Ball Reports Strong 2017 Operating Results and Cash Flow; Reaffirms 2019 Long-Term Goals
BROOMFIELD, Colo., Feb. 7, 2018 /PRNewswire/ -- Ball Corporation (NYSE: BLL) today reported, on a U.S. GAAP basis, full-year 2017 net earnings attributable to the corporation of $399 million (including the net effect of after-tax charges of $329 million, or 92 cents per diluted share for the U.S. Tax Cuts and Jobs Act, business consolidation and other non-comparable costs) or $1.12 per diluted share, on sales of $11.0 billion, compared to $263 million attributable to the corporation, or 81 cents per diluted share (including the net effect of after-tax charges of $300 million, or 93 cents per diluted share for business consolidation, debt refinancing and other non-comparable costs), on sales of $9.1 billion in 2016. Ball's 2017 comparable net earnings were $728 million, or $2.04 per diluted share, compared to $563 million, or $1.74 per diluted share in 2016.
Fourth quarter 2017 net earnings attributable to Ball Corporation, on a U.S. GAAP basis, were $184 million, or 52 cents per diluted share, on sales of $2.75 billion, compared to $52 million, or 15 cents per diluted share, on sales of $2.5 billion, in the fourth quarter of 2016. Ball's fourth quarter 2017 comparable net earnings were $213 million, or 60 cents per diluted share, compared to $155 million, or 44 cents per diluted share in the fourth quarter of 2016.
Earnings per share figures include the impact of the company's two-for-one stock split effective May 16, 2017. The historical 2016 comparable operating results prior to June 30, 2016, exclude the effects of the Rexam transaction. Details of comparable segment earnings, business consolidation activities and other non-comparable costs, impact of the U.S. Tax Cuts and Jobs Act, and catch-up depreciation entries for the last six months of 2016 and recorded in 2017 related to the finalization of the fair values for the June 30, 2016, Rexam acquisition can be found in the notes to the unaudited condensed consolidated financial statements that accompany this news release.
"Ball Corporation finished the year strong, with continued improved performance across each of our segments. In our global beverage can business, overall volumes were up approximately 2.5 percent in the quarter, driven by continued strong performance in our South American beverage can business, a rebound in our North American beverage operations following the hurricane disruptions experienced in the third quarter, and our European beverage can business continued to execute its margin-enhancing strategy. In addition, our food and aerosol segment was up year-over-year in the quarter driven by the mid-single digit increase in global aluminum aerosol volumes and better than expected tinplate packaging volumes, while our aerospace team achieved record contracted backlog levels at year-end," said John A. Hayes, chairman, president and chief executive officer.
"We are poised to execute on numerous growth capital and network optimization projects to enhance our customers' access to our innovative specialty container portfolio while also expanding the company's U.S. aerospace infrastructure. With our businesses operating from a position of strength, we continue to drive toward our financial goals of $2 billion of comparable EBITDA and in excess of $1 billion of free cash flow in 2019."
Beverage Packaging, North and Central America
Beverage packaging, North and Central America, comparable segment operating earnings for the full-year 2017 were $533 million on sales of $4.2 billion, compared to $469 million on sales of $3.6 billion in 2016. Segment operating earnings in the fourth quarter were $133 million on sales of $998 million, compared to $114 million on sales of $959 million in the fourth quarter 2016.
Year-over-year results reflect low-single digit segment volume growth following continued growth in Mexican beer imports, increasing demand for differentiated specialty can sizes for carbonated soft drinks and development in other non-alcoholic beverage categories offset by declines in domestic mass beer consumption in 2017.
During the quarter, cost savings from the previously disclosed Reidsville, North Carolina, plant rationalization and an improved operating environment in the southern U.S., as well as continued growth in Mexican volumes were offset by a decline in domestic beer consumption. Overall beverage can segment volumes for the quarter were flat. The construction of a state-of-the-art specialty beverage can manufacturing facility in Goodyear, Arizona, is on schedule and on budget with production beginning early in the second half of 2018.
Beverage Packaging, South America
Beverage packaging, South America, comparable segment operating earnings for the full-year 2017 were $333 million on sales of $1.7 billion, compared to $185 million on sales of $1 billion during 2016. Segment operating earnings in the fourth quarter of 2017 were $128 million on sales of $547 million compared to $85 million on sales of $437 million in the fourth quarter of 2016.
Year-over-year and fourth quarter segment volumes were up high single-digits and mid-teens, respectively. Overall beer consumption trends improved in the fourth quarter of 2017 and the packaging mix shift from two-way glass to beverage cans continued throughout 2017 across South America. The company recently announced plans to construct a beverage can plant in Paraguay to support contracted volumes for the growing demand for infinitely recyclable, environmentally friendly aluminum beverage packaging across Paraguay, Argentina and Bolivia. Ball also benefitted from third-party end sales as part of the Rexam acquisition and concurrent divestment of certain Brazilian assets. The ends manufacturing production will transition to the divested business in the first half of 2018.
Beverage Packaging, Europe
Beverage packaging, Europe, comparable segment operating earnings for full-year 2017 were $233 million on sales of $2.4 billion, compared to $217 million on sales of $1.9 billion in 2016. Comparable segment operating earnings in the fourth quarter of 2017 were $49 million on sales of $536 million, compared to $32 million on sales of $456 million in 2016. Comparable full-year and fourth quarter 2017 segment operating earnings included the net effect of the June 30, 2016, Rexam transaction and approximately $32 million and $8 million of incremental year-over-year depreciation expense, respectively, related to the final acquisition accounting completed on June 30, 2017.
Comparable segment earnings for the fourth quarter of 2017 reflect ongoing operational efficiencies related to optimizing our plant network. Segment demand was up low-single digits in the quarter led by favorable demand trends, particularly in Russia and the Iberian Peninsula. Construction continues on the company's new Madrid, Spain, aluminum beverage can facility, which is scheduled to start production in mid-2018.
Food and Aerosol Packaging
Food and aerosol packaging comparable segment operating earnings for the full-year 2017 were $102 million on sales of $1.1 billion, compared to $109 million on sales of $1.2 billion during 2016. Segment operating earnings in the fourth quarter of 2017 were $26 million on sales of $271 million compared to $24 million on sales of $259 million in 2016.
During the fourth quarter, the segment benefitted from mid-single digit volume growth in our global aluminum aerosol business, improved manufacturing performance across our U.S. tinplate packaging business and stronger than anticipated U.S. food can volume demand due to customers carrying more inventory into 2018. Full-year and fourth quarter 2017 results also include the absence of sales and earnings from the Baltimore, Maryland, and Hubbard, Ohio, facilities, which were sold in late 2016 and early 2017, respectively.
Aerospace
Aerospace comparable segment operating earnings for full-year 2017 were $98 million on sales of $991 million, compared to $88 million on sales of $818 million during 2016. Comparable segment operating earnings in the fourth quarter of 2017 were $28 million on sales of $257 million compared to $26 million on sales of $241 million in the fourth quarter of 2016. The ramp up of new contracts and the mix of more cost-plus versus fixed-price contracts influenced year-over-year margins.
The aerospace segment finished 2017 with record contracted backlog of $1.75 billion and hired in excess of 400 employees in the U.S. during the year. Colorado facility expansions in Westminster and Boulder, Colorado, are on track for completion in the fourth quarter of 2018 and the business anticipates hiring at least 450 additional U.S. employees by the end of 2018. Outstanding requests for bids and proposals remain high and contracts already won, but not yet booked into current backlog, remain at record levels. Momentum in our aerospace segment supports recent capital deployment and further segment earnings improvement in 2018 and beyond.
Outlook
"Our 2017 free cash flow exceeded $920 million supported by approximately $325 million in year-over-year working capital reductions. The company's EVA discipline and relentless attention on our balance sheet will result in multi-year returns of value to shareholders in 2018 and beyond. Year-end net debt of $6.5 billion was nearly $400 million lower versus last year despite $275 million of higher year-over-year foreign exchange rates on our foreign currency-denominated debt, pension funding of approximately $200 million, and $205 million of combined share repurchases and dividends. In 2018, our free cash flow is estimated to be in the range of $900 million after capital spending of at least $600 million, and our initial estimates are to return approximately $500 million to shareholders in the form of share buybacks and dividends," said Scott C. Morrison, senior vice president and chief financial officer.
"Our company finished the year very strong and we were in line with or above the financial goals we set out for the newly combined business in mid-2016. Aluminum packaging continues to be consumers' package of choice. We are encouraged by the U.S. Tax Cuts and Jobs Act's potential to stimulate the U.S. middle class, which should benefit our end markets, and we estimate the Act will lower our global effective tax rate on comparable earnings from approximately 25 percent in 2017 to approximately 23 percent in 2018. As we look forward, our synergy capture plans remain on track and we expect to make continued progress in 2018 as we drive toward our 2019 goals of $2 billion of comparable EBITDA and in excess of $1 billion of free cash flow," Hayes said.
About Ball Corporation
Ball Corporation supplies innovative, sustainable packaging solutions for beverage, food and household products customers, as well as aerospace and other technologies and services primarily for the U.S. government. Ball Corporation and its subsidiaries employ 18,300 people worldwide and reported 2017 net sales of $11 billion. For more information, visit www.ball.com, or connect with us on Facebook or Twitter.
Conference Call Details
Ball Corporation (NYSE: BLL) will hold its fourth quarter 2017 earnings call today at 9 a.m. Mountain time (11 a.m. Eastern). The North American toll-free number for the call is 800-741-4871. International callers should dial 303-223-0113. Please use the following URL for a webcast of the live call:
https://edge.media-server.com/m6/p/24gein33
For those unable to listen to the live call, a taped replay will be available from 11 a.m. Mountain time on Feb. 7, 2018, until 11 a.m. Mountain time on Feb. 14, 2018. To access the replay, call 800-633-8284 (North American callers) or 402-977-9140 (international callers) and use reservation number 21877814. A written transcript of the call will be posted within 48 hours of the call's conclusion to Ball's website at www.ball.com/investors under "news and presentations."
Forward-Looking Statements
This release contains "forward-looking" statements concerning future events and financial performance. Words such as "expects," "anticipates," "estimates," "believes," "targets," "likely" and similar expressions typically identify forward-looking statements, which are generally any statements other than statements of historical fact. Such statements are based on current expectations or views of the future and are subject to risks and uncertainties, which could cause actual results or events to differ materially from those expressed or implied. You should therefore not place undue reliance upon any forward-looking statements and any of such statements should be read in conjunction with, and, qualified in their entirety by, the cautionary statements referenced below. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Key factors, risks and uncertainties that could cause actual outcomes and results to be different are summarized in filings with the Securities and Exchange Commission, including Exhibit 99 in our Form 10-K, which are available on our website and at www.sec.gov. Additional factors that might affect: a) our packaging segments include product demand fluctuations; availability/cost of raw materials; competitive packaging, pricing and substitution; changes in climate and weather; competitive activity; failure to achieve synergies, productivity improvements or cost reductions; mandatory deposit or other restrictive packaging laws; customer and supplier consolidation, power and supply chain influence; changes in major customer or supplier contracts or a loss of a major customer or supplier; political instability and sanctions; currency controls; and changes in foreign exchange or tax rates, including due to the effects of the 2017 U.S. Tax Cuts and Jobs Act; b) our aerospace segment include funding, authorization, availability and returns of government and commercial contracts; and delays, extensions and technical uncertainties affecting segment contracts; c) the company as a whole include those listed plus: changes in senior management; regulatory action or issues including tax, environmental, health and workplace safety, including U.S. FDA and other actions or public concerns affecting products filled in our containers, or chemicals or substances used in raw materials or in the manufacturing process; technological developments and innovations; litigation; strikes; labor cost changes; rates of return on assets of the company's defined benefit retirement plans; pension changes; uncertainties surrounding geopolitical events and governmental policies both in the U.S. and in other countries, including the U.S. government elections, budget, sequestration and debt limit; reduced cash flow; ability to achieve cost-out initiatives and synergies; interest rates affecting our debt; and successful or unsuccessful acquisitions and divestitures, including with respect to the Rexam PLC acquisition and its integration, or the associated divestiture; the effect of the acquisition or the divestiture on our business relationships, operating results and business generally.
Condensed Financial Statements (Fourth Quarter 2017)
---------------------------------------------------
Unaudited Condensed Consolidated Statements of Earnings
Three Months Ended Year Ended
December 31, December 31,
------------ ------------
($ in millions, except per share
amounts) 2017 2016 2017 2016
---- ---- ---- ----
Net sales $2,747 $2,523 $10,983 $9,061
--------- ------ ------ ------- ------
Costs and expenses
Cost of sales (excluding
depreciation and amortization) (2,134) (2,008) (8,717) (7,296)
Depreciation and amortization (190) (154) (729) (453)
Selling, general and
administrative (116) (163) (514) (512)
Business consolidation and other
activities 32 (35) (221) (337)
--- --- ---- ----
(2,408) (2,360) (10,181) (8,598)
------ ------ ------- ------
Earnings before interest and
taxes 339 163 802 463
---------------------------- --- --- --- ---
Interest expense (69) (70) (285) (229)
Debt refinancing and other costs (2) (1) (3) (109)
--- --- --- ----
Total interest expense (71) (71) (288) (338)
--- --- ---- ----
Earnings before taxes 268 92 514 125
Tax (provision) benefit (92) (49) (140) 126
Equity in results of affiliates,
net of tax 8 9 31 15
Net earnings 184 52 405 266
------------ --- --- --- ---
Net earnings attributable to
noncontrolling interests - - (6) (3)
Net earnings attributable to
Ball Corporation $184 $52 $399 $263
---------------------------- ---- --- ---- ----
Earnings per share (a):
Basic $0.53 $0.15 $1.14 $0.83
Diluted $0.52 $0.15 $1.12 $0.81
Weighted average shares
outstanding (000s) (a):
Basic 349,639 349,424 350,269 316,542
Diluted 356,384 355,540 356,985 322,884
(a) Amounts in 2016 have been
retrospectively adjusted for the
two-for-one stock split that was
effective on May 16, 2017.
Unaudited Condensed Consolidated Statements of Cash Flows
Year Ended
December 31,
------------
($ in millions) 2017 2016
---- ----
Cash Flows from
Operating
Activities:
Net earnings $405 $266
Depreciation and
amortization 729 453
Business
consolidation and
other activities 221 337
Deferred tax
provision (benefit) 70 (293)
Other, net (268) (60)
Changes in working
capital (a) 321 (509)
--- ----
Cash provided by
(used in) operating
activities 1,478 194
-------------------- ----- ---
Cash Flows from
Investing
Activities:
Capital expenditures (556) (606)
Business acquisitions - (3,379)
Business dispositions (2) 2,938
Restricted cash, net - 1,966
Settlement of Rexam
acquisition related
derivatives - (252)
Other, net 13 5
--- ---
Cash provided by
(used in) investing
activities (545) 672
-------------------- ---- ---
Cash Flows from
Financing
Activities:
Changes in
borrowings, net (861) (231)
Net issuances
(purchases) of
common stock (76) (59)
Dividends (129) (83)
Other, net (7) (14)
--- ---
Cash provided by
(used in) financing
activities (1,073) (387)
-------------------- ------ ----
Effect of currency
exchange rate
changes on cash (9) (106)
Change in cash (149) 373
Cash -beginning of
period 597 224
--- ---
Cash - end of period $448 $597
-------------------- ---- ----
(a) Includes payments of costs
associated with the
acquisition of Rexam and the
sale of the Divestment
Business.
Unaudited Condensed Consolidated Balance Sheets
December 31,
------------
($ in
millions) 2017 2016
---- ----
Assets
Current
assets
Cash and
cash
equivalents $448 $597
Receivables,
net 1,626 1,491
Inventories,
net 1,526 1,413
Other
current
assets 159 152
--- ---
Total
current
assets 3,759 3,653
Property,
plant and
equipment,
net 4,610 4,387
Goodwill 4,933 5,095
Intangible
assets,
net 2,462 1,934
Other
assets 1,418 1,104
Total
assets $17,182 $16,173
------- ------- -------
Liabilities
and
Shareholders'
Equity
Current
liabilities
Short-
term
debt and
current
portion
of long-
term
debt $453 $222
Payables
and
other
accrued
liabilities 3,641 2,747
----- -----
Total
current
liabilities 4,094 2,969
Long-
term
debt 6,518 7,310
Other
long-
term
liabilities 2,499 2,353
Shareholders'
equity 4,071 3,541
Total
liabilities
and
shareholders'
equity $17,182 $16,173
-------------- ------- -------
Notes to the Condensed Financial
Statements (Fourth Quarter 2017)
---------------------------------
1. Business Segment Information
Ball's operations are organized
and reviewed by management along
its product lines and
geographical areas and presented
in the five reportable segments
outlined below:
Beverage packaging, North and
Central America: Consists of
operations in the U.S., Canada
and Mexico that manufacture and
sell metal beverage containers.
--------------------------------
Beverage packaging, South America:
Consists of operations in Brazil,
Argentina and Chile that
manufacture and sell metal
beverage containers.
----------------------------------
Beverage packaging, Europe:
Consists of operations in
numerous countries in Europe,
including Russia, that
manufacture and sell metal
beverage containers.
------------------------------
Food and aerosol packaging:
Consists of operations in the
U.S., Europe, Canada, Mexico,
Argentina and India that
manufacture and sell steel food
and aerosol containers, extruded
aluminum aerosol containers and
aluminum slugs.
---------------------------------
Aerospace: Consists of operations
that manufacture and sell
aerospace and other related
products and the provision of
services used in the defense,
civil space and commercial space
industries.
---------------------------------
Other consists of non-reportable
segments in Africa, Middle East
and Asia (AMEA) and Asia Pacific
that manufacture and sell metal
beverage containers,
undistributed corporate expenses,
intercompany eliminations and
other business activities.
The company also has investments
in operations in Guatemala,
Panama, South Korea, the U.S. and
Vietnam that are accounted for
under the equity method of
accounting and, accordingly,
those results are not included in
segment sales or earnings.
Three Months Ended Year Ended
December 31, December 31,
------------ ------------
($ in millions) 2017 2016 2017 2016
---- ---- ---- ----
Net sales
Beverage packaging, North and Central America $998 $959 $4,178 $3,612
Beverage packaging, South America 547 437 1,692 1,014
Beverage packaging, Europe 536 456 2,360 1,915
Food and aerosol packaging 271 259 1,138 1,171
Aerospace 257 241 991 818
--- --- --- ---
Reportable segment sales 2,609 2,352 10,359 8,530
Other 138 171 624 531
--- --- --- ---
Net sales $2,747 $2,523 $10,983 $9,061
====== ====== ======= ======
Comparable operating earnings
Beverage packaging, North and Central America $133 $114 $533 $469
Beverage packaging, South America 128 85 333 185
Beverage packaging, Europe 49 32 233 217
Food and aerosol packaging 26 24 102 109
Aerospace 28 26 98 88
--- --- --- ---
Reportable segment comparable operating earnings 364 281 1,299 1,068
Other (a) (14) (23) (79) (92)
--- --- --- ---
Comparable operating earnings 350 258 1,220 976
Reconciling items
Business consolidation and other activities 32 (35) (221) (337)
Amortization of acquired Rexam intangibles (42) (32) (162) (65)
Catch-up depreciation and amortization for 2016 from finalization of Rexam valuation (1) - (35) -
Cost of sales associated with Rexam inventory step-up - (1) - (84)
Egyptian pound devaluation - (27) - (27)
--- --- --- ---
Earnings before interest and taxes 339 163 802 463
Interest expense (69) (70) (285) (229)
Debt refinancing and other costs (2) (1) (3) (109)
--- --- --- ----
Total interest expense (71) (71) (288) (338)
--- --- ---- ----
Earnings before taxes 268 92 514 125
Tax (provision) benefit (92) (49) (140) 126
Equity in results of affiliates 8 9 31 15
--- --- --- ---
Net earnings 184 52 405 266
Net earnings attributable to noncontrolling interests - - (6) (3)
--- --- --- ---
Net earnings attributable to Ball Corporation $184 $52 $399 $263
==== === ==== ====
(a) Includes undistributed
corporate expenses,
net, of $22 million
and $32 million for
the fourth quarter of
2017 and 2016,
respectively, and
$128 million and $110
million for the year
ended 2017 and 2016,
respectively.
2. Non-Comparable Items
Three Months Ended December 31, Year Ended December 31,
------------------------------- -----------------------
($ in millions) 2017 2016 2017 2016
---- ---- ---- ----
Non-comparable items - income
(expense)
Beverage packaging, North and
Central America
Business consolidation and other
activities
Birmingham, Chatsworth and
Longview facility closure costs
(1) $ - $ - $(33) $ -
Reidsville facility closure costs
(2) (2) (9) (9) (9)
Rexam transaction related costs
(3) - (1) (1) (4)
Individually insignificant items - 2 (4) (7)
Other non-comparable items
Cost of sales associated with
Rexam inventory step-up (4) - - - (10)
Amortization of acquired Rexam
intangibles (5) (9) (5) (32) (11)
Catch-up depreciation and
amortization for 2016 from
finalization of Rexam valuation
(6) - - (6) -
--- --- --- ---
Total beverage packaging, North
and Central America (11) (13) (85) (41)
--- --- --- ---
Beverage packaging, South America
Business consolidation and other
activities
Rexam transaction related costs
(3) (1) - (3) (14)
Individually insignificant items - - (2) (1)
Other non-comparable items
Cost of sales associated with
Rexam inventory step-up (4) - - - (20)
Amortization of acquired Rexam
intangibles (5) (14) (8) (56) (17)
Catch-up depreciation and
amortization for 2016 from
finalization of Rexam valuation
(6) - - (14) -
--- --- --- ---
Total beverage packaging, South
America (15) (8) (75) (52)
--- --- --- ---
Beverage packaging, Europe
Business consolidation and other
activities
Recklinghausen closure costs (7) (19) - (81) -
Rexam transaction related costs
(3) (2) (4) (4) (22)
Individually insignificant items 1 (1) (4) (2)
Other non-comparable items
Cost of sales associated with
Rexam inventory step-up (4) - (1) - (47)
Amortization of acquired Rexam
intangibles (5) (17) (16) (67) (31)
Catch-up depreciation and
amortization for 2016 from
finalization of Rexam valuation
(6) (1) - (19) -
--- --- --- ---
Total beverage packaging, Europe (38) (22) (175) (102)
--- --- ---- ----
Food and aerosol packaging
Gain on sale of Hubbard facility
(8) - - 15 -
Gain on sale of Baltimore facility
(9) - 9 - 9
Manufacturing asset
rationalization (10) - (10) (10)
Weirton facility closure costs
(11) (1) (4) (7) (18)
Individually insignificant items - - (2) (7)
--- --- --- ---
Total food and aerosol packaging (1) (5) 6 (26)
--- --- --- ---
Three Months Ended December 31, Year Ended December 31,
------------------------------- -----------------------
2017 2016 2017 2016
---- ---- ---- ----
Other
Business consolidation and other
activities
Pension settlement (12) (3) - (44) -
Divestment Business indemnities
(13) - - (34) -
Rexam acquisition related
compensation arrangements (14) (3) (2) (25) (108)
Gain on sale of the Divestment
Business (15) 69 - 55 344
Rexam transaction related costs
(3) - (12) (12) (301)
Currency exchange gain (loss) for
restricted cash, intercompany
loans and 2020, 2023 euro senior
notes (16) - 1 - (173)
Individually insignificant items (7) (4) (26) (14)
Other non-comparable items
Cost of sales associated with
Rexam inventory step-up (4) - - - (7)
Amortization of acquired Rexam
intangibles (5) (2) (3) (7) (6)
Catch-up depreciation and
amortization for 2016 from
finalization of Rexam valuation
(6) - - 4 -
Egyptian pound devaluation (17) - (27) - (27)
--- --- --- ---
Total other 54 (47) (89) (292)
--- --- --- ----
Total business consolidation and
other activities 32 (35) (221) (337)
Total other non-comparable items (43) (60) (197) (176)
--- --- ---- ----
Total non-comparable items (11) (95) (418) (513)
--- --- ---- ----
Impact of U.S. tax reform (18) (71) - (71) -
Tax effect on business
consolidation and other
activities 42 (24) 109 242
Tax effect on other non-
comparable items 13 17 54 47
--- --- --- ---
Total non-comparable tax items (16) (7) 92 289
--- --- --- ---
Total non-comparable items, net
of tax $(27) $(102) $(326) $(224)
==== ===== ===== =====
Three Months Ended December 31, Year Ended December 31,
------------------------------- -----------------------
($ in millions) 2017 2016 2017 2016
---- ---- ---- ----
Debt Refinancing and Other Costs
Interest expense on 3.5% and
4.375% senior notes (19) $ - $ - $ - $(49)
Refinancing of bridge and
revolving credit facilities (20) - - - (30)
Economic hedge -interest rate
risk (3) - - - (20)
Amortization of unsecured,
committed bridge facility
financing fees (21) - - - (7)
Individually insignificant items (2) (1) (3) (3)
--- --- --- ---
Total debt refinancing and other
costs (2) (1) (3) (109)
Tax effect on debt refinancing and
other costs - - - 33
--- --- --- ---
Total debt refinancing and other
costs, net of tax $(2) $(1) $(3) $(76)
=== === === ====
(1) In August 2017, the company announced
the closure of its beverage can
manufacturing facilities in Chatsworth,
California, and Longview, Texas, and
its beverage end manufacturing facility
in Birmingham, Alabama. The Birmingham
plant is expected to cease production
by the end of the second quarter of
2018, and the Longview and Chatsworth
plants are expected to cease production
by the end of the third quarter of
2018. Charges for the year ended 2017
were comprised of employee severance
and benefits, facility shutdown costs,
asset impairment, accelerated
depreciation and other costs.
(2) In December 2016, the company announced
the closure of its beverage packaging
manufacturing facility in Reidsville,
North Carolina, which ceased production
during the second quarter of 2017.
Charges in 2017 and 2016 were comprised
of employee severance and benefits,
facility shutdown costs, asset
impairment, accelerated depreciation
and other costs.
(3) During the years ended 2017 and 2016,
the company recorded charges for
professional services and other costs
associated with the June 30, 2016,
acquisition of Rexam.
Also during the year ended 2016, the
company recorded losses related to
derivative financial instruments to
reduce its currency exchange rate
exposure associated with the British
pound denominated cash portion of the
Rexam acquisition purchase price and
entered into derivative financial
instruments to mitigate its exposure to
interest rate changes associated with
anticipated debt issuances in
connection with the cash portion of the
Rexam acquisition purchase price.
(4) During 2016, the company recorded cost
of sales associated with the step-up
in value of inventory from the Rexam
acquisition.
(5) During 2017 and 2016, the company
recorded amortization expense for
customer relationships and other
intangible assets identified as part of
the Rexam acquisition.
(6) In the second quarter of 2017, the
company finalized the allocation of the
purchase price for the Rexam
acquisition and updated the fair values
and useful lives for the acquired Rexam
intangible and fixed assets. Catch-up
depreciation and amortization expense
were recorded in 2017, related to the
last six months of 2016.
(7) In March 2017, the company announced its
intent to close its beverage packaging
manufacturing facility in
Recklinghausen, Germany, which ceased
production in July 2017. Charges
recorded in 2017 were comprised of
employee severance and benefits,
facility shutdown costs, asset
impairment, accelerated depreciation
and other costs.
(8) During the first quarter of 2017, the
company sold its food and aerosol
packaging paint and general line can
plant in Hubbard, Ohio, and recognized
a gain on the sale.
(9) In October 2016, the company sold its
specialty tin manufacturing facility in
Baltimore, Maryland, which resulted in
a gain on sale.
(10) During the fourth quarter of 2016, the
company rationalized certain
manufacturing equipment to align
production capacity with its customer
requirements. The charge consisted of
accelerated depreciation of the
rationalized equipment and write-offs
of costs associated with relocated
assets.
(11) During the second quarter of 2016, the
company announced the closure of its
food and aerosol packaging flat sheet
production and end manufacturing
facility in Weirton, West Virginia,
which ceased production during the
first quarter of 2017. Charges in 2017
and 2016 were comprised of employee
severance and benefits, facility
shutdown costs, asset impairment,
accelerated depreciation and disposal
costs.
(12) During the third quarter of 2017, the
company completed the purchase of non-
participating group annuity contracts
to settle a portion of the projected
pension benefit obligations in certain
Ball U.S. defined benefit pension
plans. This triggered settlement
accounting. The company recognized a
settlement loss which primarily
represented a pro rata portion of the
aggregate unamortized actuarial loss in
these pension plans.
(13) During the year ended 2017, the company
recorded adjustments to the estimated
amount of claims covered by the
indemnifications for certain tax
matters provided to the buyer in the
sale of the Divestment Business.
(14) During 2017 and 2016, the company
incurred charges for long-term
incentive and other compensation
arrangements associated with the Rexam
acquisition and integration.
(15) The sale of the Divestment Business was
completed immediately after the Rexam
acquisition on June 30, 2016, for $3.42
billion, subject to customary closing
adjustments. During the fourth quarter
of 2017, the customary closing
adjustments, as well as the
arrangements relating to guaranteed
minimum volume of sales for the
Divestment Business related to 2017,
were finalized. As a result, during
the fourth quarter, the company
recorded additional pre-tax income
from the sale of the Divestment
Business.
(16) During 2016, the company recorded
foreign currency exchange gains and
losses from the revaluation of foreign
currency denominated restricted cash,
and intercompany loans related to the
cash component of the Rexam acquisition
purchase price and the revaluation of
euro-denominated debt.
(17) In early November 2016, Egypt's central
bank elected to allow their currency,
the Egyptian Pound, to float more
freely in the market resulting in a
significant devaluation of the Egyptian
Pound from 8.9 to approximately 17 per
U.S. Dollar, an approximate 90 percent
devaluation. The devaluation generated
currency exchange losses in the
company's income statement for the non-
Egyptian Pound denominated net
liability position of the company's
Egypt operations based on current
liability balances and the 17 per U.S.
Dollar exchange rate for the Egyptian
Pound. Currency exchange movements
since the significant devaluation are
not included in non-comparable items.
(18) On December 22, 2017, the Tax Cuts and
Jobs Act (the Act) was signed into law.
The Act significantly changed U.S.
income tax law by, among other things,
reducing the U.S. federal income tax
rate from 35 percent to 21 percent,
transitioning from a global tax system
to a modified territorial tax system,
eliminating the domestic manufacturing
deduction and limiting the tax
deductions for interest expense and
executive compensation. In the fourth
quarter of 2017, the company recorded a
tax charge for the estimated impact of
the mandatory deemed repatriation of
its foreign earnings and revaluation of
its U.S. deferred tax assets and
liabilities. The company's review of
the implications of the Act will be
ongoing throughout 2018, and as such,
adjustments to the estimated tax
charges may be required. In future
periods, the company expects the Act to
favorably impact net earnings, diluted
earnings per share and cash flows,
primarily due to the reduction in the
federal corporate tax rate effective as
of January 1, 2018.
(19) During 2016, the company recorded
interest expense associated with the $1
billion of 4.375 percent senior notes
and EUR400 million of 3.5 percent
senior notes, both due in December
2020, and EUR700 million of 4.375
percent senior notes, due in December
2023. In 2016 Ball used the net
proceeds to fund a portion of the cash
component of the purchase price in
connection with the acquisition of
Rexam.
(20) In March 2016, the company entered into
a new $4.1 billion senior secured
credit facility which includes a
multicurrency revolving facility, a
Term A U.S. dollar loan and a Term A
euro loan all maturing in 2021. Ball
used the net proceeds from the Term A
U.S. dollar loan and the Term A euro
loan to fund a portion of the cash
component of the proposed Rexam
acquisition purchase price.
(21) During 2016, the company recorded
charges for the amortization of
deferred financing costs associated
with the unsecured, committed bridge
facility, entered into in connection
with the Rexam acquisition.
3. Non-U.S. GAAP Measures
Non-U.S. GAAP Measures - Non-U.S. GAAP measures
should not be considered in isolation. They should not
be considered superior to, or a substitute for,
financial measures calculated in accordance with U.S.
GAAP and may not be comparable to similarly titled
measures of other companies. Presentations of earnings
and cash flows presented in accordance with U.S. GAAP
are available in the company's earnings releases and
quarterly and annual regulatory filings.
Comparable Earnings Before Interest, Taxes,
Depreciation and Amortization (Comparable EBITDA),
Comparable Operating Earnings and Comparable Net
Earnings - Comparable EBITDA is earnings before
interest, taxes, depreciation and amortization,
business consolidation and other non-comparable
costs, Comparable Operating Earnings is earnings
before interest, taxes and business consolidation and
other non-comparable costs and Comparable Net
Earnings is earnings before business consolidation and
other non-comparable costs after tax. We use
Comparable EBITDA, Comparable Operating Earnings and
Comparable Net Earnings internally to evaluate the
company's operating performance.
Please see the company's website for further details of
the company's non-U.S. GAAP financial measures at
www.ball.com/investors under the "financials" tab.
A summary of the effects of the above transactions on
after tax earnings is as follows:
Three Months Ended Year Ended
December 31, December 31,
------------ ------------
($ in millions, except per share amounts) 2017 2016 2017 2016
---- ---- ---- ----
Net earnings attributable to Ball Corporation $184 $52 $399 $263
Add: Business consolidation and other activities (32) 35 221 337
Add: Amortization of acquired Rexam intangibles 42 32 162 65
Add: Catch-up depreciation and amortization for 2016 from
finalization of Rexam valuation (a) 1 - 35 -
Add: Cost of sales associated with Rexam inventory step-up - 1 - 84
Add: Egyptian pound devaluation - 27 - 27
Add: Debt refinancing and other costs 2 1 3 109
Less: Tax effect on above items (55) 7 (163) (322)
Add: Impact of U.S. tax reform 71 - 71 -
--- --- --- ---
Net earnings attributable to Ball Corporation before above
transactions (Comparable Net Earnings) $213 $155 $728 $563
==== ==== ==== ====
Per diluted share before above transactions (b) $0.60 $0.44 $2.04 $1.74
===== ===== ===== =====
(a) Catch-up
depreciation and
amortization of $1
million and $35
million related to
the last six months
of 2016, was
recorded during the
fourth quarter and
year ended 2017, as
a result of the
finalization of
fixed asset and
intangible asset
valuations and
useful lives for the
Rexam acquisition.
(b) Amounts in 2016 have
been retrospectively
adjusted for the
two-for-one stock
split that was
effective on May 16,
2017.
A summary of the effects of the above transactions on earnings before interest and taxes is as follows:
Three Months Ended Year Ended
December 31, December 31,
------------ ------------
($ in millions) 2017 2016 2017 2016
---- ---- ---- ----
Net earnings
attributable to
Ball Corporation $184 $52 $399 $263
Add: Net earnings
attributable to
noncontrolling
interests - - 6 3
--- --- --- ---
Net earnings 184 52 405 266
Less: Equity in
results of
affiliates, net of
tax (8) (9) (31) (15)
Add: Tax provision
(benefit) 92 49 140 (126)
--- --- --- ----
Earnings before
taxes 268 92 514 125
Add: Total interest
expense 71 71 288 338
--- --- --- ---
Earnings before
interest and taxes 339 163 802 463
Add: Business
consolidation and
other activities (32) 35 221 337
Add: Amortization of
acquired Rexam
intangibles 42 32 162 65
Add: Catch-up
depreciation and
amortization for
2016 from
finalization of
Rexam valuation (a) 1 - 35 -
Add: Cost of sales
associated with
Rexam inventory
step-up - 1 - 84
Add: Egyptian pound
devaluation - 27 - 27
--- --- --- ---
EBIT before above
transactions
(Comparable
Operating Earnings) $350 $258 $1,220 $976
==== ==== ====== ====
(a) Catch-up
depreciation and
amortization of $1
million and $35
million related to
the last six months
of 2016 was recorded
during the fourth
quarter and year
ended 2017 as a
result of the
finalization of
fixed asset and
intangible asset
valuations and
useful lives for the
Rexam acquisition.
A summary of Comparable EBITDA and Net Debt is as follows:
Year Ended
($ in millions, except ratios) December 31, 2017
-----------------
Net earnings attributable to
Ball Corporation $399
Add: Net earnings attributable
to noncontrolling interests 6
---
Net earnings 405
Less: Equity in results of
affiliates, net of tax (31)
Add: Tax provision (benefit) 140
---
Net earnings before taxes 514
Add: Total interest expense 288
---
Earnings before interest and
taxes (EBIT) 802
Add: Business consolidation
and other activities 221
Add: Amortization of acquired
Rexam intangibles 162
Add: Catch-up depreciation
and amortization for 2016
from finalization of Rexam
valuation 35
---
Comparable Operating Earnings 1,220
Add: Depreciation and
amortization 729
Less: Amortization of acquired
Rexam intangibles (162)
Less: Catch-up depreciation
and amortization for 2016
from finalization of Rexam
valuation (35)
---
Comparable EBITDA $1,752
======
Total debt at December 31,
2017 $6,971
Less: Cash and cash
equivalents (448)
----
Net Debt (a) $6,523
======
Net Debt/Comparable EBITDA 3.7x
(a) Net debt is total
debt less cash and
cash equivalents,
which are derived
directly from the
company's financial
statements.
Ball management uses net debt to
comparable EBITDA as a metric to
monitor the credit quality of
Ball Corporation. Business
consolidation and other
activities are separated to
evaluate the performance of the
company's operations. The above
is presented on a non-U.S. GAAP
basis.
Free Cash Flow -Management
internally uses a free cash flow
measure to: (1) evaluate the
company's liquidity, (2) evaluate
strategic investments, (3) plan
stock buyback and dividend levels
and (4) evaluate the company's
ability to incur and service
debt. Free cash flow is not a
defined term under U.S. GAAP, and
it should not be inferred that
the entire free cash flow amount
is available for discretionary
expenditures.
Free cash flow is typically
derived directly from the
company's cash flow statements
and is defined as cash flows from
operating activities less capital
expenditures; however, it may be
adjusted for items that affect
comparability between periods.
Based on the company's
definition, free cash flow for
2017 was:
Total cash provided by operating activities $1,478
Less: Capital expenditures (556)
----
Free cash flow $922
====
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SOURCE Ball Corporation
