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EX-99 - EX-99 - BALL Corpbll-20170331xex99.htm
EX-32.2 - EX-32.2 - BALL Corpbll-20170331ex322e9df3f.htm
EX-32.1 - EX-32.1 - BALL Corpbll-20170331ex321a252a2.htm
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EX-31.1 - EX-31.1 - BALL Corpbll-20170331ex311b2c75d.htm
EX-10.1 - EX-10.1 - BALL Corpbll-20170331ex101aeacba.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 March 31, 2017

 

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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

 

Large accelerated filer ☒

Accelerated filer ☐

Non-accelerated filer ☐(Do not check if a smaller reporting company)

Smaller reporting company☐

 

Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

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 April 30, 2017

Common Stock, without par value

 

175,577,956 shares

 

 

 

 

 


 

Ball Corporation

QUARTERLY REPORT ON FORM 10-Q

For the period ended March 31, 2017

 

INDEX

 

 

 

Page
Number

 

 

 

PART I. 

 

 

 

 

Item 1. 

Financial Statements

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Earnings for the Three Months Ended March 31, 2017 and 2016

3

 

 

 

 

Unaudited Condensed Consolidated Statements of Comprehensive Earnings for the Three Months Ended March 31, 2017 and 2016

4

 

 

 

 

Unaudited Condensed Consolidated Balance Sheets at March 31, 2017, and December 31, 2016

5

 

 

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2017 and 2016

6

 

 

 

 

Notes to the Unaudited Condensed Consolidated Financial Statements

7

 

 

 

Item 2. 

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

46

 

 

 

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

55

 

 

 

Item 4. 

Controls and Procedures

55

 

 

 

PART II. 

OTHER INFORMATION

58

 

 

2


 

PART I. FINANCIAL INFORMATION

 

Item 1.   FINANCIAL STATEMENTS

 

BALL CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

($ in millions, except per share amounts)

2017

    

2016

 

 

 

 

 

 

 

 

Net sales

$

2,473

 

$

1,756

 

 

 

 

 

 

 

 

Costs and expenses

 

 

 

 

 

 

Cost of sales (excluding depreciation and amortization)

 

(1,975)

 

 

(1,416)

 

Depreciation and amortization

 

(148)

 

 

(75)

 

Selling, general and administrative

 

(143)

 

 

(108)

 

Business consolidation and other activities

 

(55)

 

 

(267)

 

 

 

(2,321)

 

 

(1,866)

 

 

 

 

 

 

 

 

Earnings (loss) before interest and taxes

 

152

 

 

(110)

 

 

 

 

 

 

 

 

Interest expense

 

(68)

 

 

(38)

 

Debt refinancing and other costs

 

 —

 

 

(61)

 

Total interest expense

 

(68)

 

 

(99)

 

 

 

 

 

 

 

 

Earnings (loss) before taxes

 

84

 

 

(209)

 

Tax (provision) benefit

 

(22)

 

 

83

 

Equity in results of affiliates, net of tax

 

 8

 

 

(1)

 

Net earnings (loss)

 

70

 

 

(127)

 

Less net earnings attributable to noncontrolling interests

 

(2)

 

 

 —

 

Net earnings (loss) attributable to Ball Corporation

$

68

 

$

(127)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share:

 

 

 

 

 

 

Basic

$

0.39

 

$

(0.90)

 

Diluted

$

0.38

 

$

(0.90)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding (000s):

 

 

 

 

 

 

Basic

 

175,024

 

 

141,793

 

Diluted

 

178,967

 

 

141,793

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

3


 

BALL CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

($ in millions)

    

2017

    

2016

 

 

 

 

 

 

 

 

 

Net earnings (loss)

 

$

70

 

$

(127)

 

 

 

 

 

 

 

 

 

Other comprehensive earnings (loss):

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

69

 

 

28

 

Pension and other postretirement benefits

 

 

 6

 

 

 6

 

Effective financial derivatives

 

 

64

 

 

 —

 

Total other comprehensive earnings (loss)

 

 

139

 

 

34

 

Income tax (provision) benefit

 

 

(11)

 

 

(3)

 

Total other comprehensive earnings (loss), net of tax

 

 

128

 

 

31

 

 

 

 

 

 

 

 

 

Total comprehensive earnings (loss)

 

 

198

 

 

(96)

 

Less comprehensive (earnings) loss attributable to noncontrolling interests

 

 

(2)

 

 

 —

 

Comprehensive earnings (loss) attributable to Ball Corporation

 

$

196

 

$

(96)

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

4


 

BALL CORPORATION

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

($ in millions)

    

2017

    

2016

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

458

 

$

597

 

Receivables, net

 

 

1,695

 

 

1,491

 

Inventories, net

 

 

1,554

 

 

1,413

 

Other current assets

 

 

200

 

 

152

 

Total current assets

 

 

3,907

 

 

3,653

 

Noncurrent assets

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

4,403

 

 

4,387

 

Goodwill

 

 

5,152

 

 

5,095

 

Intangible assets, net

 

 

1,917

 

 

1,934

 

Other assets

 

 

1,265

 

 

1,104

 

Total assets

 

$

16,644

 

$

16,173

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

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

 

$

497

 

$

222

 

Accounts payable

 

 

1,830

 

 

2,033

 

Accrued employee costs

 

 

264

 

 

315

 

Other current liabilities

 

 

427

 

 

399

 

Total current liabilities

 

 

3,018

 

 

2,969

 

Noncurrent liabilities

 

 

 

 

 

 

 

Long-term debt

 

 

7,476

 

 

7,310

 

Employee benefit obligations

 

 

1,487

 

 

1,497

 

Deferred taxes

 

 

855

 

 

759

 

Other liabilities

 

 

85

 

 

97

 

Total liabilities

 

 

12,921

 

 

12,632

 

 

 

 

 

 

 

 

 

Shareholders' equity

 

 

 

 

 

 

 

Common stock (334,660,441 shares issued - 2017; 334,252,175  shares issued - 2016)

 

 

1,040

 

 

1,038

 

Retained earnings

 

 

4,784

 

 

4,739

 

Accumulated other comprehensive earnings (loss)

 

 

(813)

 

 

(941)

 

Treasury stock, at cost (159,240,073 shares - 2017; 159,387,049 shares - 2016)

 

 

(1,392)

 

 

(1,401)

 

Total Ball Corporation shareholders' equity

 

 

3,619

 

 

3,435

 

Noncontrolling interests

 

 

104

 

 

106

 

Total shareholders' equity

 

 

3,723

 

 

3,541

 

Total liabilities and shareholders' equity

 

$

16,644

 

$

16,173

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

5


 

BALL CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

($ in millions)

    

2017

    

2016

 

 

 

 

 

 

 

Cash Flows from Operating Activities

 

 

 

 

 

 

Net earnings (loss)

 

$

70

 

$

(127)

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

 

 

 

 

 

 

Depreciation and amortization

 

 

148

 

 

75

Business consolidation and other activities

 

 

55

 

 

267

Deferred tax provision (benefit)

 

 

 2

 

 

(50)

Other, net

 

 

 7

 

 

10

Changes in working capital components (a)

 

 

(680)

 

 

(561)

Cash provided by (used in) operating activities

 

 

(398)

 

 

(386)

Cash Flows from Investing Activities

 

 

 

 

 

 

Capital expenditures

 

 

(125)

 

 

(138)

Business acquisitions, net of cash acquired

 

 

 —

 

 

(36)

Business dispositions, net of cash sold

 

 

31

 

 

 —

Other, net

 

 

 3

 

 

(11)

Cash provided by (used in) investing activities

 

 

(91)

 

 

(185)

Cash Flows from Financing Activities

 

 

 

 

 

 

Long-term borrowings

 

 

185

 

 

801

Repayments of long-term borrowings

 

 

(50)

 

 

(407)

Net change in short-term borrowings

 

 

273

 

 

310

Proceeds from issuances of common stock, net of shares used for taxes

 

 

(1)

 

 

 7

Acquisitions of treasury stock

 

 

(3)

 

 

(98)

Common dividends

 

 

(23)

 

 

(19)

Other, net

 

 

(1)

 

 

(22)

Cash provided by (used in) financing activities

 

 

380

 

 

572

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

 

(30)

 

 

(20)

 

 

 

 

 

 

 

Change in cash and cash equivalents

 

 

(139)

 

 

(19)

Cash and cash equivalents - beginning of period

 

 

597

 

 

224

Cash and cash equivalents - end of period

 

$

458

 

$

205

 

(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), 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 March 2, 2017, pursuant to Section 13 of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2016 (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 January 2017, amendments to existing accounting guidance were issued simplifying an entity’s subsequent goodwill measurement by eliminating Step 2, which requires a hypothetical purchase price allocation, from its annual or interim goodwill impairment test. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. This guidance is required to be applied prospectively on January 1, 2020, and early adoption is permitted. The company elected to early adopt this guidance effective January 1, 2017, and it did not have a material impact on the company’s unaudited condensed 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. This guidance was applied on a modified retrospective basis on January 1, 2017, and did not have an effect on the company’s unaudited condensed 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 was applied prospectively on January 1, 2017, and did not have a material effect on the company’s unaudited condensed consolidated financial statements.

 

7


 

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. The company adopted these amendments on January 1, 2017, as discussed below, which did not have a material effect on the company’s unaudited condensed consolidated financial statements.

 

·

All excess tax benefits and tax deficiencies that were previously recognized in common stock are now recognized as income tax provisions (benefits) in the income statement as a discrete item. As required, this change was applied prospectively for settlements occurring after the adoption of the guidance on January 1, 2017.

·

Any prior period excess tax benefits that did not reduce taxes payable in the period in which they arose were required to be recorded on a modified retrospective basis, with a cumulative effect adjustment to opening retained earnings. However, the company was able to reduce taxes payable for all previous excess tax benefits and, therefore, was not required to record a cumulative effect adjustment.

·

The company has elected to use a prospective approach to report all tax related cash flows resulting from share-based payments as operating activities on the statement of cash flows and, therefore, no adjustments have been made to prior periods. Previously, excess tax benefits were reported as part of financing activities.

·

The company has elected to account for forfeitures as they occur. No cumulative effect adjustment was required as the amount calculated was immaterial.

 

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 was applied prospectively on January 1, 2017, and did not have a material effect on the company’s unaudited condensed consolidated financial statements.

 

New Accounting Guidance

 

In March 2017, amendments to existing guidance were issued to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost, which requires employers to report the service cost component in the same line item as other compensation costs arising from services rendered by the associated employees during the period. The other components of net periodic pension and benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. The amendments also permit only the service cost component of net benefit cost to be eligible for capitalization. This guidance is required to be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement, and prospectively for the capitalization of the service cost component. Employers can elect a practical expedient that permits use of the amounts disclosed in its pension footnote for the prior comparative periods as the estimation basis for applying the retrospective presentation requirements. The guidance is effective for Ball on January 1, 2018, and early adoption is permitted. The company has not elected to early adopt the new standard and is currently assessing the impact this guidance will have on its consolidated financial statements.

 

In February 2017, amendments to existing guidance were issued to clarify the scope of ASC Subtopic 610-20, Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets and to add guidance for partial sales of nonfinancial assets. The guidance requires that all entities account for the derecognition of a business in accordance with ASC 810, including instances in which the business is considered in substance real estate. This guidance is required to be applied on January 1, 2018, using a full retrospective approach or a modified retrospective approach and early adoption is permitted. The company is currently assessing the impact that the adoption of this new guidance will have on its consolidated financial statements.

 

In January 2017, amendments to existing guidance were issued to further clarify the definition of a business in determining whether or not a company has acquired or sold a business. The amendments provide a screen to determine when an integrated set of assets and activities (collectively referred to as a “set”) is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. If the screen is not met, the

8


 

Table of Contents

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

amendments in this update (1) require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2) remove the evaluation of whether a market participant could replace missing elements. The amendments also narrow the definition of the term “output” so that the term is consistent with how outputs are described in Topic 606. The guidance is required to be applied prospectively for Ball on January 1, 2018, and early adoption is permitted. The company does not expect the amendments to have a material impact on its consolidated financial statements and the company has not elected to early adopt this new accounting standard.

 

In November 2016, accounting guidance was issued that will require the statement of cash flows to explain the change in the total of cash, cash equivalents and restricted cash or restricted cash equivalents. In addition, restricted cash and restricted cash equivalents will need to be included in a cash reconciliation of beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This guidance is required to be applied retrospectively on January 1, 2018. The company is currently assessing the impact that the adoption of this new guidance will have on its consolidated financial statements.  

 

In October 2016, amendments to existing guidance were issued that will require entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory, when the transfer occurs as opposed to when the asset is sold. The amendments also eliminate the exception for an intra-entity transfer of an asset other than inventory. This guidance is required to be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings on January 1, 2018. The company is currently assessing the impact that the adoption of this new guidance will have on its consolidated financial statements.

 

In August 2016, accounting guidance was issued addressing the following eight specific cash flow issues:

 

·

Debt prepayment or debt extinguishment costs

·

Settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing

·

Contingent consideration payments made after a business combination

·

Proceeds from the settlement of insurance claims

·

Proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies)

·

Distributions received from equity method investees

·

Beneficial interests in securitization transactions

·

Separately identifiable cash flows and application of the predominance principle

 

This guidance is required to be applied retrospectively on January 1, 2018. The company is currently assessing the impact that the adoption of this new guidance will have on its consolidated financial statements.

 

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 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 and expects a material amount of assets and liabilities to be recorded in the consolidated balance sheet.

 

9


 

Table of Contents

Ball Corporation

Notes to the Unaudited Condensed 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 have 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 income unless the investments qualify for the new practicality exception. 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 that the adoption of this new guidance will have on its consolidated financial statements.

 

New Revenue Guidance

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. Under the new standard, revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In July 2015, the FASB approved the deferral of the effective date of the new revenue recognition guidance by one year. The new standard is effective for annual reporting periods beginning after December 15, 2017.

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. 

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 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.

In December 2016, technical corrections and improvements were issued on a variety of topics within the new revenue recognition standard. The corrections represent minor corrections or improvements and are not expected to have a significant impact on accounting practices. The amendments clarify the following: guarantee fees within the scope of Topic 460 are not within the scope of Topic 606, impairment testing for capitalized contract costs should consider both expected contract renewals and extensions and unrecognized consideration already received along with expected future consideration, the sequence of impairment testing for assets within the scope of different Topics, allowance of an accounting policy election to determine the provision for losses at the performance obligation level instead of the contract level, exclude all topics within Topic 944 from the scope of Topic 606, allow exemptions from the disclosures of remaining performance obligations, disclosure of prior-period performance obligations pertains to all performance

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Table of Contents

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

obligations and is not limited to those with corresponding contract balances, and better aligns accounting guidance and examples within the guidance.

The guidance will be effective for Ball on January 1, 2018, and will supersede the current revenue recognition guidance, including industry-specific guidance. While early adoption is permitted, 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.  We currently anticipate adopting the standard on January 1, 2018, using the modified retrospective method.

We established a cross-functional implementation team, which includes representatives from all of our business segments. We utilized a bottoms-up approach to analyze the impact of the new standard on our contracts with customers by reviewing our current accounting policies and practices to identify potential differences that would result from applying the requirements of the new standard to revenues arising from such contracts. In addition, we are in the process of identifying the appropriate changes to our business processes, systems and controls to support recognition and disclosure under the standard upon adoption.

 

While we are continuing to assess all potential impacts of the new standard, we currently believe the most significant impact will be in the way we account for revenue in our metal beverage packaging segments, and to a lesser extent in our food and aerosol packaging segment. We currently recognize revenue from many of our contracts in these segments when the four established criteria of revenue recognition under the current guidance have been met, generally occurring upon shipment or delivery of goods. Under the new standard we expect we will be required to recognize revenue from many of these contracts over time, which will accelerate the timing of revenue recognition from these arrangements, such that some portion of revenue will be recognized prior to shipment or delivery of goods. In addition to accelerating the timing of recording revenue, we expect corresponding decreases in inventories with an offsetting increase to unbilled receivables to the extent the amounts have not yet been invoiced to the customer. 

 

Relative to the aerospace segment, at this time we do not expect the implementation of the new standard to materially impact the manner in which we currently recognize revenue in this segment as the standard supports the recognition of revenue over time under the “cost-to-cost” method, which is consistent with the current revenue recognition model utilized for the majority of our contracts in this segment. We expect revenue arising from the majority of our contracts to continue to be recognized over time because of the continuous transfer of control to the customer. However due to the complexity of most of our aerospace contracts, the actual revenue recognition treatment required under the new standard will be dependent on contract-specific terms, and may vary in some instances from recognition over time.

 

Finally, we are still evaluating performance obligations under the new standard as compared with deliverables and separate units of account previously identified. The results of this evaluation may impact the timing of revenue recognition across all of our business segments. 

 

We are complete with our initial impact assessment, which is based on a review of sample contracts representative of the range of our existing contracts. During 2017, Ball will continue to finalize the initial impact assessment and design and implement changes to processes, systems and internal controls to be in a position to report under the new accounting standard upon adoption in the first quarter of 2018.

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Table of Contents

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

3.     Business Segment Information

 

During the third quarter of 2016, Ball made certain segment realignments as a result of the Rexam acquisition and sale of Ball’s existing beverage packaging businesses and select beverage can assets of Rexam (the Divestment Business) to align with how Ball now manages its businesses. Ball has retrospectively adjusted prior period amounts to conform to the current segment presentation. Ball’s operations are organized and reviewed by management along its product lines and geographical areas and presented in the five reportable segments outlined below:

 

Beverage packaging, North and Central America:  Consists of operations in the U.S., Canada and Mexico that manufacture and sell metal beverage containers.

 

Beverage packaging, South America: Consists of operations in Brazil, Argentina and Chile that manufacture and sell metal beverage containers.

 

Beverage packaging, Europe:  Consists of operations in numerous countries in Europe, including Russia, 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 and aerosol containers, extruded aluminum aerosol containers and aluminum slugs.

 

Aerospace: Consists of operations that manufacture and sell aerospace and other related products and provide services used in the defense, civil space and commercial space industries.

 

Other consists of non-reportable segments in Asia Pacific and AMEA that manufacture and sell metal beverage containers, undistributed corporate expenses, intercompany eliminations and other business activities.

 

The accounting policies of the segments are the same as those in the consolidated financial statements and are discussed in Note 1. The company also has investments in operations in Guatemala, Panama, South Korea, the U.S. and Vietnam that are accounted for under the equity method of accounting and, accordingly, those results are not included in segment sales or earnings.

 

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Table of Contents

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

Summary of Business by Segment

 

 

 

 

 

 

 

 

`

 

Three Months Ended March 31,

($ in millions)

    

2017

    

2016

 

 

 

 

 

 

 

Net sales

 

 

 

 

 

 

Beverage packaging, North and Central America

 

$

949

 

$

734

Beverage packaging, South America

 

 

371

 

 

126

Beverage packaging, Europe

 

 

508

 

 

356

Food and aerosol packaging

 

 

272

 

 

284

Aerospace

 

 

236

 

 

180

Reportable segment sales

 

 

2,336

 

 

1,680

Other

 

 

137

 

 

76

Net sales

 

$

2,473

 

$

1,756

 

 

 

 

 

 

 

Comparable operating earnings

 

 

 

 

 

 

Beverage packaging, North and Central America

 

$

123

 

$

93

Beverage packaging, South America

 

 

58

 

 

18

Beverage packaging, Europe

 

 

47

 

 

39

Food and aerosol packaging

 

 

21

 

 

20

Aerospace

 

 

21

 

 

18

Reportable segment comparable operating earnings

 

 

270

 

 

188

Reconciling items

 

 

 

 

 

 

Other (a)

 

 

(31)

 

 

(31)

Business consolidation and other activities

 

 

(55)

 

 

(267)

Amortization of acquired Rexam intangibles

 

 

(32)

 

 

 —

Earnings (loss) before interest and taxes

 

 

152

 

 

(110)

Interest expense

 

 

(68)

 

 

(38)

Debt refinancing and other costs

 

 

 —

 

 

(61)

Total interest expense

 

 

(68)

 

 

(99)

Earnings (loss) before taxes

 

 

84

 

 

(209)

Tax (provision) benefit

 

 

(22)

 

 

83

Equity in results of affiliates, net of tax

 

 

 8

 

 

(1)

Net earnings (loss)

 

 

70

 

 

(127)

Less net earnings attributable to noncontrolling interests

 

 

(2)

 

 

 —

Net earnings (loss) attributable to Ball Corporation

 

$

68

 

$

(127)


(a)

Includes undistributed corporate expenses, net, of $45 million and $22 million for the first quarter of 2017 and 2016, respectively.

 

The company does not disclose total assets by segment as it is not provided to the chief operating decision maker.

 

 

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Table of Contents

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

4.     Acquisitions and Dispositions 

 

Rexam

 

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

 

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

 

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

 

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

 

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

 

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

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Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

into Ball Corporation in historical periods, these earnings before taxes may not be indicative of the earnings before taxes of these components of the Divestment Business were they to be operated as a standalone business or businesses:

 

 

 

 

 

 

 

Three Months Ended March 31,

($ in millions)

    

2016

 

 

 

 

Earnings before taxes

 

$

37

Earnings before taxes attributable to Ball Corporation

 

$

37

 

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

 

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

 

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

 

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

 

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

 

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

 

The company adjusted the preliminary allocation of the purchase price for the Rexam acquisition during the three months ended March 31, 2017. These adjustments, none of which were material, have been reflected in the preliminary allocations of the purchase price. The impacts of all adjustments have been reflected in the unaudited condensed consolidated financial statements as of and for the quarter ended March 31, 2017. The primary areas of the purchase price allocation that are not yet finalized relate to fixed assets and operating leases, income and non-income taxes, the valuation of intangible assets acquired and residual goodwill. The preliminary amounts assigned to intangible assets by

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Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

type for the Rexam acquisition were based on the company’s valuation model and historical experiences with entities with similar business characteristics. The preliminary amounts are summarized in the table below:

 

 

 

 

June 30,

($ in millions)

2016 

 

 

 

Cash

$

450

Receivables, net

 

775

Inventories, net

 

792

Other current assets

 

164

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

 

913

Total current assets

 

3,094

Property, plant and equipment

 

2,296

Goodwill

 

3,799

Intangible assets

 

1,888

Restricted cash

 

174

Other assets

 

439

Total assets acquired

 

11,690

 

 

 

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

 

2,792

Accounts payable

 

870

Accrued employee costs

 

135

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

 

 7

Other current liabilities

 

377

Total current liabilities

 

4,181

 

 

 

Long-term debt

 

28

Employee benefit obligations

 

508

Deferred taxes and other liabilities

 

723

Total liabilities assumed

 

5,440

 

 

 

Net assets acquired

 

6,250

 

 

 

Noncontrolling interests

 

(90)

Aggregate value of consideration paid

$

6,160

 

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

 

 

 

 

 

 

 

 

($ in millions)

    

Fair Value

    

Weighted-
Average
Estimated
Useful Life (in
Years)

 

 

 

 

 

 

 

 

Customer relationships

 

$

1,840

 

15

 

Trademarks

 

 

40

 

 5

 

Technology

 

 

 8

 

 9

 

 

 

$

1,888

 

 

 

 

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

 

The following unaudited pro forma consolidated results of operations (pro forma information) have been prepared as if the acquisition of Rexam and the sale of the Divestment Business had occurred as of January 1, 2015. The pro forma

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Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

information combines the historical results of Ball and Rexam. The pro forma results are not necessarily indicative of the actual results that would have occurred had the acquisition been in effect for the periods presented, nor are they necessarily indicative of the results that may be obtained in the future.

 

 

 

 

 

 

 

Three Months Ended March 31,

($ in millions, except per share amounts)

    

2016

 

 

 

 

Net sales (1)

 

$

2,418

Net earnings attributable to Ball Corporation (2)

 

 

22

Basic earnings per share

 

 

0.13

Diluted earnings per share

 

 

0.12

 

(1)

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

(2)

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

·

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

·

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

·

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

·

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

 

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

 

Currency Exchange Rate and Interest Rate Risks

 

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

 

Food and Aerosol Paint and General Line Plant

 

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

 

Wavefront Technologies (Wavefront)

 

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

 

Food and Aerosol Specialty Tin Business

 

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Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

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

 

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 March 31,

($ in millions)

    

2017

    

2016

 

 

 

 

 

 

 

Beverage packaging, North and Central America

 

$

(4)

 

$

(3)

Beverage packaging, South America

 

 

 3

 

 

 —

Beverage packaging, Europe

 

 

(3)

 

 

(4)

Food and aerosol packaging

 

 

10

 

 

(14)

Other

 

 

(61)

 

 

(246)

 

 

$

(55)

 

$

(267)

 

2017

 

Beverage Packaging, North and Central America

 

During the three months ended March 31, 2017, the company recorded charges of $3 million for employee severance and accelerated depreciation related to the closure of our Reidsville, North Carolina, plant.

 

Other charges in the three months ended March 31, 2017, included $1 million of individually insignificant activities. 

 

Beverage Packaging, South America

 

Income in the three months ended March 31, 2017, included $3 million of individually insignificant activities.

 

Beverage Packaging, Europe

 

During the three months ended March 31, 2017, the company recorded charges of $2 million for professional services and other costs associated with the acquisition of Rexam.

 

Other charges in the three months ended March 31, 2017, included $1 million of individually insignificant activities.

 

Food and Aerosol Packaging

 

During the three months ended March 31, 2017, the company recorded charges of $3 million for facility shutdown costs and accelerated depreciation for the closure of our Weirton, West Virginia, plant which ceased production during the first quarter of 2017.

 

During the first quarter of 2017, the company sold its food and aerosol packaging paint and general line can plant in Hubbard, Ohio, and recorded a gain on sale of $15 million.

 

Other charges in the three months ended March 31, 2017, included $2 million of individually insignificant activities.

 

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Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

Other

 

During the three months ended March 31, 2017, the company recorded the following amounts:

·

Expense of $27 million for indemnifications of uncertain tax positions associated with the sale of the Divestment Business.

·

A $14 million reduction in the gain recognized in connection with the sale of the Ball portion of the Divestment Business.

·

Expense of $9 million for long term incentive and other compensation arrangements associated with the Rexam acquisition.

·

Expense of $5 million for professional services and other costs associated with the acquisition of Rexam.

·

Expense of $6 million for individually insignificant activities. 

 

2016

 

Beverage Packaging, North and Central America

 

Charges in the three months ended March 31, 2016, included $3 million of individually insignificant activities

 

Beverage Packaging, Europe

 

During the three months ended March 31, 2016, the company recorded charges of $4 million for professional services and other costs associated with the acquisition of Rexam.

 

Food and Aerosol Packaging

 

During the three months ended March 31, 2016, the company recorded charges of $9 million for employee severance and benefits, facility shutdown costs, and asset impairment and disposal costs for the closure of our Weirton, West Virginia, plant.

 

Other charges in the three months ended March 31, 2016, included $5 million of individually insignificant activities.

 

Other

 

During the three months ended March 31, 2016, the company recorded the following charges:

 

·

Expense of $24 million for professional services and other costs associated with the acquisition of Rexam.

·

Losses of $88 million associated with the 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.

·

Foreign currency losses of $96 million from the revaluation of foreign currency denominated restricted cash and intercompany loans related to the cash component of the Rexam acquisition purchase price, the sale of the Divestment Business and the revaluation of the euro-denominated debt issuance obtained in December 2015.

·

An unrealized loss of $36 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.

·

Expense of $2 million for individually insignificant activities. 

 

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Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

6.     Receivables

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

($ in millions)

    

2017

    

2016

 

 

 

 

 

 

 

Trade accounts receivable

 

$

1,365

 

$

1,169

Less allowance for doubtful accounts

 

 

(11)

 

 

(11)

Net trade accounts receivable

 

 

1,354

 

 

1,158

Other receivables

 

 

341

 

 

333

 

 

$

1,695

 

$

1,491

 

The company has entered into several regional committed and uncommitted accounts receivable factoring programs with various financial institutions for certain receivables of the company. The programs are accounted for as true sales of the receivables, without recourse to Ball, and had combined limits of approximately $865 million at March 31, 2017. A total of $542 million and $596 million were sold under these programs as of March 31, 2017, and December 31, 2016, respectively.

 

7.     Inventories

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

($ in millions)

    

2017

    

2016

 

 

 

 

 

 

 

Raw materials and supplies

 

$

653

 

$

607

Work-in-process and finished goods

 

 

930

 

 

839

Less inventory reserves

 

 

(29)

 

 

(33)

 

 

$

1,554

 

$

1,413

 

8.     Property, Plant and Equipment

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

($ in millions)

    

2017

    

2016

 

 

 

 

 

 

 

Land

 

$

101

 

$

105

Buildings

 

 

1,313

 

 

1,301

Machinery and equipment

 

 

4,872

 

 

4,723

Construction-in-progress

 

 

454

 

 

503

 

 

 

6,740

 

 

6,632

Accumulated depreciation

 

 

(2,337)

 

 

(2,245)

 

 

$

4,403

 

$

4,387

 

Property, plant and equipment are stated at historical or acquired cost. Depreciation expense amounted to $107 million and $65 million for the three months ended March 31, 2017 and 2016, respectively.

 

20


 

Table of Contents

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

9.     Goodwill

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

($ in millions)

    


Beverage
Packaging,
North & Central
America

    


Beverage
Packaging,
South America

    


Beverage
Packaging,
Europe

    

Food
&
Aerosol
Packaging

    


Aerospace

    

Other

    

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2016

 

$

1,614

 

$

970

 

$

1,632

 

$

599

 

$

40

 

$

240

 

$

5,095

Opening balance sheet adjustments

 

 

18

 

 

 4

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

22

Business dispositions

 

 

 —

 

 

 —

 

 

 —

 

 

(9)

 

 

 —

 

 

 —

 

 

(9)

Effects of currency exchange rates

 

 

 —

 

 

 —

 

 

40

 

 

 2

 

 

 —

 

 

 2

 

 

44

Balance at March 31, 2017

 

$

1,632

 

$

974

 

$

1,672

 

$

592

 

$

40

 

$

242

 

$

5,152

 

The company’s annual goodwill impairment test completed in the fourth quarter of 2016 indicated the fair value of the beverage packaging, Asia (Beverage Asia), reporting unit exceeded its carrying amount by approximately 23 percent. The current supply of metal beverage packaging exceeds demand in China, resulting in pricing pressure and negative impacts on the profitability of our Beverage Asia reporting unit. If it becomes an expectation that this oversupply situation will continue for an extended period of time, the company may be required to record a noncash impairment charge for some or all of the goodwill associated with the Beverage Asia reporting unit, the total balance of which was $78 million at March 31, 2017.

 

10.    Intangible Assets, net

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

($ in millions)

    

2017

    

2016

 

 

 

 

 

 

 

Acquired Rexam intangibles (net of accumulated amortization of $96 million at March 31, 2017, and $62 million at December 31, 2016)

 

$

1,752

 

$

1,766

Capitalized software (net of accumulated amortization of $92 million at March 31, 2017, and $87 million at December 31, 2016)

 

 

77

 

 

79

Other intangibles (net of accumulated amortization of $149 million at March 31, 2017, and $143 million at December 31, 2016)

 

 

88

 

 

89

 

 

$

1,917

 

$

1,934

 

Total amortization expense of intangible assets amounted to $41 million and $10 million for the three months ended March 31, 2017 and 2016, respectively,

 

11.    Other Assets

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

($ in millions)

    

2017

    

2016

 

 

 

 

 

 

 

Long-term deferred tax assets

 

$

575

 

$

443

Long-term pension asset

 

 

154

 

 

147

Investments in affiliates

 

 

213

 

 

204

Company and trust-owned life insurance

 

 

156

 

 

146

Other

 

 

167

 

 

164

 

 

$

1,265

 

$

1,104

 

 

21


 

Table of Contents

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

12.    Debt and Interest Costs

 

Long-term debt consisted of the following:

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

($ in millions)

    

2017

    

2016

 

 

 

 

 

 

 

Senior Notes

 

 

 

 

 

 

5.25% due July 2025

 

$

1,000

 

$

1,000

4.375% due December 2020

 

 

1,000

 

 

1,000

4.00% due November 2023

 

 

1,000

 

 

1,000

4.375%, euro denominated, due December 2023

 

 

746

 

 

736

5.00% due March 2022

 

 

750

 

 

750

3.50%, euro denominated, due December 2020

 

 

426

 

 

421

Senior Credit Facilities, due March 2021 (at variable rates)

 

 

 

 

 

 

Term A loan, due June 2021

 

 

1,365

 

 

1,383

Term A loan, euro denominated, due June 2021

 

 

967

 

 

954

Multi-currency USD revolver, due March 2021

 

 

345

 

 

190

Other (including debt issuance costs)

 

 

(44)

 

 

(45)

 

 

 

7,555

 

 

7,389

Less: Current portion of long-term debt

 

 

(79)

 

 

(79)

 

 

$

7,476

 

$

7,310

 

Following is a summary of debt refinancing and other costs included in the unaudited condensed consolidated statements of earnings:

 

 

 

 

 

 

 

 

    

    

Three Months Ended March 31,

($ in millions)

    

2017

    

2016

 

 

 

 

 

 

 

Debt Refinancing and Other Costs:

 

 

 

 

 

 

Interest expense on 3.5% and 4.375% senior notes

 

$

 —

 

$

(25)

Economic hedge - interest rate risk

 

 

 —

 

 

(16)

Refinance of bridge and revolving credit facilities

 

 

 —

 

 

(13)

Amortization of unsecured, committed bridge facility financing fees

 

 

 —

 

 

(7)

 

 

$

 —

 

$

(61)

 

The senior credit facilities include long-term, multi-currency committed revolving credit facilities that provide the company with up to the U.S. dollar equivalent of $1.5 billion. At March 31, 2017, taking into account outstanding letters of credit, approximately $1.1 billion was available under these long-term, revolving credit facilities. In addition to these facilities, the company had approximately $902 million of short-term uncommitted credit facilities available at March 31, 2017, of which $418 million was outstanding and due on demand. At December 31, 2016, the company had $143 million outstanding under short-term uncommitted credit facilities.

 

The fair value of long-term debt was estimated to be $7.8 billion at March 31, 2017, which approximated the carrying value of $7.5 billion. The fair value was estimated to be $7.7 billion at December 31, 2016, which approximated the carrying value of $7.4 billion. The fair value reflects the market rates at each period end for debt with credit ratings similar to the company’s ratings and is classified as Level 2 within the fair value hierarchy. Rates currently available to the company for loans with similar terms and maturities are used to estimate the fair value of long-term debt based on discounted cash flows.

 

Ball provides letters of credit in the ordinary course of business to secure liabilities recorded in connection with certain self-insurance arrangements. Letters of credit outstanding were $32 million at both March 31, 2017 and December 31, 2016, respectively.

 

22


 

Table of Contents

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

 

The company’s senior notes and senior credit facilities are guaranteed on a full, unconditional and joint and several basis by certain of the company’s material subsidiaries. Each of the guarantor subsidiaries is 100 percent owned by Ball Corporation. These guarantees are required in support of these notes and credit facilities, are co-terminous with the terms of the respective note indentures and would require performance upon certain events of default referred to in the respective guarantees. Note 19 includes further details about the company’s debt guarantees and Note 20 contains further details, as well as required condensed consolidating financial information for the company, segregating the guarantor subsidiaries and non-guarantor subsidiaries as defined in the debt agreements.

 

The U.S. note agreements and bank credit agreement contain certain restrictions relating to dividend payments, share repurchases, investments, financial ratios, guarantees and the incurrence of additional indebtedness. The most restrictive of the company’s debt covenants require the company to maintain a leverage ratio (as defined) of no greater than 5 times at March 31, 2017, which changes to 4 times at December 31, 2017.

 

The company was in compliance with all loan agreements and debt covenants at March 31, 2017 and December 31, 2016, and has met all debt payment obligations.

 

13.    Employee Benefit Obligations

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

($ in millions)

    

2017

    

2016

 

 

 

 

 

 

 

Underfunded defined benefit pension liabilities

 

$

969

 

$

963

Less current portion

 

 

(21)

 

 

(25)

Long-term defined benefit pension liabilities

 

 

948

 

 

938

Retiree medical and other postemployment benefits

 

 

219

 

 

226

Deferred compensation plans

 

 

261

 

 

272

Other

 

 

59

 

 

61

 

 

$

1,487

 

$

1,497

 

 

 

 

 

 

 

 

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