UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D. C. 20549
FORM
10-K
( X ) ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the
fiscal year ended December 31, 2009
( ) TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the
transition period from ________________ to ________________
Commission
File Number 1-7349
Ball
Corporation
State of
Indiana 35-0160610
10 Longs
Peak Drive, P.O. Box 5000
Broomfield,
Colorado 80021-2510
Registrant’s
telephone number, including area code: (303) 469-3131
Securities
registered pursuant to Section 12(b) of the Act:
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Name
of each exchange
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Title
of each class
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on
which registered
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Common
Stock, without par value
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New
York Stock Exchange
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Chicago
Stock Exchange
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Securities
registered pursuant to Section 12(g) of the Act: NONE
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities
Act. YES [X] NO [ ]
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the
Act. YES [ ] NO [X]
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES
[X] NO
[ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months. YES [ ] NO [ X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act.
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Large
accelerated filer [X]
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Accelerated
filer [ ]
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Non-accelerated
filer [ ]
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Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the
Act). YES [ ] NO [X]
The
aggregate market value of voting stock held by non-affiliates of the registrant
was $4.04 billion based upon the closing market price and common shares
outstanding as of June 28, 2009.
Number of
shares outstanding as of the latest practicable date.
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Class
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Outstanding
at January 31, 2010
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Common
Stock, without par value
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94,084,299
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DOCUMENTS
INCORPORATED BY REFERENCE
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1.
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Proxy
statement to be filed with the Commission within 120 days after
December 31, 2009, to the extent indicated in
Part III.
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Ball
Corporation and Subsidiaries
ANNUAL
REPORT ON FORM 10-K
For the
year ended December 31, 2009
INDEX
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Page
Number
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PART
I.
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Item
1.
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Business
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1
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Item
1A.
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Risk
Factors
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8
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Item
1B.
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Unresolved
Staff Comments
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12
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Item
2.
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Properties
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12
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Item
3.
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Legal
Proceedings
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14
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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15
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PART
II.
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Item
5.
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Market
for the Registrant’s Common Stock and Related Stockholder
Matters
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16
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Item
6.
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Selected
Financial Data
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18
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Item
7.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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19
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Forward-Looking
Statements
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31
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Item
7A.
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Quantitative
and Qualitative Disclosures About Market Risk
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32
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Item
8.
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Financial
Statements and Supplementary Data
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34
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Report
of Independent Registered Public Accounting Firm
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34
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Consolidated
Statements of Earnings for the Years Ended December 31, 2009, 2008
and 2007
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35
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Consolidated
Balance Sheets at December 31, 2009, and December 31,
2008
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36
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Consolidated
Statements of Cash Flows for the Years Ended December 31,
2009, 2008 and 2007
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37
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Consolidated
Statements of Shareholders’ Equity and Comprehensive Earnings for the
Years Ended December 31, 2009, 2008 and 2007
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38
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Notes
to Consolidated Financial Statements
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39
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Item
9.
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Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
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88
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Item
9A.
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Controls
and Procedures
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88
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Item
9B.
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Other
Information
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88
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PART
III.
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Item
10.
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Directors,
Executive Officers and Corporate Governance of the
Registrant
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89
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Item
11.
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Executive
Compensation
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90
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Item
12.
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Security
Ownership of Certain Beneficial Owners and Management
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90
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Item
13.
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Certain
Relationships and Related Transactions
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91
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Item
14.
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Principal
Accountant Fees and Services
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91
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PART
IV.
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Item
15.
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Exhibits,
Financial Statement Schedules
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91
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Signatures
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92
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Index
to Exhibits
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94
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PART I
Item
1. Business
Ball
Corporation (Ball, we, the company or our) is one of the world’s leading
suppliers of metal and plastic packaging to the beverage, food and household
products industries. Our packaging products are produced for a variety of end
uses and are manufactured in plants around the world. We also supply
aerospace and other technologies and services to governmental and commercial
customers within our aerospace and technologies segment (Ball Aerospace). In
2009 our total consolidated net sales were $7.35 billion. Our packaging
businesses are responsible for 91 percent of our net sales, with the remaining 9
percent contributed by our aerospace business.
Our
largest product lines are aluminum and steel beverage containers, which
accounted for 63 percent of our 2009 total net sales and 77 percent of
our 2009 total earnings before interest and taxes. We also produce steel food
containers, steel aerosol containers, polyethylene terepthalate (PET) and
polypropylene plastic bottles for beverages and foods, steel paint cans and
decorative steel tins.
We sell
our packaging products primarily to major beverage, food and household products
companies with which we have developed long-term customer relationships. This is
evidenced by our high customer retention and our large number of long-term
supply contracts. We sell a majority of our packaging products to relatively few
major companies in North America, Europe, the People’s Republic of China (PRC)
and Argentina, as do our equity joint ventures in Brazil, the U.S. and the
PRC.
Ball
Aerospace is a leader in the design, development and manufacture of innovative
aerospace systems. It produces spacecraft, instruments and sensors, radio
frequency and microwave technologies, data exploitation solutions and a variety
of advanced aerospace technologies and products that enable deep space
missions.
Our
corporate strategy is to grow our worldwide beverage container business and our
aerospace business, to continue to leverage and develop the metal food and
household products packaging, Americas, segment, to improve the performance of
the plastic packaging, Americas, segment, and to utilize free cash flow and
earnings growth to increase shareholder value.
We are
headquartered in Broomfield, Colorado. Our stock is traded on the New York Stock
Exchange and the Chicago Stock Exchange under the ticker symbol
BLL.
Our
Financial Strategy
Ball
Corporation maintains a clear and disciplined financial strategy focused on
improving shareholder returns through:
● Delivering
long-term earnings per share growth of 10 percent to 15
percent
● Focusing
on free cash flow generation
● Increasing
Economic Value Added (EVA®)
The cash
generated by our businesses is used primarily: (1) to finance the company’s operations, (2)
to fund stock buy-back programs and dividend payments, (3) to fund strategic
capital investments and (4) to service the company’s debt. We will,
when we believe it will benefit the company and our shareholders, make strategic
acquisitions or divest parts of our business.
The
compensation of a majority of our employees is tied directly to the company’s
performance through our EVA® incentive programs. When the company performs well,
our employees are paid more. If the company does not perform well, our employees
get paid less or no incentive compensation.
Page 1 of
97
Our
Reporting Segments
Ball
Corporation reports its financial performance in five reportable segments
organized along a combination of product lines, after aggregating operating
segments that have similar economic characteristics: (1) metal beverage
packaging, Americas and Asia; (2) metal beverage packaging, Europe;
(3) metal food and household products packaging, Americas; (4) plastic
packaging, Americas; and (5) aerospace and technologies. We also have
investments in companies in the U.S., the PRC and Brazil, which are accounted
for using the equity method of accounting and, accordingly, those results are
not included in segment sales or earnings.
Profitability
is sensitive to selling prices, production volumes, labor, transportation,
utility and warehousing costs, as well as the availability and price of raw
materials, such as aluminum sheet, tinplate steel, plastic resin and other
direct materials. These raw materials are generally available from several
sources, and we have secured what we consider to be adequate supplies and are
not experiencing any shortages. There has been significant consolidation of raw
material suppliers in both North America and in Europe. Raw materials and energy
sources, such as natural gas and electricity, may from time to time be in short
supply or unavailable due to external factors. We cannot predict the timing or
effects, if any, of such occurrences on future operations.
A
substantial part of Ball’s packaging sales are made directly to companies in
packaged beverage and food businesses, including MillerCoors LLC, Anheuser-Busch
InBev n.v./s.a. and bottlers of Pepsi-Cola and Coca-Cola branded beverages and
their affiliates that utilize consolidated purchasing groups.
Metal
Beverage Packaging, Americas and Asia, Segment
Metal
beverage packaging, Americas and Asia, is Ball’s largest segment, accounting for
39 percent of consolidated net sales in 2009. Metal beverage containers are
primarily sold under multi-year supply contracts to fillers of carbonated soft
drinks, beer, energy drinks and other beverages.
Americas
According
to publicly available information and company estimates, the combined U.S. and
Canadian metal beverage container markets represent more than
100 billion units. Five companies manufacture substantially all of the
metal beverage containers in the U.S. and Canada. Two of these producers and
three other independent producers also manufacture metal beverage containers in
Mexico. Ball produced in excess of 31 billion recyclable beverage
containers in the U.S. and Canada in 2009 – about 31 percent of the total
market. Sales volumes of metal beverage containers in North America tend to be
highest during the period from April through September. All of the beverage cans
produced by Ball in the U.S. and Canada are made of aluminum, as are all
beverage cans produced by our competitors in the U.S., Canada and Mexico. In
2009 we were able to recover substantially all aluminum-related cost increases
levied by producers through either financial or contractual means. In North
America, four aluminum suppliers provide virtually all of our requirements. Some
of those aluminum suppliers have experienced significant financial and liquidity
constraints in recent years.
We
believe we have limited our exposure related to changes in the costs of aluminum
ingot as a result of the inclusion of provisions in most aluminum container
sales contracts to pass through aluminum ingot price changes, as well as the use
of derivative instruments.
Beverage
containers are sold based on quality, service, innovation and price in a highly
competitive market, which is relatively capital intensive and is characterized
by plants that run more or less continuously in order to operate profitably. In
addition, the aluminum beverage container competes aggressively with other
packaging materials. The glass bottle has shown resilience in the packaged beer
industry, while the PET container has grown significantly in the carbonated soft
drink and water industries over the past quarter century. In Canada, metal
beverage containers have captured significantly lower percentages of packaged
beverage industry volumes than in the U.S., particularly in the packaged beer
industry.
Two-piece
aluminum beverage containers are produced at 17 manufacturing facilities in the
U.S. and one in Canada. Can ends are produced within four of the U.S.
facilities, as well as in two facilities that manufacture only can ends. Through
Rocky Mountain Metal Container, LLC, a 50-percent-owned joint venture, which is
accounted for as an equity investment, Ball and MillerCoors, LLC, operate
beverage container and can end manufacturing facilities in Golden,
Colorado.
Page 2 of
97
On
October 1, 2009, the company acquired three of Anheuser-Busch InBev
n.v./s.a.’s (AB InBev) metal beverage container manufacturing plants and one of
its beverage can end manufacturing plants, all of which are located in the U.S.,
for $574.7 million in cash. The acquired plants produce about
10 billion aluminum containers and 10 billion beverage can ends annually,
more than two-thirds of which are produced for leading soft drink companies and
the rest for AB InBev. With the shipments from the acquired plants, Ball
estimates its annual shipments will grow to approximately 40 percent of
total U.S. and Canadian shipments.
We
participate in a 50-percent-owned joint venture in Brazil, Latapack-Ball
Embalagens, Ltda., that manufactures aluminum beverage cans and ends and is
accounted for as an equity investment. The Brazilian joint venture recently
expanded capacity at its existing metal beverage container manufacturing
facility near Jacarei and completed the construction of a new plant near Rio de
Janeiro.
In order
to more closely balance capacity and demand within our business, during 2008 and
2009 Ball completed the closure of three metal beverage packaging plants in
North America:
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●
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We
closed a metal beverage packaging plant in Kent, Washington, in the third
quarter of 2008. The plant had two 12-ounce aluminum beverage container
manufacturing lines that produced approximately 1.1 billion
containers annually.
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●
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We
announced on October 30, 2008, the closure of our metal beverage container
plants in Kansas City, Missouri, and Guayama, Puerto Rico. The Kansas City
plant, which primarily manufactured specialty beverage cans, was closed in
the first quarter of 2009 with manufacturing volumes absorbed by other
North American beverage container plants. The Puerto Rico facility, which
manufactured 12-ounce beverage cans, was closed at the end of
2008.
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Where
growth is projected in certain markets or for certain products, Ball is
undertaking selected capacity increases in its existing facilities and may
establish or obtain additional manufacturing capacity to the extent required by
the growth of any of the markets we serve.
Asia
The
beverage can market in the PRC is approximately 13 billion containers, of
which Ball’s operations represent an estimated 22 percent, with an
additional 13 percent manufactured by two joint ventures in which we
participate. Our percentage of the industry makes us one of the largest
manufacturers of beverage containers in the PRC. Six other manufacturers make up
the remainder of the market. Our operations include the manufacture of aluminum
cans and ends in three plants in the PRC, as well as in our two joint ventures.
Capacity grew rapidly in the PRC in the late 1990s, resulting in a supply/demand
imbalance. The rapid growth slowed in the early 2000s, and a number of can
makers, including Ball, responded by rationalizing capacity. Growth has resumed
over the past several years, and we expect the PRC market to continue to grow
over time. We also manufacture and sell high-density plastic containers in two
PRC plants primarily servicing the motor oil industry.
On
November 9, 2009, we announced our agreement to acquire Guangdong Jianlibao
Group Co., Ltd’s (Jianlibao) 65-percent interest in a joint venture metal
beverage can and end plant in Sanshui, PRC. We have owned 35 percent of the
joint venture plant since 1992. We will acquire the plant and related assets for
approximately $90 million in cash and assumed debt and will also enter into
a long-term supply agreement with Jianlibao. The transaction is expected to
close in 2010, subject to customary regulatory approvals.
Metal
Beverage Packaging, Europe, Segment
The
European beverage can market, excluding Russia, is approximately 47 billion
cans and Ball Packaging Europe is the second largest metal beverage container
producer with an estimated 32 percent of the European shipments. While
current economic conditions have slowed growth in the near term, the European
market is expected to grow, and is highly regional in terms of sales growth
rates and packaging mix. Growth in central and eastern Europe has been
particularly strong in past years but has been impacted by the global economic
environment, causing the company to delay completion of its new plant in Lublin,
Poland. Western European markets, including the United Kingdom and France,
continue to maintain historical volumes and growth characteristics.
Page 3 of
97
Sales
volumes of metal beverage containers in Europe tend to be highest during the
period from May through August with a smaller increase in demand during the
winter holiday season for the United Kingdom. As in North America, the metal
beverage container competes aggressively with other packaging materials used by
the European beer and carbonated soft drink industries. The glass bottle is
heavily utilized in the packaged beer industry, while the PET container is
utilized in the carbonated soft drink, beer, juice and mineral water
industries.
The metal
beverage packaging, Europe, segment, which accounted for 24 percent of Ball’s
consolidated net sales in 2009, supplies two-piece beverage cans and can ends
for producers of beer, carbonated soft drinks, mineral water, fruit juices,
energy drinks and other beverages. The European operations consist of 12 plants
– 10 beverage can plants and two beverage can end plants – of which four are
located in Germany, three in the United Kingdom, two in France and one each in
the Netherlands, Poland and Serbia. In addition, Ball Packaging Europe is
currently renting additional space on the premises of a supplier in Haslach,
Germany in order to produce the Ball Resealable End (BRE). The European plants produced approximately
16 billion cans in 2009, with approximately 57 percent of those being
produced from aluminum and 43 percent from steel. Six of the can plants use
aluminum and four use steel.
European
raw material supply contracts are generally for a period of one year, although
Ball Packaging Europe has negotiated some longer term agreements. In Europe
three steel suppliers and four aluminum suppliers provide approximately 95
percent of our requirements. Aluminum is traded primarily in U.S. dollars, while
the functional currencies of Ball Packaging Europe and its subsidiaries are
non-U.S. dollars. The company generally tries to minimize the resulting foreign
exchange rate risk with supply contracts in local currencies and the use of
derivative contracts. In addition, purchase and sales contracts include fixed
price, floating and pass-through pricing arrangements.
Metal
Food & Household Products Packaging, Americas, Segment
The metal
food and household products packaging, Americas, segment, accounted for
19 percent of consolidated net sales in 2009. The two major product lines
in this segment are steel food and aerosol containers. Ball produces two-piece
and three-piece steel food containers and ends for packaging vegetables, fruit,
soups, meat, seafood, nutritional products, pet food and other products. The
segment also manufactures and sells aerosol cans, paint cans and custom and
specialty containers. We are the largest manufacturer of aerosol cans in North
America. There are a total of 14 plants in the U.S. and Canada that produce
these products. In addition, the company manufactures and sells aerosol cans in
two plants in Argentina.
Sales
volumes of metal food containers in North America tend to be highest from May
through October as a result of seasonal fruit, vegetable and salmon packs. We
estimate our 2009 shipments of more than 5.1 billion steel food containers
to be approximately 18 percent of total U.S. and Canadian metal food
container shipments. We estimate our aerosol business accounts for approximately
45 percent of total annual U.S. and Canadian steel aerosol
shipments.
Competitors
in the metal food container product line include two national and a small number
of regional suppliers and self manufacturers. Several producers in Mexico also
manufacture steel food containers. Competition in the U.S. steel aerosol can
market primarily includes two national suppliers and a regional supplier in the
Midwest. Steel containers also compete with other packaging materials in the
food and household products industry including glass, aluminum, plastic, paper
and the stand-up pouch. As a result, demand for this product line is dependent
on product innovation and cost reduction. Service, quality and price are among
the other key competitive factors. In North America, two steel suppliers provide
nearly 70 percent of our tinplate steel. We believe we have limited our
exposure related to changes in the costs of steel tinplate as a result of the
inclusion of provisions in certain steel container sales contracts to pass
through steel cost changes and the existence of certain other steel container
sales contracts that incorporate annually negotiated metal costs. In 2009 we
were able to pass through the majority of steel cost increases levied by
producers.
Cost
containment is crucial to maintaining profitability in the food and aerosol
container manufacturing industries and Ball is focused on doing so. Toward that
end, during 2008 and 2009, Ball closed its aerosol container manufacturing
plants in Tallapoosa, Georgia, and Commerce, California. The two plant closures
result in a net reduction in manufacturing capacity of 10 production lines,
including the relocation of two high-speed aerosol lines to other existing Ball
facilities, and allow us to supply customers from a consolidated asset
base.
Page 4 of
97
Plastic
Packaging, Americas, Segment
Demand
for containers made of PET and polypropylene has slowed in the beverage and food
markets due to current economic conditions. While PET and polypropylene
beverage containers compete against metal, glass and cardboard, the
historical increase in the sales of PET containers has come primarily at the
expense of glass containers and through new market introductions.
Competition
in the PET plastic container industry is intense and includes several national
and regional suppliers and self manufacturers. In the smaller polypropylene
container industry, Ball is one of three major competitors. Service, quality,
innovation and price are important competitive factors with price being by
far the most important. The ability to produce customized, differentiated
plastic containers is also a key competitive factor. We believe we have limited
our exposure related to changes in the costs of plastic resin as a result of the
inclusion of resin cost pass-through provisions in substantially all plastic
container sales contracts.
Plastic
packaging, Americas, accounted for 9 percent of Ball’s consolidated net
sales in 2009. We estimate our 2009 shipments of 5 billion plastic bottles
to be approximately 8 percent of total U.S. PET container shipments.
In addition, this segment shipped approximately 625 million polypropylene
food and specialty containers during 2009. The company operates five plastic
container manufacturing facilities in the U.S.
Most of
Ball’s PET containers are sold under long-term contracts to suppliers of bottled
water and carbonated soft drinks, including bottlers of Pepsi-Cola branded
beverages and their affiliates that utilize consolidated purchasing groups. Most
of our polypropylene containers are also sold under long-term contracts,
primarily to food packaging companies. We are also manufacturing plastic
containers for the single-serve juice and wine markets. Our line of Heat-Tek®
PET plastic bottles for hot-filled beverages, such as sports drinks and juices,
includes sizes from 8 ounces to 64 ounces.
Ball’s
emphasis in this segment is on customized, differentiated containers. This
includes unique barrier plastics such as Gamma®, Gamma-Clear®, AmazonHM® and KHS
Corpoplast GmbH Plasmax® barrier bottles. We are continuing to limit
investment in the carbonated soft drink and bottled water business, which is a
commodity business, where the return on investment has been
unacceptable.
On
October 23, 2009, we sold our plastic pail assets to BWAY Corporation
for approximately $32 million. The transaction involved the sale of a
plastic pail manufacturing plant in Newnan, Georgia, which Ball acquired in 2006
as part of its purchase of U.S. Can Corporation, as well as associated
contracts. The plant produces injection molded plastic pails and drums for
products such as building materials and pool chemicals. The associated after-tax
loss was insignificant.
To reduce
costs and gain efficiencies, during 2008 and 2009, Ball closed three facilities
in Baldwinsville, New York, Watertown, Wisconsin, and Brampton, Ontario. The
three plants’ operations have been consolidated into our other plastic packaging
manufacturing facilities in the United States.
Aerospace
and Technologies Segment
Ball’s
aerospace and technologies segment, which accounted for 9 percent of
consolidated net sales in 2009, includes national defense, antenna and video
technologies, civil and operational space and systems engineering solutions
businesses. The segment develops spacecraft, sensors and instruments, radio
frequency systems and other advanced technologies for the civil, commercial and
national security aerospace markets. The majority of the aerospace and
technologies business involves work under contracts, generally from one to five
years in duration, as a prime contractor or subcontractor for the U.S.
Department of Defense (DoD), the National Aeronautics and Space Administration
(NASA) and other U.S. government agencies. Contracts funded by the various
agencies of the federal government represented 94 percent of segment sales in
2009.
Geopolitical
events, shifting executive and legislative branch priorities, as well as funding
shortfalls combined with increased competition for new business, have resulted
in a decline in opportunities in areas matching our aerospace and technologies
segment’s core capabilities in space hardware. Although we have seen declines in
our space hardware opportunities, our traditional strength, we have seen growth
in opportunities related to our information services and tactical components.
The businesses include hardware, software and services sold primarily to U.S.
customers, with emphasis on space science and exploration, environmental and
Earth sciences, and defense and intelligence applications. Major contractual
activities frequently involve the design, manufacture and testing of satellites,
remote sensors and ground station control hardware and software, as well as
related services such as launch vehicle integration and satellite
operations.
Page 5 of
97
Other
hardware activities include target identification, warning and attitude control
systems and components; cryogenic systems for reactant storage, and associated
sensor cooling devices; star trackers, which are general-purpose stellar
attitude sensors; and fast-steering mirrors. Additionally, the aerospace and
technologies segment provides diversified technical services and products to
government agencies, prime contractors and commercial organizations for a broad
range of information warfare, electronic warfare, avionics, intelligence,
training and space systems needs.
Backlog
in the aerospace and technologies segment was $518 million and
$597 million at December 31, 2009 and 2008, respectively, and consists
of the aggregate contract value of firm orders, excluding amounts previously
recognized as revenue. The 2009 backlog includes $344 million expected
to be recognized in revenues during 2010, with the remainder expected to be
recognized in revenues thereafter. Unfunded amounts included in backlog for
certain firm government orders, which are subject to annual funding, were
$261 million and $309 million at December 31, 2009 and 2008,
respectively. Year-over-year comparisons of backlog are not necessarily
indicative of the trend of future operations.
On
February 15, 2008, the segment completed the sale of its shares in Ball
Solutions Group Pty Ltd (BSG) to QinetiQ Pty Ltd for approximately $10.5
million, including cash sold of $1.8 million. BSG was previously a wholly owned
Australian subsidiary that provided services to the Australian department of
defense and related government agencies. After an adjustment for working capital
items, the sale resulted in a pretax gain of $7.1 million.
Ball’s
aerospace and technologies segment has contracts with the U.S. government or its
contractors that have standard termination provisions. The government retains
the right to terminate contracts at its convenience. However, if contracts are
terminated in this manner, Ball is entitled to reimbursement for allowable costs
and profits on authorized work performed through the date of termination. U.S.
government contracts are also subject to reduction or modification in the event
of changes in government requirements or budgetary constraints.
Patents
In the
opinion of the company, none of its active patents is essential to the
successful operation of its business as a whole.
Research
and Development
Research
and development (R&D) efforts in the North American packaging segments, as
well as in the European metal beverage container business, are primarily
directed toward packaging innovation, specifically the development of new
features, sizes, shapes and types of containers, as well as new uses for
existing containers. Other R&D efforts in these segments seek to improve
manufacturing efficiencies. Our North American packaging R&D activities are
primarily conducted in the Ball Technology & Innovation Center (BTIC)
located in Westminster, Colorado. The European R&D activities are primarily
conducted in a technical center located in Bonn, Germany.
In our
aerospace business, we continue to focus our R&D activities on the design,
development and manufacture of innovative aerospace systems. This includes the
production of spacecraft, instruments and sensors, radio frequency and microwave
technologies, data exploitation solutions and a variety of advanced aerospace
technologies and products that enable deep space missions. Our aerospace R&D
activities are conducted in various locations in the U.S.
Additional
information regarding company research and development activity is contained in
Note 1 to the consolidated financial statements within Item 8 of this
report, as well as included in Item 2, “Properties.”
Sustainability
and the Environment
Throughout
our company’s history, we have focused on sustainability and the environment in
all aspects of our businesses and recently have formalized our initiatives. We
continue to make progress on the sustainability goals stated in the
sustainability report we issued in June 2008. We have committed to formally
report on the status of our sustainability efforts in 2010.
Key
issues for our company include reducing our use of electricity and natural gas,
reducing waste and increasing recycling at our facilities, analyzing and
reducing our water consumption, reducing our existing volatile organic compounds
and further improving safety performance in our facilities.
The 2008
recycling rate in the United States for aluminum cans was 54 percent, the
highest recycling rate for any beverage container. Other 2008 U.S. recycling
rates were 65 percent for steel cans, 27 percent for PET bottles and
11 percent for polypropylene bottles. According to the most recently
published data, the aluminum can sheet we buy contains an average of
44 percent post consumer recycled content and the average post consumer
recycled content for steel cans is 28 percent.
Page 6 of
97
Recycling
rates vary throughout Europe but average around 60 percent for aluminum and
steel containers, which exceeds the European Union’s goal of 50 percent
recycling for metals. Due in part to the intrinsic value of aluminum and steel,
metal packaging recycling rates in Europe compare favorably to those of other
packaging materials. Ball’s European operations help establish and financially
support recycling initiatives in growing markets, such as Poland and Serbia, to
educate consumers about the benefits of recycling aluminum and steel cans and to
increase recycling rates. We have initiated a similar program in China to
educate consumers in that market regarding the benefits of
recycling.
Compliance
with federal, state and local laws relating to protection of the environment has
not had a material adverse effect upon the capital expenditures, earnings or
competitive position of the company. As more fully described under Item 3,
“Legal Proceedings,” the U.S. Environmental Protection Agency and various state
environmental agencies have designated the company as a potentially responsible
party, along with numerous other companies, for the cleanup of several
hazardous waste sites. However, the company’s information at this time indicates
that these matters will not have a material adverse effect upon the liquidity,
results of operations or financial condition of the company.
Legislation
that would prohibit, tax or restrict the sale or use of certain types of
containers, or would require diversion of solid wastes, including packaging
materials, from disposal in landfills, has been or may be introduced anywhere we
operate. While container legislation has been adopted in some jurisdictions,
similar legislation has been defeated in public referenda and legislative bodies
in numerous others. The company anticipates that continuing efforts will be made
to consider and adopt such legislation in many jurisdictions in the future. If
such legislation were widely adopted, it could potentially have a material
adverse effect on the business of the company, including its liquidity, results
of operations or financial condition, as well as on the container manufacturing
industry generally, in view of the company’s substantial global sales and
investment in metal and PET container manufacturing. However, the packages we
produce are widely used and perform well in U.S. states, Canadian provinces and
European countries that have deposit systems.
Employee
Relations
At the
end of 2009, the company and its subsidiaries employed approximately
10,500 employees in the U.S. and 4,000 in other countries. An
additional 1,100 people were employed in unconsolidated joint ventures in
which Ball participates.
Approximately
40 percent of Ball's North American packaging plant employees are unionized and
most of our European plant employees are union workers. Collective bargaining
agreements with various unions in the U.S. have terms of three to five years and
those in Europe have terms of one to two years. The agreements expire at regular
intervals and are customarily renewed in the ordinary course after bargaining
between union and company representatives. The company believes that its
employee relations are good and that its safety, training, education,
diversity and retention practices assist in enhancing employee satisfaction
levels.
Where
to Find More Information
Ball
Corporation is subject to the reporting and other information requirements of
the Securities Exchange Act of 1934, as amended (Exchange Act). Reports and
other information filed with the Securities and Exchange Commission (SEC)
pursuant to the Exchange Act may be inspected and copied at the public reference
facility maintained by the SEC in Washington, D.C. The SEC maintains a website
at www.sec.gov containing our reports, proxy materials and other items. The
company also maintains a website at www.ball.com on which
it provides a link to access Ball’s SEC reports free of charge.
The
company has established written Ball Corporation Corporate Governance
Guidelines; a Ball Corporation Executive Officers and Board of Directors
Business Ethics Statement (Ethics Statement); a Business Ethics booklet; and
Ball Corporation Audit Committee, Nominating/Corporate Governance Committee,
Human Resources Committee and Finance Committee charters. These documents are
set forth on the company’s website at www.ball.com on the
“Corporate” page, under the section “Investors,” under the subsection “Financial
Information,” and under the link “Corporate Governance.” A copy may also be
obtained upon request from the company’s corporate secretary.
The
company intends to post on its website the nature of any amendments to the
company’s codes of ethics that apply to executive officers and directors,
including the chief executive officer, chief financial officer and controller,
and the nature of any waiver or implied waiver from any code of ethics granted
by the company to any executive officer or director. These postings will appear
on the company’s website at www.ball.com under
the “Corporate” page, section “Investors,” under the subsection “Financial
Information,” and under the link “Corporate Governance.”
Page 7 of
97
Item
1A. Risk Factors
Any of
the following risks could materially and adversely affect our business,
financial condition or results of operations.
There
can be no assurance that the acquisition of certain AB InBev plants, or any
other acquisition, will be successfully integrated into the acquiring company
(see Note 3 to the consolidated financial statements within Item 8 of
this report for details of the acquisition).
While we
have what we believe to be well designed integration plans, if we cannot
successfully integrate the acquired operations with those of Ball, we may
experience material negative consequences to our business, financial condition
or results of operations. The integration of companies that have previously been
operated separately involves a number of risks, including, but not limited
to:
|
●
|
demands
on management related to the increase in our size after the
acquisition;
|
|
●
|
the
diversion of management’s attention from the management of existing
operations to the integration of the acquired
operations;
|
|
●
|
difficulties
in the assimilation and retention of
employees;
|
|
●
|
difficulties
in the integration of departments, systems, including accounting systems,
technologies, books and records and procedures, as well as in maintaining
uniform standards, controls (including internal accounting controls),
procedures and policies;
|
|
●
|
expenses
related to any undisclosed or potential liabilities;
and
|
|
●
|
retention
of major customers and suppliers.
|
We may
not be able to achieve potential synergies or maintain the levels of revenue,
earnings or operating efficiency that each business had achieved or might
achieve separately. The successful integration of the acquired operations will
depend on our ability to manage those operations, realize revenue opportunities
and, to some degree, eliminate redundant and excess costs.
The
loss of a key customer, or a reduction in its requirements, could have a
significant negative impact on our sales.
We sell a
majority of our packaging products to relatively few major beverage, packaged
food and household product companies, some of which operate in North America,
South America, Europe and Asia.
Although
the majority of our customer contracts are long-term, these contracts are
terminable under certain circumstances, such as our failure to meet quality,
volume or market pricing requirements. Because we depend on relatively few major
customers, our business, financial condition or results of operations could be
adversely affected by the loss of any of these customers, a reduction in the
purchasing levels of these customers, a strike or work stoppage by a significant
number of these customers' employees or an adverse change in the terms of the
supply agreements with these customers.
The
primary customers for our aerospace segment are U.S. government agencies or
their prime contractors. Our contracts with these customers are subject to
several risks, including funding cuts and delays, technical uncertainties,
budget changes, competitive activity and changes in scope.
We
face competitive risks from many sources that may negatively impact our
profitability.
Competition
within the packaging industry is intense. Increases in productivity, combined
with existing or potential surplus capacity in the industry, have maintained
competitive pricing pressures. The principal methods of competition in the
general packaging industry are price, service and quality. Some of our
competitors may have greater financial, technical and marketing resources. Our
current or potential competitors may offer products at a lower price or products
that are deemed superior to ours. The global economic environment may result in
reductions in demand for our products, which, in turn, could increase these
competitive pressures.
We
are subject to competition from alternative products, which could result in
lower profits and reduced cash flows.
Our metal
packaging products are subject to significant competition from substitute
products, particularly plastic carbonated soft drink bottles made from PET,
single serve beer bottles and other food and beverage containers made of glass,
cardboard or other materials. Competition from plastic carbonated soft drink
bottles is particularly intense in the United States, the United Kingdom and the
PRC. Certain of our aerospace products are also subject to competition from
alternative solutions. There can be no assurance that our products will
successfully compete against alternative products, which could result in a
reduction in our profits or cash flow.
Page 8 of
97
We
have a narrow product range, and our business would suffer if usage of our
products decreased.
For the
12 months ended December 31, 2009, 63 percent of our consolidated net
sales were from the sale of metal beverage cans, and we expect to derive a
significant portion of our future revenues and cash flows from the sale of metal
beverage cans. Our business would suffer if the use of metal beverage cans
decreased. Accordingly, broad acceptance by consumers of aluminum and steel cans
for a wide variety of beverages is critical to our future success. If demand for
glass and PET bottles increases relative to cans, or the demand for aluminum and
steel cans does not develop as expected, our business, financial condition or
results of operations could be materially adversely affected.
Changes
in laws and governmental regulations may adversely affect our business and
operations.
We and
our customers and suppliers are subject to various federal, state and provincial
laws and regulations. Each of our, and their, plants is subject to federal,
state, provincial and local licensing and regulation by health, environmental,
workplace safety and other agencies. Requirements of governmental authorities
with respect to manufacturing, product content and safety, climate change,
workplace safety and health, and environmental and other standards could
adversely affect our ability to manufacture or sell our products. In addition,
we face risks arising from compliance with and enforcement of increasingly
numerous and complex federal, state and provincial laws and
regulations.
Our
operations in the U.S. are subject to the Fair Labor Standards Act, which
governs such matters as minimum wages, overtime and other working conditions,
family leave mandates and similar state laws that govern these and other
employment law matters. The U.S. federal government has proposed sweeping
changes to laws affecting the health care of all Americans, including our
employees, as well as new or changing laws or regulations relating to union
organizing rights and activities that may impact our operations and increase our
cost of labor. Significant environmental legislation and regulatory changes are
also being considered. The compliance costs associated with current and proposed
laws and evolving regulations could be substantial, and any failure or alleged
failure to comply with these laws or regulations could lead to litigation, all
of which could adversely affect our financial condition or results of
operations.
Our
business, financial condition and results of operations are subject to risks
resulting from increased international operations.
We
derived approximately 30 percent of our consolidated net sales from outside
of the U.S. for the year ended December 31, 2009. This sizeable scope of
international operations may lead to more volatile financial results and make it
more difficult for us to manage our business. Reasons for this include, but are
not limited to, the following:
|
●
|
political
and economic instability in foreign
markets;
|
|
●
|
foreign
governments' restrictive trade
policies;
|
|
●
|
the
imposition of duties, taxes or government
royalties;
|
|
●
|
foreign
exchange rate risks;
|
|
●
|
difficulties
in enforcement of contractual obligations and intellectual property
rights; and
|
|
●
|
the
geographic, language and cultural differences between personnel in
different areas of the world.
|
Any of
these factors, some of which are also present in the U.S., could materially
adversely affect our business, financial condition or results of
operations.
We
are exposed to exchange rate fluctuations.
Our
reporting currency is the U.S. dollar. Historically, Ball's foreign operations,
including assets and liabilities and revenues and expenses, have been
denominated in various currencies other than the U.S. dollar, and we expect that
our foreign operations will continue to be so denominated. As a result, the U.S.
dollar value of Ball's foreign operations has varied, and will continue to vary,
with exchange rate fluctuations. Ball has been, and is presently, primarily
exposed to fluctuations in the exchange rate of the euro, British pound,
Canadian dollar, Polish zloty, Chinese renminbi, Brazilian real, Argentine peso
and Serbian dinar.
A
decrease in the value of any of these currencies, especially the euro, British
pound, Polish zloty, Chinese renminbi and Canadian dollar, relative to the U.S.
dollar, could reduce our profits from foreign operations and the value of the
net assets of our foreign operations when reported in U.S. dollars in our
financial statements. This could have a material adverse effect on our business,
financial condition or results of operations as reported in U.S. dollars. In
addition, fluctuations in currencies relative to currencies in which the
earnings are generated may make it more difficult to perform period-to-period
comparisons of our reported results of operations.
Page 9 of
97
We manage
our exposure to foreign currency fluctuations, particularly our exposure to
fluctuations in the euro to U.S. dollar exchange rate, in order to attempt to
mitigate the effect of foreign cash flow and earnings volatility associated with
foreign exchange rate changes. We primarily use forward contracts and options to
manage our foreign currency exposures and, as a result, we experience gains and
losses on these derivative positions offset, in part, by the impact of currency
fluctuations on existing assets and liabilities. Our inability to properly
manage our exposure to currency fluctuations could materially impact our
results.
Our
business, operating results and financial condition are subject to particular
risks in certain regions of the world.
We may
experience an operating loss in one or more regions of the world for one or more
periods, which could have a material adverse effect on our business, operating
results or financial condition. Moreover, overcapacity, which often leads to
lower prices, exists in a number of the regions in which we operate and may
persist even if demand grows. Our ability to manage such operational
fluctuations and to maintain adequate long-term strategies in the face of such
developments will be critical to our continued growth and
profitability.
If
we fail to retain key management and personnel, we may be unable to implement
our key objectives.
We
believe that our future success depends, in part, on our experienced management
team. Losing the services of key members of our management team could make it
difficult for us to manage our business and meet our objectives.
Decreases
in our ability to apply new technology and know-how may affect our
competitiveness.
Our
success depends partially on our ability to improve production processes and
services. We must also introduce new products and services to meet changing
customer needs. If we are unable to implement better production processes or to
develop new products, we may not be able to remain competitive with other
manufacturers. As a result, our business, financial condition or results of
operations could be adversely affected.
Adverse
weather and climate changes may result in lower sales.
We
manufacture packaging products primarily for beverages and foods. Unseasonably
cool weather can reduce demand for certain beverages packaged in our containers.
In addition, poor weather conditions or changes in climate that reduce crop
yields of fruits and vegetables can adversely affect demand for our food
containers. Climate change could have various effects on the demand for our
products in different regions around the world.
We
are vulnerable to fluctuations in the supply and price of raw
materials.
We
purchase aluminum, steel, plastic resin and other raw materials and packaging
supplies from several sources. While all such materials are available from
independent suppliers, raw materials are subject to fluctuations in price and
availability attributable to a number of factors, including general economic
conditions, commodity price fluctuations (particularly aluminum on the London
Metal Exchange), the demand by other industries for the same raw materials and
the availability of complementary and substitute materials. Although we enter
into commodities purchase agreements from time to time and use derivative
instruments to manage our risk, we cannot ensure that our current suppliers of
raw materials will be able to supply us with sufficient quantities at reasonable
prices. Economic and financial factors could impact our suppliers, thereby
causing supply shortages. Increases in raw material costs could have a material
adverse effect on our business, financial condition or results of operations. In
North America and Europe, some contracts do not allow us to pass along increased
raw material costs and we use derivative agreements to manage this risk. Our
hedging procedures may be insufficient and our results could be materially
impacted if costs of materials increase. Due to the fixed price contracts and
derivative activities, while increasing raw material costs may not impact our
near-term profitability, increased prices could decrease our sales volume over
time.
Prolonged
work stoppages at plants with union employees could jeopardize our financial
position.
As of
December 31, 2009, approximately 40 percent of our North American packaging
plant employees and most of our packaging plant employees in Europe were covered
by collective bargaining agreements. These collective bargaining agreements have
staggered expirations during the next several years. Although we consider our
employee relations to be generally good, a prolonged work stoppage or strike at
any facility with union employees could have a material adverse effect on our
business, financial condition or results of operations. In addition, we cannot
ensure that upon the expiration of existing collective bargaining agreements,
new agreements will be reached without union action or that any such new
agreements will be on terms satisfactory to us. Potential legislation has been
discussed in the United States, which may, if enacted, facilitate the ability of
unions to unionize workers and to establish collective bargaining agreements
with employers, including the company.
Page 10
of 97
Our
aerospace and technologies segment is subject to certain risks specific to that
business, including those outlined below.
In our
aerospace business, existing U.S. government contracts are subject to continued
appropriations by Congress and may be terminated or delayed if future funding is
not made available.
Our
backlog includes both cost-type and fixed-price contracts. Cost-type contracts
generally have lower profit margins than fixed-price contracts. Our earnings and
margins may vary depending on the types of government contracts undertaken, the
nature of the work performed under those contracts, the costs incurred in
performing the work, the achievement of other performance objectives and their
impact on our ability to receive fees.
Our
business is subject to substantial environmental remediation and compliance
costs.
Our
operations are subject to federal, state and local laws and regulations relating
to environmental hazards, such as emissions to air, discharges to water, the
handling and disposal of hazardous and solid wastes and the cleanup of hazardous
substances. The U.S. Environmental Protection Agency has designated us, along
with numerous other companies, as a potentially responsible party for the
cleanup of several hazardous waste sites. Based on available information, we do
not believe that any costs incurred in connection with such sites will have a
material adverse effect on our financial condition, results of operations,
capital expenditures or competitive position. There is increased focus on the
regulation of greenhouse gas emissions and other environmental issues
worldwide.
Net
earnings and net worth could be materially affected by an impairment of
goodwill.
We have a
significant amount of goodwill recorded on the consolidated balance sheet as of
December 31, 2009. We are required annually to test the recoverability of
goodwill. The recoverability test of goodwill is based on the current fair value
of our identified reporting units. Fair value measurement requires assumptions
and estimates of many critical factors, including revenue and market growth,
operating cash flows and discount rates. If general market conditions
deteriorate in portions of our business, we could experience a significant
decline in the fair value of reporting units. This decline could lead to an
impairment of all or a significant portion of the goodwill balance, which could
materially affect our net earnings and net worth.
If
the investments in Ball's pension plans do not perform as expected, we may have
to contribute additional amounts to the plans, which would otherwise be
available to cover operating expenses.
Ball
maintains defined benefit pension plans covering substantially all of its North
American and United Kingdom employees, which we fund based on certain actuarial
assumptions. The plans’ assets consist primarily of common stocks, fixed income
securities and, in the U.S., alternative investments. Market declines, longevity
increases or legislative changes, such as the Pension Protection Act in the
U.S., could result in a prospective decrease in our available cash flow and net
earnings over time, and the recognition of an increase in our pension
obligations could result in a reduction to our shareholders'
equity.
Restricted access to capital markets
could adversely affect our short-term liquidity and prevent us
from fulfilling our obligations under the notes issued pursuant to our bond
indentures.
On
December 31, 2009, we had total debt of $2.6 billion and unused
committed credit lines in excess of $600 million. A reduction of financial
liquidity could have important consequences, including the
following:
|
●
|
restrict
our ability to fund working capital, capital expenditures, research and
development expenditures and other business
activities;
|
|
●
|
increase
our vulnerability to general adverse economic and industry conditions,
including the credit risks stemming from the economic
environment;
|
|
●
|
limit
our flexibility in planning for, or reacting to, changes in our businesses
and the industries in which we
operate;
|
|
●
|
restrict
us from making strategic acquisitions or exploiting business
opportunities; and
|
|
●
|
limit,
along with the financial and other restrictive covenants in our debt,
among other things, our ability to borrow additional funds, dispose of
assets, pay cash dividends or refinance debt
maturities.
|
In
addition, more than one third of our debt bears interest at variable rates. If
market interest rates increase, variable-rate debt will create higher debt
service requirements, which would adversely affect our cash flow. While we
sometimes enter into agreements limiting our exposure, any such agreements may
not offer complete protection from this risk.
Page 11
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Changes
in U.S. generally accepted accounting principles (U.S. GAAP) and Securities and
Exchange Commission (SEC) rules and regulations, could materially impact our
reported results.
U.S. GAAP
and SEC accounting and reporting changes are common and have become more
frequent and significant over the past few years. These changes could have
significant effects on our reported results when compared to prior periods and
may even require us to retrospectively adjust prior periods. Additionally,
material changes to the presentation of transactions in the consolidated
financial statements could impact key ratios that analysts and credit rating
agencies use to rate Ball. The material changes in net earnings and/or
presentation of transactions could impact our credit rating and ultimately our
ability to access the credit markets in an efficient manner.
The
global credit, financial and economic environment could have a negative impact
on our results of operations, financial position or cash flows.
The
global credit, financial and economic environment could have significant
negative effects on our operations, including, but not limited to, the
following:
|
●
|
the
creditworthiness of customers, suppliers and counterparties could
deteriorate resulting in a financial loss or a disruption in our supply of
raw materials;
|
|
●
|
volatile
market performance could affect the fair value of our pension assets,
potentially requiring us to make significant additional contributions to
our defined benefit plans to maintain prescribed funding
levels;
|
|
●
|
a
significant weakening of our financial position or operating results could
result in noncompliance with our debt covenants;
and
|
|
●
|
reduced
cash flow from our operations could adversely affect our ability to
execute our long-term strategy to increase liquidity, reduce debt,
repurchase our stock and invest in our
businesses.
|
|
Item
1B.
|
Unresolved
Staff Comments
|
There
were no matters required to be reported under this item.
|
Item
2.
|
Properties
|
The
company’s properties described below are well maintained, are considered
adequate and are being utilized for their intended purposes.
Ball’s
corporate headquarters and the aerospace and technologies segment offices are
located in Broomfield, Colorado. The Colorado-based operations of the aerospace
and technologies segment occupy a variety of company-owned and leased facilities
in Broomfield, Boulder and Westminster, which together aggregate
1.3 million square feet of office, laboratory, research and
development, engineering and test and manufacturing space. Other aerospace and
technologies operations carry on business in smaller company-owned and leased
facilities in Georgia, New Mexico, Ohio, Virginia and Washington,
D.C.
The
offices of the company’s various North American packaging operations are located
in Westminster, Colorado, and the offices for the European packaging
operations are located in Ratingen, Germany. Also located in Westminster
is the Ball Technology and Innovation Center, which serves as a research
and development facility for our various North American packaging operations.
The European Technical Center, which serves as a research and development
facility for the European beverage can manufacturing operations, is located in
Bonn, Germany.
Information
regarding the approximate size of the manufacturing locations for significant
packaging operations, which are owned or leased by the company, is set forth
below. Facilities in the process of being constructed or shut down have been
excluded from the list. Where certain locations include multiple facilities, the
total approximate size for the location is noted. In addition to the facilities
listed, the company leases other warehousing space.
Page 12
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|
Approximate
|
|
|
Floor
Space in
|
|
|
Plant
Location
|
Square
Feet
|
|
Metal
beverage packaging, Americas and Asia, manufacturing
facilities:
|
|
|
Americas
|
|
|
Fairfield,
California
|
358,000
|
|
Torrance,
California
|
382,000
|
|
Golden,
Colorado
|
509,000
|
|
Gainesville,
Florida
|
88,000
|
|
Tampa,
Florida
|
238,000
|
|
Rome,
Georgia
|
386,000
|
|
Kapolei,
Hawaii
|
132,000
|
|
Monticello,
Indiana
|
356,000
|
|
Saratoga
Springs, New York
|
290,000
|
|
Wallkill,
New York
|
317,000
|
|
Reidsville,
North Carolina
|
447,000
|
|
Columbus,
Ohio
|
298,000
|
|
Findlay,
Ohio (a)
|
733,000
|
|
Whitby,
Ontario
|
205,000
|
|
Conroe,
Texas
|
275,000
|
|
Fort
Worth, Texas
|
322,000
|
|
Bristol,
Virginia
|
245,000
|
|
Williamsburg,
Virginia
|
400,000
|
|
Fort
Atkinson, Wisconsin
|
250,000
|
|
Milwaukee,
Wisconsin (including leased warehouse space) (a)
|
502,000
|
|
Asia
|
|
|
Beijing,
PRC
|
267,000
|
|
Hubei
(Wuhan), PRC
|
237,000
|
|
Shenzhen,
PRC
|
331,000
|
|
Taicang,
PRC (leased)
|
81,000
|
|
Tianjin,
PRC
|
47,000
|
|
Metal
beverage packaging, Europe, manufacturing facilities:
|
|
|
Bierne,
France
|
263,000
|
|
La
Ciotat, France
|
393,000
|
|
Braunschweig,
Germany
|
258,000
|
|
Hassloch,
Germany
|
283,000
|
|
Hermsdorf,
Germany
|
290,000
|
|
Weissenthurm,
Germany
|
331,000
|
|
Oss,
Netherlands
|
231,000
|
|
Radomsko,
Poland
|
311,000
|
|
Belgrade,
Serbia
|
352,000
|
|
Deeside,
United Kingdom
|
115,000
|
|
Rugby,
United Kingdom
|
175,000
|
|
Wrexham,
United Kingdom
|
222,000
|
| (a) Includes both metal beverage container and metal food container manufacturing operations. |
Page 13
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|
Approximate
|
|
|
Floor
Space in
|
|
|
Plant
Location
|
Square
Feet
|
|
Metal
food and household products packaging, Americas, manufacturing
facilities:
|
|
|
North America
|
|
|
Springdale,
Arkansas
|
366,000
|
|
Richmond,
British Columbia
|
198,000
|
|
Oakdale,
California
|
573,000
|
|
Danville,
Illinois
|
118,000
|
|
Elgin,
Illinois (including leased warehouse space)
|
637,000
|
|
Baltimore,
Maryland (including leased warehouse space)
|
241,000
|
|
Columbus,
Ohio
|
305,000
|
|
Findlay,
Ohio (a)
|
733,000
|
|
Hubbard,
Ohio
|
175,000
|
|
Horsham,
Pennsylvania
|
162,000
|
|
Chestnut
Hill, Tennessee
|
347,000
|
|
Weirton,
West Virginia (leased)
|
332,000
|
|
DeForest,
Wisconsin
|
400,000
|
|
Milwaukee,
Wisconsin (including leased warehouse space)
(a)
|
502,000
|
|
South America
|
|
|
Buenos
Aires, Argentina (leased)
|
34,000
|
|
San
Luis, Argentina
|
32,000
|
|
Plastic
packaging, Americas, manufacturing facilities (all North
America):
|
|
|
Chino,
California (leased)
|
729,000
|
|
Batavia,
Illinois
|
404,000
|
|
Ames,
Iowa (including leased warehouse space)
|
830,000
|
|
Delran,
New Jersey (including leased warehouse space)
|
892,000
|
|
Bellevue,
Ohio
|
390,000
|
|
|
(a)
|
Includes
both metal beverage container and metal food container manufacturing
operations.
|
In
addition to the consolidated manufacturing facilities, the company has ownership
interests of 50 percent or less in packaging affiliates located primarily
in the U.S., PRC and Brazil, which affiliates own or lease manufacturing
facilities in each of those countries.
|
Item
3.
|
Legal
Proceedings
|
We are
subject to numerous lawsuits, claims or proceedings arising out of the ordinary
course of our business, including actions related to product liability; personal
injury; the use and performance of our products; warranty matters; patent,
trademark or other intellectual property infringement; contractual liability;
the conduct of our business; tax reporting in foreign jurisdictions; workplace
safety; and environmental and other matters. We also have been identified as a
potentially responsible party at several waste disposal sites under U.S. federal
and related state environmental statutes and regulations and may have joint and
several liability for any investigation and remediation costs incurred with
respect to such sites. Some of these lawsuits, claims and proceedings involve
substantial amounts, as described below, and some of our environmental
proceedings involve potential monetary costs or sanctions that may exceed
$100,000. We have denied liability with respect to many of these lawsuits,
claims and proceedings and are vigorously defending such lawsuits, claims and
proceedings. We carry various forms of commercial, property and casualty, and
other forms of insurance; however, such insurance may not be applicable or adequate to cover the
costs associated with a judgment against us with respect to these lawsuits,
claims and proceedings. We do not believe that these lawsuits, claims and
proceedings are material individually or in the aggregate. While we believe we
have also established adequate accruals for our expected future liability with
respect to pending lawsuits, claims and proceedings, where the nature and extent
of any such liability can be reasonably estimated based upon then presently
available information, there can be no assurance that the final resolution of
any existing or future lawsuits, claims or proceedings will not have a material
adverse effect on our liquidity, results of operations or financial condition of
the company.
Page 14
of 97
On or
about February 19, 2010, the company’s Canadian subsidiary, Ball Packaging
Products Canada Corp. (Ball Canada), was advised by the Ontario Ministry of the
Environment (the Ministry) that the Ministry would post, for public comment, a
proposed Order under the Environmental Protection Act. The proposed Order would
require Ball Canada to remediate areas which were allegedly contaminated by its
predecessor company, Marathon Paper Mills of Canada Limited, and certain
successors (Marathon). Those companies operated a paper mill on the north shore
of Lake Superior for many years until it was sold to James River Company in
1983. Ball Canada is investigating whether the allegations in the proposed Order
are correct and, if so, whether or not it has any liability or any recourse
against other parties, including any former or subsequent owners or other
parties associated with the paper mill. Subject to the results of such
investigation, the company does not believe this matter will have a material
adverse effect upon the liquidity, results of operations or financial condition
of the company.
As
previously reported, the company is investigating potential violations of the
Foreign Corrupt Practices Act in Argentina, which came to our attention on or
about October 15, 2007. The Department of Justice and the SEC were also
made aware of this matter, on or about the same date. The Department of Justice
has informed us that it has completed its investigation and will not bring
charges; the SEC’s investigation continues. Based on our investigation to date,
we do not believe this matter involved senior management or management or other
employees who have significant roles in internal control over financial
reporting.
As
previously reported, on October 6, 2005, Ball Metal Beverage Container
Corp. (BMBCC), a wholly owned subsidiary of the company, was served with an
amended complaint filed by Crown Packaging Technology, Inc. et. al.
(Crown), in the U.S. District Court for the Southern District of Ohio,
Western Division at Dayton, Ohio. The complaint alleges that the manufacture,
sale and use of certain ends by BMBCC and its customers infringes certain claims
of Crown’s U.S. patents. The complaint seeks unspecified monetary damages, fees,
and declaratory and injunctive relief. BMBCC has formally denied the allegations
of the complaint. On September 8, 2009, the District Court granted Ball’s
motion for summary judgment holding that the asserted patent claims were invalid
for failure to comply with the written description requirement and because they
were anticipated by prior art. On October 7, 2009, Crown filed its Notice
of Appeal seeking to overturn the Trial Court’s decision. Briefing is currently
stayed pending the outcome in the appeal of a case in which the written
description requirement is under en banc review. Once the
decision in that case is issued, briefing will begin. Based on the information
available to the company at the present time, the company does not believe that
this matter will have a material adverse effect upon the liquidity, results of
operations or financial condition of the company.
As
previously reported, the U.S. Environmental Protection Agency (USEPA) considers
the company a Potentially Responsible Party (PRP) with respect to the Lowry
Landfill site located east of Denver, Colorado. On June 12, 1992, the
company was served with a lawsuit filed by the City and County of Denver
(Denver) and Waste Management of Colorado, Inc., seeking contributions from the
company and approximately 38 other companies. The company filed its answer
denying the allegations of the complaint. On July 8, 1992, the company was
served with a third-party complaint filed by S.W. Shattuck Chemical Company,
Inc., seeking contribution from the company and other companies for the costs
associated with cleaning up the Lowry Landfill. The company denied the
allegations of the complaints.
In July
1992 the company entered into a settlement and indemnification agreement with
Chemical Waste Management, Inc., and Waste Management of Colorado, Inc.
(collectively Waste Management) and Denver pursuant to which Waste Management
and Denver dismissed their lawsuit against the company, and Waste Management
agreed to defend, indemnify and hold harmless the company from claims and
lawsuits brought by governmental agencies and other parties relating to actions
seeking contributions or remedial costs from the company for the cleanup of the
site. Waste Management, Inc., has agreed to guarantee the obligations of Waste
Management. Waste Management and Denver may seek additional payments from the
company if the response costs related to the site exceed $319 million. In
2003 Waste Management, Inc., indicated that the cost of the site might exceed
$319 million in 2030, approximately three years before the projected
completion of the project. The company might also be responsible for payments
(based on 1992 dollars) for any additional wastes that may have been disposed of
by the company at the site but which are identified after the execution of the
settlement agreement. While remediating the site, contaminants were encountered,
which could add an additional cleanup cost of approximately $10 million.
This additional cleanup cost could, in turn, add approximately $1 million
to total site costs for the PRP group.
At this
time, there are no Lowry Landfill actions in which the company is actively
involved. Based on the information available to the company at this time, the
company does not believe that this matter will have a material adverse effect
upon the liquidity, results of operations or financial condition of the
company.
|
Item
4.
|
Submission
of Matters to a Vote of Security
Holders
|
There
were no matters submitted to the security holders during the fourth quarter of
2009.
Page 15
of 97
Part
II
|
Item
5.
|
Market
for the Registrant’s Common Stock and Related Stockholder
Matters
|
Ball
Corporation common stock (BLL) is traded on the New York Stock Exchange and the
Chicago Stock Exchange. There were 5,563 common shareholders of record on
January 31, 2010.
Common
Stock Repurchases
The
following table summarizes the company’s repurchases of its common stock during
the quarter ended December 31, 2009.
|
Purchases
of Securities
|
||||||||||||||||
|
Total Number
of Shares
Purchased (a)
|
Average
Price
Paid
per Share
|
Total
Number of
Shares
Purchased as
Part
of Publicly
Announced
Plans or Programs
|
Maximum
Number
of
Shares that May
Yet
Be Purchased
Under
the Plans
or Programs
(b)
|
|||||||||||||
|
September 28
to October 25, 2009
|
10,559 | $ | 50.04 | 10,559 | 6,930,737 | |||||||||||
|
October 26
to November 22, 2009
|
143,786 | $ | 50.06 | 143,786 | 6,786,951 | |||||||||||
|
November 23
to December 31, 2009
|
113,126 | $ | 49.93 | 113,126 | 6,673,825 | |||||||||||
|
Total
|
267,471 | $ | 50.01 | 267,471 | ||||||||||||
|
(a)
|
Includes
open market purchases (on a trade-date basis) and/or shares retained by
the company to settle employee withholding tax
liabilities.
|
|
(b)
|
The
company has an ongoing repurchase program for which shares are authorized
for repurchase from time to time by Ball’s board of directors. On
January 23, 2008, Ball's board of directors authorized the repurchase
by the company of up to a total of 12 million shares of its common stock.
This repurchase authorization replaced all previous
authorizations.
|
Quarterly
Stock Prices and Dividends
Quarterly
prices for the company's common stock, as reported on the New York Stock
Exchange composite tape, and quarterly dividends in 2009 and 2008 (on a calendar
quarter basis) were:
|
2009
|
2008
|
|||||||||||||||||||||||||||||||
|
4th
|
3rd
|
2nd
|
1st
|
4th
|
3rd
|
2nd
|
1st
|
|||||||||||||||||||||||||
|
Quarter
|
Quarter
|
Quarter
|
Quarter
|
Quarter
|
Quarter
|
Quarter
|
Quarter
|
|||||||||||||||||||||||||
|
High
|
$ | 52.46 | $ | 52.17 | $ | 45.49 | $ | 44.45 | $ | 42.49 | $ | 53.44 | $ | 56.20 | $ | 47.02 | ||||||||||||||||
|
Low
|
48.16 | 44.64 | 37.30 | 36.50 | 27.37 | 38.37 | 45.79 | 40.23 | ||||||||||||||||||||||||
|
Dividends
per share
|
0.10 | 0.10 | 0.10 | 0.10 | 0.10 | 0.10 | 0.10 | 0.10 | ||||||||||||||||||||||||
Page 16
of 97
Shareholder
Return Performance
The line
graph below compares the annual percentage change in Ball Corporation’s
cumulative total shareholder return on its common stock with the cumulative
total return of the Dow Jones Containers & Packaging Index and the S&P
Composite 500 Stock Index for the five-year period ended December 31,
2009. It assumes $100 was invested on December 31, 2004, and that all
dividends were reinvested. The Dow Jones Containers & Packaging Index total
return has been weighted by market capitalization.
|
Total
Return Analysis
|
12/31/2004
|
12/31/2005
|
12/31/2006
|
12/31/2007
|
12/31/2008
|
12/31/2009
|
|
Ball
Corporation
|
100.00
|
91.22
|
101.13
|
105.22
|
98.13
|
123.11
|
|
DJ
Containers & Packaging Index
|
100.00
|
99.37
|
111.38
|
118.87
|
74.53
|
104.68
|
|
S&P
500 Index
|
100.00
|
104.91
|
121.48
|
128.16
|
80.74
|
102.11
|
|
Copyright©
2010 Standard & Poor's, a division of The McGraw-Hill Companies Inc.
All rights reserved.
(www.researchdatagroup.com/S&P.htm)
|
||||||
|
Copyright©
2010 Dow Jones & Company. All rights
reserved.
|
||||||
Page 17
of 97
|
Item
6.
|
Selected
Financial Data
|
Five-Year
Review of Selected Financial Data
Ball
Corporation and Subsidiaries
|
($
in millions, except per share amounts)
|
2009
|
2008
|
2007
|
2006
|
2005
|
|||||||||||||||
|
Net
sales
|
$ | 7,345.3 | $ | 7,561.5 | $ | 7,475.3 | $ | 6,621.5 | $ | 5,751.2 | ||||||||||
|
Legal
settlement (1)
|
– | – | (85.6 | ) | – | – | ||||||||||||||
|
Total
net sales
|
$ | 7,345.3 | $ | 7,561.5 | $ | 7,389.7 | $ | 6,621.5 | $ | 5,751.2 | ||||||||||
|
Net
earnings attributable to Ball Corporation (1)
|
$ | 387.9 | $ | 319.5 | $ | 281.3 | $ | 329.6 | $ | 272.1 | ||||||||||
|
Return
on average common shareholders’ equity
|
29.1 | % | 26.3 | % | 22.4 | % | 32.7 | % | 27.9 | % | ||||||||||
|
Basic
earnings per share (1)
|
$ | 4.14 | $ | 3.33 | $ | 2.78 | $ | 3.19 | $ | 2.52 | ||||||||||
|
Weighted
average common shares outstanding (000s)
|
93,786 | 95,857 | 101,186 | 103,338 | 107,758 | |||||||||||||||
|
Diluted
earnings per share (1)
|
$ | 4.08 | $ | 3.29 | $ | 2.74 | $ | 3.14 | $ | 2.48 | ||||||||||
|
Diluted
weighted average common shares outstanding (000s)
|
94,989 | 97,019 | 102,760 | 104,951 | 109,732 | |||||||||||||||
|
Property,
plant and equipment additions (2)
|
$ | 187.1 | $ | 306.9 | $ | 308.5 | $ | 279.6 | $ | 291.7 | ||||||||||
|
Depreciation
and amortization
|
$ | 285.2 | $ | 297.4 | $ | 281.0 | $ | 252.6 | $ | 213.5 | ||||||||||
|
Total
assets
|
$ | 6,488.3 | $ | 6,368.7 | $ | 6,020.6 | $ | 5,840.9 | $ | 4,361.5 | ||||||||||
|
Total
interest bearing debt and capital lease obligations
|
$ | 2,596.2 | $ | 2,410.1 | $ | 2,358.6 | $ | 2,451.7 | $ | 1,589.7 | ||||||||||
|
Ball
Corporation common shareholders’ equity
|
$ | 1,581.3 | $ | 1,085.8 | $ | 1,342.5 | $ | 1,165.4 | $ | 853.4 | ||||||||||
|
Market
capitalization (3)
|
$ | 4,860.9 | $ | 3,898.3 | $ | 4,510.1 | $ | 4,540.4 | $ | 4,138.8 | ||||||||||
|
Net
debt to market capitalization (3)
|
49.1 | % | 58.6 | % | 48.9 | % | 50.7 | % | 36.9 | % | ||||||||||
|
Cash
dividends per share
|
$ | 0.40 | $ | 0.40 | $ | 0.40 | $ | 0.40 | $ | 0.40 | ||||||||||
|
Book
value per share
|
$ | 16.82 | $ | 11.58 | $ | 13.39 | $ | 11.19 | $ | 8.19 | ||||||||||
|
Market
value per share
|
$ | 51.70 | $ | 41.59 | $ | 45.00 | $ | 43.60 | $ | 39.72 | ||||||||||
|
Annual
return (loss) to common shareholders (4)
|
25.5 | % | (6.7 | )% | 4.0 | % | 10.9 | % | (8.8 | )% | ||||||||||
|
Working
capital
|
$ | 494.7 | $ | 302.9 | $ | 329.8 | $ | 307.0 | $ | 67.9 | ||||||||||
|
Current
ratio
|
1.35 | 1.16 | 1.22 | 1.21 | 1.06 | |||||||||||||||
|
(1)
|
Includes
business consolidation activities and other items affecting comparability
between years. Additional details about the 2009, 2008 and 2007 items are
available in Notes 3, 4, 5, 6, and 7 to the consolidated financial
statements within Item 8 of this
report.
|
|
(2)
|
Amounts
in 2007 and 2006 do not include the offsets of $48.6 million and
$61.3 million, respectively, of insurance proceeds received to
replace fire-damaged assets in our Hassloch, Germany,
plant.
|
|
(3)
|
Market
capitalization is defined as the number of common shares outstanding at
year end, multiplied by the year-end closing price of Ball common stock.
Net debt is total debt less cash and cash
equivalents.
|
|
(4)
|
Change
in stock price plus dividends paid, assuming reinvestment of all dividends
paid.
|
Page 18
of 97
|
Item
7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
Management’s
discussion and analysis should be read in conjunction with the consolidated
financial statements and accompanying notes included in Item 8 of this
report, which include additional information about our accounting policies,
practices and the transactions underlying our financial results. The preparation
of our consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America (U.S. GAAP)
requires us to makes estimates and assumptions that affect the reported amounts
in our consolidated financial statements and the accompanying notes including
various claims and contingencies related to lawsuits, taxes, environmental and
other matters arising during the normal course of business. We apply our best
judgment, our knowledge of existing facts and circumstances and actions that we
may undertake in the future in determining the estimates that affect our
consolidated financial statements. We evaluate our estimates on an ongoing basis
using our historical experience, as well as other factors we believe appropriate
under the circumstances, such as current economic conditions, and adjust or
revise our estimates as circumstances change. As future events and their effects
cannot be determined with precision, actual results may differ from these
estimates. Ball Corporation and its subsidiaries are referred to collectively as
“Ball” or “the company” or “we” or “our” in the following discussion and
analysis.
OVERVIEW
Business
Overview
Ball
Corporation is one of the world’s leading suppliers of metal and plastic
packaging to the beverage, food and household products industries. Our packaging
products are produced for a variety of end uses and are manufactured
in plants around the world. We also provide aerospace and other
technologies and services to governmental and commercial customers.
We sell
our packaging products primarily to major beverage, food and household products
companies with which we have developed long-term customer relationships. This is
evidenced by our high customer retention and our large number of long-term
supply contracts. While we have a diversified customer base, we sell a majority
of our packaging products to relatively few major companies in North America,
Europe, the People’s Republic of China (PRC) and Argentina, as do our equity
joint ventures in Brazil, the U.S. and the PRC. We also purchase raw materials
from relatively few suppliers. Because of our customer and supplier
concentration, our business, financial condition and results of operations could
be adversely affected by the loss, insolvency or bankruptcy of a major customer
or supplier or a change in a supply agreement with a major customer or supplier,
although our contracts and long-term relationships generally mitigate the risk
of customer loss. We are also subject to exposure from inflation and the rising
costs of raw materials, as well as other inputs into our direct costs. We reduce
our risk to these exposures either by fixing our material costs through
derivative contracts or by including provisions in our sales contracts to
recover the increases from our customers.
Industry
Trends and Corporate Strategy
In the
rigid packaging industry, sales and earnings can be improved by reducing costs,
increasing prices, developing new products and expanding volumes. Over the past
two years, we have closed a number of packaging facilities in support of our
ongoing objective of matching our supply with market demand. We have also
identified and implemented plans to improve our return on invested capital
through the redeployment of assets within our operations.
As part
of our packaging strategy, we are focused on developing and marketing new and
existing products that meet the needs of our customers and the ultimate
consumer. These innovations include new shapes, sizes, opening features and
other functional benefits of both metal and plastic packaging. This packaging
development activity helps us maintain and expand our supply positions with
major beverage, food and household products customers.
While the
North American beverage container manufacturing industry is relatively mature,
the European, PRC and Brazilian beverage can markets are growing and are
expected to continue to grow in the medium to long term. While we are able to
capitalize on this growth by increasing capacity in some of our European can
manufacturing facilities by speeding up certain lines and by expansion, we have
put on hold various projects, including the completion of the construction of a
plant in Poland, due to the current world-wide economic environment. However, we
continue to believe that Central and Eastern Europe will be an area of growth
once the economy recovers. Our Brazilian joint venture has completed the
construction of a metal beverage container plant near Rio de Janeiro and has
added further can capacity in the existing Jacarei can plant. These Brazilian
expansion efforts are owned by Ball’s unconsolidated 50-percent-owned joint
venture, Latapack-Ball Embalagens, Ltda., and the expansion was funded by cash
flows from operations and incurrence of debt by the joint venture.
Page 19
of 97
Ball’s
consolidated earnings are exposed to foreign exchange rate fluctuations and we
attempt to mitigate this exposure through the use of derivative financial
instruments, as discussed in “Quantitative and Qualitative Disclosures About
Market Risk” within Item 7A of this report.
The
primary customers for the products and services provided by our aerospace and
technologies segment are U.S. government agencies or their prime contractors. It
is possible that federal budget reductions and priorities, or changes in agency
budgets, could limit future funding and new contract awards or delay or prolong
contract performance. We expect that the delay of certain program awards, as
well as federal budget considerations, will have an unfavorable impact on this
segment in 2010, and we are continuing to take steps to adjust our resources
accordingly.
We
recognize sales under long-term contracts in the aerospace and technologies
segment using the cost-to-cost, percentage of completion method of accounting.
Our present contract mix consists of approximately two-thirds cost-type
contracts, which are billed at our costs plus an agreed upon and/or earned
profit component, and approximately 20 percent fixed-price contracts. The
remainder represents time and material contracts, which typically provide for
the sale of engineering labor at fixed hourly rates. Failure to be awarded
certain key contracts could further adversely affect segment performance in 2010
compared to 2009.
Throughout
the period of contract performance, we regularly reevaluate and, if necessary,
revise our estimates of Ball Aerospace and Technologies Corp.’s total contract
revenue, total contract cost and progress toward completion. Because of contract
payment schedules, limitations on funding and other contract terms, our sales
and accounts receivable for this segment include amounts that have been earned
but not yet billed.
Management
Performance Measures
Management
uses various measures to evaluate company performance such as earnings before
interest and taxes (EBIT); earnings before interest, taxes, depreciation and
amortization (EBITDA); diluted earnings per share; cash flow from operating
activities; free cash flow (generally defined by the company as cash flow from
operating activities less additions to property, plant and equipment); and
economic value added (net operating earnings after tax, as defined by the
company, less a capital charge on net operating assets employed). These
financial measures may be adjusted at times for items that affect comparability
between periods such as business consolidation costs and gains or losses on
dispositions. Nonfinancial measures in the packaging segments include production
efficiency and spoilage rates; quality control figures; environmental, health
and safety statistics; production and sales volumes; asset utilization rates;
and measures of sustainability. Additional measures used to evaluate financial
performance in the aerospace and technologies segment include contract revenue
realization, award and incentive fees realized, proposal win rates and backlog
(including awarded, contracted and funded backlog).
We
recognize that attracting, developing and retaining highly talented employees
are essential to the success of Ball and, because of that, we strive to pay
employees competitively and encourage their ownership of the company’s common
stock as part of a diversified portfolio. For most management employees, a
meaningful portion of compensation is at risk as an incentive, dependent upon
economic value added operating performance. For more senior positions, more
compensation is at risk through economic value added performance and various
long-term and stock compensation plans. Through our employee stock purchase plan
and 401(k) plan, which matches employee contributions with Ball common stock,
employees, regardless of organizational level, have opportunities to own Ball
stock.
Page 20
of 97
RESULTS
OF OPERATIONS
Consolidated
Sales and Earnings
The
company has five reportable segments organized along a combination of product
lines, after aggregating operating segments that have similar economic
characteristics: (1) metal beverage packaging, Americas and Asia;
(2) metal beverage packaging, Europe; (3) metal food and household
products packaging, Americas; (4) plastic packaging, Americas; and
(5) aerospace and technologies. We also have investments in companies in
the U.S., the PRC and Brazil, which are accounted for using the equity method of
accounting and, accordingly, those results are not included in segment sales or
earnings.
Metal
Beverage Packaging, Americas and Asia
|
($
in millions)
|
2009
|
2008
|
2007
|
|||||||||
|
Net
sales
|
$ | 2,888.8 | $ | 2,989.5 | $ | 3,098.1 | ||||||
|
Legal
settlement (a)
|
– | – | (85.6 | ) | ||||||||
|
Total
net sales
|
$ | 2,888.8 | $ | 2,989.5 | $ | 3,012.5 | ||||||
|
Segment
earnings
|
$ | 296.0 | $ | 284.1 | $ | 326.4 | ||||||
|
Legal
settlement (a)
|
– | – | (85.6 | ) | ||||||||
|
Business
consolidation costs (a)
|
(6.8 | ) | (40.6 | ) | – | |||||||
|
Total
segment earnings
|
$ | 289.2 | $ | 243.5 | $ | 240.8 | ||||||
|
(a)
|
Further
details of these items are included in Notes 5 and 6 to the consolidated
financial statements within Item 8 of this
report.
|
The metal
beverage packaging, Americas and Asia, segment consists of operations located in
the U.S., Canada, Puerto Rico (through fiscal year 2008) and the PRC, which
manufacture metal container products used in beverage packaging as well as
non-beverage plastic containers manufactured and sold mainly in the PRC. This
segment accounted for 39 percent of consolidated net sales in 2009
(40 percent in 2008 and 41 percent in 2007, including the impact of
the $85.6 million legal settlement discussed below).
Net sales
were 3 percent lower in 2009 than in 2008, primarily as a result of the
impact of lower aluminum prices partially offset by a 2 percent increase in
sales volumes. The higher sales volumes in 2009 were the result of incremental
volumes from the four plants purchased from Anheuser-Busch InBev n.v./s.a. (AB
InBev) on October 1 (discussed further below), partially offset by lower
sales volumes and plant closures in the existing business. Excluding the effect
of the legal settlement, sales were 4 percent lower in 2008 than in 2007,
primarily as a result of 2008 decreases in North American sales volumes of
approximately 5 percent. The decrease was due primarily to lower unit volume
sales to carbonated soft drink customers, consistent with the industry, and lost
beer sales volumes on the discontinuance of a contract that did not provide
sufficient profitability. This decrease was partially offset by sales volume
increases in the PRC of 14 percent during 2008.
Based on
publicly available information, we estimate that our shipments of metal beverage
containers in 2009 were approximately 31 percent of total U.S. and Canadian
shipments and 22 percent of total PRC shipments. We continue to focus efforts on
the growing custom beverage can business, which includes cans of different
shapes, diameters and fill volumes, and cans with added functional attributes
for new products and product line extensions.
In 2007 a
customer asserted various claims against the company, primarily related to the
pricing of the aluminum component of the containers supplied by a subsidiary,
and on October 4, 2007, the dispute was settled in mediation. The customer
received $85.6 million ($51.8 million after tax) to settle the dispute, and Ball
retained all of the customer’s beverage can and end supply through 2015. Ball
made a one-time payment of $70.3 million ($42.5 million after tax) in
January 2008 with the remainder of the settlement to be recovered over the
life of the supply contract.
Excluding
the business consolidation charges, segment earnings in 2009 were higher than in
2008 due to $12 million of earnings contribution from the four acquired
plants, approximately $21 million of savings associated with the plant
closures discussed below and $3 million of margin growth in Asia. Partially
offsetting these favorable impacts were lower carbonated soft drink and beer can
sales volumes (excluding the newly acquired plants) and $25 million related
to higher cost inventories in the first half of 2009. Excluding the business
consolidation charge in 2008 and the legal settlement in 2007, earnings in 2008
were lower than in 2007 by 13 percent, primarily due to raw material
inventory gains of $52 million realized in 2007, which did not recur in
2008. Earnings in 2008 were also negatively impacted by lower North American
sales volumes, which were partially offset by the higher sales volumes in the
PRC.
Page 21
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On
October 1, 2009, the company acquired three of Anheuser-Busch InBev
n.v./s.a.’s (AB InBev) metal beverage can manufacturing plants and one of its
beverage can end manufacturing plants, all of which are located in the U.S., for
$574.7 million in cash. The acquired plants produce approximately
10 billion aluminum beverage containers and 10 billion beverage can ends
annually, more than two-thirds of which are produced for leading soft drink
companies and the rest for AB InBev. The plants’ operations were included in
Ball’s results beginning October 1, 2009, which amounted to
$160 million of net sales and $12 million of segment earnings from
that date through December 31, 2009. The facilities acquired employ
approximately 635 people. The acquired plants will enhance the segment’s
ability to better serve its customers.
On
November 9, 2009, the company announced its agreement to acquire Guangdong
Jianlibao Group Co., Ltd’s (Jianlibao) 65-percent interest in a joint venture
metal beverage can and end plant in Sanshui, PRC. Ball has owned 35 percent
of the joint venture plant since 1992. Ball will acquire the plant and related
net assets for approximately $90 million in cash and assumed debt and will
also enter into a long-term supply agreement with Jianlibao. The transaction is
expected to close in 2010, subject to customary regulatory
approvals.
We are
actively pursuing improved profitability through better asset utilization and
cost optimization throughout the segment. We are also committed to improving
margins on this portion of our business through better commercial terms. We
continue to focus efforts on the custom beverage can business, specifically on
cans of different shapes, diameters and fill volumes and by developing cans with
added functional attributes (such as resealability) and through product line
extensions.
As part
of our efforts to improve profitability, we undertook various actions in 2009
and 2008 including the reduction of headcount in our metal beverage packaging
business and the closures of our Guayama, Puerto Rico; Kansas City, Missouri;
and Kent, Washington, metal beverage container plants.
Metal
Beverage Packaging, Europe
|
($
in millions)
|
2009
|
2008
|
2007
|
|||||||||
|
Net
sales
|
$ | 1,739.5 | $ | 1,868.7 | $ | 1,653.6 | ||||||
|
Segment
earnings
|
214.8 | 230.9 | 228.9 | |||||||||
The metal
beverage packaging, Europe, segment includes metal beverage packaging products
manufactured in Europe. Ball Packaging Europe, which represents an
estimated 32 percent of total European metal beverage container shipments
in 2009 (excluding Russia), has manufacturing plants located in Germany, the
United Kingdom, France, the Netherlands, Poland and Serbia, and is the
second largest metal beverage container business in Europe.
This
segment accounted for 24 percent of consolidated net sales in 2009 (25
percent in 2008 and 22 percent in 2007). Segment sales in 2009 as compared
to 2008 were 7 percent lower due to the translation impact of the euro
to the U.S. dollar, partially offset by better commercial terms. Sales volumes
in 2009 were essentially flat compared to those in the prior year. Segment sales
in 2008 were 13 percent higher than in 2007, due largely to higher sales volumes
of approximately 8 percent, consistent with overall market growth, higher sales
prices and foreign currency gains of 8 percent on the strength of the euro.
These positive impacts were offset by certain small unfavorable cost changes,
including product mix changes towards smaller containers.
While
2009 sales volumes were consistent with the prior year, the adverse effects of
foreign currency translation, both within Europe and on the conversion of the
euro to the U.S. dollar, reduced segment earnings by $8 million. Also
contributing to lower segment earnings were higher cost inventory carried into
2009 and a change in sales mix, partially offset by better commercial terms in
some of our contracts. Earnings in 2008 were positively impacted by an increase
in net margins of approximately $55 million due to the combined impact of the
increased sales volumes and price recovery initiatives, which exceeded the
negative impact from product mix, as well as approximately $20 million related
to a stronger euro. These improvements were partially offset by approximately
$36 million of higher other costs including a negative foreign exchange impact
from the conversion of the British pound to the euro and $35 million for
business interruption recoveries in 2007 that were not repeated in 2008 (for
further details see below).
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In
April 2006, a fire in the metal beverage can plant in Hassloch, Germany,
damaged a significant portion of the building and machinery and equipment. In
2007 the company recorded €37.6 million ($48.6 million) for insurance
proceeds, which were based on replacement cost, and €27.2 million
($35.1 million) in cost of sales for insurance recoveries related to
business interruption costs.
Metal
Food and Household Products Packaging, Americas
|
($
in millions)
|
2009
|
2008
|
2007
|
|||||||||
|
Net
sales
|
$ | 1,392.9 | $ | 1,221.4 | $ | 1,183.4 | ||||||
|
Segment
earnings
|
$ | 130.8 | $ | 68.1 | $ | 36.2 | ||||||
|
Business
consolidation costs (a)
|
(2.6 | ) | 1.6 | (44.2 | ) | |||||||
|
Total
segment earnings
|
$ | 128.2 | $ | 69.7 | $ | (8.0 | ) | |||||
|
(a)
|
Further
details of these items are included in Note 6 to the consolidated
financial statements within Item 8 of this
report.
|
The metal
food and household products packaging, Americas, segment consists of operations
located in the U.S., Canada and Argentina and includes the manufacture and sale
of metal food cans, aerosol cans, paint cans, general line cans and decorative
specialty cans. Segment sales were 19 percent of consolidated net sales in
2009 (16 percent in both 2008 and 2007). Segment sales in 2009 increased
14 percent over 2008 due to higher selling prices driven by higher raw
material costs beginning in 2009, which were partially offset by an
11 percent decrease in sales volume caused by the effects of the economic
recession and Ball’s decision to not pursue low margin business. We estimate our
2009 shipments accounted for approximately 18 percent and 45 percent of total
annual U.S. and Canadian steel food container and steel aerosol container
shipments, respectively. Segment sales in 2008 increased 3 percent compared to
2007 mostly due to higher selling prices offset by an approximate 3 percent
decrease in sales volumes primarily as a result of decisions by management to
discontinue low margin business, which led to the announced closure of our
Commerce, California, and Tallapoosa, Georgia, facilities in 2007.
Excluding
the business consolidation activities for each period, earnings in 2009 were
92 percent higher than in 2008 due primarily to the increased sales prices
mentioned above coupled with $44 million of lower cost inventory carried
into 2009 and $22 million of improvements in manufacturing performance,
partially offset by the lower sales volumes and a settlement gain of
$7 million in 2008 not recurring in 2009. The 88 percent higher
earnings in 2008 compared to 2007 were largely related to improved pricing,
better manufacturing performance and the $7 million settlement gain,
partially offset by the negative impact of 3 percent lower sales volumes in
2008.
As part
of our efforts to improve profitability in this segment and to better align
supply with customer demand, we announced plans in October 2007 to close
aerosol manufacturing plants in Tallapoosa, Georgia, and Commerce, California.
The Commerce plant was closed in 2008, and the Tallapoosa plant was closed in
the first quarter of 2009. The cash costs of these actions are expected to be
offset by proceeds on asset dispositions and tax recoveries.
Plastic
Packaging, Americas
|
($
in millions)
|
2009
|
2008
|
2007
|
|||||||||
|
Net
sales
|
$ | 634.9 | $ | 735.4 | $ | 752.4 | ||||||
|
Segment
earnings
|
$ | 16.3 | $ | 15.8 | $ | 26.3 | ||||||
|
Business
consolidation costs (a)
|
(23.8 | ) | (8.3 | ) | (0.4 | ) | ||||||
|
Gain
on disposition (a)
|
4.3 | – | – | |||||||||
|
Total
segment earnings
|
$ | (3.2 | ) | $ | 7.5 | $ | 25.9 | |||||
|
(a)
|
Further
details of these items are included in Notes 4 and 6 to the consolidated
financial statements within Item 8 of this
report.
|
Page 23
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The
plastic packaging, Americas, segment consists of operations located in the U.S.
(and Canada through most of the third quarter of 2008), which manufacture PET
and polypropylene plastic container products used mainly in beverage and food
packaging, as well as polypropylene containers for household product
applications.
On
October 23, 2009, the company announced the sale of its plastic pail assets
to BWAY Corporation for approximately $32 million. The transaction involved
the sale of a plastic pail manufacturing plant in Newnan, Georgia, which Ball
acquired in 2006 as part of its purchase of U.S. Can Corporation, and associated
contracts. The plant produces injection molded plastic pails and drums for
products such as building materials and pool chemicals. The associated after-tax
loss was insignificant.
This
segment accounted for 9 percent of consolidated net sales in 2009
(9 percent in 2008 and 10 percent in 2007). Segment sales in 2009 were
down 14 percent from sales in 2008 despite an increase in conversion sales
prices. An 11 percent decline in bottle sales volumes and a 15 percent
reduction in preform sales volumes were the primary reasons for lower sales
compared to 2008. Other factors contributing to lower 2009 sales included resin
price reductions and the previously mentioned disposition of the plastic pail
assets. Segment sales in 2008 decreased 2 percent compared to 2007 due to a
decrease of approximately 9 percent in sales volumes offset by higher
raw material cost increases passed through to customers during 2008. The volume
losses over the three-year period included decreases in carbonated soft drink
and water bottle sales due, in part, to lower convenience store sales by our
customers. The volume losses were partially offset by higher sales in specialty
business markets, which include custom hot-fill, alcohol, food and juice drinks.
Reduced preform sales also contributed to the sales decreases over the three
years due, in part, to the bankruptcy filing of a preform customer in the second
quarter of 2008.
Excluding
business consolidation charges and the pretax gain on sale of the plastic pail
assets, segment earnings in 2009 were slightly higher than in 2008, primarily
due to higher selling prices and improved operating performance, including
benefits from a plant closure in the third quarter of 2008 and plant closures in
the third quarter of 2009, offset by lower sales volumes. Segment earnings in
2008 were lower than in 2007 by approximately 40 percent primarily due to the
previously mentioned volume losses and a $1.8 million charge due to a
customer bankruptcy filing during the second quarter of 2008. In view of
the low PET margins, we continue to focus our efforts on price and margin
recovery initiatives, as well as PET development efforts in the custom
hot-fill, beer, wine, flavored alcoholic beverage and specialty container
markets. In the polypropylene plastic container arena, development efforts are
primarily focused on custom packaging markets.
We
estimate our 2009 shipments of PET plastic bottles to be
approximately 8 percent of total U.S. and Canadian PET container
shipments. In addition, the plastic packaging, Americas, segment shipped
approximately 625 million polypropylene food and specialty containers
during 2009.
To
improve cost performance and gain efficiencies, in the third quarter of 2009 we
closed PET plastic packaging manufacturing plants in Watertown, Wisconsin, and
Baldwinsville, New York. A plastic packaging manufacturing plant in Brampton,
Ontario, was closed in the third quarter of 2008.
Aerospace
and Technologies
|
($
in millions)
|
2009
|
2008
|
2007
|
|||||||||
|
Net
sales
|
$ | 689.2 | $ | 746.5 | $ | 787.8 | ||||||
|
Segment
earnings
|
$ | 61.4 | $ | 76.2 | $ | 64.6 | ||||||
|
Gain
on disposition (a)
|
– | 7.1 | – | |||||||||
|
Total
segment earnings
|
$ | 61.4 | $ | 83.3 | $ | 64.6 | ||||||
|
(a)
|
Further
details of this item are included in Note 4 to the consolidated financial
statements within Item 8 of this
report.
|
Aerospace
and technologies segment sales represented 9 percent of consolidated net
sales in 2009 (10 percent in 2008 and 11 percent in
2007). Segment sales in 2009 were 8 percent lower than in 2008,
driven by the delivery of several large spacecraft. Segment sales in 2008 were 5
percent lower as compared to 2007 as a result of a combination of large programs
nearing completion, program terminations, delays in program awards and
government funding constraints. The reductions were partially offset by new
program starts and increased scope on previously awarded
contracts.
Page 24
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Some of
the segment’s high-profile contracts include: the James Webb Space Telescope, a
successor to the Hubble Space Telescope; the Space-Based Space Surveillance
System, which will detect and track space objects such as satellites and orbital
debris; NPOESS, the next-generation satellite weather monitoring system; and a
number of antennas for the Joint Strike Fighter. During 2009, we shipped several
large instruments/spacecraft including Kepler (January ship, March launch),
WorldView 2 (August ship, October launch), WISE (August ship, December
launch) and participated in the latest Hubble servicing mission in May. This
segment is also supporting the replacement of the current space shuttle
program.
Excluding
the gain on the sale of an Australian subsidiary (BSG) in 2008, earnings in 2009
were down 19 percent compared to 2008, primarily attributable to the
winding down of several large programs and overall reduced program activity.
Excluding the sale of BSG, segment earnings in 2008 were up 18 percent in
comparison to 2007. Earnings improved in 2008 as the sales volume decline
described above was more than offset by improved margins on contracts due to
improvements in program execution, risk retirement on several fixed price
programs, as well as a reduction of unreimbursable pension and benefit
expenses.
On
February 15, 2008, Ball completed the sale of its shares in BSG to QinetiQ
Pty Ltd for approximately $10.5 million, including cash sold of
$1.8 million. The subsidiary provided services to the Australian department
of defense and related government agencies. After an adjustment for working
capital items, the sale resulted in a pretax gain of $7.1 million.
Sales to
the U.S. government, either directly as a prime contractor or indirectly as a
subcontractor, represented 94 percent of segment sales in 2009,
91 percent in 2008 and 84 percent in 2007. Contracted backlog for the
aerospace and technologies segment at December 31, 2009 and 2008, was
$518 million and $597 million, respectively.
Additional
Segment Information
For
additional information regarding the company’s segments, see the summary of
business segment information in Note 2 accompanying the consolidated
financial statements within Item 8 of this report. The charges recorded for
business consolidation activities were based on estimates by Ball management and
were developed from information available at the time. If actual outcomes vary
from the estimates, the differences will be reflected in current period earnings
in the consolidated statement of earnings and identified as business
consolidation gains and losses. Additional details about our business
consolidation activities and associated costs are provided in Note 6
accompanying the consolidated financial statements within Item 8 of this
report.
Undistributed
Corporate Expenses, Net
Included
in undistributed corporate expenses for 2009 was a $34.8 million gain
($30.7 million after tax) on the sale of a portion of our investment in
DigitalGlobe, a provider of commercial high resolution earth imagery products
and services, in conjunction with DigitalGlobe’s initial public offering. The
sale generated proceeds of $37.0 million in the second quarter of 2009.
Also included in 2009 was a charge of $11.1 million ($6.7 million
after tax) for transaction costs associated with the AB InBev acquisition,
which, in accordance with recent changes to the guidance related to accounting
for business combinations, are required to be expensed as incurred. The
transaction costs are included in the business consolidation and other
activities line of the consolidated statement of earnings. Undistributed
corporate expenses in 2008 included $11.5 million for mark-to-market losses
related to aluminum derivative instruments that were largely recovered in 2009
through customer contract arrangements.
Selling,
General and Administrative Expenses
Selling,
general and administrative (SG&A) expenses were $328.6 million,
$288.2 million and $323.7 million for 2009, 2008 and 2007,
respectively. The increases in SG&A expenses in 2009 compared to 2008 were
the result of approximately $31 million of higher employee compensation
costs, including incentive compensation costs, and higher stock-based
compensation costs, including mark-to-market adjustments for the company’s
deferred compensation stock plans; $13 million of gains in 2008 not
recurring in 2009, including a $7 million claim settlement and
$7 million of death benefit insurance proceeds; and $8 million of
unfavorable foreign currency exchange impacts. These were offset by net
favorable decreased costs of $12 million, including lower receivables
securitization fees, legal expenses and research and development
costs.
The
decreases in SG&A expenses in 2008 compared to 2007 were due to
approximately $8 million of lower general and administrative costs as a
result of the sale in February 2008 of BSG, lower aerospace research and
development costs and bid and proposal costs of $4 million, life insurance death
benefits of $7 million, the settlement of a claim for $7 million, the
favorable net year-over-year change in foreign currency hedges and exchange
impacts of $13 million, and other miscellaneous net cost
reductions.
Page 25
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Interest
and Taxes
Consolidated
interest expense was $117.2 million in 2009, $137.7 million in 2008
and $149.4 million in 2007. The lower expense in 2009 was primarily due to
lower interest rates on floating rate debt, partially offset by additional
interest associated with the issuance of $700 million of new senior notes
in August 2009. The reduced expense in 2008 compared to 2007 was primarily due
to lower interest rates on floating rate debt, as U.S. and European Central
Banks cut interest rates amid the global financial crisis.
Based on current
estimates, the 2010 effective income tax rate is expected to be approximately
33 percent. Ball’s consolidated effective income tax rate for 2009
was 30.3 percent compared to 32.6 percent in 2008 and
26.3 percent in 2007. The lower tax rate in 2009 as compared to 2008 was
primarily due to a $4 million net increase in tax benefits as a result of a
foreign tax settlement, legislative changes and a release of a valuation
allowance for a net operating loss carryforward; a $6 million tax benefit
from the sale of shares in a stock investment and other assets due to a higher
tax basis and a favorable change of $11 million in the provision for uncertain
tax positions due to tax settlements in several foreign jurisdictions. These
benefits were offset somewhat by an increase due to the change in our earnings
mix to higher taxed jurisdictions, lower research and development tax credits
and a decrease in the benefit of lower tax rates in foreign tax jurisdictions
coupled with increased withholding taxes.
The lower
tax rate in 2007 as compared to 2008 was primarily the result of earnings mix
(higher foreign earnings taxed at lower rates) and net tax benefit adjustments
of $17 million recorded in 2007. Additionally, the inability to fully use
Canadian net operating losses on plant closures in 2008 contributed to a higher
effective tax rate. The 2008 rate was partially reduced by a $4.5 million tax
benefit recognized during the third quarter of 2008 for an enacted tax law
change in the United Kingdom, which was offset by the impact of nondeductible
losses in the cash surrender value of certain company-owned life insurance
plans. The $17 million net reduction in the 2007 tax provision was primarily a
result of enacted income tax rate reductions in Germany and the United Kingdom
and a tax loss related to the company’s Canadian operations, which were offset
by an increase in the tax provision for uncertain tax positions in 2007 to
adjust for the final settlement negotiations concluded with the Internal Revenue
Service (IRS) related to a company-owned life insurance plan (discussed
below).
During
2007 the company concluded final settlement negotiations with the IRS on the
deductibility of interest expense on incurred loans from a company-owned life
insurance plan. An additional accrual of $7.0 million was made in the third
quarter of 2007 to adjust the accrued liability to the final settlement of $18.4
million, including interest, for the years 2000 through 2006.
This settlement included agreement on the prospective treatment of interest
deductibility on the policy loans, which has not had a significant impact on
earnings per share, cash flow or liquidity. Further details are available in
Note 16 to the consolidated financial statements within Item 8 of this
report.
Results
of Equity Affiliates
Equity in
the earnings of affiliates is primarily attributable to our 50 percent
ownership in packaging investments in the U.S. and Brazil. Earnings were
$13.8 million in 2009, $14.5 million in 2008 and $12.9 million in
2007.
CRITICAL
AND SIGNIFICANT ACCOUNTING POLICIES AND NEW ACCOUNTING
PRONOUNCEMENTS
For
information regarding the company’s critical and significant accounting
policies, as well as recent accounting pronouncements, see Note 1 to the
consolidated financial statements within Item 8 of this
report.
FINANCIAL
CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash
Flows and Capital Expenditures
Liquidity
Our
primary sources of liquidity are cash provided by operating activities and
external committed borrowings. We believe that cash flows from operations and
cash provided by short-term and committed revolver borrowings, when necessary,
will be sufficient to meet our ongoing operating requirements, scheduled
principal and interest payments on debt, dividend payments and anticipated
capital expenditures. We had in excess of $600 million of available funds under
committed multi-currency revolving credit facilities at December 31,
2009.
Page 26
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Cash flows provided by
operations were $559.7 million in 2009 compared to $627.6 million in
2008 and $673 million in 2007. Lower operating cash flows in 2009 compared
to 2008 were the result of working capital increases and higher pension funding
and income tax payments during the year. The reduction in 2008 as
compared to 2007 was primarily due to the payment of approximately $70 million
in January 2008 of a legal settlement to a customer. This reduction was
partially offset by the net impact of increases in net earnings and
depreciation, lower tax payments, lower pension contributions and a net increase
in working capital during the year.
Financial
Instrument Collateral
In our
worldwide beverage can business, we use financial derivative contracts as
discussed in “Quantitative and Qualitative Disclosures About Market Risk” within
Item 7A of this report to manage certain future aluminum price volatility for
our customers. As these derivative contracts are matched to customer sales
contracts, they have little or no economic impact on our earnings. Our
agreements with our financial counterparties require us to post collateral in
certain circumstances when the negative mark-to-market value of the contracts
exceeds specified levels. Additionally,
Ball has similar collateral posting arrangements with certain customers on these
derivative contracts. The cash flows of the collateral postings are shown within
the investing section of our consolidated statements of cash flows. At
December 31, 2009, Ball had $14.2 million of cash posted as
collateral, which was offset by cash collateral receipts from customers of
$14.2 million. At December 31, 2008, Ball had $229.5 million of cash
posted as collateral and had received $124.0 million of cash from customers for
a net amount of $105.5 million.
Management
Performance Measures
The
following financial measurements are on a non-U.S. GAAP basis and should be
considered in connection with the consolidated financial statements within
Item 8 of this report. Non-U.S. GAAP measures should not be considered in
isolation and should not be considered superior to, or a substitute for,
financial measures calculated in accordance with U.S. GAAP. A presentation
of earnings in accordance with U.S. GAAP is available in Item 8 of this
report.
Free Cash
Flow
Management
internally uses a free cash flow measure: (1) to evaluate the company’s
operating results, (2) to plan stock buyback levels, (3) to evaluate
strategic investments and (4) to evaluate the company’s ability to incur and
service debt. Free cash flow is not a defined term under U.S. generally accepted
accounting principles, and it should not be inferred that the entire free cash
flow amount is available for discretionary expenditures. The company defines
free cash flow as cash flow from operating activities less additions to
property, plant and equipment (capital spending). Free cash flow is typically
derived directly from the company’s cash flow statements; however, it may be
adjusted for items that affect comparability between periods. In 2007 we
adjusted free cash flow to reflect our decision to contribute an additional
$44.5 million ($27.3 million after tax) to our pension plans and to include the
property insurance proceeds used to fund the replacement of the fire-damaged
assets in our Hassloch, Germany, plant.
Based on
the above definition, our consolidated free cash flow is summarized as
follows:
|
($
in millions)
|
2009
|
2008
|
2007
|
|||||||||
|
Cash
flows from operating activities
|
$ | 559.7 | $ | 627.6 | $ | 673.0 | ||||||
|
Capital
spending
|
(187.1 | ) | (306.9 | ) | (308.5 | ) | ||||||
|
Proceeds
for replacement of fire-damaged assets
|
– | – | 48.6 | |||||||||
|
Incremental
pension funding, net of tax
|
– | – | 27.3 | |||||||||
|
Free
cash flow
|
$ | 372.6 | $ | 320.7 | $ | 440.4 | ||||||
There
were no reconciling items to cash flows from investing or financing activities
as reported in the consolidated statements of cash flows within Item 8 of
this report.
Based on
information currently available, we estimate cash flows from operating
activities for 2010 to be approximately $735 million, capital spending to
be approximately $235 million and free cash flow to be in the
$500 million range. These estimates do not reflect that, under new
accounting guidance effective January 1, 2010, our accounts receivable
securitization program will likely be recorded on our consolidated balance sheet
and the related activity shown in our consolidated cash flow statement as a
financing activity rather than as an operating activity. In 2010 we intend to
allocate our operating cash flow to reducing our debt and growing our cash
balances while increasing our stock repurchases and covering our capital
spending programs.
Page 27
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EBIT and
EBITDA
Management
internally uses adjusted earnings before interest and taxes (adjusted EBIT) and
adjusted earnings before interest, taxes, depreciation and amortization
(adjusted EBITDA) to evaluate the company's performance. EBIT and EBITDA are
typically derived directly from the company’s consolidated statement of
earnings; however, they may be adjusted for items that affect comparability
between periods. Management also uses interest coverage and net debt to adjusted
EBITDA ratios as metrics to monitor our credit quality.
Based on
the above definitions, our calculation of adjusted EBIT, adjusted EBITDA,
interest coverage ratio and net debt to adjusted EBITDA ratio are summarized
below:
|
($
in millions, except ratios)
|
2009
|
2008
|
2007
|
|||||||||
|
Net
earnings
|
$ | 388.4 | $ | 319.9 | $ | 281.7 | ||||||
|
Add
interest expense
|
117.2 | 137.7 | 149.4 | |||||||||
|
Add
tax provision
|
162.8 | 147.4 | 95.7 | |||||||||
|
Less
equity in results of affiliates
|
(13.8 | ) | (14.5 | ) | (12.9 | ) | ||||||
|
Earnings
before interest and taxes (EBIT)
|
654.6 | 590.5 | 513.9 | |||||||||
|
Add
business consolidation and other activities
|
44.5 | 52.1 | 44.6 | |||||||||
|
Less
gain on dispositions
|
(39.1 | ) | (7.1 | ) | – | |||||||
|
Add
legal settlement
|
– | – | 85.6 | |||||||||
|
Adjusted
EBIT
|
660.0 | 635.5 | 644.1 | |||||||||
|
Add
depreciation and amortization
|
285.2 | 297.4 | 281.0 | |||||||||
|
Adjusted
EBITDA
|
$ | 945.2 | $ | 932.9 | $ | 925.1 | ||||||
|
Interest
expense
|
$ | 117.2 | $ | 137.7 | $ | 149.4 | ||||||
|
Total
debt at December 31
|
$ | 2,596.2 | $ | 2,410.1 | $ | 2,358.6 | ||||||
|
Less
cash
|
(210.6 | ) | (127.4 | ) | (151.6 | ) | ||||||
|
Net
Debt
|
$ | 2,385.6 | $ | 2,282.7 | $ | 2,207.0 | ||||||
|
Adjusted
EBIT/Interest coverage
|
5.6 | x | 4.6 | x | 4.3 | x | ||||||
|
Net
Debt/Adjusted EBITDA
|
2.5 | x | 2.4 | x | 2.4 | x | ||||||
Debt
Facilities and Refinancing
Interest-bearing
debt at December 31, 2009, increased $186.1 million to
$2.6 billion from $2.4 billion at December 31, 2008. The
relatively small debt increase from 2008 was achieved despite our issuance of
$700 million of new senior notes on August 20, 2009.
At
December 31, 2009, $663 million was available under our multi-currency
revolving credit facilities. These committed credit facilities are available
until October 2011. We also had $305 million of short-term uncommitted
credit facilities available at the end of the year, on which $63.5 million
was outstanding.
Given our
free cash flow projections and unused credit facilities that are available until
October 2011, our liquidity is strong and is expected to meet our ongoing
operating cash flow and debt service requirements. While the recent financial
and economic conditions have raised concerns about credit risk with
counterparties to derivative transactions, the company mitigates its exposure by
spreading the risk among various counterparties and limiting exposure to any one
party. We also monitor the credit ratings of our suppliers, customers, lenders
and counterparties on a regular basis.
The
financial and economic environment has exacerbated liquidity and credit risks
with some of our customers and suppliers. In October 2008, we advanced
interest-bearing funding of $22 million in support of one of our key
suppliers, which advance is secured by accounts receivable and inventory. At
December 31, 2009, the amount advanced was included in accounts receivable
in our consolidated balance sheet included within Item 8 of this
report.
Page 28
of 97
We were
in compliance with all loan agreements at December 31, 2009, and all prior
years presented, and have met all debt payment obligations. The U.S. note
agreements, bank credit agreement and industrial development revenue bond
agreements contain certain restrictions relating to dividends, investments,
financial ratios, guarantees and the incurrence of additional indebtedness.
Additional details about our debt and receivables sales agreements are available
in Notes 15 and 8, respectively, accompanying the consolidated financial
statements within Item 8 of this report.
Accounts
Receivable Securitization
We have a
receivables sales agreement that provides for the ongoing, revolving sale of a
designated pool of trade accounts receivable of Ball’s North American
packaging operations up to $250 million. The agreement qualifies as
off-balance sheet financing under accounting guidance in effect through
December 31, 2009. Net funds received from the sale of the accounts
receivable totaled $250 million at both December 31, 2009 and 2008 and are
reflected as a reduction of accounts receivable in the consolidated balance
sheets. Under new accounting guidance that will be effective as of
January 1, 2010, it is likely that the sold accounts receivable will remain
on our consolidated balance sheet, resulting in a corresponding increase in
debt. This will create a one-time reduction in cash flows from operating
activities in 2010 and an offsetting one-time increase in cash flows from
financing activities.
Other
Liquidity Items
Cash
payments required for long-term debt maturities, rental payments under
noncancellable operating leases, purchase obligations and other commitments in
effect at December 31, 2009, are summarized in the following
table:
|
Payments
Due By Period (a)
|
||||||||||||||||||||
|
($
in millions)
|
Total
|
Less
than
1
Year
|
1-3
Years
|
3-5
Years
|
More
than
5 Years
|
|||||||||||||||
|
Long-term
debt
|
$ | 2,547.3 | $ | 248.8 | $ | 1,142.4 | $ | 0.6 | $ | 1,155.5 | ||||||||||
|
Interest
payments on long-term debt (b)
|
771.3 | 125.3 | 232.9 | 161.1 | 252.0 | |||||||||||||||
|
Operating
leases
|
152.4 | 43.1 | 56.6 | 30.2 | 22.5 | |||||||||||||||
|
Purchase
obligations (c)
|
4,198.1 | 1,969.8 | 1,943.2 | 262.1 | 23.0 | |||||||||||||||
|
Total
payments on contractual obligations
|
$ | 7,669.1 | $ | 2,387.0 | $ | 3,375.1 | $ | 454.0 | $ | 1,453.0 | ||||||||||
|
(a)
|
Amounts
reported in local currencies have been translated at the year-end 2009
exchange rates.
|
|
(b)
|
For
variable rate facilities, amounts are based on interest rates in effect at
year end and do not contemplate the effects of hedging
instruments.
|
|
(c)
|
The
company’s purchase obligations include contracted amounts for aluminum,
steel, plastic resin and other direct materials. Also included are
commitments for purchases of natural gas and electricity, aerospace and
technologies contracts and other less significant items. In cases where
variable prices and/or usage are involved, management’s best estimates
have been used. Depending on the circumstances, early termination of the
contracts may or may not result in penalties and, therefore, actual
payments could vary significantly.
|
Contributions
to the company’s defined benefit pension plans, not including the unfunded
German plans, are expected to be in the range of $55 million in 2010.
This estimate may change based on changes in the Pension Protection Act and
actual plan asset performance, among other factors. Benefit payments related to
these plans are expected to be $78 million, $80 million,
$83 million, $87 million and $91 million for the years ending
December 31, 2010 through 2014, respectively, and a total of $520 million
for the years 2015 through 2019. Payments to participants in the unfunded German
plans are expected to be approximately $24 million to $25 million in
each of the years 2010 through 2014 and a total of $113 million for the
years 2015 through 2019.
For the
U.S. pension plans in 2010, we intend to maintain our current return on asset
assumption of 8.25 percent and to change our discount rate assumption to
6.00 percent (from 6.25 percent in 2009). Based on these assumptions,
U.S. pension expense for 2010 is anticipated to increase approximately $5
million compared to 2009 expense of $48.1 million, most of which will be
included in cost of sales. Pension expense in Europe and Canada combined is
expected to be higher than the 2009 expense of $25.8 million by approximately
$2 million. A reduction of the expected return on pension assets assumption
by one quarter of a percentage point would result in an estimated $2.7 million
increase in the 2010 pension expense, while a quarter of a percentage point
reduction in the discount rate applied to the pension liability would result in
an estimated $3.2 million of additional pension expense in 2010. Additional
information regarding the company’s pension plans is provided in Note 17
accompanying the consolidated financial statements within Item 8 of this
report.
Page 29
of 97
Annual
cash dividends paid on common stock were 40 cents per share in 2009, 2008
and 2007. Total dividends paid were $37.4 million in 2009,
$37.5 million in 2008 and $40.6 million in 2007.
Share
Repurchases
Our share
repurchases, net of issuances, totaled $5.1 million in 2009,
$299.6 million in 2008 and $211.3 million in 2007. The net repurchases
in 2008 included a $31 million settlement on January 7, 2008, of a forward
contract entered into in December 2007 for the repurchase of 675,000 shares.
Additionally, in 2007 net repurchases included a $51.9 million settlement
on January 5, 2007, of a forward contract entered into in
December 2006 for the repurchase of 1,200,000 shares.
On
December 12, 2007, in a privately negotiated transaction, Ball entered into
an accelerated share repurchase agreement to purchase $100 million of its
common shares using cash on hand and available borrowings. We advanced the
$100 million on January 7, 2008, and received 2,038,657 shares,
which represented 90 percent of the total shares as calculated using the
previous day’s closing price. The agreement was settled on July 11, 2008, and
the company received an additional 138,521 shares.
Subsequent
Event
On
February 17, 2010, in a privately negotiated transaction, Ball entered into
an accelerated share repurchase agreement to buy $125 million of its common
shares using cash on hand and available borrowings. The company advanced the
$125 million on February 22, 2010, and received approximately
2.2 million shares, which represented 90 percent of the total
shares as calculated using the previous day’s closing price. The remaining
shares and average price per share will be determined at the conclusion of the
contract, which is expected to occur no later than August 2010.
Contingencies
From time
to time, the company is subject to routine litigation incident to its
businesses. Additionally, the U.S. Environmental Protection Agency has
designated Ball as a potentially responsible party, along with numerous other
companies, for the cleanup of several hazardous waste sites. Our information at
this time does not indicate that the matters identified will have a material
adverse effect upon the liquidity, results of operations or financial condition
of the company.
Page 30
of 97
Forward-Looking
Statements
The
company has made or implied certain forward-looking statements in this report
which are made as of the end of the time frame covered by this report. These
forward-looking statements represent the company’s goals, and results could vary
materially from those expressed or implied. From time to time we also provide
oral or written forward-looking statements in other materials we release to the
public. As time passes, the relevance and accuracy of forward-looking statements
may change. Some factors that could cause the company’s actual results or
outcomes to differ materially from those discussed in the forward-looking
statements include, but are not limited to: fluctuation in customer and consumer
growth, demand and preferences; loss of one or more major customers or changes
to contracts with one or more customers; insufficient production capacity;
changes in senior management; the current global recession and its effects on
liquidity, credit risk, asset values and the economy; overcapacity in foreign
and domestic metal and plastic container industry production facilities and its
impact on pricing; failure to achieve anticipated productivity improvements or
production cost reductions, including those associated with capital
expenditures; changes in climate and weather; fruit, vegetable and fishing
yields; power and natural resource costs; difficulty in obtaining supplies and
energy, such as gas and electric power; availability and cost of raw materials,
as well as the recent significant increases in resin, steel, aluminum and energy
costs, and the ability or inability to include or pass on to customers changes
in raw material costs; changes in the pricing of the company’s products and
services; competition in pricing and the possible decrease in, or loss of, sales
resulting therefrom; insufficient or reduced cash flow; transportation costs;
the number and timing of the purchases of the company’s common shares;
regulatory action or federal and state legislation including mandated corporate
governance and financial reporting laws; the effects of other restrictive
packaging legislation, such as recycling laws; interest rates affecting our
debt; labor strikes; increases and trends in various employee benefits and labor
costs, including pension, medical and health care costs; rates of return
projected and earned on assets and discount rates used to measure future
obligations and expenses of the company’s defined benefit retirement plans;
boycotts; antitrust, intellectual property, consumer and other litigation;
maintenance and capital expenditures; goodwill impairment; changes in generally
accepted accounting principles or their interpretation; accounting changes;
local economic conditions; the authorization, funding, availability and returns
of contracts for the aerospace and technologies segment and the nature and
continuation of those contracts and related services provided thereunder;
delays, extensions and technical uncertainties, as well as schedules of
performance associated with such segment contracts; regional and global
pandemics; international business and market risks, such as the devaluation or
revaluation of certain currencies; international business risks (including
foreign exchange rates) in Europe and particularly in developing countries such
as the PRC and Brazil; changes in the foreign exchange rates of the U.S. dollar
against the European euro, British pound, Polish zloty, Serbian dinar, Hong Kong
dollar, Canadian dollar, Chinese renminbi, Brazilian real and Argentine peso,
and in the foreign exchange rate of the European euro against the British pound,
Polish zloty, Serbian
dinar and Indian rupee; terrorist activity or war that disrupts the company’s
production or supply; regulatory action or laws including tax, environmental,
health and workplace safety, including in respect of climate change, or
chemicals or substances used in raw materials or in the manufacturing process,
particularly publicity concerning Bisphenol-A, or BPA, a chemical used in the
manufacture of epoxy coatings applied to many types of containers (including
certain of those produced by the company); technological developments and
innovations; successful or unsuccessful acquisitions, joint ventures or
divestitures and the integration activities associated therewith, including the
recent acquisition and related integration of four metal beverage can and end
plants; changes to unaudited results due to statutory audits of our financial
statements or management’s evaluation of the company’s internal control over
financial reporting; and loss contingencies related to income and other tax
matters, including those arising from audits performed by U.S. and foreign tax
authorities. If the company is unable to achieve its goals, then the company’s
actual performance could vary materially from those goals expressed or implied
in the forward-looking statements. The company currently does not intend to
publicly update forward-looking statements except as it deems necessary in
quarterly or annual earnings reports. You are advised, however, to consult any
further disclosures we make on related subjects in our 10-K, 10-Q and 8-K
reports to the SEC.
Page 31
of 97
|
Item
7A.
|
Quantitative
and Qualitative Disclosures About Market
Risk
|
Financial
Instruments and Risk Management
In the
ordinary course of business, we employ established risk management policies and
procedures, which seek to reduce our exposure to fluctuations in commodity
prices, interest rates, foreign currencies and prices of the company’s common
stock in respect of common share repurchases, although there can be no assurance
that these policies and procedures will be successful. Although the instruments
utilized involve varying degrees of credit, market and interest risk, the
counterparties to the agreements are expected to perform fully under the terms
of the agreements. The company monitors counterparty credit risk, including that
of its lenders, on a regular basis, but we cannot be certain that all risks will
be discerned or that our risk management policies and procedures will always be
effective.
We have
estimated our market risk exposure using sensitivity analysis. Market risk
exposure has been defined as the changes in fair value of derivative
instruments, financial instruments and commodity positions. To test the
sensitivity of our market risk exposure, we have estimated the changes in fair
value of market risk sensitive instruments assuming a hypothetical
10 percent adverse change in market prices or rates. The results of the
sensitivity analyses are summarized below.
Commodity
Price Risk
We manage
our North American commodity price risk in connection with market price
fluctuations of aluminum ingot primarily by entering into container sales
contracts that include aluminum ingot-based pricing terms that generally reflect
price fluctuations under our commercial supply contracts for aluminum sheet
purchases. The terms include fixed, floating or pass-through aluminum ingot
component pricing. This matched pricing affects most of our North American metal
beverage packaging net sales. We also, at times, use certain derivative
instruments such as option and forward contracts as cash flow hedges of
commodity price risk where there is not a pass-through arrangement in the sales
contract to match underlying purchase volumes and pricing with sales volumes
and pricing.
Most of
the plastic packaging, Americas, sales contracts include provisions to fully
pass through resin cost changes. As a result, we believe we have minimal
exposure related to changes in the cost of plastic resin. Most metal food and
household products packaging, Americas, sales contracts either include
provisions permitting us to pass through some or all steel cost changes we
incur, or they incorporate annually negotiated steel costs. In 2009 and in 2008,
we were able to pass through to our customers the majority of the steel cost
increases. We anticipate at this time that we will be able to pass through the
majority of the steel price increases that occur in 2010.
In Europe
and the PRC, the company manages the aluminum and steel raw material commodity
price risks through annual and long-term contracts for the purchase of the
materials, as well as certain sales of containers that reduce the company's
exposure to fluctuations in commodity prices within the current year. These
contracts include fixed price, floating and/or pass-through pricing
arrangements. We also use forward and option contracts as cash flow hedges to
manage future aluminum price risk and foreign exchange exposures to match
underlying purchase volumes and pricing with sales volumes and pricing for those
sales contracts where there is not a pass-through arrangement to minimize
the company’s exposure to significant price changes.
Considering
the effects of derivative instruments, the company’s ability to pass through
certain raw material costs through contractual provisions, the market’s ability
to accept price increases and the company’s commodity price exposures under its
contract terms, a hypothetical 10 percent adverse change in the company’s
steel, aluminum and resin prices could result in an estimated $3.5 million
after-tax reduction in net earnings over a one-year period. Additionally, if
foreign currency exchange rates were to change adversely by 10 percent, we
estimate there could be a $12.3 million after-tax reduction in net
earnings over a one-year period for foreign currency exposures on raw materials.
Actual results may vary based on actual changes in market prices and
rates.
The
company is also exposed to fluctuations in prices for natural gas and
electricity, as well as the cost of diesel fuel as a component of freight cost.
A hypothetical 10 percent increase in our natural gas and electricity
prices could result in an estimated $5.0 million after-tax reduction of net
earnings over a one-year period. A hypothetical 10 percent increase in
diesel fuel prices could result in an estimated $2.3 million after-tax
reduction of net earnings over the same period. Actual results may vary based on
actual changes in market prices and rates.
Page 32
of 97
Interest
Rate Risk
Our
objective in managing our exposure to interest rate changes is to minimize the
impact of such changes on earnings and cash flows and to lower our overall
borrowing costs. To achieve these objectives, we use a variety of interest rate
swaps, collars and options to manage our mix of floating and fixed-rate debt.
Interest rate instruments held by the company at December 31, 2009, included
pay-fixed interest rate swaps and interest rate collars. Pay-fixed swaps
effectively convert variable rate obligations to fixed rate instruments. Collars
create an upper and lower threshold within which interest rates will
fluctuate.
Based on
our interest rate exposure at December 31, 2009, assumed floating rate debt
levels throughout the next 12 months and the effects of derivative
instruments, a 100-basis point increase in interest rates could result in an
estimated $5.1 million after-tax reduction in net earnings over a one-year
period. Actual results may vary based on actual changes in market prices and
rates and the timing of these changes.
Foreign
Currency Exchange Rate Risk
Our
objective in managing exposure to foreign currency fluctuations is to protect
foreign cash flows and earnings from changes associated with foreign currency
exchange rate changes through the use of various derivative contracts. In
addition, we manage foreign earnings translation volatility through the use of
various foreign currency option strategies, and the change in the fair value of
those options is recorded in the company’s earnings. Our foreign currency
translation risk results from the European euro, British pound, Canadian dollar,
Polish zloty, Chinese renminbi, Hong Kong dollar, Brazilian real, Argentine peso
and Serbian dinar. We face currency exposures in our global operations as a
result of purchasing raw materials in U.S. dollars and, to a lesser extent, in
other currencies. Sales contracts are negotiated with customers to reflect cost
changes and, where there is not a foreign exchange pass-through arrangement, the
company uses forward and option contracts to manage foreign currency exposures.
We additionally use various option strategies to manage the earnings translation
of the company’s European operations into U.S. dollars.
Considering
the company’s derivative financial instruments outstanding at December 31,
2009, and the currency exposures, a hypothetical 10 percent reduction (U.S.
dollar strengthening) in foreign currency exchange rates compared to the U.S.
dollar could result in an estimated $27.5 million after-tax reduction in
net earnings over a one-year period. This amount includes the $12.3 million
currency exposure discussed above in the “Commodity Price Risk” section. This
hypothetical adverse change in foreign currency exchange rates would also reduce
our forecasted average debt balance by $57.3 million. Actual changes in
market prices or rates may differ from hypothetical changes.
Equity
Price Risk
The
company’s deferred compensation stock program is subject to variable accounting
and, accordingly, is marked to market using the company’s closing stock price at
the end of a reporting period. Based on current share levels in the program,
each $1 change in the company’s stock price has an effect of $0.8 million
on pretax earnings. As a way to partially reduce cash flow and earnings
volatility, as well as stock price changes associated with our deferred
compensation stock program, from time to time the company sells equity put
options on its common stock. Mark-to-market accounting applies to these equity
put options. Approximately $3.2 million of income was included in 2009
earnings to record the variance between the historical fair value and the
current market value of outstanding equity put options. All of the outstanding
options expired without value during August 2009.
Page 33
of 97
|
Item
8.
|
Financial
Statements and Supplementary Data
|
Report
of Independent Registered Public Accounting Firm
To the
Board of Directors and Shareholders of Ball Corporation:
In our
opinion, the consolidated financial statements listed in the index appearing
under 15(a)(1) present fairly, in all material respects, the financial
position of Ball Corporation and its subsidiaries at December 31, 2009 and
2008, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2009 in conformity with
accounting principles generally accepted in the United States of America. Also
in our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2009, based on
criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Company's management is responsible for these
financial statements, for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over
financial reporting, included in Management’s Report on Internal Control Over
Financial Reporting appearing under Item 9A. Our responsibility is to
express opinions on these financial statements and on the Company's internal
control over financial reporting based on our integrated audits. We conducted
our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement and whether effective internal
control over financial reporting was maintained in all material respects. Our
audits of the financial statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also included performing
such other procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our
opinions.
As
discussed in Note 12 to the consolidated financial statements, the Company
changed the timing of its annual goodwill impairment test in 2009.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (i) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management
and directors of the company; and (iii) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the
financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
As
described in Management's Report on Internal
Control Over Financial Reporting, management has excluded four Anheuser-Busch
InBev's n.v./s.a. manufacturing plants (AB InBev plants) from its
assessment of internal control over financial reporting as of December 31, 2009
because they were acquired by the Company in a purchase business combination in
2009. We have also excluded the AB InBev plants from our audit of internal
control over financial reporting. The AB InBev plants had combined
assets and combined net sales representing 8.9 percent and 2.2 percent,
respectively, of the related consolidated financial statement amounts as of and
for the year ended December 31, 2009.
/s/ PricewaterhouseCoopers
LLP
PricewaterhouseCoopers
LLP
Denver,
Colorado
February
25, 2010
Page 34
of 97
Consolidated
Statements of Earnings
Ball
Corporation and Subsidiaries
|
Years
ended December 31,
|
||||||||||||
|
($
in millions, except per share amounts)
|
2009
|
2008
|
2007
|
|||||||||
|
Net
sales
|
$ | 7,345.3 | $ | 7,561.5 | $ | 7,475.3 | ||||||
|
Legal
settlement (Note 5)
|
– | – | (85.6 | ) | ||||||||
|
Total
net sales
|
7,345.3 | 7,561.5 | 7,389.7 | |||||||||
|
Costs
and expenses
|
||||||||||||
|
Cost
of sales (excluding depreciation)
|
6,071.5 | 6,340.4 | 6,226.5 | |||||||||
|
Depreciation
and amortization (Notes 2, 11 and 13)
|
285.2 | 297.4 | 281.0 | |||||||||
|
Selling,
general and administrative
|
328.6 | 288.2 | 323.7 | |||||||||
|
Business
consolidation and other activities (Note 6)
|
44.5 | 52.1 | 44.6 | |||||||||
|
Gain
on dispositions (Note 4)
|
(39.1 | ) | (7.1 | ) | – | |||||||
| 6,690.7 | 6,971.0 | 6,875.8 | ||||||||||
|
Earnings
before interest and taxes
|
654.6 | 590.5 | 513.9 | |||||||||
|
Interest
expense (Note 15)
|
(117.2 | ) | (137.7 | ) | (149.4 | ) | ||||||
|
Earnings
before taxes
|
537.4 | 452.8 | 364.5 | |||||||||
|
Tax
provision (Note 16)
|
(162.8 | ) | (147.4 | ) | (95.7 | ) | ||||||
|
Equity
in results of affiliates
|
13.8 | 14.5 | 12.9 | |||||||||
|
Net
earnings
|
$ | 388.4 | $ | 319.9 | $ | 281.7 | ||||||
|
Less
earnings attributable to noncontrolling interests
|
(0.5 | ) | (0.4 | ) | (0.4 | ) | ||||||
|
Net
earnings attributable to Ball Corporation
|
$ | 387.9 | $ | 319.5 | $ | 281.3 | ||||||
|
Earnings per share (Note
20):
|
||||||||||||
|
Basic
|
$ | 4.14 | $ | 3.33 | $ | 2.78 | ||||||
|
Diluted
|
$ | 4.08 | $ | 3.29 | $ | 2.74 | ||||||
|
Weighted average shares
outstanding (000s) (Note 20):
|
||||||||||||
|
Basic
|
93,786 | 95,857 | 101,186 | |||||||||
|
Diluted
|
94,989 | 97,019 | 102,760 | |||||||||
|
Cash
dividends declared and paid, per share
|
$ | 0.40 | $ | 0.40 | $ | 0.40 | ||||||
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
|
Page 35
of 97
Consolidated
Balance Sheets
Ball
Corporation and Subsidiaries
|
December
31,
|
||||||||
|
($
in millions)
|
2009
|
2008
|
||||||
|
Assets
|
||||||||
|
Current
assets
|
||||||||
|
Cash
and cash equivalents
|
$ | 210.6 | $ | 127.4 | ||||
|
Receivables,
net (Note 8)
|
548.2 | 507.9 | ||||||
|
Inventories,
net (Note 10)
|
944.2 | 974.2 | ||||||
|
Cash
collateral – receivable (Note 9)
|
14.2 | 229.5 | ||||||
|
Current
derivative contracts (Note 21)
|
100.1 | 197.0 | ||||||
|
Deferred
taxes and other current assets (Note 16)
|
106.0 | 129.3 | ||||||
|
Total
current assets
|
1,923.3 | 2,165.3 | ||||||
|
Property,
plant and equipment, net (Note 11)
|
1,949.0 | 1,866.9 | ||||||
|
Goodwill
(Notes 3 and 12)
|
2,114.8 | 1,825.5 | ||||||
|
Noncurrent
derivative contracts (Note 21)
|
80.6 | 139.0 | ||||||
|
Intangibles
and other assets, net (Notes 13 and 16)
|
420.6 | 372.0 | ||||||
|
Total
Assets
|
$ | 6,488.3 | $ | 6,368.7 | ||||
|
Liabilities
and Shareholders’ Equity
|
||||||||
|
Current
liabilities
|
||||||||
|
Short-term
debt and current portion of long-term debt (Note 15)
|
$ | 312.3 | $ | 303.0 | ||||
|
Accounts
payable
|
623.1 | 763.7 | ||||||
|
Accrued
employee costs
|
214.7 | 232.7 | ||||||
|
Cash
collateral – liability (Note 9)
|
14.2 | 124.0 | ||||||
|
Current
derivative contracts (Note 21)
|
83.2 | 268.4 | ||||||
|
Other
current liabilities
|
181.1 | 170.6 | ||||||
|
Total
current liabilities
|
1,428.6 | 1,862.4 | ||||||
|
Long-term
debt (Note 15)
|
2,283.9 | 2,107.1 | ||||||
|
Employee
benefit obligations (Note 17)
|
1,013.2 | 981.4 | ||||||
|
Noncurrent
derivative contracts (Note 21)
|
48.0 | 189.7 | ||||||
|
Deferred
taxes and other liabilities (Note 16)
|
131.6 | 140.8 | ||||||
|
Total
liabilities
|
4,905.3 | 5,281.4 | ||||||
|
Contingencies
(Note 25)
|
||||||||
|
Shareholders’
equity (Note 18)
|
||||||||
|
Common
stock (161,513,274 shares issued – 2009; 160,916,672 shares issued –
2008)
|
830.8 | 788.0 | ||||||
|
Retained
earnings
|
2,397.1 | 2,047.1 | ||||||
|
Accumulated
other comprehensive earnings (loss)
|
(63.8 | ) | (182.5 | ) | ||||
|
Treasury
stock, at cost (67,492,705 shares – 2009; 67,184,722 shares –
2008)
|
(1,582.8 | ) | (1,566.8 | ) | ||||
|
Total
Ball Corporation shareholders’ equity
|
1,581.3 | 1,085.8 | ||||||
|
Noncontrolling
interests
|
1.7 | 1.5 | ||||||
|
Total
shareholders’ equity
|
1,583.0 | 1,087.3 | ||||||
|
Total
Liabilities and Shareholders’ Equity
|
$ | 6,488.3 | $ | 6,368.7 | ||||
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
|
Page 36
of 97
Consolidated
Statements of Cash Flows
Ball
Corporation and Subsidiaries
|
Years
ended December 31,
|
||||||||||||
|
($
in millions)
|
2009
|
2008
|
2007
|
|||||||||
|
Cash
Flows from Operating Activities
|
||||||||||||
|
Net
earnings
|
$ | 388.4 | $ | 319.9 | $ | 281.7 | ||||||
|
Adjustments
to reconcile net earnings to cash provided by operating
activities:
|
||||||||||||
|
Depreciation
and amortization
|
285.2 | 297.4 | 281.0 | |||||||||
|
Gain
on dispositions (Note 4)
|
(39.1 | ) | (7.1 | ) | – | |||||||
|
Legal
settlement (Note 5)
|
– | (70.3 | ) | 85.6 | ||||||||
|
Business
consolidation and other activities, net of cash payments (Note
6)
|
29.8 | 47.9 | 42.3 | |||||||||
|
Deferred
taxes
|
(24.3 | ) | 19.6 | (21.0 | ) | |||||||
|
Other,
net
|
14.5 | 25.3 | (31.3 | ) | ||||||||
|
Working
capital changes, excluding effects of acquisitions:
|
||||||||||||
|
Receivables
|
36.3 | 37.0 | 26.9 | |||||||||
|
Inventories
|
95.7 | 2.4 | (41.0 | ) | ||||||||
|
Other
current assets
|
54.2 | (112.3 | ) | (0.7 | ) | |||||||
|
Accounts
payable
|
(163.8 | ) | 15.7 | 27.4 | ||||||||
|
Accrued
employee costs
|
(16.2 | ) | (17.2 | ) | 32.7 | |||||||
|
Other
current liabilities
|
(119.3 | ) | 69.6 | (44.8 | ) | |||||||
|
Income
taxes payable and current deferred tax assets, net
|
3.6 | 3.3 | 32.2 | |||||||||
|
Other,
net
|
14.7 | (3.6 | ) | 2.0 | ||||||||
|
Cash
provided by operating activities
|
559.7 | 627.6 | 673.0 | |||||||||
|
Cash
Flows from Investing Activities
|
||||||||||||
|
Additions
to property, plant and equipment
|
(187.1 | ) | (306.9 | ) | (308.5 | ) | ||||||
|
Cash
collateral, net (Note 9)
|
105.3 | (105.5 | ) | – | ||||||||
|
Business
acquisitions, net of cash acquired (Note 3)
|
(574.7 | ) | (2.3 | ) | – | |||||||
|
Proceeds
from dispositions, net of cash sold (Note 4)
|
69.0 | 8.7 | – | |||||||||
|
Property
insurance proceeds (Note 7)
|
– | – | 48.6 | |||||||||
|
Other,
net
|
6.1 | (12.0 | ) | (5.9 | ) | |||||||
|
Cash
used in investing activities
|
(581.4 | ) | (418.0 | ) | (265.8 | ) | ||||||
|
Cash
Flows from Financing Activities
|
||||||||||||
|
Long-term
borrowings
|
1,336.7 | 753.7 | 299.1 | |||||||||
|
Repayments
of long-term borrowings
|
(1,096.8 | ) | (734.5 | ) | (373.3 | ) | ||||||
|
Change
in short-term borrowings
|
(92.0 | ) | 108.1 | (95.8 | ) | |||||||
|
Proceeds
from issuances of common stock
|
31.9 | 27.2 | 46.5 | |||||||||
|
Acquisitions
of treasury stock
|
(37.0 | ) | (326.8 | ) | (257.8 | ) | ||||||
|
Common
dividends
|
(37.4 | ) | (37.5 | ) | (40.6 | ) | ||||||
|
Other,
net
|
(4.6 | ) | 4.3 | 9.5 | ||||||||
|
Cash
provided by (used in) financing activities
|
100.8 | (205.5 | ) | (412.4 | ) | |||||||
|
Effect
of exchange rate changes on cash
|
4.1 | (28.3 | ) | 5.3 | ||||||||
|
Change
in cash and cash equivalents
|
83.2 | (24.2 | ) | 0.1 | ||||||||
|
Cash
and Cash Equivalents – Beginning of Year
|
127.4 | 151.6 | 151.5 | |||||||||
|
Cash
and Cash Equivalents – End of Year
|
$ | 210.6 | $ | 127.4 | $ | 151.6 | ||||||
The
accompanying notes are an integral part of the consolidated financial
statements.
Page 37
of 97
Consolidated
Statements of Shareholders’ Equity and Comprehensive Earnings
Ball
Corporation and Subsidiaries
|
($
in millions, except share amounts)
|
Years
ended December 31,
|
|||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Number of Common Shares Issued
(000s)
|
||||||||||||
|
Balance,
beginning of year
|
160,917 | 160,679 | 160,027 | |||||||||
|
Shares
issued for stock options and other stock plans, net of
shares exchanged
|
596 | 238 | 652 | |||||||||
|
Balance,
end of year
|
161,513 | 160,917 | 160,679 | |||||||||
|
Number of Treasury Shares
(000s)
|
||||||||||||
|
Balance,
beginning of year
|
(67,185 | ) | (60,454 | ) | (55,890 | ) | ||||||
|
Shares
purchased, net of shares reissued (a)(b)
|
(308 | ) | (6,731 | ) | (4,564 | ) | ||||||
|
Balance,
end of year
|
(67,493 | ) | (67,185 | ) | (60,454 | ) | ||||||
|
Common
Stock
|
||||||||||||
|
Balance,
beginning of year
|
$ | 788.0 | $ | 760.3 | $ | 703.4 | ||||||
|
Shares
issued for stock options and other stock plans, net of
shares exchanged (cash and noncash)
|
37.3 | 23.4 | 47.4 | |||||||||
|
Tax
benefit from option exercises
|
5.5 | 4.3 | 9.5 | |||||||||