Ball Reports Improved Third Quarter 2017 Operating Results; Reaffirms Long-Term Goals

Condensed Financial Statements (Third Quarter 2017)

Unaudited Condensed Consolidated Statements of Earnings

Three Months Ended

Nine Months Ended

September 30,

September 30,

($ in millions, except per share amounts)

2017

2016

2017

2016

Net sales

$

2,908

$

2,752

$

8,236

$

6,537

Costs and expenses

Cost of sales (excluding depreciation and amortization)

(2,338)

(2,275)

(6,583)

(5,288)

Depreciation and amortization

(162)

(147)

(539)

(299)

Selling, general and administrative

(127)

(135)

(398)

(348)

Business consolidation and other activities

(157)

(63)

(253)

(302)

(2,784)

(2,620)

(7,773)

(6,237)

Earnings before interest and taxes

124

132

463

300

Interest expense

(74)

(80)

(216)

(159)

Debt refinancing and other costs

-

(2)

(1)

(108)

Total interest expense

(74)

(82)

(217)

(267)

Earnings before taxes

50

50

246

33

Tax (provision) benefit

(4)

(23)

(48)

174

Equity in results of affiliates, net of tax

5

7

23

6

Net earnings

51

34

221

213

Net earnings attributable to noncontrolling interests

(3)

(3)

(6)

(3)

Net earnings attributable to Ball Corporation

$

48

$

31

$

215

$

210

Earnings per share (a):

Basic

$

0.14

$

0.09

$

0.61

$

0.69

Diluted

$

0.13

$

0.09

$

0.60

$

0.67

Weighted average shares outstanding (000s) (a):

Basic

350,327

349,128

350,481

305,756

Diluted

358,556

355,404

358,492

312,176

(a)

Amounts in 2016 have been retrospectively adjusted for the two-for-one stock split that was effective on May 16, 2017.

Unaudited Condensed Consolidated Statements of Cash Flows

Nine Months Ended

September 30,

($ in millions)

2017

2016

Cash Flows from Operating Activities:

Net earnings

$

221

$

213

Depreciation and amortization

539

299

Business consolidation and other activities

253

302

Deferred tax provision (benefit)

-

(165)

Other, net

(229)

78

Changes in working capital (a)

(37)

(1,160)

Cash provided by (used in) operating activities

747

(433)

Cash Flows from Investing Activities:

Capital expenditures

(404)

(398)

Business acquisitions

-

(3,379)

Business dispositions

31

2,941

(Increase) decrease in restricted cash

-

1,966

Settlement of Rexam acquisition related derivatives

-

(252)

Other, net

3

2

Cash provided by (used in) investing activities

(370)

880

Cash Flows from Financing Activities:

Changes in borrowings, net

(249)

178

Net issuances (purchases) of common stock

(85)

(60)

Dividends

(93)

(60)

Other, net

(2)

(15)

Cash provided by (used in) financing activities

(429)

43

Effect of currency exchange rate changes on cash

11

(69)

Change in cash

(41)

421

Cash - beginning of period

597

224

Cash - end of period

$

556

$

645

(a)

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

Unaudited Condensed Consolidated Balance Sheets

September 30,

($ in millions)

2017

2016

Assets

Current assets

Cash and cash equivalents

$

556

$

645

Receivables, net

1,793

1,799

Inventories, net

1,433

1,418

Other current assets

148

253

Total current assets

3,930

4,115

Property, plant and equipment, net

4,525

4,440

Goodwill

4,908

5,211

Intangible assets, net

2,490

2,046

Other assets

1,140

1,228

Total assets

$

16,993

$

17,040

Liabilities and Shareholders' Equity

Current liabilities

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

$

452

$

373

Payables and other accrued liabilities

3,313

2,548

Total current liabilities

3,765

2,921

Long-term debt

7,104

7,724

Other long-term liabilities

2,486

2,575

Shareholders' equity

3,638

3,820

Total liabilities and shareholders' equity

$

16,993

$

17,040

Notes to the Condensed Financial Statements (Second Quarter 2017)

1. Business Segment Information

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 Africa, Middle East and Asia (AMEA) and Asia Pacific 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

Nine Months Ended

September 30,

September 30,

($ in millions)

2017

2016

2017

2016

Net sales

Beverage packaging, North and Central America

$

1,080

$

1,076

$

3,180

$

2,653

Beverage packaging, South America

425

318

1,145

577

Beverage packaging, Europe

651

624

1,824

1,459

Food and aerosol packaging

321

329

867

911

Aerospace

241

204

734

577

Reportable segment sales

2,718

2,551

7,750

6,177

Other

190

201

486

360

Net sales

$

2,908

$

2,752

$

8,236

$

6,537

Comparable operating earnings

Beverage packaging, North and Central America

$

121

$

145

$

400

$

356

Beverage packaging, South America

78

60

205

100

Beverage packaging, Europe

74

72

184

184

Food and aerosol packaging

30

31

76

84

Aerospace

23

24

70

61

Reportable segment comparable operating earnings

326

332

935

785

Other (a)

(13)

(21)

(65)

(67)

    Comparable operating earnings

313

311

870

718

Reconciling items

Business consolidation and other activities

(157)

(63)

(253)

(302)

Amortization of acquired Rexam intangibles

(37)

(33)

(120)

(33)

Catch-up depreciation and amortization for 2016 from finalization of Rexam valuation

5

-

(34)

-

Cost of sales associated with Rexam inventory step-up

-

(83)

-

(83)

Earnings before interest and taxes

124

132

463

300

Interest expense

(74)

(80)

(216)

(159)

Debt refinancing and other costs

-

(2)

(1)

(108)

Total interest expense

(74)

(82)

(217)

(267)

Earnings before taxes

50

50

246

33

Tax (provision) benefit

(4)

(23)

(48)

174

Equity in results of affiliates

5

7

23

6

Net earnings

51

34

221

213

Net earnings attributable to noncontrolling interests

(3)

(3)

(6)

(3)

Net earnings attributable to Ball Corporation

$

48

$

31

$

215

$

210

2. Non-Comparable Items

Three Months Ended September 30,

Nine Months Ended September 30,

($ in millions)

2017

2016

2017

2016

Non-comparable items - income (expense)

Beverage packaging, North and Central America

Business consolidation and other activities

Birmingham, Chatsworth and Longview facility closure costs (1)

$

(33)

$

-

$

(33)

$

-

Reidsville facility closure costs (2)

-

-

(7)

-

Bristol facility closure costs (3)

-

(3)

(1)

(4)

Rexam transaction related costs (4)

-

(2)

(1)

(3)

Individually insignificant items

(1)

(1)

(3)

(5)

Other non-comparable items

Cost of sales associated with Rexam inventory step-up (5)

-

(10)

-

(10)

Amortization of acquired Rexam intangibles (6)

(7)

(6)

(23)

(6)

Catch-up depreciation and amortization for 2016 from finalization of Rexam valuation (7)

-

-

(6)

-

Total beverage packaging, North and Central America

(41)

(22)

(74)

(28)

Beverage packaging, South America

Business consolidation and other activities

Rexam transaction related costs (4)

-

(2)

(2)

(11)

Individually insignificant items

(4)

(4)

(2)

(4)

Other non-comparable items

Cost of sales associated with Rexam inventory step-up (5)

-

(20)

-

(20)

Amortization of acquired Rexam intangibles (6)

(13)

(9)

(42)

(9)

Catch-up depreciation and amortization for 2016 from finalization of Rexam valuation (7)

-

-

(14)

-

Total beverage packaging, South America

(17)

(35)

(60)

(44)

Beverage packaging, Europe

Business consolidation and other activities

Recklinghausen closure costs (8)

(62)

-

(62)

-

Rexam transaction related costs (4)

-

-

(2)

(7)

Individually insignificant items

-

(10)

(5)

(12)

Other non-comparable items

Cost of sales associated with Rexam inventory step-up (5)

-

(46)

-

(46)

Amortization of acquired Rexam intangibles (6)

(16)

(15)

(50)

(15)

Catch-up depreciation and amortization for 2016 from finalization of Rexam valuation (7)

-

-

(18)

-

Total beverage packaging, Europe

(78)

(71)

(137)

(80)

Food and aerosol packaging

Gain on sale of Hubbard facility (9)

-

-

15

-

Weirton facility closure costs (10)

(1)

(3)

(6)

(14)

Individually insignificant items

(1)

(1)

(2)

(7)

Total food and aerosol packaging

(2)

(4)

7

(21)

Other

Business consolidation and other activities

Pension settlement (11)

(41)

-

(41)

-

Divestment Business indemnities (12)

-

-

(34)

-

Rexam acquisition related compensation arrangements (13)

(5)

(22)

(22)

(106)

Gain (loss) on sale of the Divestment Business (14)

-

-

(14)

344

Rexam transaction related costs (4)

(2)

(33)

(12)

(289)

Currency exchange gain (loss) for restricted cash, intercompany loans and 2020, 2023 euro senior notes (15)

-

22

-

(174)

Individually insignificant items

(7)

(4)

(19)

(10)

Other non-comparable items

Cost of sales associated with Rexam inventory step-up (5)

-

(7)

-

(7)

Amortization of acquired Rexam intangibles (6)

(1)

(3)

(5)

(3)

Catch-up depreciation and amortization for 2016 from finalization of Rexam valuation (7)

5

-

4

-

Total other

(51)

(47)

(143)

(245)

Total business consolidation and other activities

(157)

(63)

(253)

(302)

Total other non-comparable items

(32)

(116)

(154)

(116)

Total non-comparable items

(189)

(179)

(407)

(418)

Tax effect on business consolidation and other activities

38

12

67

266

Tax effect on other non-comparable items

11

30

41

30

Total tax effect

49

42

108

296

Total non-comparable items, net of tax

$

(140)

$

(137)

$

(299)

$

(122)

Three Months Ended September 30,

Nine Months Ended September 30,

($ in millions)

2017

2016

2017

2016

Debt Refinancing and Other Costs

Interest expense on 3.5% and 4.375% senior notes (16)

$

-

$

-

$

-

$

(49)

Refinancing of bridge and revolving credit facilities (17)

-

-

-

(30)

Economic hedge - interest rate risk (4)

-

-

-

(20)

Amortization of unsecured, committed bridge facility financing fees (18)

-

-

-

(7)

Individually insignificant items

-

(2)

(1)

(2)

Total debt refinancing and other costs

-

(2)

(1)

(108)

Tax effect on debt refinancing and other costs

-

(1)

-

33

Total debt refinancing and other costs, net of tax

$

-

$

(3)

$

(1)

$

(75)

(1)

In August 2017, the company announced the closure of its beverage can manufacturing facilities in Chatsworth, California, and Longview, Texas, and its beverage end manufacturing facility in Birmingham, Alabama. The Birmingham and Longview plants are expected to cease production by the end of the second quarter of 2018, and the Chatsworth plant is expected to cease production by the end of the third quarter of 2018. Charges in the third quarter and first nine months of 2017 comprised employee severance and benefits, facility shutdown costs, asset impairment, accelerated depreciation and other costs.

(2)

In December 2016, the company announced the closure of its beverage packaging manufacturing facility in Reidsville, North Carolina, which ceased production during the second quarter of 2017. Charges in the first nine months of 2017 comprised employee severance and benefits, facility shutdown costs, asset impairment, accelerated depreciation and other costs.

(3)

During the third quarter of 2015, the company announced the closure of its beverage end manufacturing facility in Bristol, Virginia, which ceased production during the second quarter of 2016. Charges in the third quarter and first nine months of 2016 and first nine months of 2017 comprised severance, pension and other employee benefits, as well as other individually insignificant items.

(4)

During the third quarter and first nine months 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 nine months of 2016, the company recorded losses related to derivative financial instruments to reduce its currency exchange rate exposure associated with the British pound denominated cash portion of the Rexam acquisition purchase price and entered into derivative financial instruments to mitigate its exposure to interest rate changes associated with anticipated debt issuances in connection with the cash portion of the Rexam acquisition purchase price.

(5)

During the third quarter of 2016, the company recorded cost of sales associated with the step-up in value of inventory acquired from Rexam.

(6)

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

(7)

In the second quarter of 2017, the company finalized the allocation of the purchase price for the Rexam acquisition and updated the fair values and useful lives for the acquired Rexam intangible and fixed assets. Catch-up depreciation and amortization expense were recorded during the third quarter and first nine months of 2017, related to the last six months of 2016.

(8)

In March 2017, the company announced its intent to close its beverage packaging manufacturing facility in Recklinghausen, Germany, which ceased production on July 31, 2017. Charges of $62 million were recorded in the third quarter and first nine months of 2017 and comprised employee severance and benefits, facility shutdown costs, asset impairment, accelerated depreciation and other costs.

(9)

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 on the sale of the plant.

(10)

During the second quarter of 2016, the company announced the closure of its food and aerosol packaging flat sheet production and end manufacturing facility in Weirton, West Virginia, which ceased production during the first quarter of 2017. Charges in the third quarter and first nine months of 2017 and 2016 comprised employee severance and benefits, facility shutdown costs, asset impairment, accelerated depreciation and disposal costs.

(11)

During the third quarter of 2017, the company completed the purchase of non-participating group annuity contracts to settle a portion of the projected pension benefit obligations in certain Ball U.S. defined benefit pension plans. This triggered settlement accounting. The company recognized a $41 million settlement loss which primarily represented a pro rata portion of the aggregate unamortized actuarial loss in these pension plans.

(12)

During the first nine months of 2017, the company recorded adjustments to the estimated amount of claims covered by the indemnifications for certain tax matters provided to the buyer in the sale of the Divestment Business.

(13)

During the third quarter and first nine months of 2017 and 2016, the company incurred charges for long-term incentive and other compensation arrangements associated with the Rexam acquisition and integration.

(14)

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. During the first nine months of 2016, a gain on sale was recognized in connection with the sale of the legacy Ball portion of the Divestment Business.  During the first nine months of 2017, a reduction in the gain on sale was recognized in connection with changes in the estimated closing adjustments associated with the sale of the legacy Ball portion of the Divestment Business.

(15)

During the third quarter and first nine months of 2016, the company recorded foreign currency exchange gains and 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.

(16)

During the first nine months 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.

(17)

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.

(18)

During the first quarter of 2016, the company recorded charges for the amortization of deferred financing costs associated with the unsecured, 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 Earnings Before Interest, Taxes, Depreciation and Amortization (Comparable EBITDA), Comparable Operating Earnings and Comparable Net Earnings – Comparable EBITDA is earnings before interest, taxes, depreciation and amortization, business consolidation and other non-comparable costs, 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 and other non-comparable costs after tax. We use Comparable EBITDA, Comparable Operating Earnings and Comparable Net Earnings internally to evaluate the company's operating performance.

Please see the company's website for further details of the company's non-U.S. GAAP financial measures at www.ball.com/investors under the "financials" tab.

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

Three Months Ended

Nine Months Ended

September 30,

September 30,

($ in millions, except per share amounts)

2017

2016

2017

2016

Net earnings attributable to Ball Corporation

$

48

$

31

$

215

$

210

Add: Business consolidation and other activities

157

63

253

302

Add: Amortization of acquired Rexam intangibles

37

33

120

33

Add: Catch-up depreciation and amortization for 2016 from finalization of Rexam valuation (a)

(5)

-

34

-

Add: Cost of sales associated with Rexam inventory step-up

-

83

-

83

Add: Debt refinancing and other costs

-

2

1

108

Add: Tax effect on above items

(49)

(41)

(108)

(329)

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

$

188

$

171

$

515

$

407

Per diluted share before above transactions (b)

$

0.52

$

0.48

$

1.44

$

1.30

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

Three Months Ended

Nine Months Ended

September 30,

September 30,

($ in millions)

2017

2016

2017

2016

Net earnings attributable to Ball Corporation

$

48

$

31

$

215

$

210

Add: Net earnings attributable to noncontrolling interests

3

3

6

3

Net earnings

51

34

221

213

Less: Equity in results of affiliates, net of tax

(5)

(7)

(23)

(6)

Add: Tax provision (benefit)

4

23

48

(174)

Earnings before taxes

50

50

246

33

Add: Total interest expense

74

82