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EX-10.3 - EX-10.3 - BALL Corpbll-20160630ex103639eab.htm
EX-99 - EX-99 - BALL Corpbll-20160630xex99.htm
EX-32.2 - EX-32.2 - BALL Corpbll-20160630ex322bb7f26.htm
EX-32.1 - EX-32.1 - BALL Corpbll-20160630ex321ee7e18.htm
EX-31.2 - EX-31.2 - BALL Corpbll-20160630ex312383d6d.htm
EX-31.1 - EX-31.1 - BALL Corpbll-20160630ex3113a48f1.htm
EX-10.4 - EX-10.4 - BALL Corpbll-20160630ex104790a10.htm
EX-10.2 - EX-10.2 - BALL Corpbll-20160630ex10258eabc.htm
EX-10.1 - EX-10.1 - BALL Corpbll-20160630ex101dac4f7.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC  20549

 

FORM 10-Q

 

     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2016

 

Commission file number   001-07349

 

BALL CORPORATION

 

State of Indiana

(State or other jurisdiction of incorporation or
organization)

35-0160610

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

 

 

10 Longs Peak Drive, P.O. Box 5000

Broomfield, CO 80021-2510

(Address of registrant’s principal executive office)

80021-2510

(Zip Code)

 

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

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  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 July 31, 2016

Common Stock, without par value

 

174,228,508 shares

 

 

 

 

 


 

Ball Corporation

QUARTERLY REPORT ON FORM 10-Q

For the period ended June 30, 2016

 

INDEX

 

 

 

Page
Number

 

 

 

PART I. 

FINANCIAL INFORMATION:

 

 

 

 

Item 1. 

Financial Statements

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Earnings for the Three and Six Months Ended June 30, 2016 and 2015

 

 

 

 

Unaudited Condensed Consolidated Statements of Comprehensive Earnings for the Three and Six Months Ended June 30, 2016 and 2015

 

 

 

 

Unaudited Condensed Consolidated Balance Sheets at June 30, 2016, and December 31, 2015

 

 

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2016 and 2015

 

 

 

 

Notes to the Unaudited Condensed Consolidated Financial Statements

 

 

 

Item 2. 

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

46 

 

 

 

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

58 

 

 

 

Item 4. 

Controls and Procedures

58 

 

 

 

PART II. 

OTHER INFORMATION

60 

 

 

2


 

PART I. FINANCIAL INFORMATION

 

Item 1.   FINANCIAL STATEMENTS

 

BALL CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

($ in millions, except per share amounts)

2016

    

2015

    

2016

    

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

$

2,030

 

$

2,172

 

$

3,785

 

$

4,095

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales (excluding depreciation and amortization)

 

(1,596)

 

 

(1,775)

 

 

(3,012)

 

 

(3,336)

 

Depreciation and amortization

 

(78)

 

 

(71)

 

 

(153)

 

 

(139)

 

Selling, general and administrative

 

(105)

 

 

(118)

 

 

(213)

 

 

(234)

 

Business consolidation and other activities

 

27

 

 

66

 

 

(240)

 

 

14

 

 

 

(1,752)

 

 

(1,898)

 

 

(3,618)

 

 

(3,695)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings before interest and taxes

 

278

 

 

274

 

 

167

 

 

400

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(41)

 

 

(31)

 

 

(79)

 

 

(70)

 

Debt refinancing and other costs

 

(46)

 

 

(5)

 

 

(106)

 

 

(65)

 

Total interest expense

 

(87)

 

 

(36)

 

 

(185)

 

 

(135)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) before taxes

 

191

 

 

238

 

 

(18)

 

 

265

 

Tax (provision) benefit

 

146

 

 

(79)

 

 

229

 

 

(79)

 

Equity in results of affiliates, net of tax

 

1

 

 

1

 

 

 —

 

 

2

 

Net earnings

 

338

 

 

160

 

 

211

 

 

188

 

Less net earnings attributable to noncontrolling interests

 

 —

 

 

 —

 

 

 —

 

 

(7)

 

Net earnings attributable to Ball Corporation

$

338

 

$

160

 

$

211

 

$

181

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

2.38

 

$

1.16

 

$

1.49

 

$

1.32

 

Diluted

$

2.33

 

$

1.13

 

$

1.45

 

$

1.28

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding (000s):

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

142,038

 

 

137,801

 

 

141,916

 

 

137,446

 

Diluted

 

145,227

 

 

141,540

 

 

145,165

 

 

141,302

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

3


 

BALL CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

($ in millions)

    

2016

    

2015

    

2016

    

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

$

338

 

$

160

 

$

211

 

$

188

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive earnings:

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(29)

 

 

47

 

 

 —

 

 

(92)

 

Pension and other postretirement benefits

 

 

64

 

 

8

 

 

63

 

 

31

 

Effective financial derivatives

 

 

12

 

 

(15)

 

 

11

 

 

(16)

 

Total other comprehensive earnings (loss)

 

 

47

 

 

40

 

 

74

 

 

(77)

 

Income tax (provision) benefit

 

 

(31)

 

 

(1)

 

 

(27)

 

 

(5)

 

Total other comprehensive earnings (loss), net of tax

 

 

16

 

 

39

 

 

47

 

 

(82)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive earnings

 

 

354

 

 

199

 

 

258

 

 

106

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less comprehensive (earnings) loss attributable to noncontrolling interests

 

 

 —

 

 

 —

 

 

 —

 

 

(7)

 

Comprehensive earnings attributable to Ball Corporation

 

$

354

 

$

199

 

$

258

 

$

99

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

4


 

BALL CORPORATION

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

($ in millions)

    

2016

    

2015

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

6,399

 

$

224

 

Receivables, net

 

 

1,910

 

 

885

 

Inventories, net

 

 

1,483

 

 

898

 

Deferred taxes and other current assets

 

 

294

 

 

177

 

Total current assets

 

 

10,086

 

 

2,184

 

Noncurrent assets

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

4,396

 

 

2,686

 

Goodwill

 

 

5,183

 

 

2,177

 

Intangible assets, net

 

 

2,052

 

 

195

 

Restricted cash

 

 

2,124

 

 

2,154

 

Other assets

 

 

1,236

 

 

301

 

Total assets

 

$

25,077

 

$

9,697

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

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

 

$

3,125

 

$

77

 

Accounts payable

 

 

2,168

 

 

1,501

 

Accrued employee costs

 

 

361

 

 

229

 

Cash purchase price payable to Rexam's shareholders

 

 

3,825

 

 

 —

 

Other current liabilities

 

 

874

 

 

335

 

Total current liabilities

 

 

10,353

 

 

2,142

 

Noncurrent liabilities

 

 

 

 

 

 

 

Long-term debt

 

 

8,234

 

 

4,974

 

Employee benefit obligations

 

 

1,527

 

 

1,147

 

Deferred taxes and other liabilities

 

 

1,129

 

 

173

 

Total liabilities

 

 

21,243

 

 

8,436

 

 

 

 

 

 

 

 

 

Shareholders' equity

 

 

 

 

 

 

 

Common stock (333,561,888 shares issued - 2016; 332,332,395  shares issued - 2015)

 

 

995

 

 

962

 

Retained earnings

 

 

4,733

 

 

4,557

 

Accumulated other comprehensive earnings (loss)

 

 

(593)

 

 

(640)

 

Treasury stock, at cost (191,606,105 shares - 2016; 194,240,427 shares - 2015)

 

 

(1,404)

 

 

(3,628)

 

Total Ball Corporation shareholders' equity

 

 

3,731

 

 

1,251

 

Noncontrolling interests

 

 

103

 

 

10

 

Total shareholders' equity

 

 

3,834

 

 

1,261

 

Total liabilities and shareholders' equity

 

$

25,077

 

$

9,697

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

5


 

BALL CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30,

 

($ in millions)

    

2016

    

2015

 

 

 

 

 

 

 

 

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

Net earnings

 

$

211

 

$

188

 

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

 

 

 

 

 

 

 

Depreciation and amortization

 

 

153

 

 

139

 

Business consolidation and other activities

 

 

240

 

 

(14)

 

Deferred tax provision (benefit)

 

 

(268)

 

 

(1)

 

Other, net

 

 

140

 

 

54

 

Changes in other working capital components (a)

 

 

(440)

 

 

(155)

 

Cash provided by (used in) operating activities

 

 

36

 

 

211

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

Capital expenditures

 

 

(273)

 

 

(228)

 

Business acquisitions, net of cash acquired

 

 

413

 

 

(29)

 

Proceeds from dispositions, net of cash sold

 

 

2,815

 

 

 —

 

Other, net

 

 

(86)

 

 

22

 

Cash provided by (used in) investing activities

 

 

2,869

 

 

(235)

 

Cash Flows from Financing Activities

 

 

 

 

 

 

 

Long-term borrowings

 

 

3,824

 

 

2,315

 

Repayments of long-term borrowings

 

 

(621)

 

 

(2,308)

 

Net change in short-term borrowings

 

 

250

 

 

105

 

Proceeds from issuances of common stock

 

 

23

 

 

19

 

Acquisitions of treasury stock

 

 

(98)

 

 

(3)

 

Common dividends

 

 

(37)

 

 

(36)

 

Other, net

 

 

(21)

 

 

(41)

 

Cash provided by (used in) financing activities

 

 

3,320

 

 

51

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

 

(50)

 

 

9

 

 

 

 

 

 

 

 

 

Change in cash and cash equivalents

 

 

6,175

 

 

36

 

Cash and cash equivalents - beginning of period

 

 

224

 

 

191

 

Cash and cash equivalents - end of period

 

$

6,399

 

$

227

 

 

(a)

Includes payments of costs associated with the acquisition of Rexam and the sale of the Divestment Business.

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 

 

6


 

Table of Contents

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

1.     Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements include the accounts of Ball Corporation and its controlled affiliates, including its consolidated variable interest entities (collectively Ball, the company, we or our), and have been prepared by the company. Certain information and footnote disclosures, including critical and significant accounting policies normally included in financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted for this quarterly presentation.

 

Results of operations for the periods shown are not necessarily indicative of results for the year, particularly in view of the seasonality in the packaging segments, the variability of contract revenues in the company’s Aerospace segment, the acquisition of Rexam PLC (Rexam) and the divestiture of certain assets and liabilities of the combined business on June 30, 2016. These unaudited condensed consolidated financial statements and accompanying notes should be read in conjunction with the consolidated financial statements and the notes thereto included in the company’s Annual Report on Form 10-K filed on February 16, 2016, pursuant to Section 13 of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2015 (annual report).

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires Ball’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting periods. These estimates are based on historical experience and various assumptions believed to be reasonable under the circumstances. Ball’s management evaluates these estimates on an ongoing basis and adjusts or revises the estimates as circumstances change. As future events and their impacts cannot be determined with precision, actual results may differ from these estimates. In the opinion of management, the financial statements reflect all adjustments necessary to fairly state the results of the periods presented.

 

Certain prior period amounts have been reclassified in order to conform to the current period presentation.

 

2.     Accounting Pronouncements

 

Recently Adopted Accounting Standards

 

In November 2015, accounting guidance was issued that requires classification of all deferred tax assets and liabilities, along with any related valuation allowances, as noncurrent on the balance sheet. As a result, each tax jurisdiction will now only have one net noncurrent deferred tax asset or liability.  The guidance, however, does not change the existing requirement that only permits offsetting within a tax jurisdiction; therefore, companies are still prohibited from offsetting deferred tax liabilities from one jurisdiction against deferred tax assets of another tax jurisdiction. The guidance was applied prospectively on January 1, 2016. Prior period information was not adjusted.

 

In September 2015, amendments to existing accounting guidance were issued to simplify the accounting for adjustments made to provisional amounts recognized in business combinations. Under the previous guidance, companies were required to retrospectively revise comparative financial statements for changes made to provisional amounts. The amended guidance eliminates the requirement to retrospectively account for these adjustments. The guidance was applied prospectively to adjustments to provisional amounts that occurred on or after January 1, 2016. The guidance did not have a material effect on the company’s unaudited condensed consolidated financial statements.

 

In July 2015, amendments to existing accounting guidance were issued to modify the subsequent measurement of inventory. Under previous guidance, a company measured inventory at the lower of cost or market, with market defined as replacement cost, net realizable value, or net realizable value less a normal profit margin. Current replacement cost could be used provided that it was not above the net realizable value (ceiling) or below net realizable value less a normal profit margin (floor). The new guidance requires a company to subsequently measure inventory at the lower of cost or net realizable value and eliminates the need to determine replacement cost and evaluate whether it is above the ceiling or below the floor. Net realizable value is defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The guidance was applied prospectively on

7


 

Table of Contents

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

January 1, 2016, and did not have a material effect on the company’s unaudited condensed consolidated financial statements.

 

In May 2015, amendments to the existing accounting guidance were issued to remove the requirement to categorize net asset value per share, currently utilized as a practical expedient, by investment within the fair value hierarchy based on redeemable dates. This amendment also removes the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share expedient.  The guidance was applied prospectively on January 1, 2016, and did not have a material effect on the company’s unaudited condensed consolidated financial statements.

 

In April 2015, amendments to existing accounting guidance were issued to provide explicit guidance related to a customer’s accounting for fees paid in a cloud computing arrangement. Under the guidance, cloud computing arrangements that include a software license are to be accounted for consistent with the acquisition of other software licenses. Conversely, cloud computing arrangements that do not include a software license are to be accounted for as a service contract or other applicable accounting guidance. This guidance was applied prospectively on January 1, 2016, and did not have a material effect on the company’s unaudited condensed consolidated financial statements.

 

In April 2015, accounting guidance was issued to change the balance sheet presentation for debt issuance costs. Under the new guidance, debt issuance costs are presented as a direct deduction from the long-term debt, consistent with debt discounts, rather than as a deferred charge. The guidance does not affect the recognition and measurement of debt issuance costs; hence, amortization of debt issuance will continue to be reported as interest expense. This guidance was applied retrospectively on January 1, 2016, and resulted in decreases of intangibles and other long-term assets and long-term debt by $80 million from the amounts previously reported as of December 31, 2015.

 

In February 2015, amendments to existing accounting guidance were issued that modify the analysis companies must perform in order to determine whether a legal entity should be consolidated. The new guidance includes modifications related to: 1) limited partnerships and similar legal entities, 2) evaluating fees paid to a decision maker or service provider as a variable interest, 3) the effect of fee arrangements on the primary beneficiary, 4) the effect of related parties on the primary beneficiary, and 5) certain investment funds. This guidance was applied on a modified retrospective basis on January 1, 2016, and did not have a material effect on the company’s unaudited condensed consolidated financial statements.

 

In January 2015, accounting guidance was issued to eliminate the concept of extraordinary items.  Previous guidance required extraordinary events, defined as both unusual in nature and infrequent in occurrence, to be reported as separate line items from results of ordinary operations within company financial statements. The disclosure requirements will be for items and events which are unusual in nature and/or infrequent in occurrence. Companies have the option of disclosing such items as a separate component of income from continuing operations or disclosing unusual and/or infrequent events in the notes to the financial statements. The guidance was applied prospectively on January 1, 2016, and did not have a material effect on the company’s unaudited condensed consolidated financial statements.

 

New Accounting Guidance

 

In June 2016, amendments requiring financial assets or a group of financial assets measured at amortized cost basis to be presented at the net amount expected to be collected were finalized. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset to present the net carrying value at the amount expected to be collected on the financial asset. This guidance affects loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The guidance will be effective on January 1, 2020. The company is currently assessing the impact the adoption of this standard will have on its consolidated financial statements.

 

In May 2016, narrow scope amendments and practical expedients were issued to clarify the new revenue recognition standard. The amendments clarify the collectability criterion of the revenue standard wherein an entity is allowed to recognize revenue in the amount of consideration received when the following criteria are met: the entity has transferred

8


 

Table of Contents

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

control of the goods or services, the entity has stopped transferring goods or services, or has no obligation under the contract to transfer additional goods or services, and the consideration received from the customer is nonrefundable. The amendments also clarify the following: the fair value of noncash consideration be measured at contract inception when determining the transaction price, allows an entity to make an accounting policy election to exclude from the transaction price certain types of taxes collected from a customer when the company discloses that policy, for contracts to be considered completed at transition, all (or substantially all) of the revenue must have been recognized under legacy GAAP, and a practical expedient is provided in which an entity can avoid having to evaluate the effects of each contract modification from contract inception through the beginning of the earliest period presented when accounting for contracts that were modified prior to adoption under both the full and modified retrospective transition approach. The amendments have the same effective date and transition requirements as the new revenue standard, which is effective for Ball on January 1, 2018. The company is currently assessing the impact the adoption of this new guidance will have on its consolidated financial statements.

 

In April 2016, amendments to clarify the guidance on accounting for licenses of intellectual property (IP) and identifying performance obligations in the new revenue recognition standard were finalized.  The amendments clarify how an entity evaluates the nature of its promise in granting a license of IP, which will determine whether revenue should be recognized over time or at a point in time. The amendments also clarify when a promised good or service is separately identifiable and allows entities to disregard items that are immaterial in the context of a contract and allow entities the election to account for shipping and handling activities as a fulfillment cost rather than an additional promised service. The amendments have the same effective date and transition requirements as the new revenue standard, which is effective for Ball on January 1, 2018. The company is currently assessing the impact the adoption of this new guidance will have on its consolidated financial statements.

 

In March 2016, accounting guidance was issued on the effect of derivative contract novations on existing hedge accounting relationships. The amendments clarify that a change in the counterparty to a derivative instrument designated as a hedging instrument does not in and of itself require dedesignation of that hedging relationship, provided that all other hedge accounting criteria continue to be met. The guidance will be applied prospectively on January 1, 2017, and is not expected to have a material effect on the company’s consolidated financial statements.

 

In March 2016, final accounting guidance was issued clarifying that the assessment of whether an embedded contingent put or call option is clearly and closely related to the debt host only requires an analysis of the four-step decision sequence outlined in the accounting standards codification. Consequently, when a contingent put or call option embedded in a debt instrument would be evaluated for possible separate accounting as a derivative instrument, the nature of the exercise contingency would be disregarded. Companies will still need to evaluate other relevant embedded derivative guidance. The guidance will be applied on a modified retrospective basis on January 1, 2017, and is not expected to have a material effect on the company’s consolidated financial statements.

 

In March 2016, final accounting guidance was issued eliminating the requirement to retrospectively apply the equity method in previous periods when an investor initially obtains significant influence over an investee. The new guidance requires the investor to apply the equity method prospectively from the date the investment qualifies for the equity method. The investor will add the carrying value of the existing investment to the cost of the additional investment to determine the initial cost basis of the equity method investment. This guidance will be applied prospectively on January 1, 2017, and is not expected to have a material effect on the company’s consolidated financial statements.

 

In March 2016, the principal versus agent guidance within the new revenue recognition standard was amended to clarify how an entity should identify the unit of accounting for the principal versus agent evaluation. The new standard requires an entity to determine whether it is a principal or an agent in a transaction in which another party is involved in providing goods or services to a customer, by evaluating the nature of its promise to the customer. An entity is a principal and records revenue on a gross basis if it controls the promised good or service before transferring the good or service to the customer. An entity is an agent and records as revenue the net amount it retains for its agency services if its role is to arrange for another entity to provide the goods or services. The amendments have the same effective date and transition requirements as the new revenue standard, which is effective for Ball on January 1, 2018. The company is currently assessing the impact the adoption of this new guidance will have on its consolidated financial statements.

 

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Table of Contents

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

In March 2016, amendments to existing accounting guidance were issued to simplify various aspects related to how share-based payments are accounted for and presented in the consolidated financial statements. All excess tax benefits and tax deficiencies should be recognized as income tax provision (benefit) in the income statement. This change is required to be applied prospectively resulting from settlements after the date of adoption of the guidance. The tax benefit will be recorded when it arises, subject to normal valuation considerations. This change is required to be applied on a modified retrospective basis, with a cumulative effect adjustment to opening retained earnings. All tax related cash flows resulting from share-based payments are to be reported as operating activities on the statement of cash flows with either a prospective or retrospective approach. Other modifications to the guidance include modifications related to minimum statutory tax withholding requirements and accounting policy election for the impact of forfeitures of shared-based payment awards. The guidance will be effective on January 1, 2017. The company is currently assessing the impact the adoption of this standard will have on its consolidated financial statements.

 

In February 2016, lease accounting guidance was issued which, for operating leases, requires a lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in its balance sheet. The guidance also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, generally on a straight-line basis. The guidance will be effective for Ball on January 1, 2019. The company is currently assessing the impact the adoption of this standard will have on its consolidated financial statements.

 

In January 2016, accounting guidance was issued on the classification and measurement of financial assets and liabilities (equity securities and financial liabilities) under the fair value option and the presentation and disclosure requirements for financial instruments. The guidance modifies how entities measure equity investments and present changes in the fair value of financial liabilities. Under the new guidance, entities will need to measure equity investments that do not result in consolidation and are not accounted under the equity method at fair value and recognize any changes in fair value in net earnings. An exception will apply to those equity investments that do not have a readily determinable fair value and do not qualify for the practical expedient to estimate fair value under the guidance and, as such, these investments may be measured at cost. The guidance will be effective on January 1, 2018. The company is currently assessing the impact the adoption of this new guidance will have on its consolidated financial statements.

 

In August 2014, accounting guidance was issued to define management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures in certain circumstances. Under the new guidance, management is required to evaluate, at each annual and interim reporting period, whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date the financial statements are issued and to provide related disclosures. The guidance will be effective on January 1, 2017, and is not expected to have a material effect on the company’s consolidated financial statements.

 

In May 2014, the Financial Accounting Standards Board (FASB) and International Accounting Standards Board jointly issued new revenue recognition guidance which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The new guidance contains a more robust framework for addressing revenue issues and is intended to remove inconsistencies in existing guidance and improve comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets. The guidance will supersede the majority of current revenue recognition guidance, including industry-specific guidance. In July 2015, the FASB approved the deferral of the effective date of the new revenue recognition guidance by one year. The guidance will be effective for Ball on January 1, 2018, and early adoption is permitted.  However, entities are not permitted to adopt the standard earlier than the original effective date of January 1, 2017.  Entities have the option of using either a full retrospective or modified retrospective approach for the adoption of the standard. The company is currently assessing the impact the adoption of this standard will have on its consolidated financial statements.

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Table of Contents

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

3.     Business Segment Information

 

Ball’s operations are organized and reviewed by management along its product lines and geographical areas and presented in the four reportable segments discussed below.

 

Metal beverage packaging, Americas and AsiaConsists of the metal beverage packaging, Americas, operations in the U.S., Canada, Mexico and Brazil, and the metal beverage packaging, Asia, operations in the People’s Republic of China (PRC) and Myanmar. The Americas and Asia segments have been aggregated based on similar economic and qualitative characteristics. The operations in this reporting segment manufacture and sell metal beverage containers.

 

Metal beverage packaging, EuropeConsists of operations in several countries in Europe that manufacture and sell metal beverage containers.

 

Food and Aerosol packaging:   Consists of operations in the U.S., Europe, Canada, Mexico, Argentina and India that manufacture and sell steel food, aerosol, paint, general line and decorative specialty containers, as well as extruded aluminum aerosol containers and aluminum slugs.

 

Aerospace:  Consists of the manufacture and sale of aerospace and other related products and the providing of services used in the defense, civil space and commercial space industries.

 

The accounting policies of the segments are the same as those in the unaudited condensed consolidated financial statements. A discussion of the company’s critical and significant accounting policies can be found in Ball’s annual report. The company also has investments in companies in Guatemala, Panama, South Korea, the U.S. and Vietnam, which are accounted for under the equity method of accounting and, accordingly, those results are not included in segment sales or earnings.

 

Due to the timing of the Rexam acquisition, the newly acquired operations have been included in the corporate and other segment for the quarter ended June 30, 2016. During the third quarter, the company will evaluate both the existing and acquired operations to determine its internal reporting structure and the resulting effect on reportable segments. 

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Table of Contents

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

Summary of Business by Segment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

($ in millions)

    

2016

    

2015

    

2016

    

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

 

 

 

 

 

 

 

 

 

 

 

 

Metal beverage packaging, Americas & Asia

 

$

1,053

 

$

1,132

 

$

1,990

 

$

2,155

 

Metal beverage packaging, Europe

 

 

479

 

 

481

 

 

835

 

 

860

 

Food and aerosol packaging

 

 

298

 

 

332

 

 

583

 

 

640

 

Aerospace

 

 

193

 

 

230

 

 

373

 

 

445

 

Corporate and intercompany eliminations

 

 

7

 

 

(3)

 

 

4

 

 

(5)

 

Net sales

 

 

2,030

 

 

2,172

 

$

3,785

 

$

4,095

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

Metal beverage packaging, Americas & Asia

 

$

137

 

$

126

 

$

239

 

$

252

 

Business consolidation and other activities

 

 

(12)

 

 

 —

 

 

(16)

 

 

(3)

 

Total metal beverage packaging, Americas & Asia

 

 

125

 

 

126

 

 

223

 

 

249

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Metal beverage packaging, Europe

 

 

74

 

 

59

 

 

113

 

 

88

 

Business consolidation and other activities

 

 

(5)

 

 

(5)

 

 

(9)

 

 

(7)

 

Total metal beverage packaging, Europe

 

 

69

 

 

54

 

 

104

 

 

81

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Food and aerosol packaging

 

 

33

 

 

29

 

 

53

 

 

59

 

Business consolidation and other activities

 

 

(3)

 

 

(1)

 

 

(17)

 

 

(1)

 

Total food and aerosol packaging

 

 

30

 

 

28

 

 

36

 

 

58

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aerospace

 

 

19

 

 

20

 

 

37

 

 

39

 

Business consolidation and other activities

 

 

 —

 

 

 —

 

 

 —

 

 

1

 

Total aerospace

 

 

19

 

 

20

 

 

37

 

 

40

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment earnings before interest and taxes

 

 

243

 

 

228

 

 

400

 

 

428

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Undistributed corporate expenses and intercompany eliminations, net

 

 

(12)

 

 

(26)

 

 

(35)

 

 

(52)

 

Business consolidation and other activities

 

 

47

 

 

72

 

 

(198)

 

 

24

 

Total undistributed corporate expenses and

 

 

 

 

 

 

 

 

 

 

 

 

 

intercompany eliminations, net

 

 

35

 

 

46

 

 

(233)

 

 

(28)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings before interest and taxes

 

 

278

 

 

274

 

 

167

 

 

400

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(41)

 

 

(31)

 

 

(79)

 

 

(70)

 

Debt refinancing and other costs

 

 

(46)

 

 

(5)

 

 

(106)

 

 

(65)

 

Total interest expense

 

 

(87)

 

 

(36)

 

 

(185)

 

 

(135)

 

Tax (provision) benefit

 

 

146

 

 

(79)

 

 

229

 

 

(79)

 

Equity in results of affiliates, net of tax

 

 

1

 

 

1

 

 

(0)

 

 

2

 

Net earnings

 

 

338

 

 

160

 

 

211

 

 

188

 

Less net earnings attributable to noncontrolling interests

 

 

 —

 

 

 —

 

 

 —

 

 

(7)

 

Net earnings attributable to Ball Corporation

 

$

338

 

$

160

 

$

211

 

$

181

 

 

 

 

 

 

 

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Table of Contents

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

4.     Acquisitions 

 

Rexam

 

On June 30, 2016, Ball acquired 100 percent of the outstanding shares of Rexam, a United Kingdom-based beverage container manufacturer, for the purchase price of £2.9 billion ($3.8 billion) in cash, and 32.25 million treasury shares of Ball Corporation common stock (valued at $71.39 per share for a total consideration of $2.3 billion). Additionally, the company recorded $21 million of consideration for stock-based compensation (see Note 15). The common shares were valued using the price on the date of acquisition and have been presented as a reduction of treasury stock as of June 30, 2016, although the shares were issued on July 1, 2016 as this issuance of shares was irrevocably committed at June 30, 2016. The cash portion of the acquisition price was paid in July, 2016, using proceeds from restricted cash held in escrow and borrowings under the $1.4 billion and €1.1 billion Term A loan facilities obtained in March 2016 (discussed further in the long-term debt section below).

 

The consummation of the acquisition was subject to, among other things, approval from Ball’s shareholders, approval from Rexam’s shareholders, certain regulatory approvals and satisfaction of other customary closing conditions. In order to satisfy certain regulatory requirements, the company was required to divest certain assets including a portion of Ball’s existing metal beverage packaging businesses and select metal beverage can assets of Rexam (the Divestment Business).

 

The sale of the Divestment Business to Ardagh Group S.A. (Ardagh), was completed immediately after the Rexam acquisition on June 30, 2016, for $3.42 billion, subject to customary closing adjustments and certain transaction service arrangements between Ball and Ardagh during a transition period. A pre-tax gain of $331 million was recorded in connection with the sale and is subject to finalization of working capital and other items, and has been recorded within business consolidation and other activities. The company has recorded an amount due from Ardagh of $235 million in other receivables, in the unaudited condensed consolidated balance sheet as of June 30, 2016 for remaining cash proceeds expected to be received from Ardagh associated with the sale of the Divestment Business. As a condition of the sale of the Divestment Business to Ardagh, the company has guaranteed a minimum volume of sales for the Divestment Business in 2017, whereby the company would be required to pay Ardagh up to $75 million based upon any shortfall of 2017 sales relative to an agreed-upon minimum threshold.  Additionally, the company entered into a supply agreement with Ardagh to manufacture and sell can ends to the Divestment Business in Brazil in exchange for proceeds of $103 million, which have been included in other, net in operating activities in the unaudited condensed consolidated statement of cash flows.

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

($ in millions)

    

June 30, 2016

    

June 30, 2015

    

June 30, 2016

    

June 30, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings before taxes

 

$

68

 

$

49

 

$

104

 

$

80

 

Earnings before taxes attributable to

 

$

68

 

$

49

 

$

104

 

$

77

 

Ball Corporation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

A total of 54 manufacturing facilities were acquired from Rexam, including 17 in the U.S., 20 in Europe, 12 in South America and five in the Africa, Middle East and Asia (AMEA) region. A total of 22 manufacturing facilities were sold as part of the Divestment Business, including 12 Ball facilities and 10 Rexam facilities. Of these 22 facilities, eight are located in the U.S., 12 are located in Europe and two are located in Brazil. The company has a total of 75 metal beverage

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Table of Contents

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

manufacturing facilities and joint ventures after the completion of the acquisition and the sale of the Divestment Business.

 

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

 

Due to the timing of the acquisition, the newly acquired operations have been included in the corporate and other segment for the quarter ended June 30, 2016. During the third quarter, the company will evaluate both the existing and acquired operations to determine its internal reporting structure and the resulting effect on reportable segments. The acquisition has been accounted for as a business combination and, its results of operations did not have a significant impact on the company’s unaudited condensed consolidated statement of earnings and cash flow from the date of acquisition. In addition, pretax charges totaling $196 million were incurred for transaction costs associated with the acquisition, which, in accordance with current accounting guidance, were expensed as incurred. The transaction costs are included in the business consolidation and other activities line of the unaudited condensed consolidated statement of earnings. $66 million of these costs were included in the three months ended June 30, 2016, and $94 million in the six months ended June 30, 2016.

 

In connection with the acquisition, Ball assumed Rexam debt of approximately $2.8 billion. Subsequent to June 30, 2016, approximately $2.7 billion was extinguished. The proceeds from the sale of the Divestment Business were used to extinguish the assumed debt.

 

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Table of Contents

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

The table below is a summary of the net assets acquired from Rexam using preliminary fair values. The valuation by management of certain assets, and liabilities, is still in process and therefore, the actual fair values may vary significantly from these preliminary estimates. Final valuations are expected to be completed within one year of the acquisition.

 

 

 

 

 

 

($ in millions)

 

 

 

 

 

 

 

 

 

Cash

    

$

451

 

Receivables, net

 

 

797

 

Inventories, net

 

 

791

 

Deferred taxes and other current assets

 

 

158

 

Assets held for sale (sold to Ardagh on June 30, 2016)

 

 

913

 

Total current assets

 

 

3,110

 

Property, plant and equipment

 

 

2,297

 

Goodwill

 

 

3,767

 

Intangible assets

 

 

1,888

 

Restricted cash

 

 

174

 

Other assets

 

 

721

 

Total assets acquired

 

 

11,957

 

 

 

 

 

 

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

 

 

2,801

 

Accounts payable

 

 

869

 

Accrued employee costs

 

 

125

 

Liabilities held for sale (sold to Ardagh on June 30, 2016)

 

 

7

 

Other current liabilities

 

 

447

 

Total current liabilities

 

 

4,249

 

 

 

 

 

 

Long-term debt

 

 

25

 

Employee benefit obligations

 

 

496

 

Deferred taxes and other liabilities

 

 

927

 

Total liabilities assumed

 

 

5,697

 

 

 

 

 

 

Net assets acquired

 

 

6,260

 

 

 

 

 

 

Noncontrolling interests

 

 

(94)

 

Aggregate value of consideration paid

 

$

6,166

 

 

In connection with the acquisition, the company assumed certain commitments from Rexam, including lease and purchase commitments, which we are currently evaluating.

 

The following table details the identifiable intangible assets acquired at the preliminary fair value and estimated useful lives:

 

 

 

 

 

 

 

 

($ in millions)

    

Fair Value

    

Weighted-
Average
Estimated
Useful Life (in
Years)

 

 

 

 

 

 

 

 

Customer relationships

 

$

1,840

 

15

 

Trademarks

 

 

40

 

5

 

Technology

 

 

8

 

9

 

 

 

$

1,888

 

 

 

 

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Table of Contents

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

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

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

($ in millions, except per share amounts)

    

June 30, 2016

    

June 30, 2015

    

June 30, 2016

    

June 30, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales (1)

 

$

2,761

 

$

3,027

 

$

5,179

 

$

5,689

 

Net earnings attributable to Ball Corporation (2)

 

$

75

 

$

88

 

$

87

 

$

(551)

 

Basic earnings (loss) per share

 

$

0.43

 

$

0.50

 

$

0.50

 

$

(3.14)

 

Diluted earnings (loss) per share

 

$

0.42

 

$

0.49

 

$

0.49

 

$

(3.14)

 

 

(1)

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

(2)

Pro forma adjustments to net earnings attributable to Ball Corporation include the following:

·

Excludes acquisition-related transaction costs and debt refinancing costs incurred in the three and six months ended June 30, 2016 pro forma statements of earnings and three months ended June 30, 2015. The six months ended June 30, 2015 pro forma net earnings were adjusted to include the acquisition related transaction costs and debt refinancing costs incurred in the six months ended June 30, 2016 and the six months ended December 31, 2015 as the pro forma information shown assumes that the Rexam acquisition has been consummated as of January 1, 2015.

·

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

·

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

·

An additional charge to cost of sales of $74 million was included in the six months ended June 30, 2015 based on the step up value of inventory.

·

Excludes net earnings attributable to the Divestment Business for the three and six months ended June 30, 2016 and net earnings attributable to the Divestment Business for the three and six months ended June 30, 2015.

·

Excludes the gain on sale of the Divestment Business in the three and six months ended June 30, 2016.

 

All of these pro forma adjustments were adjusted for the applicable income tax impacts. Ball has applied enacted statutory tax rates in the United Kingdom for the respective periods. Ball has used a tax rate of 20.0 percent to calculate the financing, acquisition and divestment business-related adjustments for the three and six months ended 2016 and the three months ended June 30, 2015. A tax rate of 20.5 percent was used to calculate the financing, acquisition and divestment business-related adjustments for the six months ended June 30, 2015.  However, the tax impact on acquisition-related transaction costs already incurred were recorded at a U.S. statutory rate of approximately 37 percent as these transaction costs were incurred in the U.S. These rates may be subject to change and may not be reflective of Ball’s effective tax rate for future periods after consummation of the acquisition and sale of the Divestment Business.

 

In late 2015, Ball completed the acquisition of the remaining outstanding noncontrolling interests in a Ball-consolidated joint venture company (Latapack-Ball) organized and operating in Brazil. Ball and its joint venture partners reached an agreement for the partners to exchange all of their interest in Latapack-Ball for a total of approximately 5.7 million treasury shares of Ball common stock and $17.4 million of cash. The acquisition of the noncontrolling interests in the joint venture was completed in December 2015, and Latapack-Ball is now a wholly owned subsidiary of Ball.

 

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Table of Contents

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

Acquisition-Related Long-term Debt and Restricted Cash

 

On February 19, 2015, the company entered into a £3.3 billion unsecured, committed bridge loan agreement (the Bridge Facility), pursuant to which lending institutions agreed, subject to limited conditions, to provide the financing necessary to pay the cash portion of the consideration payable to Rexam’s shareholders upon consummation of the acquisition of Rexam along with related fees and expenses. In December 2015, the company issued senior notes totaling $1 billion, €400 million and €700 million due 2020, 2020, and 2023, respectively, with rates of 4.375 percent, 3.5 percent and 4.375 percent, respectively. Pursuant to the terms of the Bridge Facility, the company deposited the net proceeds from the issuance of such notes into escrow accounts, recorded as restricted cash, which reduced the commitments under the Bridge Facility to £1.9 billion.

 

On February 19, 2015, the company entered into a $3 billion revolving credit facility (the 2018 Revolver) to replace its then existing approximate $1 billion revolving credit facility, repay its $93 million Term C loan, repay the outstanding balance on the existing revolving credit facility, redeem the 2020 and 2021 senior notes and provide ongoing liquidity for the company.  In June 2015, during a subsequent debt offering, the company issued $1 billion of 5.25 percent senior notes, thereby reducing the borrowing capacity under the revolving credit facility from $3 billion to $2.25 billion. In March 2016, the 2018 revolver was refinanced in full with a $1.5 billion multi-currency revolving credit facility available to Ball and certain of its subsidiaries (the 2021 Revolver).

 

On March 18, 2016, Ball refinanced the Bridge Facility in full with a $1.4 billion Term A loan facility available to Ball and a €1.1 billion Term A loan facility available to a subsidiary of Ball. The Term A Loan facilities and 2021 Revolver were entered under a secured, five-year credit agreement. 

 

In July, 2016, $3.8 billion of proceeds released from the restricted cash escrow accounts and amounts drawn under the $1.4 billion Term A loan facility and the €1.1 billion Term A loan facility were used to pay the cash portion of the consideration due to Rexam’s shareholders for the acquisition of Rexam.

 

Currency Exchange Rate and Interest Rate Risks

 

The company entered into collar and option contracts to partially mitigate its currency exchange rate risk associated with the British pound denominated cash portion of the purchase price from February 19, 2015, through the expected closing date of the acquisition. In June 2016, the company terminated the collar and option contracts with notional amounts that totaled approximately £1.4 billion ($1.8 billion). In connection with the December 2015 issuance of $1 billion senior notes due 2020, the company executed cross-currency swaps to convert this fixed-rate U.S. dollar debt to fixed-rate euro debt for the life of the notes to more effectively match the future cash flows of the company.  The cross-currency swaps with a notional amount of $1 billion were terminated on June 30, 2016. These contracts were not designated as hedges for accounting purposes; and therefore, changes in the fair value of these contracts were recorded in the unaudited condensed consolidated statements of earnings in business consolidation and other activities.

 

The company entered into interest rate swaps to hedge against rising U.S. and European interest rates to minimize its interest rate exposure associated with anticipated debt issuances in connection with the acquisition of Rexam. As of June 30, 2016, the company terminated all interest rate swaps and interest rate option contracts. None of these contracts have been designated as hedges; therefore, changes in the fair value of these interest rate swap and option contracts have been recorded in the unaudited condensed consolidated statements of earnings in debt refinancing and other costs, a component of total interest expense.

 

For further details related to the aforementioned currency exchange rate and interest rate risks, and the valuation of these derivatives, see Notes 5 and 17.

 

Wavefront Technologies (Wavefront)

 

In January 2016, the company acquired Wavefront located in Annapolis Junction, Maryland, for total cash consideration of $36 million, net of cash acquired. Wavefront provides systems and network engineering, software development software and analytical services for cyber and mission-focused programs to the U.S. government and commercial

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Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

industry. The financial results of Wavefront have been included in our aerospace segment from the date of acquisition. The acquisition is not material to the company.

 

Sonoco Products Company (Sonoco)

 

In February 2015, the company acquired Sonoco’s metal end and closure manufacturing facilities in Canton, Ohio, and entered into a long-term supply agreement with Sonoco in exchange for total cash of $29 million paid at closing, $11 million of contingent cash consideration and $24 million of contingent noncash consideration.

 

The facilities manufacture multiple-sized closures for the metal food container market, including high quality steel and aluminum easy-open ends. The financial results of Sonoco have been included in our food and aerosol packaging segment from the date of acquisition. The acquisition is not material to the company.

 

5.     Business Consolidation and Other Activities

 

The following is a summary of business consolidation and other activity (charges)/income included in the unaudited condensed consolidated statements of earnings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

($ in millions)

    

2016

    

2015

    

2016

    

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Metal beverage packaging, Americas & Asia

 

$

(12)

 

$

 —

 

$

(16)

 

$

(3)

 

Metal beverage packaging, Europe

 

 

(5)

 

 

(5)

 

 

(9)

 

 

(7)

 

Food and aerosol packaging

 

 

(3)

 

 

(1)

 

 

(17)

 

 

(1)

 

Aerospace

 

 

 —

 

 

 —

 

 

 —

 

 

1

 

Corporate and other

 

 

47

 

 

72

 

 

(198)

 

 

24

 

 

 

$

27

 

$

66

 

$

(240)

 

$

14

 

 

2016

 

Metal Beverage Packaging, Americas and Asia

 

For the three and six months ended June 30, 2016, the company had charges recorded of $9  million for professional services and other costs associated with the acquisition of Rexam. 

 

Other charges in the three and six months ended June 30, 2016 included $3 million and $7 million, respectively, of insignificant items.

 

Metal Beverage Packaging, Europe

 

During the three and six months ended June 30, 2016, the company recorded charges of $3 million and $7 million, respectively, for professional services and other costs associated with the acquisition of Rexam.

 

Other charges in the three and six months ended June 30, 2016, included $2 million of insignificant activities.

 

Food and Aerosol Packaging

 

During the first six months of 2016, the company announced the closure of the Weirton, West Virginia, plant, a food and household packaging flat sheet production and end-making facility, which will cease production in early 2017. Charges in the three and six months ended June 30, 2016 were $2 million and $11 million, respectively, and comprised of employee severance and benefits, facility shutdown costs, and asset impairment and disposal costs.

 

Other charges in the three and six months ended June 30, 2016 included $1 million and $6 million, respectively, of insignificant activities.

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Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

 

Corporate

 

During the three months ended June 30, 2016, the company recorded the following amounts:

·

Expense of $53 million for professional services and other costs associated with the acquisition of Rexam.

·

Losses of $91 million associated with its collar, swap and option contracts entered into to reduce its exposure to currency exchange rate changes in connection with the British pound denominated cash portion of the purchase price for the acquisition of Rexam, further discussed in Note 17.

·

$99 million for foreign currency losses from the revaluation of foreign currency denominated restricted cash and intercompany loans related to the cash component of the Rexam acquisition purchase price and the revaluation of the euro-denominated debt issuance in December 2015.

·

Expense of $71 million for compensation arrangements related to the Rexam acquisition.

·

An unrealized gain of $32 million on the fair value of cross-currency swaps entered into in connection with the December 2015 issuance of the $1 billion senior notes due 2020. See Note 17 for additional information.

·

A gain of $331 million in connection with the sale of the Ball portion of the Divestment Business.

·

Expense of $2 million for insignificant activities.

 

During the six months ended June 30, 2016, the company recorded the following charges:

·

Expense of $77 million for professional services and other costs associated with the acquisition of Rexam.

·

Losses of $179 million associated with its collar, swap and option contracts entered into to reduce its exposure to currency exchange rate changes in connection with the British pound denominated cash portion of the purchase price for the acquisition of Rexam, further discussed in Note 17.

·

$195 million for foreign currency losses from the revaluation of foreign currency denominated restricted cash and intercompany loans related to the cash component of the Rexam acquisition purchase price and the revaluation of the euro-denominated debt issuance in December 2015.

·

Expense of $71 million for compensation arrangements related to the Rexam acquisition.

·

An unrealized loss of $4 million on the fair value of cross-currency swaps entered into in connection with the December 2015 issuance of the $1 billion senior notes due 2020. See Note 17 for additional information.

·

A gain of $331 million in connection with the sale of the Ball portion of the Divestment Business.

·

Expense of $3 million for insignificant activities.

 

2015

 

Metal Beverage Packaging, Americas and Asia

 

During the first six months of 2015, the company recorded charges of $3 million related to business reorganization activities in the company’s metal beverage packaging, Asia, operations, and for ongoing costs related to previously closed facilities.

 

Metal Beverage Packaging, Europe

 

During the first six months of 2015, the company recorded a charge of $5 million for the write down of property held for sale.

 

During the first and second quarters of 2015, the company recorded charges of $1 million and $1 million, respectively, related to headcount reductions, cost-out initiatives and the relocation of the company’s European headquarters from Germany to Switzerland, as well as additional tax expense of $2 million and $1 million, respectively, related to this relocation.  In addition, the first six months of 2015 included charges of $1 million for business reorganization activities.

 

Corporate

 

During the first and second quarters of 2015, the company recorded charges of $20 million and $24 million, respectively, for professional services and other costs associated with the acquisition of Rexam announced in February 2015. Also during the first and second quarters of 2015, the company recognized losses of $28 million and gains of $96 million,

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Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

respectively, associated with its collar and option contracts entered into to reduce its exposure to currency exchange rate changes in connection with the British pound denominated cash portion of the acquisition of Rexam, further discussed in Note 4. Other charges in the first six months of 2015 included $1 million for insignificant activities.

 

6.     Receivables

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

($ in millions)

    

2016

    

2015

 

 

 

 

 

 

 

 

 

Trade accounts receivable

 

$

1,529

 

$

759

 

Less allowance for doubtful accounts

 

 

(5)

 

 

(5)

 

Net trade accounts receivable

 

 

1,524

 

 

754

 

Other receivables

 

 

386

 

 

131

 

 

 

$

1,910

 

$

885