Ball Corporation (NYSE: BLL) — 2013 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2013. The filing also provides unaudited fourth-quarter results. Ball supplies metal packaging for beverage, food, personal care and household products, and provides aerospace and technology products and services. Packaging accounted for 89% of 2013 sales; aerospace accounted for 11%.
Key financial metrics
| Metric | 2013 | 2012 | Change |
|---|---|---|---|
| Net sales | $8,468.1 million | $8,735.7 million | Down 3.1% |
| EBIT | $795.4 million | $790.5 million | Up 0.6% |
| Net earnings attributable to Ball | $406.8 million | $403.5 million | Up 0.8% |
| Diluted EPS | $2.73 | $2.55 | Up 7.1% |
| Comparable EBIT (non-GAAP) | $874.2 million | $893.3 million | Down 2.1% |
| Comparable diluted EPS (non-GAAP) | $3.28 | $3.06 | Up 7.2% |
| Cash from operations | $839.0 million | $853.2 million | Down 1.7% |
| Capital expenditures | $378.3 million | $305.0 million | Up 24.0% |
| Free cash flow (non-GAAP) | $460.7 million | $548.2 million | Down 16.0% |
| Interest-bearing debt and capital leases | $3,605.1 million | $3,305.1 million | Up $300.0 million |
Net margin was 4.8% of sales. Cash and cash equivalents were $416.0 million, leaving net debt of $3,189.1 million. Current assets were $2,465.7 million and current liabilities $1,927.4 million. The filing reports $887 million available on committed revolvers, excluding the receivables securitization program; separate short-term uncommitted facilities totaled about $818 million, of which $57.3 million was outstanding and due on demand. Ball reported compliance with debt covenants.
Fourth quarter: Sales were $1,996.8 million versus $2,114.2 million in Q4 2012; net earnings attributable to Ball were $124.5 million versus $60.6 million, and diluted EPS was $0.85 versus $0.39. Quarterly results included consolidation and other activities.
Material changes and segment performance
- Annual sales declined mainly because of lower U.S. demand for standard 12-ounce beverage cans and lower aluminum pass-through prices. Specialty-can growth and higher volumes in Europe, Brazil and China partly offset the decline. Annual earnings were broadly flat as lower standard-can volumes and higher SG&A were offset by specialty-can volumes and packaging cost improvements.
- Americas and Asia beverage packaging sales fell to $4,193.4 million from $4,541.7 million; segment earnings before consolidation costs were $511.8 million versus $522.5 million. Management cited weaker standard-can volumes and unfavorable PRC pricing, offset substantially by improved manufacturing performance and lower costs.
- European beverage packaging sales rose to $1,828.3 million from $1,771.3 million, partly reflecting favorable currency translation; segment earnings were nearly unchanged at $182.6 million before consolidation costs.
- Food and household packaging sales were essentially flat at $1,558.6 million. Segment earnings before consolidation costs rose to $177.4 million from $167.8 million, supported by the Mexico acquisition and manufacturing improvements.
- Aerospace sales increased to $897.1 million from $876.8 million, while segment earnings before consolidation costs declined to $80.1 million from $86.6 million, reflecting more favorable contract adjustments in 2012. Year-end backlog was $938 million, down from $1.0 billion; $578 million was expected to be recognized as 2014 revenue. Backlog included $470 million of unfunded government orders subject to annual funding.
Ball recorded $78.8 million of business consolidation and other charges in 2013, compared with $102.8 million in 2012. The company closed its Elgin, Illinois, food and aerosol facility in December 2013, recorded $29 million of related charges, and announced the planned closure of its Danville, Illinois, aerosol facility in the second half of 2014. It also arranged with the PRC government to close and relocate its Shenzhen facility; the agreement provided approximately $72 million of pretax compensation, with amounts recognized or deferred depending on the related costs and activity.
Outlook, risks and unusual items
- Management estimated 2014 operating cash flow of approximately $925 million, capital expenditures of approximately $375 million and free cash flow of approximately $550 million. About $100 million of expected 2014 capital expenditures was contractually committed at year-end 2013. Management intended to use operating cash for repurchases, dividends, growth investment and qualifying acquisitions.
- Ball’s stated long-term financial strategy targets 10%–15% annual EPS growth, alongside free-cash-flow generation and increased EVA dollars; this is a strategic objective, not a specific 2014 earnings forecast.
- In May 2013, Ball issued $1 billion of 4.00% notes due 2023 and used the refinancing alongside other actions to redeem $375 million of 7.125% notes due 2016 and repay a $125 million term loan. Debt refinancing costs were $28.0 million in 2013. The 7.375% notes due 2019 were redeemed in January 2014; Ball expected an approximately $33 million pretax charge in Q1 2014.
- A major food and household packaging customer filed for bankruptcy in October 2013. Ball recorded a $27 million receivables provision against an approximately $46.5 million balance. The customer’s second-lien lenders were selected as the successful asset bidder in February 2014; Ball said no change to its valuation was then considered necessary, but future facts could change the potential loss.
- Key risks include concentration among a small number of large packaging customers, competition from glass and plastic, overcapacity and pricing pressure, raw-material and energy costs, currency movements, labor disruptions, pension obligations, and uncertainty in U.S. government funding and aerospace contract estimates. A hypothetical 10% adverse currency move was estimated to reduce after-tax earnings by $46.7 million over one year; corresponding estimates were $5.7 million for steel and aluminum prices and $7.5 million for a 10% increase in natural gas and electricity prices.
- Ball disclosed environmental remediation and other legal matters, including Lowry Landfill and Lower Duwamish site proceedings, and said it did not expect identified matters to materially affect its financial condition, results or liquidity. The filing also describes potential additional Lowry costs under its settlement if specified site costs exceed $319 million. Ball stated that it had adequate accruals where losses were reasonably estimable, while noting final outcomes could differ.
- Other earnings factors included a lower effective tax rate (25.6% versus 27.7% in 2012), increased interest expense, and a $27 million receivables provision. Goodwill was $2,404.3 million; management reported no impairment charge and said reporting-unit fair values significantly exceeded carrying values.
Most important facts for investors to verify
- Whether specialty-container growth and manufacturing improvements can offset ongoing weakness in standard U.S. beverage-can volumes and pricing pressures.
- Whether the 2014 cash-flow, capital-spending and free-cash-flow estimates were achieved, and how cash was allocated among buybacks, dividends, investment and debt service.
- How the customer bankruptcy affected collection of the remaining receivable and ongoing supply arrangements.
- Debt and refinancing costs, available committed liquidity, covenant headroom, and the expected 2014 redemption charge.
- Whether aerospace backlog receives funding and converts to revenue as expected, given the unfunded portion and dependence on government budgets.
- The assumptions behind non-GAAP comparable earnings and free cash flow, and the effects of restructuring, pension, foreign-exchange and commodity risks.
The financial statements received an unqualified audit opinion, and the auditor and management concluded internal control over financial reporting was effective as of December 31, 2013.