Ball Corporation 2011 Form 10-K Summary
Business context and reporting period
This audited Form 10-K covers the fiscal year ended December 31, 2011; it is an annual filing, not a standalone fourth-quarter report. Ball supplies metal packaging for beverage, food, personal care and household products, and provides aerospace and technology products and services. Packaging accounted for 91% of 2011 sales and aerospace for 9%. Results include acquisitions and changes in consolidation, which affect comparisons with 2010.
Key financial metrics
| Metric | 2011 | 2010 | Change or context |
|---|---|---|---|
| Net sales | $8,630.9 million | $7,630.0 million | Up 13.1% |
| Net earnings attributable to Ball | $444.0 million | $468.0 million | Down 5.1% |
| Continuing-operations earnings attributable to Ball | $446.3 million | $542.9 million | Down 17.8% |
| Diluted EPS | $2.63 | $2.55 | Continuing-operations diluted EPS was $2.64 versus $2.96 |
| Operating cash flow | $948.4 million | $515.2 million | 2010 included a $250 million cash-flow reduction from securitization accounting; excluding that effect, 2010 was $765.2 million |
| Capital spending / free cash flow | $443.8 million / $504.6 million | $259.4 million / $505.8 million | Company-defined free cash flow; 2010 figure adjusts for the securitization accounting change |
| Total debt / cash | $3,144.1 million / $165.8 million | $2,812.3 million / $152.0 million | Net debt was $2,978.3 million; net debt to comparable EBITDA was 2.5x |
| Liquidity | $1,856.1 million current liabilities; $2,321.9 million current assets | $1,383.3 million current liabilities; $2,305.7 million current assets | About $1 billion available on committed revolving facilities |
Approximate 2011 gross margin was 14.8% and EBIT margin was 9.7%, calculated from reported gross profit and EBIT divided by sales. Comparable earnings, a company-defined non-GAAP measure, were $459.6 million versus $433.0 million; adjusted diluted EPS was $2.73 versus $2.36.
Material changes versus the prior comparable period
- Sales growth reflected stronger PRC metal-packaging demand, improved Americas beverage-container volumes, consolidation of Latapack-Ball, acquisitions of two PRC joint ventures, Aerocan and improved aerospace performance. Higher commodity prices and currency translation also contributed.
- Net earnings attributable to Ball declined despite higher sales. 2010 included $105.9 million of after-tax equity earnings and acquisition gains; 2011 included a $9.2 million gain on the previously held QMCP interest. Continuing-operations EPS also fell year over year.
- Debt rose by about $332 million, primarily following the Aerocan acquisition, while Ball returned substantial cash to shareholders through buybacks and dividends. Share repurchases, net of issuances, were $473.9 million in 2011.
- Defined-benefit pension liability increased to $731.6 million from $541.1 million. Ball attributed pension exposure to investment performance and actuarial assumptions.
Outlook, management commentary, risks and unusual items
- Management estimated 2012 operating cash flow above $850 million, capital spending of about $400 million and free cash flow around $450 million. Planned uses included repurchases, dividends, growth investment and qualifying acquisitions. These are estimates, not guarantees.
- The board raised the quarterly dividend to $0.10 per share beginning with the March 2012 payment and authorized repurchases of up to 30 million shares. A $200 million accelerated repurchase was entered into in February 2012.
- Ball planned new beverage-container capacity in northeast Brazil and Vietnam, with production expected to begin in early 2012; its expanded Qingdao facility was also expected to start production in early 2012. Aerospace backlog was $897 million at year-end, down from $989 million; $507 million was expected to be recognized as 2012 revenue. Government funding delays or cancellations could affect backlog conversion.
- 2011 included $30.3 million of business consolidation and other charges, including facility closures, capacity reductions, relocation costs and Aerocan transaction costs. The company also recorded a $9.6 million write-down of its Lublin, Poland facility.
- Principal risks include dependence on a relatively small number of major packaging customers, packaging overcapacity and substitutes such as PET and glass, raw-material and energy costs, foreign-exchange exposure, labor actions, pension funding, acquisition integration, debt and variable interest rates, and government budget and contract risks in aerospace.
- Ball reported $68.8 million of unrecognized tax benefits; the timing and amount of potential resolution are uncertain. It also disclosed routine litigation and environmental matters, which management did not expect to materially affect results or financial condition. The Ontario environmental settlement required a $3.5 million payment, partly offset by $2.0 million of insurance reimbursement. A patent matter was remanded, and the district court granted Ball summary judgment of non-infringement in January 2012.
- The independent auditor issued an unqualified opinion on the financial statements and internal control. Management concluded disclosure controls and internal control over financial reporting were effective; acquired Aerocan and QMCP operations were excluded from the 2011 internal-control assessment.
Important facts for investors to verify
- Review the reconciliation and assumptions behind company-defined comparable earnings, EBITDA and free cash flow, and distinguish them from GAAP results.
- Assess whether the 2011 sales gains from acquisitions, consolidation and pricing can be sustained, and monitor segment volumes, margins and capacity utilization.
- Check debt maturities, covenant headroom, committed credit availability and the effect of continued repurchases and dividends on leverage and liquidity.
- Track pension funding needs, discount-rate and asset-return assumptions, and the uncertain tax positions.
- Monitor execution and returns from new facilities and acquisitions, and funding and schedule risks in aerospace contracts and backlog.