Ball Reports Improved First Quarter 2017 Results

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

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)

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 (a)

(680)

(561)

Cash provided by (used in) operating activities

(398)

(386)

Cash Flows from Investing Activities:

Capital expenditures

(125)

(138)

Business acquisitions and dispositions, net

31

(36)

Other, net

3

(11)

Cash provided by (used in) investing activities

(91)

(185)

Cash Flows from Financing Activities:

Changes in borrowings, net

408

704

Net issuances (purchases) of common stock

(4)

(91)

Dividends

(23)

(19)

Other, net

(1)

(22)

Cash provided by (used in) financing activities

380

572

Effect of currency exchange rate changes on cash

(30)

(20)

Change in cash

(139)

(19)

Cash - beginning of period

597

224

Cash - end of period

$

458

$

205

(a)

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

Unaudited Condensed Consolidated Balance Sheets

March 31,

($ in millions)

2017

2016

Assets

Current assets

Cash and cash equivalents

$

458

$

205

Receivables, net

1,695

1,022

Inventories, net

1,554

956

Other current assets

200

140

Total current assets

3,907

2,323

Property, plant and equipment, net

4,403

2,730

Goodwill

5,152

2,251

Restricted cash

-

2,099

Intangible assets, net

1,917

200

Other assets

1,265

456

Total assets

$

16,644

$

10,059

Liabilities and Shareholders' Equity

Current liabilities

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

$

497

$

391

Payables and other accrued liabilities

2,521

1,841

Total current liabilities

3,018

2,232

Long-term debt

7,476

5,408

Other long-term liabilities

2,427

1,341

Shareholders' equity

3,723

1,078

Total liabilities and shareholders' equity

$

16,644

$

10,059

1. 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 the provision of 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 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.

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

Other (a)

(31)

(31)

    Comparable operating earnings

239

157

Reconciling items

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

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 of $45 million for the first quarter 2017 and $22 million for the first quarter of 2016.

2. Non-Comparable Items

Three Months Ended March 31,

($ in millions)

2017

2016

Non-comparable items - income (expense)

Beverage packaging, North and Central America

Business consolidation and other activities

Reidsville facility closure costs (1)

$

(3)

$

-

Individually insignificant items

(1)

(3)

Other non-comparable items

Amortization of acquired Rexam intangibles (2)

(6)

-

Total beverage packaging, North and Central America

(10)

(3)

Beverage packaging, South America

Business consolidation and other activities

Individually insignificant items

3

Other non-comparable items

Amortization of acquired Rexam intangibles (2)

(9)

-

Total beverage packaging, South America

(6)

-

Beverage packaging, Europe

Business consolidation and other activities

Rexam transaction related costs (3)

(2)

(4)

Individually insignificant items

(1)

-

Other non-comparable items

Amortization of acquired Rexam intangibles (2)

(15)

-

Total beverage packaging, Europe

(18)

(4)

Food and aerosol packaging

Weirton facility closure costs (4)

(3)

(9)

Gain on sale of Hubbard facility (5)

15

-

Individually insignificant items

(2)

(5)

Total food and aerosol packaging

10

(14)

Other

Business consolidation and other activities

Divestment Business indemnities (6)

(27)

-

Gain (loss) on sale of the Divestment Business (7)

(14)

-

Rexam acquisition related compensation arrangements (9)

(9)

-

Rexam transaction related costs (3)

(5)

(24)

Currency exchange gain (loss) for restricted cash, intercompany loans and 2020, 2023 euro senior notes (8)

-

(96)

Economic hedge - currency exchange rate risk (3)

-

(88)

Cross-currency swap (10)

-

(36)

Individually insignificant items

(6)

(2)

Other non-comparable items

Amortization of acquired Rexam intangibles (2)

(2)

-

Total other

(63)

(246)

Total business consolidation and other activities

(55)

(267)

Total other non-comparable items

(32)

-

Total non-comparable items

(87)

(267)

Tax effect on business consolidation and other activities

10

96

Tax effect on other non-comparable items

9

-

Individually insignificant items

-

(2)

Total tax effect

19

94

Total non-comparable items, net of tax

$

(68)

$

(173)

Debt Refinancing and Other Costs

Interest expense on 3.5% and 4.375% senior notes (11)

$

-

$

(25)

Economic hedge - interest rate risk (3)

-

(16)

Refinancing of bridge and revolving credit facilities (12)

-

(13)

Amortization of unsecured, committed bridge facility financing fees (13)

-

(7)

Total debt refinancing and other costs

-

(61)

Tax effect on debt refinancing and other costs

-

21

Total debt refinancing and other costs, net of tax

$

-

$

(40)

(1)

In December 2016, the company announced the planned closure of its beverage packaging facility in Reidsville, North Carolina, which is expected to cease production in the middle of 2017. The charges in the first quarter of 2017 were composed of employee severance and accelerated depreciation. 

(2)

During the first quarter of 2017, the company recorded amortization expense for customer relationships and other intangible assets identified as part of the June 30, 2016, Rexam acquisition.

(3)

During the first quarter of 2017 and 2016, the company recorded charges for professional services and other costs associated with the June 30, 2016, acquisition of Rexam.

Also during the first quarter of 2016, the company recorded gains and losses associated with financial instruments purchased to reduce its currency exchange rate exposure associated with the British pound denominated cash portion of the Rexam acquisition purchase price and purchased derivative financial instruments to mitigate its exposure to interest rate changes associated with anticipated debt issuances to pay the cash portion of the Rexam acquisition purchase price.

(4)

During the first quarter of 2016, the company announced the closure of its food and aerosol packaging flat sheet production and end-making facility in Weirton, West Virginia, which ceased production during the first quarter of 2017. Charges during the first quarter of 2017 and 2016 were composed of facility shutdown costs and accelerated depreciation.

(5)

During the first quarter of 2017, the company sold its food and aerosol packaging paint and general line can plant in Hubbard, Ohio, and recognized a gain associated with the sale of the plant.

(6)

In connection with 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. During the three months ended March 31, 2017, the company recorded $27 million in business consolidation and other costs for an increase in the estimated amount of the claims covered by the indemnifications, as a result of a tax audit in Germany and settlement discussions entered into with the German tax authorities in April.

(7)

The sale of the Divestment Business was completed immediately after the Rexam acquisition on June 30, 2016, for $3.42 billion, subject to customary closing adjustments. The company expects to complete the purchase accounting for Rexam as of June 30, 2017. During the first quarter of 2017, a reduction in the gain on sale of $14 million was recognized in connection with changes in the estimated closing adjustments associated with the sale of the Ball portion of the Divestment Business.

(8)

During the first quarter of 2016, the company recorded net foreign currency exchange losses from the revaluation of foreign currency denominated restricted cash, and intercompany loans related to the cash component of the Rexam acquisition purchase price and the revaluation of euro-denominated debt.

(9)

During the first quarter of 2017, the company incurred ongoing charges for long term incentive and other compensation arrangements associated with the Rexam acquisition.

(10)

In connection with the issuance of $1 billion of U.S. dollar senior notes due 2020, the company executed cross-currency swaps during the first quarter of 2016 to convert the fixed-rate U.S. dollar debt issuance to fixed-rate euro debt for the life of the notes to more effectively match the future cash flows of our business.

(11)

During the first quarter of 2016, the company recorded interest expense associated with the $1 billion of 4.375 percent senior notes and €400 million of 3.5 percent senior notes, both due in December 2020, and €700 million of 4.375 percent senior notes, due in December 2023. In July 2016 Ball used the net proceeds to fund a portion of the cash component of the purchase price in connection with the acquisition of Rexam.

(12)

In March 2016, the company entered into a new $4.1 billion senior secured credit facility which includes a multicurrency revolving facility, a Term A U.S. dollar loan and a Term A euro loan all maturing in 2021. Ball used the net proceeds from the Term A U.S. dollar loan and the Term A euro loan to fund a portion of the cash component of the proposed Rexam acquisition purchase price.

(13)

During the first quarter of 2016, the company recorded charges for the amortization of deferred financing costs associated with the committed bridge facility entered into in connection with the Rexam acquisition. 

3. Non-U.S. GAAP Measures

Non-U.S. GAAP Measures - Non-U.S. GAAP measures should not be considered in isolation. They should not be considered superior to, or a substitute for, financial measures calculated in accordance with U.S. GAAP and may not be comparable to similarly titled measures of other companies. Presentations of earnings and cash flows presented in accordance with U.S. GAAP are available in the company's earnings releases and quarterly and annual regulatory filings.

Comparable Operating Earnings and Comparable Net Earnings - Comparable Operating Earnings is earnings before interest, taxes and business consolidation and other non-comparable costs, and Comparable Net Earnings is earnings before business consolidation costs and other non-comparable costs after-tax. We use Comparable earnings before interest, taxes, depreciation and amortization (EBITDA), Comparable Operating Earnings and Comparable Net Earnings internally to evaluate the company's operating performance.

A summary of the effects of the above transactions on after-tax earnings is as follows:

Three Months Ended

March 31,

($ in millions, except per share amounts)

2017

2016

Net earnings (loss) attributable to Ball Corporation

$

68

$

(127)

Add: Business consolidation and other activities

55

267

Add: Amortization of acquired Rexam intangibles

32

-

Add: Debt refinancing and other costs

-

61

Add: Tax effect on above items

(19)

(115)

Net earnings attributable to Ball Corporation before above transactions (Comparable Net Earnings)

$

136

$

86

Per diluted share before above transactions

$

0.76

$

0.59

(a)

(a)

The company reported a U.S. GAAP net loss in the first three months of 2016 and, as a result, all potentially issuable securities were excluded in the diluted earnings per share calculation as their effect would have been anti-dilutive. Had the securities been included, weighted average shares applicable to diluted earnings per share would have been 145,100.  Comparable net earnings for the first three months of 2016 was positive; therefore, 145,100 weighted average shares were used to calculate diluted earnings per share for comparable net earnings.

A summary of the effects of the above transactions on earnings before interest and taxes is as follows:

Three Months Ended

March 31,

($ in millions)

2017

2016

Net earnings (loss) attributable to Ball Corporation

$

68

$

(127)

Add: Net earnings attributable to noncontrolling interests

2

-

Net earnings (loss)

70

(127)

Less: Equity in results of affiliates, net of tax

(8)

1

Add: Tax provision (benefit)

22

(83)

Earnings (loss) before taxes

84

(209)

Add: Total interest expense

68

99

Earnings (loss) before interest and taxes

152

(110)

Add: Business consolidation and other activities

55

267

Add: Amortization of acquired Rexam intangibles

32

-

   EBIT before above transactions (Comparable Operating Earnings)

$

239

$

157

4. Subsequent Event

On April 26, 2017, the company's board of directors declared a two-for-one split of Ball Corporation's common stock. The stock split will be effective May 16, 2017, for shareholders of record on May 8, 2017. Amounts in this earnings release have not been adjusted to reflect this announced stock split.