Ball Reports 2016 Results

Condensed Financial Statements (Fourth Quarter 2016)

Unaudited Condensed Consolidated Statements of Earnings

Three Months Ended

Year Ended

December 31,

December 31,

($ in millions, except per share amounts)

2016

2015

2016

2015

Net sales

$

2,516

$

1,805

$

9,116

$

7,997

Costs and expenses

Cost of sales (excluding depreciation and amortization)

(2,000)

(1,434)

(7,351)

(6,460)

Depreciation and amortization

(154)

(74)

(453)

(286)

Selling, general and administrative

(164)

(111)

(512)

(450)

Business consolidation and other activities

(40)

(56)

(359)

(195)

(2,358)

(1,675)

(8,675)

(7,391)

Earnings before interest and taxes

158

130

441

606

Interest expense

(70)

(36)

(229)

(143)

Debt refinancing and other costs

(1)

(31)

(109)

(117)

Total interest expense

(71)

(67)

(338)

(260)

Earnings before taxes

87

63

103

346

Tax (provision) benefit

(82)

1

109

(47)

Equity in results of affiliates, net of tax

9

1

15

4

Net earnings

14

65

227

303

Less net earnings attributable to noncontrolling interests

-

(10)

(3)

(22)

Net earnings attributable to Ball Corporation

$

14

$

55

$

224

$

281

Earnings per share:

Basic

$

0.08

$

0.40

$

1.42

$

2.05

Diluted

$

0.08

$

0.39

$

1.39

$

1.99

Weighted average shares outstanding (000s):

Basic

174,712

136,976

158,271

137,300

Diluted

177,770

140,525

161,442

140,984

Condensed Financial Statements (Fourth Quarter 2016)

Unaudited Condensed Consolidated Balance Sheets

December 31,

($ in millions)

2016

2015

Assets

Current assets

Cash and cash equivalents

$

597

$

224

Receivables, net

1,477

885

Inventories, net

1,413

898

Other current assets

152

177

Total current assets

3,639

2,184

Property, plant and equipment, net

4,379

2,686

Goodwill

5,095

2,177

Restricted cash

-

2,154

Intangible assets, net

1,934

195

Other assets, net

1,331

301

Total assets

$

16,378

$

9,697

Liabilities and Shareholders' Equity

Current liabilities

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

$

222

$

77

Payables and other accrued liabilities

2,763

2,065

Total current liabilities

2,985

2,142

Long-term debt

7,310

4,974

Other long-term liabilities

2,581

1,320

Shareholders' equity

3,502

1,261

Total liabilities and shareholders' equity

$

16,378

$

9,697

Notes to the Condensed Financial Statements (Fourth Quarter 2016)

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 a portion 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, aerosol, paint and general line containers, as well as extruded aluminum aerosol containers and aluminum slugs.

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

Other consists of non-reportable segments in Asia Pacific, Africa, the Middle East and Asia 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 which are accounted for under the equity method of accounting and, accordingly, those results are not included in segment sales or earnings.

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.

Notes to the Condensed Financial Statements (Fourth Quarter 2016)

1. Business Segment Information (continued)

Three Months Ended

Year Ended

December 31,

December 31,

($ in millions)

2016

2015

2016

2015

Net sales

Beverage packaging, North and Central America

$

959

$

736

$

3,612

$

3,202

Beverage packaging, South America

437

184

1,014

591

Beverage packaging, Europe

449

343

1,970

1,653

Food and aerosol packaging

259

285

1,171

1,297

Aerospace

241

162

818

810

Reportable segment sales

2,345

1,710

8,585

7,553

Other

171

95

531

444

Net sales

$

2,516

$

1,805

$

9,116

$

7,997

Comparable operating earnings

Beverage packaging, North and Central America

$

114

$

86

$

469

$

402

Beverage packaging, South America

85

37

185

80

Beverage packaging, Europe

32

43

217

192

Food and aerosol packaging

24

18

109

108

Aerospace

26

21

88

82

Reportable segment comparable operating earnings

281

205

1,068

864

Other (a)

(23)

(19)

(92)

(63)

    Comparable operating earnings

258

186

976

801

Reconciling items

Business consolidation and other activities

(40)

(56)

(359)

(195)

Amortization of acquired Rexam intangibles

(32)

-

(65)

-

Cost of sales associated with Rexam inventory step-up

(1)

-

(84)

-

Egyptian pound devaluation

(27)

-

(27)

-

Earnings before interest and taxes

158

130

441

606

Interest expense

(70)

(36)

(229)

(143)

Debt refinancing and other costs

(1)

(31)

(109)

(117)

Total interest expense

(71)

(67)

(338)

(260)

Earnings before taxes

87

63

103

346

Tax (provision) benefit

(82)

1

109

(47)

Equity in results of affiliates

9

1

15

4

Net earnings

14

65

227

303

Less net earnings attributable to noncontrolling interests

-

(10)

(3)

(22)

Net earnings attributable to Ball Corporation

$

14

$

55

$

224

$

281

(a)  

Includes undistributed corporate expenses of $32 million and $24 million for the fourth quarter 2016 and 2015, respectively, and $110 million and $93 million for the year ended 2016 and 2015, respectively.   

Notes to the Condensed Financial Statements (Fourth Quarter 2016)

2. Non-Comparable Items

Three Months Ended December 31,

Year Ended December 31,

($ in millions)

2016

2015

2016

2015

Non-comparable items - income (expense)

Beverage packaging, North and Central America

Business consolidation and other activities

Rexam transaction related costs (1)

$

-

$

-

$

(4)

$

-

Bristol facility closure costs (2)

1

1

(4)

(19)

Reidsville facility closure costs (3)

(9)

-

(9)

-

Individually insignificant items

-

1

(3)

-

Other non-comparable items

Cost of sales associated with Rexam inventory step-up (4)

-

-

(10)

-

Amortization of acquired Rexam intangibles (5)

(5)

-

(11)

-

Total beverage packaging, North and Central America

(13)

2

(41)

(19)

Beverage packaging, South America

Business consolidation and other activities

Rexam transaction related costs (1)

1

-

(14)

-

Individually insignificant items

-

(3)

(1)

(3)

Other non-comparable items

Cost of sales associated with Rexam inventory step-up (4)

-

-

(20)

-

Amortization of acquired Rexam intangibles (5)

(8)

-

(17)

-

Total beverage packaging, South America

(7)

(3)

(52)

(3)

Beverage packaging, Europe

Business consolidation and other activities

Rexam transaction related costs (1)

(4)

-

(22)

-

Asset impairment (6)

-

-

-

(5)

Individually insignificant items

(1)

(1)

(2)

(5)

Other non-comparable items

Cost of sales associated with Rexam inventory step-up (4)

(1)

-

(47)

-

Amortization of acquired Rexam intangibles (5)

(16)

-

(31)

-

Total beverage packaging, Europe

(22)

(1)

(102)

(10)

Food and aerosol packaging

Weirton facility closure costs (7)

(4)

-

(18)

-

Gain on sale of Baltimore facility (8)

9

-

9

-

Manufacturing asset rationalization (9)

(10)

-

(10)

-

Individually insignificant items

-

1

(7)

-

Total food and aerosol packaging

(5)

1

(26)

-

Aerospace individually insignificant items

-

-

-

1

Other

Business consolidation and other activities

Rexam transaction related costs (1)

(17)

(34)

(301)

(139)

Currency exchange gain (loss) for restricted cash, intercompany loans and 2020, 2023 euro senior notes (10)

-

(14)

(173)

(14)

Rexam acquisition related compensation arrangements (11)

(3)

-

(108)

-

Gain on sale of the Divestment Business (12)

(5)

-

322

-

Individually insignificant items

2

(7)

(14)

(11)

Other non-comparable items

Cost of sales associated with Rexam inventory step-up (4)

-

-

(7)

-

Amortization of acquired Rexam intangibles (5)

(3)

-

(6)

-

Egyptian pound devaluation (13)

(27)

-

(27)

-

Total other

(53)

(55)

(314)

(164)

Total business consolidation and other activities

(40)

(56)

(359)

(195)

Total other non-comparable items

(60)

-

(176)

-

Total non-comparable items

(100)

(56)

(535)

(195)

Tax effect on business consolidation and other activities (18)

(58)

18

241

66

Tax effect on other non-comparable items

17

-

31

-

Individually insignificant items

-

-

-

(4)

Total tax effect

(41)

18

272

62

Total non-comparable items, net of tax

$

(141)

$

(38)

$

(263)

$

(133)

Debt Refinancing and Other Costs

Interest expense on 3.5% and 4.375% senior notes (14)

$

-

$

(5)

$

(49)

$

(5)

Economic hedge - interest rate risk (1)

-

(6)

(20)

(16)

Refinancing of bridge and revolving credit facilities (15)

-

(11)

(30)

(16)

Amortization of unsecured, committed bridge facility financing fees (16)

-

(9)

(7)

(23)

Redemption of 6.75% and 5.75% senior notes, due September 2020 and May 2021, respectively, and refinance of senior credit facilities (17)

-

-

-

(57)

Individually insignificant items

(1)

-

(3)

-

Total debt refinancing and other costs

(1)

(31)

(109)

(117)

Tax effect on debt refinancing and other costs

1

11

33

41

Total debt refinancing and other costs, net of tax

$

-

$

(20)

$

(76)

$

(76)

(1)

During the fourth quarter of 2015 and the year ended 2016, the company recorded charges for professional services and other costs associated with the June 30, 2016, acquisition of Rexam.

Also during the years ended 2016 and 2015, 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.

(2)

During the third quarter of 2015, the company announced the planned closure of its beverage packaging end-making facility in Bristol, Virginia, which ceased production in the second quarter of 2016. The closure realigned end-making capacities in North America to position the company to meet customer demand. Charges composed of severance, pension and other employee benefits, as well as other individually insignificant items.

(3)

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 fourth quarter of 2016 were composed of employee severance, pension and other benefits, asset impairments, and facility shutdown and disposal costs.

(4)

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

(5)

During the third and fourth quarters of 2016, the company recorded amortization expense for customer relationships and other intangible assets identified as part of the Rexam acquisition.

(6)

During the second quarter of 2015, the company recorded charges for the write down of property held for sale.

(7)

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 is expected to cease production in early 2017. Charges were composed of employee severance and benefits, facility shutdown costs, and asset impairment and disposal costs.

(8)

In October 2016, the company sold its specialty tin manufacturing facility in Baltimore, Maryland, which resulted in a gain on sale of $9 million.

(9)

During the fourth quarter of 2016, the company rationalized certain manufacturing equipment to align production capacity with its customer requirements. The fourth quarter charge consisted of accelerated depreciation of the rationalized equipment and write-offs of costs associated with relocated assets.

(10)

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, the sale of the Divestment Business and the revaluation of the euro-denominated debt issuances in December 2015.

(11)

During the last three quarters of 2016, the company incurred charges associated with long term incentive and other compensation arrangements associated with the Rexam acquisition.

(12)

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 year ended 2016, a gain of $322 million has been recognized in connection with the sale of Ball's portion of the divested packaging businesses.

(13)

In early November 2016, Egypt's central bank elected to allow their currency, the Egyptian Pound, to float more freely in the market resulting in a significant devaluation of the Egyptian Pound from 8.9 to approximately 17 per U.S. Dollar, an approximate 90 percent devaluation. The devaluation generated currency exchange losses in the company's income statement for the non-Egyptian Pound denominated net liability position of the company's Egypt operations based on current liability balances and the 17 per U.S. Dollar exchange rate for the Egyptian Pound. Currency exchange movements since the significant devaluation are not included in non-comparable items.

(14)

During the first two quarters 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.

(15)

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. These facilities replaced the company's existing revolving credit facility and the unsecured, committed bridge facilities that were entered into in February 2015. In July 2016 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 Rexam acquisition purchase price.

(16)

During the first quarter of 2016 and full year of 2015, the company recorded charges for the amortization of deferred financing costs associated with the £3.3 billion unsecured, committed bridge facility, entered into in February 2015, in connection with the Rexam acquisition purchase price.

(17)

In February 2015, the company entered into a new $3 billion revolving credit facility to: 1) replace its existing revolving credit facility, 2) repay its Term C loan, 3) repay the outstanding balance on the existing revolving credit facility, 4) redeem the 2020 and 2021 senior notes and 5) repay the existing private placement debt of Rexam upon closing of the acquisition of Rexam. As a result, during the first quarter of 2015, the company recorded charges for the write-off of unamortized deferred financing costs associated with the refinancing of the revolving credit facility and repayment of the Term C loan.

(18)

The tax effect on business consolidation and other activities in the fourth quarter of 2016 includes $39 million for the correction of a deferred tax asset that should have been released at the time of the sale of the Divestment Business in the second quarter of 2016.

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 costs and other items, and Comparable Net Earnings is earnings before business consolidation costs 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.

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

Three Months Ended

Year Ended

December 31,

December 31,

($ in millions, except per share amounts)

2016

2015

2016

2015

Net earnings attributable to Ball Corporation

$

14

$

55

$

224

$

281

Add: Business consolidation and other activities

40

56

359

195

Add: Amortization of acquired Rexam intangibles

32

-

65

-

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

1

-

84

-

Add: Egyptian pound devaluation

27

-

27

-

Add: Debt refinancing and other costs

1

31

109

117

Add: Tax effect on above items

40

(29)

(305)

(103)

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

$

155

$

113

$

563

$

490

Per diluted share before above transactions

$

0.87

$

0.80

$

3.49

$

3.48

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

Three Months Ended

Year Ended

December 31,

December 31,

($ in millions)

2016

2015

2016

2015

Net earnings attributable to Ball Corporation

$

14

$

55

$

224

$

281

Add: Net earnings attributable to noncontrolling interests

-

10

3

22

Net earnings

14

65

227

303

Less: Equity in results of affiliates, net of tax

(9)

(1)

(15)

(4)

Add: Tax provision (benefit)

82

(1)

(109)

47

Earnings (loss) before taxes

87

63

103

346

Add: Total interest expense

71

67

338

260

Earnings before interest and taxes

158

130

441

606

Add: Business consolidation and other activities