4. Acquisitions and Dispositions

Rexam

On June 30, 2016, Ball acquired 100 percent of the outstanding shares of Rexam PLC (Rexam), a U.K. based beverage container manufacturer, for the purchase price of £2.9 billion ($3.8 billion) in cash, and 32.25 million treasury shares of Ball Corporation common stock (valued at $71.39 per share for a total share consideration of $2.3 billion). Additionally, the company recorded $24 million of consideration for stock-based compensation. The common shares were valued using the price on the date of acquisition and were presented as a reduction of treasury stock. The cash portion of the acquisition price was paid in July 2016 using proceeds from restricted cash held in escrow and borrowings under the $1.4 billion and €1.1 billion Term A loan facilities obtained in March 2016.

The consummation of the acquisition was subject to, among other things, approval from Ball’s shareholders, approval from Rexam’s shareholders, certain regulatory approvals and satisfaction of other customary closing conditions. In order to satisfy certain regulatory requirements, the company was required to sell the Divestment Business.

In order to satisfy certain regulatory requirements, the company was required to sell a portion of Ball’s existing beverage packaging business and select beverage can assets of the Divestment Business. The sale of the Divestment Business to Ardagh Group S.A. (Ardagh), was completed concurrently on June 30, 2016, for $3.42 billion, subject to customary closing adjustments and certain transaction service arrangements between Ball and Ardagh during a transition period. The sale agreement with Ardagh in respect of the Divestment Business contains customary representations, warranties, covenants and provisions allocating liabilities, as well as indemnification obligations to and from Ardagh, pursuant to which claims may be made when applicable. A pretax gain of $330 million was recorded in connection with the sale within business consolidation and other activities and is subject to finalization of working capital and other items. As a condition of the sale of the Divestment Business to Ardagh, the company has guaranteed a minimum volume of sales for the Divestment Business in 2017, whereby the company would be required to pay Ardagh up to $75 million based upon any shortfall of 2017 sales relative to an agreed-upon minimum threshold. Additionally, the company entered into a supply agreement with Ardagh to manufacture and sell can ends to the Divestment Business in Brazil in exchange for proceeds of $103 million.

In the sale of the Divestment Business to Ardagh on June 30, 2016, the company provided indemnifications for the uncertain tax positions of the Divestment Business sold to Ardagh. These indemnifications were accounted for as guarantees and the company initially recognized a liability equal to the fair value of the indemnities. There are no limitations on the maximum potential future payments the company could be obligated to make and, based on the nature of the indemnified items, the company is unable to reasonably estimate its potential exposure under these items.

During the three months ended March 31, 2017, the company recorded an additional $27 million in business consolidation and other costs for an increase in the estimated amount of the claims covered by the indemnification as a result of a tax audit in Germany and settlement discussions entered into with the German tax authorities in April. The estimated value of the claims under this indemnity is $50 million at March 31, 2017, and has been recorded within other current liabilities.

The portion of the Divestment Business composed of Ball's legacy beverage packaging businesses had earnings before taxes as shown below. These earnings before taxes may not be indicative of the earnings before taxes that would be generated by these components of the Divestment Business in future periods. Additionally, due to complexities associated with how Ball's legacy beverage packaging businesses included in the Divestment Business were integrated into Ball Corporation in historical periods, these earnings before taxes may not be indicative of the earnings before taxes of these components of the Divestment Business were they to be operated as a standalone business or businesses:


	Three Months Ended March 31,
($ in millions)	2016

Earnings before taxes	$	37
Earnings before taxes attributable to Ball Corporation	$	37

The Rexam portion of the Divestment Business is not included in the table above as the financial information is not included in Ball’s historical results.

A total of 54 manufacturing facilities were acquired from Rexam, including 17 in North America, 20 in Europe, 12 in South America and five in the AMEA region. A total of 22 manufacturing facilities were sold as part of the Divestment Business, including 12 Ball facilities and 10 Rexam facilities. Of these 22 facilities, eight are located in North America, 12 are located in Europe and two are located in Brazil. The company has a total of 75 beverage manufacturing facilities and joint ventures after the completion of the acquisition and the sale of the Divestment Business.

This acquisition aligns with Ball’s Drive for 10 vision, including the company’s longstanding capital allocation strategy and EVA philosophy. The combination creates the world’s largest supplier of beverage containers allowing the company to better serve its customers with its enhanced geographic footprint and innovative product offerings. In particular, Ball expects the acquisition to deliver long-term shareholder value through optimizing global sourcing, reducing general and administrative expenses, sharing best practices to improve production efficiencies and leveraging its footprint to lower freight, logistics and warehousing costs. In addition, further value can be created through balance sheet improvements with a focus on working capital and inventory management and sustainability priorities as a result of the larger plant network.

The acquisition has been accounted for as a business combination and its results of operations have been included in the company’s consolidated statements of earnings and cash flows from the date of acquisition. In total, pretax charges of $216 million have been incurred for transaction costs associated with the acquisition, which, in accordance with current accounting guidance, were expensed as incurred. The transaction costs are included in the business consolidation and other activities line of the consolidated statement of earnings.

In connection with the acquisition, Ball assumed Rexam debt of approximately $2.8 billion of which approximately $2.7 billion was extinguished during July and August 2016. The proceeds from the sale of the Divestment Business were partially used to extinguish the assumed Rexam debt.

The valuation by management of certain assets and liabilities is still in process and, therefore, these fair values are preliminary in nature and are subject to adjustment as additional information is obtained about the facts and circumstances that existed as of the acquisition date. The final determination of the fair values will be completed within the measurement period of up to one year from the acquisition date as permitted under U.S. GAAP and any adjustments to provisional amounts that are identified during the measurement period will be recorded in the reporting period in which the adjustment is determined. The size and complexity of the acquisition of Rexam could necessitate the need to use the full one year measurement period to adequately analyze and assess a number of the factors used in establishing the asset and liability fair values as of the acquisition date including contractual and operational factors underlying the intangible assets. Any potential adjustments made could be material in relation to the preliminary values presented in the table below.

The company adjusted the preliminary allocation of the purchase price for the Rexam acquisition during the three months ended March 31, 2017. These adjustments, none of which were material, have been reflected in the preliminary allocations of the purchase price. The impacts of all adjustments have been reflected in the unaudited condensed consolidated financial statements as of and for the quarter ended March 31, 2017. The primary areas of the purchase price allocation that are not yet finalized relate to fixed assets and operating leases, income and non-income taxes, the valuation of intangible assets acquired and residual goodwill. The preliminary amounts assigned to intangible assets by type for the Rexam acquisition were based on the company’s valuation model and historical experiences with entities with similar business characteristics. The preliminary amounts are summarized in the table below:


	June 30,
($ in millions)	2016

Cash	$	450
Receivables, net		775
Inventories, net		792
Other current assets		164
Assets held for sale (sold to Ardagh on June 30, 2016)		913
Total current assets		3,094
Property, plant and equipment		2,296
Goodwill		3,799
Intangible assets		1,888
Restricted cash		174
Other assets		439
Total assets acquired		11,690

Short-term debt and current portion of long-term debt		2,792
Accounts payable		870
Accrued employee costs		135
Liabilities held for sale (sold to Ardagh on June 30, 2016)		7
Other current liabilities		377
Total current liabilities		4,181

Long-term debt		28
Employee benefit obligations		508
Deferred taxes and other liabilities		723
Total liabilities assumed		5,440

Net assets acquired		6,250

Noncontrolling interests		(90)
Aggregate value of consideration paid	$	6,160

The following table details the identifiable intangible assets acquired, their preliminary fair values and estimated useful lives:


($ in millions)	Fair Value		Weighted- Average Estimated Useful Life (in Years)

Customer relationships	$	1,840	15
Trademarks		40	5
Technology		8	9
	$	1,888

Because the acquisition of Rexam was a stock purchase, neither the goodwill nor the intangible assets acquired are deductible under local country corporate tax laws but will generally be deductible in computing earnings and profits for U.S. tax purposes.

The following unaudited pro forma consolidated results of operations (pro forma information) have been prepared as if the acquisition of Rexam and the sale of the Divestment Business had occurred as of January 1, 2015. The pro forma information combines the historical results of Ball and Rexam. The pro forma results are not necessarily indicative of the actual results that would have occurred had the acquisition been in effect for the periods presented, nor are they necessarily indicative of the results that may be obtained in the future.


	Three Months Ended March 31,
($ in millions, except per share amounts)	2016

Net sales (1)	$	2,418
Net earnings attributable to Ball Corporation (2)		22
Basic earnings per share		0.13
Diluted earnings per share		0.12

(1)

Net sales were adjusted to include net sales of Rexam. The company also excluded the net sales attributable to the Divestment Business.

(2)

Pro forma adjustments to net earnings attributable to Ball Corporation were adjusted as follows:

Excludes acquisition-related transaction costs and debt refinancing costs incurred in the three months ended March 31, 2016.

Includes interest expense associated with the new debt utilized to finance the acquisition.

Includes depreciation and amortization expense based on the increased fair value of property, plant and equipment and amortizable intangible assets acquired.

Excludes net earnings attributable to the Divestment Business for the three months ended March 31, 2016.

All of these pro forma adjustments were adjusted for the applicable income tax impacts. Ball has applied enacted statutory tax rates in the U.K. for the period. Ball has used a tax rate of 20.0 percent to calculate the financing and acquisition adjustments for the three months ended March 31, 2016. However, the tax impact on acquisition-related transaction costs already incurred were recorded at a U.S. statutory rate of approximately 37 percent as these transaction costs were incurred in the U.S. These rates may not be reflective of Ball’s effective tax rate for future periods after consummation of the acquisition and sale of the Divestment Business.

Currency Exchange Rate and Interest Rate Risks

The company entered into collar and option contracts to partially mitigate its currency exchange rate risk associated with the British pound denominated cash portion of the purchase price from February 19, 2015, through the closing date of the Rexam acquisition. The company entered into interest rate swaps to hedge against rising U.S. and European interest rates to minimize its interest rate exposure associated with anticipated debt issuances in connection with the acquisition of Rexam. These contracts were not designated as hedges for accounting purposes, and therefore, changes in the fair value of these contracts were recorded in the consolidated statements of earnings in business consolidation and other activities, as well as in debt refinancing and other costs, a component of total interest expense.

Food and Aerosol Paint and General Line Plant

In March 2017, the company sold its paint and general line can manufacturing facility in Hubbard, Ohio, for approximately $32 million in cash and recorded a $15 million gain on the sale.

Wavefront Technologies (Wavefront)

In January 2016, the company acquired Wavefront located in Annapolis Junction, Maryland, for total cash consideration of $36 million, net of cash acquired. Wavefront provides systems and network engineering, software development software and analytical services for cyber and mission-focused programs to the U.S. government and commercial industry. The financial results of Wavefront have been included in our aerospace segment from the date of acquisition. The acquisition is not material to the company.

Food and Aerosol Specialty Tin Business

In October 2016, the company sold its specialty tin manufacturing facility in Baltimore, Maryland, for approximately $24 million in cash and recorded a $9 million gain on the sale.