Ball Corporation — 2014 Form 10-K
Business context and reporting period. The filing covers the fiscal year ended December 31, 2014; it is an annual report, not a standalone fourth-quarter filing. Ball supplies metal packaging for beverage, food, personal care and household products, and provides aerospace and technology products and services. Packaging generated 89% of 2014 sales; aerospace generated 11%.
Financial performance
| Metric | 2014 | 2013 |
|---|---|---|
| Net sales | $8,570.0 million | $8,468.1 million |
| EBIT | $838.6 million | $795.4 million |
| Net earnings attributable to Ball | $470.0 million | $406.8 million |
| Diluted EPS | $3.30 | $2.73 |
| Operating cash flow | $1,012.5 million | $839.0 million |
| Free cash flow, company-defined | $621.7 million | $460.7 million |
| Interest-bearing debt and capital leases | $3,168.9 million | $3,605.1 million |
- Sales rose 1.2%; Ball-attributable earnings rose 15.5%. Net margin increased to 5.5% from 4.8%; EBIT margin was approximately 9.8%, versus 9.4%.
- Comparable diluted EPS, a non-GAAP measure, was $3.88 versus $3.28; comparable EBIT was $919.1 million versus $874.2 million.
- Cost of sales excluding depreciation and amortization was 80.6% of sales, compared with 81.2%. SG&A increased to $466.5 million from $418.6 million. Total interest expense was $193.0 million, including $33.1 million of debt-refinancing costs.
- Year-end cash was $191.4 million, down from $416.0 million. Total current assets were $2,313.5 million and current liabilities $2,006.8 million. Approximately $984 million was available on committed revolving facilities, excluding the receivables securitization program; Ball reported covenant compliance.
- Capital expenditures were $390.8 million. Ball paid $0.52 per share in dividends and repurchased $360.1 million of shares, net of issuances.
Material changes versus 2013
- Higher beverage-container volumes and aerospace revenues supported sales and earnings; lower North American food and household-product volumes partly offset growth.
- Americas and Asia beverage segment sales increased to $4,246.8 million and earnings before consolidation costs increased to $534.8 million. Europe beverage sales rose to $1,896.3 million and segment earnings before those costs rose to $222.9 million.
- Food and household segment sales fell to $1,504.4 million and earnings before consolidation costs fell to $154.2 million, mainly on lower volumes and unfavorable U.S. tinplate service-center performance.
- Aerospace sales increased to $934.8 million; segment earnings before consolidation costs rose to $93.6 million. Aerospace backlog declined to $765 million from $938 million, largely following completion of multi-year contracts.
- Operating cash flow improved by $173.5 million, with favorable working-capital movements, including higher days payable outstanding. Foreign-currency translation and pension-related changes reduced comprehensive earnings attributable to Ball to $197.9 million, from $519.0 million.
Outlook, commentary and notable items
- Management estimated 2015 operating cash flow of about $1 billion, capital expenditures of about $400 million and free cash flow of about $600 million. Approximately $170 million of expected 2015 capital expenditures was contractually committed at year-end 2014.
- On February 19, 2015, Ball announced a recommended offer to acquire Rexam for cash and stock, valuing it at approximately £4.3 billion ($6.6 billion). The proposed transaction was subject to shareholder, court and regulatory approvals and other conditions; completion was not assured. Ball arranged a £3.3 billion bridge loan and a new $3 billion revolving facility in connection with the offer and related financing plans.
- Ball also announced redemption of $500 million each of its 6.75% notes due 2020 and 5.75% notes due 2021. The expected pretax refinancing charge was approximately $56.3 million ($36.9 million after tax).
- Consolidation and other charges totaled $80.5 million in 2014. Notable items included a $16.5 million provision against a long-term customer receivable following the customer’s financial difficulties and pension-settlement charges. Prior-year comparability was also affected by restructuring and customer-credit charges.
- Key risks include customer concentration; competition and substitution by plastic, glass and other packaging; metal and energy input costs; currency exposure; pension obligations; and government funding and contract-estimate risks in aerospace. The Rexam proposal added financing, integration, regulatory-divestiture, dilution and possible break-payment risks.
- Management reported effective disclosure controls and internal control over financial reporting; PwC gave an unqualified opinion on the financial statements and internal controls. The filing also revised prior-period deferred-tax amounts, concluding the errors were not material to the prior periods but that correction was material to 2014 reporting.
Investor verification points
- Review the full Rexam offer terms, approvals, financing commitments, potential divestitures and the transaction’s eventual outcome.
- Assess whether 2015 cash-flow and capital-spending estimates were achieved, and the extent to which 2014 working-capital benefits—especially increased payables—were repeatable.
- Examine the $16.5 million customer receivable provision, related customer exposure and any subsequent recoveries or additional losses.
- Reconcile GAAP results to comparable EBIT, comparable earnings and free cash flow, including the effect of restructuring and refinancing charges.
- Monitor debt, liquidity and covenant headroom after the proposed acquisition financing and note redemptions, as well as pension funding and aerospace backlog conversion.