Business Context and Reporting Period
Company: Ball Corporation
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Three and six months ended June 29, 2003
Business Overview: Ball operates in three segments: North American packaging (metal and plastic containers), International packaging (metal beverage cans in Europe/Asia, plastic in Asia), and Aerospace and technologies. The company recently integrated the Schmalbach-Lubeca GmbH acquisition (Ball Packaging Europe) and acquired Metal Packaging International, Inc. (MPI) in March 2003.
Key Financial Metrics
| ($ in millions, except per share) | 3 Months Ended June 29, 2003 |
3 Months Ended June 30, 2002 |
6 Months Ended June 29, 2003 |
6 Months Ended June 30, 2002 |
|---|---|---|---|---|
| Net Sales | $1,353.3 | $1,034.2 | $2,424.2 | $1,910.1 |
| Net Earnings | $74.3 | $49.9 | $105.8 | $77.4 |
| Diluted EPS | $1.30 | $0.87 | $1.84 | $1.34 |
| EBIT | $138.2 | $93.9 | $215.1 | $151.1 |
| Operating Cash Flow (6mo) | $(129.2) used vs. $128.2 provided | |||
| Total Debt (Current + Long-term) | $2,047.9 (as of June 29, 2003) | |||
| Cash and Equivalents | $39.8 (as of June 29, 2003) |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 31% year-over-year for the quarter and 27% for the six-month period, driven primarily by the inclusion of Ball Packaging Europe (acquired Dec 2002) and growth in North American metal beverage and plastic container sales.
- Profitability: Net earnings rose 49% for the quarter and 37% for the six-month period. Earnings per share (diluted) increased from $0.87 to $1.30 for the quarter.
- Cash Flow Volatility: Operating cash flow turned negative ($129.2 million used) for the six months ended June 29, 2003, compared to positive $128.2 million in 2002. This was primarily due to a $138.3 million payment of withholding tax related to the European acquisition and seasonal working capital increases.
- Debt Levels: Total debt increased to $2,047.9 million from $1,981 million at year-end 2002, attributed to seasonal working capital needs and acquisition-related financing.
- Segment Performance: International packaging sales surged due to the European acquisition, though German sales were impacted by a new mandatory deposit law. Aerospace backlog reached a record $680 million.
Guidance, Outlook, and Risks
- Dividend Increase: On July 23, 2003, the company announced a 67% increase in the quarterly dividend from $0.09 to $0.15 per share, effective for the September 15, 2003 payment.
- Capital Spending: Expected to be less than $170 million for the full year 2003, which is below depreciation and amortization expenses.
- Debt Refinancing: In August 2003, Ball privately placed $250 million of new 6.875% Senior Notes to redeem 8.25% Senior Subordinated Notes due in 2008. This will result in an estimated after-tax charge of approximately 17 cents per diluted share in the third quarter.
- Key Risks:
- German Deposit Law: A mandatory deposit on non-refillable containers in Germany has caused a sharp decline in sales. The company is delaying capital projects in France and Poland until a return system is operational (expected 2004).
- Commodity Prices: Exposure to aluminum, steel, and resin prices, though mitigated by pass-through pricing mechanisms and hedging.
- Integration: Risks associated with integrating the Schmalbach-Lubeca acquisition and the closure of the MPI plant.
Investor Verification Checklist
- Cash Position: Verify the sustainability of operations given the significant drop in cash equivalents from $259.2 million to $39.8 million and negative operating cash flow for the half-year.
- German Market Recovery: Monitor the implementation of the German container return system and its impact on European sales volumes.
- Debt Extinguishment Charge: Confirm the timing and magnitude of the ~17 cents per share charge related to the August 2003 debt refinancing in Q3 results.
- Working Capital Trends: Assess whether the $60 million seasonal working capital build in Europe and $100 million in North America normalizes in subsequent quarters.
- Dividend Coverage: Evaluate the ability to sustain the increased dividend payout given the current cash burn and debt service obligations.