Ball Reports Third Quarter 2016 Results; Provides New, Post-Acquisition Segment Reporting

Condensed Financial Statements (Third Quarter 2016)

Unaudited Condensed Consolidated Statements of Earnings

Three Months Ended

Nine Months Ended

September 30,

September 30,

($ in millions, except per share amounts)

2016

2015

2016

2015

Net sales

$

2,815

$

2,097

$

6,600

$

6,192

Costs and expenses

Cost of sales (excluding depreciation and amortization)

(2,338)

(1,690)

(5,351)

(5,026)

Depreciation and amortization

(147)

(72)

(299)

(212)

Selling, general and administrative

(135)

(107)

(348)

(340)

Business consolidation and other activities

(79)

(152)

(319)

(138)

(2,699)

(2,021)

(6,317)

(5,716)

Earnings before interest and taxes

116

76

283

476

Interest expense

(80)

(38)

(159)

(107)

Debt refinancing and other costs

(2)

(21)

(108)

(86)

Total interest expense

(82)

(59)

(267)

(193)

Earnings before taxes

34

17

16

283

Tax (provision) benefit

(38)

31

191

(48)

Equity in results of affiliates, net of tax

7

2

6

3

Net earnings

3

50

213

238

Less net earnings attributable to noncontrolling interests

(3)

(5)

(3)

(12)

Net earnings attributable to Ball Corporation

$

-

$

45

$

210

$

226

Earnings per share:

Basic

$

-

$

0.32

$

1.37

$

1.64

Diluted

$

-

$

0.32

$

1.35

$

1.60

Weighted average shares outstanding (000s):

Basic

174,564

137,337

152,878

137,409

Diluted

177,702

140,858

156,088

141,141

Condensed Financial Statements (Third Quarter 2016)

Unaudited Condensed Consolidated Balance Sheets

September 30,

($ in millions)

2016

2015

Assets

Current assets

Cash and cash equivalents

$

645

$

244

Receivables, net

1,789

1,098

Inventories, net

1,418

876

Other current assets

252

165

Total current assets

4,104

2,383

Property, plant and equipment, net

4,440

2,547

Goodwill

5,211

2,204

Intangible assets, net

2,046

200

Other assets

1,259

393

Total assets

$

17,060

$

7,727

Liabilities and Shareholders' Equity

Current liabilities

Short-term debt and current portion of long-term debt

$

373

$

283

Payables and other accrued liabilities

2,570

1,997

Total current liabilities

2,943

2,280

Long-term debt

7,724

2,879

Other long-term liabilities

2,573

1,325

Shareholders' equity

3,820

1,243

Total liabilities and shareholders' equity

$

17,060

$

7,727

Notes to the Condensed Financial Statements (Third Quarter 2016)

1. Business Segment Information

During the third quarter of 2016, Ball made certain segment realignments as a result of the Rexam acquisition and sale of a portion of Ball's existing beverage packaging businesses and select beverage can assets of Rexam (the Divestment Business) to align with how Ball now manages its businesses. Ball has retrospectively adjusted prior period amounts to conform to the current segment presentation. Ball's operations are organized and reviewed by management along its product lines and geographical areas and presented in the five reportable segments outlined below:

Beverage packaging, North and Central America: Consists of operations in the U.S., Canada and Mexico that manufacture and sell metal beverage containers.

Beverage packaging, South America: Consists of operations in Brazil, Argentina and Chile that manufacture and sell metal beverage containers.

Beverage packaging, Europe: Consists of operations in numerous countries in Europe, including Russia, that manufacture and sell metal beverage containers.

Food and aerosol packaging:  Consists of operations in the U.S., Europe, Canada, Mexico, Argentina and India that manufacture and sell steel food, aerosol, paint and general line containers, as well as extruded aluminum aerosol containers and aluminum slugs.

Aerospace: Consists of operations that manufacture and sell aerospace and other related products and the provision of services used in the defense, civil space and commercial space industries.

Other consists of non-reportable segments in Asia Pacific, Africa, Middle East and Asia that manufacture and sell metal beverage containers; undistributed corporate expenses; intercompany eliminations; and other business activities.

The company also has investments in operations in Guatemala, Panama, South Korea, the U.S. and Vietnam which are accounted for under the equity method of accounting and, accordingly, those results are not included in segment sales or earnings.

The accounting policies of the segments are the same as those in the unaudited condensed consolidated financial statements. A discussion of the company's critical and significant accounting policies can be found in Ball's annual report.

Notes to the Condensed Financial Statements (Third Quarter 2016)

1. Business Segment Information (continued)

Three Months Ended

Nine Months Ended

September 30,

September 30,

($ in millions)

2016

2015

2016

2015

Net sales

Beverage packaging, North and Central America

$

1,076

$

818

$

2,653

$

2,466

Beverage packaging, Europe

687

450

1,522

1,310

Beverage packaging, South America

318

134

577

407

Food and aerosol packaging

329

372

911

1,012

Aerospace

204

204

577

648

Reportable segment sales

2,614

1,978

6,240

5,843

Other

201

119

360

349

Net sales

$

2,815

$

2,097

$

6,600

$

6,192

Comparable operating earnings

Beverage packaging, North and Central America

$

145

$

109

$

356

$

316

Beverage packaging, Europe

72

61

184

150

Beverage packaging, South America

60

14

100

43

Food and aerosol packaging

31

31

84

89

Aerospace

24

21

61

61

Reportable segment comparable operating earnings

332

236

785

659

Reconciling items

Other (a)

(21)

(8)

(67)

(45)

Business consolidation and other activities

(79)

(152)

(319)

(138)

Amortization of acquired Rexam intangibles

(33)

-

(33)

-

Cost of sales associated with Rexam inventory step-up

(83)

-

(83)

-

Earnings before interest and taxes

116

76

283

476

Interest expense

(80)

(38)

(159)

(107)

Debt refinancing and other costs

(2)

(21)

(108)

(86)

Total interest expense

(82)

(59)

(267)

(193)

Earnings before taxes

34

17

16

283

Tax (provision) benefit

(38)

31

191

(48)

Equity in results of affiliates

7

2

6

3

Net earnings

3

50

213

238

Less net earnings attributable to noncontrolling interests

(3)

(5)

(3)

(12)

Net earnings attributable to Ball Corporation

$

-

$

45

$

210

$

226

(a)

Includes undistributed corporate expenses, net of $43 million and $17 million for the third quarter of 2016 and 2015 respectively, and $78 million and $69 million for the first nine months of 2016 and 2015, respectively.   

Notes to the Condensed Financial Statements (Third Quarter 2016)

2. Non-Comparable Items

Announcement

Three Months Ended September 30,

Nine Months Ended September 30,

($ in millions)

Date

2016

2015

2016

2015

Non-comparable items - income (expense)

Beverage packaging, North and Central America

Business consolidation and other activities

Rexam transaction related costs (1)

Feb. 2015

$

(2)

$

-

$

(3)

$

-

Bristol facility closure costs (2)

Jul. 2015

(3)

(20)

(4)

(20)

Individually insignificant items

(1)

-

(5)

(1)

Other non-comparable items

Cost of sales associated with Rexam inventory step-up (3)

Jun. 2016

(10)

-

(10)

-

Amortization of acquired Rexam intangibles (4)

Jun. 2016

(6)

-

(6)

-

Total beverage packaging, North and Central America

(22)

(20)

(28)

(21)

Beverage packaging, South America

Business consolidation and other activities

Rexam transaction related costs (1)

Feb. 2015

(2)

-

(11)

-

Individually insignificant items

(4)

-

(4)

-

Other non-comparable items

Cost of sales associated with Rexam inventory step-up (3)

Jun. 2016

(20)

-

(20)

-

Amortization of acquired Rexam intangibles (4)

Jun. 2016

(9)

-

(9)

-

Total beverage packaging, South America

(35)

-

(44)

-

Beverage packaging, Europe

Business consolidation and other activities

Rexam transaction related costs (1)

Feb. 2015

-

-

(7)

-

Asset impairment (5)

Jun. 2015

-

-

-

(5)

Individually insignificant items

(10)

(2)

(12)

(4)

Other non-comparable items

Cost of sales associated with Rexam inventory step-up (3)

Jun. 2016

(46)

-

(46)

-

Amortization of acquired Rexam intangibles (4)

Jun. 2016

(15)

-

(15)

-

Total beverage packaging, Europe

(71)

(2)

(80)

(9)

Food and aerosol packaging

-

-

Weirton facility closure costs (6)

Feb. 2016

(3)

-

(14)

-

Individually insignificant items

Mar. 2016

(1)

-

(7)

(1)

Total food and aerosol packaging

(4)

-

(21)

(1)

Aerospace individually insignificant items

-

-

-

1

Other

Business consolidation and other activities

Rexam transaction related costs (1)

Feb. 2015

(33)

(129)

(289)

(105)

Currency exchange gain (loss) for restricted cash, intercompany loans and 2020, 2023 euro senior notes (7)

Dec. 2015

22

-

(174)

-

Rexam acquisition related compensation arrangements (8)

Jun. 2016

(35)

-

(106)

-

Gain on sale of business (9)

Jun. 2016

(3)

-

328

-

Individually insignificant items

(4)

(1)

(11)

(3)

Other non-comparable items

Cost of sales associated with Rexam inventory step-up (3)

Jun. 2016

(7)

-

(7)

-

Amortization of acquired Rexam intangibles (4)

Jun. 2016

(3)

-

(3)

-

Total other

(63)

(130)

(262)

(108)

Total business consolidation and other activities

(79)

(152)

(319)

(138)

Total other non-comparable items

(116)

-

(116)

-

Total non-comparable items

(195)

(152)

(435)

(138)

Tax effect on business consolidation and other activities

13

57

299

48

Tax effect on other non-comparable items

14

-

14

-

Individually insignificant items

-

(2)

-

(4)

Total tax effect

27

55

313

44

Total non-comparable items, net of tax

$

(168)

$

(97)

$

(122)

$

(94)

Debt Refinancing and Other Costs:

Interest expense on 3.5% and 4.375% senior notes (10)

Dec. 2015

$

-

$

-

$

(49)

$

-

Economic hedge - interest rate risk (1)

Feb. 2015

-

(15)

(20)

(10)

Refinancing of bridge and revolving credit facilities (11)

Mar. 2016

-

-

(30)

(5)

Amortization of unsecured, committed bridge facility financing fees (12)

Feb. 2015

-

(6)

(7)

(13)

Redemption of 6.75% and 5.75% senior notes, due September 2020 and May 2021, respectively, and refinance of senior credit facilities (13)

Feb. 2015

-

-

-

(58)

Individually insignificant items

(2)

-

(2)

-

Total debt refinancing and other costs

(2)

(21)

(108)

(86)

Tax effect on debt refinancing and other costs

(1)

8

33

29

Total debt refinancing and other costs, net of tax

$

(3)

$

(13)

$

(75)

$

(57)

(1)

During the first three quarters of 2016 and first three quarters of 2015, the company recorded charges for professional services and other costs associated with the June 30, 2016 acquisition of Rexam.

Also during the first three quarters of 2016 and first three quarters of 2015, the company recorded gains and losses associated with financial instruments purchased to reduce its currency exchange rate exposure associated with the British pound denominated cash portion of the Rexam acquisition purchase price and purchased derivative financial instruments to mitigate its exposure to interest rate changes associated with anticipated debt issuances to pay the cash portion of the Rexam acquisition purchase price.

(2)

During the third quarter of 2015, the company announced the planned closure of the company's beverage packaging end-making facility in Bristol, Virginia, which ceased production in the second quarter of 2016. The closure will realign end-making capacities in North America to position the company to meet customer demand. Charges have been comprised of severance, pension and other employee benefits, as well as other individually insignificant items.

(3)

During the third quarter of 2016, the company recorded cost of sales associated with the step-up in value of inventory acquired from Rexam.

(4)

During the third quarter of 2016, the company recorded amortization expense for customer relationships and other intangible assets identified as part of the Rexam acquisition.

(5)

During the second quarter of 2015, the company recorded charges for the write down of property held for sale.

(6)

During the first quarter of 2016, the company announced the closure of its food and aerosol packaging flat sheet production and end-making facility in Weirton, West Virginia, which will cease production in early 2017. Charges have been comprised of employee severance and benefits, facility shutdown costs, and asset impairment and disposal costs.

(7)

During the first three quarters of 2016, the company recorded net foreign currency exchange losses from the revaluation of foreign currency denominated restricted cash, and intercompany loans related to the cash component of the Rexam acquisition purchase price, the sale of the Divestment Business and the revaluation of the euro-denominated debt issuances in December 2015 (see Note 10 below).

(8)

During the second and third quarter of 2016, the company incurred charges associated with long term incentive and other compensation arrangements associated with the Rexam acquisition.

(9)

The sale of the Divestment Business was completed immediately after the Rexam acquisition on June 30, 2016, for $3.42 billion, subject to customary closing adjustments. During the first nine months of 2016, a gain of $328 million has been recorded in connection with the sale of the assets and liabilities of Ball's divested packaging businesses.

Notes to the Condensed Financial Statements (Third Quarter 2016)

2. Non-Comparable Items (continued)

(10)

During the first two quarters of 2016, the company recorded interest expense associated with the $1 billion of 4.375 percent senior notes and €400 million of 3.5 percent senior notes, both due in December 2020, and €700 million of 4.375 percent senior notes, due in December 2023.  In July 2016 Ball used the net proceeds to fund a portion of the cash component of the purchase price in connection with the acquisition of Rexam.

(11)

In March 2016, the company entered into a new $4.1 billion senior secured credit facility which includes a multicurrency revolving facility, a Term A U.S. dollar loan and a Term A euro loan, all maturing in 2021. These facilities replaced the company's existing revolving credit facility and the unsecured, committed bridge facilities that were entered into in February 2015. In July 2016 Ball used the net proceeds from the Term A U.S. dollar loan and the Term A euro loan to fund a portion of the cash component of the Rexam acquisition purchase price.

(12)

During the first quarter of 2016 and first nine months of 2015, the company recorded charges for the amortization of deferred financing costs associated with the £3.3 billion unsecured, committed bridge facility, entered into in February 2015, in connection with the proposed Rexam acquisition purchase price.

(13)

In February 2015, the company entered into a new $3 billion revolving credit facility to: 1) replace its existing revolving credit facility, 2) repay its Term C loan, 3) repay the outstanding balance on the existing revolving credit facility, 4) redeem the 2020 and 2021 senior notes and 5) repay the existing private placement debt of Rexam upon closing of the acquisition of Rexam. 

During the first quarter of 2015, the company recorded charges for the write-off of unamortized deferred financing costs associated with the refinancing of the revolving credit facility and repayment of the Term C loan.

Notes to the Condensed Financial Statements (Third Quarter 2016)

3. Non-U.S. GAAP Measures

Non-U.S. GAAP Measures - Non-U.S. GAAP measures should not be considered in isolation. They should not be considered superior to, or a substitute for, financial measures calculated in accordance with U.S. GAAP and may not be comparable to similarly titled measures of other companies. Presentations of earnings and cash flows presented in accordance with U.S. GAAP are available in the company's earnings releases and quarterly and annual regulatory filings.

Comparable Earnings Before Interest, Taxes, Depreciation and Amortization (Comparable EBITDA), Comparable Operating Earnings and Comparable Net Earnings - Comparable EBITDA is earnings before interest, taxes, depreciation and amortization, business consolidation and other items, Comparable Operating Earnings is earnings before interest, taxes and business consolidation costs and other items, and Comparable Net Earnings is earnings before business consolidation costs and other non-comparable costs after-tax. We use Comparable EBITDA, Comparable Operating Earnings and Comparable Net Earnings internally to evaluate the company's operating performance.

A summary of the effects of the above transactions on after-tax earnings is as follows:

Three Months Ended

Nine Months Ended

September 30,

September 30,

($ in millions, except per share amounts)

2016

2015

2016

2015

Net earnings attributable to Ball Corporation

$

-

$

45

$

210

$

226

Add: Business consolidation and other activities

79

152

319

138

Add: Amortization of acquired Rexam intangibles

33

-

33

-

Add: Cost of sales associated with Rexam inventory step-up

83

-

83

-

Add: Debt refinancing and other costs

2

21

108

86

Add: Tax effect on above items

(26)

(63)

(346)

(73)

Net earnings attributable to Ball Corporation before above transactions (Comparable Net Earnings)

$

171

$

155

$

407

$

377

Per diluted share before above transactions

$

0.96

$

1.10

$

2.61

$

2.67

Three Months Ended

Nine Months Ended

September 30,

September 30,

($ in millions)

2016

2015

2016

2015

Net earnings attributable to Ball Corporation

$

-

$

45

$

210

$

226

Add: Net earnings attributable to noncontrolling interests

3

5

3

12

Net earnings

3

50

213

238

Less: Equity in results of affiliates, net of tax

(7)

(2)

(6)

(3)

Add: Tax provision (benefit)

38

(31)

(191)

48

Earnings (loss) before taxes

34

17

16

283

Add: Total interest expense

82

59

267

193

Earnings before interest and taxes

116

76

283

476

Add: Business consolidation and other activities

79

152

319

138

Add: Amortization of acquired Rexam intangibles

33

-

33

-

Add: Cost of sales associated with Rexam inventory step-up

83

-

83

-

   EBIT before above transactions (Comparable Operating Earnings)

$

311

$

228

$

718

$

614