
December 31, 1994 and 1993, follows:
1994 1993
-------------------------------- --------------------------------
U.S. Foreign U.S. Foreign
(dollars in millions) Plans Plans Total Plans Plans Total
------- ------- ----- ------ ------- ------
Accumulated postretirement benefit obligation (APBO):
Retirees $ 28.7 $ 11.2 $39.9 $ 36.4 $ 13.1 $49.5
Fully eligible active plan participants 7.3 0.8 8.1 9.5 0.7 10.2
Other active plan participants 15.0 1.1 16.1 18.1 1.4 19.5
------- ------- ------ ------- ------- ------
51.0 13.1 64.1 64.0 15.2 79.2
Prior service cost not yet recognized in
net periodic postretirement benefit
cost (1.9) 0.9 (1.0) (2.0) 1.1 (0.9)
Unrecognized net gain (loss) from
experience and assumption changes 13.8 (2.9) 10.9 (2.9) (4.9) (7.8)
------- ------- ------ ------- ------- ------
Accrued postretirement benefit obligation $ 62.9 $ 11.1 $74.0 $ 59.1 $ 11.4 $70.5
======= ======= ====== ======= ======= ======
Assumptions used to measure the APBO were as follows:
Discount rate: 8.75% 9.75% -- 7.50% 8.00% --
Health care cost trend rates:
Canadian -- 12.00% -- -- 12.00% --
U.S. Pre-Medicare 11.00% -- -- 12.00% -- --
U.S. Post-Medicare 8.10% -- -- 8.40% -- --
Other Postemployment Benefits
-----------------------------
The company elected early adoption of SFAS No. 112 and, effective January 1,
1993, recorded a noncash, pretax charge of $10.0 million ($6.2 million after
tax) to recognize the cumulative effect on prior years. Excluding the cumulative
effect on prior years, the annual cost for SFAS No. 112 was $2.2 million and
$2.1 million in 1994 and 1993, respectively, and approximates cash expenditures
in both years.
Other Benefit Plans
-------------------
Substantially all domestic salaried employees and certain domestic nonunion
hourly employees who participate in the company's 401(k) salary conversion plan
and meet certain eligibility requirements automatically participate in the
company's ESOP. Cash contributions to the ESOP trust, including preferred
dividends, are used to service the ESOP debt and were $9.5 million, $8.8 million
and $8.3 million for 1994, 1993 and 1992, respectively. Total interest paid by
the ESOP trust for its borrowings was $5.1 million, $5.4 million and $5.7
million for 1994, 1993 and 1992, respectively.
SHAREHOLDERS' EQUITY
At December 31, 1994, the company had 120 million shares of common stock and 15
million shares of preferred stock authorized, both without par value. Preferred
stock includes 600,000 authorized but unissued shares designated as Series A
Junior Participating Preferred Stock and 2,100,000 authorized shares designated
as Series B ESOP Convertible Preferred Stock (Series B ESOP Preferred). There
were 1,827,973 shares of Series B ESOP Preferred outstanding at December 31,
1994.
The Series B ESOP Preferred has a stated value and liquidation preference of
$36.75 per share and cumulative annual dividends of $2.76 per share. Each share
is convertible into not less than one share of common stock. The Series B ESOP
Preferred shares are entitled to 1.3 votes per share and are voted with common
shares as a single class upon matters submitted to a vote of the corporation's
shareholders. Effective April 2, 1993, the conversion price and conversion ratio
of the Series B ESOP Preferred were adjusted in accordance with the antidilution
provisions of the security to give effect to, among other things, the dividend
of Alltrista common stock to holders of company common stock. The conversion
price was adjusted to $31.813 per share, from $36.75 per share, and the
conversion ratio was adjusted to 1.1552 shares of Ball Corporation Common Stock
for each share of Series B ESOP Preferred. The adjustments to the conversion
price and conversion ratio had no impact on the stated value and liquidation
preference of $36.75 per share.
On January 7, 1992, the company redeemed for $50.3 million all 503 shares of the
Series C Preferred Stock issued on November 30, 1990, in connection with the
purchase of the remaining 50 percent interest in the glass business.
Under the company's Shareholder Rights Plan, adopted in 1986, one Preferred
Stock Purchase Right is attached to each outstanding share of common stock of
the company. If a person or group acquires 20 percent or more of the company's
outstanding common stock (or upon occurrence of certain other events), the
rights (other than those held by the acquiring person) become exercisable, and
generally entitle the holder to purchase shares of common stock of the company
at a 50 percent discount. The rights expire in 1996, are redeemable by the
company at a redemption price of $.05 per right, and trade with the common
stock. Exercise of such rights would cause substantial dilution to a person or
group attempting to acquire control of the company without the approval of the
company's board of directors. The rights would not interfere with any merger or
other business combinations approved by the board of directors.
Common shares were reserved at December 31, 1994, for future issuance under the
employee stock purchase, stock option, dividend reinvestment and restricted
stock plans, as well as to meet conversion requirements of the Series B ESOP
Preferred.
In connection with the employee stock purchase plan, the company contributes 20
percent of up to $500 of each participating employee's monthly payroll
deduction. Company contributions for this plan were $1.8 million, $2.0 million
and $1.7 million in 1994, 1993 and 1992, respectively.
The company has several stock option plans under which options to purchase
shares of common stock have been granted to officers and key employees of the
company and its subsidiaries at not less than the market value of the stock at
the date of grant. Payment must be at the time of exercise in cash or with
shares of stock owned by the option holder which are valued at fair market value
on the exercise date. Options terminate ten years from date of grant and are
exercisable in four equal installments commencing one year from date of grant.
Several option plans provide for, among other things, the discretionary grant of
stock appreciation rights in tandem with options and certain antidilution
provisions. Effective April 2, 1993, in conjunction with the dividend of
Alltrista common stock to holders of the company's common stock, the company
adjusted the number and exercise price of options outstanding as of that date in
accordance with the relevant antidilution provisions of the plans.
A summary of stock option activity for the years ended December 31, 1994 and
1993, follows:
1994 1993
------------------------------------------ ----------------------------------------
Shares Price Range Shares Price Range
---------- ------------------------ ---------- -----------------------
Outstanding at beginning of year 1,674,970 $12.960 - $38.500 1,695,753 $15.125 - $39.625
Exercised (122,283) $12.960 - $28.950 (178,536) $15.125 - $31.500
Granted 299,500 $26.375 - $28.250 273,365 $24.930 - $44.940
Canceled (72,739) $21.360 - $38.500 (380,105) $28.000 - $34.250
Effect of antidilution adjustment -- -- -- 264,493 $12.960 - $38.500
---------- ----------
Outstanding at end of year 1,779,448 $21.150 - $38.500 1,674,970 $12.960 - $38.500
========== ==========
Exercisable at end of year 1,170,574 $21.150 - $38.500 1,032,840 $12.960 - $38.500
========== ==========
Reserved for future grants 1,132,011 1,374,309
========== ==========
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred in connection with the
company's internal programs for the development of products and processes. Costs
incurred in connection with these programs amounted to $12.5 million, $15.7
million and $14.6 million for the years 1994, 1993 and 1992, respectively.
CONTINGENCIES
Environmental
-------------
The U. S. 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.
Litigation
----------
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 $30 million
in respect of the Class A-2 Preference Shares owned by Onex in the holding
company.
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. 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. A hearing has been set to begin on May 30,
1995. The parties are currently engaged in discovery. 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 this arbitration.
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
(dollars in millions except per share amounts) First Second Third Fourth
1994 Quarter Quarter Quarter Quarter Total
---- -------- ------- ------- ------- ---------
Net sales $ 587.3 $676.6 $717.5 $613.3 $2,594.7
-------- ------- ------- ------- ---------
Gross profit 55.4 71.3 81.5 75.2 283.4
-------- ------- ------- ------- ---------
Net income 10.5 17.2 23.3 22.0 73.0
Preferred dividends, net of tax benefit (0.8) (0.8) (0.8) (0.8) (3.2)
-------- ------- ------- ------- ---------
Net earnings attributable to common shareholders $ 9.7 $ 16.4 $ 22.5 $ 21.2 $ 69.8
======== ======= ======= ======= =========
Earnings per share of common stock $ 0.33 $ 0.55 $ 0.76 $ 0.71 $ 2.35
======== ======= ======= ======= =========
Fully diluted earnings per share $ 0.31 $ 0.52 $ 0.71 $ 0.66 $ 2.20
======== ======= ======= ======= =========
1993
----
Net sales $ 532.9 $663.0 $680.2 $557.7 $2,433.8
-------- ------- ------- ------- ---------
Gross profit 52.3 67.7 68.1 36.1 224.2
-------- ------- ------- ------- ---------
Net income (loss) from:
Continuing operations(1) 9.1 13.3 3.8 (58.7) (32.5)
Alltrista operations 2.1 -- -- -- 2.1
-------- ------- ------- ------- ---------
Net income (loss) before cumulative effect of
changes in accounting principles 11.2 13.3 3.8 (58.7) (30.4)
Cumulative effect of changes in accounting
principles, net of tax benefit (34.7) -- -- -- (34.7)
-------- ------ ------- ------- ---------
Net income (loss) (23.5) 13.3 3.8 (58.7) (65.1)
Preferred dividends, net of tax benefit (0.8) (0.8) (0.8) (0.8) (3.2)
-------- ------ ------- ------- ---------
Net earnings (loss) attributable to common
shareholders $ (24.3) $ 12.5 $ 3.0 $(59.5) $ (68.3)
======== ======= ======= ======= =========
Net earnings (loss) per share of common stock:
Continuing operations(1) $ 0.31 $ 0.43 $ 0.10 $(2.02) $ (1.24)
Alltrista operations 0.08 -- -- -- 0.07
Cumulative effect of changes in accounting
principles, net of tax benefit (1.29) -- -- -- (1.21)
-------- ------- ------- ------- ---------
$ (0.90) $ 0.43 $ 0.10 $(2.02) $ (2.38)
======== ======= ======= ======= =========
Fully diluted earnings (loss) per share:(2)
Continuing operations(1) $ 0.30 $ 0.41 $ 0.10 $(2.02) $ (1.24)
Alltrista operations 0.08 -- -- -- 0.07
Cumulative effect of changes in accounting
principles, net of tax benefit (1.28) -- -- -- (1.21)
-------- ------- ------- ------- ---------
$ (0.90) $ 0.41 $ 0.10 $(2.02) $ (2.38)
======== ======= ======= ======= =========
<FN>
(1) Includes $14.0 million ($8.5 million after tax) in the third quarter and
$94.7 million ($57.8 million after tax) in the fourth quarter of
restructuring and other charges. See the note, "Restructuring and Other
Charges."
(2) Fully diluted earnings (loss) per share in 1993 is the same as net earnings
(loss) per common share because the assumed exercise of stock options and
conversion of the preferred stock would have been antidilutive.
</FN>
Earnings per share calculations for each quarter are based on the weighted
average number of shares outstanding for each period, and the sum of the
quarterly amounts may not equal the annual earnings per share amount.