UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
Commission file number 1-7349
BALL CORPORATION
State of Indiana 35-0160610
345 South High Street, P.O. Box 2407
Muncie, IN 47307-0407
317/747-6100
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes [ X]
No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at June 30, 1996
Common Stock,
without par value 30,377,420 shares
Ball Corporation and Subsidiaries
QUARTERLY REPORT ON FORM 10-Q
For the period ended June 30, 1996
INDEX
Page Number
---------------------
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Unaudited Condensed Consolidated Statement of Income for the
three and six month periods ended June 30, 1996 and July 2,
1995 3
Unaudited Condensed Consolidated Balance Sheet at June 30, 1996
and December 31, 1995 4
Unaudited Condensed Consolidated Statement of Cash Flows for the
six month periods ended June 30, 1996 and July 2, 1995
5
Notes to Unaudited Condensed Consolidated Financial Statements
6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION 11
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Ball Corporation and Subsidiaries
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Millions of dollars except per share amounts)
Three months ended Six months ended
----------------------------- -----------------------------
June 30, July 2, June 30, July 2,
1996 1995 1996 1995
------------ ------------ ------------ ------------
Net sales $ 600.1 $ 755.2 $ 1,062.1 $ 1,360.8
------------ ------------ ------------ ------------
Costs and expenses
Cost of sales 547.9 679.4 972.4 1,220.3
General and administrative expenses 20.7 22.8 40.3 46.7
Selling and product development expenses 3.1 5.9 7.6 13.3
Net gain on dispositions of businesses -- -- -- (3.8)
Interest expense 11.4 10.7 19.8 20.3
------------ ------------ ------------ ------------
583.1 718.8 1,040.1 1,296.8
------------ ------------ ------------ ------------
Income before taxes on income, minority
interests and equity in earnings of affiliates
17.0 36.4 22.0 64.0
Provision for taxes on income (6.4) (14.0) (8.1) (24.1)
Minority interests 0.2 (1.2) 0.2 (2.6)
Equity in earnings of affiliates 1.0 0.7 3.2 0.9
------------ ------------ ------------ ------------
Net income 11.8 21.9 17.3 38.2
Preferred dividends, net of tax benefit (0.7) (0.8) (1.5) (1.6)
------------ ------------ ------------ ------------
Earnings attributable to common shareholders $ 11.1 $ 21.1 $ 15.8 $ 36.6
============ ============ ============ ============
Earnings per share of common stock $ 0.37 $ 0.70 $ 0.52 $ 1.22
============ ============ ============ ============
Fully diluted earnings per share $ 0.35 $ 0.66 $ 0.50 $ 1.14
============ ============ ============ ============
Cash dividends declared per common share $ 0.15 $ 0.15 $ 0.30 $ 0.30
============ ============ ============ ============
See accompanying notes to unaudited condensed consolidated financial statements.
Ball Corporation and Subsidiaries
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
(Millions of dollars)
June 30, December 31,
1996 1995
---------------- ------------------
ASSETS
Current assets
Cash and temporary investments $ 20.2 $ 5.1
Accounts receivable, net 326.8 200.0
Inventories, net
Raw materials and supplies 84.9 82.8
Work in process and finished goods 253.1 235.7
Deferred income tax benefits and prepaid expenses 85.3 69.1
------------------ ------------------
Total current assets 770.3 592.7
------------------ ------------------
Property, plant and equipment, at cost 1,229.7 1,146.8
Accumulated depreciation (532.7) (518.2)
------------------ ------------------
697.0 628.6
------------------ ------------------
Investment in affiliates 253.6 262.8
Goodwill and other assets 145.0 128.4
------------------ ------------------
$ 1,865.9 $ 1,612.5
================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt and current portion of long-term debt $ 266.9 $ 155.0
Accounts payable 242.0 195.3
Salaries, wages and other current liabilities 134.8 147.2
------------------ ------------------
Total current liabilities 643.7 497.5
------------------ ------------------
Noncurrent liabilities
Long-term debt 431.7 320.4
Employee benefit obligations, deferred income taxes and other 184.3 205.9
------------------ ------------------
Total noncurrent liabilities 616.0 526.3
------------------ ------------------
Contingencies
Minority interests 9.5 6.0
------------------ ------------------
Shareholders' equity
Series B ESOP Convertible Preferred Stock 62.4 65.6
Unearned compensation - ESOP (47.3) (50.4)
------------------
------------------
Preferred shareholder's equity 15.1 15.2
------------------ ------------------
Common stock (issued 32,657,944 shares - 1996;
32,172,768 shares - 1995) 307.7 293.8
Retained earnings 343.3 336.4
Treasury stock, at cost (2,280,524 shares - 1996;
2,058,173 shares - 1995) (69.4) (62.7)
------------------
------------------
Common shareholders' equity 596.7 567.5
------------------ ------------------
$ 1,865.9 $ 1,612.5
================== ==================
See accompanying notes to unaudited condensed consolidated financial statements.
Ball Corporation and Subsidiaries
UNAUDITED CONDENSED CONSOLIDATED
STATEMENT OF CASH FLOWS
(Millions of dollars)
Six months ended
-------------------------------------
June 30, July 2,
1996 1995
---------------- ----------------
Cash flows from operating activities
Net income $ 17.3 $ 38.2
Reconciliation of net income to net cash used in operating activities:
Depreciation and amortization 41.6 64.0
Other, net (22.0) (16.1)
Changes in working capital components (103.0) (155.7)
---------------- ----------------
Net cash used in operating activities (66.1) (69.6)
---------------- ----------------
Cash flows from financing activities
Net change in long-term debt 115.7 117.3
Net change in short-term debt 110.4 42.5
Common and preferred dividends (11.5) (11.5)
Net proceeds from issuance of common stock under various employee and
shareholder plans 13.8 16.5
Acquisitions of treasury stock (6.6) (14.2)
Other, net (3.5) (0.5)
---------------- ----------------
Net cash provided by financing activities 218.3 150.1
---------------- ----------------
Cash flows from investing activities
Additions to property, plant and equipment (104.0) (81.1)
Net proceeds from dispositions of businesses -- 14.5
Investments in and advances to affiliates and foreign joint ventures (40.9) (15.7)
Other, net 7.8 1.6
---------------- ----------------
Net cash used in investing activities (137.1) (80.7)
---------------- ----------------
Net increase (decrease) in cash 15.1 (0.2)
Cash and temporary investments:
Beginning of period 5.1 10.4
================ ================
End of period $ 20.2 $ 10.2
================ ================
See accompanying notes to unaudited condensed consolidated financial statements.
Ball Corporation and Subsidiaries
June 30, 1996
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. General.
The accompanying condensed consolidated financial statements have been prepared
by the company without audit. Certain information and footnote disclosures,
including significant accounting policies, normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. However, the company believes that the financial
statements reflect all adjustments which are necessary for a fair statement of
the results for the interim period. Results of operations for the periods shown
are not necessarily indicative of results for the year, particularly in view of
some seasonality in packaging operations. It is suggested that these unaudited
condensed consolidated financial statements and accompanying notes should be
read in conjunction with the consolidated financial statements and the notes
thereto included in the company's latest annual report.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
reported amounts of revenues and expenses during the reporting period. Future
events could affect these estimates.
2. Severance Charges.
The company eliminated approximately 75 salaried administrative and technical
positions, during the first quarter of 1996, as part of a cost reduction program
within its metal packaging business. For employees whose employment was
terminated, the company incurred an after-tax charge for severance of $1.7
million, or 6 cents per share included in general and administrative expenses.
3. Equity Affiliate.
The unaudited financial results of the company's significant equity affiliate,
Ball-Foster Glass Container Co., L.L.C. (Ball-Foster) follow:
(dollars in millions) Three months ended Six months ended
June 30, 1996 June 30, 1996
----------------------- --------------------
Net sales $ 383.5 $ 717.1
Cost of sales 382.2 685.0
Net loss reported by Ball-Foster (24.5) (26.0)
Net loss attributable to Ball Corporation $ (10.3) $ (10.9)
Net loss after taxes included in equity earnings of affiliates $ (6.1) $ (6.3)
After-tax impact of reserves released 7.0 7.0
---------------------- ------------------
Net income after taxes attributable to Ball's investment in
Ball-Foster included in equity earnings of affiliates $ 0.9 $ 0.7
The net loss reported by Ball-Foster included a provision for costs associated
with the closure of two glass manufacturing facilities that were previously
owned by Ball and amortization of moulds previously capitalized by the
Foster-Forbes glass business. Ball's share of Ball-Foster's net loss was more
than offset by the after-tax benefits from the release of certain reserves
provided by Ball in connection with the sale of the glass business to
Ball-Foster in 1995 that Ball has since determined are no longer required.
4. Shareholders' Equity.
Issued and outstanding shares of the Series B ESOP Convertible Preferred Stock
were 1,699,900 shares at June 30, 1996, and 1,786,852 shares at December 31,
1995.
5. Contingencies.
In the ordinary course of business, the company is subject to various risks and
uncertainties due, in part, to the highly competitive nature of the industries
in which the company participates, its operations in developing markets outside
the U.S., volatile costs of commodity materials used in the manufacture of its
products, and changing capital markets. Where possible and practicable, the
company attempts to minimize these risks and uncertainties.
From time to time, the company is subject to routine litigation incidental to
its business. Additionally, 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.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Consolidated net sales and operating earnings for the second quarter of 1996
were $600.1 million and $31.6 million, respectively, compared to $755.2 million
and $48.9 million for the second quarter of 1995, respectively. For the first
six months of 1996, consolidated net sales and operating earnings were $1.1
billion and $44.9 million, respectively, compared to $1.4 billion and $88.3
million, respectively, for the 1995 six month period. The lower sales and
earnings in 1996 were primarily attributable to the impact of the sale of the
company's glass container and Efratom businesses in September 1995 and March
1995, respectively; lower earnings in the metal beverage container business;
and, increased startup losses within the company's new PET plastic container
business.
Interest expense was $11.4 million in the second quarter of 1996 compared to
$10.7 million in the 1995 second quarter. For the year-to-date periods, interest
expense was $19.8 million and $20.3 million for 1996 and 1995, respectively.
Higher interest expense in the 1996 second quarter reflects higher average debt
levels partially offset by lower rates on interest-sensitive borrowings. For the
six month periods, interest expense was lower in 1996, a result of lower first
quarter 1996 borrowings and lower rates.
Taxes on income of $6.4 million and $8.1 million for the second quarter and
first half of 1996, respectively, compare to $14.0 million and $24.1 million for
the second quarter and first half of 1995, respectively. The lower taxes reflect
the lower operating results in 1996.
Equity in earnings of affiliates were $1.0 million and $0.7 million for the
second quarters of 1996 and 1995, respectively. For the six month periods,
equity in earnings of affiliates were $3.2 million and $0.9 million for 1996 and
1995, respectively. Included in the second quarter results was the company's 42
percent share of Ball-Foster's operating loss of $6.1 million, after taxes. The
operating loss included a provision for costs associated with the closure of two
glass manufacturing facilities in South Carolina and Illinois that were
previously owned by Ball and amortization of moulds previously capitalized by
the Foster-Forbes glass business and which are now fully amortized.
Ball-Foster's losses attributable to Ball were essentially offset by the
after-tax benefits from the release of certain reserves provided by Ball in
connection with the sale of the glass business to Ball-Foster in 1995 that Ball
has since determined are no longer required. In addition, the company recorded
its share of losses reported by EarthWatch Inc., a development stage company.
The impact of EarthWatch on the quarter and year-to-date periods of 1996 was a
loss of $1.2 million and $1.6 million, respectively. The losses in the
comparable 1995 periods were not significant.
Net income and earnings per share for the second quarter of 1996 were $11.8
million and 37 cents per share, compared to $21.9 million and 70 cents per share
in the second quarter of 1995. For the six months of 1996 and 1995, net income
was $17.3 million and $38.2 million, respectively; and earnings per share was 52
cents and $1.22 for the 1996 and 1995 year-to-date periods, respectively. The
lower net income and earnings per share amounts in 1996 were a result of the
lower operating results in 1996 discussed above.
Business Segments
Packaging
Packaging net sales for the second quarter and year-to-date periods of 1996 were
25.6 percent and 26.7 percent lower, respectively, than the comparable 1995
periods. Excluding the financial impact of the glass container business in 1995,
packaging net sales for the second quarter and first half of 1996 exceeded
comparable 1995 amounts by 5.3 percent and 7.4 percent, respectively, reflecting
increased sales in the metal food container business and sales from the
company's new PET plastic container business. Operating earnings for the
packaging segment were 43.5 percent and 58.4 percent lower for the second
quarter and six month periods of 1996, respectively, compared to 1995. Operating
results for the packaging segment, excluding the 1995 glass container results,
were 24.0 percent and 45.0 percent lower for the second quarter and first six
months of 1996, respectively. The lower results in the second quarter of 1996
are primarily due to lower results in the metal beverage container business. The
six month period ended June 30, 1996 reflects lower results in the metal
beverage containers business, as well as the impact of startup losses in the PET
plastic container business and a $2.7 million pretax charge for a reduction in
packaging administrative staff.
Within the packaging segment, North American metal beverage container shipments
of cans and ends have increased by 11 percent and 9 percent for the second
quarter and year-to-date periods of 1996, respectively, compared to the 1995
periods. The impact of increased shipping volume on net sales has been
substantially offset by lower selling prices, due to the effect of lower market
prices for aluminum sheet and competitive pricing. Lower operating earnings in
the North American metal beverage container business were a result of the
aforementioned lower selling prices coupled with higher can sheet costs, the
effects of lower aluminum scrap sales prices, and manufacturing inefficiencies
caused by the conversion of production capabilities to a smaller diameter end
and lower gauge aluminum. Sales of metal beverage containers in China by the
company's Hong Kong-based subsidiary increased for the 1996 second quarter and
year-to-date periods versus 1995, though operating earnings were lower due to
metal cost increases and competitive pricing.
The North American metal food container business recorded increased sales in
excess of 8 percent for the second quarter and six month periods of 1996
compared to 1995, with increased operating earnings of 38 percent for the second
quarter and 29 percent for the year-to-date period, compared to the prior year
periods. An 11 percent increase in food container shipments and improved
manufacturing efficiencies contributed to the improved results.
The company's PET plastic container facility in Chino, California began shipping
containers in the first quarter of 1996. The second facility in Baldwinsville,
New York began shipping product in March, and a third plant in Reading,
Pennsylvania was completed in June. A fourth manufacturing plant in Ames, Iowa
was announced in late May, with production scheduled to begin in early 1997. The
California plant was not at full production during the quarter resulting in
start-up losses.
As discussed earlier, the company recorded a $6.1 million loss in the second
quarter of 1996 ($6.3 million for the first half) for its 42 percent equity
stake in Ball-Foster, which was essentially offset by the release of reserves
provided by Ball related to Ball-Foster which Ball has since determined are no
longer required. In addition, operating results of the Ball-Foster business
continued to be negatively impacted by an extremely competitive pricing
environment in the beer and beverage container market, partially offset by
positive manufacturing efficiencies.
Aerospace and Technologies
Aerospace and technologies segment sales for the second quarter and six month
periods of 1996 were 21.8 percent and 13.3 percent higher than the second
quarter and six month periods of 1995. Segment operating earnings for the second
quarter of 1996 were slightly higher than same quarter of 1995 while the 1996
six month results were 16.4 percent lower than the first half of 1995, which
included a $11.8 million gain on the sale of the Efratom business in March 1995
and a charge of $8.0 million for additional costs related to the imaging
products business which had been discontinued. Excluding the effects of the
Efratom and imaging products businesses from 1995 results, sales and operating
earnings for the first half of 1996 were 20.4 percent and 8.6 percent higher,
respectively, than the first half of 1995. The increased sales and earnings are
primarily attributable to a significant, classified multi-year contract the
company entered into in late 1995. Sales and earnings for the last half of 1996
are expected to remain strong with contract backlog at $398 million at June 30,
1996, compared to $420 million and $417 million at December 31, 1995 and June
30, 1995, respectively.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $66.1 million for the six months of
1996 compared to $69.6 million for the same period of 1995, which included
seasonal cash outflows for the glass container business. Capital spending for
the first half of 1996 of $104.0 million was primarily for construction of the
PET plastic container facilities, the completion of lightweighting projects in
North American beverage packaging facilities, and construction of international
metal beverage packaging facilities. Total capital spending for 1996 is
anticipated to be over $200 million. In addition, the company provided $40.9
million to Brazilian and Thai equity affiliates in investments and advances in
the first half of 1996 versus $15.7 million in 1995 period, largely in China.
Working capital (excluding cash and current debt) was $373.3 million at June 30,
1996 compared to $245.1 million at December 31, 1995. The increase of $128.2
million was primarily due to higher accounts receivable and inventories as sales
increased in the second quarter of 1996. The working capital ratio (total
current assets divided by total current liabilities) was 1.20 at quarter end
versus 1.19 at year end 1995.
Total debt at June 30, 1996 was $698.5 million compared to $475.4 million at
December 31, 1995, an increase of $223.1 million used to fund operations
including seasonal working capital requirements, capital spending and
investments in affiliates. Total debt-to-total capitalization at the end of the
1996 second quarter increased to 53.5 percent from 44.7 percent at year end
1995, reflecting the higher level of debt.
In January 1996, the company privately placed long-term senior notes totaling
$150 million. At June 30, 1996, the company had committed revolving credit
facilities of $280 million with various banks consisting of a $150 million,
five-year facility and 364-day facilities amounting to $130 million. The company
also had $356 million in uncommitted credit facilities from various banks, of
which $105 million was outstanding, and a Canadian dollar commercial paper
facility of approximately $88 million, of which $78 million was outstanding at
quarter end. The company's Hong Kong-based metal packaging subsidiary had
additional uncommitted credit facilitates of approximately $79 million of which
$45 million was outstanding. Under the company's receivable sale agreement, a
net amount of $66.5 million of domestic packaging trade receivables have been
sold without recourse at June 30, 1996, which are reflected as a reduction in
accounts receivable. Fees in connection with this program, included in general
and administrative expenses, were $1.8 million and $2.3 million for the six
month periods of 1996 and 1995, respectively.
PART II. OTHER INFORMATION
Item 1. Legal proceedings
There were no events required to be reported under Item 1 for the quarter ending
June 30, 1996.
Item 2. Changes in securities
There were no events required to be reported under Item 2 for the quarter ending
June 30, 1996.
Item 3. Defaults upon senior securities
There were no events required to be reported under Item 3 for the quarter ending
June 30, 1996.
Item 4. Submission of matters to a vote of security holders
The Company held the Annual Meeting of Shareholders on April 24, 1996. Matters
voted upon by proxy were: the election of three directors for three-year terms
expiring in 1999; and, the ratification of the appointment of Price Waterhouse
LLP as independent accountants for 1996. The results of the vote are as follows:
Voted For Voted Against Withheld/Abstained
Election of directors for terms expiring in 1999:
George McFadden 28,716,872 -- 698,720
W. Thomas Stephens 28,119,722 -- 1,295,870
William P. Stiritz 28,159,076 -- 1,256,516
Appointment of Price Waterhouse LLP as
independent accountants for 1996 29,173,867 143,807 97,918
Item 5. Other information
There were no events required to be reported under Item 5 for the quarter ending
June 30, 1996.
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
11.1 Statement Re: Computation of Earnings per Share
27.1 Financial Data Schedule for the Six Months Ending June 30,1996
(b) Reports on Form 8-K
A Current Report on Form 8-K, dated January 26, 1996, announcing
approval by the Board of Directors of an extension of the benefits
afforded by the company's existing shareholder rights plan by the
adoption of a new shareholder rights plan, filed February 14, 1996.
A Current Report on Form 8-K, dated July 16, 1996, identifying
important factors that could cause the company's actual results to
differ materially from those projected in forward-looking statements of
the company made by, or on behalf of the company, in connection with
the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995, filed July 16, 1996.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Ball Corporation
(Registrant)
By: /s/ R. David Hoover
R. David Hoover
Executive Vice President,
Chief Financial Officer
and Treasurer
Date: August 14, 1996
Ball Corporation and Subsidiaries
QUARTERLY REPORT ON FORM 10-Q
June 30, 1996
EXHIBIT INDEX
Description Exhibit
----------- -------
Statement Re: Computation of Earnings per Share EX-11.1
Financial Data Schedule for the Six Months Ending June 30, 1996 EX-27.1
Cautionary statement for purposes of the "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995. EX-99.1