10-Q 1 a13-8272_110q.htm 10-Q

Table of Contents

 

 

 

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 March 31, 2013

 

Commission file number   1-7349

 

BALL CORPORATION

 

State of Indiana

 

35-0160610

(State or other jurisdiction of incorporation or

organization)

 

(I.R.S. Employer Identification No.)

 

10 Longs Peak Drive, P.O. Box 5000

Broomfield, CO 80021-2510

 

80021-2510

(Address of registrant’s principal executive office)

 

(Zip Code)

 

Registrant’s telephone number, including area code:  303/469-3131

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes 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.

 

Large accelerated filer x

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

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.

 

Class

 

Outstanding at April 30, 2013

Common Stock, without par value

 

148,762,548 shares

 

 

 



Table of Contents

 

Ball Corporation and Subsidiaries

QUARTERLY REPORT ON FORM 10-Q

For the period ended March 31, 2013

 

INDEX

 

 

 

Page
Number

 

 

 

PART I.

FINANCIAL INFORMATION:

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Earnings for the Three Months Ended March 31, 2013, and April 1, 2012

1

 

 

 

 

Unaudited Condensed Consolidated Statements of Comprehensive Earnings for the Three Months Ended March 31, 2013, and April 1, 2012

2

 

 

 

 

Unaudited Condensed Consolidated Balance Sheets at March 31, 2013, and December 31, 2012

3

 

 

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2013, and April 1, 2012

4

 

 

 

 

Notes to the Unaudited Condensed Consolidated Financial Statements

5

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

31

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

38

 

 

 

Item 4.

Controls and Procedures

39

 

 

 

PART II.

OTHER INFORMATION

40

 



Table of Contents

 

PART I.              FINANCIAL INFORMATION

 

Item 1.                     FINANCIAL STATEMENTS

 

BALL CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

 

 

 

Three Months Ended

 

 

 

March 31,

 

April 1,

 

($ in millions, except per share amounts)

 

2013

 

2012

 

 

 

 

 

 

 

Net sales

 

$

1,991.0

 

$

2,042.7

 

 

 

 

 

 

 

Costs and expenses

 

 

 

 

 

Cost of sales (excluding depreciation and amortization)

 

(1,643.5

)

(1,687.7

)

Depreciation and amortization

 

(72.5

)

(69.0

)

Selling, general and administrative

 

(109.3

)

(99.6

)

Business consolidation and other activities

 

(22.7

)

(4.4

)

 

 

(1,848.0

)

(1,860.7

)

 

 

 

 

 

 

Earnings before interest and taxes

 

143.0

 

182.0

 

 

 

 

 

 

 

Interest expense

 

(44.8

)

(45.3

)

Debt refinancing costs

 

 

(15.1

)

Total interest expense

 

(44.8

)

(60.4

)

 

 

 

 

 

 

Earnings before taxes

 

98.2

 

121.6

 

Tax provision

 

(18.1

)

(28.0

)

Equity in results of affiliates, net of tax

 

(0.8

)

(0.2

)

Net earnings from continuing operations

 

79.3

 

93.4

 

Discontinued operations, net of tax

 

0.1

 

(0.3

)

 

 

 

 

 

 

Net earnings

 

79.4

 

93.1

 

Less net earnings attributable to noncontrolling interests

 

(7.4

)

(4.8

)

 

 

 

 

 

 

Net earnings attributable to Ball Corporation

 

$

72.0

 

$

88.3

 

 

 

 

 

 

 

Amounts attributable to Ball Corporation:

 

 

 

 

 

Continuing operations

 

$

71.9

 

$

88.6

 

Discontinued operations

 

0.1

 

(0.3

)

Net earnings

 

$

72.0

 

$

88.3

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

Basic - continuing operations

 

$

0.48

 

$

0.56

 

Basic - discontinued operations

 

 

 

Total basic earnings per share

 

$

0.48

 

$

0.56

 

 

 

 

 

 

 

Diluted - continuing operations

 

$

0.47

 

$

0.55

 

Diluted - discontinued operations

 

 

 

Total diluted earnings per share

 

$

0.47

 

$

0.55

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

1



Table of Contents

 

BALL CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

 

 

 

Three Months Ended

 

 

 

March 31,

 

April 1,

 

($ in millions)

 

2013

 

2012

 

 

 

 

 

 

 

Net earnings

 

$

79.4

 

$

93.1

 

 

 

 

 

 

 

Other comprehensive earnings:

 

 

 

 

 

Foreign currency translation adjustment

 

(45.1

)

39.9

 

Pension and other postretirement benefits (a)

 

8.0

 

6.1

 

Effective financial derivatives (b)

 

(9.6

)

18.2

 

Total comprehensive earnings

 

32.7

 

157.3

 

Less comprehensive earnings attributable to noncontrolling interests

 

(7.4

)

(5.8

)

Comprehensive earnings attributable to Ball Corporation

 

$

25.3

 

$

151.5

 

 


(a)         Net of tax expense of $4.6 million and $4.2 million for the three months ended March 31, 2013, and April 1, 2012, respectively.

(b)         Net of tax expense (benefit) of $(1.6) million and $11.6 million for the three months ended March 31, 2013, and April 1, 2012, respectively.

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

2



Table of Contents

 

BALL CORPORATION

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

March 31,

 

December 31,

 

($ in millions)

 

2013

 

2012

 

 

 

 

 

 

 

Assets

 

 

 

 

 

Current assets

 

 

 

 

 

Cash and cash equivalents

 

$

208.0

 

$

174.1

 

Receivables, net

 

1,057.7

 

930.1

 

Inventories, net

 

1,143.6

 

1,044.4

 

Other current assets

 

213.4

 

190.8

 

Total current assets

 

2,622.7

 

2,339.4

 

Non-current assets

 

 

 

 

 

Property, plant and equipment, net

 

2,293.5

 

2,288.6

 

Goodwill

 

2,319.5

 

2,359.4

 

Intangibles and other assets, net

 

540.3

 

519.7

 

Total assets

 

$

7,776.0

 

$

7,507.1

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

Current liabilities

 

 

 

 

 

Short-term debt and current portion of long-term debt

 

$

425.6

 

$

219.8

 

Accounts payable

 

915.8

 

946.9

 

Accrued employee costs

 

197.2

 

278.4

 

Other current liabilities

 

204.3

 

240.7

 

Total current liabilities

 

1,742.9

 

1,685.8

 

Non-current liabilities

 

 

 

 

 

Long-term debt

 

3,405.3

 

3,085.3

 

Employee benefit obligations

 

1,148.9

 

1,238.1

 

Other non-current liabilities

 

221.4

 

207.9

 

Total liabilities

 

6,518.5

 

6,217.1

 

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

Common stock (329,576,598 shares issued - 2013; 329,014,589 shares issued - 2012)

 

1,046.8

 

1,026.3

 

Retained earnings

 

3,633.9

 

3,580.8

 

Accumulated other comprehensive earnings (loss)

 

(399.1

)

(352.4

)

Treasury stock, at cost (180,744,373 shares - 2013; 179,285,288 shares - 2012)

 

(3,206.7

)

(3,140.1

)

Total Ball Corporation shareholders’ equity

 

1,074.9

 

1,114.6

 

Noncontrolling interests

 

182.6

 

175.4

 

Total shareholders’ equity

 

1,257.5

 

1,290.0

 

Total liabilities and shareholders’ equity

 

$

7,776.0

 

$

7,507.1

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

3



Table of Contents

 

BALL CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

Three Months Ended

 

 

 

March 31,

 

April 1,

 

($ in millions)

 

2013

 

2012

 

 

 

 

 

 

 

Cash Flows from Operating Activities

 

 

 

 

 

Net earnings

 

$

79.4

 

$

93.1

 

Discontinued operations, net of tax

 

(0.1

)

0.3

 

Adjustments to reconcile net earnings to cash provided by (used in) continuing operating activities:

 

 

 

 

 

Depreciation and amortization

 

72.5

 

69.0

 

Business consolidation and other activities

 

22.7

 

4.4

 

Deferred tax provision

 

9.6

 

9.1

 

Other, net

 

(56.4

)

(66.4

)

Changes in working capital components

 

(450.3

)

(327.3

)

Cash provided by (used in) continuing operating activities

 

(322.6

)

(217.8

)

Cash provided by (used in) discontinued operating activities

 

(2.0

)

(0.5

)

Total cash provided by (used in) operating activities

 

(324.6

)

(218.3

)

Cash Flows from Investing Activities

 

 

 

 

 

Capital expenditures

 

(88.7

)

(76.0

)

Business acquisitions, net of cash acquired

 

(12.6

)

 

Other, net

 

(8.0

)

(10.7

)

Cash provided by (used in) investing activities

 

(109.3

)

(86.7

)

Cash Flows from Financing Activities

 

 

 

 

 

Long-term borrowings

 

425.5

 

1,140.1

 

Repayments of long-term borrowings

 

(111.1

)

(636.1

)

Net change in short-term borrowings

 

231.2

 

(30.9

)

Proceeds from issuances of common stock

 

3.4

 

19.7

 

Acquisitions of treasury stock

 

(69.2

)

(210.8

)

Common dividends

 

(19.3

)

(15.6

)

Other, net

 

8.5

 

(14.9

)

Cash provided by (used in) financing activities

 

469.0

 

251.5

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

(1.2

)

(5.5

)

 

 

 

 

 

 

Change in cash and cash equivalents

 

33.9

 

(59.0

)

Cash and cash equivalents - beginning of period

 

174.1

 

165.8

 

Cash and cash equivalents - end of period

 

$

208.0

 

$

106.8

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

4



Table of Contents

 

Ball Corporation

Notes to the 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 quarterly 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 22, 2013, pursuant to Section 13 of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2012 (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 and 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.

 

2.              Accounting Pronouncements

 

Recently Adopted Accounting Standards

 

In February 2013, amendments to the existing accounting guidance were issued requiring the company to present, either on the face of the financial statements or in the notes, the effect of significant amounts reclassified in their entirety from each component of accumulated other comprehensive earnings based on the source into net earnings during the reporting period. For amounts not required to be reclassified in their entirety, the company is required to cross-reference to other disclosures that provide additional details about those reclassifications. The new guidance was effective for Ball on a prospective basis as of January 1, 2013, and the additional required disclosures are included in Note 13.

 

In December 2011, accounting guidance was issued requiring disclosures to help reconcile differences in the offsetting requirements under U.S. generally accepted accounting principles (U.S. GAAP) and international financial reporting standards (IFRS). The new disclosure requirements mandate that companies disclose both gross and net information about instruments and transactions eligible for offset in the statement of financial position as well as instruments and transactions subject to an agreement similar to a master netting arrangement. Further guidance was issued in January 2013 to clarify the intended scope of the required disclosures. The guidance was effective for Ball on January 1, 2013, and did not have a material effect on the company’s consolidated financial statements.

 

New Accounting Guidance

 

In March 2013, accounting guidance was issued to clarify that a company should release the cumulative translation adjustment into net earnings if the parent ceases to have a controlling financial interest in a subsidiary or group of assets within a foreign entity. The amendments also affect entities that lose a controlling financial interest in an investment in a foreign entity and those that acquire a business in stages by increasing an investment in a foreign entity from one accounted for under the equity method to one accounted for as a consolidated investment. The guidance will be effective for Ball on a prospective basis after January 1, 2014.

 

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Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

3.              Business Segment Information

 

Ball’s operations are organized and reviewed by management along its product lines and geographical areas and presented in the four reportable segments discussed below. On January 1, 2013, the company implemented changes to its management and internal reporting structure. As a result, the European extruded aluminum business, which was previously included in the metal beverage packaging, Europe, segment, is now included in the metal food and household products packaging segment. The segment results and disclosures for the three months ended April 1, 2012, and the financial position at December 31, 2012, have been retrospectively adjusted to conform to the current year presentation.

 

Metal beverage packaging, Americas and AsiaConsists of the metal beverage packaging, Americas, operations in the U.S., Canada and Brazil, 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, EuropeConsists of operations in several countries in Europe, which manufacture and sell metal beverage containers.

 

Metal food and household products packaging:  Consists of operations in the U.S., Europe, Canada, Mexico and Argentina, which manufacture and sell steel food, aerosol, paint, general line and decorative specialty containers, as well as extruded aluminum beverage and aerosol 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 Vietnam, which are accounted for under the equity method of accounting and, accordingly, those results are not included in segment sales or earnings.

 

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Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

3.              Business Segment Information (continued)

 

Summary of Business by Segment

 

 

 

Three Months Ended

 

 

 

March 31,

 

April 1,

 

($ in millions)

 

2013

 

2012

 

 

 

 

 

 

 

Net sales

 

 

 

 

 

Metal beverage packaging, Americas & Asia

 

$

995.2

 

$

1,049.7

 

Metal beverage packaging, Europe

 

402.9

 

414.5

 

Metal food & household products packaging

 

367.2

 

378.9

 

Aerospace & technologies

 

231.4

 

201.6

 

Corporate and intercompany eliminations

 

(5.7

)

(2.0

)

Net sales

 

$

1,991.0

 

$

2,042.7

 

 

 

 

 

 

 

Net earnings

 

 

 

 

 

Metal beverage packaging, Americas & Asia

 

$

104.0

 

$

105.5

 

Business consolidation and other activities

 

(1.5

)

(1.7

)

Total metal beverage packaging Americas & Asia

 

102.5

 

103.8

 

 

 

 

 

 

 

Metal beverage packaging, Europe

 

30.9

 

42.4

 

Business consolidation and other activities

 

(1.7

)

(1.8

)

Total metal beverage packaging, Europe

 

29.2

 

40.6

 

 

 

 

 

 

 

Metal food & household products packaging

 

34.7

 

39.3

 

Business consolidation and other activities

 

(18.8

)

 

Total metal food & household products packaging

 

15.9

 

39.3

 

 

 

 

 

 

 

Aerospace & technologies

 

17.9

 

19.7

 

 

 

 

 

 

 

Segment earnings before interest and taxes

 

165.5

 

203.4

 

 

 

 

 

 

 

Undistributed and corporate expenses and intercompany eliminations, net

 

(21.8

)

(20.5

)

Business consolidation and other activities

 

(0.7

)

(0.9

)

Total undistributed and corporate expenses and intercompany eliminations, net

 

(22.5

)

(21.4

)

 

 

 

 

 

 

Earnings before interest and taxes

 

143.0

 

182.0

 

 

 

 

 

 

 

Interest expense

 

(44.8

)

(60.4

)

Tax provision

 

(18.1

)

(28.0

)

Equity in results of affiliates, net of tax

 

(0.8

)

(0.2

)

Net earnings from continuing operations

 

79.3

 

93.4

 

Discontinued operations, net of tax

 

0.1

 

(0.3

)

Net earnings

 

79.4

 

93.1

 

Less net earnings attributable to noncontrolling interests

 

(7.4

)

(4.8

)

Net earnings attibutable to Ball Corporation

 

$

72.0

 

$

88.3

 

 

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Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

3.              Business Segment Information (continued)

 

 

 

March 31,

 

December 31,

 

($ in millions)

 

2013

 

2012

 

 

 

 

 

 

 

Total Assets

 

 

 

 

 

Metal beverage packaging, Americas & Asia

 

$

3,386.5

 

$

3,227.5

 

Metal beverage packaging, Europe

 

2,359.3

 

2,173.3

 

Metal food & household products packaging

 

1,612.7

 

1,568.9

 

Aerospace & technologies

 

329.5

 

332.8

 

Segment assets

 

7,688.0

 

7,302.5

 

Corporate assets and intercompany eliminations

 

88.0

 

204.6

 

Total assets

 

$

7,776.0

 

$

7,507.1

 

 

4.   Acquisitions

 

Envases del Plata S.A. de C.V. (Envases)

 

In December 2012, the company acquired Envases, a leading producer of extruded aluminum aerosol packaging in Mexico with a single manufacturing facility in San Luis Potosí, for cash of $55.9 million, net of cash acquired, and assumed debt of $72.7 million. The facility produces extruded aluminum aerosol containers for personal care and household products for customers in North, Central and South America and employs approximately 150 people. The acquisition is expected to provide a platform to grow the company’s existing North American extruded aluminum business, providing a new end market for the company’s products, including the company’s ReAlTM technology that enables the use of recycled material and meaningful lightweighting in the manufacture of extruded aluminum packaging. Based on the preliminary purchase price allocation, goodwill of $61.4 million was recorded at March 31, 2013. The acquisition of Envases is not material to the metal food and household products packaging segment.

 

5.              Business Consolidation Activities

 

Following is a summary of business consolidation and other activity charges included in the unaudited condensed consolidated statements of earnings:

 

 

 

Three Months Ended

 

 

 

March 31,

 

April 1,

 

($ in millions)

 

2013

 

2012

 

 

 

 

 

 

 

Metal beverage packaging, Americas & Asia

 

$

(1.5

)

$

(1.7

)

Metal beverage packaging, Europe

 

(1.7

)

(1.8

)

Metal food & household products packaging

 

(18.8

)

 

Corporate and other

 

(0.7

)

(0.9

)

 

 

$

(22.7

)

$

(4.4

)

 

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Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

5.              Business Consolidation Activities (continued)

 

2013

 

Metal Food and Household Products Packaging

 

During the first quarter, the company announced that it will close its Elgin, Illinois, food and household products packaging facility in December 2013. A charge of $20.8 million was recorded in connection with the planned closure, which was composed of $16.5 million for severance, pension and other employee benefits; $4.3 million for the accelerated depreciation on assets to be abandoned and other closure costs. Additional charges of approximately $12 million are expected to be recorded during the remainder of 2013. The Elgin plant produces steel aerosol and specialty cans, as well as flat steel sheet used by other Ball facilities. The plant’s production capabilities will be supplied by other Ball food and household products packaging facilities.

 

Also in the first quarter, income of $2.0 million was accrued related to the reimbursement of funds paid in 2012 for the settlement of certain Canadian defined benefit pension liabilities related to previously closed facilities.

 

Metal Beverage Packaging, Americas and Asia

 

The first quarter of 2013 included net charges of $1.5 million, primarily for ongoing costs related to the previously announced closures of Ball’s Columbus, Ohio, and Gainesville, Florida, facilities and voluntary separation programs. Additional charges of approximately $10 million are expected to be recorded during the remainder of 2013.

 

Metal Beverage Packaging, Europe, and Corporate

 

During the first quarter, the company recorded charges of $2.4 million, primarily for implementation costs incurred in connection with the third quarter 2012 relocation of the company’s European headquarters from Germany to Switzerland.

 

2012

 

Metal Beverage Packaging, Americas and Asia

 

The first quarter of 2012 included net charges of $1.7 million for ongoing costs related to previously closed facilities.

 

Metal Beverage Packaging, Europe, and Corporate

 

Also during the first quarter, the company recorded charges of $2.5 million for implementation costs incurred in connection with the relocation of the company’s European headquarters from Germany to Switzerland, which was completed during the third quarter of 2012.

 

An additional $0.2 million of net charges were recorded in the first quarter of 2012, primarily to reflect individually insignificant charges related to previously announced business consolidation and other activities.

 

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Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

5.              Business Consolidation Activities (continued)

 

Following is a summary by segment of the activity in the business consolidation reserves:

 

($ in millions) 

 

Metal
Beverage
Packaging,
Americas &
Asia

 

Metal Food &
Household
Products
Packaging

 

Aerospace &
Technologies

 

Corporate
and Other
Costs

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2012

 

$

16.4

 

$

3.0

 

$

1.9

 

$

3.8

 

$

25.1

 

Charges to earnings

 

(3.1

)

18.8

 

 

0.2

 

15.9

 

Cash payments and other activity

 

(8.2

)

(0.6

)

(1.7

)

(3.8

)

(14.3

)

Balance at March 31, 2013

 

$

5.1

 

$

21.2

 

$

0.2

 

$

0.2

 

$

26.7

 

 

The carrying value of assets held for sale in connection with facility closures was $30.5 million at March 31, 2013, and $31.4 million at December 31, 2012.

 

6. Receivables

 

 

 

March 31,

 

December 31,

 

($ in millions) 

 

2013

 

2012

 

 

 

 

 

 

 

Trade accounts receivable

 

$

986.9

 

$

878.3

 

Less allowance for doubtful accounts

 

(13.8

)

(13.7

)

Net trade accounts receivable

 

973.1

 

864.6

 

Other receivables

 

84.6

 

65.5

 

 

 

$

1,057.7

 

$

930.1

 

 

In the fourth quarter of 2012, the company entered into an accounts receivable factoring program with a financial institution for certain receivables of the company. The program is accounted for as a true sale of the receivables and has a limit of $90 million, of which $78.2 million and $75 million were sold as of March 31, 2013, and December 31, 2012, respectively.

 

7. Inventories

 

 

 

March 31,

 

December 31,

 

($ in millions) 

 

2013

 

2012

 

 

 

 

 

 

 

Raw materials and supplies

 

$

397.0

 

$

426.7

 

Work-in-process and finished goods

 

796.2

 

664.5

 

Less inventory reserves

 

(49.6

)

(46.8

)

 

 

$

1,143.6

 

$

1,044.4

 

 

10



Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

8.              Property, Plant and Equipment

 

 

 

March 31,

 

December 31,

 

($ in millions) 

 

2013

 

2012

 

 

 

 

 

 

 

Land

 

$

83.3

 

$

82.6

 

Buildings

 

956.6

 

934.3

 

Machinery and equipment

 

3,391.1

 

3,407.6

 

Construction-in-progress

 

265.2

 

240.6

 

 

 

4,696.2

 

4,665.1

 

Accumulated depreciation

 

(2,402.7

)

(2,376.5

)

 

 

$

2,293.5

 

$

2,288.6

 

 

Property, plant and equipment are stated at historical or acquired cost. Depreciation expense amounted to $63.8 million and $64.1 million for the three months ended March 31, 2013, and April 1, 2012, respectively.

 

9.              Goodwill

 

($ in millions)

 

Metal
Beverage
Packaging,
Americas &
Asia

 

Metal
Beverage
Packaging,
Europe

 

Metal Food
& Household
Products
Packaging

 

Aerospace &
Technologies

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2012

 

$

740.7

 

$

993.2

 

$

625.5

 

$

 

$

2,359.4

 

Business acquisition

 

 

 

0.1

 

12.5

 

12.6

 

Opening balance sheet adjustments

 

 

 

(17.7

)

 

(17.7

)

Effects of currency exchange rates

 

 

(29.8

)

(5.0

)

 

(34.8

)

Balance at March 31, 2013

 

$

740.7

 

$

963.4

 

$

602.9

 

$

12.5

 

$

2,319.5

 

 

On January 1, 2013, the company implemented changes to its management and internal reporting structure. As a result, the European extruded aluminum reporting unit, which was previously included in the metal beverage packaging, Europe, segment, is now included in the metal food and household products packaging segment. Goodwill by segment has been retrospectively adjusted to conform to the current year presentation.

 

11



Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

10.       Intangibles and Other Assets

 

 

 

March 31,

 

December 31,

 

($ in millions)

 

2013

 

2012

 

 

 

 

 

 

 

Investment in affiliates

 

$

31.5

 

$

32.2

 

Intangible assets (net of accumulated amortization of $73.0 million at March 31, 2013, and $68.1 million at December 31, 2012)

 

176.3

 

162.9

 

Capitalized software (net of accumulated amortization of $81.2 million at March 31, 2013, and $78.4 million at December 31, 2012)

 

52.0

 

50.4

 

Company and trust-owned life insurance

 

131.5

 

114.7

 

Deferred financing costs

 

35.5

 

37.3

 

Other

 

113.5

 

122.2

 

 

 

$

540.3

 

$

519.7

 

 

Total amortization expense of intangible assets amounted to $8.7 million and $4.9 million for the three months ended March 31, 2013, and April 1, 2012, respectively.

 

11.       Debt

 

Long-term debt consisted of the following:

 

 

 

March 31, 2013

 

December 31, 2012

 

 

 

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

 

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

 

5.00% Senior Notes, due March 2022

 

$

750.0

 

750.0

 

$

750.0

 

750.0

 

Senior Credit Facilities, due December 2015 (at variable rates)

 

 

 

 

 

 

 

 

 

Term A Loan, U.S. dollar denominated

 

$

125.0

 

125.0

 

$

125.0

 

125.0

 

Term B Loan, British sterling denominated

 

£

38.2

 

58.1

 

£

46.5

 

75.2

 

Term C Loan, euro denominated

 

83.8

 

107.4

 

91.3

 

120.6

 

Multi-currency revolver, U.S. dollar denominated

 

$

205.0

 

205.0

 

$

 

 

Multi-currency revolver, euro denominated

 

219.0

 

280.7

 

159.0

 

210.1

 

Latapack-Ball Notes Payable (at various rates and terms)

 

$

237.1

 

237.1

 

$

176.1

 

176.1

 

Other (including discounts and premiums)

 

Various

 

25.8

 

Various

 

32.4

 

 

 

 

 

3,489.1

 

 

 

3,189.4

 

Less: Current portion of long-term debt

 

 

 

(83.8

)

 

 

(104.1

)

 

 

 

 

$

3,405.3

 

 

 

$

3,085.3

 

 

12



Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

11.      Debt (continued)

 

The senior credit facilities bear interest at variable rates and include the term loans described in the table above, as well as a long-term, multi-currency committed revolving credit facility that provides the company with up to the U.S. dollar equivalent of $1 billion. At March 31, 2013, taking into account outstanding letters of credit and facility borrowings, approximately $494 million was available under the company’s long-term, multi-currency committed revolving credit facilities, which are available until December 2015. In addition to the long-term, multi-currency committed credit facilities, the company had approximately $635 million of short-term uncommitted credit facilities available at the end of the quarter, of which $170.7 million was outstanding and due on demand.

 

In August 2011, the company entered into an accounts receivable securitization agreement for a term of three years, which was amended in September 2012. The maximum the company can borrow under the amended agreement can vary between $110 million and $235 million depending on the seasonal accounts receivable balances in the company’s North American packaging businesses. At March 31, 2013, $171.0 million were sold under the securitization agreement. There were no accounts receivable sold under this agreement at December 31, 2012. Borrowings under the securitization agreement are included within short-term debt and current portion of long-term debt on the balance sheet.

 

The fair value of the long-term debt at March 31, 2013, and at December 31, 2012, 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 9, 2012, Ball issued $750 million of 5.00 percent senior notes due in March 2022. On the same date, the company tendered for the redemption of its 6.625 percent senior notes originally due in March 2018 in the amount of $450 million, at a redemption price per note of 102.583 percent of the outstanding principal amount plus accrued interest. The company redeemed $392.7 million during the first quarter of 2012, and the remaining $57.3 million was redeemed during the second quarter. The redemption of the bonds resulted in a charge of $15.1 million for the call premium and the write off of unamortized financing costs and premiums. The charge is included as a component of interest expense in the unaudited condensed consolidated statement of earnings.

 

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. Note 19 contains further details, as well as required unaudited condensed consolidating financial information for the company, segregating the guarantor subsidiaries and non-guarantor subsidiaries as defined in the senior notes agreements.

 

The U.S. note agreements, bank credit agreement and 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 March 31, 2013, and December 31, 2012, and has met all debt payment obligations.

 

The Latapack-Ball debt facilities contain various covenants and restrictions but are non-recourse to Ball Corporation and its wholly owned subsidiaries.

 

13



Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

12. Employee Benefit Obligations

 

 

 

March 31,

 

December 31,

 

($ in millions)

 

2013

 

2012

 

 

 

 

 

 

 

Underfunded defined benefit pension liabilities, net

 

$

738.0

 

$

820.2

 

Less current portion and prepaid pension assets

 

(22.6

)

(25.0

)

Long-term defined benefit pension liabilities

 

715.4

 

795.2

 

Retiree medical and other postemployment benefits

 

177.4

 

177.0

 

Deferred compensation plans

 

233.9

 

237.8

 

Other

 

22.2

 

28.1

 

 

 

$

1,148.9

 

$

1,238.1

 

 

Components of net periodic benefit cost associated with the company’s defined benefit pension plans were:

 

 

 

Three Months Ended

 

 

 

March 31, 2013

 

April 1, 2012

 

($ in millions)

 

U.S.

 

Foreign

 

Total

 

U.S.

 

Foreign

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ball-sponsored plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

12.3

 

$

2.5

 

$

14.8

 

$

11.7

 

$

2.0

 

$

13.7

 

Interest cost

 

13.8

 

5.9

 

19.7

 

14.1

 

7.3

 

21.4

 

Expected return on plan assets

 

(19.3

)

(3.4

)

(22.7

)

(18.5

)

(4.3

)

(22.8

)

Amortization of prior service cost

 

 

(0.1

)

(0.1

)

0.2

 

(0.1

)

0.1

 

Recognized net actuarial loss

 

10.6

 

1.3

 

11.9

 

8.5

 

1.8

 

10.3

 

Curtailment loss (a)

 

4.6

 

 

4.6

 

 

 

 

Net periodic benefit cost for Ball-sponsored plans

 

22.0

 

6.2

 

28.2

 

16.0

 

6.7

 

22.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Multiemployer plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net periodic benefit cost, excluding curtailment loss

 

0.7

 

 

0.7

 

0.7

 

 

0.7

 

Curtailment loss (a)

 

3.9

 

 

3.9

 

 

 

 

Net periodic benefit cost for multi-employer plans

 

4.6

 

 

4.6

 

0.7

 

 

0.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total net periodic benefit cost

 

$

26.6

 

$

6.2

 

$

32.8

 

$

16.7

 

$

6.7

 

$

23.4

 

 


(a)         Curtailments losses are related to the closure of the company’s Elgin, Illinois, plant. Further details are available in Note 5.

 

Contributions to the company’s defined global benefit pension plans, not including the unfunded German plans, were $81.8 million in the first three months of 2013 ($97.3 million in 2012). The total contributions to these funded plans are expected to be approximately $95 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 $5.6 million (€4.2 million) in the first three months of 2013 and are expected to be approximately $22 million (approximately €17 million) for the full year.

 

14



Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

13.  Shareholders’ Equity and Comprehensive Earnings

 

Accumulated Other Comprehensive Earnings (Loss)

 

The activity related to accumulated other comprehensive earnings (loss) was as follows:

 

($ in millions)

 

Foreign
Currency
Translation

 

Pension and
Other
Postretirement
Benefits
(Net of Tax)

 

Effective
Derivatives (Net
of Tax)

 

Accumulated
Other
Comprehensive
Earnings (Loss)

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2012

 

$

117.5

 

$

(461.0

)

$

(8.9

)

$

(352.4

)

Other comprehensive earnings (loss) before reclassifications

 

(45.1

)

0.8

 

(6.1

)

(50.4

)

Amounts reclassified from accumulated other comprehensive earnings (loss)

 

 

7.2

 

(3.5

)

3.7

 

Balance at March 31, 2013

 

$

72.4

 

$

(453.0

)

$

(18.5

)

$

(399.1

)

 

 

The following table provides additional details of the amounts recognized into net earnings from accumulated other comprehensive earnings (loss):

 

 

 

Three Months Ended

 

($ in millions)

 

March 31, 2013

 

 

 

 

 

Gains (losses) on cash flow hedges:

 

 

 

Commodity contracts recorded in net sales

 

$

(0.6

)

Commodity contracts and currency exchange contracts recorded in cost of sales

 

(4.3

)

Interest rate contracts recorded in interest expense

 

(0.3

)

Total before tax effect

 

(5.2

)

Tax benefit (expense) on amounts reclassified into earnings

 

1.7

 

 

 

$

(3.5

)

 

 

 

 

Amortization of pension and other postretirement benefits (a):

 

 

 

Prior service costs

 

$

(0.1

)

Actuarial gains (losses)

 

11.9

 

Total before tax effect

 

11.8

 

Tax benefit (expense) on amounts reclassified into earnings

 

(4.6

)

 

 

$

7.2

 

 


(a)  These components are included in the computation of net periodic benefit cost included in Note 12.

 

15



Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

13.  Shareholders’ Equity and Comprehensive Earnings (continued)

 

Share Repurchase Agreements

 

In February 2012, in a privately negotiated transaction, Ball entered into an accelerated share repurchase agreement to buy $200 million of its common shares using cash on hand and available borrowings. The company advanced the $200 million on February 3, 2012, and received 4,584,819 shares, which represented 90 percent of the total shares as calculated using the closing price on January 31, 2012. The agreement was settled in May 2012, and the company received an additional 334,039 shares, which represented a weighted average price of $40.66 for the contract period.

 

In October 2011, in a privately negotiated transaction, Ball entered into an accelerated share repurchase agreement to buy $100 million of its common shares using cash on hand and available borrowings. The company advanced the $100 million on November 2, 2011, and received 2,523,836 shares, which represented 90 percent of the total shares as calculated using the closing price on October 28, 2011. The agreement was settled in January 2012, and the company received an additional 361,615 shares, which represented a weighted average price of $34.66 for the contract period.

 

14.       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 are exercisable in four equal 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 three months ended March 31, 2013, follows:

 

 

 

Outstanding Options

 

 

 

Number of
Shares

 

Weighted
Average
Exercise Price

 

 

 

 

 

 

 

Beginning of year

 

9,982,104

 

$

26.71

 

Granted

 

1,364,870

 

45.93

 

Exercised

 

(624,587

)

22.74

 

Canceled/forfeited

 

(46,125

)

34.27

 

End of period

 

10,676,262

 

29.37

 

 

 

 

 

 

 

Vested and exercisable, end of period

 

7,285,362

 

24.72

 

Reserved for future grants (a)

 

1,824,712

 

 

 

 


(a)         On April 24, 2013, Ball’s shareholders approved the 2013 Stock and Cash Incentive Plan, which authorized 12.5 million shares for future grants. This authorization replaced all previous authorizations.

 

The options granted in January 2013 included 756,100 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 March 31, 2013, was 6.5 years and the aggregate intrinsic value (difference in exercise price and closing price at that date) was $194.4 million. The weighted average remaining contractual term for options vested and exercisable at March 31, 2013, was 5.4 years and the aggregate intrinsic value was $166.5 million.

 

The company received $6.0 million from options exercised during the three months ended March 31, 2013, and the intrinsic value associated with these exercises was $6.2 million. The tax benefit associated with the company’s stock compensation programs was $8.4 million for the first three months of 2013 and was reported as other financing activities in the unaudited condensed consolidated statement of cash flows.

 

16



Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

14.  Stock-Based Compensation Programs (continued)

 

These options cannot be traded in any equity market. However, based on the Black-Scholes option pricing model, options granted in 2013 and 2012 have estimated weighted average fair values at the grant dates of $8.69 and $9.44 per share, respectively. The actual value an employee may realize will depend on the excess of the stock price over the exercise price on the date the option 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:

 

 

 

January 2013

 

January 2012

 

 

 

 

 

 

 

Expected dividend yield

 

1.13%

 

1.06%

 

Expected stock price volatility

 

22.02%

 

30.22%

 

Risk-free interest rate

 

1.02%

 

0.84%

 

Expected life of options (in years)

 

5.5 years

 

5.26 years

 

 

In addition to stock options, the company issues 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 estimated fair value of the shares at the grant date.

 

The following is a summary of restricted stock activity for the three months ended March 31, 2013:

 

 

 

Number of
Shares/Units

 

Weighted
Average Grant
Price

 

 

 

 

 

 

 

Beginning of year

 

1,763,636

 

$

28.97

 

Granted

 

158,375

 

45.89

 

Vested

 

(413,015

)

26.41

 

Canceled/forfeited

 

(6,679

)

36.16

 

End of period

 

1,502,317

 

31.42

 

 

In January 2013, the company’s board of directors granted 148,875 performance-contingent restricted stock units (RSUs) to key employees, which will vest in January 2016 depending on the company’s growth in economic valued added (EVA®) dollars using 2012 EVA® dollars generated as the minimum threshold. The number of RSUs that will vest can range between zero and 200 percent of each participant’s assigned award opportunity. Under a previous program, in January 2012 the company’s board of directors granted 223,600 performance-contingent RSUs, 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 established at the beginning of the performance period. In both RSU programs, if the minimum performance goals are not met, the shares will be forfeited. Grants under the plan are being accounted for as equity awards and compensation expense is recorded based upon the most probable outcome using the closing market price of the shares at the grant date. On a quarterly basis, the company reassesses the probability of the goals being met and adjusts compensation expense as appropriate.

 

For the three months ended March 31, 2013, the company recognized expense of $7.7 million ($4.7 million after tax) for share-based compensation arrangements in selling, general and administrative expenses. For the three months ended April 1, 2012, the company recognized expense of $6.8 million ($4.1 million after tax) for such arrangements. At March 31, 2013, there were $55.1 million of 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 2.5 years.

 

17



Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

15.  Earnings and Dividends Per Share

 

 

 

Three Months Ended

 

($ in millions, except per share amounts;

 

March 31,

 

April 1,

 

shares in thousands)

 

2013

 

2012

 

 

 

 

 

 

 

Net earnings attributable to Ball Corporation

 

$

72.0

 

$

88.3

 

 

 

 

 

 

 

Basic weighted average common shares

 

148,976

 

157,530

 

Effect of dilutive securities

 

3,340

 

3,415

 

Weighted average shares applicable to diluted earnings per share

 

152,316

 

160,945

 

 

 

 

 

 

 

Per basic share

 

$

0.48

 

$

0.56

 

Per diluted share

 

$

0.47

 

$

0.55

 

 

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 1,364,870 and 2,729,010 in the three months ended March 31, 2013, and April 1, 2012, respectively.

 

The company declared and paid dividends of $0.13 per share in the first quarter of 2013 and $0.10 per share in the first quarter of 2012.

 

16.  Financial Instruments and Risk Management

 

The company employs established risk management policies and procedures, which seek to reduce the company’s commercial risk exposure to fluctuations in commodity prices, interest rates, currency exchange rates and prices of the company’s common stock with regard to common share repurchases and the company’s deferred compensation stock plan. However, there can be no assurance 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. Additionally, in the event of default under the company’s master derivative agreements, the non-defaulting party has the option to set-off any amounts owed with regard to open derivative positions.

 

Commodity Price Risk

 

Aluminum

 

The company manages commodity price risk in connection with market price fluctuations of aluminum ingot through two different methods. First, the company enters into container sales contracts that include aluminum ingot-based pricing terms that generally reflect the same price fluctuations under commercial purchase contracts for aluminum sheet. The terms include fixed, floating or pass-through aluminum ingot component pricing. Second, the company uses certain derivative instruments such 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 $592 million at March 31, 2013. The aluminum contracts include economic derivative instruments that are undesignated and receive mark to fair value 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 five years. Included in shareholders’ equity at March 31, 2013, within accumulated other comprehensive earnings (loss) is a net after-tax loss of $17.7 million associated with these contracts. A net loss of $11.0 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.

 

18



Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

16.  Financial Instruments and Risk Management (continued)

 

Steel

 

Most sales contracts involving our steel products either include provisions permitting the company to pass through some or all steel cost changes incurred, or they incorporate annually negotiated steel prices.

 

Interest Rate Risk

 

The company’s objective in managing exposure to interest rate changes is to minimize the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, the company may use a variety of interest rate swaps, collars and options to manage our mix of floating and fixed-rate debt. Interest rate instruments held by the company at March 31, 2013, included pay-fixed interest rate swaps, which effectively convert variable rate obligations to fixed-rate instruments.

 

At March 31, 2013, the company had outstanding interest rate swap contracts with notional amounts of approximately $256 million paying fixed rates expiring within the next five years. Included in shareholders’ equity at March 31, 2013, within accumulated other comprehensive earnings (loss), is a net after-tax loss of $0.5 million associated with these contracts, all of which is expected to be recognized in the consolidated statement of earnings during the next 12 months.

 

Currency Exchange Rate Risk

 

The company’s objective in managing exposure to currency fluctuations is to limit the exposure of cash flows and earnings from changes associated with currency exchange rate changes through the use of various derivative contracts. In addition, at times the company manages earnings translation volatility through the use of currency option strategies, and the change in the fair value of those options is recorded in the company’s net earnings. The company’s currency translation risk results from the currencies in which we transact business. The company faces currency exposures in our global operations as a result of various factors including intercompany currency denominated loans, selling our products in various currencies, purchasing raw materials in various currencies and tax exposures not denominated in the functional currency. Sales contracts are negotiated with customers to reflect cost changes and, where there is not an exchange pass-through arrangement, the company uses forward and option contracts to manage currency exposures. At March 31, 2013, the company had outstanding exchange forward contracts and option contracts with notional amounts totaling approximately $588 million. Approximately $0.3 million of net after-tax loss related to these contracts is included in accumulated other comprehensive earnings at March 31, 2013, of which a net loss of $0.5 million is expected to be recognized in the consolidated statement of earnings during the next 12 months. The contracts outstanding at March 31, 2013, 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 fair value using the company’s closing stock price at the end of the related reporting period. Based on current share levels in the program, each $1 change in the company’s stock price has an impact of $1.4 million on pretax earnings. During March and September 2011, the company entered into total return swaps to reduce the company’s earnings exposure to these fair value fluctuations, which were renewed in February 2013 and July 2012 and will be outstanding until March 2014 and September 2013, respectively. The swaps have a notional value of 1 million shares and 300,000 shares, respectively. As of March 31, 2013, the combined fair value of these swaps was a $2.2 million gain. All gains and losses on the total return swaps are recorded in the consolidated statement of earnings in selling, general and administrative expenses.

 

19



Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

16.  Financial Instruments and Risk Management (continued)

 

Collateral Calls

 

The company’s agreements with its financial counterparties require the company to post collateral in certain circumstances when the negative mark to fair value of the contracts exceeds specified levels. Additionally, the company has collateral posting arrangements with certain customers on these derivative contracts. The cash flows of the margin calls are shown within the investing section of the company’s consolidated statements of cash flows. As of March 31, 2013, the aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position was $21.4 million and no collateral was required to be posted. As of December 31, 2012, the aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position was $11.0 million and no collateral was required to be posted.

 

Fair Value Measurements

 

The company has classified all applicable financial derivative assets and liabilities as Level 2 within the fair value hierarchy 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 March 31, 2013

 

($ in millions)

 

Derivatives
Designated As
Hedging
Instruments

 

Derivatives Not
Designated As
Hedging
Instruments

 

Total

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

Commodity contracts

 

$

3.6

 

$

1.9

 

$

5.5

 

Foreign currency contracts

 

0.9

 

5.3

 

6.2

 

Other contracts

 

 

2.2

 

2.2

 

Total current derivative contracts

 

$

4.5

 

$

9.4

 

$

13.9

 

 

 

 

 

 

 

 

 

Commodity contracts

 

$

1.2

 

$

 

$

1.2

 

Foreign currency contracts

 

0.4

 

 

0.4

 

Total noncurrent derivative contracts

 

$

1.6

 

$

 

$

1.6

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

Commodity contracts

 

$

14.0

 

$

2.1

 

$

16.1

 

Foreign currency contracts

 

1.3

 

2.1

 

3.4

 

Interest rate and other contracts

 

0.8

 

 

0.8

 

Total current derivative contracts

 

$

16.1

 

$

4.2

 

$

20.3

 

 

 

 

 

 

 

 

 

Noncurrent commodity contracts

 

$

10.6

 

$

 

$

10.6

 

Interest rate contracts

 

0.5

 

 

0.5

 

Total noncurrent derivative contracts

 

$

11.1

 

$

 

$

11.1

 

 

20



Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

16.  Financial Instruments and Risk Management (continued)

 

Fair Value of Derivative Instruments as of December 31, 2012

 

($ in millions)

 

Derivatives
Designated As
Hedging
Instruments

 

Derivatives Not
Designated As
Hedging
Instruments

 

Total

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

Commodity contracts

 

$

9.2

 

$

1.0

 

$

10.2

 

Foreign currency contracts

 

0.1

 

2.3

 

2.4

 

Other current contracts

 

 

0.6

 

0.6

 

Total current derivative contracts

 

$

9.3

 

$

3.9

 

$

13.2

 

 

 

 

 

 

 

 

 

Noncurrent commodity contracts

 

$

4.2

 

$

 

$

4.2

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

Commodity contracts

 

$

9.0

 

$

0.7

 

$

9.7

 

Foreign currency contracts

 

2.5

 

5.2

 

7.7

 

Interest rate and other contracts

 

1.0

 

 

1.0

 

Total current derivative contracts

 

$

12.5

 

$

5.9

 

$

18.4

 

 

 

 

 

 

 

 

 

Noncurrent commodity contracts

 

$

5.4

 

$

 

$

5.4

 

Interest rate contracts

 

0.5

 

 

0.5

 

Foreign currency contracts

 

0.4

 

 

0.4

 

Total noncurrent derivative contracts

 

$

6.3

 

$

 

$

6.3

 

 

The company uses closing spot and forward market prices as published by the London Metal Exchange, the New York Mercantile Exchange, Reuters and Bloomberg to determine the fair value of its aluminum, currency, energy and interest rate spot and forward contracts. Option contracts are valued using a Black-Scholes model with observable market inputs for aluminum, currency and interest rates. The company values each financial instrument either internally using a single valuation technique or from a reliable observable market source. The company does not adjust the value of its financial instruments except in determining the fair value of a trade that settles in the future by discounting the value to its present value using 12-month LIBOR as the discount factor. Ball performs validations of our internally derived fair values reported for our financial instruments on a quarterly basis utilizing counterparty valuation statements. The company additionally evaluates counterparty creditworthiness and, as of March 31, 2013, has not identified any circumstances requiring that the reported values of our financial instruments be adjusted.

 

Net receivables related to the European scrap metal program totaling $15.3 million at March 31, 2013, and $16.7 million at December 31, 2012, were classified as Level 2 within the fair value hierarchy.

 

21



Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

16.  Financial Instruments and Risk Management (continued)

 

Impact on Earnings from Derivative Instruments

 

 

 

Three Months Ended

 

 

 

March 31, 2013

 

April 1, 2012

 

($ in millions)

 

Cash Flow
Hedge -
Reclassified
Amount From
Other

Comprehensive
Earnings (Loss) -
Gain (Loss)

 

Gain (Loss) on
Derivatives Not
Designated As
Hedge
Instruments

 

Cash Flow
Hedge -
Reclassified
Amount From
Other
Comprehensive
Earnings (Loss) -
Gain (Loss)

 

Gain (Loss) on
Derivatives Not
Designated As
Hedge
Instruments

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts (a)

 

$

(4.4

)

$

(0.8

)

$

(10.0

)

$

2.1

 

Interest rate contracts (b)

 

(0.3

)

 

 

 

Inflation option contracts (c)

 

 

 

 

(0.1

)

Foreign currency contracts (d)

 

(0.5

)

0.3

 

(0.2

)

(3.3

)

Equity contracts (e)

 

 

1.7

 

 

2.6

 

Total

 

$

(5.2

)

$

1.2

 

$

(10.2

)

$

1.3

 

 


(a)         Gains and losses on commodity contracts are recorded in sales and cost of sales in the statements of earnings. Virtually all these expenses were passed through to our customers, resulting in no significant impact to earnings.

(b)         Gains and losses on interest contracts are recorded in interest expense in the statements of earnings.

(c)          Gains and losses on inflation options are recorded in cost of sales in the statements of earnings.

(d)         Gains and losses on foreign currency contracts to hedge the sales of products are recorded in cost of sales. Gains and losses on foreign currency hedges used for translation between segments are reflected in selling, general and administrative expenses in the consolidated statements of earnings.

(e)          Gains and losses on equity contracts are recorded in selling, general and administrative expenses in the consolidated statements of earnings.

 

The changes in accumulated other comprehensive earnings (loss) for effective derivatives were as follows:

 

 

 

Three Months Ended

 

 

 

March 31,

 

April 1,

 

($ in millions)

 

2013

 

2012

 

 

 

 

 

 

 

Amounts reclassified into earnings:

 

 

 

 

 

Commodity contracts

 

$

4.4

 

$

10.0

 

Interest rate and currency exchange contracts

 

0.8

 

0.2

 

Change in fair value of cash flow hedges:

 

 

 

 

 

Commodity contracts

 

(19.3

)

17.8

 

Interest rate and currency exchange contracts

 

2.5

 

(0.2

)

Foreign currency and tax impacts

 

2.0

 

(10.6

)

 

 

$

(9.6

)

$

17.2

 

 

22



Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

17.  Contingencies

 

Ball is subject to numerous lawsuits, claims or proceedings arising out of the ordinary course of business, including actions related to product liability; personal injury; the use and performance of company products; warranty matters; patent, trademark or other intellectual property infringement; contractual liability; the conduct of the company’s business; tax reporting in domestic and foreign jurisdictions; workplace safety; and environmental and other matters. The company has also been identified as a potentially responsible party (PRP) at several waste disposal sites under U.S. federal and related state environmental statutes and regulations and may have joint and several liability for any investigation and remediation costs incurred with respect to such sites. Some of these lawsuits, claims and proceedings involve substantial amounts, including as described below, and some of the environmental proceedings involve potential monetary costs or sanctions that may be material. Ball has denied liability with respect to many of these lawsuits, claims and proceedings and is vigorously defending such lawsuits, claims and proceedings. The company carries various forms of commercial, property and casualty, and other forms of insurance; however, such insurance may not be applicable or adequate to cover the costs associated with a judgment against Ball with respect to these lawsuits, claims and proceedings. The company does not believe that these lawsuits, claims and proceedings are material individually or in the aggregate. While management believes the company has established adequate accruals for expected future liability with respect to pending lawsuits, claims and proceedings, where the nature and extent of any such liability can be reasonably estimated based upon then presently available information, there can be no assurance that the final resolution of any existing or future lawsuits, claims or proceedings will not have a material adverse effect on the liquidity, results of operations or financial condition of the company.

 

As previously reported, the U.S. Environmental Protection Agency (USEPA) considers the company a PRP with respect to the Lowry Landfill site located east of Denver, Colorado. In 1992, the company was served with a lawsuit filed by the City and County of Denver (Denver) and Waste Management of Colorado, Inc., seeking contributions from the company and approximately 38 other companies. The company filed its answer denying the allegations of the complaint. Subsequently in 1992, the company was served with a third-party complaint filed by S.W. Shattuck Chemical Company, Inc., seeking contribution from the company and other companies for the costs associated with cleaning up the Lowry Landfill. The company denied the allegations of the complaint.

 

Also in 1992, Ball entered into a settlement and indemnification agreement with Chemical Waste Management, Inc., and Waste Management of Colorado, Inc. (collectively Waste Management) and Denver pursuant to which Waste Management and Denver dismissed their lawsuit against the company, and Waste Management agreed to defend, indemnify and hold harmless the company from claims and lawsuits brought by governmental agencies and other parties relating to actions seeking contributions or remedial costs from the company for the cleanup of the site. Waste Management, Inc., has agreed to guarantee the obligations of Waste Management. Waste Management and Denver may seek additional payments from the company if the response costs related to the site exceed $319 million. In 2003 Waste Management, Inc., indicated that the cost of the site might exceed $319 million in 2030, approximately three years before the projected completion of the project. The company might also be responsible for payments (based on 1992 dollars) for any additional wastes that may have been disposed of by the company at the site but which are identified after the execution of the settlement agreement. While remediating the site, contaminants were encountered, which could add an additional cleanup cost of approximately $10 million. This additional cleanup cost could, in turn, add approximately $1 million to total site costs for the PRP group.

 

At this time, there are no Lowry Landfill actions in which the company is actively involved. Based on the information available to the company at this time, we do not believe that this matter will have a material adverse effect upon the liquidity, results of operations or financial condition of the company.

 

23



Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

18.  Indemnifications and Guarantees

 

General Guarantees

 

The company or its appropriate consolidated direct or indirect subsidiaries have made certain indemnities, commitments and guarantees under which the specified entity may be required to make payments in relation to certain transactions. These indemnities, commitments and guarantees include indemnities to the customers of the subsidiaries in connection with the sales of their packaging and aerospace products and services; guarantees to suppliers of subsidiaries of the company guaranteeing the performance of the respective entity under a purchase agreement, construction contract or other commitment; guarantees in respect of certain foreign subsidiaries’ pension plans; indemnities for liabilities associated with the infringement of third party patents, trademarks or copyrights under various types of agreements; indemnities to various lessors in connection with facility, equipment, furniture and other personal property leases for certain claims arising from such leases; indemnities to governmental agencies in connection with the issuance of a permit or license to the company or a subsidiary; indemnities pursuant to agreements relating to certain joint ventures; indemnities in connection with the sale of businesses or substantially all of the assets and specified liabilities of businesses; and indemnities to directors, officers and employees of the company to the extent permitted under the laws of the State of Indiana and the United States of America. The duration of these indemnities, commitments and guarantees varies and, in certain cases, is indefinite. In addition many of these indemnities, commitments and guarantees do not provide for any limitation on the maximum potential future payments the company could be obligated to make. As such, the company is unable to reasonably estimate its potential exposure under these items.

 

The company has not recorded any liability for these indemnities, commitments and guarantees in the accompanying consolidated balance sheets. The company does, however, accrue for payments under promissory notes and other evidences of incurred indebtedness and for losses for any known contingent liability, including those that may arise from indemnifications, commitments and guarantees, when future payment is both reasonably estimable and probable. Finally, the company carries specific and general liability insurance policies and has obtained indemnities, commitments and guarantees from third party purchasers, sellers and other contracting parties, which the company believes would, in certain circumstances, provide recourse to any claims arising from these indemnifications, commitments and guarantees.

 

Debt Guarantees

 

The company’s senior notes and senior credit facilities are guaranteed on a full, unconditional and joint and several basis by certain of the company’s material domestic subsidiaries and the domestic subsidiary borrowers, and obligations of the subsidiary borrowers under the senior credit facilities are guaranteed by the company. Loans borrowed under the senior credit facilities by foreign subsidiary borrowers are also effectively guaranteed by certain of the company’s foreign subsidiaries by pledges of stock of the foreign subsidiary borrowers and stock of material foreign subsidiaries. These guarantees are required in support of the notes and credit facilities referred to above, are co-terminous with the terms of the respective note indentures and credit agreements and would require performance upon certain events of default referred to in the respective guarantees. The maximum potential amounts which could be required to be paid under the domestic guarantees are essentially equal to the then outstanding principal and interest under the respective notes and credit agreements, or under the applicable tranche, and the maximum potential amounts that could be required to be paid under the foreign stock pledges by foreign subsidiaries are essentially equal to the value of the stock pledged. The company is not in default under the above notes or credit facilities. The condensed consolidating financial information for the guarantor and non-guarantor subsidiaries is presented in Note 19. 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.

 

Accounts Receivable Securitization

 

Ball Capital Corp. II is a separate, wholly owned corporate entity created for the purchase of accounts receivable from certain of the company’s wholly owned subsidiaries. Ball Capital Corp. II’s assets will be available first to satisfy the claims of its creditors. The company has been designated as the servicer pursuant to an agreement whereby Ball Capital Corp. II may sell and assign the accounts receivable to a commercial lender or lenders. As the servicer, the company is responsible for the servicing, administration and collection of the receivables and is primarily liable for the performance of such obligations. The company, the relevant subsidiaries and Ball Capital Corp. II are not in default under the above credit arrangement.

 

24



Table of Contents

 

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

19.  Subsidiary Guarantees of Debt

 

The company’s senior notes are guaranteed on a full, unconditional and joint and several basis by certain of the company’s material domestic subsidiaries. These guarantees are required in support of the notes, are co-terminous with the terms of the respective note indentures and would require performance upon certain events of default referred to in the respective guarantees. The maximum potential amounts that could be required to be paid under the domestic guarantees are essentially equal to the then outstanding principal and interest under the respective notes. The following is unaudited condensed, consolidating financial information for the company, segregating the guarantor subsidiaries and non-guarantor subsidiaries, as of March 31, 2013, and December 31, 2012, and for the three months ended March 31, 2013, and April 1, 2012. 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.

 

 

 

Unaudited Condensed Consolidating Statement of Earnings

 

 

 

For the Three Months Ended March 31, 2013

 

($ in millions)

 

Ball 
Corporation

 

Guarantor 
Subsidiaries

 

Non-Guarantor 
Subsidiaries

 

Eliminating 
Adjustments

 

Consolidated 
Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

 

$

1,225.3

 

$

775.4

 

$

(9.7

)

$

1,991.0

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost and expenses