Ball Corporation — Q1 2012 Form 10-Q
Reporting period: Three months ended April 1, 2012; figures are unaudited and generally compared with the three months ended April 3, 2011. Ball supplies metal packaging and aerospace and technology products and services.
Financial performance
| Metric | Q1 2012 | Q1 2011 |
|---|---|---|
| Net sales | $2,042.7 million | $2,011.2 million |
| EBIT | $182.0 million | $194.0 million |
| Net earnings attributable to Ball | $88.3 million | $91.3 million |
| Diluted EPS | $0.55 | $0.53 |
| Operating cash flow | $(218.3) million | $(74.4) million |
| Capital expenditures | $76.0 million | $95.0 million |
- Sales rose 1.6%, while EBIT fell 6.2% and Ball-attributable earnings declined 3.3%. EBIT margin was approximately 8.9%, versus 9.6%.
- Management-reported comparable earnings were $100.8 million versus $101.0 million; comparable diluted EPS was $0.63 versus $0.58. These non-GAAP measures exclude specified items, including refinancing costs and consolidation activities.
- Operating cash outflow increased, chiefly reflecting higher seasonal working-capital needs and approximately $95 million more U.S. pension funding than in Q1 2011.
- At April 1, cash was $106.8 million. Interest-bearing debt was $3.63 billion, up from $3.14 billion at year-end 2011; net debt was $3.52 billion. Current assets were $2.52 billion and current liabilities $1.81 billion.
Segment results and changes
- Metal beverage packaging, Americas and Asia: Sales increased to $1,049.7 million from $1,032.3 million; segment earnings declined to $105.5 million from $115.6 million. Higher North American distribution costs and weaker production performance, particularly in Brazil, weighed on results.
- Metal beverage packaging, Europe: Sales rose to $463.0 million from $443.0 million; segment earnings were broadly steady at $53.7 million versus $53.1 million. Higher volumes and pricing/mix were partly offset by currency effects and higher costs.
- Metal food and household products, Americas: Sales declined to $330.4 million from $344.7 million and earnings to $28.0 million from $39.8 million. The prior-year period benefited from nonrecurring inventory holding gains.
- Aerospace and technologies: Sales increased to $201.6 million from $191.2 million and earnings to $19.7 million from $18.7 million, mainly on higher U.S. national defense contract sales. Contracted backlog was approximately $856 million, down from $897 million at year-end; management cautioned backlog is not necessarily indicative of future results.
Liquidity, financing and outlook
- Ball issued $750 million of 5.00% senior notes due 2022 and tendered for its 6.625% notes due 2018. The refinancing generated a $15.1 million charge; the remaining $57.3 million of the old notes was redeemed in April.
- Approximately $833 million was available under committed revolving credit facilities through December 2015. The company also reported $444 million of short-term uncommitted facilities, with $233.3 million outstanding and due on demand. Ball was in compliance with debt covenants at quarter-end.
- Management described liquidity as strong and said operating cash flow and borrowings, when needed, were expected to cover operating needs, debt service, dividends and anticipated capital spending. 2012 capital expenditures were expected to be approximately $400 million, including $125 million contractually committed at quarter-end.
- Management expected a full-year 2012 effective tax rate of approximately 30%, compared with 23.0% in Q1 2012 and 32.5% in Q1 2011. The lower quarterly rate mainly reflected releases of tax reserves following reviews and settlements.
- Revised estimates of equipment useful lives reduced Q1 depreciation and cost of sales by $8.9 million ($5.6 million after tax, or $0.03 per diluted share); the company expected a $33.7 million full-year reduction before tax. A separate accounting alignment increased Q1 costs by $2.3 million and was expected to add $11.0 million to full-year costs.
- Ball repurchased $200 million of shares through an accelerated repurchase agreement during the quarter. First-quarter share repurchases, net of issuances, totaled $191.1 million. The quarterly dividend was $0.10 per share.
Risks, contingencies and other notable matters
- Key disclosed risks include customer concentration, packaging demand and pricing, industry overcapacity, raw-material and energy costs, currency and interest-rate movements, pension obligations, and the funding and timing of aerospace contracts.
- Ball reported ordinary-course litigation and environmental matters. In the Hess electricity-contract dispute, a court found Ball’s subsidiary breached an agreement; damages remained to be resolved, and the company did not expect a material adverse effect. A patent matter involving Crown was on appeal after Ball obtained summary judgment of non-infringement.
- Management stated disclosure controls were effective. The quarter included implementation of a new financial consolidation system; the company said it was not prompted by an identified control deficiency.
- Management cautioned that packaging results are seasonal and aerospace contract revenue is irregular; Q1 performance may not indicate full-year results.
Investor verification points
- Track whether working-capital demands and pension contributions normalize, and whether operating cash flow improves.
- Assess debt growth, refinancing effects, share repurchases, and the availability and terms of committed and on-demand borrowing.
- Verify whether the expected 2012 capital expenditure, tax rate, and depreciation/accounting impacts materialized.
- Monitor beverage and food packaging volumes, manufacturing costs, commodity pass-throughs, and aerospace backlog conversion and funding.
- Follow developments in the Hess and Crown matters and other disclosed legal, environmental, and indemnification exposures.