Ball Corporation — 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. The filing also reports unaudited fourth-quarter results. Ball supplies metal packaging globally and aerospace products and services; packaging generated 90% of 2015 sales, and aerospace 10%.
Financial performance and liquidity
| Metric | 2015 | 2014 |
|---|---|---|
| Net sales | $7,997.0 million | $8,570.0 million |
| EBIT | $605.2 million | $838.6 million |
| Net earnings attributable to Ball | $280.9 million | $470.0 million |
| Diluted EPS | $1.99 | $3.30 |
| Operating cash flow | $1,006.7 million | $1,012.5 million |
| Capital expenditures | $527.9 million | $390.8 million |
| Free cash flow (non-GAAP) | $478.8 million | $621.7 million |
| Total interest-bearing debt and capital leases | $5,131.5 million | $3,168.9 million |
Sales fell about 7% and Ball-attributable earnings about 40%. Management cited adverse foreign exchange, lower metal food volumes, unfavorable China pricing, acquisition-related and other consolidation costs, and debt refinancing costs. Cost of sales excluding depreciation was 80.8% of sales, versus 80.6% in 2014. Reported total interest expense was $259.7 million, including $116.5 million of debt-refinancing and other costs; the comparable interest expense excluding those costs was $143.2 million.
Comparable earnings, a non-GAAP measure excluding specified consolidation and refinancing items, were $490.1 million, or $3.48 per diluted share, versus $552.8 million, or $3.88, in 2014. Comparable EBIT was $799.9 million versus $919.1 million. These adjusted measures should be considered alongside GAAP results.
At year-end, cash and cash equivalents were $224.0 million, while $2,154.4 million was restricted in escrow for the proposed Rexam acquisition. Current assets were $2,184.0 million and current liabilities $2,141.6 million. Ball reported approximately $2.2 billion available on revolving facilities and $452 million on short-term uncommitted facilities; $23.7 million of the latter was outstanding. Management described liquidity as strong and said available resources and operating cash flow were expected to meet ongoing needs. Net debt/Comparable EBITDA was 2.5x, using Ball’s non-GAAP calculation, which deducts restricted cash.
Segments and changes versus 2014
- Metal beverage, Americas and Asia: Sales $4,245.3 million, broadly unchanged; segment earnings after consolidation items $486.8 million versus $527.3 million. Higher volumes were offset by unfavorable China pricing.
- Metal beverage, Europe: Sales $1,652.7 million, down from $1,896.3 million; segment earnings $182.5 million versus $214.2 million. Currency effects reduced sales by $359 million and earnings by $56 million; new-line startup performance also weighed on earnings.
- Metal food and household products: Sales $1,296.6 million versus $1,504.4 million; segment earnings $107.2 million versus $112.3 million. Lower food-container volumes following a customer shift and unfavorable currency and startup costs offset product mix, growth in extruded aluminum aerosol products and the Sonoco acquisition.
- Aerospace and technologies: Sales $810.1 million versus $934.8 million; segment earnings $82.5 million versus $79.7 million. Lower U.S. national-defense sales reduced revenue; 2014 had benefited from program completions and pension-cost recovery. Backlog declined to $617 million from $765 million, including $442 million expected to convert to revenue in 2016.
Consolidated sales declined partly from currency translation, lower metal food volumes and China pricing, partly offset by higher beverage volumes. Operating cash flow was nearly flat, as lower pension contributions offset lower earnings, weaker working-capital inflows and Rexam transaction costs. Capital expenditures increased, reducing free cash flow.
Outlook, transactions, risks and unusual items
- Rexam proposal: Ball expected to complete its cash-and-stock acquisition in the first half of 2016, subject to remaining regulatory approvals, regulator-required divestitures and other conditions; completion was not assured. The EC and Brazil’s CADE had granted conditional clearance, while FTC approval and divestiture processes remained. Ball had raised debt and placed $2,154.4 million in restricted escrow. If the transaction failed under specified circumstances, Ball could owe a £302 million break payment; the filing also describes possible redemption of the December 2015 notes if the deal was not completed by November 15, 2016. Risks include added leverage, dilution, integration challenges, divestiture impacts and failure to realize expected benefits.
- 2016 estimates: Management estimated operating cash flow of about $900 million, capital expenditures of about $400 million and free cash flow of about $500 million, including cash transaction costs related to Rexam. About $150 million of estimated capital expenditures was contractually committed at year-end. These are estimates, not guarantees.
- Significant 2015 charges: Business consolidation and other activities totaled $194.7 million, versus $80.5 million in 2014. Corporate items included $97.9 million in Rexam professional and other costs, $41.0 million of losses on acquisition-related currency collars/options, and $14.2 million of net currency revaluation losses. Debt-refinancing and other costs were $116.5 million, including a $55.8 million charge for redeeming $1.0 billion of senior notes.
- Other transactions and investment: Ball acquired the remaining Latapack-Ball joint-venture interests in Brazil for approximately 5.7 million treasury shares and $17.4 million cash, making it wholly owned. It also acquired Sonoco metal-end and closure facilities for $29.1 million cash plus contingent consideration. New facilities and capacity included Monterrey, Mexico, which began production in January 2016, and planned Myanmar capacity expected to start in 2016.
- Key operating risks: Metal beverage containers represented 74% of consolidated sales, and a relatively small number of customers account for significant sales. Risks include demand and packaging substitution, commodity prices and supply, currency movements, China industry oversupply and possible impairment of $78.3 million in related goodwill, and U.S. government funding reductions affecting aerospace. Pension obligations, environmental matters, tax uncertainty and labor disruptions are additional risks. Management said identified litigation and environmental matters were not expected to materially affect results or liquidity; outcomes are uncertain.
Important facts for investors to verify
- Whether the Rexam acquisition, required divestitures and financing closed on the expected terms, and the resulting debt, dilution and synergies.
- Whether 2016 cash-flow and capital-spending estimates were achieved and how much cash was needed for transaction costs and debt service.
- Whether China pricing and oversupply improved, and whether the Asia reporting unit’s goodwill remained recoverable.
- Whether European currency effects, metal food customer-volume changes and aerospace contract funding continued to affect results and backlog.
- The full reconciliation of GAAP earnings to comparable earnings and EBIT, including the treatment of acquisition, hedge, consolidation and refinancing items.