UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 3, 2011
Commission file number 1-7349
BALL CORPORATION
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State of Indiana |
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35-0160610 |
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10 Longs Peak Drive, P.O. Box 5000
Broomfield, CO 80021-2510
303/469-3131
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer x |
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Accelerated filer o |
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Non-accelerated filer o |
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
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Class |
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Outstanding at August 7, 2011 |
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Common Stock, |
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163,551,761 shares |
Ball Corporation and Subsidiaries
QUARTERLY REPORT ON FORM 10-Q
For the period ended July 3, 2011
BALL CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
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Three months ended |
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Six months ended |
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($ in millions, except per share amounts) |
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July 3, 2011 |
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June 27, 2010 |
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July 3, 2011 |
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June 27, 2010 |
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|
|
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| ||||
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Net sales |
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$ |
2,309.7 |
|
$ |
2,007.5 |
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$ |
4,320.9 |
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$ |
3,599.8 |
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|
|
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|
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Costs and expenses |
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Cost of sales (excluding depreciation and amortization) |
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(1,885.5 |
) |
(1,643.1 |
) |
(3,516.2 |
) |
(2,961.3 |
) | ||||
|
Depreciation and amortization |
|
(74.1 |
) |
(62.4 |
) |
(147.7 |
) |
(125.1 |
) | ||||
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Selling, general and administrative |
|
(93.1 |
) |
(77.6 |
) |
(192.5 |
) |
(156.9 |
) | ||||
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Business consolidation and other activities |
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(2.9 |
) |
(2.3 |
) |
(16.4 |
) |
(1.8 |
) | ||||
|
|
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(2,055.6 |
) |
(1,785.4 |
) |
(3,872.8 |
) |
(3,245.1 |
) | ||||
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|
|
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|
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|
| ||||
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Earnings before interest and taxes |
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254.1 |
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222.1 |
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448.1 |
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354.7 |
| ||||
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|
|
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|
|
|
| ||||
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Interest expense |
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(45.2 |
) |
(36.6 |
) |
(91.7 |
) |
(70.5 |
) | ||||
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Debt refinancing costs |
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— |
|
(8.1 |
) |
— |
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(8.1 |
) | ||||
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Total interest expense |
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(45.2 |
) |
(44.7 |
) |
(91.7 |
) |
(78.6 |
) | ||||
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Earnings before taxes |
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208.9 |
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177.4 |
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356.4 |
|
276.1 |
| ||||
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Tax provision |
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(64.6 |
) |
(60.8 |
) |
(112.6 |
) |
(81.7 |
) | ||||
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Equity in results of affiliates, net of tax |
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1.1 |
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28.0 |
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1.1 |
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32.7 |
| ||||
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Net earnings from continuing operations |
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145.4 |
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144.6 |
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244.9 |
|
227.1 |
| ||||
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Discontinued operations, net of tax |
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(0.3 |
) |
(75.6 |
) |
(1.6 |
) |
(78.7 |
) | ||||
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Net earnings |
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145.1 |
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69.0 |
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243.3 |
|
148.4 |
| ||||
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Less net earnings attributable to noncontrolling interests |
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(2.0 |
) |
— |
|
(8.9 |
) |
(0.1 |
) | ||||
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|
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|
|
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|
|
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| ||||
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Net earnings attributable to Ball Corporation |
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$ |
143.1 |
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$ |
69.0 |
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$ |
234.4 |
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$ |
148.3 |
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Amounts attributable to Ball Corporation: |
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|
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Continuing operations |
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$ |
143.4 |
|
$ |
144.6 |
|
$ |
236.0 |
|
$ |
227.0 |
|
|
Discontinued operations |
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(0.3 |
) |
(75.6 |
) |
(1.6 |
) |
(78.7 |
) | ||||
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Net earnings |
|
$ |
143.1 |
|
$ |
69.0 |
|
$ |
234.4 |
|
$ |
148.3 |
|
|
|
|
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Earnings per share (a): |
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Basic - continuing operations |
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$ |
0.86 |
|
$ |
0.78 |
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$ |
1.40 |
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$ |
1.23 |
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Basic - discontinued operations |
|
— |
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(0.41 |
) |
(0.01 |
) |
(0.43 |
) | ||||
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Total basic earnings per share |
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$ |
0.86 |
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$ |
0.37 |
|
$ |
1.39 |
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$ |
0.80 |
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|
|
|
|
|
|
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Diluted - continuing operations |
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$ |
0.84 |
|
$ |
0.77 |
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$ |
1.38 |
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$ |
1.21 |
|
|
Diluted - discontinued operations |
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— |
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(0.40 |
) |
(0.01 |
) |
(0.42 |
) | ||||
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Total diluted earnings per share |
|
$ |
0.84 |
|
$ |
0.37 |
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$ |
1.37 |
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$ |
0.79 |
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(a) Earnings per share amounts in 2010 have been retrospectively adjusted for the two-for-one stock split that was effective on February 15, 2011.
See accompanying notes to unaudited condensed consolidated financial statements.
BALL CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
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July 3, |
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December 31, |
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($ in millions) |
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2011 |
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2010 |
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Assets |
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Current assets |
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|
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Cash and cash equivalents |
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$ |
144.8 |
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$ |
152.0 |
|
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Receivables, net |
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1,215.1 |
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849.7 |
| ||
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Inventories, net |
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1,196.7 |
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1,083.9 |
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Deferred taxes and other current assets |
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168.0 |
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220.1 |
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Total current assets |
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2,724.6 |
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2,305.7 |
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Property, plant and equipment, net |
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2,263.0 |
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2,048.2 |
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Goodwill |
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2,372.0 |
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2,105.3 |
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Intangibles and other assets, net |
|
490.8 |
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468.5 |
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Total assets |
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$ |
7,850.4 |
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$ |
6,927.7 |
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|
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Liabilities and Shareholders’ Equity |
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Current liabilities |
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Short-term debt and current portion of long-term debt |
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$ |
349.5 |
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$ |
110.7 |
|
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Accounts payable |
|
868.7 |
|
700.3 |
| ||
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Accrued employee costs |
|
225.3 |
|
258.2 |
| ||
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Other current liabilities |
|
308.3 |
|
314.1 |
| ||
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Total current liabilities |
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1,751.8 |
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1,383.3 |
| ||
|
|
|
|
|
|
| ||
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Long-term debt |
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3,124.9 |
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2,701.6 |
| ||
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Employee benefit obligations |
|
1,007.1 |
|
963.3 |
| ||
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Deferred taxes and other liabilities |
|
231.8 |
|
221.4 |
| ||
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Total liabilities |
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6,115.6 |
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5,269.6 |
| ||
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|
|
|
|
|
| ||
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Contingencies |
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|
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|
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Shareholders’ equity (a) |
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|
|
|
| ||
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Common stock (326,613,079 shares issued - 2011; 325,423,462 shares issued - 2010) |
|
922.1 |
|
893.4 |
| ||
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Retained earnings |
|
3,040.4 |
|
2,829.8 |
| ||
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Accumulated other comprehensive earnings (loss) |
|
(6.0 |
) |
(82.1 |
) | ||
|
Treasury stock, at cost (160,166,877 shares - 2011; 153,265,070 shares - 2010) |
|
(2,377.1 |
) |
(2,123.1 |
) | ||
|
Total Ball Corporation shareholders’ equity |
|
1,579.4 |
|
1,518.0 |
| ||
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Noncontrolling interests |
|
155.4 |
|
140.1 |
| ||
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Total shareholders’ equity |
|
1,734.8 |
|
1,658.1 |
| ||
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Total liabilities and shareholders’ equity |
|
$ |
7,850.4 |
|
$ |
6,927.7 |
|
(a) Share amounts in 2010 have been retrospectively adjusted for the two-for-one stock split that was effective on February 15, 2011.
See accompanying notes to unaudited condensed consolidated financial statements.
BALL CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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|
|
Six months ended |
| ||||
|
($ in millions) |
|
July 3, 2011 |
|
June 27, 2010 |
| ||
|
|
|
|
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|
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Cash Flows From Operating Activities: |
|
|
|
|
| ||
|
Net earnings |
|
$ |
243.3 |
|
$ |
148.4 |
|
|
Discontinued operations, net of tax |
|
1.6 |
|
78.7 |
| ||
|
Adjustments to reconcile net earnings to net cash used in continuing operating activities: |
|
|
|
|
| ||
|
Depreciation and amortization |
|
147.7 |
|
125.1 |
| ||
|
Deferred taxes |
|
14.0 |
|
(11.4 |
) | ||
|
Other, net |
|
65.4 |
|
21.9 |
| ||
|
Changes in working capital components |
|
(308.9 |
) |
(353.9 |
) | ||
|
Cash provided by (used in) continuing operating activities |
|
163.1 |
|
8.8 |
| ||
|
Cash provided by (used in) discontinued operating activities |
|
(1.9 |
) |
21.9 |
| ||
|
Total cash provided by (used in) operating activities |
|
161.2 |
|
30.7 |
| ||
|
|
|
|
|
|
| ||
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Cash Flows From Investing Activities: |
|
|
|
|
| ||
|
Additions to property, plant and equipment |
|
(213.5 |
) |
(69.1 |
) | ||
|
Business acquisition |
|
(295.2 |
) |
— |
| ||
|
Acquisition of equity affiliate |
|
— |
|
(89.2 |
) | ||
|
Other, net |
|
(0.6 |
) |
(10.2 |
) | ||
|
Cash provided by (used in) continuing investing activities |
|
(509.3 |
) |
(168.5 |
) | ||
|
Cash provided by (used in) discontinued investing activities |
|
— |
|
(7.4 |
) | ||
|
Total cash provided by (used in) investing activities |
|
(509.3 |
) |
(175.9 |
) | ||
|
|
|
|
|
|
| ||
|
Cash Flows From Financing Activities: |
|
|
|
|
| ||
|
Long-term borrowings |
|
537.5 |
|
1,077.4 |
| ||
|
Repayments of long-term borrowings |
|
(141.7 |
) |
(977.7 |
) | ||
|
Net change in short-term borrowings |
|
204.5 |
|
81.0 |
| ||
|
Proceeds from issuances of common stock |
|
22.8 |
|
21.8 |
| ||
|
Acquisitions of treasury stock |
|
(263.9 |
) |
(162.9 |
) | ||
|
Common dividends |
|
(23.3 |
) |
(18.3 |
) | ||
|
Other, net |
|
3.8 |
|
(9.3 |
) | ||
|
Cash provided by (used in) financing activities |
|
339.7 |
|
12.0 |
| ||
|
|
|
|
|
|
| ||
|
Effect of exchange rate changes on cash |
|
1.2 |
|
(2.4 |
) | ||
|
|
|
|
|
|
| ||
|
Change in cash and cash equivalents |
|
(7.2 |
) |
(135.6 |
) | ||
|
Cash and cash equivalents - beginning of period |
|
152.0 |
|
210.6 |
| ||
|
Cash and cash equivalents - end of period |
|
$ |
144.8 |
|
$ |
75.0 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
Ball Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Ball Corporation and its controlled affiliates, including its consolidated variable interest entities (collectively Ball, the company, we or our) and have been prepared by the company. Certain information and footnote disclosures, including critical and significant accounting policies normally included in financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted for this presentation.
Results of operations for the periods shown are not necessarily indicative of results for the year, particularly in view of the seasonality in the packaging segments and the irregularity of contract revenues in the aerospace and technologies segment. These unaudited condensed consolidated financial statements and accompanying notes should be read in conjunction with the consolidated financial statements and the notes thereto included in the company’s Annual Report on Form 10-K filed on February 28, 2011, pursuant to Section 13 of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2010 (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 liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting periods. These estimates are based on historical experience and various assumptions believed to be reasonable under the circumstances. Actual results could differ from these estimates under different assumptions and conditions. However, we believe that the financial statements reflect all adjustments which are of a normal recurring nature and are necessary to fairly state the results of the interim periods.
Certain prior period amounts have been reclassified in order to conform to the current period presentation. On January 26, 2011, the company’s board of directors declared a two-for-one split of Ball’s common stock, which was effective on February 15, 2011, for all shareholders of record on February 4, 2011. As a result of the stock split, all 2010 amounts related to shares, share prices and earnings per share have been retrospectively adjusted throughout this report.
2. Accounting Pronouncements
Recently Adopted Accounting Standards
In April 2010, accounting guidance was issued to outline the criteria that should be met for determining when the milestone method of revenue recognition is appropriate in research or development transactions. The new guidance was effective as of January 1, 2011, and did not have a significant impact on Ball’s financial statements.
In January 2010, the FASB issued additional guidance regarding fair value measurements, specifically requiring the disclosure of transfers in and out of Level 1 and 2 assets and liabilities (previously only required for those in Level 3) and more specific detailed disclosure of the activity in Level 3 fair value measurements (on a gross basis rather than a net basis). The new guidance also clarifies existing disclosure requirements regarding the level of disaggregation of asset and liability classes, as well as the valuation techniques and inputs used to measure fair value for Level 2 and Level 3 fair value measurements. The disclosure requirement for transfers in and out of Level 1 and 2 assets and liabilities was effective for Ball on January 1, 2010, and had no impact on the unaudited condensed consolidated financial statements. The reporting of Level 3 activity on a gross basis was effective for Ball as of January 1, 2011, and affects only the Level 3 pension plan assets, which do not represent a significant component of the total pension assets.
Ball Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
2. Accounting Pronouncements (continued)
New Accounting Guidance
In June 2011, accounting guidance was issued requiring that all nonowner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive earnings or in two separate but consecutive statements. The guidance also requires the company to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive earnings to net earnings. Ball has historically presented comprehensive earnings within the statement of changes in shareholders’ equity and is evaluating which acceptable method of presentation included in the guidance it will adopt once the statement becomes effective for the company on January 1, 2012.
In May 2011, amendments to existing accounting guidance were issued that result in a more consistent definition of fair value and common requirements for measurement of, and disclosure about, fair value between U.S. GAAP and IFRS. The amendments in the new guidance provide explanations on how to measure fair value but do not require additional fair value measurements. The new fair value guidance will be effective for Ball as of January 1, 2012, and is not expected to have a material effect on the company’s financial statements or disclosures.
3. Business Segment Information
Ball’s operations are organized and reviewed by management along its product lines and presented in the following four reportable segments.
Metal beverage packaging, Americas and Asia: Consists of the metal beverage packaging, Americas, operations in the U.S., Canada and Brazil (see Note 4), and the metal beverage packaging, Asia, operations in the People’s Republic of China (PRC). The Americas and Asia segments have been aggregated based on similar economic and qualitative characteristics. The operations in this reporting segment manufacture and sell metal beverage containers, and also manufacture and sell non-beverage plastic containers in the PRC.
Metal beverage packaging, Europe: Consists of operations in several countries in Europe, which manufacture and sell metal beverage containers, extruded aluminum aerosol containers and aluminum slugs.
Metal food and household products packaging, Americas: Consists of operations in the U.S., Canada and Argentina, which manufacture and sell metal food, aerosol, paint and general line containers, as well as decorative specialty containers and aluminum slugs.
Aerospace and technologies: Consists of the manufacture and sale of aerospace and other related products and the providing of services used in the defense, civil space and commercial space industries.
The accounting policies of the segments are the same as those in the unaudited condensed consolidated financial statements. A discussion of the company’s critical and significant accounting policies can be found in Ball’s annual report. The company also has investments in companies in the U.S. and the PRC, which are accounted for under the equity method of accounting and, accordingly, those results are not included in segment sales or earnings. The company’s investment in a Brazilian joint venture was previously accounted for using the equity method of accounting. However, during August 2010, Ball acquired an additional economic interest in the joint venture partner and its results are now consolidated.
Ball Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
3. Business Segment Information (continued)
Summary of Business by Segment
|
|
|
Three months ended |
|
Six months ended |
| ||||||||
|
($ in millions) |
|
July 3, 2011 |
|
June 27, 2010 |
|
July 3, 2011 |
|
June 27, 2010 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Net Sales |
|
|
|
|
|
|
|
|
| ||||
|
Metal beverage packaging, Americas & Asia |
|
$ |
1,164.1 |
|
$ |
1,036.0 |
|
$ |
2,196.4 |
|
$ |
1,810.4 |
|
|
Metal beverage packaging, Europe |
|
607.9 |
|
479.3 |
|
1,050.9 |
|
846.8 |
| ||||
|
Metal food & household products packaging, Americas |
|
345.7 |
|
312.0 |
|
690.4 |
|
597.4 |
| ||||
|
Aerospace & technologies |
|
199.9 |
|
180.2 |
|
391.1 |
|
345.2 |
| ||||
|
Corporate and intercompany eliminations |
|
(7.9 |
) |
— |
|
(7.9 |
) |
— |
| ||||
|
Net sales |
|
$ |
2,309.7 |
|
$ |
2,007.5 |
|
$ |
4,320.9 |
|
$ |
3,599.8 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Net Earnings |
|
|
|
|
|
|
|
|
| ||||
|
Metal beverage packaging, Americas & Asia |
|
$ |
126.1 |
|
$ |
114.5 |
|
$ |
241.7 |
|
$ |
188.5 |
|
|
Business consolidation activities |
|
(2.5 |
) |
0.8 |
|
(13.4 |
) |
1.3 |
| ||||
|
Total metal beverage packaging, |
|
|
|
|
|
|
|
|
| ||||
|
Americas & Asia |
|
123.6 |
|
115.3 |
|
228.3 |
|
189.8 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Metal beverage packaging, Europe |
|
84.7 |
|
72.5 |
|
137.8 |
|
107.5 |
| ||||
|
Business consolidation activities |
|
(0.3 |
) |
— |
|
(2.9 |
) |
— |
| ||||
|
Total metal beverage packaging, Europe |
|
84.4 |
|
72.5 |
|
134.9 |
|
107.5 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Metal food & household products packaging, Americas |
|
41.3 |
|
33.4 |
|
81.1 |
|
55.1 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Aerospace & technologies |
|
21.7 |
|
18.6 |
|
40.4 |
|
32.1 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Segment earnings before interest and taxes |
|
271.0 |
|
239.8 |
|
484.7 |
|
384.5 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Undistributed corporate expenses and intercompany eliminations, net |
|
(16.8 |
) |
(14.6 |
) |
(36.5 |
) |
(26.7 |
) | ||||
|
Business consolidation and other activities |
|
(0.1 |
) |
(3.1 |
) |
(0.1 |
) |
(3.1 |
) | ||||
|
Total undistributed corporate expenses, net |
|
(16.9 |
) |
(17.7 |
) |
(36.6 |
) |
(29.8 |
) | ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Earnings before interest and taxes |
|
254.1 |
|
222.1 |
|
448.1 |
|
354.7 |
| ||||
|
Interest expense |
|
(45.2 |
) |
(44.7 |
) |
(91.7 |
) |
(78.6 |
) | ||||
|
Tax provision |
|
(64.6 |
) |
(60.8 |
) |
(112.6 |
) |
(81.7 |
) | ||||
|
Equity in results of affiliates, net of tax |
|
1.1 |
|
28.0 |
|
1.1 |
|
32.7 |
| ||||
|
Net earnings from continuing operations |
|
145.4 |
|
144.6 |
|
244.9 |
|
227.1 |
| ||||
|
Discontinued operations, net of tax |
|
(0.3 |
) |
(75.6 |
) |
(1.6 |
) |
(78.7 |
) | ||||
|
Net earnings from continuing operations |
|
145.1 |
|
69.0 |
|
243.3 |
|
148.4 |
| ||||
|
Less net earnings attributable to noncontrolling interests |
|
(2.0 |
) |
— |
|
(8.9 |
) |
(0.1 |
) | ||||
|
Net earnings attributable to Ball Corporation |
|
$ |
143.1 |
|
$ |
69.0 |
|
$ |
234.4 |
|
$ |
148.3 |
|
Ball Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
3. Business Segment Information (continued)
|
|
|
July 3, |
|
December 31, |
| ||
|
($ in millions) |
|
2011 |
|
2010 |
| ||
|
|
|
|
|
|
| ||
|
Total Assets |
|
|
|
|
| ||
|
Metal beverage packaging, Americas & Asia |
|
$ |
3,138.7 |
|
$ |
2,965.8 |
|
|
Metal beverage packaging, Europe |
|
2,926.7 |
|
2,210.6 |
| ||
|
Metal food & household products packaging, Americas |
|
1,245.7 |
|
1,184.3 |
| ||
|
Aerospace & technologies |
|
285.6 |
|
280.9 |
| ||
|
Segment assets |
|
7,596.7 |
|
6,641.6 |
| ||
|
Corporate assets, net of eliminations |
|
253.7 |
|
286.1 |
| ||
|
Total assets |
|
$ |
7,850.4 |
|
$ |
6,927.7 |
|
|
|
|
|
|
|
| ||
4. Acquisitions
Aerocan S.A.S. (Aerocan)
In January 2011, the company acquired Aerocan for €221.7 million ($295.2 million) in cash and assumed debt, net of $26.2 million of cash acquired. Aerocan is a leading European manufacturer of extruded aluminum aerosol containers, and the aluminum slugs used to make them, for customers in the personal care, pharmaceutical, beverage and food industries. It operates three aerosol container manufacturing plants — one each in the Czech Republic, France and the United Kingdom — and is a 51 percent owner of a joint venture aluminum slug plant in France. The four plants employ approximately 560 people. The acquisition of Aerocan allows Ball to enter a growing part of the metal packaging industry and to broaden the company’s market development efforts into a new customer base. The acquired operations have been included in the metal beverage packaging, Europe, segment since the acquisition date.
Management’s preliminary fair market valuation of acquired assets and liabilities is summarized below. The preliminary valuation was based on market and income approaches.
|
($ in millions) |
|
|
| |
|
Other assets and liabilities, net |
|
$ |
8.3 |
|
|
Property, plant and equipment |
|
95.8 |
| |
|
Goodwill |
|
157.7 |
| |
|
Other intangible assets |
|
53.9 |
| |
|
Deferred taxes |
|
(14.5 |
) | |
|
Noncontrolling interest |
|
(6.0 |
) | |
|
Net assets acquired |
|
$ |
295.2 |
|
Certain customer contracts, customer relationships, developed technology and assembled workforce were identified as intangible assets by the company and assigned estimated useful lives between 5 and 12 years. The intangible assets are being amortized on a straight-line basis.
Latapack-Ball Embalagens, Ltda. (Latapack-Ball)
In August 2010, the company paid $46.2 million to acquire an additional 10.1 percent economic interest in its Brazilian beverage packaging joint venture, Latapack-Ball, through a transaction with the joint venture partner, Latapack S.A. This transaction increased the company’s overall economic interest in the joint venture to 60.1 percent and expands and strengthens Ball’s presence in the growing Brazilian market. As a result of the transaction, Latapack-Ball became a variable interest entity (VIE) under consolidation accounting guidelines with Ball being identified as the primary beneficiary of the VIE and consolidating the joint venture. Latapack-Ball operates two metal beverage can manufacturing plants in Tres Rios, Rio de Janeiro; and Jacarei, Sao Paulo; as well as a can end manufacturing plant in Simoes Filho (Salvador), Bahia. Latapack-Ball has been included in the metal beverage packaging, Americas and Asia, reporting segment.
Ball Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
4. Acquisitions (continued)
The following table summarizes the final fair values of the Latapack-Ball assets acquired, liabilities assumed and non-controlling interest recognized, as well as the related investment in Latapack S.A., as of the acquisition date. The valuation was based on market and income approaches.
|
Cash |
|
$ |
69.3 |
|
|
Current assets |
|
84.7 |
| |
|
Property, plant and equipment |
|
265.9 |
| |
|
Goodwill |
|
100.2 |
| |
|
Intangible asset |
|
52.8 |
| |
|
Current liabilities |
|
(53.2 |
) | |
|
Long-term liabilities |
|
(174.1 |
) | |
|
Net assets acquired |
|
$ |
345.6 |
|
|
Noncontrolling interest |
|
$ |
(132.9 |
) |
The customer relationships were identified as an intangible asset by the company and assigned an estimated life of 13.4 years. The intangible asset is being amortized on a straight-line basis.
Neuman Aluminum (Neuman)
In July 2010, the company acquired Neuman for approximately $62 million in cash and became the leading North American manufacturer of aluminum slugs used to make extruded aerosol cans, beverage bottles, collapsible tubes and technical impact extrusions. Neuman operates two plants, one in the United States and one in Canada, that employ approximately 180 people. The acquisition of Neuman is not material to the metal food and household products packaging, Americas, segment, in which its results of operations have been included since the acquisition date.
Guangdong Jianlibao Group Co., Ltd (Jianlibao)
In June 2010, the company acquired Jianlibao’s 65 percent interest in a joint venture metal beverage can and end plant in Sanshui (Foshan), PRC, for $86.9 million in cash (net of cash acquired) and assumed debt, and also entered into a long-term supply agreement. The company recorded equity earnings of $22.1 million, which was composed of equity earnings and a gain realized on the fair value of Ball’s equity investment as a result of the required purchase accounting. The acquisition of the remaining interest is not material to the metal beverage packaging, Americas and Asia, segment.
5. Dispositions
Plastics Packaging, Americas
In August 2010, the company completed the sale of its plastics packaging, Americas, business to Amcor Limited and received gross proceeds of $258.7 million, which included $15 million of contingent consideration recognized at closing and is net of post-closing adjustments of $21.3 million. The sale of Ball’s plastics packaging business included five U.S. plants that manufacture polyethylene terephthalate (PET) bottles and preforms and polypropylene bottles, as well as associated customer contracts and other related assets.
Ball Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
5. Dispositions (continued)
The following tables summarize the operating results for the discontinued operations:
|
|
|
Three months ended |
|
Six months ended |
| ||||||||
|
($ in millions) |
|
July 3, 2011 |
|
June 27, 2010 |
|
July 3, 2011 |
|
June 27, 2010 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Net sales |
|
$ |
— |
|
$ |
149.3 |
|
$ |
— |
|
$ |
263.2 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Earnings from operations |
|
$ |
— |
|
$ |
3.4 |
|
$ |
— |
|
$ |
1.4 |
|
|
Impairment loss |
|
— |
|
(107.1 |
) |
— |
|
(107.1 |
) | ||||
|
Loss on sale of business |
|
— |
|
— |
|
(0.8 |
) |
— |
| ||||
|
Business consolidation activities |
|
(0.5 |
) |
(4.4 |
) |
(1.8 |
) |
(7.3 |
) | ||||
|
Tax benefit |
|
0.2 |
|
32.5 |
|
1.0 |
|
34.3 |
| ||||
|
Discontinued operations, net of tax |
|
$ |
(0.3 |
) |
$ |
(75.6 |
) |
$ |
(1.6 |
) |
$ |
(78.7 |
) |
6. Business Consolidation Activities
2011
Metal Beverage Packaging, Americas and Asia
In January 2011, Ball announced plans to close its Torrance, California, beverage can manufacturing plant; relocate a 12-ounce can line from the Torrance plant to its Whitby, Ontario, plant; and expand specialty can production in its Fort Worth, Texas, plant. The company recorded charges of $10.5 million and $2.2 million during the first and second quarters of 2011, respectively, in connection with these activities. Of the total $12.7 million recorded in the first six months, $8.5 million represented severance, pension and other employee benefits; $2.3 million represented the impairment of the plant facility to its net realizable value and $1.9 million represented accelerated depreciation.
An additional $0.7 million of net charges were recorded in the first six months of 2011, primarily to reflect individually insignificant charges related to previously announced plant closures.
Metal Beverage Packaging, Europe
In connection with the acquisition of Aerocan discussed in Note 4, the company recorded charges totaling $2.9 million for transaction costs, which are required to be expensed as incurred.
2010
The second quarter of 2010 included a charge of $3.1 million to establish a reserve associated with an environmental matter at a previously owned facility. Earnings of $0.5 million and $0.8 million were recorded in the first and second quarters, respectively, to reflect individually insignificant costs and gains related to previously announced plant closures.
Following is a summary of activity by segment related to business consolidation activities:
|
($ in millions) |
|
Metal Beverage |
|
Metal Food |
|
Corporate |
|
Total |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Balance at December 31, 2010 |
|
$ |
7.5 |
|
$ |
9.5 |
|
$ |
11.0 |
|
$ |
28.0 |
|
|
Charges (gains) in continuing operations |
|
13.4 |
|
— |
|
— |
|
13.4 |
| ||||
|
Cash payments and other activity |
|
(12.6 |
) |
(3.8 |
) |
(0.8 |
) |
(17.2 |
) | ||||
|
Balance at July 3, 2011 |
|
$ |
8.3 |
|
$ |
5.7 |
|
$ |
10.2 |
|
$ |
24.2 |
|
Ball Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
6. Business Consolidation Activities (continued)
The carrying value of fixed assets remaining for sale in connection with plant closures was approximately $17.4 million at July 3, 2011.
7. Receivables
|
|
|
July 3, |
|
December 31, |
| ||
|
($ in millions) |
|
2011 |
|
2010 |
| ||
|
|
|
|
|
|
| ||
|
Trade accounts receivable, net |
|
$ |
1,134.4 |
|
$ |
774.3 |
|
|
Other receivables |
|
80.7 |
|
75.4 |
| ||
|
|
|
$ |
1,215.1 |
|
$ |
849.7 |
|
Trade accounts receivable are shown net of an allowance for doubtful accounts of $14.1 million at July 3, 2011, and $11.9 million at December 31, 2010.
8. Inventories
|
|
|
July 3, |
|
December 31, |
| ||
|
($ in millions) |
|
2011 |
|
2010 |
| ||
|
|
|
|
|
|
| ||
|
Raw materials and supplies |
|
$ |
440.5 |
|
$ |
478.0 |
|
|
Work in process and finished goods |
|
756.2 |
|
605.9 |
| ||
|
|
|
$ |
1,196.7 |
|
$ |
1,083.9 |
|
9. Property, Plant and Equipment
|
|
|
July 3, |
|
December 31, |
| ||
|
($ in millions) |
|
2011 |
|
2010 |
| ||
|
|
|
|
|
|
| ||
|
Land |
|
$ |
101.5 |
|
$ |
95.0 |
|
|
Buildings |
|
907.2 |
|
848.7 |
| ||
|
Machinery and equipment |
|
3,211.7 |
|
2,945.6 |
| ||
|
Construction in progress |
|
287.0 |
|
237.8 |
| ||
|
|
|
4,507.4 |
|
4,127.1 |
| ||
|
Accumulated depreciation |
|
(2,244.4 |
) |
(2,078.9 |
) | ||
|
|
|
$ |
2,263.0 |
|
$ |
2,048.2 |
|
Property, plant and equipment are stated at historical cost. Depreciation expense amounted to $69.0 million and $137.0 million for the three and six months ended July 3, 2011, respectively, and $59.7 million and $119.7 million for the comparable periods in 2010, respectively.
Ball Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
10. Goodwill
|
($ in millions) |
|
Metal |
|
Metal |
|
Metal Food & |
|
Total |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Balance at December 31, 2010 |
|
$ |
739.4 |
|
$ |
985.6 |
|
$ |
380.3 |
|
$ |
2,105.3 |
|
|
Business acquisition |
|
— |
|
157.7 |
|
— |
|
157.7 |
| ||||
|
Effects of foreign currency transactions |
|
— |
|
109.0 |
|
— |
|
109.0 |
| ||||
|
Balance at July 3, 2011 |
|
$ |
739.4 |
|
$ |
1,252.3 |
|
$ |
380.3 |
|
$ |
2,372.0 |
|
11. Intangibles and Other Assets
|
|
|
July 3, |
|
December 31, |
| ||
|
($ in millions) |
|
2011 |
|
2010 |
| ||
|
|
|
|
|
|
| ||
|
Intangible assets (net of accumulated amortization of $127.1 at July 3, 2011, and $113.5 at December 31, 2010) |
|
$ |
197.6 |
|
$ |
149.1 |
|
|
Net cash surrender value of company and trust-owned life insurance |
|
151.5 |
|
131.1 |
| ||
|
Other |
|
141.7 |
|
188.3 |
| ||
|
|
|
$ |
490.8 |
|
$ |
468.5 |
|
Total amortization expense of intangible assets amounted to $5.1 million and $10.7 million for the three and six months ended July 3, 2011, respectively, and $2.7 million and $5.4 million for the comparable periods in 2010, respectively.
Ball Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
12. Debt
Long-term debt consisted of the following:
|
|
|
July 3, 2011 |
|
December 31, 2010 |
| ||||||||
|
|
|
In Local |
|
|
|
In Local |
|
|
| ||||
|
($ in millions) |
|
Currency |
|
In U.S. $ |
|
Currency |
|
In U.S. $ |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Notes Payable |
|
|
|
|
|
|
|
|
| ||||
|
7.125% Senior Notes, due September 2016 |
|
$ |
375.0 |
|
$ |
375.0 |
|
$ |
375.0 |
|
$ |
375.0 |
|
|
6.625% Senior Notes, due March 2018 |
|
$ |
450.0 |
|
450.0 |
|
$ |
450.0 |
|
450.0 |
| ||
|
7.375% Senior Notes, due September 2019 |
|
$ |
325.0 |
|
325.0 |
|
$ |
325.0 |
|
325.0 |
| ||
|
6.75% Senior Notes, due September 2020 |
|
$ |
500.0 |
|
500.0 |
|
$ |
500.0 |
|
500.0 |
| ||
|
5.75% Senior Notes, due May 2021 |
|
$ |
500.0 |
|
500.0 |
|
$ |
500.0 |
|
500.0 |
| ||
|
Senior Credit Facilities, due December 2015 (at variable rates) |
|
|
|
|
|
|
|
|
| ||||
|
Term A Loan, U.S. dollar denominated |
|
$ |
200.0 |
|
200.0 |
|
$ |
200.0 |
|
200.0 |
| ||
|
Term B Loan, British sterling denominated |
|
£ |
51.0 |
|
82.0 |
|
£ |
51.0 |
|
78.9 |
| ||
|
Term C Loan, euro denominated |
|
€ |
100.0 |
|
145.3 |
|
€ |
100.0 |
|
132.5 |
| ||
|
Euro multi-currency revolver borrowings |
|
€ |
292.0 |
|
424.2 |
|
€ |
— |
|
— |
| ||
|
Latapack-Ball Notes Payable (at variable rates, due in October 2017) |
|
$ |
135.0 |
|
135.0 |
|
$ |
135.0 |
|
135.0 |
| ||
|
Industrial Development Revenue Bonds |
|
|
|
|
|
|
|
|
| ||||
|
Floating rates due through 2011 |
|
$ |
5.4 |
|
5.4 |
|
$ |
5.4 |
|
5.4 |
| ||
|
Other (including discounts and premiums) |
|
Various |
|
43.3 |
|
Various |
|
34.3 |
| ||||
|
|
|
|
|
3,185.2 |
|
|
|
2,736.1 |
| ||||
|
Less: Current portion of long-term debt |
|
|
|
(60.3 |
) |
|
|
(34.5 |
) | ||||
|
|
|
|
|
$ |
3,124.9 |
|
|
|
$ |
2,701.6 |
| ||
The senior credit facilities bear interest at variable rates and include the term loans described in the table above, as well as (1) a multi-currency, long-term revolving credit facility that provides the company with up to the U.S. dollar equivalent of $850 million and (2) a French multi-currency revolving credit facility that provides the company with up to the U.S. dollar equivalent of $150 million. The revolving credit facilities expire in December 2015. The Latapack-Ball debt facilities contain various covenants and restrictions but are non-recourse to Ball Corporation and its wholly owned subsidiaries.
At July 3, 2011, taking into account outstanding letters of credit, approximately $553 million was available under the company’s committed multi-currency revolving credit facilities, which are available until December 2015. In addition to the long-term committed credit facilities, the company had approximately $465 million of short-term uncommitted credit facilities available at the end of the quarter, of which $174.2 million was outstanding and due on demand.
A receivables sales agreement provides for the ongoing, revolving sale of a designated pool of trade accounts receivable of Ball’s North American packaging operations varying from a maximum of $125 million for settlement dates in January through April to a maximum of $175 million for settlement dates in the remaining months. At July 3, 2011, the amount of accounts receivable sold under the securitization program was $115 million. There were no accounts receivable sold under the securitization program at December 31, 2010.
On August 1, 2011, the company entered into a replacement accounts receivable securitization agreement for a term of three years. The maximum the company can borrow under the new agreement can vary between $150 million and $275 million depending on the seasonality of the company’s business.
Ball Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
12. Debt (continued)
The fair value of the long-term debt at July 3, 2011, and at December 31, 2010, approximated its carrying value. The fair value reflects the market rates at each period end for debt with credit ratings similar to the company’s ratings. Rates currently available to the company for loans with similar terms and maturities are used to estimate the fair value of long-term debt based on discounted cash flows.
On March 22, 2010, Ball issued $500 million of new 6.75 percent senior notes due in September 2020. On April 21, 2010, the company redeemed $509 million of its 6.875 percent senior notes due December 2012 at a redemption price of 101.146 percent of the outstanding principal amount plus accrued interest. The redemption resulted in a charge of $8.1 million for the call premium and the write off of unamortized financing costs and unamortized premiums. The charge is included as a component of interest expense in the consolidated financial statements.
The senior notes and senior credit facilities are guaranteed on a full, unconditional and joint and several basis by certain of the company’s wholly owned domestic subsidiaries. Certain foreign denominated tranches of the senior credit facilities are similarly guaranteed by certain of the company’s wholly owned foreign subsidiaries. The unaudited condensed consolidating financial information for the guarantor and non-guarantor subsidiaries is presented in Exhibit 20 to this Form 10-Q. Separate financial statements for the guarantor subsidiaries and the non-guarantor subsidiaries are not presented because management has determined that such financial statements are not required by the current regulations.
The U.S. note agreements, bank credit agreement, industrial development revenue bond agreements and the new accounts receivable securitization agreement contain certain restrictions relating to dividend payments, share repurchases, investments, financial ratios, guarantees and the incurrence of additional indebtedness. The most restrictive of the company’s debt covenants require the company to maintain an interest coverage ratio (as defined in the agreements) of no less than 3.50 and a leverage ratio (as defined) of no greater than 4.00. The company was in compliance with all loan agreements and debt covenants at July 3, 2011, and December 31, 2010, and has met all debt payment obligations.
Ball Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
13. Employee Benefit Obligations
|
|
|
July 3, |
|
December 31, |
| ||
|
($ in millions) |
|
2011 |
|
2010 |
| ||
|
|
|
|
|
|
| ||
|
Total defined benefit pension liability |
|
$ |
572.3 |
|
$ |
541.1 |
|
|
Less current portion |
|
(24.9 |
) |
(23.4 |
) | ||
|
Long-term defined benefit pension liability |
|
547.4 |
|
517.7 |
| ||
|
Retiree medical and other postemployment benefits |
|
190.9 |
|
186.1 |
| ||
|
Deferred compensation plans |
|
236.6 |
|
224.5 |
| ||
|
Other |
|
32.2 |
|
35.0 |
| ||
|
|
|
$ |
1,007.1 |
|
$ |
963.3 |
|
Components of net periodic benefit cost associated with the company’s defined benefit pension plans were:
|
|
|
Three months ended |
| ||||||||||||||||
|
|
|
July 3, 2011 |
|
June 27, 2010 |
| ||||||||||||||
|
($ in millions) |
|
U.S. |
|
Foreign |
|
Total |
|
U.S. |
|
Foreign |
|
Total |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Service cost |
|
$ |
10.8 |
|
$ |
2.0 |
|
$ |
12.8 |
|
$ |
11.1 |
|
$ |
1.8 |
|
$ |
12.9 |
|
|
Interest cost |
|
14.4 |
|
8.0 |
|
22.4 |
|
14.1 |
|
7.2 |
|
21.3 |
| ||||||
|
Expected return on plan assets |
|
(18.0 |
) |
(4.4 |
) |
(22.4 |
) |
(17.0 |
) |
(3.7 |
) |
(20.7 |
) | ||||||
|
Amortization of prior service cost |
|
0.3 |
|
(0.1 |
) |
0.2 |
|
0.4 |
|
(0.1 |
) |
0.3 |
| ||||||
|
Recognized net actuarial loss |
|
5.3 |
|
1.5 |
|
6.8 |
|
4.3 |
|
1.2 |
|
5.5 |
| ||||||
|
Subtotal |
|
12.8 |
|
7.0 |
|
19.8 |
|
12.9 |
|
6.4 |
|
19.3 |
| ||||||
|
Multi-employer plans |
|
0.4 |
|
— |
|
0.4 |
|
0.4 |
|
— |
|
0.4 |
| ||||||
|
Net periodic benefit cost |
|
$ |
13.2 |
|
$ |
7.0 |
|
$ |
20.2 |
|
$ |
13.3 |
|
$ |
6.4 |
|
$ |
19.7 |
|
|
|
|
Six months ended |
| ||||||||||||||||
|
|
|
July 3, 2011 |
|
June 27, 2010 |
| ||||||||||||||
|
($ in millions) |
|
U.S. |
|
Foreign |
|
Total |
|
U.S. |
|
Foreign |
|
Total |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Service cost |
|
$ |
21.6 |
|
$ |
4.0 |
|
$ |
25.6 |
|
$ |
22.2 |
|
$ |
3.6 |
|
$ |
25.8 |
|
|
Interest cost |
|
28.8 |
|
15.6 |
|
44.4 |
|
28.3 |
|
14.7 |
|
43.0 |
| ||||||
|
Expected return on plan assets |
|
(36.0 |
) |
(8.7 |
) |
(44.7 |
) |
(34.0 |
) |
(7.4 |
) |
(41.4 |
) | ||||||
|
Amortization of prior service cost |
|
0.6 |
|
(0.2 |
) |
0.4 |
|
0.7 |
|
(0.2 |
) |
0.5 |
| ||||||
|
Recognized net actuarial loss |
|
10.7 |
|
2.9 |
|
13.6 |
|
8.6 |
|
2.4 |
|
11.0 |
| ||||||
|
Curtailment loss |
|
4.4 |
|
— |
|
4.4 |
|
— |
|
— |
|
— |
| ||||||
|
Subtotal |
|
30.1 |
|
13.6 |
|
43.7 |
|
25.8 |
|
13.1 |
|
38.9 |
| ||||||
|
Multi-employer plans |
|
0.8 |
|
— |
|
0.8 |
|
0.8 |
|
— |
|
0.8 |
| ||||||
|
Net periodic benefit cost |
|
$ |
30.9 |
|
$ |
13.6 |
|
$ |
44.5 |
|
$ |
26.6 |
|
$ |
13.1 |
|
$ |
39.7 |
|
Contributions to the company’s defined global benefit pension plans, not including the unfunded German plans, were $8.9 million in the first six months of 2011 ($7.9 million in 2010). The total contributions to these funded plans are expected to be approximately $30 million for the full year. This estimate may change based on changes in the Pension Protection Act and actual plan asset performance, among other factors. Payments to participants in the unfunded German plans were $12.6 million (€9.0 million) in the first six months of 2011 and are expected to be approximately $25 million (approximately €18 million) for the full year.
Ball Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
14. Shareholders’ Equity and Comprehensive Earnings
Accumulated Other Comprehensive Earnings (Loss)
Accumulated other comprehensive earnings (loss) include the cumulative effect of foreign currency translation, pension and other postretirement items and realized and unrealized gains and losses on derivative instruments receiving cash flow hedge accounting treatment.
|
($ in millions) |
|
Foreign |
|
Pension and |
|
Effective |
|
Gain on |
|
Accumulated |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
December 31, 2010 |
|
$ |
123.1 |
|
$ |
(287.8 |
) |
$ |
72.4 |
|
$ |
10.2 |
|
$ |
(82.1 |
) |
|
Change |
|
103.7 |
|
9.5 |
|
(26.9 |
) |
(10.2 |
) |
76.1 |
| |||||
|
July 3, 2011 |
|
$ |
226.8 |
|
$ |
(278.3 |
) |
$ |
45.5 |
|
$ |
— |
|
$ |
(6.0 |
) |
Comprehensive Earnings
|
|
|
Three months ended |
|
Six months ended |
| ||||||||
|
($ in millions) |
|
July 3, 2011 |
|
June 27, 2010 |
|
July 3, 2011 |
|
June 27, 2010 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Net earnings attributable to Ball Corporation |
|
$ |
143.1 |
|
$ |
69.0 |
|
$ |
234.4 |
|
$ |
148.3 |
|
|
Foreign currency translation adjustment |
|
32.7 |
|
(80.9 |
) |
103.7 |
|
(138.4 |
) | ||||
|
Pension and other postretirement items, net of tax |
|
4.3 |
|
4.1 |
|
9.5 |
|
6.8 |
| ||||
|
Effect of derivative instruments, net of tax (a) |
|
(33.6 |
) |
(23.6 |
) |
(26.9 |
) |
1.3 |
| ||||
|
Gain on available for sale securities, net of tax |
|
— |
|
— |
|
(10.2 |
) |
1.4 |
| ||||
|
Comprehensive earnings attributable to Ball Corporation |
|
$ |
146.5 |
|
$ |
(31.4 |
) |
$ |
310.5 |
|
$ |
19.4 |
|
(a) The changes in accumulated other comprehensive earnings (loss) for effective derivatives were as follows:
|
|
|
Three months ended |
|
Six months ended |
| ||||||||
|
($ in millions) |
|
July 3, 2011 |
|
June 27, 2010 |
|
July 3, 2011 |
|
June 27, 2010 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Amounts reclassified into earnings (Note 17): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts |
|
$ |
(19.8 |
) |
$ |
(2.9 |
) |
$ |
(34.0 |
) |
$ |
12.5 |
|
|
Interest rate and foreign currency contracts |
|
(0.8 |
) |
1.6 |
|
(1.0 |
) |
3.3 |
| ||||
|
Change in fair value of cash flow hedges: |
|
|
|
|
|
|
|
|
| ||||
|
Commodity contracts |
|
(36.8 |
) |
(22.6 |
) |
(21.5 |
) |
0.2 |
| ||||
|
Interest rate and foreign currency contracts |
|
4.9 |
|
(5.8 |
) |
8.7 |
|
(7.0 |
) | ||||
|
Foreign currency and tax impacts |
|
18.9 |
|
6.1 |
|
20.9 |
|
(7.7 |
) | ||||
|
|
|
$ |
(33.6 |
) |
$ |
(23.6 |
) |
$ |
(26.9 |
) |
$ |
1.3 |
|
On August 2, 2011, in a privately negotiated transaction, Ball entered into an accelerated share repurchase agreement to buy $125 million of its common shares using cash on hand and available borrowings. The company advanced the $125 million on August 5, 2011, and received 3.1 million shares, which represented 90 percent of the total shares as calculated using the previous day’s closing share price. The final number of shares will be determined before the end of 2011 based on the volume-weighted average trading price of the company’s shares over an agreed upon period of time.
Ball Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
15. Stock-Based Compensation Programs
The company has shareholder-approved stock option plans under which options to purchase shares of Ball common stock have been granted to officers and employees at the market value of the stock at the date of grant. Payment must be made 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 date exercised. In general, options vest in four equal one-year installments commencing one year from the date of grant and terminating 10 years from the date of grant. A summary of stock option activity for the six months ended July 3, 2011, follows:
|
|
|
Outstanding Options (a) |
|
Nonvested Options (a) |
| ||||||
|
|
|
Number of |
|
Weighted |
|
Number of |
|
Weighted |
| ||
|
|
|
|
|
|
|
|
|
|
| ||
|
Beginning of year |
|
10,766,646 |
|
$ |
21.39 |
|
3,918,684 |
|
$ |
6.13 |
|
|
Granted |
|
1,367,460 |
|
35.85 |
|
1,367,460 |
|
9.78 |
| ||
|
Vested |
|
|
|
|
|
(1,539,558 |
) |
6.04 |
| ||
|
Exercised |
|
(792,228 |
) |
17.51 |
|
|
|
|
| ||
|
Canceled/forfeited |
|
(37,700 |
) |
23.36 |
|
(37,700 |
) |
6.03 |
| ||
|
End of period |
|
11,304,178 |
|
23.40 |
|
3,708,886 |
|
7.51 |
| ||
|
|
|
|
|
|
|
|
|
|
| ||
|
Vested and exercisable, end of period |
|
7,595,292 |
|
21.24 |
|
|
|
|
| ||
|
Reserved for future grants |
|
6,247,215 |
|
|
|
|
|
|
| ||
(a) Amounts have been retrospectively adjusted for the two-for-one stock split that was effective on February 15, 2011.
The options granted in January 2011 included 679,310 stock-settled stock appreciation rights, which have the same terms as the stock options. The weighted average remaining contractual term for all options outstanding at July 3, 2011, was 6.5 years and the aggregate intrinsic value (difference in exercise price and closing price at that date) was $177.9 million. The weighted average remaining contractual term for options vested and exercisable at July 3, 2011, was 5.4 years and the aggregate intrinsic value was $136.0 million.
The company received $3.2 million from options exercised during the three months ended July 3, 2011. The intrinsic value associated with these exercises was $4.7 million, and the associated tax benefit of $1.5 million was reported as other financing activities in the unaudited condensed consolidated statement of cash flows. During the six months ended July 3, 2011, the company received $11.8 million from options exercised. The intrinsic value associated with exercises for that period was $14.7 million, and the associated tax benefit of $3.8 million was reported as other financing activities in the unaudited condensed consolidated statement of cash flows.
Based on the Black-Scholes option pricing model, options granted in January and April 2011 have an estimated weighted average fair value at the date of grant of $9.78 per share. The actual value an employee may realize will depend on the excess of the stock price over the exercise price on the date the option is exercised. Consequently, there is no assurance that the value realized by an employee will be at or near the value estimated. The fair values were estimated using the following weighted average assumptions:
|
Expected dividend yield |
|
0.78 |
% |
|
Expected stock price volatility |
|
30.04 |
% |
|
Risk-free interest rate |
|
1.97 |
% |
|
Expected life of options |
|
5.0 years | |
In addition to stock options, the company may issue to officers and certain employees restricted shares and restricted stock units, which vest over various periods. Other than the performance-contingent grants discussed below, such restricted shares and restricted stock units generally vest in equal installments over five years. Compensation cost is recorded based upon the fair value of the shares at the grant date.
Ball Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
15. Stock-Based Compensation Programs (continued)
A summary of restricted stock activity for the six months ended July 3, 2011, follows:
|
|
|
Number of |
|
Weighted |
| |
|
|
|
|
|
|
| |
|
Beginning of year |
|
1,856,202 |
|
$ |
21.96 |
|
|
Granted |
|
476,426 |
|
35.52 |
| |
|
Vested |
|
(498,500 |
) |
24.93 |
| |
|
Canceled/forfeited |
|
(4,600 |
) |
24.39 |
| |
|
End of period |
|
1,829,528 |
|
24.68 |
| |
In January 2011 and 2010, the company’s board of directors granted 210,330 and 362,300 performance-contingent restricted stock units, respectively, to key employees, which will cliff-vest if the company’s return on average invested capital during a 36-month performance period is equal to or exceeds the company’s cost of capital. If the performance goals are not met, the shares will be forfeited. Current assumptions are that the performance targets will be met and, accordingly, grants under the plan are being accounted for as equity awards and compensation expense is recorded based upon the closing market price of the shares at the grant date. On a quarterly basis, the company reassesses the probability of the goals being met and adjusts compensation expense as appropriate. No such adjustment was considered necessary during the first six months of 2011 for either grant.
For the three and six months ended July 3, 2011, the company recognized in selling, general and administrative expenses pretax expense of $5.9 million ($3.6 million after tax) and $12.3 million ($7.5 million after tax) for share-based compensation arrangements, respectively. For the three and six months ended June 27, 2010, the company recognized pretax expense of $6.5 million ($4.0 million after tax) and $13.8 million ($8.4 million after tax) , respectively, for such arrangements. At July 3, 2011, there was $53.1 million of total unrecognized compensation costs related to nonvested share-based compensation arrangements. This cost is expected to be recognized in earnings over a weighted average period of 2.6 years.
16. Earnings and Dividends Per Share
|
|
|
Three months ended |
|
Six months ended |
| ||||||||
|
($ in millions, except per share amounts) |
|
July 3, 2011 |
|
June 27, 2010 |
|
July 3, 2011 |
|
June 27, 2010 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Net earnings attributable to Ball Corporation, |
|
$ |
143.1 |
|
$ |
69.0 |
|
$ |
234.4 |
|
$ |
148.3 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Basic weighted average common shares (a) |
|
167,197 |
|
184,200 |
|
168,204 |
|
185,132 |
| ||||
|
Effect of dilutive securities (a) |
|
3,487 |
|
2,718 |
|
3,337 |
|
2,700 |
| ||||
|
Weighted average shares applicable to diluted earnings per share (a) |
|
170,684 |
|
186,918 |
|
171,541 |
|
187,832 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Per basic share (a) |
|
$ |
0.86 |
|
$ |
0.37 |
|
$ |
1.39 |
|
$ |
0.80 |
|
|
Per diluted share (a) |
|
$ |
0.84 |
|
$ |
0.37 |
|
$ |
1.37 |
|
$ |
0.79 |
|
(a) Amounts in 2010 have been retrospectively adjusted for the two-for-one stock split that was effective on February 15, 2011.
Certain outstanding options were excluded from the diluted earnings per share calculation because they were anti-dilutive (i.e., the sum of the proceeds, including the unrecognized compensation and windfall tax benefits, exceeded the average closing stock price for the period). The options excluded totaled 1,331,310 in both the three and six months ended July 3, 2011, respectively, and 3,285,040 in both the three and six months ended June 27, 2010.
The company declared and paid dividends of $0.07 per share in each of the first two quarters of 2011 and $0.05 per share in each of the first two quarters of 2010.
Ball Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
17. Financial Instruments and Risk Management
In the ordinary course of business, Ball employs established risk management policies and procedures, which seek to reduce Ball’s exposure to fluctuations in commodity prices, interest rates, foreign currencies and prices of the company’s common stock with regard to common share repurchases and the company’s deferred compensation stock plan. However, there can be no assurance that these policies and procedures will be successful. Although the instruments utilized involve varying degrees of credit, market and interest risk, the counterparties to the agreements are expected to perform fully under the terms of the agreements. The company monitors counterparty credit risk, including lenders, on a regular basis, but Ball cannot be certain that all risks will be discerned or that its risk management policies and procedures will always be effective.
Commodity Price Risk
Aluminum
Ball manages commodity price risk in connection with market price fluctuations of aluminum ingot through two different methods. First, the company enters into container sales contracts that include aluminum ingot-based pricing terms that generally reflect the same price fluctuations under commercial supply contracts for aluminum sheet purchases. The terms include fixed, floating or pass-through aluminum ingot component pricing. Second, Ball uses certain derivative instruments such as option and forward contracts as economic and cash flow hedges of commodity price risk where there is not an arrangement in the sales contract to match underlying purchase volumes and pricing with sales volumes and pricing.
The company had aluminum contracts limiting its aluminum exposure with notional amounts of approximately $0.9 billion at July 3, 2011, and $1 billion at December 31, 2010. The aluminum contracts include economic derivative instruments that are undesignated and receive mark-to-market accounting treatment, as well as cash flow hedges that offset sales contracts of various terms and lengths. Cash flow hedges relate to forecasted transactions that expire within the next four years. Included in shareholders’ equity at July 3, 2011, within accumulated other comprehensive earnings (loss) is a net after-tax gain of $39.8 million associated with these contracts. A net gain of $29.6 million is expected to be recognized in the consolidated statement of earnings during the next 12 months, the majority of which will be offset by pricing changes in sales and purchase contracts, thus resulting in little or no earnings impact to Ball.
Steel
Most sales contracts involving our steel products either include provisions permitting Ball to pass through some or all steel cost changes incurred, or they incorporate annually negotiated steel prices.
Interest Rate Risk
Ball’s objective in managing exposure to interest rate changes is to minimize the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, Ball may use a variety of interest rate swaps, collars and options to manage our mix of floating and fixed-rate debt. Interest rate instruments held by the company at July 3, 2011, included pay-fixed interest rate swaps. Pay-fixed swaps effectively convert variable rate obligations to fixed-rate instruments.
At July 3, 2011, the company had outstanding interest rate swap agreements with notional amounts of $230 million paying fixed rates expiring within the next year. The amount included in accumulated other comprehensive earnings related to these contracts at July 3, 2011, was insignificant.
Inflation Risk
Ball also uses inflation option contracts in Europe to limit the impacts from spikes in inflation against certain multi-year contracts. At July 3, 2011, the company had inflation options in Europe with notional amounts of $167 million (€115 million). These options are undesignated for hedge accounting purposes and receive mark-to-market accounting. The fair value at July 3, 2011, was insignificant, and the option contracts expire at various times within the next two years.
Ball Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
17. Financial Instruments and Risk Management (continued)
Foreign Currency Exchange Rate Risk
Ball’s objective in managing exposure to foreign currency fluctuations is to limit the exposure of foreign cash flows and earnings from changes associated with foreign currency exchange rate changes through the use of various derivative contracts. In addition, at times Ball manages foreign earnings translation volatility through the use of foreign currency option strategies, and the change in the fair value of those options is recorded in the company’s net earnings. Ball’s foreign currency translation risk results from the currencies in which we transact business. Ball faces currency exposures in our global operations as a result of purchasing raw materials in U.S. dollars and, to a lesser extent, in other currencies. Sales contracts are negotiated with customers to reflect cost changes and, where there is not a foreign exchange pass-through arrangement, the company uses forward and option contracts to manage foreign currency exposures. At July 3, 2011, the company had outstanding foreign exchange forward contracts and option collar contracts with notional amounts totaling $374 million. Approximately $5.6 million of net gain related to these contracts is included in accumulated other comprehensive earnings at July 3, 2011, of which $5.0 million of net gain is expected to be recognized in the consolidated statement of earnings during the next 12 months. The contracts outstanding at July 3, 2011, expire within the next two years.
Common Stock Price Risk
The company’s deferred compensation stock program is subject to variable plan accounting and, accordingly, is marked to market using the company’s closing stock price at the end of a reporting period. Based on current share levels in the program, each $1 change in the company’s stock price has an impact of $1.8 million on pretax earnings. During March 2011, the company entered into a total return swap (the Swap) to mitigate the company’s exposure to these mark-to-market fluctuations. The Swap will be outstanding for a period of 12 months and has a notional value of one million shares and a fair value at July 3, 2011, of $1.6 million. All gains and losses on the Swap will be recorded in the consolidated income statement within the selling, general and administrative line item.
Collateral Calls
The company’s agreements with its financial counterparties require Ball to post collateral in certain circumstances when the negative mark-to-market value of the contracts exceeds specified levels. Additionally, Ball has collateral posting arrangements with certain customers on these derivative contracts. The cash flows of the margin calls are shown within the investing section of the company’s consolidated statements of cash flows. As of July 3, 2011, the aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position was $17.6 million and no collateral was required to be posted. As of December 31, 2010, the aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position was $26.3 million and no collateral was required to be posted. If the company’s public credit rating was downgraded, there would be a net increase of $5.1 million to our net cash collateral postings as of July 3, 2011.
Ball Corporation
Notes to Unaudited Condensed Consolidated Financial Statements
17. Financial Instruments and Risk Management (continued)
Fair Value Measurements
The company has classified all applicable financial derivative assets and liabilities as Level 2 within the fair value hierarchy and presented those values in the tables below. The company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.
Fair Value of Derivative Instruments as of July 3, 2011
|
($ in millions) |
|
Derivatives |
|
Derivatives Not |
|
Total |
| |||
|
|
|
|
|
|
|
|
| |||
|
Assets: |
|
|
|
|
|
|
| |||
|
Commodity contracts |
|
$ |
22.7 |
|
$ |
18.1 | ||||