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THIS DOCUMENT IS A COPY OF THE QUARTERLY REPORT ON FORM 10-Q FILED ON NOVEMBER 14, 2002, PURSUANT TO A RULE 201 TEMPORARY HARDSHIP
EXEMPTION.
(This submission is identical to the Quarterly Report on Form 10-Q submitted via EDGAR on November 14, 2002, but for the addition of
the legend appearing above, which is required pursuant to Rule 201 of Regulation S-T.)
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 September 29, 2002
Commission file number 1-7349
BALL CORPORATION
State of Indiana 35-0160610
10 Longs Peak Drive, P.O. Box 5000
Broomfield, CO 80021-2510
303/469-3131
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes [ X ] No [ ]
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 October 27, 2002
Common Stock,
without par value 56,827,822 shares
Ball Corporation and Subsidiaries
QUARTERLY REPORT ON FORM 10-Q
For the period ended September 29, 2002
INDEX
Page Number
----------------
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Unaudited Condensed Consolidated Statements of Earnings for the Three-
and Nine-Month Periods Ended September 29, 2002, and September 30, 2001 3
Unaudited Condensed Consolidated Balance Sheets at September 29, 2002,
and December 31, 2001 4
Unaudited Condensed Consolidated Statements of Cash Flows for the
Nine-Month Periods Ended September 29, 2002, and September 30, 2001 5
Notes to Unaudited Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
Item 4. Controls and Procedures 20
PART II. OTHER INFORMATION 21
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Ball Corporation and Subsidiaries
UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF EARNINGS
($ in millions)
Three Months Ended Nine Months Ended
------------------------------- -------------------------------
September 29, September 30, September 29, September 30,
2002 2001 2002 2001
--------------- --------------- --------------- ---------------
- -----------------------------------------------------------------------------------------------------------------
Net sales $ 1,038.6 $ 1,000.5 $ 2,948.7 $ 2,843.1
- -----------------------------------------------------------------------------------------------------------------
Costs and expenses
Cost of sales (excluding depreciation and
amortization) 866.8 853.0 2,475.4 2,426.7
Depreciation and amortization (Notes 8
and 9) 36.2 37.6 109.0 114.7
Business consolidation costs (Note 5) - - - 253.7
Selling and administrative expenses 41.3 30.7 117.0 91.6
Receivable securitization fees and other
(Note 6) 0.9 1.7 2.8 8.7
--------------- --------------- --------------- ---------------
945.2 923.0 2,704.2 2,895.4
----------------------------------------------------------------------------------------------------------------
Earnings (loss) before interest and taxes 93.4 77.5 244.5 (52.3)
----------------------------------------------------------------------------------------------------------------
Interest expense 18.8 21.6 55.1 68.5
--------------- --------------- --------------- ---------------
Earnings (loss) before taxes 74.6 55.9 189.4 (120.8)
Provision for taxes (26.1) (19.6) (66.3) 11.3
Minority interests (0.6) (0.5) (1.4) 0.7
Equity in earnings of affiliates 2.1 0.5 5.7 1.5
--------------- --------------- --------------- ---------------
Net earnings (loss) 50.0 36.3 127.4 (107.3)
Preferred dividends, net of tax - (0.6) - (1.8)
----------------------------------------------------------------------------------------------------------------
Earnings (loss) attributable to
common shareholders $ 50.0 $ 35.7 $ 127.4 $ (109.1)
----------------------------------------------------------------------------------------------------------------
Basic earnings (loss) per share (Note 12)(a) $ 0.89 $ 0.65 $ 2.26 $ (1.99)
=============== =============== =============== ===============
Diluted earnings (loss) per share (Note 12)(a) $ 0.87 $ 0.61 $ 2.21 $ (1.99)
=============== =============== =============== ===============
Cash dividends declared per common share (a) $ 0.09 $ 0.075 $ 0.27 $ 0.225
=============== =============== =============== ===============
See accompanying notes to unaudited condensed consolidated financial statements.
(a) Share amounts have been retroactively restated for the two-for-one stock split discussed in Note 14.
Ball Corporation and Subsidiaries
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
($ in millions)
September 29, December 31,
2002 2001
------------------- -------------------
ASSETS
Current assets
Cash and cash equivalents $ 58.2 $ 83.1
Accounts receivable, net (Note 6) 299.4 172.0
Inventories, net (Note 7) 397.6 449.3
Deferred income tax benefits and prepaid expenses 64.5 89.1
------------------- -------------------
Total current assets 819.7 793.5
Property, plant and equipment, net (Note 8) 931.3 904.4
Goodwill (Note 9) 355.8 357.8
Intangibles and other assets (Note 9) 275.3 257.9
------------------- -------------------
Total Assets $ 2,382.1 $ 2,313.6
=================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt and current portion of long-term debt (Note 10) $ 134.1 $ 115.0
Accounts payable 287.1 258.5
Accrued employee costs and other current liabilities 242.7 201.2
------------------- -------------------
Total current liabilities 663.9 574.7
Long-term debt (Note 10) 888.9 949.1
Employee benefit obligations, deferred income taxes and
other noncurrent liabilities 282.2 276.0
------------------- -------------------
Total liabilities 1,835.0 1,799.8
------------------- -------------------
Contingencies (Note 13)
Minority interests 5.5 9.7
------------------- -------------------
Shareholders equity
Common stock (77,059,607 shares issued - 2002;
75,707,774 shares issued - 2001)(a) 508.8 478.9
Retained earnings 522.2 410.0
Accumulated other comprehensive loss (54.0) (43.7)
Treasury stock, at cost (20,233,981 shares - 2002;
17,890,596 shares - 2001)(a) (435.4) (341.1)
------------------- -------------------
Total shareholders' equity 541.6 504.1
------------------- -------------------
Total Liabilities and Shareholders' Equity $ 2,382.1 $ 2,313.6
=================== ===================
See accompanying notes to unaudited condensed consolidated financial statements.
(a) Share amounts have been retroactively restated for the two-for-one stock split discussed in Note 14.
Ball Corporation and Subsidiaries
UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
($ in millions)
Nine Months Ended
-----------------------------------------
September 29, September 30,
2002 2001
------------------- -------------------
Cash flows from operating activities
Net earnings (loss) $ 127.4 $ (107.3)
Noncash charges to net earnings:
Depreciation and amortization 109.0 114.7
Business consolidation costs, net of related earnings
in equity affiliates and minority interests - 251.2
Deferred income taxes 8.1 22.6
Other, net (4.0) (23.8)
Changes in working capital components 10.9 (152.9)
------------------- -------------------
Net cash provided by operating activities 251.4 104.5
------------------- -------------------
Cash flows from investing activities
Additions to property, plant and equipment (87.7) (49.5)
Acquisitions of previously leased assets (43.1) -
Investments and other, net (18.9) 19.0
------------------- -------------------
Net cash used in investing activities (149.7) (30.5)
------------------- -------------------
Cash flows from financing activities
Repayments of long-term borrowings (50.2) (39.0)
Change in short-term borrowings 3.9 28.6
Common dividends (15.3) (14.4)
Net proceeds from issuance of common stock under
various employee and shareholder plans 29.3 23.4
Acquisitions of treasury stock (94.3) (58.1)
Other, net - (3.7)
------------------- -------------------
Net cash used in financing activities (126.6) (63.2)
------------------- -------------------
Net Change in Cash and Cash Equivalents (24.9) 10.8
Cash and Cash Equivalents - Beginning of Period 83.1 25.6
------------------- -------------------
Cash and Cash Equivalents - End of Period $ 58.2 $ 36.4
=================== ===================
See accompanying notes to unaudited condensed consolidated financial statements.
Ball Corporation and Subsidiaries
September 29, 2002
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. General
The accompanying 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 significant accounting policies, normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and reported
amounts of revenues and expenses during the reporting period. These estimates are based on historical experience and various other
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.
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 segment. We suggest that these unaudited condensed consolidated financial statements and accompanying
notes be read in conjunction with the consolidated financial statements and the notes thereto included in our company's latest
annual report.
Certain prior-year amounts have been reclassified in order to conform to the current-year presentation.
2. New Accounting Standards
In June 2002 the Financial Accounting Standards Board (FASB) issued Statements of Financial Accounting Standards (SFAS) No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities," which is effective for Ball in 2003 on a prospective basis. The
statement supersedes Emerging Issues Task Force Issue No. 94-3 and revises the definition and timing of the incurrence of a
liability associated with an exit or disposal activity not related to a newly acquired entity.
In May 2002 the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections as of April 2002." This statement affects Ball primarily in its rescission of SFAS No. 4, "Reporting Gains
and Losses from Extinguishment of Debt," which required all such gains and losses be reported as extraordinary items. Under
SFAS No. 145, these items are to be reported as extraordinary items only if they meet the requirements established under Accounting
Principles Board (APB) Opinion No. 30. This statement is not effective for Ball until 2003; however, it requires that amounts
previously reported as extraordinary items be reevaluated in accordance with APB No. 30 and reclassified as appropriate. The effect
of adopting this standard has not yet been determined.
In August 2001 the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This statement was
effective for Ball beginning January 1, 2002. There was no financial impact upon adoption of this standard.
The FASB recently issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets."
SFAS No. 141 requires that the purchase method be used for business combinations. Its provisions became effective for acquisitions
after June 30, 2001. SFAS No. 142 establishes accounting guidelines for intangible assets acquired outside of a business
combination. It also addresses how goodwill and other intangible assets are to be accounted for after initial recognition in the
financial statements. In general, goodwill and certain intangible assets will no longer be amortized but will be tested periodically
for impairment. Resulting write-downs, if any, will be recognized in the statement of earnings. This statement became effective for
Ball beginning January 1, 2002. We have performed the required impairment tests for the adoption of SFAS No. 142 and have determined
that no impairment exists at this time. The impact of not amortizing goodwill in the first nine months of 2002 increased diluted
earnings per share by 12 cents. Full-year earnings are expected to increase by approximately $8 million after tax, or fifteen cents
per diluted share, due to this accounting change.
3. Business Segment Information
Ball's operations are organized along its product lines and include two segments - the packaging segment and the aerospace and
technologies segment. The accounting policies of the segments are the same as those in the unaudited condensed consolidated
financial statements. A discussion of the company's accounting policies can be found in Ball's 2001 annual report.
Packaging
The packaging segment includes the manufacture and sale of metal container products used primarily in beverage and food packaging
and PET (polyethylene terephthalate) plastic container products used principally in beverage packaging. Our consolidated packaging
operations are located in and serve North America and Asia, primarily the People's Republic of China (PRC). We also have
investments in packaging companies in the U.S., the PRC, Brazil and Thailand, which are accounted for using the equity method
of accounting, and, accordingly, those results are not included in segment earnings or assets.
Aerospace and Technologies
The aerospace and technologies segment includes the manufacture and sale of aerospace and other related products and services used
primarily in the defense, civil space and commercial space industries.
Summary of Business by Segment Three Months Ended Nine Months Ended
------------------------------- -------------------------------
($ in millions) September 29, September 30, September 29, September 30,
2002 2001 2002 2001
------------- -------------- ------------- -------------
Net Sales
North American metal beverage $ 594.4 $ 572.8 $ 1,730.6 $ 1,685.4
North American metal food 192.0 189.2 477.0 479.2
North American plastic containers 96.3 77.8 276.2 224.6
International packaging 28.4 44.0 93.8 134.3
------------- -------------- ------------- -------------
Total packaging 911.1 883.8 2,577.6 2,523.5
Aerospace and technologies 127.5 116.7 371.1 319.6
------------- -------------- ------------- -------------
Consolidated net sales $ 1,038.6 $ 1,000.5 $ 2,948.7 $ 2,843.1
============= ============== ============= =============
Consolidated Net Earnings
Packaging $ 91.1 $ 73.7 $ 236.3 $ 193.2
Business consolidation costs (Note 5) - - - (237.7)
------------- -------------- ------------- -------------
Total packaging 91.1 73.7 236.3 (44.5)
------------- -------------- ------------- -------------
Aerospace and technologies 9.6 9.2 31.1 22.7
Business consolidation costs (Note 5) - - - (16.0)
------------- -------------- ------------- -------------
Total aerospace and technologies 9.6 9.2 31.1 6.7
------------- -------------- ------------- -------------
Segment earnings (loss) before
interest and taxes 100.7 82.9 267.4 (37.8)
Corporate undistributed expenses, net (7.3) (5.4) (22.9) (14.5)
------------- -------------- ------------- -------------
Earnings (loss) before interest and taxes 93.4 77.5 244.5 (52.3)
Interest expense (18.8) (21.6) (55.1) (68.5)
Provision for taxes (26.1) (19.6) (66.3) 11.3
Minority interests (0.6) (0.5) (1.4) 0.7
Equity in earnings of affiliates 2.1 0.5 5.7 1.5
------------- -------------- ------------- -------------
Consolidated net earnings (loss) $ 50.0 $ 36.3 $ 127.4 $ (107.3)
============= ============== ============= =============
($ in millions) September 29, December 31,
2002 2001
-------------- -------------
Segment Assets
Packaging $ 2,647.1 $ 2,579.0
Aerospace and technologies 205.1 179.8
-------------- -------------
Total segment assets 2,852.2 2,758.8
Corporate net investment and eliminations (470.1) (445.2)
-------------- -------------
Total consolidated assets $ 2,382.1 $ 2,313.6
============== =============
4. Acquisitions
On August 29, 2002, we agreed to acquire 100% of the capital stock of Schmalbach-Lubeca AG (Schmalbach) for an estimated cash
purchase price of(euro)900 and the assumption of certain liabilities. The final purchase price will be subject to working capital
and other adjustments. Schmalbach is the second largest metal beverage can manufacturer in Europe with operations consisting of
12 plants in five European countries, a headquarters office in Ratingen, Germany, and a research and development facility located in
Bonn, Germany. The acquisition is expected to be finalized by the end of 2002 or early 2003 and will be financed through new
borrowings, which will also be used to refinance a portion of our existing bank debt.
On December 28, 2001, Ball acquired substantially all of the assets of Wis-Pak Plastics, Inc. (Wis-Pak) for approximately
$27.5 million. Additional payments of up to $10 million in total, including interest, are contingent upon the future performance of
the acquired business through 2006. The contingent purchase price component is being recognized as the performance levels are
achieved. Under the acquisition agreement, Ball entered into a ten-year agreement to supply 100 percent of Wis-Pak's annual PET
container requirements, which are currently 550 million containers. The company announced in July 2002 that it will close one of the
two acquired plants before the end of 2002. The after-tax cash costs associated with this closure are estimated to be less than
$1 million.
5. Business Consolidation Costs
In June 2001 Ball announced the reorganization of its PRC packaging business. As a part of the reorganization plan, we have exited
the general line metal can business and have closed one PRC beverage can plant. We are in the process of closing another PRC
beverage can plant and relocating production equipment. These remaining actions are expected to be completed by the end of 2002. A
$237.7 million pretax charge ($185 million after tax and minority interest impact) was recorded in connection with this
reorganization. The charge was comprised of: (1) $90.3 million to write-down fixed assets and related spare parts held for sale to
net realizable value, including estimated costs to sell them; (2) $64.4 million of goodwill to estimated recoverable amounts;
(3) $28.8 million for the acquisition of minority partner interests and write-off of unrecoverable equity investments;
(4) $24 million of accounts receivable deemed uncollectible and inventories deemed unsalable, both as a direct result of the exit
plan; 5) $13 million of severance cost and other employee benefits and (6) $17.2 million of decommissioning costs, miscellaneous
taxes and other exit costs. Based on current estimates, positive cash flow of approximately $29 million, including tax recoveries,
is expected upon the completion of the reorganization plan.
Also in the second quarter of 2001, we ceased operations in two commercial developmental product lines in our aerospace and
technologies segment. A pretax charge of $16 million ($9.7 million after tax) was recorded in the second quarter of 2001. The
charge was comprised of: (1) $10 million of accounts receivable deemed uncollectible and inventories deemed unsalable, both as a
direct result of the exit plan; (2) $2 million to write-down fixed assets held for sale to net realizable value, including
estimated costs to sell; (3) $3.6 million of decommissioning and other exit costs and (4) $0.4 million of severance and other
employee benefit costs.
In November 2001 Ball announced the closure of its Moultrie, Georgia, plant to address overcapacity in the aluminum beverage can
industry in North America. The plant was closed in December and the company recorded a pre-tax charge of $24.7 million ($15 million
after tax). The charge included: (1) $15.8 million for the write-down of fixed assets held for sale and related machinery spare
parts inventory to estimated net realizable value, including estimated costs to sell; (2) $4.7 million for severance and other
employee benefit costs; (3) $3.2 million for other assets and decommissioning costs; and (4) $1 million for contractual pension and
retirement obligations which have been included in the appropriate liability accounts. This charge was offset in part by the
reversal of $7.2 million ($4.5 million after tax) of the June 2001 restructuring charge, primarily due to original estimates
exceeding net actual costs as activities were concluded.
Severance and other benefit costs related to the above actions in the PRC and the U.S. are associated with 1,592 former employees,
primarily manufacturing and administrative personnel. The carrying value of fixed assets remaining for sale in connection with the
2001 charges is less than $1 million.
The following table summarizes the activity related to the 2001 restructuring and plant closing costs during 2002:
($ in millions) Pension/ Other Assets/
Employee Costs Costs Total
-------------- ------------- -------------
Balance at December 31, 2001 $ 8.7 $ 16.6 $ 25.3
Payments (3.8) (5.2) (9.0)
-------------- ------------- -------------
Balance at September 29, 2002 $ 4.9 $ 11.4 $ 16.3
============== ============= =============
In the second quarter of 2000, the company recorded an $83.4 million pre-tax charge ($55 million after tax, minority interests and
equity earnings impact) for packaging business consolidation and investment exit activities in North America and the PRC. The
carrying value of fixed assets remaining for sale in connection with the 2000 business exit activities, as well as the remaining
integration activities related to a 1998 acquisition, was approximately $5.7 million at September 29, 2002. The remaining accrued
employee severance and other exit costs at September 29, 2002, were less than $1 million.
Subsequent changes to the estimated costs of the 2001 and 2000 business consolidation activities, if any, will be included in
current-period earnings.
6. Receivables Sales Agreement
A receivables sales agreement provides for the ongoing, revolving sale of a designated pool of trade accounts receivable of Ball's
U.S. packaging operations. In June 2002 the designated pool of receivables was increased to provide for sales of up to $175 million
from the previous amount of $125 million. Net funds received from the sale of the accounts receivable totaled $157.5 million at
September 29, 2002, and $122.5 million at September 30, 2001. Fees incurred in connection with the sale of accounts receivable,
which were lower in 2002 due to a decrease in interest rates, totaled $0.9 million and $2.3 million for the third quarter and first
nine months of 2002, respectively, and $1.2 million and $4.6 million for the same periods in 2001.
7. Inventories
($ in millions) September 29, December 31,
2002 2001
--------------- ---------------
Raw materials and supplies $ 127.5 $ 148.9
Work in process and finished goods 270.1 300.4
--------------- ---------------
$ 397.6 $ 449.3
=============== ===============
8. Property, Plant and Equipment
($ in millions) September 29, December 31,
2002 2001
--------------- ---------------
Land $ 49.6 $ 49.5
Buildings 495.3 456.8
Machinery and equipment 1,455.7 1,398.5
--------------- ---------------
2,000.6 1,904.8
Accumulated depreciation (1,069.3) (1,000.4)
--------------- ---------------
$ 931.3 $ 904.4
=============== ===============
Depreciation expense amounted to $35.3 million and $106.3 million for the three- and nine-month periods ended September 29, 2002,
respectively, and $34.3 million and $103.3 million for the comparable periods ended September 30, 2001, respectively.
9. Goodwill, Intangibles and Other Assets
($ in millions) September 29, December 31,
2002 2001
--------------- ---------------
Goodwill (net of accumulated amortization of $65.2
at September 29, 2002, and December 31, 2001) $ 355.8 $ 357.8
--------------- ---------------
Prepaid pension 110.4 101.0
Investments in affiliates 79.0 68.8
Intangibles (net of accumulated amortization of $15.5 at
September 29, 2002, and $12.7 at December 31, 2001) 13.6 11.1
Other 72.3 77.0
--------------- ---------------
275.3 257.9
--------------- ---------------
$ 631.1 $ 615.7
=============== ===============
Total amortization expense amounted to $0.9 million and $2.7 million for the third quarter and first nine months of 2002,
respectively, and $3.3 million and $11.4 million for the same periods in 2001, respectively, of which $2.4 million and $8.2 million
related to the amortization of goodwill in the 2001 periods. Based on intangible assets as of September 29, 2002, total annual
intangible asset amortization expense is expected to be between $3 million and $4 million in each of the next five years. The
change in goodwill from December 31, 2001, is a combination of the reclassification of certain items to other intangible assets as
valuations related to the Wis-Pak acquisition were finalized, the buyout of certain minority interest partners in the PRC and the
effects of currency translation.
The following table summarizes the pro forma earnings and per share impact of not amortizing goodwill during 2001:
Three Months Ended Nine Months Ended
--------------------------------- -------------------------------
($ in millions, except per share amounts) September 29, September 30, September 29, September 30,
2002 2001 2002 2001
---------------- --------------- --------------- ---------------
Net earnings (loss), as reported $ 50.0 $ 36.3 $ 127.4 $ (107.3)
Add back goodwill amortization, net of tax - 2.1 - 7.0
---------------- --------------- --------------- ---------------
Adjusted net earnings $ 50.0 $ 38.4 $ 127.4 $ (100.3)
================ =============== =============== ===============
Basic Earnings per Share
Basic earnings (loss) per share, $ 0.89 $ 0.65 $ 2.26 $ (1.99)
as reported
Add back goodwill amortization, net of tax - 0.03 - 0.12
---------------- --------------- --------------- ---------------
Adjusted basic earnings (loss) per share $ 0.89 $ 0.68 $ 2.26 $ (1.87)
================ =============== =============== ===============
Diluted Earnings per Share
Diluted earnings (loss) per share,
as reported $ 0.87 $ 0.61 $ 2.21 $ (1.99)
Add back goodwill amortization, net of tax - 0.03 - 0.12
---------------- --------------- --------------- ---------------
Adjusted diluted earnings (loss) per share $ 0.87 $ 0.64 $ 2.21 $ (1.87)
================ =============== =============== ===============
10. Debt
Debt includes $300 million of 7.75% Senior Notes due in 2006, $250 million of 8.25% Senior Subordinated Notes due in 2008 and
borrowings under a Senior Credit Facility, which bear interest at variable rates. At September 29, 2002, approximately $459 million
was available under the revolving credit facility portion of the Senior Credit Facility.
The Senior Notes, Senior Subordinated Notes and Senior Credit Facility agreements are guaranteed on a full, unconditional and joint
and several basis by certain of the company's domestic wholly owned subsidiaries and 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 20.1 contains 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.
Ball has provided a completion guarantee representing 50 percent of the $27.1 million of debt issued by our Brazilian joint venture
that was used to fund the previous construction of facilities.
The company was not in default of any loan agreement at September 29, 2002, and has met all debt payment obligations.
11. Shareholders' Equity
The company has several stock option plans under which options to purchase shares of common stock have been granted to officers and
employees at the market value of the stock at the date of grant. 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. At September 29, 2002, there were
3,260,267 options outstanding under these plans at a weighted average exercise price of $24.51 per share, of which 1,622,525 were
exercisable at a weighted average exercise price of $19.07 per share.
The company adopted a deposit share program in March 2001 that, by matching purchased shares with restricted shares, encourages
certain senior management employees and outside directors to invest in Ball stock. Participants have until March 2003 to acquire
shares in order to receive the matching restricted share grants. Restrictions on the matching shares lapse at the end of four years
from date of grant, or earlier if established share ownership guidelines are met, assuming the qualifying purchased shares are not
sold or transferred prior to that time. As of September 29, 2002, a total of 556,643 shares are available for grant under this
program, of which 466,576 shares have been granted. This plan is accounted for as a variable plan where compensation expense is
recorded based upon the current market price of the company's common stock until restrictions lapse. The company recorded
$4.5 million and $0.6 million of expense in connection with this program in the first nine months of 2002 and 2001, respectively.
The increase in 2002 compared to 2001 is the result of the timing of the share grants as well as the higher price of Ball stock.
Accumulated other comprehensive loss includes the cumulative effect of foreign currency translation, additional minimum pension
liability and unrealized gains and losses on derivative instruments receiving cash flow hedge accounting treatment.
Minimum Accumulated
Foreign Pension Effective Other
Currency Liability Financial Comprehensive
($ in millions) Translation (net of tax) Derivatives(a) Loss
------------- ------------- --------------- ----------------
December 31, 2001 $ (29.9) $ (5.7) $ (8.1) $ (43.7)
Change 2.1 - (12.4) (10.3)
------------- ------------- --------------- ----------------
September 29, 2002 $ (27.8) $ (5.7) $ (20.5) $ (54.0)
============= ============= =============== ================
(a) Refer to Item 3, "Quantitative and Qualitative Disclosures About Market Risk," for a discussion of the company's use of
derivative financial instruments.
The following table summarizes total comprehensive earnings for the third quarter and nine-month periods of 2002 and 2001:
Three Months Ended Nine Months Ended
------------------------------- -------------------------------
($ in millions) September 29, September 30, September 29, September 30,
2002 2001 2002 2001
------------- -------------- ------------- -------------
Comprehensive Earnings
Net earnings (loss) $ 50.0 $ 36.3 $ 127.4 $ (107.3)
Foreign currency translation adjustment (6.3) (3.8) 2.1 (1.3)
Effect of derivative instruments (21.1) (8.9) (12.4) (9.9)
Minimum pension liability (net of tax) - - - (0.2)
------------- -------------- ------------- -------------
Comprehensive earnings (loss) $ 22.6 $ 23.6 $ 117.1 $ (118.7)
============= ============== ============= =============
12. Earnings Per Share
The following table provides additional information on the computation of earnings per share amounts:
Three Months Ended Nine Months Ended
------------------------------- -------------------------------
($ in millions, except per share amounts) September 29, September 30, September 29, September 30,
2002 2001 2002 2001
-------------- -------------- -------------- --------------
Basic Earnings per Share
Net earnings (loss) $ 50.0 $ 36.3 $ 127.4 $ (107.3)
Preferred dividends, net of tax - (0.6) - (1.8)
-------------- -------------- -------------- --------------
Earnings (loss) attributable to
common shareholders $ 50.0 $ 35.7 $ 127.4 $ (109.1)
============== ============== ============== ==============
Weighted average common shares (000s) 56,188 54,920 56,347 54,858
============== ============== ============== ==============
Basic earnings (loss) per share $ 0.89 $ 0.65 $ 2.26 $ (1.99)
============== ============== ============== ==============
Diluted Earnings per Share
Net earnings (loss) $ 50.0 $ 36.3 $ 127.4 $ (107.3)
Adjustment for deemed ESOP cash contribution
in lieu of the ESOP Preferred dividend - (0.4) - (1.3)
-------------- -------------- -------------- --------------
Earnings (loss) attributable to
common shareholders $ 50.0 $ 35.9 $ 127.4 $ (108.6)
============== ============== ============== ==============
Weighted average common shares (000s) 56,188 54,920 56,347 54,858
Effect of dilutive stock options 1,217 906 1,265 794
Common shares issuable upon conversion of
the ESOP Preferred stock - 3,204 - 3,272
-------------- -------------- -------------- --------------
Weighted average shares applicable
to diluted earnings per share 57,405 59,030 57,612 58,924
============== ============== ============== ==============
Diluted earnings (loss) per share $ 0.87 $ 0.61 $ 2.21 $ (1.99)(1)
============== ============== ============== ==============
(1) The diluted loss per share in the first nine months of 2001 is the same as the net loss per common share because the assumed
exercise of stock options and conversion of the ESOP Preferred stock would have been anti-dilutive.
For the 2002 and 2001 periods, stock options to purchase 460,950 and 448,476 shares of common stock, respectively, were not included
in the computation of diluted earnings per share since they were anti-dilutive (i.e., their exercise price exceeded the average
closing market price of Ball common stock during the periods).
13. Contingencies
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 we participate, our operations in developing markets outside the U.S., changing commodity prices for the
materials used in the manufacture of our products and changing capital markets. Where practicable, we attempt to 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 incident to its business. 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 these matters will have a material adverse effect
upon the liquidity, results of operations or financial condition of the company.
14. Stock Split
On January 23, 2002, the company's Board of Directors declared a two-for-one stock split, increased the quarterly dividend and
authorized the repurchase of additional common shares. The stock split was effective February 22, 2002, for all shareholders of
record on February 1, 2002. As a result of the stock split, all amounts related to earnings, options and outstanding shares have
been retroactively restated as if the split had occurred as of January 1, 2001.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements
and the accompanying notes. Ball Corporation and subsidiaries are referred to collectively as Ball" or the "company" or "we" and
"our" in the following discussion and analysis.
RECENT DEVELOPMENTS
On August 29, 2002, we agreed to acquire 100% of the capital stock of Schmalbach-Lubeca AG (Schmalbach) for an estimated cash
purchase price of(euro)900 million and the assumption of certain liabilities. The final purchase price will be subject to working
capital and other adjustments. Schmalbach is the second largest metal beverage can manufacturer in Europe with operations
consisting of 12 plants in five European countries, a headquarters office in Ratingen, Germany, and a research and development
facility located in Bonn, Germany. Schmalbach produces more than 12 billion aluminum and steel beverage cans and ends and employs
more than 2,400 people. The acquisition is expected to be finalized by the end of 2002 or early 2003 and will be financed through
new borrowings, which will also be used to refinance a portion of our existing bank debt.
CONSOLIDATED SALES AND EARNINGS
Ball's operations are organized along its product lines and include two segments - the packaging segment and the aerospace and
technologies segment.
Packaging Segment
The packaging segment includes the manufacture and sale of metal containers used primarily in beverage and food packaging and PET
(polyethylene terephthalate) plastic containers used principally in beverage packaging. Our consolidated packaging operations are
located in and serve North America and the People's Republic of China (PRC). We also have investments in packaging companies in the
U.S., the PRC, Brazil and Thailand, which are accounted for using the equity method of accounting, and accordingly, those results
are not included in segment earnings or assets. Packaging segment sales in the third quarter and first nine months of 2002 were
3 percent and 2 percent higher, respectively, than in the same periods of 2001. Operating margins improved to 10 percent and
9.2 percent in the third quarter and first nine months of 2002 from 8.3 percent and 7.7 percent in the same periods in 2001,
excluding the business consolidations charge recorded in the second quarter of 2001. The improvements reflect improved operating
results in China, largely due to the company's restructuring actions taken in 2001, general improvement in the company's PET product
line and price increases and lower per unit costs due to higher production volume in the beverage can product line.
North American metal beverage container sales, which represented approximately 65 percent of segment sales in the third quarter of
2002 were 4 percent higher than in the third quarter of 2001. In the first nine months, metal beverage container sales represented
67 percent of segment sales and were approximately 3 percent higher than in the same period in 2001. The increased sales were
largely due to price increases and Ball's agreement with Coors Brewing Company (Coors) under which substantially all of Coors' can
requirements for its Shenandoah, Virginia, and Memphis, Tennessee, filling locations are manufactured at Ball facilities and sold to
Coors. Sales under this agreement began in the first quarter of 2002. Operating margins in this product line were higher as a result
of plants operating at near full capacity coupled with improved sales prices.
Through a 50/50 joint venture, which is accounted for as an equity investment, Ball and Coors operate Coors' can and end facilities
in Golden, Colorado. The joint venture supplies Coors with approximately 3.5 billion beverage cans and ends annually for its Golden,
Colorado, brewery under agreements which commenced in January 2002.
North American metal food container sales, which comprised approximately 21 percent of segment sales in the third quarter and
approximately 19 percent in the first nine months of 2002, were essentially flat compared to those in 2001, which were at record
levels. These results were achieved despite a combination of droughts and floods in the U.S., which negatively impacted our fruit
and vegetable processor customers, and the lowest salmon pack in the Pacific Northwest in over a decade. Operating margins were
lower largely due to product mix. We anticipate that full-year 2002 earnings will be lower than 2001's record results as a result
of these conditions, as well as the start-up costs associated with a new two-piece food can production line in our Milwaukee plant
(as discussed below).
We have signed a new multi-year contract with Abbott Laboratories' Ross Products Division (Ross), the makers of a broad range of
infant formulas. Ross will exit a portion of its self-manufacturing operations in early 2003. To accommodate this new business and
convert existing three-piece food can customers to two-piece cans, we are adding a new two-piece steel can line in our Milwaukee
plant capable of producing approximately 1.2 billion cans per year, as well as a new 225,000-square-foot warehouse addition. These
capital additions are scheduled for completion in early 2003 and are expected to cost approximately $43 million.
Plastic container sales, approximately 11 percent of segment sales in 2002, were 24 percent higher in the third quarter of 2002
compared to 2001 and 23 percent higher in the first nine months. The increase in sales, which are predominantly to water and
carbonated soft drink customers, was driven by internal growth as well as the company's acquisition of Wis-Pak Plastics, Inc.
(Wis-Pak) in December 2001. Overall operating margins also improved as a result of lower energy, freight and warehousing costs,
although in the third quarter we experienced higher operating costs and increased freight between plants as a result of extremely
low inventory levels. Four new plastic bottle blow molding production lines have been added to our facilities to help meet the
increased demand.
Sales were lower in the PRC in the first nine months of 2002 due to the shutdown and sale of the general line can business and other
PRC restructuring efforts in the second half of 2001. However, earnings before and interest and taxes improved by more than
$6 million in the first nine months of 2002 due to the business consolidation actions taken during 2001.
Aerospace and Technologies Segment
Sales in the aerospace and technologies segment were 9 percent and 16 percent higher in the third quarter and first nine months of
2002, compared to the same periods in 2001, primarily in defense and civil space operations. The increase is due to a combination
of newly awarded contracts and additions to previously awarded contracts. Ball has recently been selected as part of a team to
build NASA's James Webb Space Telescope. The improvement in operating earnings for the first nine months compared to the same
period in 2001 was primarily the result of the strong sales, which were driven by growth in our U.S. government business, and by the
disposition of two unprofitable aerospace product lines in 2001. Backlog at the end of the third quarter of 2002 was approximately
$405 million compared to a backlog of $431 million at the end of 2001 and $353 million at September 30, 2001. Year-to-year
comparisons of backlog are not necessarily indicative of the trend of future operations.
For additional information on our segment operations, see the Summary of Business by Segment in Note 3 accompanying the
consolidated financial statements included within Item 1.
Selling and Administrative
Selling and administrative expenses were $41.3 million in the third quarter and $117 million in the first nine months of 2002
compared to $30.7 million and $91.6 for the same periods of 2001, respectively. The increase is primarily the result of higher
employee incentives, increased medical costs and a 401(k) plan match, which replaced the preference dividend related to the
company's leveraged employee stock ownership plan that expired at the end of 2001. Included in employee incentive costs was
$3.9 million of higher expense associated with the company's deposit share program, which is discussed in further detail in Note 11
to the consolidated financial statements within Item 1. In addition, during the third quarter, we reduced our U.S. pension plan
asset return assumptions to a long-term rate of 9 percent. The change in the return on pension asset assumption will result in
approximately $3.7 million higher pension expense for the year, of which $1.9 million was recorded in the third quarter.
Interest and Taxes
Consolidated interest expense was $18.8 million and $55.1 million for the third quarter and first nine months of 2002, respectively,
compared to $21.6 million and $68.5 million for the same periods in 2001, respectively. Lower interest costs were attributable to
lower interest rates and borrowings in 2002. The company's consolidated average borrowing rate decreased to 6.8 percent for the
first nine months of 2002 versus 7.4 percent in the first nine of months of 2001.
The consolidated effective income tax rate was 35 percent in the first nine months of 2002 compared to 9.4 percent in 2001.
Excluding the effect of business consolidation costs in 2001, Ball's effective income tax rate was 35 percent. The lower rate of
9 percent on the loss in the first nine months of 2001 reflected the impact of currently nondeductible goodwill as well as
currently unrealized capital losses included in the second quarter 2001 charge for business consolidation costs in the PRC.
Results of Equity Affiliates
Equity in the net results of affiliates is largely attributable to our 50 percent ownership in packaging investments in North
America and Brazil and, to a lesser extent, an aerospace business and our minority owned packaging investments in the PRC and
Thailand. Earnings of $5.7 million in the first nine months of 2002 were higher compared to $1.5 million for the same period in
2001, with improvements seen in all equity affiliates year over year, except in Brazil where earnings were negatively impacted
primarily by foreign currency devaluations.
Other Items
Ball closed one of the two plants it acquired in the acquisition of Wis-Pak and is in the process of consolidating its operations
with an existing plastic bottle plant. The after-tax cash costs associated with this closure are estimated to be less than
$1 million.
In 2001 we announced a plan to exit the general line metal can business in the PRC and to further reduce our PRC beverage can
manufacturing capacity by closing two plants. We have since sold the general line business, closed one beverage can plant and are in
the process of closing the second. Based on current estimates, positive cash flow of approximately $29 million, including tax
recoveries, is expected upon the completion of this reorganization plan. Also in June 2001, we ceased operations in two commercial
developmental product lines in our aerospace and technologies business. These actions combined helped improve operating earnings by
approximately $10 million in the first nine months of 2002 compared to the same period in 2001. In mid-December 2001 we closed the
Moultrie, Georgia, beverage can plant. To affect these actions, pre-tax charges totaling $271.2 million were recorded in 2001.
The amounts recorded were based on the estimates of Ball management and actuaries and other third parties and were developed from
information available at the time. Actual outcomes may vary from the estimates, and, as required, changes, if any, have been or will
be reflected in current period earnings or, in the case of the Wis-Pak acquisition, as a reduction of goodwill. Additional details
about our business consolidation and acquisition-related activities and associated costs are provided in Note 5 accompanying the
consolidated financial statements within Item 1.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations for the first nine months of 2002 was $251.4 million, a significant improvement over $104.5 million for
the same period in 2001. The improvements in 2002 reflected planned inventory reductions, changes in accounts payable terms and
$35 million from the sale of additional accounts receivable in accordance with the company's receivables sales agreement discussed
below. Capital spending of $87.7 million in the first nine months of 2002 was below depreciation and amortization expense of
$109 million. In September 2002, we purchased previously leased plant and equipment assets for a total of $43.1 million. Capital
spending is expected to be between $150 million and $160 million for the year, with increased spending in the metal food and PET
product lines for new production capacity necessitated by increased demand.
Total debt decreased to $1,023 million at September 29, 2002, compared to $1,064.1 million at December 31, 2001. At September 29,
2002, approximately $459 million was available under the revolving credit facility portion of the Senior Credit Facility. We
notified our lenders in mid-July that based on our financing needs, we no longer needed the $125 million short-term portion of the
revolver as we have adequate funds available under the long-term portion. Ball Asia Pacific Holdings Limited and its consolidated
subsidiaries had short-term uncommitted credit facilities of approximately $82 million at the end of the third quarter, of which
$52.1 million was outstanding.
Management and the company's actuaries are currently assessing the funded status of our pension plans in light of overall market
conditions and performance. Based on preliminary estimates, we anticipate that we will make additional contributions to our plans
during the fourth quarter of 2002. Additionally, for certain plans we may need to record on the consolidated balance sheet
additional minimum liability adjustments at December 31, 2002. These amounts, if any, will be recorded as an increase in long-term
liabilities and a reduction of shareholders' equity on the consolidated balance sheet.
A receivables sales agreement provides for the ongoing, revolving sale of a designated pool of trade accounts receivable of Ball's
U.S. packaging operations. In June 2002 the designated pool of receivables was increased to provide for sales of up to $175 million
from the previous amount of $125 million. Net funds received from the sale of the accounts receivable totaled $157.5 million at
September 29, 2002, and $122.5 million at September 30, 2001, and are expected to be approximately $122.5 million at
December 31, 2002.
The company was not in default of any loan agreement at September 29, 2002, and has met all debt payment obligations.
Additional details about the company's debt and receivables sales agreement are available in Notes 10 and 6, respectively,
accompanying the consolidated financial statements included within Item 1.
CONTINGENCIES
Details about the company's contingencies are available in Note 13 accompanying the consolidated financial statements included
within Item 1.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the ordinary course of business, we employ established risk management policies and procedures to reduce our exposure to
commodity price changes, changes in interest rates, fluctuations in foreign currencies and the company's common share repurchase
program.
We manage our commodity price risk in connection with market price fluctuations of aluminum primarily by entering into can and end
sales contracts, which include aluminum-based pricing terms that consider price fluctuations under our commercial supply contracts
for aluminum purchases. The terms include "band" pricing where there is an upper and lower limit, a fixed price or only an upper
limit to the aluminum component pricing. This matched pricing affects substantially all of our North American metal beverage
packaging net sales. We also, at times, use certain derivative instruments such as option and forward contracts as cash flow hedges
of commodity price risk. Outstanding contracts at the end of the third quarter expire in less than one year and up to two years.
Included in shareholders' equity at September 29, 2002, within accumulated other comprehensive loss, is approximately $18 million of
net loss associated with these contracts of which approximately $8 million of loss is expected to be recognized in the consolidated
statement of earnings during 2003 and $10 million of loss in 2004. These amounts will be offset completely in both periods by
higher revenue from customer fixed price sales contracts and will therefore have no effect on our consolidated net earnings.
Considering the effects of derivative instruments, the market's ability to accept price increases and the company's commodity price
exposures to aluminum, a hypothetical 10 percent adverse change in the company's aluminum prices could have an estimated $1 million
impact on earnings over a one-year period. Actual results may vary based on actual changes in market prices and rates.
Steel can sales contracts incorporate annually negotiated metal costs, and plastic container sales contracts include provisions to
pass through resin costs changes. As a result, we believe we have minimal, if any, exposure related to changes in the costs of
these commodities.
Our objective in managing exposure to interest rate changes is to limit the impact of interest rate changes on earnings and cash
flows and to lower our overall borrowing costs. To achieve these objectives, we 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 September 29, 2002,
included pay-floating and pay-fixed interest rate swaps and swaption contracts. Pay-fixed swaps effectively convert variable rate
obligations to fixed rate instruments. Pay-floating swaps effectively convert fixed-rate obligations to variable rate instruments.
Swap agreements expire at various times up to four years. Although these instruments involve varying degrees of credit and interest
risk, the counter parties to the agreements are financial institutions, which are expected to perform fully under the terms of the
agreements. Approximately $2 million of mark-to-market loss associated with these contracts is included in other accumulated
comprehensive loss at September 29, 2002, the majority of which is expected to be recognized in the consolidated statement of
earnings during the remainder of 2002.
The company has estimated its market risk exposure using sensitivity analysis. Market risk exposure has been defined as the changes
in fair value of a derivative instrument assuming a hypothetical 100 basis point adverse change in interest rates. The results of
the sensitivity analyses as of September 29, 2002, did not differ materially from the amounts reported as of December 31, 2001.
Actual changes in market prices or rates may differ from hypothetical changes.
Our objective in managing exposure to foreign currency fluctuations is to protect foreign cash flow and reduce earnings volatility
associated with foreign exchange rate changes through the use of cash flow hedges. Our primary foreign currency risk exposures
result from the strengthening of the U.S. dollar against the Hong Kong dollar, Canadian dollar, Chinese renminbi, Thai baht and
Brazilian real. We face currency exposures in our global operations as a result of maintaining U.S. dollar debt and payables in
these foreign countries. We use forward contracts to manage our foreign currency exposures and, as a result, gains and losses on
these derivative positions offset, in part, the impact of currency fluctuations on the existing assets and liabilities. Contracts
outstanding at the end of the third quarter expire in less than one year and their fair value was not significant.
Considering the company's derivative financial instruments outstanding at September 29, 2002, and the currency exposures, a
hypothetical 10 percent unfavorable change in the exchange rates compared to the U.S. dollar could have an estimated $2 million
impact on earnings over a one-year period. Actual changes in market prices or rates may differ from hypothetical changes.
In connection with the company's ongoing share repurchase program, from time to time we sell put options which give the purchaser of
those options the right to sell shares of the company's common stock to the company on specified dates at specified prices upon the
exercise of those options. The put option contracts allow us to determine the method of settlement, either in cash or shares. As
such, the contracts are considered equity instruments and changes in the fair value are not recognized in our financial statements.
Our objective in selling put options is to lower the average purchase price of acquired shares in connection with our ongoing share
repurchases. At September 29, 2002, there were put option contracts outstanding for 125,000 shares at an average price of $34.23 per
share. Also in connection with the share repurchase program, in 2001 we entered into a forward share repurchase agreement to
purchase shares of the company's common stock. In January 2002 we purchased 736,800 shares under this agreement at an average price
of $33.58 per share and in July 2002 we purchased an additional 195,600 shares at an average price of $45.49. We also entered into
a share repurchase agreement during 2000 under which we purchased 1,021,000 shares in January 2001 at an average price of $17.58
per share.
Item 4. CONTROLS AND PROCEDURES
Within 90 days of the filing of the quarterly report, our Chief Executive Officer and Chief Financial Officer conducted an
evaluation of our disclosure controls and procedures as defined by the Securities and Exchange Commission (SEC) and concluded that
they were appropriate to ensure that information required to be disclosed by us in this quarterly report is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and forms. There have not been any significant
changes in our internal controls or in other factors that would significantly affect these controls subsequent to the evaluation,
including any corrective actions with regard to significant deficiencies and material weaknesses in the internal controls.
FORWARD-LOOKING STATEMENTS
The company has made or implied certain forward-looking statements in this quarterly report which are made as of the end of the time
frame covered by this report. These forward-looking statements represent the company's goals and could vary materially from those
expressed or implied. From time-to-time we also provide oral or written forward-looking statements in other materials we release to
the public. As time passes, the relevance and accuracy of forward-looking statements may change. Some factors that could cause the
company's actual results or outcomes to differ materially from those discussed in the forward-looking statements include, but are
not limited to, fluctuation in customer growth and demand; product introductions; insufficient production capacity; overcapacity in
foreign and domestic metal and plastic container industry production facilities and its impact on pricing and financial results;
lack of productivity improvement or production cost reductions; the weather; fruit, vegetable and fishing yields; power and natural
resource costs; difficulty in obtaining supplies and energy, such as gas and electric power; shortages in and pricing of raw
materials; changes in the pricing of the company's products and services; competition in pricing and the possible decrease in,
or loss of, sales resulting therefrom; loss of profitability and plant closures; insufficient or reduced cash flow; transportation
costs; the inability to continue the purchase of the company's common shares; the ability to obtain adequate credit resources for
foreseeable financing requirements of the company's businesses and to satisfy the resulting credit obligations; regulatory action
or federal and state legislation including mandated corporate governance and financial reporting laws; the proposed German mandatory
deposit or other restrictive packaging legislation such as recycling laws; increases in interest rates; labor strikes; increases in
various employee benefits and labor costs; boycotts; litigation involving antitrust, intellectual property, consumer and other
issues; maintenance and capital expenditures; goodwill impairment; changes in generally accepted accounting principles or their
interpretation; local economic conditions; the authorization, funding and availability of government contracts and the nature and
continuation of those contracts and related services provided thereunder; technical uncertainty associated with performance of
aerospace segment contracts; international business and market risks such as the devaluation of international currencies; the
ability or inability to pass on to customers changes in raw material costs, particularly resin, steel and aluminum; pricing and
ability or inability to sell scrap associated with the production of metal containers, international business risks (including
foreign exchange rates) in the United States, Europe and particularly in developing countries such as China and Brazil; terrorist
activity or war that disrupts the company's production, supply, or pricing of raw materials used in the production of the company's
goods and services, and/or disrupts the ability of the company to obtain adequate credit resources for the foreseeable financing
requirements of the company's businesses; and successful or unsuccessful acquisitions, joint ventures or divestitures and the
integration activities associated therewith, including the integration and operation of the business of Schmalbach-Lubeca AG. If
the company is unable to achieve its goals, then the company's actual performance could vary materially from those goals expressed
or implied in the forward-looking statements. The company does not intend to publicly update forward-looking statements except as
it deems necessary at quarterly or annual earnings reports. You are advised, however, to consult any further disclosures we make on
related subjects in our 10-Q, 8-K and 10-K reports to the Securities and Exchange Commission.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As previously reported, on or about December 31, 1992, William Hallahan and his wife filed suit in the Supreme Court of the State
of New York, County of Saratoga, against certain manufacturers of solvents, coatings and equipment, including Somerset Technologies,
Inc. (Somerset) and Belvac Production Machinery (Belvac), seeking damages in the amount of $15 million for allegedly causing
leukemia by exposing him to harmful toxins. Somerset and Belvac filed third-party complaints seeking contribution from the company
for damages that they might be required to pay William Hallahan. The defendants, including the company, filed a motion for summary
judgment against the plaintiff requesting a judgment that the Workers' Compensation Board has determined this case against William
Hallahan. On July 3, 2002, the Court entered a decision in favor of the defendants and us. On August 13, 2002, the Court entered
judgment on the decision. On August 29, 2002, Mr. Hallahan and his wife filed an appeal in the Appellate Division. Based upon the
information available to the company at the present time, the company believes that this matter will not have a material adverse
effect upon the liquidity, results of operations or financial condition of the company.
Ball previously reported that in 1998 various consumers filed toxic tort litigation in the Superior Court for Los Angeles County
(Trial Court) against various water companies operating in the San Gabriel Valley Basin. The water companies petitioned the Trial
Court to remove this action to the California Public Utilities Commission. The Trial Court agreed. The plaintiffs appealed this
decision to the California Court of Appeals, which reversed the Trial Court. One non-regulated utility has appealed this decision to
the California Supreme Court. Pending completion of the appellate process, the Trial Court stayed further action in this litigation
except that the plaintiffs were permitted to add additional defendants. The Trial Court consolidated the six separate lawsuits in
the Northeast District (Pasadena) and designated the case of Adler, et al. v. Southern California Water Company, et al., as the lead
case. In late March 1999, Ball-Foster Glass Container Co., L.L.C., which we no longer own, received a summons and amended complaint
based on its ownership of the El Monte glass plant. Ball-Foster Glass tendered the lawsuit to us for defense and indemnity. We in
turn tendered this lawsuit to our liability carrier, Commercial Union, for defense and indemnity. Plaintiffs appear to be proceeding
to join all companies, which are alleged to be PRPs in the various operable units in the San Gabriel Valley Superfund Site. The
litigation, including the filing of answers by such joined parties, has been stayed pending the decision of the California Supreme
Court as to whether the California Public Utilities Commission has sole jurisdiction over these cases since some of the defendants
are regulated utilities. On February 4, 2002, the California Supreme Court issued its written opinion upholding the decision of the
Court of Appeals ruling that the plaintiffs may proceed with their toxic tort claims in the Trial Court against all defendants,
including Ball, who are non-regulated utilities. A complex case management order has been entered. Under the order, the cases were
divided into three groups with Ball being named in only the Adler case. The plaintiffs were ordered to re-file their complaints.
Plaintiffs served the consolidated Adler group complaint on Ball. In a hearing on October 21, 2002, the judge dismissed the
punitive damage claims in the complaint. The case management order also allows limited discovery by written interrogatories,
although these have not been served by the plaintiffs. Similarly situated de minimis industry defendants have formed a joint
defense group and we are joining the group. Based on the information, or lack thereof, available to us at the present time, we are
unable to express an opinion as to our actual exposure for this matter; however, based on the information available to us at the
present time, we do not believe that this matter will have a material adverse effect upon our liquidity, results of operations or
financial condition.
Item 2. Changes in Securities
There were no events required to be reported under Item 2 for the quarter ended September 29, 2002.
Item 3. Defaults Upon Senior Securities
There were no events required to be reported under Item 3 for the quarter ended September 29, 2002.
Item 4. Submission of Matters to a Vote of Security Holders
There were no events required to be reported under Item 4 for the quarter ended September 29, 2002.
Item 5. Other Information
There were no events required to be reported under Item 5 for the quarter ended September 29, 2002.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Share Sale and Transfer Agreement Between Schmalbach-Lubeca Holding GmbH, AV Packaging GmbH,
Ball Pan-European Holdings, Inc., and Ball Corporation Dated August 29, 2002
20.1 Subsidiary Guarantees of Debt
99.1 Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995, as amended
(b) Reports on Form 8-K
A Current Report on Form 8-K was filed on August 12, 2002, furnishing under Item 9 the sworn statements pursuant to an
order issued by the Securities and Exchange Commission regarding the company's reports filed in 2001 and the first half of
2002. The executed sworn statements were furnished by R. David Hoover, Chairman of the Board, President and Chief Executive
Officer of Ball Corporation, and by Raymond J. Seabrook, Senior Vice President and Chief Financial Officer of Ball
Corporation.
A Current Report on Form 8-K was filed on August 15, 2002, furnishing under Item 9 the certifications pursuant to 18 U.S.C.
Section 1380, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by R. David Hoover, Chairman of the
Board, President and Chief Executive Officer of Ball Corporation, and by Raymond J. Seabrook, Senior Vice President and
Chief Financial Officer of Ball Corporation.
A Current Report on Form 8-K was filed on August 30, 2002, reporting under Item 5 an announcement that Ball Corporation
entered into a definitive agreement with Schmalbach-Lubeca Holding GmbH and AV Packaging GmbH to acquire Schmalbach-Lubeca
AG.
A Current Report on Form 8-K was filed on September 3, 2002, reporting under Item 7 selected historical financial data of
Ball Corporation and Schmalbach-Lubeca AG, and furnishing under Item 9 a copy of the transcript of the conference call held
by Ball Corporation on August 30, 2002, to announce its agreement to acquire Schmalbach-Lubeca AG.
A Current Report on Form 8-K was filed on September 4, 2002, reporting under Item 7, and furnishing under Item 9, a copy of
the Webcast (Power Point) presentation used in the conference call held by Ball Corporation on August 30, 2002, to announce
its agreement to acquire Schmalbach-Lubeca AG.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Ball Corporation
(Registrant)
By: /s/ Raymond J. Seabrook
Raymond J. Seabrook
Senior Vice President and
Chief Financial Officer
Date: November 13, 2002
Certification
I, R. David Hoover, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ball Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial information included in this
quarterly report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and we have:
a) Designed such disclosure controls and procedures to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this quarterly report is being
prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date
within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
(c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure
controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to
the registrant's auditors and the audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) All significant deficiencies in the design or operation of internal controls which could
adversely affect the registrant's ability to record, process, summarize and report financial
data and have identified for the registrant's auditors any material weaknesses in internal
controls; and
b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not
there were significant changes in internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002
/s/ R. David Hoover
R. David Hoover
Chairman, President and Chief Executive Officer
Certification
I, Raymond J. Seabrook, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Ball Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial information included in this
quarterly report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and we have:
a) Designed such disclosure controls and procedures to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this quarterly report is being
prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date
within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
(c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure
controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to
the registrant's auditors and the audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) All significant deficiencies in the design or operation of internal controls which could
adversely affect the registrant's ability to record, process, summarize and report financial
data and have identified for the registrant's auditors any material weaknesses in internal
controls; and
b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not
there were significant changes in internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002
/s/ Raymond J. Seabrook
Raymond J. Seabrook
Senior Vice President and Chief Financial Officer
Ball Corporation and Subsidiaries
QUARTERLY REPORT ON FORM 10-Q
September 29, 2002
EXHIBIT INDEX
Description Exhibit
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Share Sale and Transfer Agreement between Schmalbach-Lubeca Holding GmbH, AV
Packaging GmbH, Ball Pan-European Holdings, Inc., and Ball Corporation
Dated August 29, 2002 (Filed herewith.) EX-10.1
Subsidiary Guarantees of Debt (Filed herewith.) EX-20.1
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995,
as amended (Filed herewith.) EX-99.1