Notes
to Unaudited Condensed
Consolidated Financial Statements
Ball
Corporation and
Subsidiaries
1.
|
Principles
of Consolidation and
Basis of
Presentation
|
The
accompanying unaudited condensed
consolidated financial statements include the accounts of Ball Corporation
and
its controlled affiliates (collectively Ball, the company, we or our) and have
been prepared by the company without audit. 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.
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. 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 pursuant to
Section 13 of the Securities Exchange Act of 1934 for the fiscal year ended
December 31, 2006 (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 period. 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 for a fair statement of
the
results for the interim period.
Ball
adopted Financial Accounting Standards Board (FASB) Interpretation No. (FIN)
48
as of January 1, 2007, and has identified accounting for uncertain tax positions
under this guidance as a critical accounting policy. Considering tax laws
of the multiple jurisdictions in which we operate, both domestic and foreign,
we
assess whether it is more likely than not that a tax position will be sustained
upon examination and through any litigation and measure the largest amount
of
the benefit that is likely to be realized upon ultimate
settlement. Consistent with our practice prior to adoption of FIN 48, we
record related interest expense and penalties, if any, as a tax provision
expense. Actual results may differ substantially from our
estimates.
During
the fourth quarter of 2006,
Ball’s management changed the company’s method of inventory accounting from
last-in, first-out (LIFO) to first-in, first-out (FIFO) in the metal beverage
packaging, Americas, and the metal food and household products packaging,
Americas, segments. Results for the three months and nine months ended
October 1, 2006, have been retrospectively adjusted on a FIFO basis in
accordance with Statement of Financial Accounting Standards
(SFAS) No. 154 (see Note 7).
Subsequent
to the issuance of its
financial statements for the year ended December 31, 2005, the company
determined that certain foreign currency exchange losses had been inadvertently
deferred for the years 200
5
,
2004 and 200
3
.
As a result, selling, general and
administrative expenses were understated by $2.5 million, $2.3 million
and $1 million in 2005, 2004 and 2003, respectively. Management assessed
the impact of these adjustments and
did
not believe these amounts
we
re
material, individually or in the
aggregate, to any previously issued financial statements or to
our
full year results of operations for
2006. A cumulative $5.8 million
pretax
out-of-period
adjustment was included in
selling, general and administrative expenses in the first quarter of
2006.
Certain
prior-year amounts have been
reclassified in order to conform to the current-year presentation. In addition,
within the company’s annual report, the consolidated statement of changes in
shareholders’ equity for the year ended December 31, 2006, included a
transition adjustment of $47.9 million, net of tax, related to the adoption
of SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension
Plans and Other Postretirement Plans, an Amendment of FASB Statements
No. 87, 88, 106 and 132(R),” as a component of 2006 comprehensive earnings
rather than only as an adjustment to accumulated other comprehensive loss.
Had
the transition adjustment of $47.9 million been presented in accordance
with SFAS No. 158, comprehensive earnings for the year ended
December 31, 2006, would have been $448.7 million rather than the
$400.8 million reported in the annual report.
Notes
to Unaudited Condensed
Consolidated Financial Statements
Ball
Corporation and
Subsidiaries
1.
|
Principles
of Consolidation and
Basis of Presentation
(continued)
|
Management
has determined that the
effect on the consolidated statement of changes in shareholders’ equity for this
change in presentation was not material to the 2006 consolidated financial
statements taken as a whole. Comprehensive earnings for 2006 will be revised
in
future presentations of the consolidated statements of changes in shareholders’
equity.
2.
|
New
Accounting
Standards
|
In
April 2007 the FASB issued FASB Staff Position (FSP) FIN 39-1,
“Amendment of FASB Interpretation No. 39,” which amends the terms of FIN 39,
paragraph 3, to replace the terms “conditional contracts” and “exchange
contracts” with the term “derivative instruments” as defined in SFAS No.
133, “Accounting for Derivative Instruments and Hedging Activities.” It also
amends paragraph 10 of FIN 39 to permit a reporting entity to offset
fair value amounts recognized for the right to reclaim cash collateral (a
receivable) or the obligation to return cash collateral (a payable) against
fair
value amounts recognized for derivative instruments executed with the same
counterparty under the same master netting arrangement that have been offset
in
accordance with that paragraph. FSP FIN 39-1 will be effective for
Ball as of January 1, 2008, and is currently under evaluation by the
company.
In
February 2007 the FASB issued SFAS No. 159, “The Fair Value
Option for Financial Assets and Financial Liabilities Including an Amendment
of
FASB Statement No. 115,” which permits companies to choose, at specified
election dates, to measure certain financial instruments and other eligible
items at fair value. Unrealized gains and losses on items for which the fair
value option has been elected are subsequently reported in earnings. The
decision to elect the fair value option is generally irrevocable, is applied
instrument by instrument and can only be applied to an entire instrument. The
standard, which will be effective for Ball as of January 1, 2008, is
currently under evaluation by the company. At this time, we do not expect to
elect the fair value option for any eligible items and did not early adopt
the
standard in the first quarter of 2007 as permitted.
In
September 2006 the FASB issued SFAS No. 157, “Fair Value
Measurements,” which establishes a framework for measuring value and expands
disclosures about fair value measurements. Although it does not require any
new
fair value measurements, the statement emphasizes that fair value is a
market-based measurement, not an entity-specific measurement, and should be
determined based on the assumptions that market participants would use in
pricing the asset or liability. The standard, which will be effective for Ball
as of January 1, 2008, is currently under evaluation by the
company.
In
June 2006 the FASB issued FIN 48, “Accounting for Uncertainty in
Income Taxes – an Interpretation of FASB Statement No. 109,” which
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to
be
taken in a tax return. FIN 48 became effective for Ball beginning on
January 1, 2007. The adoption of FIN 48 included a net increase in
uncertain tax liabilities of $2.1 million to a total of $45.8 million,
excluding $1.2 million accrued in the opening balance sheet of the
acquisition of U.S. Can Corporation (see Note 4). The company records the
related interest expense and penalties, if any, as a tax expense, consistent
with the practice prior to adoption. Additional details about the adoption
of FIN 48 are provided in Note 12. In May 2007 the FASB amended
FIN 48 by issuing FSP FIN 48-1, which provides guidance on how an
enterprise should determine whether a tax position is effectively settled for
the purpose of recognizing previously unrecognized tax benefits. The adoption
of
FSP FIN 48-1 did not result in any changes to the amounts recorded
upon the initial adoption of FIN 48 or during the nine months ended
September 30, 2007.
Notes
to Unaudited Condensed
Consolidated Financial Statements
Ball
Corporation and
Subsidiaries
3.
|
Business
Segment
Information
|
Ball’s
operations are organized and
reviewed by management along its product lines in five reportable
segments:
Metal
beverage
packaging
,
Americas
:
Consists
of operations in the
U.S.
,
Canada
and
Puerto Rico
,
which manufacture and sell metal
containers, primarily for use in beverage packaging.
Metal
b
everage
p
ackaging
,
Europe/Asia
:
Consists
of
operations in several
countries in
Europe and
the People’s
Republic of
China
(PRC), which manufacture and sell metal
beverage containers in Europe and Asia, as
well as plastic containers
in
Asia
.
Metal
food & household
p
roducts
p
ackaging
,
Americas
:
Consists
of operations in the U.S.,
Canada and Argentina, which manufacture and sell metal food cans, aerosol cans,
paint cans and custom and specialty cans.
Plastic
p
ackaging
,
Americas
:
C
onsists
of operations in the
U.S.
and
Canada
,
which manufacture and sell
polyethylene terephthalate (PET) and polypropylene containers, primarily for
use
in beverage and food packaging. Effective January 1, 2007, this segment
also includes the manufacture and sale of plastic containers used for industrial
and household products, which were previously reported within the metal food
and
household products packaging,
Americas
,
segment.
Aerospace
&
t
echnologies
:
Consists
of the manufacture
and sale of aerospace and other related products and the providing of services
used primarily 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. We also have investments in
companies in the
U.S.
,
PRC and
Brazil
,
which are accounted for under the
equity method of accounting and, accordingly, those results are not included
in
segment sales or earnings.
In
the fourth quarter of 2006, the
company changed its method of inventory accounting in the metal beverage
packaging,
Americas
,
and the metal food and household
products packaging,
Americas
,
segments from LIFO to FIFO (see
Note 1). Effective January 1, 2007,
a
plastic pail product line with expected annual net sales of $55 million was
transferred from the metal food and household products packaging, Americas,
segment to the plastic packaging, Americas, segment. The three months and nine
months ended October 1, 2006, have been retrospectively adjusted to conform
to the
current presentation for
the change in inventory accounting method, as well as the transfer of the
plastic pail product line.
Notes
to Unaudited Condensed
Consolidated Financial Statements
Ball
Corporation and
Subsidiaries
3.
|
Business
Segment Information
(continued)
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
($
in millions)
|
|
September 30,
2007
|
|
|
October
1,
2006
|
|
|
September 30,
2007
|
|
|
October
1,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Metal
beverage packaging, Americas
|
|
$
|
728.8
|
|
|
$
|
659.6
|
|
|
$
|
2,182.9
|
|
|
$
|
1,992.6
|
|
Legal
settlement (Note 5)
|
|
|
(85.6
|
)
|
|
|
–
|
|
|
|
(85.6
|
)
|
|
|
–
|
|
Total
metal beverage packaging, Americas
|
|
|
643.2
|
|
|
|
659.6
|
|
|
|
2,097.3
|
|
|
|
1,992.6
|
|
Metal
beverage packaging, Europe/Asia
|
|
|
522.4
|
|
|
|
425.1
|
|
|
|
1,446.7
|
|
|
|
1,159.8
|
|
Metal
food & household products packaging, Americas
|
|
|
349.5
|
|
|
|
366.0
|
|
|
|
912.3
|
|
|
|
850.5
|
|
Plastic
packaging, Americas
|
|
|
195.0
|
|
|
|
201.2
|
|
|
|
580.3
|
|
|
|
521.1
|
|
Aerospace
& technologies
|
|
|
196.4
|
|
|
|
170.4
|
|
|
|
596.9
|
|
|
|
505.7
|
|
Net
sales
|
|
$
|
1,906.5
|
|
|
$
|
1,822.3
|
|
|
$
|
5,633.5
|
|
|
$
|
5,029.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metal
beverage packaging, Americas
|
|
$
|
65.0
|
|
|
$
|
73.0
|
|
|
$
|
241.4
|
|
|
$
|
193.5
|
|
Legal
settlement (Note 5)
|
|
|
(85.6
|
)
|
|
|
–
|
|
|
|
(85.6
|
)
|
|
|
–
|
|
Metal
beverage packaging, Americas
|
|
|
(20.6
|
)
|
|
|
73.0
|
|
|
|
155.8
|
|
|
|
193.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metal
beverage packaging, Europe/Asia
|
|
|
81.0
|
|
|
|
63.2
|
|
|
|
218.5
|
|
|
|
158.8
|
|
Property
insurance gain (Note 5)
|
|
|
−
|
|
|
|
2.8
|
|
|
|
−
|
|
|
|
76.9
|
|
Total
metal beverage packaging, Europe/Asia
|
|
|
81.0
|
|
|
|
66.0
|
|
|
|
218.5
|
|
|
|
235.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metal
food & household products packaging, Americas
|
|
|
14.5
|
|
|
|
19.7
|
|
|
|
25.4
|
|
|
|
27.2
|
|
Business
consolidation costs (Note 5)
|
|
|
−
|
|
|
|
−
|
|
|
|
−
|
|
|
|
(1.7
|
)
|
Total
metal food & household products packaging, Americas
|
|
|
14.5
|
|
|
|
19.7
|
|
|
|
25.4
|
|
|
|
25.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plastic
packaging, Americas
|
|
|
7.7
|
|
|
|
7.9
|
|
|
|
17.1
|
|
|
|
18.3
|
|
Aerospace
& technologies
|
|
|
18.3
|
|
|
|
15.6
|
|
|
|
53.5
|
|
|
|
33.4
|
|
Segment
earnings before interest and taxes
|
|
|
100.9
|
|
|
|
182.2
|
|
|
|
470.3
|
|
|
|
506.4
|
|
Corporate
undistributed expenses, net
|
|
|
(10.0
|
)
|
|
|
(4.8
|
)
|
|
|
(33.7
|
)
|
|
|
(24.0
|
)
|
Earnings
before interest and taxes
|
|
|
90.9
|
|
|
|
177.4
|
|
|
|
436.6
|
|
|
|
482.4
|
|
Interest
expense
|
|
|
(36.2
|
)
|
|
|
(37.2
|
)
|
|
|
(112.2
|
)
|
|
|
(98.1
|
)
|
Tax
provision
|
|
|
3.1
|
|
|
|
(36.6
|
)
|
|
|
(85.9
|
)
|
|
|
(114.2
|
)
|
Minority
interests
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
|
|
(0.3
|
)
|
|
|
(0.5
|
)
|
Equity
in results of affiliates
|
|
|
3.2
|
|
|
|
3.6
|
|
|
|
9.8
|
|
|
|
11.7
|
|
Net
earnings
|
|
$
|
60.9
|
|
|
$
|
107.1
|
|
|
$
|
248.0
|
|
|
$
|
281.3
|
|
Notes
to Unaudited Condensed
Consolidated Financial Statements
Ball
Corporation and
Subsidiaries
3.
|
Business
Segment Information
(continued)
|
($
in
millions)
|
|
As
of
September 30,
2007
|
|
|
As
of
December
31,
2006
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
|
|
|
|
|
Metal
beverage packaging,
Americas
|
|
$
|
1,169.2
|
|
|
$
|
1,147.2
|
|
Metal
beverage packaging,
Europe/Asia
|
|
|
2,584.6
|
|
|
|
2,412.7
|
|
Metal
food & household
products packaging,
Americas
(
a
)
|
|
|
1,214.4
|
|
|
|
1,094.9
|
|
Plastic
packaging,
Americas
(
a
)
|
|
|
577.7
|
|
|
|
609.0
|
|
Aerospace
&
technologies
|
|
|
292.8
|
|
|
|
268.2
|
|
Segment
assets
|
|
|
5,838.7
|
|
|
|
5,532.0
|
|
Corporate
assets, net of
eliminations
|
|
|
176.7
|
|
|
|
308.9
|
|
Total
assets
|
|
$
|
6,015.4
|
|
|
$
|
5,840.9
|
|
(a)
|
Amounts
in 2006 have been
retrospectively adjusted for the transfer of a plastic pail product
line
with assets of approximately $65 million from the metal food and
household products packaging,
Americas
,
segment to the plastic
packaging,
Americas
,
segment, which occurred as of
January 1, 2007.
|
U.S.
Can
Corporation
On
March 27, 2006, Ball acquired
all of the issued and outstanding shares of
U.S.
Can Corporation (
U.S.
Can) for 444,756 common shares of
Ball Corporation (valued at $44.28 per share for a total of $19.7 million)
pursuant to the provisions of a merger agreement dated February 14, 2006,
among
Ball
,
U.S.
Can and the shareholders of
U.S.
Can (
m
erger
a
greement).
Contemporaneously
with the acquisition,
Ball refinanced $598.2 million of
U.S.
Can debt, including $26.8 million
of bond redemption premiums and fees
,
and
over the next several
years, expects to
realize approximately
$42 million of acquired net
operating tax loss carryforwards
.
The acquired operations are included in
the
metal food and household products packaging, Americas, segment,
except for
a plastic pail product
line that was transferred to the company’s plastic packaging,
Americas
,
segment effective January 1,
2007, for which 2006 amounts have been retrospectively adjusted.
The acquisition has
been accounted for
as a purchase and, accordingly, its results have been included in the
consolidated financial statements since March 27, 2006.
Pursuant
to the
m
erger
a
greement,
a certain portion of the
common share consideration issued for the acquisition of
U.S.
Can was placed in escrow and was
subsequently converted into cash
,
which remains in escrow. During the
second quarter of 2007, Ball asserted claims against the former shareholders
of
U.S.
Can
,
and the escrowed cash will be used to
satisfy such claims to the extent they are agreed to or
sustained.
Alcan
Packaging
On
March 28, 2006, Ball acquired
North American plastic bottle container assets from Alcan Packaging (Alcan)
for
$184.7 million cash. The acquired business primarily manufactures and sells
barrier polypropylene plastic bottles used in food packaging and, to a lesser
extent, barrier PET plastic bottles used for beverages and food. The operations
acquired form part of Ball’s plastic packaging,
Americas
,
segment. The acquisition has been
accounted for as a purchase and, accordingly, its results have been included
in
the consolidated financial statements since March 28,
2006.
Notes
to Unaudited Condensed
Consolidated Financial Statements
Ball
Corporation and
Subsidiaries
4.
|
Acquisitions
(continued)
|
Following
is a summary of the net assets acquired in the U.S. Can and Alcan transactions.
The valuations were performed by management, including identification and
valuation of acquired intangible assets and of liabilities, including
development and assessment of associated costs of consolidation and integration
plans. The company also engaged third party experts to assist management in
valuing certain assets and liabilities including inventory; property, plant
and
equipment; intangible assets and pension and other post-retirement obligations.
During the first quarter of 2007, the company completed its valuation of the
acquired assets and liabilities and revised the purchase price allocations
accordingly. The final purchase price allocations resulted primarily in an
increase in identifiable intangible assets for both acquisitions.
($
in millions)
|
|
U.S.
Can
(Metal
Food & Household Products Packaging, Americas)
|
|
|
Alcan
(Plastic Packaging, Americas)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
0.2
|
|
|
$
|
–
|
|
|
$
|
0.2
|
|
Property,
plant and equipment
|
|
|
164.6
|
|
|
|
73.6
|
|
|
|
238.2
|
|
Goodwill
|
|
|
353.2
|
|
|
|
48.6
|
|
|
|
401.8
|
|
Intangibles
|
|
|
63.9
|
|
|
|
33.7
|
|
|
|
97.6
|
|
Other
assets, primarily inventories and receivables
|
|
|
220.1
|
|
|
|
40.1
|
|
|
|
260.2
|
|
Liabilities
assumed (excluding refinanced debt), primarily current
|
|
|
(184.1
|
)
|
|
|
(11.3
|
)
|
|
|
(195.4
|
)
|
Net
assets acquired
|
|
$
|
617.9
|
|
|
$
|
184.7
|
|
|
$
|
802.6
|
|
With
the
assistance of an independent valuation firm, the customer relationships and
acquired technologies of both acquisitions were identified as valuable
intangible assets, and the company assigned to them an estimated life of
20 years based on the valuation firm’s estimates. Because the acquisition
of U.S. Can was a stock purchase, neither the goodwill nor the intangible assets
are deductible for U.S. income tax purposes unless, and until such time as,
the
stock is sold. However, because the Alcan acquisition was an asset purchase,
the
amortization of goodwill and intangible assets is deductible for U.S. tax
purposes.
5.
|
Legal
Settlement, Property
Insurance Gain and Business Consolidation
Activities
|
2007
Legal
Settlement
During
the second quarter of 2007, Miller Brewing Company (Miller), a U.S. customer,
asserted various claims against a wholly owned subsidiary of the company,
primarily related to the pricing of the aluminum component of the containers
supplied by the subsidiary. On October 4, 2007, the dispute was settled in
mediation. Ball will continue to supply all of Miller
’
s beverage
can and
end business through 2015 and Miller will receive $85.6 million
($51.8 million after tax), with approximately $70 million to be paid in the
first quarter of 2008 (recorded on the consolidated balance sheet in other
current liabilities). The remainder of the third quarter accrual will be
recovered over the life of the contract. Third quarter net sales and pretax
earnings have been reduced by the $85.6 million charge.
Details
about a fourth quarter 2007 announcement regarding business consolidation
activities are available in Note 16, “Subsequent Events.”
Notes
to Unaudited Condensed
Consolidated Financial Statements
Ball
Corporation and
Subsidiaries
5.
|
Legal
Settlement, Property
Insurance Gain and Business Consolidation Activities
(continued)
|
2006
Property
Insurance
Gain
On
April 1, 2006, a fire in the
Hassloch,
Germany
,
metal
beverage can plant in
the company’s metal beverage packaging,
Europe/Asia, segment
damaged a
significant
portion of the plant
’
s building
and
machinery and equipment. A €26.7 million ($33.8 million) fixed asset
write down was recorded in 2006 to reflect the estimated impairment of the
assets damaged as a result of the fire. As a result, a pretax gain of
€58.4 million ($74.1 million) was recorded in the consolidated
statement of earnings in the second quarter of 2006. This pretax gain was
revised to
€59.6 million (
$75.5 million
)
by the end of 2006. In accordance with
the final agreement reached with the insurance company in November 2006,
the final property insurance proceeds of €37.6 million ($48.6 million)
were received in January 2007. Additionally, €
5.1
million
($
7
million)
and €2
6.2
million
($
35.1
million)
w
ere
recognized
in cost of sales
during
the
third
quarter and first
nine
months of 2007, respectively, for
insurance recoveries related to business interruption costs. Approximately
€
0.8
million
of additional business
interruption recoveries ha
ve
been agreed upon with the insurance
carrier and will be recognized during the fourth quarter of
2007.
Business
Consolidation Activities
Through
the first two quarters of 2006, a net pretax charge of $1.7 million
($1.2 million after tax) was recorded in the metal food and household
products packaging, Americas, segment, primarily to shut down a metal food
can
production line in Whitby, Ontario.
In
the
fourth quarter of 2006, the company recorded a pretax charge of
$33.6 million ($27.4 million after tax) to close two manufacturing
facilities in North America as part of the realignment of the metal food and
household products packaging, Americas, segment following the acquisition
earlier in the year of U.S. Can. The charge included $7.8 million of
severance costs, $16.8 million of pension costs and $9 million of
other costs. Operations have ceased at both plants and payments of
$9.8 million were made in the first nine months of 2007 against the
reserves.
Summary
The
following table summarizes the 2007 year-to-date activity related to the amounts
provided for business consolidation activities:
($
in millions)
|
|
Fixed
Assets/
Spare
Parts
|
|
|
Employee
Costs
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2006
|
|
$
|
6.7
|
|
|
$
|
14.1
|
|
|
$
|
4.3
|
|
|
$
|
25.1
|
|
Payments
|
|
|
–
|
|
|
|
(8.4
|
)
|
|
|
(3.7
|
)
|
|
|
(12.1
|
)
|
Asset
dispositions and other
|
|
|
(1.3
|
)
|
|
|
–
|
|
|
|
(0.3
|
)
|
|
|
(1.6
|
)
|
Balance
at September 30, 2007
|
|
$
|
5.4
|
|
|
$
|
5.7
|
|
|
$
|
0.3
|
|
|
$
|
11.4
|
|
The
remaining reserves are expected to be utilized during 2007 and 2008. The
carrying value of fixed assets remaining for sale in connection with business
consolidation activities was $15.3 million at September 30,
2007.
Notes
to Unaudited Condensed
Consolidated Financial Statements
Ball
Corporation and
Subsidiaries
The
company’s receivables include trade
accounts receivable and other types of receivables, including non-income
tax
receivables, such as property tax and sales tax, insurance claims
receivable and other similar items. At September 30, 2007, receivables
included $763.1
million of
trade accounts receivable and $89.7
million of other receivables
and at
December 31, 2006, they included $422.2
million of trade accounts
receivable and
$157.3
million of other
receivables.
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, up to
$250 million (increased from $225 million in August 2007). The
agreement qualifies as off-balance sheet financing under the provisions of
SFAS No. 140, as amended by SFAS No. 156. Net
funds
received from the sale of the accounts receivable totaled $170 million at
September 30, 2007, and $201.3 million at December 31, 2006, and
are reflected as a reduction of accounts receivable in the condensed
consolidated balance sheets.
($
in
millions)
|
|
September 30,
2007
|
|
|
December 31,
2006
|
|
|
|
|
|
|
|
|
Raw
materials and
supplies
|
|
$
|
357.8
|
|
|
$
|
445.6
|
|
Work
in process and finished
goods
|
|
|
509.8
|
|
|
|
489.8
|
|
|
|
$
|
867.6
|
|
|
$
|
935.4
|
|
Historically
the cost of the majority of metal beverage packaging, Americas, and metal food
and household products packaging, Americas, inventories was determined using
the
LIFO method of accounting. During the fourth quarter of 2006, the company
determined that the FIFO method of inventory accounting better matches revenues
and expenses in accordance with sales contract terms. Therefore, in the fourth
quarter of 2006, the accounting policy was changed to record all inventories
using the FIFO method of accounting. For comparative purposes, the 2006
statements of earnings and cash flows have been retrospectively adjusted on
a
FIFO basis in accordance with SFAS No. 154, “Accounting Changes and Error
Corrections – a Replacement of APB Opinion No. 20 and FASB Statement
No. 3.”
The
following table summarizes the effect of the accounting change on the company’s
consolidated financial statements:
|
|
Three
Months Ended
October 1,
2006
|
|
|
Nine
Months Ended
October 1,
2006
|
|
($
in millions, except per share amounts)
|
|
As
Originally Reported
|
|
|
As
Adjusted for Accounting Change
|
|
|
As
Originally Reported
|
|
|
As
Adjusted for Accounting Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
statements of earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
$
|
1,526.0
|
|
|
$
|
1,516.7
|
|
|
$
|
4,232.3
|
|
|
$
|
4,228.2
|
|
Tax
provision
|
|
|
32.9
|
|
|
|
36.6
|
|
|
|
112.6
|
|
|
|
114.2
|
|
Net
earnings
|
|
|
101.5
|
|
|
|
107.1
|
|
|
|
278.8
|
|
|
|
281.3
|
|
Basic
earnings per share
|
|
|
0.98
|
|
|
|
1.04
|
|
|
|
2.70
|
|
|
|
2.72
|
|
Diluted
earnings per share
|
|
|
0.97
|
|
|
|
1.02
|
|
|
|
2.65
|
|
|
|
2.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
statements of cash flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
taxes
|
|
|
|
|
|
|
|
|
|
|
26.1
|
|
|
|
27.7
|
|
Change
in working capital components
|
|
|
|
|
|
|
|
|
|
|
(256.6
|
)
|
|
|
(260.7
|
)
|
Notes
to Unaudited Condensed
Consolidated Financial Statements
Ball
Corporation and
Subsidiaries
8.
|
Property,
Plant and
Equipment
|
($
in
millions)
|
|
September
30,
2007
|
|
|
December
31,
2006
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
91.8
|
|
|
$
|
88.5
|
|
Buildings
|
|
|
812.6
|
|
|
|
764.1
|
|
Machinery
and
equipment
|
|
|
2,895.6
|
|
|
|
2,618.6
|
|
Construction
in
progress
|
|
|
141.2
|
|
|
|
215.1
|
|
|
|
|
3,941.2
|
|
|
|
3,686.3
|
|
Accumulated
depreciation
|
|
|
(2,000.2
|
)
|
|
|
(1,810.3
|
)
|
|
|
$
|
1,941.0
|
|
|
$
|
1,876.0
|
|
Property,
plant and
equipment are stated
at historical cost.
Depreciation expense amounted to $
67.4
million
and
$194.1 million
for the three months
and
nine months
ended
September 30
,
2007,
respectively, and $60.8 million and
$173.3 million for the three months and nine months ended October 1,
2006, respectively.
($
in millions)
|
|
Metal
Beverage
Packaging,
Americas
|
|
|
Metal
Beverage
Packaging,
Europe/Asia
|
|
|
Metal
Food & Household Products Packaging,
Americas
|
|
|
Plastic
Packaging,
Americas
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2006
|
|
$
|
279.4
|
|
|
$
|
1,020.6
|
|
|
$
|
389.0
|
|
|
$
|
84.7
|
|
|
$
|
1,773.7
|
|
Purchase
accounting adjustments
(a)
|
|
|
–
|
|
|
|
−
|
|
|
|
(4.7
|
)
|
|
|
(1.0
|
)
|
|
|
(5.7
|
)
|
Transfer
of plastic pail product line
|
|
|
−
|
|
|
|
−
|
|
|
|
(30.0
|
)
|
|
|
30.0
|
|
|
|
−
|
|
FIN
48 adoption adjustments (Notes 2 and 12)
|
|
|
−
|
|
|
|
(9.3
|
)
|
|
|
−
|
|
|
|
−
|
|
|
|
(9.3
|
)
|
Effects
of foreign currency exchange rates
|
|
|
–
|
|
|
|
78.7
|
|
|
|
−
|
|
|
|
0.4
|
|
|
|
79.1
|
|
Balance
at September 30, 2007
|
|
$
|
279.4
|
|
|
$
|
1,090.0
|
|
|
$
|
354.3
|
|
|
$
|
114.1
|
|
|
$
|
1,837.8
|
|
(a)
|
Related
to the final purchase
price allocations for the
U.S.
Can and Alcan acquisitions
discussed in
Note 4.
|
In
accordance with
SFAS No. 142, goodwill is not amortized but instead tested annually
for impairment. There has been no goodwill impairment since the adoption of
SFAS No. 142 on January 1,
2002.
Notes
to Unaudited Condensed
Consolidated Financial Statements
Ball
Corporation and
Subsidiaries
10.
|
Intangibles
and Other
Assets
|
($
in
millions)
|
|
September 30,
2007
|
|
|
December
31,
2006
|
|
|
|
|
|
|
|
|
Investments
in
affiliates
|
|
$
|
76.9
|
|
|
$
|
76.5
|
|
Intangibles
(net of accumulated
amortization
of
$87.1 at
September 30, 2007, and $70.7
at December 31, 2006)
|
|
|
124.6
|
|
|
|
116.2
|
|
Company-owned
life
insurance
|
|
|
87.3
|
|
|
|
77.5
|
|
Deferred
tax
asset
|
|
|
8.6
|
|
|
|
34.9
|
|
Property
insurance receivable
(Note 5)
|
|
|
−
|
|
|
|
49.7
|
|
Other
|
|
|
59.3
|
|
|
|
75.1
|
|
|
|
$
|
356.7
|
|
|
$
|
429.9
|
|
Total
amortization expense of intangible
assets
amounted to
$4.4 million
and
$12.6 million for the three months and nine months ended September 30,
2007, respectively
, and
$3.7
million and
$10.7 million for the comparable periods in 2006,
respectively.
11.
|
Debt
and Interest
Costs
|
Long-term
debt consisted of the
following:
|
|
September
30,
2007
|
|
|
December
31,
2006
|
|
(in
millions)
|
|
In
Local
Currency
|
|
|
In
U.S.
$
|
|
|
In
Local
Currency
|
|
|
In
U.S.
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
Payable
|
|
|
|
|
|
|
|
|
|
|
|
|
6.875%
Senior Notes, due December
2012 (excluding premium of
$2.
8
in 2007 and $3.2 in
2006)
|
|
$
|
550.0
|
|
|
$
|
550.0
|
|
|
$
|
550.0
|
|
|
$
|
550.0
|
|
6.625%
Senior Notes, due March
2018 (excluding discount of $0.8
in
2007 and $0.9 in
2006)
|
|
$
|
450.0
|
|
|
|
450.0
|
|
|
$
|
450.0
|
|
|
|
450.0
|
|
Senior
Credit Facilities, due
October 2011 (at variable rates)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term
A Loan, British sterling
denominated
|
|
₤
|
85.0
|
|
|
|
173.9
|
|
|
₤
|
85.0
|
|
|
|
166.4
|
|
Term
B Loan, euro
denominated
|
|
€
|
350.0
|
|
|
|
499.1
|
|
|
€
|
350.0
|
|
|
|
462.0
|
|
Term
C Loan, Canadian dollar
denominated
|
|
C$
|
129.0
|
|
|
|
129.7
|
|
|
C$
|
134.0
|
|
|
|
114.9
|
|
Term
D Loan, U.S. dollar
denominated
|
|
$
|
500.0
|
|
|
|
500.0
|
|
|
$
|
500.0
|
|
|
|
500.0
|
|
U.S.
dollar multi-currency
revolver borrowings
|
|
$
|
10.0
|
|
|
|
10.0
|
|
|
$
|
15.0
|
|
|
|
15.0
|
|
British
sterling multi-currency
revolver borrowings
|
|
₤
|
4.0
|
|
|
|
8.2
|
|
|
₤
|
4.0
|
|
|
|
7.8
|
|
Canadian
dollar multi-currency revolver
borrowings
|
|
C$
|
7.5
|
|
|
|
7.5
|
|
|
|
−
|
|
|
|
−
|
|
Industrial
Development Revenue
Bonds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
rates due
through
2015
|
|
$
|
13.0
|
|
|
|
13.0
|
|
|
$
|
20.0
|
|
|
|
20.0
|
|
Other
|
|
Various
|
|
|
|
20.5
|
|
|
Various
|
|
|
|
25.5
|
|
|
|
|
|
|
|
|
2,361.9
|
|
|
|
|
|
|
|
2,311.6
|
|
Less:
Current portion of long-term
debt
|
|
|
|
|
|
|
(133.0
|
)
|
|
|
|
|
|
|
(41.2
|
)
|
|
|
|
|
|
|
$
|
2,228.9
|
|
|
|
|
|
|
$
|
2,270.4
|
|
At
September 30, 2007,
approximately
$683 million
was
available under the multi-currency revolving credit facilities, which provide
for
up to $750 million
in U.S. dollar equivalents. The company also had short-term uncommitted credit
facilities of up to $342 million
at September 30, 2007, of
which
$36.
4
million
was outstanding and due on
demand.
Notes
to Unaudited Condensed
Consolidated Financial Statements
Ball
Corporation and
Subsidiaries
11.
|
Debt
and Interest Costs
(continued)
|
The
notes payable are guaranteed on a
full, unconditional and joint and several basis by certain of the company’s
wholly owned domestic subsidiaries. The notes payable also contain certain
covenants and restrictions including, among other things, limits on the
incurrence of additional indebtedness and limits on the amount of restricted
payments, such as dividends and share repurchases. Exhibit 20 contains
unaudited condensed, consolidating financial information for the company,
segregating the guarantor subsidiaries and non-guarantor subsidiaries. Separate
financial statements for the guarantor subsidiaries and the non-guarantor
subsidiaries are not presented because management has determined that such
financial statements would not be material to investors.
The
company was in compliance with all
loan agreements at September 30, 2007, and has met all debt payment
obligations. The
U.S.
note agreements, bank credit agreement
and industrial development revenue bond agreements contain certain restrictions
relating to dividend payments, share repurchases, investments, financial ratios,
guarantees and the incurrence of additional indebtedness.
The
third
quarter 2007 provision for income taxes was reduced by $10.8 million to
adjust for the impact on deferred taxes of enacted income tax rate reductions
in
Germany and the United Kingdom. This benefit was offset by $3.8 million of
additional taxes, primarily for reduced tax credits and a lower manufacturer’s
deduction in the U.S. as a result of the legal settlement with a
customer.
Upon
completion of the company
’
s analysis
during
the third quarter of 2007, the tax provision was further reduced by
$17.2 million related to the overall impact of a tax loss pertaining to the
company’s Canadian operations. This benefit was offset by an additional income
tax accrual of $7 million under FIN 48 to adjust the income tax
liability to reflect the final settlement in the quarter with the Internal
Revenue Service for interest deductions on incurred loans from a company-owned
life insurance plan. The total accrual for the settlement for the applicable
prior years 2000-2004 under examination and unaudited years 2005 through 2007
year-to-date was $18.4 million, including interest. The settlement resulted
in a majority of the interest deductions being sustained with prospective
application that results in no significant impact to future earnings per share
or cash flows.
The
accrual for uncertain tax positions was $56.8 million at September 30,
2007, of which approximately $8.6 million represents potential interest
expense. No penalties have been accrued.
The
third
quarter ended October 1, 2006, included a discrete period tax benefit of
$6.4 million related to the settlement of various tax matters.
13.
|
Employee
Benefit
Obligations
|
($
in
millions)
|
|
September 30,
2007
|
|
|
December
31,
2006
|
|
|
|
|
|
|
|
|
Total
defined benefit pension
liability
|
|
$
|
515.9
|
|
|
$
|
510.6
|
|
Less
current
portion
|
|
|
(26.6
|
)
|
|
|
(24.1
|
)
|
Long-term
defined benefit pension
liability
|
|
|
489.3
|
|
|
|
486.5
|
|
Retiree
medical and other
postemployment benefits
|
|
|
202.6
|
|
|
|
191.1
|
|
Deferred
compensation
plans
|
|
|
153.0
|
|
|
|
144.0
|
|
Other
|
|
|
12.9
|
|
|
|
26.1
|
|
|
|
$
|
857.8
|
|
|
$
|
847.7
|
|
Notes
to Unaudited Condensed
Consolidated Financial Statements
Ball
Corporation and
Subsidiaries
13.
|
Employee
Benefit Obligations
(continued)
|
Components
of net periodic benefit cost
associated with the company’s defined benefit pension plans
were:
|
|
Three
Months
Ended
|
|
|
|
September
30,
2007
|
|
|
October
1,
2006
|
|
($
in
millions)
|
|
U.S.
|
|
|
Foreign
|
|
|
Total
|
|
|
U.S.
|
|
|
Foreign
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
10.3
|
|
|
$
|
2.3
|
|
|
$
|
12.6
|
|
|
$
|
6.4
|
|
|
$
|
2.3
|
|
|
$
|
8.7
|
|
Interest
cost
|
|
|
11.8
|
|
|
|
7.7
|
|
|
|
19.5
|
|
|
|
12.3
|
|
|
|
6.9
|
|
|
|
19.2
|
|
Expected
return on plan
assets
|
|
|
(13.7
|
)
|
|
|
(4.7
|
)
|
|
|
(18.4
|
)
|
|
|
(13.8
|
)
|
|
|
(4.1
|
)
|
|
|
(17.9
|
)
|
Amortization
of prior service
cost
|
|
|
0.3
|
|
|
|
(0.2
|
)
|
|
|
0.1
|
|
|
|
0.3
|
|
|
|
(0.1
|
)
|
|
|
0.2
|
|
Recognized
net actuarial
loss
|
|
|
3.3
|
|
|
|
1.3
|
|
|
|
4.6
|
|
|
|
4.3
|
|
|
|
0.9
|
|
|
|
5.2
|
|
Subtotal
|
|
|
12.0
|
|
|
|
6.4
|
|
|
|
18.4
|
|
|
|
9.5
|
|
|
|
5.9
|
|
|
|
15.4
|
|
Non-company
sponsored
plans
|
|
|
0.3
|
|
|
|
−
|
|
|
|
0.3
|
|
|
|
0.3
|
|
|
|
–
|
|
|
|
0.3
|
|
Net
periodic benefit
cost
|
|
$
|
12.3
|
|
|
$
|
6.4
|
|
|
$
|
18.7
|
|
|
$
|
9.8
|
|
|
$
|
5.9
|
|
|
$
|
15.7
|
|
|
|
Nine
Months
Ended
|
|
|
|
September
30,
2007
|
|
|
October
1,
2006
|
|
($
in
millions)
|
|
U.S.
|
|
|
Foreign
|
|
|
Total
|
|
|
U.S.
|
|
|
Foreign
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$
|
30.7
|
|
|
$
|
6.6
|
|
|
$
|
37.3
|
|
|
$
|
20.7
|
|
|
$
|
6.7
|
|
|
$
|
27.4
|
|
Interest
cost
|
|
|
35.3
|
|
|
|
22.5
|
|
|
|
57.8
|
|
|
|
34.2
|
|
|
|
20.3
|
|
|
|
54.5
|
|
Expected
return on plan
assets
|
|
|
(40.9
|
)
|
|
|
(13.6
|
)
|
|
|
(54.5
|
)
|
|
|
(37.9
|
)
|
|
|
(11.9
|
)
|
|
|
(49.8
|
)
|
Amortization
of prior service
cost
|
|
|
0.7
|
|
|
|
(0.4
|
)
|
|
|
0.3
|
|
|
|
2.8
|
|
|
|
(0.2
|
)
|
|
|
2.6
|
|
Recognized
net actuarial
loss
|
|
|
10.1
|
|
|
|
3.6
|
|
|
|
13.7
|
|
|
|
14.1
|
|
|
|
2.5
|
|
|
|
16.6
|
|
Subtotal
|
|
|
35.9
|
|
|
|
18.7
|
|
|
|
54.6
|
|
|
|
33.9
|
|
|
|
17.4
|
|
|
|
51.3
|
|
Non-company
sponsored
plans
|
|
|
0.9
|
|
|
|
0.1
|
|
|
|
1.0
|
|
|
|
0.8
|
|
|
|
–
|
|
|
|
0.8
|
|
Net
periodic benefit
cost
|
|
$
|
36.8
|
|
|
$
|
18.8
|
|
|
$
|
55.6
|
|
|
$
|
34.7
|
|
|
$
|
17.4
|
|
|
$
|
52.1
|
|
Contributions
to the company’s defined
benefit pension plans, not including the unfunded German plans, were
$
58.9 million
in the first nine months of 2007
($58.6 million in
2006). The total
minimum
required
contributions to
these funded plans are expected to be approximately $57 million in
2007
.
As
part of the company’s overall debt
reduction plan, we anticipate contributing up to an incremental
$45 millio
n
($27 million after tax) over the minimum required contributions to our
North American pension plans during the fourth quarter of 2007.
Payments
to
participants in the unfunded German plans were €13.2 million
($17.8 million) in the first nine months of 2007 and are expected to be
approximately €19 million (approximately $26 million) for the full
year.
In
accordance with new
United Kingdom
pension regulations, Ball has provided
an £8 million guarantee to its defined benefit plan in the
United Kingdom
.
If the company’s credit rating falls
below specified levels, Ball will be required to either: (1) contribute an
additional £8 million to the plan; (2) provide a letter of credit to
the plan in that amount or (3) if imposed by the appropriate regulatory
agency, provide a lien on company assets in that amount for the benefit of
the
plan. The guarantee can be removed upon approval by both Ball and the pension
plan trustees.
Notes
to Unaudited Condensed
Consolidated Financial Statements
Ball
Corporation and
Subsidiaries
14.
|
Shareholders’
Equity
and
Comprehensive
Earnings
|
Accumulated
Other Comprehensive
Earnings (Loss)
|
Accumulated
other comprehensive earnings
(loss) include the cumulative effect of foreign currency translation, pension
and other postretirement items and realized and unrealized gains and losses
on
derivative instruments receiving cash flow hedge accounting
treatment.
($
in
millions)
|
|
Foreign
Currency
Translation
|
|
|
Effective
Financial
Derivatives
(a)
(net
of
tax)
|
|
|
Pension
and Other Postretirement
Items
(net
of
tax)
|
|
|
Accumulated
Other
Comprehensive
Earnings
(Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31,
2006
|
|
$
|
131.8
|
|
|
$
|
0.6
|
|
|
$
|
(161.9
|
)
|
|
$
|
(29.5
|
)
|
Change
|
|
|
56.2
|
|
|
|
(1.6
|
)
|
|
|
7.0
|
|
|
|
61.6
|
|
September 30,
2007
|
|
$
|
188.0
|
|
|
$
|
(1.0
|
)
|
|
$
|
(154.9
|
)
|
|
$
|
32.1
|
|
(a)
|
Refer
to Item 3, “Quantitative and
Qualitative Disclosures About Market Risk,” for a discussion of the
company’s use of derivative financial
instruments.
|
Comprehensive
Earnings
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
($
in millions)
|
|
September 30,
2007
|
|
|
October 1,
2006
|
|
|
September 30,
2007
|
|
|
October 1,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$
|
60.9
|
|
|
$
|
107.1
|
|
|
$
|
248.0
|
|
|
$
|
281.3
|
|
Foreign
currency translation adjustment
|
|
|
39.4
|
|
|
|
(2.2
|
)
|
|
|
56.2
|
|
|
|
28.5
|
|
Effect
of derivative instruments
|
|
|
(14.4
|
)
|
|
|
2.7
|
|
|
|
(1.6
|
)
|
|
|
3.2
|
|
Pension
and other postretirement items
|
|
|
1.5
|
|
|
|
−
|
|
|
|
7.0
|
|
|
|
11.5
|
|
Comprehensive
earnings
|
|
$
|
87.4
|
|
|
$
|
107.6
|
|
|
$
|
309.6
|
|
|
$
|
324.5
|
|
Notes
to Unaudited Condensed
Consolidated Financial Statements
Ball
Corporation and
Subsidiaries
14.
|
Shareholders’
Equity
and
Comprehensive Earnings
(continued)
|
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 terminate
10 years from the date of grant. A summary of stock option activity for the
nine months ended September 30, 2007, follows:
|
|
Outstanding
Options
|
|
|
Nonvested
Options
|
|
|
|
Number
of Shares
|
|
|
Weighted
Average Exercise
Price
|
|
|
Number
of Shares
|
|
|
Weighted
Average Grant Date Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
of year
|
|
|
4,852,978
|
|
|
$
|
26.69
|
|
|
|
1,286,937
|
|
|
$
|
10.27
|
|
Granted
|
|
|
949,200
|
|
|
|
49.32
|
|
|
|
949,200
|
|
|
|
11.22
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
(497,857
|
)
|
|
|
9.98
|
|
Exercised
|
|
|
(847,653
|
)
|
|
|
21.00
|
|
|
|
|
|
|
|
|
|
Canceled/forfeited
|
|
|
(40,400
|
)
|
|
|
42.70
|
|
|
|
(40,400
|
)
|
|
|
10.54
|
|
End
of period
|
|
|
4,914,125
|
|
|
|
31.91
|
|
|
|
1,697,880
|
|
|
|
10.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested
and exercisable, end of period
|
|
|
3,216,245
|
|
|
|
24.38
|
|
|
|
|
|
|
|
|
|
Reserved
for future grants
|
|
|
4,784,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
options granted in April 2007 included 402,168 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
September 30, 2007, was 6.4 years and the aggregate intrinsic value
(difference in exercise price and closing price at that date) was
$107.3 million. The weighted average remaining contractual term for options
vested and exercisable at September 30, 2007, was 5 years and the
aggregate intrinsic value was $94.5 million. The company received
$3.1 million from options exercised during the three months ended
September 30, 2007. The intrinsic value associated with these exercises was
$4.7 million and the associated tax benefit of $1.6 million was
reported as other financing activities in the condensed consolidated statement
of cash flows. During the nine months ended September 30, 2007, the company
received $17.8 million from options exercised. The intrinsic value
associated with exercises for that period was $24.9 million and the
associated tax benefit reported as other financing activities was
$8.3 million.
Based
on
the Black-Scholes option pricing model, adapted for use in valuing compensatory
stock options in accordance with SFAS No. 123 (revised 2004), options granted
in
April 2007 have an estimated weighted average fair value at the date of
grant of $11.22 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
|
|
0.81%
|
Expected
stock price volatility
|
|
17.94%
|
Risk-free
interest rate
|
|
4.55%
|
Expected
life of options
|
|
4.75
years
|
Forfeiture
rate
|
|
12.00%
|
Notes
to Unaudited Condensed
Consolidated Financial Statements
Ball
Corporation and
Subsidiaries
14.
|
Shareholders’
Equity
and
Comprehensive Earnings
(continued)
|
In
addition to stock options, the company issues to certain employees restricted
shares, which vest over various periods but generally in equal installments
over
five years. Compensation cost is recorded based upon the fair value of the
shares at the grant date.
To
encourage certain senior management employees and outside directors to invest
in
Ball stock, Ball adopted a deposit share program in March 2001 (subsequently
amended and restated) that matches purchased shares with restricted shares.
In
general, restrictions on the matching shares lapse at the end of four years
from
date of grant, or earlier in stages if established share ownership guidelines
are met, assuming the relevant qualifying purchased shares are not sold or
transferred prior to that time. Grants under the plan are accounted for as
equity awards and compensation expense is recorded based upon the fair value
of
the shares at the grant date.
In
April 2007 the company’s board of directors granted
170,000 performance-contingent restricted stock units to key employees,
which will cliff vest if the company’s return on average invested capital during
a 33-month performance period is equal to or exceeds the company’s estimated
cost of capital. If the performance goal is 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 fair value (closing market
price) of the shares at the grant date. On a quarterly basis, the company
reassesses the probability of the goal being met and adjusts compensation
expense as appropriate. No such adjustment was considered necessary at the
end
of the third quarter 2007.
For
the
three and nine months ended September 30, 2007, the company recognized in
selling, general and administrative expenses pretax expense of $4.5 million
($2.8 million after tax) and $21.9 million
($13.3 million after tax), respectively, for share-based compensation
arrangements, which represented $0.03 per basic and diluted share for the
third quarter of 2007 and $0.13 per basic and diluted share for the first
nine months. For the three and nine months ended October 1, 2006, the
company recognized pretax expense of $2.8 million ($1.7 million after
tax) and $10.1 million ($6.1 million after tax) for such arrangements,
which represented $0.02 per basic and diluted share and $0.06 per basic and
diluted share, respectively, for those periods. At September 30, 2007,
there was $34.9 million of total unrecognized compensation costs related to
nonvested share-based compensation arrangements. This cost is expected to be
recognized in earnings over a weighted-average period of
2.7 years.
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
($
in millions, except per share amounts; shares in
thousands)
|
|
September 30,
2007
|
|
|
October 1,
2006
|
|
|
September 30,
2007
|
|
|
October 1,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
Earnings per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings
|
|
$
|
60.9
|
|
|
$
|
107.1
|
|
|
$
|
248.0
|
|
|
$
|
281.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares
|
|
|
101,422
|
|
|
|
103,292
|
|
|
|
101,691
|
|
|
|
103,397
|
|
Effect
of dilutive securities
|
|
|
1,575
|
|
|
|
1,609
|
|
|
|
1,681
|
|
|
|
1,727
|
|
Weighted
average shares applicable
to
diluted earnings per share
|
|
|
102,997
|
|
|
|
104,901
|
|
|
|
103,372
|
|
|
|
105,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share
|
|
$
|
0.59
|
|
|
$
|
1.02
|
|
|
$
|
2.40
|
|
|
$
|
2.68
|
|
Notes
to Unaudited Condensed
Consolidated Financial Statements
Ball
Corporation and
Subsidiaries
15.
|
Earnings
per Share
(continued)
|
The
following outstanding options were excluded from the diluted earnings per share
calculation since they were anti-dilutive (i.e., the sum of the proceeds,
including the unrecognized compensation, exceeded the average closing stock
price for the period):
|
|
Three
Months Ended
|
|
Nine
Months Ended
|
Option
Price:
|
|
September 30,
2007
|
|
October
1,
2006
|
|
September 30,
2007
|
|
October
1,
2006
|
|
|
|
|
|
|
|
|
|
$
39.74
|
|
−
|
|
694,600
|
|
–
|
|
–
|
$
43.69
|
|
−
|
|
901,200
|
|
89,250
|
|
901,200
|
$
49.32
|
|
944,600
|
|
−
|
|
944,600
|
|
–
|
|
|
944,600
|
|
1,595,800
|
|
1,033,850
|
|
901,200
|
On
October 24, 2007, Ball announced plans to close two manufacturing facilities
and
to exit the custom and decorative tinplate can business located in Baltimore,
Maryland. Ball will close its food and household products packaging facilities
in Tallapoosa, Georgia, and Commerce, California, both of which manufacture
aerosol and general line cans. The two plant closures will result in a
net
reduction in manufacturing capacity of 10 production lines, including the
relocation of two aerosol lines into existing Ball facilities. An after-tax
charge of approximately $26 million will be recorded in the fourth quarter.
The
cash costs of these actions, which are planned to be completed in early
2009, are expected to be offset by proceeds on asset dispositions and tax
recoveries.
On
October 24, 2007, Ball announced the discontinuance of the company’s
discount on the reinvestment of dividends associated with Ball’s dividend
reinvestment and voluntary stock purchase plan for non-employee shareholders.
The 5 percent discount was discontinued on November 1,
2007.
The
company is subject to various risks
and uncertainties in the ordinary course of business due, in part, to the
competitive nature of the industries in which the company participates. We
do
business in countries outside the U.S., have changing commodity prices for
the
materials used in the manufacture of our packaging products and participate
in
changing capital markets. Where management considers it warranted, we reduce
these risks and uncertainties through the establishment of risk management
policies and procedures, including, at times, the use of certain derivative
financial instruments.
From
time to time, the company is
subject to routine litigation incidental to its businesses, as well as
regulatory audits and investigations. Additionally, the U.S. Environmental
Protection Agency has designated Ball as a potentially responsible party, along
with numerous other companies, for the cleanup of several hazardous waste
sites.
Our
information at this time does not
indicate that the above matters will have a material adverse effect upon the
liquidity, results of operations or financial condition of the
company.
Notes
to Unaudited Condensed
Consolidated Financial Statements
Ball
Corporation and
Subsidiaries
18.
|
Indemnifications
and
Guarantees
|
During
the normal course of business,
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 direct or
indirect subsidiaries of the company guaranteeing the performance of the
respective entity under a purchase agreement; 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, the majority 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
condensed 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 determinable 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.
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 wholly owned domestic subsidiaries. Foreign
tranches of the senior credit facilities are similarly guaranteed by certain
of
the company’s wholly owned 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 agreement
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 guarantees are essentially equal to the then outstanding principal
and
interest under the respective notes and credit agreement, or under the
applicable tranche. The company is not in default under the above notes or
credit facilities.
Ball
Capital Corp. II is a separate,
wholly owned corporate entity created for the purchase of receivables 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 provided an undertaking to Ball Capital Corp. II in support of
the
sale of receivables to a commercial lender or lenders which would require
performance upon certain events of default referred to in the undertaking.
The
maximum potential amount which could be paid is equal to the outstanding amounts
due under the accounts receivable financing (see Note 6). The company, the
relevant subsidiaries and Ball Capital Corp. II are not in default under the
above credit arrangement.
From
time to time, the company is
subject to claims arising in the ordinary course of business. In the opinion
of
management, no such matter, individually or in the aggregate, exists which
is
expected to have a material adverse effect on the company’s consolidated results
of operations, financial position or cash flows.