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Ball 10-Q 2009

Documents found in this filing:

  1. 10-Q
  2. Ex-20
  3. Ex-31
  4. Ex-32
  5. Ex-99
  6. Ex-99
f10q.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q


x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 29, 2009


Commission file number   1-7349

BALL CORPORATION

 
State of Indiana
35-0160610
 

10 Longs Peak Drive, P.O. Box 5000
Broomfield, CO 80021-2510
303/469-3131


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

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 o No o

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 x
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No x

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 26, 2009
 
 
Common Stock,
without par value
 
 
93,984,733 shares
 

 
 

 


Ball Corporation and Subsidiaries
QUARTERLY REPORT ON FORM 10-Q
For the period ended March 29, 2009




INDEX


   
Page Number
     
PART I.
FINANCIAL INFORMATION:
 
     
Item 1.
Financial Statements
 
     
 
Unaudited Condensed Consolidated Statements of Earnings for the Three Months Ended March 29, 2009, and March 30, 2008
 
1
     
 
Unaudited Condensed Consolidated Balance Sheets at March 29, 2009, and December 31, 2008
2
     
 
Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 29, 2009, and March 30, 2008
 
3
     
 
Notes to Unaudited Condensed Consolidated Financial Statements
4
     
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
21
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
27
     
Item 4.
Controls and Procedures
28
     
PART II.
OTHER INFORMATION
30


 
 

 


PART I.
FINANCIAL INFORMATION

Item 1.
FINANCIAL STATEMENTS

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
Ball Corporation and Subsidiaries


   
Three Months Ended
 
 
($ in millions, except per share amounts)
 
March 29, 2009
   
March 30, 2008
 
             
Net sales
  $ 1,585.6     $ 1,740.2  
                 
Costs and expenses
               
Cost of sales (excluding depreciation and amortization)
    1,312.5       1,437.7  
Depreciation and amortization (Notes 8 and 10)
    66.7       74.6  
Selling, general and administrative
    75.2       81.6  
Business consolidation costs (Note 4)
    5.0        
Gain on sale of subsidiary (Note 5)
          (7.1 )
      1,459.4       1,586.8  
                 
Earnings before interest and taxes
    126.2       153.4  
                 
Interest expense
    (25.8 )     (36.2 )
                 
Earnings before taxes
    100.4       117.2  
Tax provision
    (28.1 )     (37.2 )
Equity in results of affiliates
    (2.7 )     3.9  
                 
Net earnings
  $ 69.6     $ 83.9  
                 
Less net earnings attributable to noncontrolling interests
    (0.1 )     (0.1 )
                 
Net earnings attributable to Ball Corporation
  $ 69.5     $ 83.8  
                 
Earnings per share (Note 14):
               
Basic
  $ 0.74     $ 0.86  
Diluted
  $ 0.73     $ 0.85  
                 
Weighted average shares outstanding (000s) (Note 14):
               
Basic
    93,544       97,199  
Diluted
    94,673       98,589  
                 
Cash dividends declared and paid, per share
  $ 0.10     $ 0.10  


See accompanying notes to unaudited condensed consolidated financial statements.

 
Page 1

 

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
Ball Corporation and Subsidiaries


($ in millions)
 
March 29,
2009
   
December 31,
2008
 
Assets
           
Current assets
           
Cash and cash equivalents
  $ 53.1     $ 127.4  
Receivables, net (Note 6)
    691.5       507.9  
Inventories, net (Note 7)
    1,083.2       974.2  
Cash collateral – receivable (Note 15)
    181.9       229.5  
Current derivative contracts (Note 15)
    205.1       197.0  
Current deferred taxes and other current assets
    111.6       129.3  
Total current assets
    2,326.4       2,165.3  
                 
Property, plant and equipment, net (Note 8)
    1,813.8       1,866.9  
Goodwill (Note 9)
    1,777.5       1,825.5  
Noncurrent derivative contracts (Note 15)
    137.2       139.0  
Intangibles and other assets, net (Note 10)
    369.7       372.0  
Total Assets
  $ 6,424.6     $ 6,368.7  
                 
Liabilities and Shareholders’ Equity
               
Current liabilities
               
Short-term debt and current portion of long-term debt (Note 11)
  $ 302.3     $ 303.0  
Accounts payable
    681.5       763.7  
Accrued employee costs
    194.9       232.7  
Income taxes payable and current deferred taxes
    30.7       8.9  
Cash collateral – liability (Note 15)
    98.1       124.0  
Current derivative contracts (Note 15)
    218.9       268.4  
Other current liabilities
    171.2       161.7  
Total current liabilities
    1,697.6       1,862.4  
                 
Long-term debt (Note 11)
    2,357.1       2,107.1  
Employee benefit obligations (Note 12)
    949.9       981.4  
Noncurrent derivative contracts (Note 15)
    191.6       189.7  
Deferred taxes and other liabilities
    116.4       140.8  
Total liabilities
    5,312.6       5,281.4  
                 
Contingencies (Note 16)
           
                 
Shareholders’ equity (Note 13)
               
Common stock (160,973,761 shares issued – 2009; 160,916,672 shares issued – 2008)
    795.6       788.0  
Retained earnings
    2,107.1       2,047.1  
Accumulated other comprehensive earnings (loss)
    (232.0 )     (182.5 )
Treasury stock, at cost (67,062,334 shares – 2009; 67,184,722 shares – 2008)
    (1,560.4 )     (1,566.8 )
Total Ball Corporation shareholders’ equity
    1,110.3       1,085.8  
                 
Noncontrolling interests
    1.7       1.5  
Total shareholders’ equity
    1,112.0       1,087.3  
Total Liabilities and Shareholders’ Equity
  $ 6,424.6     $ 6,368.7  


See accompanying notes to unaudited condensed consolidated financial statements.

 
Page 2

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Ball Corporation and Subsidiaries


   
Three Months Ended
 
($ in millions)
 
March 29, 2009
   
March 30, 2008
 
Cash Flows from Operating Activities
           
Net earnings
  $ 69.6     $ 83.9  
Adjustments to reconcile net earnings to net cash used in operating activities:
               
Depreciation and amortization
    66.7       74.6  
Business consolidation costs (Note 4)
    5.0        
Gain on sale of subsidiary (Note 5)
          (7.1 )
Legal settlement
          (70.3 )
Deferred taxes
    (4.5 )     (5.1 )
Other, net
    7.4       (18.2 )
Changes in working capital components, excluding effects of dispositions
    (452.0 )     (272.4 )
Cash used in operating activities
    (307.8 )     (214.6 )
                 
Cash Flows from Investing Activities
               
Additions to property, plant and equipment
    (67.8 )     (74.5 )
Cash collateral, net (Note 15)
    21.7        
Proceeds from sale of subsidiary, net of cash sold
          8.7  
Other, net
    (1.1 )     (2.3 )
Cash used in investing activities
    (47.2 )     (68.1 )
                 
Cash Flows from Financing Activities
               
Long-term borrowings
    394.3       270.7  
Repayments of long-term borrowings
    (116.7 )     (32.3 )
Change in short-term borrowings
    8.3       113.7  
Proceeds from issuances of common stock
    6.0       6.4  
Acquisitions of treasury stock
    (1.1 )     (131.5 )
Common dividends
    (9.3 )     (9.6 )
Other, net
    2.4       0.4  
Cash provided by financing activities
    283.9       217.8  
                 
Effect of exchange rate changes on cash
    (3.2 )     3.2  
                 
Change in cash and cash equivalents
    (74.3 )     (61.7 )
Cash and cash equivalents - beginning of period
    127.4       151.6  
Cash and cash equivalents - end of period
  $ 53.1     $ 89.9  



See accompanying notes to unaudited condensed consolidated financial statements.

 
Page 3

 

Notes to Unaudited Condensed Consolidated Financial Statements
Ball Corporation and Subsidiaries

1.
Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Ball Corporation and its controlled affiliates (collectively Ball, the company, we or our) and have been prepared by the company without audit. Certain information and footnote disclosures, including critical and significant accounting policies normally included in financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted.

Results of operations for the periods shown are not necessarily indicative of results for the year, particularly in view of the seasonality in the packaging segments and the irregularity of contract revenues in the aerospace and technologies segment. 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 pursuant to Section 13 of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2008 (annual report).

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. These estimates are based on historical experience and various assumptions believed to be reasonable under the circumstances. Actual results could differ from these estimates under different assumptions and conditions. However, we believe that the financial statements reflect all adjustments which are of a normal recurring nature and are necessary for a fair statement of the results for the interim period.

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

2.
Accounting Standards

Recently Adopted Accounting Standards

Effective January 1, 2009, Ball adopted the deferral provisions of Statement of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements” (SFAS No. 157), as defined by Financial Accounting Standards Board (FASB) Staff Position (FSP) No. 157-2, “Effective Date of FASB Statement No. 157,” and applied the standard prospectively for all nonfinancial assets and liabilities measured on a nonrecurring basis. SFAS No. 157 establishes a framework for measuring fair value and expands disclosures about fair value measurements. Although it does not require any new fair value measurements, the statement emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and should be determined based on the assumptions that market participants would use in pricing the asset or liability. Details regarding the adoption of SFAS No. 157 and its effects on the company’s unaudited condensed consolidated financial statements are available in Note 15, “Financial Instruments and Risk Management.”

Also effective January 1, 2009, Ball adopted SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an Amendment of ARB No. 51” (SFAS No. 160), on a prospective basis except for presentation and disclosure requirements, which were applied retrospectively. This statement amends accounting and reporting standards for the noncontrolling interest in a subsidiary, requiring that such interests be reported as a separate component of shareholders’ equity. SFAS No. 160 also requires the consolidated statements of earnings to include separate presentation of the amount of net earnings allocable to the noncontrolling interests in addition to the net earnings attributable to the company’s shareholders. The adoption of this standard did not have a significant impact on the unaudited condensed consolidated financial statements of the company.

Also effective January 1, 2009, Ball adopted SFAS No. 161, “Disclosures About Derivative Instruments and Hedging Activities – an Amendment of FASB Statement No. 133” (SFAS No. 161), on a prospective basis. SFAS No. 161 requires that objectives for using derivative instruments be disclosed in terms of underlying risk and accounting designation, as well as information about credit-risk-related contingent features. It also requires a

 
Page 4

 

Notes to Unaudited Condensed Consolidated Financial Statements
Ball Corporation and Subsidiaries

2.
Accounting Standards (continued)

company to disclose the fair values of derivative instruments and their gains and losses in a tabular format to make more transparent the location in a company’s financial statements of both the derivative positions existing at period end and the effect of using derivatives during the reporting period. Details regarding the adoption of SFAS No. 161 and its effects on the company’s unaudited condensed consolidated financial statements are available in Note 15, “Financial Instruments and Risk Management.”

Also effective January 1, 2009, Ball adopted on a prospective basis standards previously disclosed in the annual report related to business combinations; including SFAS No. 141 (revised 2007), “Business Combinations;” FSP No. 142-3, “Determination of the Useful Life of Intangible Assets;” and Emerging Issues Task Force 08-07, “Accounting for Defensive Intangible Assets.” In addition FSP No. FAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination that Arise from Contingencies,” was issued in April 2009 and is also applicable on a prospective basis for business combinations with acquisition dates after January 1, 2009. The adoption of these standards did not have a significant impact on the unaudited condensed consolidated financial statements of the company; however, we will continue to monitor the impact these statements will have in the event we enter into a business combination transaction in a future period.

New Accounting Standards

In December 2008 the FASB issued FSP No. FAS 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets” (FSP No. FAS 132(R)-1). This guidance requires disclosure of how investment allocation decisions are made, including the factors that are pertinent to an understanding of investment policies and strategies, the major categories of plan assets, significant concentrations of risk within plan assets, inputs and valuation techniques to measure fair value and the effect of significant unobservable inputs on changes in plan assets for the period. FSP No. FAS 132(R)-1 is effective for Ball for the fiscal year ending December 31, 2009, and will be applied on a prospective basis. The company is in the process of evaluating the impact this guidance will have on our consolidated financial statements.

In April 2009 the FASB issued FSP No. FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (FSP No. FAS 157-4). This standard provides additional guidance for estimating fair value when the volume and level of activity for the asset or liability have significantly decreased. It also includes guidance on identifying circumstances that indicate a transaction is not orderly. FSP No. FAS 157-4 is effective for Ball for the period ending June 28, 2009, and will be applied on a prospective basis. The company does not anticipate the adoption of this accounting guidance will have a significant impact on our consolidated financial statements.

In April 2009 the FASB issued FSP No. FAS 107-1 and Accounting Principles Board (APB) 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (FSP No. FAS 107-1 and APB 28-1). This guidance requires additional disclosures for loans and long-term receivables that provide a comparison of the carrying value to the fair value in a tabular format in addition to qualitative disclosures regarding the measurement policies and significant assumptions used to estimate fair value. This guidance is effective for Ball for the period ending June 28, 2009, and will be applied on a prospective basis. We do not anticipate the adoption of this accounting guidance will have a significant impact on our consolidated financial statements.

Also in April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments” (FSP No. FAS 115-2 and FAS 124-2). This position amends existing guidance for other-than-temporary impairments on debt securities to make it more operational and revises disclosure requirements for other-than-temporary impairments related to debt and equity securities, including quantitative and qualitative disclosures. This guidance is effective for Ball for the period ending June 28, 2009, and will be applied on a prospective basis. We currently do not anticipate the adoption of this accounting guidance will have a significant impact on our consolidated financial statements.


 
Page 5

 

Notes to Unaudited Condensed Consolidated Financial Statements
Ball Corporation and Subsidiaries

3.
Business Segment Information

Ball’s operations are organized and reviewed by management along its product lines resulting in five reportable segments.

Metal beverage packaging, Americas and Asia:  Consists of operations, which have been aggregated along product lines and similar economic characteristics in the U.S., Canada and the People’s Republic of China (PRC). These operations manufacture and sell metal beverage containers in North America and the PRC, as well as non-beverage plastic containers in the PRC.

Metal beverage packaging, Europe:  Consists of operations in several countries in Europe, which manufacture and sell metal beverage containers.

Metal food & household products packaging, AmericasConsists of operations in the U.S., Canada and Argentina, which manufacture and sell metal food cans, aerosol cans, paint cans and decorative specialty cans.

Plastic packaging, Americas:  Consists of operations in the U.S., which manufacture and sell polyethylene terephthalate (PET) and polypropylene containers, primarily for use in beverage and food packaging. This segment also includes the manufacture and sale of plastic containers used for industrial and household products.

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



 
Page 6

 

Notes to Unaudited Condensed Consolidated Financial Statements
Ball Corporation and Subsidiaries

3.
Business Segment Information (continued)

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

Summary of Business by Segment
     
   
Three Months Ended
 
($ in millions)
 
March 29, 2009
   
March 30, 2008
 
Net Sales
           
Metal beverage packaging, Americas & Asia
  $ 620.4     $ 703.9  
Metal beverage packaging, Europe
    343.8       405.6  
Metal food & household products packaging, Americas
    283.6       263.8  
Plastic packaging, Americas
    159.7       188.9  
Aerospace & technologies
    178.1       178.0  
Net sales
  $ 1,585.6     $ 1,740.2  
                 
Net Earnings
               
Metal beverage packaging, Americas & Asia
  $ 46.2     $ 74.0  
Business consolidation costs (Note 4)
    (5.0 )      
Total metal beverage packaging, Americas & Asia
    41.2       74.0  
Metal beverage packaging, Europe
    30.9       48.0  
Metal food & household products packaging, Americas
    49.6       14.8  
Plastic packaging, Americas
    3.6       4.8  
Aerospace & technologies
    14.6       14.9  
Gain on sale of subsidiary (Note 5)
          7.1  
Total aerospace & technologies
    14.6       22.0  
Segment earnings before interest and taxes
    139.9       163.6  
Undistributed corporate expenses, net
    (13.7 )     (10.2 )
Earnings before interest and taxes
    126.2       153.4  
Interest expense
    (25.8 )     (36.2 )
Tax provision
    (28.1 )     (37.2 )
Equity in results of affiliates
    (2.7 )     3.9  
Less net earnings attributable to noncontrolling interests
    (0.1 )     (0.1 )
Net earnings attributable to Ball Corporation
  $ 69.5     $ 83.8  


($ in millions)
 
March 29, 2009
   
December 31, 2008
 
Total Assets
           
Metal beverage packaging, Americas & Asia
  $ 1,934.9     $ 1,873.0  
Metal beverage packaging, Europe
    2,361.5       2,434.5  
Metal food & household products packaging, Americas
    1,106.2       972.9  
Plastic packaging, Americas
    518.2       502.6  
Aerospace & technologies
    292.2       280.2  
Segment assets
    6,213.0       6,063.2  
Corporate assets, net of eliminations
    211.6       305.5  
Total assets
  $ 6,424.6     $ 6,368.7  


 
Page 7

 

Notes to Unaudited Condensed Consolidated Financial Statements
Ball Corporation and Subsidiaries

4.
Business Consolidation Costs

In the first quarter of 2009, the company ceased operations at the metal beverage container plant in Kansas City, Missouri, as announced in October 2008, and recorded an additional charge for accelerated depreciation of $5 million ($3.1 million after tax).

Since the fourth quarter of 2007, we have ceased operations or announced our intent to cease operations at eight manufacturing plants in North America as we align our packaging businesses with the current realities of market demand. The intent to cease operations at two of these plants was announced subsequent to the end of the first quarter of 2009, as described in further detail in Note 18. During that period we have recorded net business consolidation costs of $101.7 million ($65 million after tax) related to our operations that have ceased, including $45.6 million related to metal beverage packaging, Americas and Asia; $42.6 million related to metal food and household products packaging, Americas; $8.7 million related to plastic packaging, Americas; and $4.8 million related to corporate other costs. These charges consist of employee severance costs of $31.3 million; accelerated depreciation and the write down to net realizable value of certain fixed assets, related spare parts and tooling of $54.3 million; and lease cancellation and other business consolidation costs of $16.1 million.

Following is a summary of activity by segment related to business consolidation activities for the quarter ended March 29, 2009:

($ in millions)
 
Metal Beverage Packaging, Americas & Asia
   
Metal Food
& Household Products Packaging, Americas
   
Plastic Packaging, Americas
   
Corporate Other Costs
   
Total
 
                               
Balance at December 31, 2008
  $ 28.2     $ 11.1     $ 2.9     $ 4.8     $ 47.0  
Charges
    5.0                         5.0  
Cash payments
    (2.2 )     (2.0 )     (0.8 )           (5.0 )
Fixed asset disposals and transfer activity
    (5.5 )     0.1       (0.1 )     (0.3 )     (5.8 )
Balance at March 29, 2009
  $ 25.5     $ 9.2     $ 2.0     $ 4.5     $ 41.2  
                                         
Carrying value of assets held for sale at March 29, 2009
  $ 5.3     $ 1.9     $     $     $ 7.2  

All remaining reserves for business consolidation activities are expected to be utilized during the balance of 2009.

5.
 Sale of Subsidiary

On February 15, 2008, Ball Aerospace & Technologies Corp. (BATC) completed the sale of an Australian subsidiary for $10.5 million that resulted in a pretax gain of $7.1 million ($4.4 million after tax).

6.
Receivables

   
March 29,
   
December 31,
 
($ in millions)
 
2009
   
2008
 
             
Trade accounts receivable, net
  $ 634.3     $ 435.7  
Other receivables
    57.2       72.2  
    $ 691.5     $ 507.9  

Trade accounts receivable are shown net of an allowance for doubtful accounts of $11 million at March 29, 2009, and $12.8 million at December 31, 2008. Other receivables primarily include property and sales tax receivables and certain vendor rebate receivables.

 
Page 8

 

Notes to Unaudited Condensed Consolidated Financial Statements
Ball Corporation and Subsidiaries

6.
Receivables (continued)

A receivables sales agreement provides for the ongoing, revolving sale of a designated pool of trade accounts receivable of Ball’s North American packaging operations up to $250 million. The agreement qualifies as off-balance sheet financing under the provisions of SFAS No. 140, as amended by SFAS No. 156. Net funds received from the sale of the accounts receivable totaled $203.1 million at March 29, 2009, and $250 million at December 31, 2008, and are reflected as a reduction of accounts receivable.

7.
Inventories

 
($ in millions)
 
March 29,
2009
   
December 31,
2008
 
             
Raw materials and supplies
  $ 442.5     $ 461.4  
Work in process and finished goods
    640.7       512.8  
    $ 1,083.2     $ 974.2  

8.
Property, Plant and Equipment

 
($ in millions)
 
March 29,
2009
   
December 31,
2008
 
             
Land
  $ 87.3     $ 89.0  
Buildings
    790.2       798.5  
Machinery and equipment
    2,965.6       2,992.9  
Construction in progress
    163.2       151.2  
      4,006.3       4,031.6  
Accumulated depreciation
    (2,192.5 )     (2,164.7 )
    $ 1,813.8     $ 1,866.9  

Property, plant and equipment are stated at historical cost. Depreciation expense amounted to $62.6 million and $70.2 million for the three months ended March 29, 2009, and March 30, 2008, respectively.

9.
Goodwill

($ in millions)
 
Metal Beverage
Packaging, Americas & Asia
   
Metal
Beverage
Packaging, Europe
   
Metal Food & Household Products Packaging,
Americas
   
Plastic
Packaging,
Americas
   
Total
 
                               
Balance at December 31, 2008
  $ 310.0     $ 1,048.3     $ 353.6     $ 113.6     $ 1,825.5  
Effects of foreign currency exchange rates
          (48.0 )                 (48.0 )
Balance at March 29, 2009
  $ 310.0     $ 1,000.3     $ 353.6     $ 113.6     $ 1,777.5  

In accordance with SFAS No. 142, goodwill is not amortized but instead tested annually for impairment. There has been no goodwill impairment since the adoption of SFAS No. 142 on January 1, 2002.

 
Page 9

 

Notes to Unaudited Condensed Consolidated Financial Statements
Ball Corporation and Subsidiaries

10.
Intangibles and Other Assets

 
($ in millions)
 
March 29,
2009
   
December 31,
2008
 
             
Investments in affiliates
  $ 84.2     $ 83.9  
Intangible assets (net of accumulated amortization of $109.4 at March 29, 2009, and $108.2 at December 31, 2008)
     99.9        104.4  
Company-owned life insurance
    94.8       94.2  
Long-term deferred tax assets
    28.5       26.0  
Other
    62.3       63.5  
    $ 369.7     $ 372.0  

Total amortization expense of intangible assets amounted to $4.1 million and $4.4 million for the first three months of 2009 and 2008, respectively.

11.
Long-term Debt

Long-term debt consisted of the following:

   
March 29, 2009
   
December 31, 2008
 
 
(in millions)
 
In Local
Currency
   
In U.S. $
   
In Local
Currency
   
In U.S. $
 
                         
Notes Payable
                       
6.875% Senior Notes, due December 2012 (excluding premium of $1.6 in 2009 and $1.8 in 2008)
  $ 509.0     $ 509.0     $ 509.0     $ 509.0  
6.625% Senior Notes, due March 2018 (excluding discount of $0.7 in both 2009 and 2008)
  $ 450.0       450.0     $ 450.0       450.0  
Senior Credit Facilities, due October 2011 (at variable rates)
                               
Term A Loan, British sterling denominated
  £ 74.4       107.1     £ 74.4       109.5  
Term B Loan, euro denominated
  306.3       412.0     306.3       431.6  
Term C Loan, Canadian dollar denominated
  C$ 120.4       97.6     C$ 120.4       98.5  
Term D Loan, U.S. dollar denominated
  $ 437.5       437.5     $ 437.5       437.5  
U.S. dollar multi-currency revolver borrowings
  $ 237.0       237.0     $ 2.3       2.3  
Euro multi-currency revolver borrowings
  162.3       218.3     128.2       180.8  
British sterling multi-currency revolver borrowings
  £ 10.5       15.2     £ 10.5       15.5  
Industrial Development Revenue Bonds
                               
Floating rates due through 2015
  $ 9.4       9.4     $ 9.4       9.4  
Other
 
Various
      8.1    
Various
      10.4  
              2,501.2               2,254.5  
Less: Current portion of long-term debt
            (144.1 )             (147.4 )
            $ 2,357.1             $ 2,107.1  

As permitted the company’s long-term debt is not carried in the company’s financial statements at fair value. The fair value of the long-term debt was estimated at $2.4 billion as of March 29, 2009, as compared to its carrying value of $2.5 billion. 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.


 
Page 10

 

Notes to Unaudited Condensed Consolidated Financial Statements
Ball Corporation and Subsidiaries

11.
Long-term Debt (continued)

At March 29, 2009, the company had approximately $228 million available for borrowing under the multi-currency revolving credit facilities that provide for up to $735 million in U.S. dollar equivalent borrowings. The company also had short-term uncommitted credit facilities of up to $333 million at March 29, 2009, of which $158.1 million was outstanding and due on demand.

The notes payable are guaranteed on a full, unconditional and joint and several basis by certain of the company’s wholly owned domestic subsidiaries. The notes payable also contain certain covenants and restrictions including, among other things, limits on the incurrence of additional indebtedness and limits on the amount of restricted payments, such as dividends and share repurchases. Exhibit 20 contains unaudited condensed consolidating financial information for the company, segregating the guarantor subsidiaries and non-guarantor subsidiaries. Separate financial statements for the guarantor subsidiaries and the non-guarantor subsidiaries are not presented, because management has determined that such financial statements would not be material to investors.

The company was in compliance with all loan agreements at March 29, 2009, and all prior periods presented and has met all debt payment obligations. The U.S. note agreements, bank credit agreement and industrial development revenue bond agreements contain certain restrictions relating to dividend payments, share repurchases, investments, financial ratios, guarantees and the incurrence of additional indebtedness.

12.
Employee Benefit Obligations

 
($ in millions)
 
March 29,
2009
   
December 31,
2008
 
             
Total defined benefit pension liability
  $ 610.3     $ 622.3  
Less current portion
    (23.6 )     (26.3 )
Long-term defined benefit pension liability
    586.7       596.0  
Retiree medical and other postemployment benefits
    177.5       178.4  
Deferred compensation plans
    168.2       176.3  
Other
    17.5       30.7  
    $ 949.9     $ 981.4  

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

   
Three Months Ended
 
   
March 29, 2009
   
March 30, 2008
 
($ in millions)
 
U.S.
   
Foreign
   
Total
   
U.S.
   
Foreign
   
Total
 
                                     
Service cost
  $ 10.5     $ 1.4     $ 11.9     $ 10.7     $ 2.3     $ 13.0  
Interest cost
    13.4       7.1       20.5       12.7       8.6       21.3  
Expected return on plan assets
    (16.0 )     (3.2 )     (19.2 )     (16.0 )     (4.8 )     (20.8 )
Amortization of prior service cost
    0.2       (0.1 )     0.1       0.3       (0.1 )     0.2  
Recognized net actuarial loss
    3.1       0.8       3.9       2.6       1.0       3.6  
Subtotal
    11.2       6.0       17.2       10.3       7.0       17.3  
Non-company sponsored plans
    0.4             0.4       0.3             0.3  
Net periodic benefit cost
  $ 11.6     $ 6.0     $ 17.6     $ 10.6     $ 7.0     $ 17.6  

Contributions to the company’s defined global benefit pension plans, not including the unfunded German plans, were $4.6 million in the first three months of 2009 ($6.3 million in 2008). The total contributions to these funded plans are expected to be in the range of $75 million to $85 million in 2009. Payments to participants in the unfunded German plans were €4.3 million ($5.6 million) in the first three months of 2009 and are expected to be approximately €18 million (approximately $23 million) for the full year.

 
Page 11

 


Notes to Unaudited Condensed Consolidated Financial Statements
Ball Corporation and Subsidiaries

12.
Employee Benefit Obligations (continued)

As reported in the company’s 2008 annual report, a reduction of the assumed expected return on pension assets by one quarter of a percentage point would result in an approximate $2.4 million increase in the 2009 pension expense, while a quarter of a percentage point reduction in the discount rate applied to the pension liability would result in an estimated $2.8 million of additional pension expense in 2009.

13.
Shareholders’ Equity and Comprehensive Earnings
 
Accumulated Other Comprehensive Earnings (Loss)

Accumulated other comprehensive earnings (loss) include the cumulative effect of foreign currency translation, pension and other postretirement items and realized and unrealized gains and losses on derivative instruments receiving cash flow hedge accounting treatment.

($ in millions)
 
Foreign
Currency
Translation
   
Pension and Other Postretirement Items
(net of tax)
   
Effective
Financial
Derivatives
(net of tax)
   
Accumulated
Other
Comprehensive
Earnings (Loss)
 
                         
December 31, 2008
  $ 173.6     $ (251.8 )   $ (104.3 )   $ (182.5 )
Change
    (47.7 )     2.4       (4.2 )(a)     (49.5 )
March 29, 2009
  $ 125.9     $ (249.4 )   $ (108.5 )   $ (232.0 )
 
(a)
Change in accumulated other comprehensive earnings (loss) for effective financial derivatives during the three month period ended March 29, 2009, is as follows:
Change in accumulated other comprehensive earnings (loss) for hedges:
     
Losses recognized in earnings (Note 15):
     
Commodity contracts
  $ 13.0  
Interest rate and other contracts
    1.6  
Change in fair value of cash flow hedges:
       
Commodity contracts
    (18.4 )
Interest rate and other contracts
    (2.2 )
Foreign currency and tax impacts
    1.8  
    $ (4.2 )

Comprehensive Earnings

   
Three Months Ended
 
($ in millions)
 
March 29, 2009
   
March 30, 2008
 
             
Net earnings attributable to Ball Corporation
  $ 69.5     $ 83.8  
Foreign currency translation adjustment
    (47.7 )     86.3  
Pension and other postretirement items
    2.4       2.0  
Effect of derivative instruments
    (4.2 )     41.2  
Comprehensive earnings
  $ 20.0     $ 213.3  


 
Page 12

 

Notes to Unaudited Condensed Consolidated Financial Statements
Ball Corporation and Subsidiaries
 
13.
Shareholders’ Equity and Comprehensive Earnings (continued)

Stock-Based Compensation Programs

The company has shareholder-approved stock option plans under which options to purchase shares of Ball common stock have been granted to officers and employees at the market value of the stock at the date of grant. Payment must be made at the time of exercise in cash or with shares of stock owned by the option holder, which are valued at fair market value on the date exercised. In general, options vest in four equal one-year installments commencing one year from the date of grant and terminating 10 years from the date of grant. A summary of stock option activity for the three months ended March 29, 2009, follows:

   
Outstanding Options
   
Nonvested Options
 
   
Number of Shares
   
Weighted Average Exercise Price
   
Number of Shares
   
Weighted Average Grant Date Fair Value
 
                         
Beginning of year
    5,227,647     $ 35.72       1,927,197     $ 11.78  
Granted
    1,236,300       40.08       1,236,300       10.65  
Vested
                    (875 )     13.08  
Exercised
    (39,730 )     18.34                  
Canceled/forfeited
    (23,263 )     47.40       (23,263 )     11.61  
End of period
    6,400,954       36.63       3,139,359       11.34  
                                 
Vested and exercisable, end of period
    3,261,595       28.38                  
Reserved for future grants
    2,240,214                          

The options granted in January 2009 included 740,584 stock-settled stock appreciation rights, which have the same terms as the stock options. The weighted average remaining contractual term for all options outstanding at March 29, 2009, was 6.6 years and the aggregate intrinsic value (difference in exercise price and closing price at that date) was $43.2 million. The weighted average remaining contractual term for options vested and exercisable at March 29, 2009, was 4.3 years and the aggregate intrinsic value was $48.9 million. The company received $0.7 million from options exercised during the three months ended March 29, 2009. The intrinsic value associated with these exercises was $0.9 million, and the associated tax benefit of $0.3 million was reported as other financing activities in the unaudited condensed consolidated statement of cash flows.

Based on the Black-Scholes option pricing model, adapted for use in valuing compensatory stock options in accordance with SFAS No. 123 (revised 2004), options granted in January 2009 have an estimated weighted average fair value at the date of grant of $10.65 per share. The actual value an employee may realize will depend on the excess of the stock price over the exercise price on the date the option is exercised. Consequently, there is no assurance that the value realized by an employee will be at or near the value estimated. The fair values were estimated using the following weighted average assumptions:

 
Expected dividend yield
 
1.00%
 
Expected stock price volatility
 
29.83%
 
Risk-free interest rate
 
1.74%
 
Expected life of options
 
5.25 years


 
Page 13

 

Notes to Unaudited Condensed Consolidated Financial Statements
Ball Corporation and Subsidiaries
 
13.
Shareholders’ Equity and Comprehensive Earnings (continued)

In addition to stock options, the company may issue to officers and certain employees restricted shares and restricted stock units, which vest over various periods. Other than the performance-contingent grants discussed below, such restricted shares and restricted stock units generally vest in equal installments over five years. Compensation cost is recorded based upon the fair value of the shares at the grant date.

To encourage certain senior management employees and outside directors to invest in Ball stock, Ball adopted a deposit share program in March 2001 (subsequently amended and restated in April 2004) that matches purchased shares with restricted shares. In general, restrictions on the matching shares lapse at the end of four years from date of grant, or earlier in stages if established share ownership guidelines are met, assuming the relevant qualifying purchased shares are not sold or transferred prior to that time. Grants under the plan are accounted for as equity awards and compensation expense is recorded based upon the closing market price of the shares at the grant date.

In January 2009 and April 2008, the company’s board of directors granted 193,450 and 246,650 performance-contingent restricted stock units, respectively, to key employees, which will cliff-vest if the company’s return on average invested capital during a 36-month performance period is equal to or exceeds the company’s cost of capital. If the performance goals are not met, the shares will be forfeited. Current assumptions are that the performance targets will be met and, accordingly, grants under the plan are being accounted for as equity awards and compensation expense is recorded based upon the closing market price of the shares at the grant date. On a quarterly basis, the company reassesses the probability of the goals being met and adjusts compensation expense as appropriate. No such adjustment was considered necessary at the end of the first quarter 2009 for either grant.

For the three months ended March 29, 2009, the company recognized in selling, general and administrative expenses pretax expense of $6.3 million ($3.8 million after tax) for share-based compensation arrangements, which represented $0.04 per both basic and diluted share. For the three months ended March 30, 2008, the company recognized pretax expense of $4.2 million ($2.6 million after tax) for such arrangements, which represented $0.03 per both basic and diluted share for that period. At March 29, 2009, there was $52.6 million of total unrecognized compensation costs related to nonvested share-based compensation arrangements. This cost is expected to be recognized in earnings over a weighted average period of 2.7 years.

Stock Repurchase Agreements

For the first quarter of 2009, we did not enter into any share repurchase agreements, as we focused our efforts on growing cash balances and reducing our debt level. Net share repurchases in the first quarter of 2008 included a $31 million settlement on January 7, 2008, of a forward contract entered into in December 2007 for the repurchase of 675,000 shares.

Net share repurchases in 2008 also included the settlement of an accelerated share repurchase agreement entered into in December 2007 to buy $100 million of the company’s common shares. Ball advanced the $100 million on January 7, 2008, and received 2,038,657 shares, which represented 90 percent of the total shares as calculated using the previous day’s closing price. The agreement was settled on July 11, 2008, and the company received an additional 138,521 shares.


 
Page 14

 

Notes to Unaudited Condensed Consolidated Financial Statements
Ball Corporation and Subsidiaries
 
14.
Earnings Per Share

   
Three Months Ended
 
($ in millions, except per share amounts; shares in thousands)
 
March 29, 2009
   
March 30, 2008
 
             
Diluted Earnings per Share:
           
Net earnings attributable to Ball Corporation
  $ 69.5     $ 83.8  
                 
Weighted average common shares
    93,544       97,199  
Effect of dilutive securities
    1,129       1,390  
Weighted average shares applicable to diluted earnings per share
    94,673       98,589  
                 
Diluted earnings per share
  $ 0.73     $ 0.85  

Information needed to compute basic earnings per share is provided in the unaudited condensed consolidated statements of earnings.

The following outstanding options were excluded from the diluted earnings per share calculation because they were anti-dilutive (i.e., the sum of the proceeds, including the unrecognized compensation, exceeded the average closing stock price for the period):

   
Three Months Ended
Option Price:
 
March 29, 2009
 
March 30, 2008
         
$ 40.08
 
 1,152,835
 
 −
$ 43.69
 
 780,520
 
 739,500
$ 49.32
 
 899,029
 
 923,050
$ 50.11
 
 861,600
 
 −
   
 3,693,984
 
 1,662,550

15.
Financial Instruments and Risk Management

In the ordinary course of business, we employ established risk management policies and procedures, which seek to reduce our exposure to fluctuations in commodity prices, interest rates, foreign currencies and prices of the company’s common stock in regard to common share repurchases, although there can be no assurance that these policies and procedures will be successful. Even though the instruments utilized involve varying degrees of credit, market and interest risk, the counterparties to the agreements are expected to perform fully under the terms of the agreements. The company monitors counterparty credit risk, including lenders, on a regular basis, but we cannot be certain that all risks will be discerned or that its risk management policies and procedures will always be effective.

Collateral Calls

Balls agreements with our financial counterparties require Ball to post collateral in certain circumstances when the negative mark-to-market value of the contracts exceeds specified levels. Additionally, Ball has similar collateral posting arrangements with certain customers and financial counterparties on these derivative contracts. The cash flows of the posted collateral calls are shown within the investing section of our unaudited condensed consolidated statements of cash flows. As of March 29, 2009, the aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position is $340.9 million for which the company had posted $181.9 million. Our cash collateral postings have been offset by cash collateral receipts from our customers of $98.1 million, resulting in net cash collateral postings of $83.8 million at March 29, 2009 ($105.5 million at December 31, 2008). The majority of these contracts settle during 2009. If the company’s public credit rating was downgraded, there would be no impact to our net cash collateral postings as of March 29, 2009.

 
Page 15

 

Notes to Unaudited Condensed Consolidated Financial Statements
Ball Corporation and Subsidiaries

15.
Financial Instruments and Risk Management (continued)

Commodity Price Risk

We manage our North American commodity price risk in connection with market price fluctuations of aluminum ingot primarily by entering into container sales contracts that include aluminum ingot-based pricing terms that generally reflect price fluctuations under our commercial supply contracts for aluminum sheet purchases. The terms include fixed, floating or pass-through aluminum ingot component pricing. This matched pricing affects most of our North American metal beverage packaging net sales. We also, at times, use certain derivative instruments such as option and forward contracts as cash flow hedges of commodity price risk where there is not a pass-through arrangement in the sales contract so as to match underlying purchase volumes and pricing with sales volumes and pricing.

In Europe and the PRC, the company manages the aluminum and steel raw material commodity price risks through annual and long-term contracts for the purchase of the materials, as well as certain sales of containers that reduce the companys exposure to fluctuations in commodity prices within the current year. These purchase and sales contracts include fixed price, floating and pass-through pricing arrangements. We also use forward and option contracts as cash flow hedges to manage future aluminum price risk and foreign exchange exposures to match underlying purchase volumes and pricing with sales volumes and pricing for those sales contracts where there is not a pass-through arrangement to minimize the company’s exposure to significant price changes.

The company had aluminum contracts limiting its exposure with notional amounts of approximately $1.3 billion and $1.4 billion at March 29, 2009, and December 31, 2008, respectively. The aluminum contracts include derivative instruments for which the company elects mark-to-market accounting, as well as cash flow hedges that offset sales contracts of various terms and lengths. Cash flow hedges related to forecasted transactions and firm commitments expire within the next four years. Included in shareholders’ equity at March 29, 2009, within accumulated other comprehensive earnings (loss) is a net after-tax loss of $104 million associated with these contracts. A net loss of $71 million is expected to be recognized in the consolidated statement of earnings during the next 12 months, the majority of which will be passed through to customers with higher prices under our sales contracts resulting in little or no earnings impact to Ball.
 
Most of the plastic packaging, Americas, sales contracts include provisions to fully pass through resin cost changes. As a result, we believe we have minimal exposure related to changes in the cost of plastic resin. Most metal food and household products packaging, Americas, sales contracts either include provisions permitting us to pass through some or all steel cost changes we incur, or they incorporate annually negotiated steel costs. In 2008 and thus far in 2009, we were able to pass through to our customers the majority of steel cost increases. We anticipate at this time that we will be able to pass through virtually all of the steel price increases that occur over the next 12 months.

In our packaging businesses, we generally have the ability to pass through commodity price increases; however, we retain the inventory holding impact on the pass-through between the time the commodity is purchased and sold. The impact from holding the inventory will increase when there is significant movement in the pricing of the commodity, which occurred during the first quarter of 2009.

Interest Rate and Inflation Risk

Our objective in managing our exposure to interest rate changes is to minimize the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, we use a variety of interest rate swaps, collars and options to manage our mix of floating and fixed-rate debt. Interest rate instruments held by the company at March 29, 2009, included pay-fixed interest rate swaps and interest rate collars. Pay-fixed swaps effectively convert variable rate obligations to fixed rate instruments. Collars create an upper and lower threshold within which interest rates will fluctuate.
 
At March 29, 2009, the company had outstanding interest rate swap agreements in Europe with notional amounts of €135 million paying fixed rates and expiring within the next two years. An approximate $7 million net after-tax loss associated with these contracts is included in accumulated other comprehensive earnings (loss) at March 29, 2009, of which $4 million is expected to be recognized in the consolidated statement of earnings during the next 12 months.


 
Page 16

 


Notes to Unaudited Condensed Consolidated Financial Statements
Ball Corporation and Subsidiaries

15.
Financial Instruments and Risk Management (continued)

At March 29, 2009, the company had outstanding interest rate collars in the U.S. totaling $150 million. The value of these contracts in accumulated other comprehensive earnings (loss) at March 29, 2009, was a loss of approximately $2 million, which is all expected to be recognized in the consolidated statement of earnings during the next 12 months. Approximately $3 million of net gain related to the termination or deselection of hedges is included in accumulated other comprehensive earnings (loss) at March 29, 2009. The amount recognized thus far in 2009 earnings related to terminated hedges was insignificant.

We also use European inflation option contracts to limit the impacts from spikes in inflation against certain multi-year contracts. At March 29, 2009, the company had inflation options in Europe with notional amounts of €115 million. The company uses mark-to-market accounting for these options, and the fair value at March 29, 2009, was €1.8 million. The contracts expire within the next four years.

Foreign Currency Exchange Rate Risk

At March 29, 2009, the company had outstanding foreign currency agreements with notional amounts of $283 million expiring within four years.  Our objective in managing exposure to foreign currency fluctuations is to protect significant foreign cash flows and earnings from changes associated with foreign currency exchange rate fluctuations through the use of various derivative contracts. In addition we manage foreign earnings translation volatility through the use of various foreign currency option strategies, and the change in the fair value of those options is recorded in the company’s quarterly earnings. Our foreign currency translation risk results from the European euro, British pound, Canadian dollar, Polish zloty, Chinese renminbi, Hong Kong dollar, Brazilian real, Argentine peso and Serbian dinar. We face currency exposures in our global operations as a result of purchasing raw materials in U.S. dollars and, to a lesser extent, in other currencies. Sales contracts are negotiated with customers to reflect cost changes and, where there is not a foreign exchange pass-through arrangement, the company uses forward and option contracts to manage foreign currency exposures. We additionally use various option strategies to manage the earnings translation of the company’s European operations into U.S. dollars.  The amounts included in accumulated other comprehensive earnings (loss) related to these contracts were not significant.

Impact from Derivative Instruments on Earnings for the Three Months Ended March 29, 2009
 

($ in millions)
 
Accumulated other comprehensive losses recognized in earnings (Note 13)
   
Gain (loss) from instruments not designated as hedges recognized in the statement of earnings
   
Total
 
                   
Commodity contracts
  $ (13.0 ) (a)   $ (0.6 )   $ (13.6 )
Interest rate contracts/expense
    (1.6 )           (1.6 )
Other contracts
          6.7 (b)     6.7  
 Total
  $ (14.6 )   $ 6.1     $ (8.5 )

 
(a)
These losses are primarily recorded in costs of sales in the unaudited condensed consolidated statement of earnings and virtually all were passed through to our customers, resulting in no significant impact to earnings.
(b)
These gains are primarily recorded in selling, general and administrative expenses in the unaudited condensed consolidated statement of earnings.