BALL

Ball Corporation 2009 Annual Report (10-K) Summary

Business Context and Reporting Period

This filing covers the fiscal year ended December 31, 2009. Ball Corporation is a leading global supplier of metal and plastic packaging for the beverage, food, and household products industries, as well as a provider of aerospace and technologies services. The company operates through five reportable segments: Metal Beverage Packaging (Americas & Asia), Metal Beverage Packaging (Europe), Metal Food & Household Products Packaging (Americas), Plastic Packaging (Americas), and Aerospace & Technologies. Packaging businesses accounted for 91% of net sales, with metal beverage containers representing 63% of total sales.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Consolidated net sales decreased 3% to $7.35 billion, primarily due to lower aluminum prices and volume declines in North America, partially offset by volume growth from acquisitions.
• Earnings Growth: Net earnings increased 21% to $387.9 million, driven by cost savings from plant closures, earnings from acquired assets, and lower interest rates, despite lower sales volumes.
• Acquisitions: On October 1, 2009, Ball acquired four metal beverage container plants from Anheuser-Busch InBev for $574.7 million. These plants contributed $160 million in sales and $12 million in earnings for the remainder of 2009.
• Divestitures: Sold plastic pail assets to BWAY Corporation for $32 million in October 2009. Sold a 75% stake in DigitalGlobe in May 2009, generating a $34.8 million pretax gain.
• Plant Closures: Continued rationalization of capacity with closures of metal beverage plants in North America and plastic packaging plants in the U.S. and Canada to align supply with demand.

Guidance, Outlook, and Risks

Outlook: Management estimates 2010 operating cash flow to be approximately $735 million, capital spending around $235 million, and free cash flow in the $500 million range. The company intends to use cash flow to reduce debt, grow cash balances, and increase stock repurchases.

Risks and Contingencies:

• Raw Material Volatility: Profitability is sensitive to aluminum, steel, and resin prices. While pass-through provisions exist, some contracts are fixed-price, creating exposure.
• Customer Concentration: A majority of packaging sales are to a few major beverage and food companies (e.g., MillerCoors, Anheuser-Busch InBev).
• Aerospace Funding: The aerospace segment relies heavily on U.S. government contracts (94% of segment sales), which are subject to budget constraints and funding delays.
• Legal Proceedings: Ongoing investigations regarding potential Foreign Corrupt Practices Act violations in Argentina (SEC investigation continues; DOJ closed without charges) and environmental remediation liabilities.
• Accounting Change: New accounting guidance effective January 1, 2010, will require the company's accounts receivable securitization program to be recorded on the balance sheet, impacting the classification of cash flows.

Key Facts for Investor Verification

• Integration of AB InBev Assets: Verify the successful integration of the four acquired plants and the realization of projected synergies.
• Raw Material Pass-Through: Monitor the ability to pass through rising aluminum and steel costs to customers in 2010, particularly in markets with fixed-price contracts.
• Aerospace Backlog: Track the $518 million backlog and the impact of federal budget decisions on future contract awards and revenue recognition.
• Debt Management: Assess the company's ability to service $2.6 billion in debt while maintaining liquidity, especially given the shift in accounting treatment for receivables securitization.
• Argentina Investigation: Monitor the status of the SEC investigation regarding potential FCPA violations in Argentina.