UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
For the Quarterly Period Ended September 30, 20182019
or
| |
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 001-07349
BALL CORPORATION
State of Indiana (State or other jurisdiction of incorporation or | 35-0160610 (I.R.S. Employer Identification No.) |
10 Longs Peak Drive, P.O. Box 5000 Broomfield, CO80021-2510 (Address of registrant’s principal executive office) | 80021-2510 (Zip Code) |
Registrant’s telephone number, including area code: 303/303/469-3131
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date, and the securities registered pursuant to section 12(b) of the Act:
Class | | Trading Symbol | | Name of Exchange | | Outstanding at October 31, 2019 |
Common Stock, without par value | | BLL | | NYSE | | 327,129,526 shares |
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ | Accelerated filer |
Non-accelerated filer | Smaller reporting |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒⌧
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
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Ball Corporation
QUARTERLY REPORT ON FORM 10-Q
For the period ended September 30, 20182019
INDEX
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| 1 | |
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| 2 | |
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| 3 | |
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| 4 | |
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| Notes to the Unaudited Condensed Consolidated Financial Statements | 5 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 43 | |
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52 | ||
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53 | ||
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53 |
PART I. FINANCIAL INFORMATION
BALL CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
| | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | ||||||||
($ in millions, except per share amounts) | | 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
| | | | | | | | | | | | |
Net sales | | $ | 2,953 | | $ | 2,946 | | $ | 8,755 | | $ | 8,832 |
| | | | | | | | | | | | |
Costs and expenses | | | | | | | | | | | | |
Cost of sales (excluding depreciation and amortization) | | | (2,363) | | | (2,362) | | | (7,044) | | | (7,083) |
Depreciation and amortization | | | (169) | | | (171) | | | (510) | | | (529) |
Selling, general and administrative | | | (90) | | | (113) | | | (328) | | | (352) |
Business consolidation and other activities | | | (133) | | | (32) | | | (147) | | | (131) |
| | | (2,755) | | | (2,678) | | | (8,029) | | | (8,095) |
| | | | | | | | | | | | |
Earnings before interest and taxes | | | 198 | | | 268 | | | 726 | | | 737 |
| | | | | | | | | | | | |
Interest expense | | | (79) | | | (76) | | | (237) | | | (226) |
Debt refinancing and other costs | | | — | | | — | | | (4) | | | (1) |
Total interest expense | | | (79) | | | (76) | | | (241) | | | (227) |
| | | | | | | | | | | | |
Earnings before taxes | | | 119 | | | 192 | | | 485 | | | 510 |
Tax (provision) benefit | | | (32) | | | (140) | | | (73) | | | (220) |
Equity in results of affiliates, net of tax | | | 5 | | | 7 | | | (6) | | | 14 |
Net earnings | | | 92 | | | 59 | | | 406 | | | 304 |
Net (earnings) loss attributable to noncontrolling interests | | | — | | | — | | | — | | | (1) |
Net earnings attributable to Ball Corporation | | $ | 92 | | $ | 59 | | $ | 406 | | $ | 303 |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Earnings per share: | | | | | | | | | | | | |
Basic | | $ | 0.28 | | $ | 0.17 | | $ | 1.22 | | $ | 0.87 |
Diluted | | $ | 0.27 | | $ | 0.17 | | $ | 1.19 | | $ | 0.86 |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Weighted average shares outstanding: (000s) | | | | | | | | | | | | |
Basic | | | 331,148 | | | 342,982 | | | 332,726 | | | 347,113 |
Diluted | | | 340,632 | | | 349,709 | | | 341,702 | | | 353,755 |
| | | | | | | | | | | | |
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| Three Months Ended September 30, |
| Nine Months Ended September 30, |
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($ in millions, except per share amounts) |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
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Net sales |
| $ | 2,946 |
| $ | 2,908 |
| $ | 8,832 |
| $ | 8,236 |
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Costs and expenses |
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Cost of sales (excluding depreciation and amortization) |
|
| (2,362) |
|
| (2,338) |
|
| (7,083) |
|
| (6,583) |
|
|
Depreciation and amortization |
|
| (171) |
|
| (162) |
|
| (529) |
|
| (539) |
|
|
Selling, general and administrative |
|
| (113) |
|
| (127) |
|
| (352) |
|
| (398) |
|
|
Business consolidation and other activities |
|
| (32) |
|
| (157) |
|
| (131) |
|
| (253) |
|
|
|
|
| (2,678) |
|
| (2,784) |
|
| (8,095) |
|
| (7,773) |
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Earnings before interest and taxes |
|
| 268 |
|
| 124 |
|
| 737 |
|
| 463 |
|
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Interest expense |
|
| (76) |
|
| (74) |
|
| (226) |
|
| (216) |
|
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Debt refinancing and other costs |
|
| — |
|
| — |
|
| (1) |
|
| (1) |
|
|
Total interest expense |
|
| (76) |
|
| (74) |
|
| (227) |
|
| (217) |
|
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Earnings before taxes |
|
| 192 |
|
| 50 |
|
| 510 |
|
| 246 |
|
|
Tax (provision) benefit |
|
| (140) |
|
| (4) |
|
| (220) |
|
| (48) |
|
|
Equity in results of affiliates, net of tax |
|
| 7 |
|
| 5 |
|
| 14 |
|
| 23 |
|
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Net earnings |
|
| 59 |
|
| 51 | �� |
| 304 |
|
| 221 |
|
|
Net earnings attributable to noncontrolling interests |
|
| — |
|
| (3) |
|
| (1) |
|
| (6) |
|
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Net earnings attributable to Ball Corporation |
| $ | 59 |
| $ | 48 |
| $ | 303 |
| $ | 215 |
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Earnings per share: |
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Basic |
| $ | 0.17 |
| $ | 0.14 |
| $ | 0.87 |
| $ | 0.61 |
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Diluted |
| $ | 0.17 |
| $ | 0.13 |
| $ | 0.86 |
| $ | 0.60 |
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Weighted average shares outstanding: (000s) |
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Basic |
|
| 342,982 |
|
| 350,327 |
|
| 347,113 |
|
| 350,481 |
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Diluted |
|
| 349,709 |
|
| 358,556 |
|
| 353,755 |
|
| 358,492 |
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See accompanying notes to the unaudited condensed consolidated financial statements.
1
BALL CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)
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| Three Months Ended September 30, |
| Nine Months Ended September 30, |
| ||||||||
($ in millions) |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
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|
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Net earnings |
| $ | 59 |
| $ | 51 |
| $ | 304 |
| $ | 221 |
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Other comprehensive earnings (loss): |
|
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|
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Foreign currency translation adjustment |
|
| (47) |
|
| 3 |
|
| (157) |
|
| 16 |
|
Pension and other postretirement benefits |
|
| 49 |
|
| 19 |
|
| 68 |
|
| 1 |
|
Effective financial derivatives |
|
| (28) |
|
| (7) |
|
| (48) |
|
| 9 |
|
Total other comprehensive earnings (loss) |
|
| (26) |
|
| 15 |
|
| (137) |
|
| 26 |
|
Income tax (provision) benefit |
|
| (7) |
|
| (20) |
|
| (7) |
|
| (9) |
|
Total other comprehensive earnings (loss), net of tax |
|
| (33) |
|
| (5) |
|
| (144) |
|
| 17 |
|
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|
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|
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Total comprehensive earnings (loss) |
|
| 26 |
|
| 46 |
|
| 160 |
|
| 238 |
|
Comprehensive (earnings) loss attributable to noncontrolling interests |
|
| — |
|
| (4) |
|
| (1) |
|
| (7) |
|
Comprehensive earnings (loss) attributable to Ball Corporation |
| $ | 26 |
| $ | 42 |
| $ | 159 |
| $ | 231 |
|
| | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | ||||||||
($ in millions) |
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
| | | | | | | | | | | | |
Net earnings | | $ | 92 | | $ | 59 | | $ | 406 | | $ | 304 |
| | | | | | | | | | | | |
Other comprehensive earnings (loss): | | | | | | | | | | | | |
Foreign currency translation adjustment | | | 50 | | | (47) | | | 136 | | | (157) |
Pension and other postretirement benefits | | | 20 | | | 49 | | | 27 | | | 68 |
Derivatives designated as hedges | | | 16 | | | (28) | | | 47 | | | (48) |
Total other comprehensive earnings (loss) | | | 86 | | | (26) | | | 210 | | | (137) |
Income tax (provision) benefit | | | (5) | | | (7) | | | (12) | | | (7) |
Total other comprehensive earnings (loss), net of tax | | | 81 | | | (33) | | | 198 | | | (144) |
| | | | | | | | | | | | |
Total comprehensive earnings (loss) | | | 173 | | | 26 | | | 604 | | | 160 |
Comprehensive (earnings) loss attributable to noncontrolling interests | | | — | | | — | | | — | | | (1) |
Comprehensive earnings (loss) attributable to Ball Corporation | | $ | 173 | | $ | 26 | | $ | 604 | | $ | 159 |
See accompanying notes to the unaudited condensed consolidated financial statements.
2
BALL CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
| | | | | | |
| | September 30, | | December 31, | ||
($ in millions) |
| 2019 |
| 2018 | ||
| | | | | | |
Assets | | | | | | |
Current assets | | | | | | |
Cash and cash equivalents | | $ | 483 | | $ | 721 |
Receivables, net | | | 1,957 | | | 1,802 |
Inventories, net | | | 1,180 | | | 1,271 |
Other current assets | | | 209 | | | 146 |
Total current assets | | | 3,829 | | | 3,940 |
Noncurrent assets | | | | | | |
Property, plant and equipment, net | | | 4,320 | | | 4,542 |
Goodwill | | | 4,371 | | | 4,475 |
Intangible assets, net | | | 2,027 | | | 2,188 |
Other assets | | | 1,690 | | | 1,409 |
Total assets | | $ | 16,237 | | $ | 16,554 |
| | | | | | |
Liabilities and Equity | | | | | | |
Current liabilities | | | | | | |
Short-term debt and current portion of long-term debt | | $ | 361 | | $ | 219 |
Accounts payable | | | 2,658 | | | 3,095 |
Accrued employee costs | | | 256 | | | 289 |
Other current liabilities | | | 498 | | | 492 |
Total current liabilities | | | 3,773 | | | 4,095 |
Noncurrent liabilities | | | | | | |
Long-term debt | | | 6,623 | | | 6,510 |
Employee benefit obligations | | | 1,383 | | | 1,455 |
Deferred taxes | | | 602 | | | 645 |
Other liabilities | | | 391 | | | 287 |
Total liabilities | | | 12,772 | | | 12,992 |
| | | | | | |
Equity | | | | | | |
Common stock (676,051,079 shares issued - 2019; 673,236,720 shares issued - 2018) | | | 1,177 | | | 1,157 |
Retained earnings | | | 5,694 | | | 5,341 |
Accumulated other comprehensive earnings (loss) | | | (716) | | | (835) |
Treasury stock, at cost (346,854,718 shares - 2019; 337,978,571 shares - 2018) | | | (2,790) | | | (2,205) |
Total Ball Corporation shareholders' equity | | | 3,365 | | | 3,458 |
Noncontrolling interests | | | 100 | | | 104 |
Total equity | | | 3,465 | | | 3,562 |
Total liabilities and equity | | $ | 16,237 | | $ | 16,554 |
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|
|
| September 30, |
| December 31, |
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($ in millions) |
| 2018 |
| 2017 |
| ||
|
|
|
|
|
|
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Assets |
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 598 |
| $ | 448 |
|
Receivables, net |
|
| 1,872 |
|
| 1,634 |
|
Inventories, net |
|
| 1,243 |
|
| 1,526 |
|
Other current assets |
|
| 147 |
|
| 150 |
|
Total current assets |
|
| 3,860 |
|
| 3,758 |
|
Noncurrent assets |
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
| 4,508 |
|
| 4,610 |
|
Goodwill |
|
| 4,497 |
|
| 4,933 |
|
Intangible assets, net |
|
| 2,247 |
|
| 2,462 |
|
Other assets |
|
| 1,358 |
|
| 1,406 |
|
Total assets |
| $ | 16,470 |
| $ | 17,169 |
|
|
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Liabilities and Shareholders' Equity |
|
|
|
|
|
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Current liabilities |
|
|
|
|
|
|
|
Short-term debt and current portion of long-term debt |
| $ | 150 |
| $ | 453 |
|
Accounts payable |
|
| 2,953 |
|
| 2,762 |
|
Accrued employee costs |
|
| 260 |
|
| 352 |
|
Other current liabilities |
|
| 450 |
|
| 540 |
|
Total current liabilities |
|
| 3,813 |
|
| 4,107 |
|
Noncurrent liabilities |
|
|
|
|
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Long-term debt |
|
| 6,523 |
|
| 6,518 |
|
Employee benefit obligations |
|
| 1,421 |
|
| 1,463 |
|
Deferred taxes |
|
| 672 |
|
| 695 |
|
Other liabilities |
|
| 296 |
|
| 340 |
|
Total liabilities |
|
| 12,725 |
|
| 13,123 |
|
|
|
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Shareholders' equity |
|
|
|
|
|
|
|
Common stock (672,699,383 shares issued - 2018; 670,576,215 shares issued - 2017) |
|
| 1,142 |
|
| 1,084 |
|
Retained earnings |
|
| 5,224 |
|
| 4,987 |
|
Accumulated other comprehensive earnings (loss) |
|
| (800) |
|
| (656) |
|
Treasury stock, at cost (332,017,564 shares - 2018; 320,694,598 shares - 2017) |
|
| (1,926) |
|
| (1,474) |
|
Total Ball Corporation shareholders' equity |
|
| 3,640 |
|
| 3,941 |
|
Noncontrolling interests |
|
| 105 |
|
| 105 |
|
Total shareholders' equity |
|
| 3,745 |
|
| 4,046 |
|
Total liabilities and shareholders' equity |
| $ | 16,470 |
| $ | 17,169 |
|
See accompanying notes to the unaudited condensed consolidated financial statements.
3
BALL CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | |
| | Nine Months Ended September 30, | ||||
($ in millions) |
| 2019 |
| 2018 | ||
| | | | | | |
Cash Flows from Operating Activities | | | | | | |
Net earnings | | $ | 406 | | $ | 304 |
Adjustments to reconcile net earnings to cash provided by (used in) operating activities: | | | | | | |
Depreciation and amortization | | | 510 | | | 529 |
Business consolidation and other activities | | | 147 | | | 131 |
Deferred tax provision (benefit) | | | (16) | | | 103 |
Other, net | | | 32 | | | 72 |
Changes in working capital components, net of dispositions | | | (423) | | | (112) |
Cash provided by (used in) operating activities | | | 656 | | | 1,027 |
Cash Flows from Investing Activities | | | | | | |
Capital expenditures | | | (425) | | | (616) |
Business dispositions, net of cash sold | | | (50) | | | 551 |
Other, net | | | 26 | | | 50 |
Cash provided by (used in) investing activities | | | (449) | | | (15) |
Cash Flows from Financing Activities | | | | | | |
Long-term borrowings | | | 1,098 | | | 1,475 |
Repayments of long-term borrowings | | | (906) | | | (1,531) |
Net change in short-term borrowings | | | 131 | | | (189) |
Proceeds from issuances of common stock, net of shares used for taxes | | | 16 | | | 25 |
Acquisitions of treasury stock | | | (614) | | | (464) |
Common stock dividends | | | (133) | | | (104) |
Other, net | | | (10) | | | (13) |
Cash provided by (used in) financing activities | | | (418) | | | (801) |
| | | | | | |
Effect of exchange rate changes on cash | | | (20) | | | (59) |
| | | | | | |
Change in cash, cash equivalents and restricted cash | | | (231) | | | 152 |
Cash, cash equivalents and restricted cash - beginning of period | | | 728 | | | 459 |
Cash, cash equivalents and restricted cash - end of period | | $ | 497 | | $ | 611 |
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|
|
|
|
|
|
|
|
| Nine Months Ended September 30, |
| ||||
($ in millions) |
| 2018 |
| 2017 |
| ||
|
|
|
|
|
|
|
|
Cash Flows from Operating Activities |
|
|
|
|
|
|
|
Net earnings |
| $ | 304 |
| $ | 221 |
|
Adjustments to reconcile net earnings to cash provided by (used in) continuing operating activities: |
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 529 |
|
| 539 |
|
Business consolidation and other activities |
|
| 131 |
|
| 253 |
|
Deferred tax provision (benefit) |
|
| 103 |
|
| — |
|
Other, net (a) |
|
| 72 |
|
| (229) |
|
Changes in working capital components, net of dispositions |
|
| (112) |
|
| (40) |
|
Cash provided by (used in) operating activities (a) |
|
| 1,027 |
|
| 744 |
|
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
Capital expenditures |
|
| (616) |
|
| (404) |
|
Business dispositions, net of cash sold |
|
| 551 |
|
| 31 |
|
Other, net |
|
| 50 |
|
| 3 |
|
Cash provided by (used in) investing activities |
|
| (15) |
|
| (370) |
|
Cash Flows from Financing Activities |
|
|
|
|
|
|
|
Long-term borrowings |
|
| 1,475 |
|
| 440 |
|
Repayments of long-term borrowings |
|
| (1,531) |
|
| (909) |
|
Net change in short-term borrowings |
|
| (189) |
|
| 220 |
|
Proceeds from issuances of common stock, net of shares used for taxes |
|
| 25 |
|
| 18 |
|
Acquisitions of treasury stock |
|
| (464) |
|
| (103) |
|
Common stock dividends |
|
| (104) |
|
| (93) |
|
Other, net |
|
| (13) |
|
| (2) |
|
Cash provided by (used in) financing activities |
|
| (801) |
|
| (429) |
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
| (59) |
|
| 11 |
|
|
|
|
|
|
|
|
|
Change in cash, cash equivalents and restricted cash (a) |
|
| 152 |
|
| (44) |
|
Cash, cash equivalents and restricted cash - beginning of period (a) |
|
| 459 |
|
| 607 |
|
Cash, cash equivalents and restricted cash - end of period (a) |
| $ | 611 |
| $ | 563 |
|
|
|
See accompanying notes to the unaudited condensed consolidated financial statements.
4
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
The accompanying unaudited condensed consolidated financial statements include the accounts of Ball Corporation and its controlled affiliates, including its consolidated variable interest entities (collectively Ball, the company, we or our), and have been prepared by the company. Certain information and footnote disclosures, including critical and significant accounting policies normally included in financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted for this quarterly presentation.
Results of operations for the periods shown are not necessarily indicative of results for the year, particularly in view of the seasonality in the packaging segments and the variability of contract sales in the company’s aerospace segment. These unaudited condensed consolidated financial statements and accompanying notes should be read in conjunction with the consolidated financial statements and the notes thereto included in the company’s Current2018 Annual Report on Form 8-K10-K filed on March 6, 2018,February 22, 2019, pursuant to the Securities Exchange Act of 1934 for the fiscal year ended December 31, 20172018 (annual report).
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires Ball’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and reported amounts of sales and expenses during the reporting periods. These estimates are based on historical experience and various assumptions believed to be reasonable under the circumstances. Ball’s management evaluates these estimates on an ongoing basis and adjusts or revises the estimates as circumstances change. As future events and their impacts cannot be determined with precision, actual results may differ from these estimates. In the opinion of management, the financial statements reflect all adjustments necessary to fairly state the results of the periods presented.
Certain prior year amounts have been reclassified in order to conform to the current year presentation.
2. Accounting Pronouncements
Recently Adopted Accounting Standards
Revenue from Contracts with CustomersNew Lease Accounting Guidance
In February 2016, lease accounting guidance was issued which, for operating leases, requires a lessee to recognize a right-of-use (ROU) asset and a lease liability. The guidance also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, generally on a straight line basis. On January 1, 2018,2019, Ball adopted Accounting Standard Codification 606, “Revenue from Contracts with Customers,”the new guidance and all related amendments (collectively, the(the new revenuelease standard), applying the modified retrospective method to all contracts that were not completed as of January 1, 2018. The cumulative effect of initially applying the new revenue standard was recognized as an adjustment to the company’s retained earnings balance as of January 1, 2018. Comparative periods have2019. As such, comparative information has not been restated and continuecontinues to be reported under the accounting standards in effect for those prior periods.
As part of adopting the new lease standard, Ball has made the following elections:
● | To carry forward the historical lease determination and classification conclusions as established under the old standard, and not reassess initial direct costs for existing leases; |
● | To carry forward its historical accounting treatment for land easements on existing agreements; |
● | Not to apply the balance sheet recognition requirements of the new lease standard to leases with a term of one year or less (short-term leases); and |
● | For all classes of underlying assets, to account for non-lease components of a contract as part of the single lease component to which they are related. |
5
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
The cumulative effect of the changes made to the consolidated January 1, 2018, balance sheet for the adoption of the new revenuelease standard is as follows:resulted in the following impacts on our unaudited consolidated balance sheets:
| | | | | | | | |
($ in millions) | Balance at December 31, 2018 | | Adjustments Due to Adoption | | Balance at January 1, 2019 | |||
| | | | | | | | |
Assets: | | | | | | | | |
Other current assets | $ | 140 | | $ | (1) | | $ | 139 |
Operating lease right-of-use assets (a) | | — | | | 244 | | | 244 |
Other assets | | 1,409 | | | (25) | | | 1,384 |
| | | | | | | | |
Liabilities: | | | | | | | | |
Other current liabilities | $ | 492 | | $ | (3) | | $ | 489 |
Current operating lease liabilities (b) | | — | | | 53 | | | 53 |
Other liabilities | | 287 | | | (14) | | | 273 |
Noncurrent operating lease liabilities (b) | | — | | | 182 | | | 182 |
|
|
|
|
|
|
|
|
|
|
($ in millions) |
| Balance at December 31, 2017 |
| Adjustments Due to Adoption |
| Balance at January 1, 2018 | |||
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
Receivables, net |
| $ | 1,634 |
| $ | 307 |
| $ | 1,941 |
Inventories, net |
|
| 1,526 |
|
| (241) |
|
| 1,285 |
Other current assets |
|
| 150 |
|
| (4) |
|
| 146 |
Liabilities |
|
|
|
|
|
|
|
|
|
Other current liabilities |
|
| 540 |
|
| 17 |
|
| 557 |
Deferred taxes |
|
| 695 |
|
| 7 |
|
| 702 |
Shareholders' equity |
|
|
|
|
|
|
|
|
|
Retained earnings |
|
| 4,987 |
|
| 37 |
|
| 5,024 |
Accumulated other comprehensive earnings (loss) |
|
| (656) |
|
| 1 |
|
| (655) |
(a) | Operating lease right-of-use assets are recognized within other assets in Ball’s unaudited condensed consolidated balance sheets. |
(b) | Current and noncurrent operating lease liabilities are recognized within other current liabilities and other liabilities, respectively, in Ball’s unaudited condensed consolidated balance sheets. |
In accordance with the disclosure requirementsBall’s adoption of the new revenuelease standard thehad an immaterial impact on Ball’s results of adoption on our consolidated statement of earnings and balance sheet was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
| Three Months Ended September 30, 2018 |
| Nine Months Ended September 30, 2018 | ||||||||||||||||||||
($ in millions, except per share amounts) |
| As Reported |
| Balances Without Adoption |
| Effect of Change Higher (Lower) |
| As Reported |
| Balances Without Adoption |
| Effect of Change Higher (Lower) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net sales |
| $ | 2,946 |
| $ | 2,985 |
| $ | (39) |
| $ | 8,832 |
| $ | 8,880 |
| $ | (48) | ||||||
Cost of sales (excluding depreciation and amortization) |
|
| (2,362) |
|
| (2,393) |
|
| 31 |
|
| (7,083) |
|
| (7,121) |
|
| 38 | ||||||
Earnings before interest and taxes |
|
| 268 |
|
| 276 |
|
| (8) |
|
| 737 |
|
| 747 |
|
| (10) | ||||||
Tax (provision) benefit |
|
| (140) |
|
| (143) |
|
| 3 |
|
| (220) |
|
| (222) |
|
| 2 | ||||||
Net earnings attributable to Ball Corporation |
|
| 59 |
|
| 64 |
|
| (5) |
|
| 303 |
|
| 311 |
|
| (8) | ||||||
Basic earnings per share |
|
| 0.17 |
|
| 0.19 |
|
| (0.02) |
|
| 0.87 |
|
| 0.90 |
|
| (0.03) | ||||||
Diluted earnings per share |
|
| 0.17 |
|
| 0.18 |
|
| (0.01) |
|
| 0.86 |
|
| 0.88 |
|
| (0.02) |
|
|
|
|
|
|
|
|
|
|
|
| September 30, 2018 | |||||||
($ in millions) |
| As Reported |
| Balances Without Adoption |
| Effect of Change | |||
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
Receivables, net |
| $ | 1,872 |
| $ | 1,622 |
| $ | 250 |
Inventories, net |
|
| 1,243 |
|
| 1,444 |
|
| (201) |
Other current assets |
|
| 147 |
|
| 153 |
|
| (6) |
Liabilities |
|
|
|
|
|
|
|
|
|
Other current liabilities |
|
| 450 |
|
| 442 |
|
| 8 |
Deferred taxes |
|
| 672 |
|
| 667 |
|
| 5 |
Shareholders' equity |
|
|
|
|
|
|
|
|
|
Retained earnings |
|
| 5,224 |
|
| 5,195 |
|
| 29 |
Accumulated other comprehensive earnings (loss) |
|
| (800) |
|
| (801) |
|
| 1 |
6
Ball Corporation
Notes tooperations in the Unaudited Condensed Consolidated Financial Statements
The following summarizes the significant changes to the company’s unaudited condensed consolidated statementstatements of earnings; an immaterial impact on Ball’s cash flows from operating, financing, and investing activities in the unaudited condensed consolidated statements of cash flows and 0 impact on Ball’s opening retained earnings and consolidated balance sheetbalance. Ball’s accounting for finance leases remains substantially unchanged as a result of the new revenue standard adopted on January 1, 2018, compared to if the company had continued to recognize sales under the previous revenue recognition guidance:adoption. See Note 14 for further details regarding Ball’s leases.
|
|
|
|
|
|
Share-Based Compensation
In May 2017, amendments to existing accounting guidance were issued to provide clarity and reduce diversity in practice, cost and complexity when applying stock compensation accounting guidance regarding modifications to the terms or conditions of a share-based payment award. The amendments specify that all changes to the terms and conditions of a share-based payment award will require an entity to apply modification accounting unless all of the following are met: (1) the fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified, (2) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified and (3) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The guidance was applied prospectively on January 1, 2018, and it did not have an impact on the company’s unaudited condensed consolidated financial statements.
Pension and Postretirement Benefit Costs
In March 2017, amendments to existing accounting guidance were issued to change the presentation of net periodic pension cost and net periodic postretirement benefit cost. Employers are required to report the service cost component in the same line item as other compensation costs arising from services rendered by the associated employees during the period. The other components of net periodic pension cost and net periodic postretirement benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. The amendments also permit only the service cost component of net benefit cost to be eligible for capitalization. This guidance was adopted by the company on January 1, 2018, and the capitalization of the service cost component was applied on a prospective basis. Curtailment and settlement losses are reported by the company in business consolidation and other activities. All other non-service components are immaterial and are presented in selling, general and administrative (SG&A) expenses beginning in 2018. These non-service costs were reported in both cost of sales and SG&A in prior periods; however, due to immateriality in all prior periods presented, no retrospective adjustments were considered necessary. Such costs were $4 million and $16 million for the three and nine months ended September 30, 2017, respectively, and $21 million for the full year 2017.
7
Sales of Nonfinancial Assets
In February 2017, amendments to existing accounting guidance were issued to clarify the scope and to add guidance for partial sales of nonfinancial assets. The guidance requires that all entities account for the derecognition of a business in accordance with guidance for consolidation, including instances in which the business is considered to be in substance real estate. This guidance was applied on January 1, 2018, using a modified retrospective approach and did not have a material impact on the company’s unaudited condensed consolidated financial statements.
Definition of a Business
In January 2017, amendments to existing accounting guidance were issued to further clarify the definition of a business in determining whether or not a company has acquired or sold a business. The amendments provide a screen to determine when an integrated set of assets and activities (collectively referred to as a “set”) is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. If the screen is not met, the amendments in this update (1) require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2) remove the evaluation of whether a market participant could replace missing elements. The amendments also narrow the definition of the term “output” so that the term is consistent with how outputs are described in the new guidance for revenue recognition. The guidance was applied prospectively for Ball on January 1, 2018, and did not have an impact on the company’s unaudited condensed consolidated financial statements.
Statement of Cash Flows
In November 2016, accounting guidance was issued requiring the statement of cash flows to reconcile the change in the total of cash, cash equivalents and restricted cash or restricted cash equivalents. This guidance was applied retrospectively on January 1, 2018, and the impact on the 2017 statement of cash flow was not material. The impact on the 2016 statement of cash flows was material due to approximately $2 billion of restricted cash held by the company at December 31, 2015, in an acquisition escrow account. In July 2016, the funds in the escrow account were used to pay a portion of the cash component of the acquisition price of Rexam. The impact on the statement of cash flows for the nine months ended September 30, 2017, was a $3 million reduction in cash flows from operating activities.
In August 2016, accounting guidance was issued addressing the following eight specific cash flow issues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
This guidance was applied retrospectively on January 1, 2018, and did not have a material impact on the company’s unaudited condensed consolidated statement of cash flows.
8
Intra-Entity Transfers
In October 2016, amendments to existing accounting guidance were issued that require entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs, as opposed to when the asset is sold to an unrelated third party. The amendments also eliminate the exception for an intra-entity transfer of an asset other than inventory. This guidance was applied on a modified retrospective basis on January 1, 2018, and did not have a material impact on the company’s unaudited condensed consolidated financial statements.
Financial Assets and Liabilities
In January 2016, accounting guidance was issued on the classification and measurement of financial assets and liabilities (equity securities and financial liabilities) under the fair value option and the presentation and disclosure requirements for financial instruments. Subsequent guidance was issued in February 2018 to clarify certain aspects of the guidance issued in January 2016. The guidance modifies how entities measure equity investments and present changes in the fair value of financial liabilities. Under the new guidance, entities have to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and recognize any related changes in fair value in net income unless the investments qualify for the new practicality exception. An exception applies to those equity investments that do not have a readily determinable fair value and do not qualify for the practical expedient to estimate fair value under the guidance and, as such, these investments may be measured at cost. The guidance was applied on January 1, 2018, and did not have a material impact on the company’s unaudited condensed consolidated financial statements.
New Accounting Guidance
Derivatives and Hedging
In October 2018, amendments to existing accounting guidance were issued to permit use of the overnight index swap (OIS) rate based on the secured overnight finance rate (SOFR) as a U.S. benchmark interest rate for hedge accounting purposes. This guidance is effective for Ball on January 1, 2019, and is not expected to have a material effect on the company’s consolidated financial statements.
Cloud Computing Arrangements
In August 2018, amendments to existing accounting guidance were issued to clarify the accounting for implementation costs for cloud computing arrangements. The amendments specify that existing guidance for capitalizing implementation costs incurred to develop or obtain internal-use software applies to capitalizing implementation costs incurred in a hosting arrangement that is a service contract. The guidance is effective for Ball on January 1, 2020, and the company is currently assessing the impact that the adoption of this new guidance will have on its consolidated financial statements.
Fair Value Measurements and Pension and Postretirement Benefit Costs
In August 2018, amendments to existing accounting guidance were issued to simplify financial statement disclosures related to defined benefit plans and fair value measurements. This guidance is effective for Ball on January 1, 2020, and is not expected to have a material effect on the company’s consolidated financial statements.
9
Share Based Payments
In June 2018, amendments to existing accounting guidance were issued to simplify share-based payment transactions for acquiring goods and services from nonemployees. The amendments specify that existing guidance for share-based payment transactions with employees applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that existing guidance does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of revenue contracts. The guidance is effective for Ball on January 1, 2019, and is not expected to have a material effect on the company’s consolidated financial statements.
Stranded Tax Effects
In February 2018, accounting guidance was issued to permit the reclassification from accumulated other comprehensive income to retained earnings of stranded tax effects resulting from the U.S. Tax Cuts and Jobs Act signed into law in December 2017. Ball adopted this guidance on January 1, 2019, and an election was made to reclassify on the first day of the period of adoption. The total tax amount reclassified was $79 million. Remaining stranded tax amounts in accumulated other comprehensive income, which are not related to the U.S. Tax Cuts and Jobs Act, are not significant and will be reclassified to the income statement when the activity leading to the deferral of gains and losses has ceased in full.
New Accounting Guidance
Cloud Computing Arrangements
In August 2018, amendments to existing accounting guidance were issued to clarify the accounting for implementation costs related to cloud computing arrangements. The amendments specify that existing guidance for capitalizing implementation costs incurred to develop or obtain internal-use software also applies to capitalizing implementation costs incurred in a hosting arrangement that is a service contract. The guidance is effective for Ball on January 1, 2019,2020, and is not expected to have a material effect on the company is currently assessing whether or notcompany’s consolidated financial statements.
6
Ball Corporation
Notes to early adopt the new guidance.Unaudited Condensed Consolidated Financial Statements
Financial Assets
In June 2016, amendmentsAmendments to existing guidance were issued in June 2016, followed by improvements and transition relief in 2018 and 2019, requiring financial assets or a group of financial assets measured at amortized cost basis to be presented at the net amount expected to be collected when finalized. The allowance for credit losses is a valuation account that will be deducted from the amortized cost basis of the financial asset to present the net carrying value at the amount expected to be collected on the financial asset. This guidance affects loans, debt securities,is expected to primarily affect Ball’s trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables and anyreceivables; however, the guidance applies to other financial assets not excluded from the scope that have the contractual right to receive cash.as well. The guidance will be effective on January 1, 2020. The company is currently assessing the impact that the adoption of this new guidance will have on its consolidated financial statements.
Lease Accounting
In February 2016, lease accounting guidance was issued which, for operating leases, will require a lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, on its balance sheet. The guidance also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, generally on a straight-line basis.
In July 2018, targeted improvements were issued to provide an additional optional transition method that would allow entities to apply the new leases standard upon adoption by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. This option is in addition to the existing modified retrospective transition method that requires entities to apply the new standard at the beginning of the earliest period presented in the financial statements. Ball is electing this additional transition approach and will apply the new standard as of January 1, 2019 rather than the earliest comparative period presented. Additionally, the amendments included a lessor-specific practical expedient, by underlying asset class, to not separate nonlease components from the associated lease components, similar to the practical expedient already made available by the standard to lessees. The lessor practical expedient is limited to circumstances in which the nonlease component or components otherwise would be accounted for under the new revenue guidance and both of the following are true: (1) the timing and pattern of transfer are the same for the nonlease component(s) and associated lease component and (2) the lease component, if accounted for separately, would be classified as an operating lease. Codification improvements were also were issued on a variety of topics within the new leases standard, which represent minor corrections or improvements and are not expected to have a significant impact on accounting practices.
10
We have established a cross-functional implementation team, which includes representatives from all of our business segments. We are utilizing a bottoms-up approach to analyze the impact of the new standard by reviewing our current lease population, including completeness, to identify potential accounting, data and other operational changes that might be required under the new guidance. In addition, we are implementing the required changes to our business processes, systems and controls to support recognition and disclosure upon adoption. This includes enhancing processes and controls for identifying leases, centralizing the accounting for leases, and implementing a system to calculate the accounting impact for the lease standard. The guidance will be effective for Ball on January 1, 2019,2020, and it is not expected thatto have a material amount of lease assets and liabilities will be recordedeffect on ourthe company’s consolidated balance sheet.financial statements.
3. Business Segment Information
Ball’s operations are organized and reviewed by management along its product lines and geographical areas and presented in the four4 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 throughout those countries.
Beverage packaging, South America: Consists of operations in Brazil, Argentina and Chile that manufacture and sell metal beverage containers throughout most of South America.
Beverage packaging, Europe: Consists of operations in numerous countries in Europe, including Russia, that manufacture and sell metal beverage containers throughout most of Europe.
Aerospace: Consists of operations that manufacture and sell aerospace and other related products and provide services used in the defense, civil space and commercial space industries.
As presented in the table below, Other consists of non-reportable segments located in Africa, Middle East and Asia (beverage packaging, AMEA) and Asia Pacific (beverage packaging, Asia)Asia Pacific) that manufacture and sell metal beverage containers; a non-reportable segment that manufactures and sells aerosol containers, extruded aluminum aerosol containers and aluminum slugs (aerosol packaging); undistributed corporate expenses; intercompany eliminations and other business activities.
The accounting policies of the segments are the same as those in the company’s consolidated financial statements and areas discussed in Note 1. The company also has investments in operations in Guatemala, Panama, South Korea, the U.S. and Vietnam that are accounted for under the equity method of accounting and, accordingly, those results are not included in segment sales or earnings.
On July 31, 2018, Ball sold its U.S. steel food and steel aerosol packaging business and formed a joint venture, Ball Metalpack. After the sale, Ball’s 49 percent ownership of Ball Metalpack's financial results is reported in equity in results of affiliates, net of tax, within Ball's consolidated statements of earnings. The financial results of Ball’s remaining non-reportable aerosol packaging segment are reported within Other in the table below. As a result of the sale of the U.S. steel food and steel aerosol business, the results of operations for 2018 and prior year comparative periods of the entire former food and aerosol packaging reportable segment are included as a non-reportable segment within Other in the segment table below.
11
7
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
Summary of Business by Segment
| | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | ||||||||
($ in millions) |
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
| | | | | | | | | | | | |
Net sales | | | | | | | | | | | | |
Beverage packaging, North and Central America | | $ | 1,230 | | $ | 1,237 | | $ | 3,647 | | $ | 3,513 |
Beverage packaging, South America | | | 392 | | | 391 | | | 1,210 | | | 1,229 |
Beverage packaging, Europe | | | 699 | | | 683 | | | 2,052 | | | 1,995 |
Aerospace | | | 374 | | | 283 | | | 1,081 | | | 837 |
Reportable segment sales | | | 2,695 | | | 2,594 | | | 7,990 | | | 7,574 |
Other | | | 258 | | | 352 | | | 765 | | | 1,258 |
Net sales | | $ | 2,953 | | $ | 2,946 | | $ | 8,755 | | $ | 8,832 |
| | | | | | | | | | | | |
Comparable operating earnings | | | | | | | | | | | | |
Beverage packaging, North and Central America | | $ | 157 | | $ | 153 | | $ | 416 | | $ | 423 |
Beverage packaging, South America | | | 60 | | | 71 | | | 193 | | | 235 |
Beverage packaging, Europe | | | 90 | | | 84 | | | 241 | | | 219 |
Aerospace | | | 35 | | | 26 | | | 103 | | | 75 |
Reportable segment comparable operating earnings | | | 342 | | | 334 | | | 953 | | | 952 |
Reconciling items | | | | | | | | | | | | |
Other (a) | | | 27 | | | 6 | | | 38 | | | 40 |
Business consolidation and other activities | | | (133) | | | (32) | | | (147) | | | (131) |
Amortization of acquired Rexam intangibles | | | (38) | | | (40) | | | (118) | | | (124) |
Earnings before interest and taxes | | | 198 | | | 268 | | | 726 | | | 737 |
Interest expense | | | (79) | | | (76) | | | (237) | | | (226) |
Debt refinancing and other costs | | | — | | | — | | | (4) | | | (1) |
Total interest expense | | | (79) | | | (76) | | | (241) | | | (227) |
Earnings before taxes | | $ | 119 | | $ | 192 | | $ | 485 | | $ | 510 |
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|
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, |
| ||||||||
($ in millions) |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage packaging, North and Central America |
| $ | 1,237 |
| $ | 1,080 |
| $ | 3,513 |
| $ | 3,180 |
|
Beverage packaging, South America |
|
| 391 |
|
| 425 |
|
| 1,229 |
|
| 1,145 |
|
Beverage packaging, Europe |
|
| 683 |
|
| 651 |
|
| 1,995 |
|
| 1,824 |
|
Aerospace |
|
| 283 |
|
| 241 |
|
| 837 |
|
| 734 |
|
Reportable segment sales |
|
| 2,594 |
|
| 2,397 |
|
| 7,574 |
|
| 6,883 |
|
Other |
|
| 352 |
|
| 511 |
|
| 1,258 |
|
| 1,353 |
|
Net sales |
| $ | 2,946 |
| $ | 2,908 |
| $ | 8,832 |
| $ | 8,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable operating earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage packaging, North and Central America |
| $ | 153 |
| $ | 121 |
| $ | 423 |
| $ | 400 |
|
Beverage packaging, South America |
|
| 71 |
|
| 78 |
|
| 235 |
|
| 205 |
|
Beverage packaging, Europe |
|
| 84 |
|
| 74 |
|
| 219 |
|
| 184 |
|
Aerospace |
|
| 26 |
|
| 23 |
|
| 75 |
|
| 70 |
|
Reportable segment comparable operating earnings |
|
| 334 |
|
| 296 |
|
| 952 |
|
| 859 |
|
Reconciling items |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (a) |
|
| 6 |
|
| 17 |
|
| 40 |
|
| 11 |
|
Business consolidation and other activities |
|
| (32) |
|
| (157) |
|
| (131) |
|
| (253) |
|
Amortization of acquired Rexam intangibles |
|
| (40) |
|
| (37) |
|
| (124) |
|
| (120) |
|
Catch-up depreciation and amortization for 2016 from finalization of Rexam valuation |
|
| — |
|
| 5 |
|
| — |
|
| (34) |
|
Earnings before interest and taxes |
|
| 268 |
|
| 124 |
|
| 737 |
|
| 463 |
|
Interest expense |
|
| (76) |
|
| (74) |
|
| (226) |
|
| (216) |
|
Debt refinancing and other costs |
|
| — |
|
| — |
|
| (1) |
|
| (1) |
|
Total interest expense |
|
| (76) |
|
| (74) |
|
| (227) |
|
| (217) |
|
Earnings before taxes |
| $ | 192 |
| $ | 50 |
| $ | 510 |
| $ | 246 |
|
(a) |
| Includes undistributed corporate expenses, net, of |
The company does not disclose total assets by segment as it is not provided to the chief operating decision maker.
12
8
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
4. Acquisitions and Dispositions
Argentina Steel Aerosol Business
In August 2019, the company announced an agreement to sell its Argentina steel aerosol packaging business which has facilities in Garin and San Luis, Argentina. As the transaction closed in October 2019, the assets and liabilities of the business have been presented as held for sale as of September 30, 2019. Upon reclassification of the assets and liabilities to held for sale, the carrying value of the disposal group as a whole was compared to the fair value of the business less costs to sell. Following this review, an allowance of $7 million was applied to the carrying value of assets held for sale, resulting in assets held for sale totaling $16 million and liabilities held for sale totaling $13 million, which are included in other current assets and other current liabilities, respectively, in the unaudited condensed consolidated balance sheets. In addition, cumulative translation adjustments of $45 million related to the Argentina business that had been previously recorded in accumulated other comprehensive income were recognized as a charge to earnings upon classification of the business as held for sale. Both charges have been presented in business consolidation and other activities in the unaudited condensed consolidated statements of earnings.
Beverage Packaging China
In September 2019, the company completed the sale of the its metal beverage packaging business in China for upfront consideration of approximately $213 million, subject to customary closing adjustments, plus potential additional consideration related to the relocation of an existing facility in China in the coming years. The upfront proceeds from this sale are expected to be received in the fourth quarter of 2019 and are included in receivables in the unaudited condensed consolidated balance sheet as of September 30, 2019; the potential additional consideration is included in other long-term assets.
The company recorded a loss on disposal of $45 million in business consolidation and other activities in the unaudited condensed consolidated statement of earnings. The loss occurred during the third quarter as a result of a decline in the local real estate market associated with the potential facility relocation, adverse foreign exchange movements and finalization of customary closing adjustments.
U.S. Steel Food and Steel Aerosol Business
On July 31, 2018, Ball sold its U.S. steel food and steel aerosol packaging business and formed a joint venture, Ball Metalpack. In exchange for the sale of this business, Ball received approximately $600 million of cash proceeds, subject to customary closing adjustments completed as of December 31, 2018, as well as a 49 percent ownership interest in Ball Metalpack, whichMetalpack. This investment is reported in other assets as an equity method investment onin Ball’s unaudited condensed consolidated balance sheets. This transaction enhances our ability to return additional value to shareholders via share repurchases.
Ball recorded a loss of $38$41 million upon completion of thein connection with this sale. This loss was recorded in business consolidation and other activities in the unaudited condensed consolidated statement of earnings.
The assets of the sold business included nine9 plants that manufacture and sell steel food and steel aerosol containers. The manufacturing plants were located in Canton and Columbus, Ohio; Milwaukee and Deforest, Wisconsin; Chestnut Hill, Tennessee; Horsham, Pennsylvania; Springdale, Arkansas; and Oakdale, California.
In connection with the sale of the U.S. steel food and steel aerosol business, the company entered into an agreement to supply metal to Ball Metalpack through December 31, 2018, and agreements to provide transition and other services to Ball Metalpack. During the three and nine months ended September 30, 2018, Ball Metalpack purchased $62 million of metal from Ball, which was equivalent to Ball’s cost; as such, the arrangement generated no profit for Ball, and Ball’s metal sales to Ball Metalpack are netted against the cost of Ball’s related metal purchases in the company’s unaudited condensed consolidated statements of earnings. At September 30, 2018, Ball is owed $78 million related to the above agreements, which is reported in receivables, net on Ball’s unaudited condensed consolidated balance sheets.
5. Revenue from Contracts with Customers
Disaggregation of Sales
The company disaggregates net sales by reportable segments as disclosed in Note 3, and based on the timing of transfer of control for goods and services as explained below. The transfer of control for goods and services may occur at a point in time or over time; in other words, sales may be recognized over the course of the underlying contract, or they may occur at a single point in time based upon the transfer of control. This distinction is discussed in further detail below. The company determined that disaggregating sales into these categories achieves the disclosure objective to depict how the nature, amount, timing, and uncertainty of sales and cash flows are affected by economic factors.time. As disclosed in Note 3, the company’s business consists of four4 reportable segments, which encompass disaggregated product lines and geographical areas: (1) beverage packaging, North and Central America; (2) beverage packaging, South America; (3) beverage packaging, Europe; and (4) aerospace.
9
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
The following table disaggregates the company’s net sales based on the timing of transfer of control:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
|
| Three Months Ended September 30, 2018 |
| Nine Months Ended September 30, 2018 | ||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | ||||||||||||||||||
| | Three Months Ended September 30, 2019 | | Nine Months Ended September 30, 2019 | ||||||||||||||||||||||||||||||||
($ in millions) |
| Point in Time |
| Over Time |
| Total |
| Point in Time |
| Over Time |
| Total | | Point in Time | | Over Time | | Total |
| Point in Time | | Over Time | | Total | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | ||||||||||||||||||
Total net sales |
| $ | 665 |
| $ | 2,281 |
| $ | 2,946 |
| $ | 2,082 |
| $ | 6,750 |
| $ | 8,832 | | $ | 555 | | $ | 2,398 | | $ | 2,953 | | $ | 1,659 | | $ | 7,096 | | $ | 8,755 |
| | | | | | | | | | | | | | | | | | | ||||||||||||||||||
| | Three Months Ended September 30, 2018 | | Nine Months Ended September 30, 2018 | ||||||||||||||||||||||||||||||||
($ in millions) | | Point in Time | | Over Time | | Total |
| Point in Time | | Over Time | | Total | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | ||||||||||||||||||
Total net sales | | $ | 665 | | $ | 2,281 | | $ | 2,946 | | $ | 2,082 | | $ | 6,750 | | $ | 8,832 |
13
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
Contract Balances
The company enters into contracts to sell beverage packaging, aerosol packaging, and aerospace products. The payment termsproducts and conditions in customer contracts vary. Those customers that prepay are represented by the contract liabilities below until the performance obligations are satisfied. Contract assets would exist when sales have been recorded (i.e., control of the goods or services has been transferred to the customer) but customer payment is contingent on a future event beyond the passage of time (i.e., satisfaction of additional performance obligations).services. The company did not have any contract assets at either September 30, 2018,2019, or December 31, 2017.2018. Unbilled receivables, which are not classified as contract assets, represent arrangements in which sales have been recorded prior to billing and right to payment is unconditional.
The opening and closing balances of the company’s current and noncurrent contract liabilities are as follows:
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| ||||||
|
| Contracts |
| Contract | ||||||||
|
| Liabilities |
| Liabilities | ||||||||
| | | | | | | ||||||
| | Contracts | | Contract | ||||||||
| | Liabilities | | Liabilities | ||||||||
($ in millions) |
| (Current) |
| (Noncurrent) |
| (Current) | | (Noncurrent) | ||||
|
|
|
|
|
|
| ||||||
| | | | | | | ||||||
Balance at December 31, 2017 |
| $ | 45 |
| $ | — | | $ | 45 | | $ | — |
Increase |
|
| 22 |
|
| 8 | | | — | | | 8 |
Balance at September 30, 2018 |
| $ | 67 |
| $ | 8 | ||||||
|
|
|
|
|
|
| ||||||
Balance at December 31, 2018 | | $ | 45 | | $ | 8 | ||||||
Increase | | | 12 | | | — | ||||||
Balance at September 30, 2019 | | $ | 57 | | $ | 8 | ||||||
| | | | | | |
During the nine months ended September 30, 2018,2019, contract liabilities increased by $30$12 million, which is net of cash received of $176$171 million and amounts recognized as sales of $146$159 million, all of which related to current contract liabilities. The amount of sales recognized in the nine months ended September 30, 2018, that2019, which were included in the opening contract liabilities balances, was $45 million, all of which related to current contract liabilities. The difference between the opening and closing balances of the company’s contract liabilities primarily results from the timing difference between the company’s performance and the customer’s payment. Current contract liabilities are classified within other current liabilities on the unaudited condensed consolidated balance sheet and noncurrent contract liabilities are classified within other liabilities.
The company also recognized sales of $3$4 million and $8$10 million in the three and nine month periodsmonths ended September 30, 2019, respectively, and $3 million and $8 million for the three and nine months ended September 30, 2018, respectively, from performance obligations satisfied (or partially satisfied) in prior periods. These sales amounts are the result of changes in the transaction price of the company’s contracts with customers.
Contract Costs
The company has determined there are no material costs that meet the capitalization criteria for costs to obtain or fulfill a contract.
Practical Expedients
For the company’s contracts that have an original duration of one year or less, the company elected the practical expedient applicable to such contracts and has not disclosed the transaction price for the future performance obligations as of the end of each reporting period or when the company expects to recognize sales.
The company has elected the sales tax practical expedient; therefore, sales and other taxes assessed by a governmental authority that are collected concurrent with revenue-producing activities are excluded from the transaction price.
For shipping and handling activities performed after a customer obtains control of the goods, the company has elected to account for these costs as activities to fulfill the promise to transfer the goods; therefore, these activities are not assessed as separate performance obligations.
14
10
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
The company has also elected the significant financing component practical expedient which allows the company to not assess whether the contract has a significant financing component if, at contract inception, the expectation is that the contract duration is less than one year.
Beverage and Aerosol Packaging
Performance Obligations
At contract inception, the company assesses the goods and services promised in its contracts with customers and identifies a performance obligation for each promise to transfer goods or services to the customer. The performance obligation may be represented by a good or service (or a series of goods or services) that is distinct, or by a series of distinct goods or services that are substantially the same and have the same pattern of transfer to the customer. In each instance, the company treats the promise to transfer the customer goods or services as a single performance obligation.
To identify its performance obligations, the company considers all of the goods or services promised in the contract, regardless of whether they are explicitly stated or are implied by customary business practices.
The company has determined that the following distinct goods and services represent separate performance obligations:
|
|
|
|
|
|
Performance obligations for products with no alternative use are recognized over time, when the company has manufactured a unique item and has an enforceable right to payment. Conversely, generic products with alternative use are recognized at a point in time. Contracts may be short-term or long-term, with varying payment terms. Ball’s payment terms vary by the type and location of the customer and the products or services offered. Customers pay in accordance with negotiated terms, which are typically triggered upon ownership transfer. All payment terms are less than one year. For these contracts, the transaction price is determined upon establishment of the contract that contains the final terms of the sale, including the description, quantity, and price of each product or service purchased.
Transaction Price Allocated to Remaining Performance Obligations
In the context of the revenue recognition standard, enforceable contracts are those that have an enforceable right to payment, which Ball typically has once a binding forecast or purchase order (or similar evidence)contract) is in place and Ball produces under the contract. Within Ball’s packaging segments, enforceable contracts as defined all have a duration of less than one year. Contracts that have an original duration of less than one year are excluded from the requirement to disclose remaining performance obligations based on the company’s election to use the practical expedient. The nature of the remaining performance obligations within these contracts, as well as the nature of the variability and how it will be resolved, are described in the section below.
15
Significant Judgments
Timing of Recognition
Within the beverage and aerosol operations, performance obligations are recognized both over time and at a point in time. The determination that sales should be recognized at a point in time most often results from the existence of an alternative use for the product. Cans and ends that are not customized prior to delivery are considered to have alternative use and sales are recognized at the point of control transfer. Determining when control transfer occurs requires management to make judgments that affect the timing of when sales are recognized. The new revenue accounting standard provides five indicators that a customer has obtained control of an asset: 1) present right to payment; 2) transfer of legal title; 3) physical possession; 4) significant risks and rewards of ownership; and 5) customer acceptance. The company considers control to have transferred for these products upon shipment or delivery, depending on the legal terms of the contract, because the company has a present right to payment at that time, the customer has legal title to the asset, the company has transferred physical possession of the asset or the customer has significant risks and rewards of ownership of the asset. The company determines that control transfers to a customer as described above and provides a faithful depiction of the transfer of goods.
For performance obligations related to products that are specialized with no alternative use (e.g., specialized sizes or customer-specific materials, or labeled with customer-specific artwork), the company transfers control and records sales over time. The recognition of sales occurs over time as goods are manufactured and Ball has an enforceable right to payment for those goods, which is an output method. Determining a measure of progress requires management to make judgments that impact the timing of when sales are recognized. The company has determined the above provides a faithful depiction of the transfer of goods to the customer. The number of units manufactured that have an enforceable right to payment is the best measure of depicting the company’s performance as control is transferred. The customer obtains value as each unit is produced against a binding contract.
The enforceable right to payment may be explicit or implied in the contract. If the enforceable right to payment is not explicit in the contract, Ball must consider if there is an implied right based on customer relationships or previous business practices and applicable law. Typically, Ball has an enforceable right to payment of costs plus a reasonable margin once a binding forecast or purchase order (or similar evidence) is in place and Ball produces under the contract.
Determining the Transaction Price including Variable Consideration
In making its determination of stand-alone selling price, Ball maximizes its use of observable inputs. Stand-alone selling price is then used to allocate total consideration proportionally to the various performance obligations within a contract.
To estimate variable consideration, we may apply both the “expected value” method and “most likely amount” method based on the form of variable consideration, according to which method would provide the best prediction of consideration to be received from our customers. The expected value method involves a probability-weighted determination of the expected amount, whereas the most likely amount method identifies the single most likely outcome in a range of possible amounts. In certain cases, both methods may be used within a single contract if multiple forms of variable consideration exist. However, once a method has been applied to one form of variable consideration, it is applied consistently throughout the contract term.
The primary types of variable consideration present in the company’s contracts are per-unit price changes, volume discounts and rebates. Once variable consideration has been estimated, it will be constrained if a significant reversal of the cumulative amounts of sales is probable in the context of the contract.
16
Aerospace
Performance Obligations
At contract inception, the company assesses the goods and services promised in its contracts with customers and identifies a performance obligation for each promise to transfer goods or services to the customer. The performance obligation may be represented by a good or service (or a series of goods or services) that is distinct, or by a series of distinct goods or services that are substantially the same and have the same pattern of transfer to the customer. In each of these scenarios, the company treats the promise to transfer the customer goods or services as a single performance obligation.
To identify its performance obligations, the company considers all of the goods or services promised in the contract, regardless of whether they are explicitly stated or are implied by customary business practices.
The company has determined that the following distinct goods and services represent separate performance obligations:
|
|
|
|
|
|
|
|
Performance obligations with no alternative use are recognized over time, when the company has an enforceable right to payment for efforts completed to-date. Because of sales contract payment schedules, limitations on funding, and contract terms, our sales and accounts receivable generally include amounts that have been earned but not yet billed. Our payment terms vary by the type and location of our customer and the products or services offered. All payment terms are less than one year.
Contracts are often modified to account for changes in contract specifications and requirements. We consider contract modifications to exist when the modification either creates new or revised enforceable rights and obligations. Most of our contract modifications are for goods or services that are not distinct from the existing contract due to the significant integration service provided in the context of the contract, and such contract modifications are accounted for as if they were part of that existing contract. The effect of a contract modification on the transaction price and our measure of progress for the performance obligation to which it relates, is recognized as an adjustment to sales (either as an increase or reduction of sales) on a cumulative catch-up basis.
Transaction Price Allocated to Remaining Performance Obligations
The table below discloses: (1) the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) as of the end of the reporting period for contracts with an original duration of greater than one year, and (2) when the company expects to record sales on these multi-year contracts.
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| |||||||||
| | | | | | | | | | |||||||||
($ in millions) |
| Next Twelve Months |
| Thereafter |
| Total |
| Next Twelve Months | | Thereafter | | Total | ||||||
|
|
|
|
|
|
|
|
|
| |||||||||
Sales expected to be recognized on multi-year contracts in place as of September 30, 2018 |
| $ | 849 |
| $ | 866 |
| $ | 1,715 | |||||||||
| | | | | | | | | | |||||||||
Sales expected to be recognized on multi-year contracts in place as of September 30, 2019 | | $ | 1,300 | | $ | 868 | | $ | 2,168 |
The contracts with an original duration of less than one year, which are excluded from the table above based on the company’s election of the practical expedient, are primarily related to contracts where control will be fully transferred to the customers in less than one year. The nature of the remaining performance obligations within these contracts, as well as the nature of the variability and how it will be resolved, are described in the section below.
17
Significant Judgments
Timing of Recognition
Within the aerospace segment, performance obligations are recognized over time. Aerospace contracts involve specialized and unique products that are tailored to the specific needs of the customer, such as a spacecraft or other hardware conforming to the specifications required by the customer, and as such, no alternative use exists. When there is an enforceable right to payment at cost plus reasonable margin for performance completed to date, the sales are recorded over time as the goods are manufactured or services are performed. Determining a measure of progress requires management to make judgments that affect the timing of recording sales. Sales under long-term contracts in the aerospace segment are primarily recognized using percentage-of-completion under the cost-to-cost method of accounting, which is an input method. Under this method, the extent of progress towards completion is measured based on the ratio of costs incurred to date versus the total estimated costs upon completion of the performance obligation. The cost-to-cost method best depicts the transfer of assets to the customer as we incur costs on our contracts. The two primary types of long-term sales contracts utilized are cost-type contracts, which are agreements to perform for cost plus an agreed-upon profit component, and fixed price sales contracts, which are completed for a fixed price. Cost-type sales contracts can have different types of fee arrangements, including fixed-fee, cost, milestone and performance incentive fees, award fees or a combination thereof. At the inception of contract performance, we estimate sales associated with base, incentive and other fees exclusive of any constraint. In other words, we estimate sales to the extent that it is not probable a significant reversal would occur over the period of contract performance. The company has determined that the above provides a faithful depiction of the transfer of goods to the customer and is the best measure of depicting the company’s performance as control is transferred to customers.
Determining the Transaction Price including Variable Consideration
Due to the unique and customized nature of deliverables within aerospace contracts, a readily observable selling price for a similar good is not typically available; therefore, in making its determination of stand-alone selling price, the company generally applies the “expected cost plus a margin” approach (whereby the transaction price is allocated based on the relative amount of costs plus an appropriate margin). Use of the expected cost plus a margin approach requires Ball to determine the expected costs for each performance obligation, as well as an appropriate margin (i.e., cost to cost percentage of completion). The calculation is made at contract inception to determine the allocation of consideration.
Uncertainty as to the total amount that will be paid by the customer (such as the exact amount of costs that will be incurred and fees that will be earned by Ball Aerospace to satisfy the contractual requirements) gives rise to variable consideration. To estimate variable consideration, we typically apply the “most likely amount” method or the “expected value” method depending on the nature of the variable consideration. The most likely amount method identifies the single most likely outcome in a range of possible amounts, while the expected value method involves a probability-weighted determination of the expected amount. The most likely amount method is used primarily when the possible outcomes are binary (i.e., either the cost/fee will be incurred or it will not). In certain cases, both methods may be used within a single contract if multiple forms of variable consideration exist. However, once a method has been applied to one form of variable consideration, it is applied consistently throughout the contract term.
The primary types of variable consideration present in the company’s contracts are cost reimbursements, performance award fees, incremental funding and finalization of government rates. These types of arrangements are most commonly (though not exclusively) estimated based on the “most likely” method. Once variable consideration has been estimated, it will be constrained if a significant reversal of the cumulative amount of sales is probable in the context of the contract.
18
6. Business Consolidation and Other Activities
The following is a summary of business consolidation and other activity (charges)/income included in the unaudited condensed consolidated statements of earnings:
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| Three Months Ended September 30, |
| Nine Months Ended September 30, |
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| | Three Months Ended September 30, | | Nine Months Ended September 30, | |||||||||||||||||||||
($ in millions) |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
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| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||||||
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Beverage packaging, North and Central America |
| $ | (14) |
| $ | (34) |
| $ | (16) |
| $ | (45) |
| | $ | (2) | | $ | (14) | | $ | (8) | | $ | (16) |
Beverage packaging, South America |
|
| 12 |
|
| (4) |
|
| 11 |
|
| (4) |
| | | (14) | | | 12 | | | 22 | | | 11 |
Beverage packaging, Europe |
|
| (3) |
|
| (62) |
|
| (17) |
|
| (69) |
| | | (9) | | | (3) | | | (24) | | | (17) |
Other |
|
| (27) |
|
| (57) |
|
| (109) |
|
| (135) |
| | | (108) | | | (27) | | | (137) | | | (109) |
|
| $ | (32) |
| $ | (157) |
| $ | (131) |
| $ | (253) |
| ||||||||||||
| | $ | (133) | | $ | (32) | | $ | (147) | | $ | (131) |
20182019
Beverage Packaging, North and Central America
During the three and nine months ended September 30, 2019, the company recorded charges of $1 million and $7 million, respectively, for revised estimates of charges recorded in prior periods in connection with the previously announced closures of its beverage can manufacturing facilities in Chatsworth, California, and Longview, Texas, and its beverage end manufacturing facility in Birmingham, Alabama. The Birmingham facility ceased production during the second quarter of 2018, and the Chatsworth and Longview facilities ceased production during the third quarter of 2018. Ball sold the Chatsworth facility during the fourth quarter of 2018.
Charges in the three and nine months ended September 30, 2019, included $1 million of expense for individually insignificant activities.
11
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
Beverage Packaging, South America
During the nine months ended September 30, 2019, the company recorded a $56 million gain related to indirect tax gain contingencies in Brazil as these amounts are now estimable and realizable. The company’s Brazilian subsidiaries filed lawsuits in 2014 and 2015 to challenge the Brazilian tax authorities regarding the computation of certain indirect taxes, claiming amounts were overpaid to the tax authorities because the tax base included a “tax on tax” component. See Note 21 for further details. The amounts recorded in business consolidation and other activities relate to periods prior to 2019. In the event other comparable cases are resolved and the amounts claimed become estimable and realizable, the company will record gains, which may result in material reimbursements to the company in future periods.
During the three and nine months ended September 30, 2019, the company recorded charges of $13 million and $29 million, respectively, composed of facility shutdown costs, asset impairment, accelerated depreciation and other costs related to restructuring activities.
Charges in the three and nine months ended September 30, 2019, included $1 million and $5 million of expense, respectively, for individually insignificant activities.
Beverage Packaging, Europe
During the three and nine months ended September 30, 2019, the company recorded charges of $6 million and $17 million, respectively, for asset impairments, accelerated depreciation and inventory impairments related to previously announced plant closures and restructuring activities.
Other charges in the three and nine months ended September 30, 2019, included $3 million and $7 million of expense, respectively, for individually insignificant activities.
Other
During the three months ended September 30, 2019, the company recorded the following amounts:
● | A $45 million loss on the sale of the metal beverage packaging business in China. |
● | Charges of $7 million related to the fair value of the assets and liabilities of the Argentina steel aerosol packaging business being presented as held for sale as of September 30, 2019, and charges of $45 million related to cumulative translation adjustments previously recorded in accumulated other comprehensive income. |
● | A settlement loss of $8 million primarily related to the purchase of non-participating group annuity contracts to settle the projected pension benefit obligations in Ball’s Canadian defined benefit pension plan which triggered settlement accounting. The settlement loss primarily represented the aggregate unamortized actuarial loss in these pension plans. |
● | Income of $2 million for revised estimates related to long-term incentive and other compensation arrangements associated with the Rexam acquisition and integration. |
● | Charges of $5 million for individually insignificant activities. |
During the nine months ended September 30, 2019, the company recorded the following amounts:
● | A $45 million loss on the sale of the metal beverage packaging business in China and charges of $16 million for estimated employee severance costs and professional services associated with the sale. |
● | Charges of $7 million related to the fair value of the assets and liabilities of the Argentina steel aerosol packaging business being presented as held for sale as of September 30, 2019, and charges of $45 million related to cumulative translation adjustments previously recorded in accumulated other comprehensive income. |
● | A settlement loss of $8 million primarily related to the purchase of non-participating group annuity contracts to settle the projected pension benefit obligations in Ball’s Canadian defined benefit pension plan which triggered settlement accounting. The settlement loss primarily represented the aggregate unamortized actuarial loss in these pension plans. |
● | Charges of $5 million for long-term incentive and other compensation arrangements associated with the Rexam acquisition and integration. |
● | Charges of $11 million for individually insignificant activities. |
12
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
2018
Beverage Packaging, North and Central America
During the three months ended September 30, 2018, the company recorded $9 million of expense for employee severance and benefits, facility shutdown costs, asset impairment, accelerated depreciation and other costs in connection with the previously announced closures of its beverage can manufacturing facilities in Chatsworth, California, and Longview, Texas, and its beverage end manufacturing facility in Birmingham, Alabama. Expense for the nine months ended September 30, 2018, included the same costs and was partially offset by the reversal of $5 million of expense for revised estimates of charges recorded in prior periods. The Birmingham plant ceased production during the second quarter of 2018, and the Chatsworth and Longview plants ceased production during the third quarter of 2018.
During the nine months ended September 30, 2018, the company recorded charges of $2 million related to the closure of its Reidsville, North Carolina, plant, which ceased production in 2017.
Other income and charges in the three and nine months ended September 30, 2018, included $5 million of expense and $10 million of expense, respectively, for individually insignificant activities.
Beverage Packaging, South America
During the third quarter of 2018, the company recorded a $16 million gain related to indirect tax gain contingencies in Brazil as these amounts have been realized. Our Brazilian subsidiaries filed lawsuits in 2014 and 2015 to challenge the Brazilian tax authorities regarding the computation of certain indirect taxes, claiming amounts were overpaid to the tax authorities as a result of a tax on a tax being charged. As these cases are resolved and the amounts claimed become realizable, the company will record gains, which may result in material reimbursements to the company and cannot be estimated at this time.became realizable.
Charges in the three and nine months ended September 30, 2018, included $4 million and $5 million of expense, respectively, for individually insignificant activities.
Beverage Packaging, Europe
During the three and nine months ended September 30, 2018, the company recorded charges of $2 million and $15 million, respectively, for employee severance and benefits, severance, facility shutdown costs and other costs in connection with the closure of its Recklinghausen, Germany, plant, which ceased production during the third quarter of 2017. The majority of the closure costs are expected to be paid by the end of 2018.
Other charges in the three and nine months ended September 30, 2018, included $1 million and $2 million of expense, respectively, for individually insignificant activities.
19
Ball CorporationOther
Notes to the Unaudited Condensed Consolidated Financial Statements
Other
During the three months ended September 30, 2018, the company recorded the following amounts:
| A settlement loss of $14 million primarily related to the purchase of non-participating group annuity contracts to settle a portion of the projected pension benefit obligations in certain Ball U.S. defined benefit pension plans which triggered settlement accounting. The settlement loss primarily represented a pro rata portion of the aggregate unamortized actuarial loss in these pension plans. |
| A $3 |
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|
13
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
During the nine months ended September 30, 2018, the company recorded the following amounts:
| A settlement loss of $14 million primarily related to the purchase of non-participating group annuity contracts to settle a portion of the projected pension benefit obligations in certain Ball U.S. defined benefit pension plans which triggered settlement accounting. The settlement loss primarily represented a pro rata portion of the aggregate unamortized actuarial loss in these pension plans. |
| A $38 million loss on the sale of the U.S. steel food and steel aerosol packaging business. |
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7. | Supplemental Cash Flow Statement Disclosures |
| | | | | | |
| | September 30, | ||||
($ in millions) | | 2019 |
| 2018 | ||
| | | |
| | |
Beginning of period: | | | |
| | |
Cash and cash equivalents | | $ | 721 |
| $ | 448 |
Current restricted cash (included in other current assets) | | | 7 |
| | 10 |
Noncurrent restricted cash (included in other assets) | | | — |
| | 1 |
Total cash, cash equivalents and restricted cash | | $ | 728 |
| $ | 459 |
| | | |
| | |
End of period: | | | |
| | |
Cash and cash equivalents | | $ | 483 |
| $ | 598 |
Current restricted cash (included in other current assets) | | | 9 |
| | 13 |
Cash in assets held for sale (included in other current assets) | | | 5 |
| | — |
Total cash, cash equivalents and restricted cash | | $ | 497 |
| $ | 611 |
2017
Beverage Packaging, North and Central America
During the third quarter of 2017, the company recorded charges of $29 million for employee severance and benefits and $4 million for facility shutdown costs, asset impairment, accelerated depreciation and other costs in connection with the previously announced closures of its beverage can manufacturing facilities in Chatsworth, California, and Longview, Texas, and its beverage end manufacturing facility in Birmingham, Alabama.
During the nine months ended September 30, 2017, the company recorded charges of $7 million for employee severance and benefits, facility shutdown costs, asset impairment, accelerated depreciation and other costs related to the closure of its Reidsville, North Carolina, plant.
Other charges in the three and nine months ended September 30, 2017, included $1 million and $5 million, respectively, of individually insignificant activities.
Beverage Packaging, South America
Other charges in both the three and nine months ended September 30, 2017, included expense of $4 million for individually insignificant activities.
20
Beverage Packaging, Europe
During the third quarter of 2017, the company recorded charges of $55 million for employee severance and benefits and $7 million for facility shutdown costs, asset impairment, accelerated depreciation and other costs in connection with the closure of its Recklinghausen, Germany, plant which ceased production during the third quarter of 2017.
During the nine months ended September 30, 2017, the company recorded charges of $2 million for professional services and other costs associated with the 2016 Rexam acquisition.
Other charges in the nine months ended September 30, 2017, included expense of $5 million, for individually insignificant activities.
Other
During the three months ended September 30, 2017, the company recorded the following amounts:
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|
During the nine months ended September 30, 2017, the company recorded the following amounts:
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21
The following is a summary by segment of restructuring liabilities recorded in connection with business consolidation activities, which are included in other current liabilities in the company’s unaudited condensed consolidated balance sheets:
|
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|
($ in millions) |
| Beverage Packaging, North & Central America |
| Beverage Packaging, Europe |
| Other |
| Total | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2017 |
| $ | 26 |
| $ | 41 |
| $ | 1 |
| $ | 68 |
Charges (credits) in earnings |
|
| (6) |
|
| 14 |
|
| 2 |
|
| 10 |
Cash payments and other activity |
|
| (9) |
|
| (49) |
|
| (1) |
|
| (59) |
Balance at September 30, 2018 |
| $ | 11 |
| $ | 6 |
| $ | 2 |
| $ | 19 |
7.Cash, Cash Equivalents and Restricted Cash
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|
| September 30, | ||||
($ in millions) |
| 2018 |
| 2017 | ||
|
|
|
|
|
|
|
Beginning of period: |
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 448 |
| $ | 597 |
Current restricted cash (included in other current assets) |
|
| 10 |
|
| 9 |
Noncurrent restricted cash (included in other assets) |
|
| 1 |
|
| 1 |
Total cash, cash equivalents and restricted cash |
| $ | 459 |
| $ | 607 |
|
|
|
|
|
|
|
End of period: |
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 598 |
| $ | 556 |
Current restricted cash (included in other current assets) |
|
| 13 |
|
| 6 |
Noncurrent restricted cash (included in other assets) |
|
| — |
|
| 1 |
Total cash, cash equivalents and restricted cash |
| $ | 611 |
| $ | 563 |
The company’s restricted cash is primarily related to receivables factoring programs and represents amounts collected from customers butthat have not yet been remitted to the banks as of the end of the reporting period.
Noncash investing activities include the acquisition of property, plant and equipment (PP&E) for which payment has not been made. These noncash capital expenditures are excluded from the statement of cash flows. The PP&E acquired but not yet paid for amounted to $98$124 million at September 30, 2018,2019, and $124$127 million at December 31, 2017.2018.
In connection with the sale of a business associated with the June 2016 acquisition of Rexam, the company provided indemnifications for uncertain tax positions associated with the business. During the nine months ended September 30, 2018, the company made payments of $45 million in relation to these liabilities and reported them within investing activities in the unaudited condensed consolidated statement of cash flows.
22
14
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
8. Receivables, Net
|
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| ||||||
|
| September 30, |
| December 31, | ||||||||
| | | | | | |||||||
| | September 30, | | December 31, | ||||||||
($ in millions) |
| 2018 |
| 2017 |
| 2019 |
| 2018 | ||||
|
|
|
|
|
|
| ||||||
| | | | | | |||||||
Trade accounts receivable |
| $ | 1,052 |
| $ | 1,206 | | $ | 922 | | $ | 812 |
Unbilled receivables |
|
| 359 |
|
| 147 | | | 491 | | 478 | |
Less allowance for doubtful accounts |
|
| (11) |
|
| (10) | | | (8) | | | (10) |
Net trade accounts receivable |
|
| 1,400 |
|
| 1,343 | | | 1,405 | | 1,280 | |
Other receivables |
|
| 472 |
|
| 291 | | | 552 | | | 522 |
|
| $ | 1,872 |
| $ | 1,634 | ||||||
| | $ | 1,957 | | $ | 1,802 |
Unbilled receivables at September 30, 2018, include the effect of adopting new revenue recognition accounting guidance as of January 1, 2018. Further details of the new guidance and its adoption are included in Notes 2 and 5.
The company has entered into several regional committed and uncommitted accounts receivable factoring programs with various financial institutions for certain of its receivables. The programs are accounted for as true sales of the receivables, without recourse to Ball, and had combined limits of approximately $1.15 billion and $1.0$1.3 billion at September 30, 2018,2019, and $1.2 billion at December 31, 2017, respectively.2018. A total of $208$155 million and $439$178 million were available for sale under these programs as of September 30, 2018,2019, and December 31, 2017,2018, respectively.
Other receivables include income and sales tax receivables, the receivable of $213 million for the proceeds from the sale of the China beverage packaging business, related party receivables and other miscellaneous receivables.
9. Inventories, Net
|
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|
| ||||||
|
| September 30, |
| December 31, | ||||||||
| | | | | | | ||||||
| | September 30, | | December 31, | ||||||||
($ in millions) |
| 2018 |
| 2017 |
| 2019 |
| 2018 | ||||
|
|
|
|
|
|
| ||||||
| | | | | | | ||||||
Raw materials and supplies |
| $ | 694 |
| $ | 691 | | $ | 720 | | $ | 727 |
Work-in-process and finished goods |
|
| 617 |
|
| 902 | | | 541 | | | 614 |
Less inventory reserves |
|
| (68) |
|
| (67) | | | (81) | | | (70) |
|
| $ | 1,243 |
| $ | 1,526 | ||||||
| | $ | 1,180 | | $ | 1,271 |
Finished goods inventory at September 30, 2018, includes the effect of adopting new revenue recognition accounting guidance as of January 1, 2018. Further details of the new guidance and its adoption are included in Notes 2 and 5.
10.Property, Plant and Equipment, Net
|
|
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|
|
| ||||||
|
| September 30, |
| December 31, | ||||||||
| | | | | | | ||||||
| | September 30, | | December 31, | ||||||||
($ in millions) |
| 2018 |
| 2017 |
| 2019 |
| 2018 | ||||
|
|
|
|
|
|
| ||||||
| | | | | | | ||||||
Land |
| $ | 171 |
| $ | 172 | | $ | 148 | | $ | 159 |
Buildings |
|
| 1,324 |
|
| 1,390 | | | 1,352 | | | 1,359 |
Machinery and equipment |
|
| 5,120 |
|
| 5,282 | | | 5,203 | | | 5,250 |
Construction-in-progress |
|
| 567 |
|
| 542 | | | 508 | | | 509 |
|
|
| 7,182 |
|
| 7,386 | ||||||
| | | 7,211 | | | 7,277 | ||||||
Accumulated depreciation |
|
| (2,674) |
|
| (2,776) | | | (2,891) | | | (2,735) |
|
| $ | 4,508 |
| $ | 4,610 | ||||||
| | $ | 4,320 | | $ | 4,542 |
Property, plant and equipment are stated at historical or acquired cost. Depreciation expense amounted to $123 million and $368 million for the three and nine months ended September 30, 2019, and $121 million and $375 million for the three and nine months ended September 30, 2018, respectively, and $113 million and $373 million for the comparable periods in 2017, respectively. During the first nine months of 2017, cumulative catch-up depreciation recorded as a result of changes in the values and useful lives of fixed assets associated with the finalization of the valuation for the Rexam acquisition was $19 million, all of which related to the last six months of 2016.
23
15
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
11. Goodwill
|
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| | | | | | | | | | | | | | | | | | |||||||||||||||||||
($ in millions) |
|
|
|
|
|
|
|
|
| Other |
| Total |
| |
| |
| |
| |
| Other |
| Total | ||||||||||||
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Balance at December 31, 2017 |
| $ | 1,275 |
| $ | 1,299 |
| $ | 1,531 |
| $ | 40 |
| $ | 788 |
| $ | 4,933 | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | |||||||||||||||||||
Balance at December 31, 2018 | | $ | 1,275 | | $ | 1,299 | | $ | 1,435 | | $ | 40 | | $ | 426 | | $ | 4,475 | ||||||||||||||||||
Business dispositions |
|
| — |
|
| — |
|
| — |
|
| — |
| (354) |
| (354) | | | — | | | — | | | — | | | — | | | (51) | | (51) | |||
Transfer to assets held for sale | | | — | | | — | | | — | | | — | | | (1) | | (1) | |||||||||||||||||||
Effects of currency exchange |
|
| — |
|
| — |
|
| (75) |
|
| — |
|
| (7) |
|
| (82) | | | — | | | — | | | (47) | | | — | | | (5) | | (52) | |
Balance at September 30, 2018 |
| $ | 1,275 |
| $ | 1,299 |
| $ | 1,456 |
| $ | 40 |
| $ | 427 |
| $ | 4,497 | ||||||||||||||||||
Balance at September 30, 2019 | | $ | 1,275 | | $ | 1,299 | | $ | 1,388 | | $ | 40 | | $ | 369 | | $ | 4,371 |
The company’s annual goodwill impairment test completed in the fourth quarter of 20172018 indicated the fair value of the beverage packaging, Asia (Beverage Asia)AMEA (beverage AMEA), reporting unit exceeded its carrying amount by approximately 2415 percent. The current supply of metal beverage packaging exceeds demandworsening business climate in China, resultingSaudi Arabia has resulted in pricing pressure and negative impacts onto the profitability of our Beverage Asiabeverage AMEA reporting unit, which is included in Other in the above table.unit. If it becomes an expectation that this oversupply situation will continue for an extended period of time, the company may be required to record a noncash impairment chargecharges for some or all of the goodwill associated with the Beverage Asiabeverage AMEA reporting unit, the total balance of which was $78$102 million at September 30, 2018.2019.
As disclosed in Note 4, the company completed the sale of its China beverage packaging business in September 2019, and this disposition included $51 million of goodwill related to this business. The remaining goodwill balance associated with the beverage packaging, Asia Pacific, reporting unit is $27 million as of September 30, 2019.
12. Intangible Assets, Net
|
|
|
|
|
|
|
|
| September 30, |
| December 31, | ||
($ in millions) |
| 2018 |
| 2017 | ||
|
|
|
|
|
|
|
Acquired Rexam intangibles (net of accumulated amortization of $362 million at September 30, 2018, and $246 million at December 31, 2017) |
| $ | 2,129 |
| $ | 2,303 |
Capitalized software (net of accumulated amortization of $142 million at September 30, 2018, and $129 million at December 31, 2017) |
|
| 81 |
|
| 84 |
Other intangibles (net of accumulated amortization of $135 million at September 30, 2018, and $163 million at December 31, 2017) |
|
| 37 |
|
| 75 |
|
| $ | 2,247 |
| $ | 2,462 |
| | | | | | |
| | September 30, | | December 31, | ||
($ in millions) |
| 2019 |
| 2018 | ||
| | | | | | |
Acquired Rexam customer relationships and other Rexam intangibles (net of accumulated amortization of $512 million at September 30, 2019, and $399 million at December 31, 2018) | | $ | 1,932 | | $ | 2,073 |
Capitalized software (net of accumulated amortization of $163 million at September 30, 2019, and $148 million at December 31, 2018) | | | 69 | | | 82 |
Other intangibles (net of accumulated amortization of $112 million at September 30, 2019, and $112 million at December 31, 2018) | | | 26 | | | 33 |
| | $ | 2,027 | | $ | 2,188 |
Total amortization expense of intangible assets amounted to $46 million and $142 million for the three and nine months ended September 30, 2019, respectively, and $50 million and $154 million for the three and nine months ended September 30, 2018, respectively, and $49 million and $166 million for the comparable periods in 2017, respectively. During the first nine months of 2017, cumulative catch-up amortization recorded as a result of the change in the value of intangible assets associated with the finalization of the valuation for the Rexam acquisition was $15 million, all of which related to the last six months of 2016.
13. Other Assets
|
|
|
|
|
|
| ||||||
|
| September 30, |
| December 31, | ||||||||
| | | | | | | ||||||
| | September 30, | | December 31, | ||||||||
($ in millions) |
| 2018 |
| 2017 |
| 2019 |
| 2018 | ||||
|
|
|
|
|
|
| ||||||
| | | | | | | ||||||
Long-term deferred tax assets |
| $ | 202 |
| $ | 325 | | $ | 203 | | $ | 237 |
Long-term pension assets |
|
| 508 |
|
| 504 | | | 561 | | | 559 |
Investments in affiliates |
|
| 314 |
|
| 274 | | | 282 | | | 302 |
Company and trust-owned life insurance |
|
| 176 |
|
| 160 | ||||||
Right-of-use operating lease assets | | | 242 | | | — | ||||||
Other |
|
| 158 |
|
| 143 | | | 402 | | | 311 |
|
| $ | 1,358 |
| $ | 1,406 | ||||||
| | $ | 1,690 | | $ | 1,409 |
24
16
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
14. Leases
Under the new lease standard, a contract is a lease or contains one when (1) the contract contains an explicitly or implicitly identified asset and (2) the customer obtains substantially all of the economic benefits from the use of that underlying asset and directs how and for what purpose the asset is used during the term of the contract in exchange for consideration. The company assesses whether an arrangement is a lease, or contains a lease, upon inception of the contract.
The company enters into operating leases for buildings, warehouses, office equipment, production equipment, aircraft, land and other types of equipment. When readily determinable, the discount rate used to calculate the lease liability is the rate implicit in the lease. Otherwise, the company uses its incremental borrowing rate based on the information available at lease commencement. The company’s finance and short-term leases are immaterial.
Many of the company’s leases include one or more renewal and/or termination options at the company’s discretion, which are included in the determination of the lease term if the company is reasonably certain to exercise the option. The company also enters into lease agreements that have variable payments, such as those related to usage or adjustments to certain indexes. Variable lease payments are recognized in the period in which those payments are incurred. Certain leases also include residual value guarantees; however, these amounts are not probable to be owed and are not included in the calculation of the lease liability.
The company subleases all or portions of certain building and warehouse leases to third parties, all of which are classified as operating leases. Some of these arrangements offer the lessee renewal options.
The components of lease expense were as follows:
| | | | | |
| Three Months Ended | | Nine Months Ended | ||
($ in millions) | September 30, 2019 |
| September 30, 2019 | ||
| | | | | |
Operating lease expense | $ | (17) | | $ | (50) |
Variable lease expense | | 3 | | | (7) |
Sublease income | | 1 | | | 3 |
Net lease expense | $ | (13) | | $ | (54) |
Supplemental cash flow information related to leases was as follows:
| | | | | |
| Three Months Ended | | Nine Months Ended | ||
($ in millions) | September 30, 2019 | | September 30, 2019 | ||
| | | | | |
Cash paid for amounts included in the measurements of lease liabilities - Operating cash outflows for operating leases | $ | (11) | | $ | (47) |
ROU assets obtained in exchange for operating lease obligations | | 18 | | | 41 |
17
14.Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
Supplemental balance sheet information related to operating leases was as follows:
| | | |
($ in millions) | Balance Sheet Location | September 30, 2019 | |
| | | |
Operating lease ROU asset | Other assets | $ | 242 |
Current operating lease liabilities | Other current liabilities | | 56 |
Noncurrent operating lease liabilities | Other liabilities | | 186 |
Weighted average remaining lease term and weighted average discount rate for the company’s operating leases were as follows:
| |
| September 30, 2019 |
| |
Weighted average remaining lease term in years | 10 |
Weighted average discount rate (%) | 4.3 |
Maturities of lease liabilities are as follows:
| | |
($ in millions) | Operating Leases | |
| | |
2019 (excluding the nine months ended September 30, 2019) | $ | 15 |
2020 | | 55 |
2021 | | 46 |
2022 | | 39 |
2023 | | 30 |
Thereafter | | 108 |
Future value of lease liabilities | | 293 |
Less: Imputed interest | | (51) |
Present value of lease liabilities | $ | 242 |
Total noncancellable operating leases in effect at December 31, 2018, as reported under previous lease accounting guidance, required rental payments of the following amounts in each of the following periods:
| | |
($ in millions) | | |
| | |
2019 | $ | 66 |
2020 | | 52 |
2021 | | 41 |
2022 | | 34 |
2023 | | 25 |
Thereafter | | 87 |
Total future lease payments | $ | 305 |
18
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
15. Debt and Interest Costs
Long-term debt consisted of the following:
|
|
|
|
|
|
| ||||||
|
| September 30, |
| December 31, | ||||||||
| | | | | | | ||||||
| | September 30, | | December 31, | ||||||||
($ in millions) |
| 2018 |
| 2017 |
| 2019 |
| 2018 | ||||
|
|
|
|
|
|
| ||||||
| | | | | | | ||||||
Senior Notes |
|
|
|
|
|
| | | | | | |
5.25% due July 2025 |
| $ | 1,000 |
| $ | 1,000 | | $ | 1,000 | | $ | 1,000 |
4.375% due December 2020 |
|
| 1,000 |
|
| 1,000 | | | 1,000 | | | 1,000 |
4.00% due November 2023 |
|
| 1,000 |
|
| 1,000 | | | 1,000 | | | 1,000 |
4.375%, euro denominated, due December 2023 |
|
| 812 |
|
| 840 | | | 763 | | | 803 |
5.00% due March 2022 |
|
| 750 |
|
| 750 | | | 750 | | | 750 |
4.875% due March 2026 |
|
| 750 |
|
| — | | | 750 | | | 750 |
3.50%, euro denominated, due December 2020 |
|
| 464 |
|
| 480 | | | 436 | | | 459 |
Senior Credit Facilities, due March 2021 (at variable rates) |
|
|
|
|
|
| ||||||
Term A loan, due June 2021 |
|
| 798 |
|
| 1,313 | ||||||
Multi-currency, U.S. dollar revolver, due March 2021 |
|
| — |
|
| 285 | ||||||
Senior Credit Facility (at variable rates) | | | | | | | ||||||
Term A loan, due March 2024 | | | 788 | | | 797 | ||||||
U.S. dollar revolver due March 2024 at variable rate | | | 205 | | | — | ||||||
Other (including debt issuance costs) |
|
| (43) |
|
| (37) | | | (41) | | | (41) |
|
|
| 6,531 |
|
| 6,631 | ||||||
| | | 6,651 | | | 6,518 | ||||||
Less: Current portion of long-term debt |
|
| (8) |
|
| (113) | | | (28) | | | (8) |
|
| $ | 6,523 |
| $ | 6,518 | ||||||
| | $ | 6,623 | | $ | 6,510 |
The seniorOn March 25, 2019, the company refinanced its existing credit facilities include long-term, multi-currency committedwith a U.S. dollar term loan facility, a U.S. dollar revolving creditfacility and a multicurrency revolving facility that mature in March 2024. The revolving facilities that provide the company with up to the U.S. dollar equivalent of $1.5$1.75 billion. At September 30, 2018,2019, taking into account outstanding letters of credit, approximately $1.47$1.5 billion was available under the company’s existing long-term, revolving credit facilities. In addition to these facilities, the company had approximately $1 billion$978 million of short-term uncommitted credit facilities available at September 30, 2018,2019, of which $142$333 million was outstanding and due on demand. At December 31, 2017,2018, the company had $340$211 million outstanding under short-term uncommitted credit facilities.
In March 2018, Ball issued $750 million of 4.875 percent senior notes and used the proceeds to repay $315 million of its Term A loan and outstanding multi-currency revolver and short-term credit facility borrowings.
The fair value of long-term debt was estimated to be $6.7$7.1 billion at September 30, 2018,2019, and $7.0$6.6 billion at December 31, 2017.2018. The fair value reflects the market rates at each period end for debt with credit ratings similar to the company’s ratings and is classified as Level 2 within the fair value hierarchy. Rates currently available to the company for loans with similar terms and maturities are used to estimate the fair value of long-term debt based on discounted cash flows.
Ball provides letters of credit in the ordinary course of business to secure liabilities recorded in connection with certain self-insurance arrangements. Letters of credit outstanding were $28$38 million at September 30, 2018,2019, and $33$28 million at December 31, 2017.2018.
The company’s senior notes and senior credit facilities are guaranteed on a full, unconditional and joint and several basis by certain of the company’s material subsidiaries. Each of the guarantor subsidiaries is 100 percent owned by Ball Corporation. These guarantees are required in support of these notes and credit facilities, are coterminous with the terms of the respective note indentures and would require performance upon certain events of default referred to in the respective guarantees. See Note 21 for further details about the company’s debt guarantees and Note 22 for the company’s required unaudited condensed consolidating financial information, which segregate guarantor subsidiaries and non-guarantor subsidiaries as defined in our debt agreements.
The U.S. note agreements and bank credit agreement contain certain restrictions relating to dividend payments, share repurchases, investments, financial ratios, guarantees and the incurrence of additional indebtedness. The most restrictive covenant is in the company’s bank credit agreement and requires the company to maintain a net leverage ratio (as defined) of no greater than 4.254.5 times at September 30, 2018.2019. The company was in compliance with all loan agreements and debt covenants at September 30, 2018,2019, and December 31, 2017,2018, and has met all debt payment obligations.
25
19
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
15.16. Taxes on Income
The company’seffective tax rate was 26.9 percent for the three months ended September 30, 2019, and 15.1 percent for the nine months ended September 30, 2019. As compared to the statutory U.S. tax rate, the effective tax rate for the three and nine months ended September 30, 2018,2019, was significantly impactedincreased by 8.5 percentage points and 2.1 percentage points, respectively, for the discrete impact of the settlement of certain defined benefit pension plans, reduced by 6.3 percentage points and 6.4 percentage points, respectively, for the impact of share-based compensation, increased by 5.5 percentage points and 1.4 percentage points, respectively, for the impact of the sale of the U.S. steel foodChina metal beverage packaging business and presentation of the Argentina steel aerosol packaging business. The effective tax ratebusiness as held for these periods was increasedsale, reduced by 37.74.7 percentage points and 14.22.0 percentage points, respectively, as a result of the write off of goodwill for which no tax deduction was available.
On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the Act) was signed into law. In the fourth quarter of 2017, the company recorded tax expense of $83 million for the estimated impacteffect of the mandatory deemed repatriation of its foreign earnings and revaluation of its U.S. deferred tax assets and liabilities. The company’s review of the implications of the Act will be ongoing throughout 2018, and as such, adjustments to any of the previously recorded provisional estimates of the Act’s impact may be required. These provisional estimates recorded are as follows:
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Based on a detailed analysis of its global income and other tax attributes that was concluded in the second quarter of 2018, the company made an accounting policy election in that reporting period to treat taxes dueU.S., increased by 4.5 percentage points and 1.9 percentage points, respectively, for GILTI and the base erosion anti-abuse tax (BEAT) as a current-period expense as incurred.
With the introduction of a modified territorial tax system in the Act, the company is continuing the review of its previously stated intent to indefinitely reinvest the undistributed earnings of certain of its foreign subsidiaries. As the company does not believe a reasonable estimate of the impact of the Act on its indefinite reinvestment assertion can currently be determined, no provisional estimate has been recorded as allowedglobal intangible low-taxed income (GILTI) net of foreign derived intangible income (FDII), and reduced by applicable accounting standards. The final determination will be made,2.0 percentage points and the impact, if any, will be recorded in the fourth quarter of 2018.1.2 percentage points, respectively, for federal tax credits.
26
Due to the timing of the enactment and the complexity involved in applying the provisions of the Act, the company made reasonable estimates of the various effects and recorded provisional amounts in its financial statements. As the company collects and prepares necessary data, and continues to interpret the Act based on any additional guidance issued by the U.S. Treasury Department, the Internal Revenue Service, and other standard-setting bodies, adjustments may be required to the provisional amounts that could materially affect the company’s financial position and results of operations as well as its effective tax rate in the fourth quarter of 2018 when the final required adjustments, if any, are recorded.
16.17. Employee Benefit Obligations
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| September 30, |
| December 31, | ||||||||
| | | | | | | ||||||
| | September 30, | | December 31, | ||||||||
($ in millions) |
| 2018 |
| 2017 | | 2019 |
| 2018 | ||||
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| | | | | | | ||||||
Underfunded defined benefit pension liabilities |
| $ | 885 |
| $ | 945 | | $ | 834 | | $ | 954 |
Less: Current portion |
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| (25) |
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| (27) | | | (24) | | | (25) |
Long-term defined benefit pension liabilities |
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| 860 |
|
| 918 | | | 810 | | | 929 |
Long-term retiree medical liabilities |
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| 191 |
|
| 196 | | | 157 | | | 157 |
Deferred compensation plans |
|
| 293 |
|
| 275 | | | 377 | | | 291 |
Other |
|
| 77 |
|
| 74 | | | 39 | | | 78 |
|
| $ | 1,421 |
| $ | 1,463 | ||||||
| | $ | 1,383 | | $ | 1,455 |
27
Components of net periodic benefit cost associated with the company’s defined benefit pension plans were:
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | ||||||||||||||||
| | 2019 | | 2018 | ||||||||||||||
($ in millions) |
| U.S. |
| Foreign |
| Total |
| U.S. |
| Foreign |
| Total | ||||||
| | | | | | | | | | | | | | | | | | |
Ball-sponsored plans: | | | | | | | | | | | | | | | | | | |
Service cost | | $ | 13 | | $ | 2 | | $ | 15 | | $ | 13 | | $ | 3 | | $ | 16 |
Interest cost | | | 26 | | | 17 | | | 43 | | | 25 | | | 18 | | | 43 |
Expected return on plan assets | | | (29) | | | (26) | | | (55) | | | (27) | | | (27) | | | (54) |
Amortization of prior service cost | | | 1 | | | — | | | 1 | | | — | | | — | | | — |
Recognized net actuarial loss | | | 5 | | | 1 | | | 6 | | | 9 | | | 2 | | | 11 |
Settlement losses | | | — | | | 8 | (a) | | 8 | | | 14 | (a) | | — | | | 14 |
Total net periodic benefit cost | | $ | 16 | | $ | 2 | | $ | 18 | | $ | 34 | | $ | (4) | | $ | 30 |
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| Three Months Ended September 30, | ||||||||||||||||
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| 2018 |
| 2017 | ||||||||||||||
($ in millions) |
| U.S. |
| Foreign |
| Total |
| U.S. |
| Foreign |
| Total | ||||||
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Ball-sponsored plans: |
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Service cost |
| $ | 13 |
| $ | 3 |
| $ | 16 |
| $ | 13 |
| $ | 4 |
| $ | 17 |
Interest cost |
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| 25 |
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| 18 |
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| 43 |
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| 29 |
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| 22 |
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| 51 |
Expected return on plan assets |
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| (27) |
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| (27) |
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| (54) |
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| (31) |
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| (26) |
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| (57) |
Amortization of prior service cost |
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| — |
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| — |
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| — |
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| 1 |
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| — |
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| 1 |
Recognized net actuarial loss |
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| 9 |
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| 2 |
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| 11 |
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| 8 |
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| 1 |
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| 9 |
Curtailment and settlement losses including special termination benefits |
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| 14 | (a) |
| — |
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| 14 |
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| 43 | (a) |
| — |
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| 43 |
Total net periodic benefit cost |
| $ | 34 |
| $ | (4) |
| $ | 30 |
| $ | 63 |
| $ | 1 |
| $ | 64 |
(a) |
| Includes settlement losses related to the purchase of non-participating annuities, plant shutdown benefits and other settlements that occur in the normal course of business, which have been recorded in business consolidation and other activities. |
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| Nine Months Ended September 30, |
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| 2018 |
| 2017 |
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($ in millions) |
| U.S. |
| Foreign |
| Total |
| U.S. |
| Foreign |
| Total |
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Ball-sponsored plans: |
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Service cost |
| $ | 40 |
| $ | 11 |
| $ | 51 |
| $ | 37 |
| $ | 12 |
| $ | 49 |
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Interest cost |
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| 73 |
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| 54 |
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| 127 |
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| 95 |
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| 66 |
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| 161 |
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Expected return on plan assets |
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| (82) |
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| (81) |
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| (163) |
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| (97) |
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| (78) |
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| (175) |
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Amortization of prior service cost |
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| 1 |
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| — |
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| 1 |
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| 1 |
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| — |
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| 1 |
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Recognized net actuarial loss |
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| 28 |
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| 4 |
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| 32 |
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| 26 |
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| 3 |
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| 29 |
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Curtailment and settlement losses including special termination benefits |
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| 14 | (a) |
| — |
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| 14 |
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| 43 | (a) |
| — |
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| 43 |
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Net periodic benefit cost for Ball sponsored plans |
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| 74 |
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| (12) |
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| 62 |
|
| 105 |
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| 3 |
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| 108 |
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Net periodic benefit cost for multi-employer plans |
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| 1 |
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| — |
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| 1 |
|
| 2 |
|
| — |
|
| 2 |
|
Total net periodic benefit cost |
| $ | 75 |
| $ | (12) |
| $ | 63 |
| $ | 107 |
| $ | 3 |
| $ | 110 |
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20
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
| | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, | ||||||||||||||||
| | 2019 | | 2018 | ||||||||||||||
($ in millions) |
| U.S. |
| Foreign |
| Total |
| U.S. |
| Foreign |
| Total | ||||||
| | | | | | | | | | | | | | | | | | |
Ball-sponsored plans: | | | | | | | | | | | | | | | | | | |
Service cost | | $ | 37 | | $ | 8 | | $ | 45 | | $ | 40 | | $ | 11 | | $ | 51 |
Interest cost | | | 76 | | | 53 | | | 129 | | | 73 | | | 54 | | | 127 |
Expected return on plan assets | | | (86) | | | (81) | | | (167) | | | (82) | | | (81) | | | (163) |
Amortization of prior service cost | | | 1 | | | 2 | | | 3 | | | 1 | | | — | | | 1 |
Recognized net actuarial loss | | | 16 | | | 3 | | | 19 | | | 28 | | | 4 | | | 32 |
Settlement losses | | | — | | | 8 | (a) | | 8 | | | 14 | (a) | | — | | | 14 |
Net periodic benefit cost for Ball sponsored plans | | | 44 | | | (7) | | | 37 | | | 74 | | | (12) | | | 62 |
Net periodic benefit cost for multi-employer plans | | | — | | | — | | | — | | | 1 | | | — | | | 1 |
Total net periodic benefit cost | | $ | 44 | | $ | (7) | | $ | 37 | | $ | 75 | | $ | (12) | | $ | 63 |
(a) |
| Includes settlement losses related to the purchase of non-participating annuities, plant shutdown benefits and other settlements that occur in the normal course of business, which have been recorded in business consolidation and other activities. |
In July 2019 and September 2018, and August 2017, Ball completed the purchase of non-participating group annuity contracts that were transferred to an insurance company for benefit obligations related to the company’s Canadian and U.S. pension benefit obligations totalingplans, respectively. These July 2019 and September 2018 annuity contract purchases totaled approximately $32 million and $176 million, and $224 million, respectively. The July 2019 annuity contract purchase settled Ball’s Canadian defined benefit pension obligation in full. The purchase of the annuity contracts triggered settlement accounting in each year.both years. Regular lump sums paid in the normal course of plan operations arewere also included in thethese total settlement amounts. These transactions resulted in the recognition of settlement losses recorded in business consolidation and other activities of $8 million in 2019 and $14 million in 2018 and $41 million in 2017.2018. The company’s U.S. pension obligations were remeasured during the third quarter of 2018 and 2017 for the impacted plans. plans, given the partial settlements involved.
Non-service pension income totaling $5 million and $16 million for the three and nine months ended September 30, 2019, respectively, and $3 million for the nine months ended September 30, 2018, is included in selling, general, and administrative (SG&A) expenses. Non-service pension costs totaling $4 million and $16 million for the three and nine months ended September 30, 2017, respectively, are included in cost of sales and SG&A and, due to immateriality, were not retrospectively adjusted as required by the newly adopted accounting standard for pension and postretirement benefit costs as described in Note 2.
28
Contributions to the company’s defined benefit pension plans were $53$154 million infor the first nine months of 20182019 compared to $201$53 million infor the first nine months of 2017,2018, and such contributions are expected to be in the range of $66approximately $168 million for the full year of 2018.2019. This estimate may change based on changes to the U.S. Pension Protection Act and actual plan asset performance, among other factors.
21
17. Shareholders’Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
18. Equity and Accumulated Other Comprehensive Earnings
Under its ongoing share repurchase program,The following tables provide additional details of the company repurchased $439 millioncompany’s equity activity:
| | | | | | | | | | | | | | | | | | | | | | |
| | Ball Corporation and Subsidiaries | | | | | | | ||||||||||||||
| | Common Stock | | Treasury Stock | | | | | Accumulated Other | | | | | | | |||||||
| | Number of | | | | Number of | | | | Retained | | Comprehensive | | Noncontrolling | | Total | ||||||
($ in millions; share amounts in thousands) |
| Shares |
| Amount |
| Shares |
| Amount |
| Earnings |
| Earnings (Loss) |
| Interest |
| Equity | ||||||
| | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 2019 | | 675,463 | | $ | 1,172 | | (343,623) | | $ | (2,566) | | $ | 5,651 | | $ | (797) | | $ | 104 | | $ | 3,564 |
Net earnings | | — | | | — | | — | | | — | | | 92 | | | — | | | — | | | 92 |
Other comprehensive earnings (loss), net of tax | | — | | | — | | — | | | — | | | — | | | 36 | | | — | | | 36 |
Currency translation recognized in earnings as a result of the transfer of the Argentina steel aerosol business to held for sale | | — | | | — | | — | | | — | | | — | | | 45 | | | — | | | 45 |
Common dividends, net of tax benefits | | — | | | — | | — | | | — | | | (49) | | | — | | | — | | | (49) |
Treasury stock purchases | | — | | | — | | (3,296) | | | (232) | | | — | | | — | | | — | | | (232) |
Treasury shares reissued | | — | | | — | | 64 | | | 7 | | | — | | | — | | | — | | | 7 |
Shares issued and stock compensation for stock options and other stock plans, net of shares exchanged | | 588 | | | 7 | | — | | | — | | | — | | | — | | | — | | | 7 |
Other activity | | — | | | (2) | | — | | | 1 | | | — | | | — | | | (4) | | | (5) |
Balance at September 30, 2019 | | 676,051 | | $ | 1,177 | | (346,855) | | $ | (2,790) | | $ | 5,694 | | $ | (716) | | $ | 100 | | $ | 3,465 |
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| | Ball Corporation and Subsidiaries | | | | | | | ||||||||||||||
| | Common Stock | | Treasury Stock | | | | | Accumulated Other | | | | | | | |||||||
| | Number of | | | | Number of | | | | Retained | | Comprehensive | | Noncontrolling | | Total | ||||||
($ in millions; share amounts in thousands) |
| Shares |
| Amount |
| Shares |
| Amount |
| Earnings |
| Earnings (Loss) |
| Interest |
| Equity | ||||||
| | | | | | | | | | | | | | | | | | | | | | |
Balance at June 30, 2018 | | 672,070 | | $ | 1,120 | | (325,459) | | $ | (1,663) | | $ | 5,199 | | $ | (767) | | $ | 106 | | $ | 3,995 |
Net earnings | | — | | | — | | — | | | — | | | 59 | | | — | | | — | | | 59 |
Other comprehensive earnings (loss), net of tax | | — | | | — | | — | | | — | | | — | | | (33) | | | — | | | (33) |
Common dividends, net of tax benefits | | — | | | — | | — | | | — | | | (34) | | | — | | | — | | | (34) |
Treasury stock purchases | | — | | | — | | (6,731) | | | (269) | | | — | | | — | | | — | | | (269) |
Treasury shares reissued | | — | | | — | | 172 | | | 7 | | | — | | | — | | | — | | | 7 |
Shares issued and stock compensation for stock options and other stock plans, net of shares exchanged | | 629 | | | 21 | | — | | | — | | | — | | | — | | | — | | | 21 |
Other activity | | — | | | 1 | | — | | | (1) | | | — | | | — | | | (1) | | | (1) |
Balance at September 30, 2018 | | 672,699 | | $ | 1,142 | | (332,018) | | $ | (1,926) | | $ | 5,224 | | $ | (800) | | $ | 105 | | $ | 3,745 |
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| | Ball Corporation and Subsidiaries | | | | | | | ||||||||||||||
| | Common Stock | | Treasury Stock | | | | | Accumulated Other | | | | | | | |||||||
| | Number of | | | | Number of | | | | Retained | | Comprehensive | | Noncontrolling | | Total | ||||||
($ in millions; share amounts in thousands) |
| Shares |
| Amount |
| Shares |
| Amount |
| Earnings |
| Earnings (Loss) |
| Interest |
| Equity | ||||||
| | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2018 | | 673,237 | | $ | 1,157 | | (337,979) | | $ | (2,205) | | $ | 5,341 | | $ | (835) | | $ | 104 | | $ | 3,562 |
Net earnings | | — | | | — | | — | | | — | | | 406 | | | — | | | — | | | 406 |
Other comprehensive earnings (loss), net of tax | | — | | | — | | — | | | — | | | — | | | 153 | | | — | | | 153 |
Currency translation recognized in earnings as a result of the transfer of the Argentina steel aerosol business to held for sale | | — | | | — | | — | | | — | | | — | | | 45 | | | — | | | 45 |
Reclassification of stranded tax effects | | — | | | — | | — | | | — | | | 79 | | | (79) | | | — | | | — |
Common dividends, net of tax benefits | | — | | | | | — | | | — | | | (133) | | | — | | | — | | | (133) |
Treasury stock purchases | | — | | | — | | (9,470) | | | (612) | | | — | | | — | | | — | | | (612) |
Treasury shares reissued | | — | | | — | | 594 | | | 19 | | | — | | | — | | | — | | | 19 |
Shares issued and stock compensation for stock options and other stock plans, net of shares exchanged | | 2,814 | | | 22 | | — | | | — | | | — | | | — | | | — | | | 22 |
Other activity | | — | | | (2) | | — | | | 8 | | | 1 | | | — | | | (4) | | | 3 |
Balance at September 30, 2019 | | 676,051 | | $ | 1,177 | | (346,855) | | $ | (2,790) | | $ | 5,694 | | $ | (716) | | $ | 100 | | $ | 3,465 |
22
Table of its shares, net of issuances, duringContents
Ball Corporation
Notes to the nine months ended September 30, 2018, and an additional $89 million was repurchased during October 2018. Share repurchases, net of issuances, totaled $85 million for the first nine months of 2017. The company expects net share repurchases for the full year 2018 to exceed $700 million. Unaudited Condensed Consolidated Financial Statements
| | | | | | | | | | | | | | | | | | | | | | |
| | Ball Corporation and Subsidiaries | | | | | | | ||||||||||||||
| | Common Stock | | Treasury Stock | | | | | Accumulated Other | | | | | | | |||||||
| | Number of | | | | Number of | | | | Retained | | Comprehensive | | Noncontrolling | | Total | ||||||
($ in millions; share amounts in thousands) |
| Shares |
| Amount |
| Shares |
| Amount |
| Earnings |
| Earnings (Loss) |
| Interest |
| Equity | ||||||
| | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2017, as adjusted | | 670,576 | | $ | 1,084 | | (320,695) | | $ | (1,474) | | $ | 5,024 | | $ | (655) | | $ | 105 | | $ | 4,084 |
Net earnings | | — | | | — | | — | | | — | | | 303 | | | — | | | 1 | | | 304 |
Other comprehensive earnings (loss), net of tax | | — | | | — | | — | | | — | | | — | | | (144) | | | — | | | (144) |
Common dividends, net of tax benefits | | — | | | — | | — | | | — | | | (104) | | | — | | | — | | | (104) |
Treasury stock purchases | | — | | | — | | (11,990) | | | (471) | | | — | | | — | | | — | | | (471) |
Treasury shares reissued | | — | | | — | | 667 | | | 18 | | | — | | | — | | | — | | | 18 |
Shares issued and stock compensation for stock options and other stock plans, net of shares exchanged | | 2,123 | | | 57 | | — | | | — | | | — | | | — | | | — | | | 57 |
Other activity | | — | | | 1 | | — | | | 1 | | | 1 | | | (1) | | | (1) | | | 1 |
Balance at September 30, 2018 | | 672,699 | | $ | 1,142 | | (332,018) | | $ | (1,926) | | $ | 5,224 | | $ | (800) | | $ | 105 | | $ | 3,745 |
In August 2017,May 2019, in a privately negotiated transaction, Ball entered into an accelerated share repurchase agreement to buy $100$250 million of its common shares using cash on hand and available borrowings, andborrowings. The company purchased 3.8 million shares at an average price paid per share of $65.93.
On January 23, 2019, the Board authorized the repurchase by the company received 2.5of up to a total of 50 million shares. This repurchase authorization replaced all previous authorizations.
Accumulated Other Comprehensive Earnings (Loss)
The activity related to accumulated other comprehensive earnings (loss) was as follows:
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($ in millions) |
| Foreign Currency Translation (Net of Tax) |
| Pension and Other Postretirement Benefits (Net of Tax) |
| Effective Derivatives (Net of Tax) |
| Accumulated Other Comprehensive Earnings (Loss) | ||||
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Balance at December 31, 2017 |
| $ | (307) |
| $ | (362) |
| $ | 13 |
| $ | (656) |
Other comprehensive earnings (loss) before reclassifications |
|
| (156) |
|
| 24 |
|
| 35 |
|
| (97) |
Amounts reclassified from accumulated other comprehensive earnings (loss) |
|
| — |
|
| 25 |
|
| (72) |
|
| (47) |
Balance at September 30, 2018 |
| $ | (463) |
| $ | (313) |
| $ | (24) |
| $ | (800) |
| | | | | | | | | | | | |
($ in millions) |
| Foreign Currency Translation (Net of Tax) |
| Pension and Other Postretirement Benefits (Net of Tax) |
| Derivatives Designated as Hedges |
| Accumulated Other Comprehensive Earnings (Loss) | ||||
| | | | | | | | | | | | |
Balance at December 31, 2018 | | $ | (504) | | $ | (277) | | $ | (54) | | $ | (835) |
Other comprehensive earnings (loss) before reclassifications | | | 88 | | | 4 | | | 68 | | | 160 |
Amounts reclassified from accumulated other comprehensive earnings (loss) into earnings | | | — | | | 24 | | | (31) | | | (7) |
Currency translation recognized in earnings from the transfer of the Argentina steel aerosol business to held for sale | | | 45 | | | — | | | — | | | 45 |
Stranded tax effects reclassified into retained earnings | | | — | | | (76) | | | (3) | | | (79) |
Balance at September 30, 2019 | | $ | (371) | | $ | (325) | | $ | (20) | | $ | (716) |
29
23
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
The following table provides additional details of the amounts recognized into net earnings from accumulated other comprehensive earnings (loss):
| | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | ||||||||
($ in millions) |
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
| | | | | | | | | | | | |
Gains (losses) on cash flow hedges: | | | | | | | | | | | | |
Commodity contracts recorded in net sales | | $ | 6 | | $ | 2 | | $ | 12 | | $ | (2) |
Commodity contracts recorded in cost of sales | | | (11) | | | 19 | | | (27) | | | 47 |
Currency exchange contracts recorded in selling, general and administrative | | | 6 | | | — | | | 5 | | | 1 |
Cross-currency swaps recorded in selling, general and administrative | | | 32 | | | 7 | | | 41 | | | 37 |
Cross-currency swaps recorded in interest expense | | | 3 | | | 4 | | | 11 | | | 10 |
Interest rate contracts recorded in interest expense | | | (1) | | | — | | | (1) | | | — |
Total before tax effect | | | 35 | | | 32 | | | 41 | | | 93 |
Tax benefit (expense) on amounts reclassified into earnings | | | (7) | | | (8) | | | (10) | | | (21) |
Recognized gain (loss), net of tax | | $ | 28 | | $ | 24 | | $ | 31 | | $ | 72 |
| | | | | | | | | | | | |
Amortization of pension and other postretirement benefits: (a) | | | | | | | | | | | | |
Prior service income (expense) | | $ | (1) | | $ | — | | $ | (1) | | $ | — |
Actuarial gains (losses) | | | (4) | | | (1) | | | (14) | | | (20) |
Effect of pension settlements (b) | | | (8) | | | (14) | | | (8) | | | (14) |
Total before tax effect | | | (13) | | | (15) | | | (23) | | | (34) |
Tax benefit (expense) on amounts reclassified into earnings | | | (4) | | | 4 | | | (1) | | | 9 |
Recognized gain (loss), net of tax | | $ | (17) | | $ | (11) | | $ | (24) | | $ | (25) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, |
| ||||||||
($ in millions) |
| 2018 |
| 2017 | �� | 2018 |
| 2017 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) on cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts recorded in net sales |
| $ | 2 |
| $ | — |
| $ | (2) |
| $ | (3) |
|
Commodity contracts recorded in cost of sales |
|
| 19 |
|
| 12 |
|
| 47 |
|
| 34 |
|
Currency exchange contracts recorded in selling, general and administrative |
|
| — |
|
| 1 |
|
| 1 |
|
| (2) |
|
Currency exchange contracts recorded in business consolidation and other activities |
|
| — |
|
| (3) |
|
| — |
|
| — |
|
Cross-currency swaps recorded in selling, general and administrative |
|
| 7 |
|
| (35) |
|
| 37 |
|
| (119) |
|
Cross-currency swaps recorded in interest expense |
|
| 4 |
|
| 3 |
|
| 10 |
|
| 13 |
|
Total before tax effect |
|
| 32 |
|
| (22) |
|
| 93 |
|
| (77) |
|
Tax benefit (expense) on amounts reclassified into earnings |
|
| (8) |
|
| 15 |
|
| (21) |
|
| 12 |
|
Recognized gain (loss), net of tax |
| $ | 24 |
| $ | (7) |
| $ | 72 |
| $ | (65) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of pension and other postretirement benefits: (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service income (expense) |
| $ | — |
| $ | (1) |
| $ | — |
| $ | (1) |
|
Actuarial gains (losses) (b) |
|
| (15) |
|
| (48) |
|
| (34) |
|
| (65) |
|
Total before tax effect |
|
| (15) |
|
| (49) |
|
| (34) |
|
| (66) |
|
Tax benefit (expense) on amounts reclassified into earnings |
|
| 4 |
|
| 19 |
|
| 9 |
|
| 25 |
|
Recognized gain (loss), net of tax |
| $ | (11) |
| $ | (30) |
| $ | (25) |
| $ | (41) |
|
(a) |
| The pension components are included in the computation of net periodic benefit cost disclosed in Note |
(b) |
|
|
.
18.19.Earnings and Dividends Per Share
| | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | ||||||||
($ in millions, except per share amounts; shares in thousands) |
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
| | | | | | | | | | | | |
Net earnings attributable to Ball Corporation | | $ | 92 | | $ | 59 | | $ | 406 | | $ | 303 |
| | | | | | | | | | | | |
Basic weighted average common shares | | | 331,148 | | | 342,982 | | | 332,726 | | | 347,113 |
Effect of dilutive securities | | | 9,484 | | | 6,727 | | | 8,976 | | | 6,642 |
Weighted average shares applicable to diluted earnings per share | | | 340,632 | | | 349,709 | | | 341,702 | | | 353,755 |
| | | | | | | | | | | | |
Per basic share | | $ | 0.28 | | $ | 0.17 | | $ | 1.22 | | $ | 0.87 |
Per diluted share | | $ | 0.27 | | $ | 0.17 | | $ | 1.19 | | $ | 0.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, |
| ||||||||
($ in millions, except per share amounts; shares in thousands) |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to Ball Corporation |
| $ | 59 |
| $ | 48 |
| $ | 303 |
| $ | 215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares |
|
| 342,982 |
|
| 350,327 |
|
| 347,113 |
|
| 350,481 |
|
Effect of dilutive securities |
|
| 6,727 |
|
| 8,229 |
|
| 6,642 |
|
| 8,011 |
|
Weighted average shares applicable to diluted earnings per share |
|
| 349,709 |
|
| 358,556 |
|
| 353,755 |
|
| 358,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per basic share |
| $ | 0.17 |
| $ | 0.14 |
| $ | 0.87 |
| $ | 0.61 |
|
Per diluted share |
| $ | 0.17 |
| $ | 0.13 |
| $ | 0.86 |
| $ | 0.60 |
|
24
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
Certain outstanding options were excluded from the diluted earnings per share calculation because they were anti-dilutive (i.e., their assumed conversion into common stock would increase rather than decrease earnings per share). The options excluded totaled 4 million for both the three and nine months ended September 30, 2018. TheThere were no anti-dilutive options excluded totaled 3 million and 5 millionoutstanding for the three and nine months ended September 30, 2017, respectively.2019.
30
The company declared and paid dividends of $0.10$0.15 per share in each of the first three quarters of 2018. The company declared and paid dividends of $0.065$0.40 per share in the first quarter of 2017three and nine months ended September 30, 2019, respectively, and $0.10 per share and $0.30 per share in each of the secondthree and third quarters of 2017.nine months ended September 30, 2018.
19.20. Financial Instruments and Risk Management
Policies and Procedures
The company employs established risk management policies and procedures, which seek to reduce the company’s commercial risk exposure to fluctuations in commodity prices, interest rates, currency exchange rates and prices of the company’s common stock with regard to common share repurchases and the company’s deferred compensation stock plan. However, there can be no assurance 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 lenders, on a regular basis, but Ball cannot be certain that all risks will be discerned or that its risk management policies and procedures will always be effective. Additionally, in the event of default under the company’s master derivative agreements, the non-defaulting party has the option to offset any amounts owed with regard to open derivative positions.
Commodity Price Risk
Aluminum
The company manages commodity price risk in connection with market price fluctuations of aluminum ingot through two2 different methods. First, the company enters into container sales contracts that include aluminum ingot-based pricing terms which generally reflect the same price fluctuations under commercial purchase contracts for aluminum sheet. The terms include fixed, floating or pass through aluminum ingot component pricing. Second, the company uses certain derivative instruments, including option and forward contracts as economic and cash flow hedges of commodity price risk where there are material differences between sales and purchase contracted pricing and volume.
At September 30, 2018,2019, the company had aluminum contracts limiting its aluminum exposure with notional amounts of approximately $1.13$1.3 billion, of which $998 million$1.2 billion received hedge accounting treatment.The aluminum contracts, which are recorded at fair value, include economic derivative instruments that are undesignated, as well as cash flow hedges that offset sales and purchase contracts of various terms and lengths. Cash flow hedges relate to forecasted transactions that will occur within the next twothree years. Included in shareholders’ equity at September 30, 2018,2019, within accumulated other comprehensive earnings (loss), is a net after-tax gainloss of $3$24 million associated with these contracts. A net after-tax gaincontracts, $21 million of $4 millionwhich is expected to be recognized in the consolidated statement of earnings during the next 12 months, themonths. The majority of whichthis amount will be offset by pricing changes in sales and purchase contracts, thus resulting in little or no earnings impact to Ball.
Interest Rate Risk
The company’s objective in managing exposure to interest rate changes is to minimize the impact of interest rate changes on earnings and cash flows and to lower ourits overall borrowing costs. To achieve these objectives, the company may use a variety of interest rate swaps, collars and options to manage ourits mix of floating and fixed-rate debt. At September 30, 2018,2019, the company had outstanding interest rate swap and option contracts with notional amounts of approximately $935 million$1.3 billion paying fixed rates expiring within the next two years.
31
25
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
Currency Exchange Rate Risk
The company’s objective in managing exposure to currency fluctuations is to limit the exposure of cash flows and earnings from changes associated with currency exchange rate changes through the use of various derivative contracts. In addition, at times the company manages earnings translation volatility through the use of currency option strategies, and the change in the fair value of those options is recorded in the company’s net earnings. The company’s currency translation risk results from the currencies in which we transact business. The company faces currency exposures in its global operations as a result of various factors including intercompany currency denominated loans, selling our products in various currencies, purchasing raw materials and equipment in various currencies and tax exposures not denominated in the functional currency. Sales contracts are negotiated with customers to reflect cost changes and, where there is not an exchange pass-through arrangement, the company uses forward and option contracts to manage currency exposures. At September 30, 2018,2019, the company had outstanding exchange rate forward and option contracts with notional amounts totaling approximately $2.1$3.8 billion. Approximately $1$10 million of net after-tax gain related to these contracts is included in accumulated other comprehensive earnings at September 30, 2018, the majority2019, $3 million of which is expected to be recognized in the unaudited condensed consolidated statement of earnings during the next 12 months. The contracts outstanding at September 30, 2018,2019, expire within the next twofive years.
Additionally, the company entered into a $1 billion cross-currency swap contract to partially mitigate the risk associated with foreign currency denominated intercompany debt incurred in 2016. During the nine months ended September 30, 2019, the company settled portions of this contract with a notional value of $750 million, which left $250 million in place as of September 30, 2019. The remaining amount was terminated in October 2019 and is no longer in place. Approximately $28$6 million of net after-tax loss related to this contract is included in accumulated other comprehensive earnings at September 30, 2018,2019, all of which the amount expected to bewas recognized during the next 12 months is dependentin October 2019 upon changes in currency exchange rates. The contract expires within the next three years.termination.
Common Stock Price Risk
The company’s deferred compensation stock program is subject to variable plan accounting and, accordingly, is marked to fair value using the company’s closing stock price at the end of the related reporting period. The company entered into total return swaps to reduce the company’s earnings exposure to these fair value fluctuations that will be outstanding through November 2019May 2020 and have a combined notional value of 2.62.9 million shares. Based on the current number of shares in the program, each $1 change in the company’s stock price has an insignificant impact on pretax earnings, net of the impact of related derivatives.
Collateral Calls
The company’s agreements with its financial counterparties require the posting of collateral in certain circumstances when the negative mark to fair value of the derivative contracts exceeds specified levels. Additionally, the company has collateral posting arrangements with certain customers on these derivative contracts. The cash flows of the margin calls, if any, are shown within the investing section of the company’s unaudited condensed consolidated statements of cash flows. As of September 30, 2018,2019, and December 31, 2017,2018, the aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position was $8$32 million and $27$46 million, respectively, and no0 collateral was required to be posted.
26
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
Fair Value Measurements
The company has classified all applicable financial derivative assets and liabilities as Level 2 within the fair value hierarchy as of September 30, 2018,2019, and December 31, 2017,2018, and presented those values are presented in the tables below. The
32
company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
|
| September 30, 2018 | |||||||||||||||||
| | | | | | | | | | | ||||||||||
| | | September 30, 2019 | |||||||||||||||||
($ in millions) | Balance Sheet Location |
| Derivatives |
| Derivatives not |
| Total | Balance Sheet Location |
| Derivatives |
| Derivatives not |
| Total | ||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||
| | | | | | | | | | | ||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
| | | | | | | | | | |
Commodity contracts |
|
| $ | 18 |
| $ | 2 |
| $ | 20 | | | $ | 10 | | $ | — | | $ | 10 |
Foreign currency contracts |
|
|
| 1 |
|
| 18 |
|
| 19 | | | | 2 | | | 48 | | | 50 |
Cross-currency and other contracts |
|
|
| — |
|
| 2 |
|
| 2 | | | | 1 | | | — | | | 1 |
Total current derivative contracts | Other current assets |
| $ | 19 |
| $ | 22 |
| $ | 41 | Other current assets | | $ | 13 | | $ | 48 | | $ | 61 |
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Commodity contracts |
|
| $ | 1 |
| $ | — |
| $ | 1 | ||||||||||
| | | | | | | | | | | ||||||||||
Foreign currency contracts | | | $ | 31 | | $ | — | | $ | 31 | ||||||||||
Interest rate and other contracts | | | | 3 | | | — | | | 3 | ||||||||||
Total noncurrent derivative contracts | Other noncurrent assets |
| $ | 1 |
| $ | — |
| $ | 1 | Other noncurrent assets | | $ | 34 | | $ | — | | $ | 34 |
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | |
Liabilities: |
|
|
|
|
|
|
|
|
|
| | | | | | | | | | |
Commodity contracts |
|
| $ | 13 |
| $ | 5 |
| $ | 18 | | | $ | 35 | | $ | — | | $ | 35 |
Foreign currency contracts |
|
|
| — |
|
| 4 |
|
| 4 | | | | — | | | 1 | | | 1 |
Cross-currency and other contracts |
|
|
| — |
|
| 1 |
|
| 1 | | | | 1 | | | 7 | | | 8 |
Total current derivative contracts | Other current liabilities |
| $ | 13 |
| $ | 10 |
| $ | 23 | Other current liabilities | | $ | 36 | | $ | 8 | | $ | 44 |
|
|
|
|
|
|
|
|
|
|
| ||||||||||
| | | | | | | | | | | ||||||||||
Commodity contracts |
|
| $ | 1 |
| $ | — |
| $ | 1 | | | $ | 3 | | $ | — | | $ | 3 |
Cross-currency and other contracts |
|
|
| 86 |
|
| — |
|
| 86 | ||||||||||
Total noncurrent derivative contracts | Other noncurrent liabilities |
| $ | 87 |
| $ | — |
| $ | 87 | Other noncurrent liabilities | | $ | 3 | | $ | — | | $ | 3 |
33
27
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
| | | | | | | | | | |
| | | December 31, 2018 | |||||||
| | | Derivatives |
| Derivatives not |
| Total | |||
| | | | | | | | | | |
Assets: | | | | | | | | | | |
Commodity contracts | | | $ | 9 | | $ | 1 | | $ | 10 |
Foreign currency contracts | | | | — | | | 21 | | | 21 |
Cross-currency and other contracts | | | | — | | | 5 | | | 5 |
Total current derivative contracts | Other current assets | | $ | 9 | | $ | 27 | | $ | 36 |
| | | | | | | | | | |
Liabilities: | | | | | | | | | | |
Commodity contracts | | | $ | 42 | | $ | 11 | | $ | 53 |
Foreign currency contracts | | | | 2 | | | 4 | | | 6 |
Cross-currency and other contracts | | | | 1 | | | 2 | | | 3 |
Total current derivative contracts | Other current liabilities | | $ | 45 | | $ | 17 | | $ | 62 |
| | | | | | | | | | |
Commodity contracts | | | $ | 2 | | $ | — | | $ | 2 |
Cross-currency and other contracts | | | | 62 | | | — | | | 62 |
Total noncurrent derivative contracts | Other noncurrent liabilities | | $ | 64 | | $ | — | | $ | 64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2017 | |||||||
|
|
| Derivatives |
| Derivatives not |
| Total | |||
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
Commodity contracts |
|
| $ | 46 |
| $ | 3 |
| $ | 49 |
Foreign currency contracts |
|
|
| 5 |
|
| 10 |
|
| 15 |
Total current derivative contracts | Other current assets |
| $ | 51 |
| $ | 13 |
| $ | 64 |
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts |
|
| $ | 6 |
| $ | — |
| $ | 6 |
Total noncurrent derivative contracts | Other noncurrent assets |
| $ | 6 |
| $ | — |
| $ | 6 |
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
Commodity contracts |
|
| $ | 4 |
| $ | 4 |
| $ | 8 |
Foreign currency contracts |
|
|
| — |
|
| 21 |
|
| 21 |
Cross-currency and other contracts |
|
|
| — |
|
| 2 |
|
| 2 |
Total current derivative contracts | Other current liabilities |
| $ | 4 |
| $ | 27 |
| $ | 31 |
|
|
|
|
|
|
|
|
|
|
|
Cross-currency and other contracts |
|
| $ | 117 |
| $ | 3 |
| $ | 120 |
Total noncurrent derivative contracts | Other noncurrent liabilities |
| $ | 117 |
| $ | 3 |
| $ | 120 |
The company uses closing spot and forward market prices as published by the London Metal Exchange, the Chicago Mercantile Exchange, Reuters and Bloomberg to determine the fair value of any outstanding aluminum, currency, energy, inflation and interest rate spot and forward contracts. Option contracts are valued using a Black-Scholes model with observable market inputs for aluminum, currency and interest rates. We valueThe company values each of ourits financial instruments either internally using a single valuation technique or from a reliable observable market source. The company does not adjust the value of its financial instruments except in determining the fair value of a trade that settles in the future by discounting the value to its present value using a12-montha 12-month LIBOR rate. Ball performs validations of its internally derived fair values reported for our financial instruments on a quarterly basis utilizing counterparty valuation statements. Additionally, the company evaluates counterparty creditworthiness and, as of September 30, 2018,2019, has not identified any circumstances requiring the reported values of its financial instruments to be adjusted.
3428
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
The following table provides the effects of derivative instruments in the consolidated statement of earnings and on accumulated other comprehensive earnings (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
|
|
|
| Three Months Ended September 30, |
| |||||||||||||||||||||||||
|
|
|
| 2018 |
| 2017 |
| |||||||||||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||
| | | | Three Months Ended September 30, | | |||||||||||||||||||||||||
| | | | 2019 | | 2018 | | |||||||||||||||||||||||
($ in millions) |
| Location of Gain (Loss) |
| Cash Flow |
| Gain (Loss) on |
| Cash Flow |
| Gain (Loss) on |
|
| Location of Gain (Loss) |
| Cash Flow |
| Gain (Loss) on |
| Cash Flow |
| Gain (Loss) on |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
| | | | | | | | | | | | | | | | |||||||||||||||
Commodity contracts - manage exposure to customer pricing |
| Net sales |
| $ | 2 |
| $ | — |
| $ | — |
| $ | (1) |
| | Net sales | | $ | 6 | | $ | — | | $ | 2 | | $ | — | |
Commodity contracts - manage exposure to supplier pricing |
| Cost of sales |
|
| 19 |
|
| 2 |
|
| 12 |
|
| (2) |
| | Cost of sales | | | (11) | | | (1) | | | 19 | | | 2 | |
Foreign currency contracts - manage general exposure with the business |
| Selling, general and administrative |
|
| — |
|
| 16 |
|
| 1 |
|
| (34) |
| |||||||||||||||
Foreign currency contracts - manage exposure for acquisition of Rexam |
| Business consolidation and other activities |
|
| — |
|
| — |
|
| (3) |
|
| — |
| |||||||||||||||
Cross-currency swaps - manage intercompany currency exposure within the business |
| Selling, general and administrative |
|
| 7 |
|
| — |
|
| (35) |
|
| — |
| |||||||||||||||
Cross-currency swaps - manage intercompany currency exposure within the business |
| Interest expense |
|
| 4 |
|
| — |
|
| 3 |
|
| — |
| |||||||||||||||
Interest rate contracts - manage exposure for outstanding debt | | Interest expense | | | (1) | | | — | | | — | | | — | | |||||||||||||||
Foreign currency contracts - manage currency exposure | | Selling, general and administrative | | | 6 | | | 90 | | | — | | | 16 | | |||||||||||||||
Cross-currency swaps - manage intercompany currency exposure | | Selling, general and administrative | | | 32 | | | — | | | 7 | | | — | | |||||||||||||||
Cross-currency swaps - manage intercompany currency exposure | | Interest expense | | | 3 | | | — | | | 4 | | | — | | |||||||||||||||
Equity contracts |
| Selling, general and administrative |
|
| — |
|
| 21 |
|
| — |
|
| (3) |
| | Selling, general and administrative | | | — | | | 7 | | | — | | | 21 | |
Total |
|
|
| $ | 32 |
| $ | 39 |
| $ | (22) |
| $ | (40) |
| | | | $ | 35 | | $ | 96 | | $ | 32 | | $ | 39 | |
35
29
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
|
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|
|
|
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| ||
|
|
|
| Nine Months Ended September 30, | ||||||||||||
|
|
|
| 2018 |
| 2017 | ||||||||||
($ in millions) |
| Location of Gain (Loss) |
| Cash Flow |
| Gain (Loss) on |
| Cash Flow |
| Gain (Loss) on | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Commodity contracts - manage exposure to customer pricing |
| Net sales |
| $ | (2) |
| $ | 1 |
| $ | (3) |
| $ | (3) | ||
Commodity contracts - manage exposure to supplier pricing |
| Cost of sales |
|
| 47 |
|
| 6 |
|
| 34 |
|
| (5) | ||
Foreign currency contracts - manage general exposure with the business |
| Selling, general and administrative |
|
| 1 |
|
| 73 |
|
| (2) |
|
| (63) | ||
Cross-currency swaps - manage intercompany currency exposure within the business |
| Selling, general and administrative |
|
| 37 |
|
| — |
|
| (119) |
|
| — | ||
Cross-currency swaps - manage intercompany currency exposure within the business |
| Interest expense |
|
| 10 |
|
| — |
|
| 13 |
|
| — | ||
Equity contracts |
| Selling, general and administrative |
|
| — |
|
| 14 |
|
| — |
|
| 8 | ||
Total |
|
|
| $ | 93 |
| $ | 94 |
| $ | (77) |
| $ | (63) |
| | | | | | | | | | | | | | | |
| | | | Nine Months Ended September 30, | | ||||||||||
| | | | 2019 | | 2018 | | ||||||||
($ in millions) |
| Location of Gain (Loss) |
| Cash Flow |
| Gain (Loss) on |
| Cash Flow |
| Gain (Loss) on | | ||||
| | | | | | | | | | | | | | | |
Commodity contracts - manage exposure to customer pricing | | Net sales | | $ | 12 | | $ | — | | $ | (2) | | $ | 1 | |
Commodity contracts - manage exposure to supplier pricing | | Cost of sales | | | (27) | | | 2 | | | 47 | | | 6 | |
Interest rate contracts - manage exposure for outstanding debt | | Interest expense | | | (1) | | | — | | | — | | | — | |
Foreign currency contracts - manage currency exposure | | Selling, general and administrative | | | 5 | | | 133 | | | 1 | | | 73 | |
Cross-currency swaps - manage intercompany currency exposure | | Selling, general and administrative | | | 41 | | | — | | | 37 | | | — | |
Cross-currency swaps - manage intercompany currency exposure | | Interest expense | | | 11 | | | — | | | 10 | | | — | |
Equity contracts | | Selling, general and administrative | | | — | | | 70 | | | — | | | 14 | |
Total | | | | $ | 41 | | $ | 205 | | $ | 93 | | $ | 94 | |
The changes in accumulated other comprehensive earnings (loss) for effective derivatives designated as hedges were as follows:
|
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| ||||||||||||
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, |
| ||||||||||||||||||||
| | | | | | | | | | | | | |||||||||||||
| | Three Months Ended September 30, | | Nine Months Ended September 30, | |||||||||||||||||||||
($ in millions) |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
|
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||||||
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| ||||||||||||
| | | | | | | | | | | | | |||||||||||||
Amounts reclassified into earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | |
Commodity contracts |
| $ | (21) |
| $ | (12) |
| $ | (45) |
| $ | (31) |
| | $ | 5 | | $ | (21) | | $ | 15 | | $ | (45) |
Cross-currency swap contracts |
|
| (11) |
|
| 32 |
|
| (47) |
|
| 106 |
| | | (35) | | | (11) | | | (52) | | | (47) |
Interest rate contracts | | | 1 | | | — | | | 1 | | | — | |||||||||||||
Currency exchange contracts |
|
| — |
|
| 2 |
|
| (1) |
|
| 2 |
| | | (6) | | | — | | | (5) | | | (1) |
Change in fair value of cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | |
Commodity contracts |
|
| (11) |
|
| 14 |
|
| 1 |
|
| 43 |
| | | (5) | | | (11) | | | (10) | | | 1 |
Interest rate contracts |
|
| — |
|
| — |
|
| — |
|
| 1 |
| | | (1) | | | — | | | (1) | | | — |
Cross-currency swap contracts |
|
| 13 |
|
| (47) |
|
| 45 |
|
| (116) |
| | | 41 | | | 13 | | | 81 | | | 45 |
Currency exchange contracts |
|
| 1 |
|
| 3 |
|
| (2) |
|
| 4 |
| | | 14 | | | 1 | | | 18 | | | (2) |
Foreign currency and tax impacts |
|
| 6 |
|
| (2) |
|
| 12 |
|
| 18 |
| | | (2) | | | 6 | | | (10) | | | 12 |
|
| $ | (23) |
| $ | (10) |
| $ | (37) |
| $ | 27 |
| ||||||||||||
Stranded tax effects reclassified into retained earnings: | | | | | | | | | | | | | |||||||||||||
Commodity contracts | | | — | | | — | | | 2 | | | — | |||||||||||||
Cross-currency swap contracts | | | — | | | — | | | (5) | | | — | |||||||||||||
| | $ | 12 | | $ | (23) | | $ | 34 | | $ | (37) |
36
30
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
21. Contingencies
20. Contingencies
Ball is subject to numerous lawsuits, claims or proceedings arising out of the ordinary course of business, including actions related to product liability; personal injury; the use and performance of company products; warranty matters; patent, trademark or other intellectual property infringement; contractual liability; the conduct of the company’s business; tax reporting in domestic and foreign jurisdictions; workplace safety and environmental and other matters. The company has also been identified as a potentially responsible party (PRP) 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. In addition, we have received claims alleging that employees in certain plants have suffered damages due to exposure to alleged workplace hazards. Some of these lawsuits, claims and proceedings involve substantial amounts, including as described below, and some of the environmental proceedings involve potential monetary costs or sanctions that may be material. Ball has denied liability with respect to many of these lawsuits, claims and proceedings and is vigorously defending such lawsuits, claims and proceedings. The company carries 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 Ball with respect to these lawsuits, claims and proceedings. The company estimates that potential liabilities for all currently known and estimable environmental matters are approximately $31$28 million in the aggregate, and such amounts have been included in other current liabilities and other noncurrent liabilities at September 30, 2018.2019.
As previously reported, the U.S. Environmental Protection Agency (USEPA) considers the company a PRP with respect to the Lowry Landfill site located east of Denver, Colorado. In 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. Subsequently in 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 complaint.
Also in 1992, Ball 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 clean-up 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. In February 2018, Waste Management reported that total project costs through 2016 were approximately $142 million. 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 clean-up cost of approximately $10 million. This additional clean-up 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, we do not believe that this matter will have a material adverse effect upon the liquidity, results of operations or financial condition of the company.
37
In November 2012, the USEPA wrote to the company asserting that it is one of at least 50 PRPs with respect to the Lower Duwamish site located in Seattle, Washington, based on the company’s ownership of a glass container plant prior to 1995, and notifying the company of a proposed remediation action plan. A site was selected to begin data review on over 30 industrial companies and government entities and at least two2 PRP groups have been discussing various allocation proposals. The USEPA issued the site Record of Decision (ROD) in December 2014. Ball submitted its initial responses to the allocator’s questionnaire in March 2015, and after reviewing submissions from the PRPs alleging deficiencies in certain of Ball’s responses, the allocator denied certain of the allegations and directed the company to answer others, to which Ball responded during the fourth quarter of 2016. A group of de minimis PRPs, including Ball, retained a technical consultant to assist with their positions vis-à-vis larger PRPs, and further presentations were made to the site allocator during the fourth quarter of 2017 and the first quarter of 2018. Total site remediation costs of $342 million, to cover remediation of approximately 200 acres of river bottom, are expected according to the proposed remediation action plan, which does not include $100 million that has already been spent, and which will be allocated among the numerous PRPs in due course. Based on the information available to the company at this time, we dothe 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.
31
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
In February 2012, Ball Metal Beverage Container Corp. (BMBCC) filed an action against Crown Packaging Technology, Inc. (Crown) in the U.S. District Court for the Southern District of Ohio (the Court) seeking a declaratory judgment that the manufacture, sale and use of certain ends by BMBCC and its customers do not infringe certain claims of Crown’s U.S. patents. Crown subsequently filed a counterclaim alleging infringement of certain claims in these patents seeking unspecified monetary damages, fees and declaratory and injunctive relief. The District Court issued a claim construction order at the end of December 2015 and held a scheduling conference on February 10, 2016, to determine the timeline for future steps in the litigation. The case was stayed by mutual agreement of the parties into the third quarter of 2016, during which Crown made preparations for its discovery with respect to certain ends previously produced by Rexam’s U.S. subsidiary, Rexam and suchBeverage Can Company (RBCC). Such discovery began during the first half of 2017.2017 and concluded in the fourth quarter of 2018. The parties attempted to mediate the case on August 1, 2017, but no progress was made, and the case continuescontinued as scheduled, with discovery expectedscheduled. In December, 2018, BMBCC and RBCC filed a motion for summary judgment that the Crown patents at issue are invalid and that the applicable ends supplied by BMBCC and RBCC did not infringe the patents. Crown did not file a motion for summary judgment. Oral argument on the motion filed by BMBCC and RBCC was completed in January 2019. On June 21, 2019, the District Court issued an order sustaining the BMBCC/RBCC motion as to continue throughinvalidity, declining to rule on the fourth quarterother grounds as moot, and indicating that an expanded opinion and an appealable order would be forthcoming. The expanded opinion was docketed on July 22, 2019. The final, appealable order was issued by the Court on September 25, 2019, and the expanded opinion was unsealed. On October 22, 2019, Crown filed a Notice of 2018.Appeal of the decision of the Court to the Court of Appeals for the Federal Circuit. 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.
A former Rexam Personal Care site in Annecy, France, was found in 2003 to be contaminated following a leak of chlorinated solvents (TCE) from an underground feedline. The site underwent extensive investigation and an active remediation treatment system was put in place in 2006. The business operating from the site was sold to Albea in 2013 and in turn to a French company CATIDOM (operating as Reboul). Reboul vacated the site in September 2014, and the site reverted back to Rexam during the first quarter of 2015. As part of the site closure regulatory requirements, a new regulatory permit (Prefectoral Order) was issued in June 2016, which includes requirements to undertake a cost-benefit analysis and pilot studies of further treatment for the known residual solvent contamination following the shutdown of the current on-site treatment system. A new management plan will bewas proposed to the French Environmental Authorities (DREAL) during 2018.2018 and is the subject of ongoing discussions ahead of a final plan for the site being addressed. Based on the information available to the company at this time, we dothe 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.
The company’s operations in Brazil are involved in various governmental assessments, principally related to claims for taxes on the internal transfer of inventory, gross sales taxes and indirect tax incentives. The company does not believe that the ultimate resolution of these matters will materially impact the company’s results of operations, financial position or cash flows. Under customary local regulations, the company’s Brazilian subsidiaries may need to post cash or other collateral if the process to challenge any administrative assessment proceeds to the Brazilian court system; however, the level of any potential cash or collateral required would not significantly impact the liquidity of those subsidiaries or Ball Corporation.
During the first quarter of 2017, the Brazilian Supreme Court (the Court) ruled against the Brazilian tax authorities in a leading case related to the computation of certain indirect taxes. The Court ruled that the indirect tax base should not include a value-added tax known as “ICMS.” By removing the ICMS from the tax base, the Court effectively eliminated a “tax on tax.”
38
The Court decision, in principle, affects all applicable judicial proceedings in progress. However, after publication of the decision in October 2017, the Brazilian tax authorities filed an appeal seeking clarification of certain matters, including the amount of ICMS to which taxpayers would be entitled in order to reduce their indirect tax base (i.e., the gross rate or net rate). The appeal also requested a modulation of the decision’s effects, which may limit its impact on taxpayers.
32
OurBall Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
The company’s Brazilian subsidiaries paid to the Brazilian tax authorities the gross amounts of certain indirect taxes (which included ICMS in their tax base) and filed lawsuits in 2014 and 2015 in order to challenge the legality of these tax on tax amounts. Pursuant to these lawsuits, we havethe company requested reimbursement of prior excess tax payments and entitlement to retain amounts not remitted. During the third quarter of 2018, the company learned of a further decision of the Court indicating that lawsuits filed prior to the trial resulting in its 2017 decision, such as those filed by the company, would likely be upheld. The company has also noted that other Brazilian companies, including customers of its Brazilian subsidiaries, thatwhich had timely filed equivalent lawsuits, have recordedwere recording income based on the applicable ICMS amounts retained. Accordingly, we now considerDuring the portions of the ICMS-related cash collected and not remitted by our subsidiaries to be realizable and in the thirdsecond quarter of 2018 we2019, the company received additional favorable court rulings and completed its analysis of certain prior year overpayments related to ICMS. As these gain contingency amounts are now estimable and realizable, the company recorded $16$56 million of prior year collections in business consolidation and other activities within ourthe company’s condensed consolidated statement of earnings. We also recorded $8 million of net sales in the third quarter 2018 for ICMS-related collections during the first six months of 2018. The company is in the process ofcurrently seeking reimbursement for additional ICMS-related amounts previously paid to the Brazilian government, which may result in material reimbursements in respect of prior periods;government; however, such amounts cannot be estimated at this time. TheIn the event other comparable cases are resolved and the amounts claimed become estimable and realizable, the company will record income for thesegains, which may result in material reimbursements onceto the amounts are realized or realizable.company in future periods.
21.22. Indemnifications and Guarantees
General Guarantees
The company or its appropriateand certain consolidated direct or indirect subsidiaries, including Rexam and its subsidiaries have made certain indemnities, commitments and guarantees under which the specified entity may be required to make payments in relation to certain transactions.transactions or other obligations. These indemnities, commitments and guarantees include indemnities to the customers of the subsidiaries in connection with the sales of their packaging and aerospace products and services; guarantees to suppliers of subsidiaries of the company guaranteeing the performance of the respective entity under a purchase agreement or other agreement, construction contract or other commitment; guarantees in respect of certain foreign subsidiaries’ pension plans; indemnities for liabilities associated with the infringement of third-party patents, trademarks or copyrights under various types of agreements; indemnities to various lessors in connection with facility, equipment, furniture and other personal property leases for certain claims arising from such leases; indemnities to governmental agencies in connection with the issuance of a permit or license to the company or a subsidiary; indemnities pursuant to agreements relating to certain joint ventures; indemnities in connection with the sale of businesses or substantially all of the assets and specified liabilities of businesses; and indemnities to directors, officers and employees of the company to the extent permitted under the laws of the State of Indiana and the United States of America. The duration of these indemnities, commitments and guarantees varies and, in certain cases, is indefinite.
In addition, many of these indemnities, commitments and guarantees do not provide for any limitation on the maximum potential future payments the company could be obligated to make. As such, the company is unable to reasonably estimate its potential exposure under these items.
Other than the indemnifications provided in connection with the sale of the Divestment Business,Rexam acquisition, the company has not recorded any material liabilities for these indemnities, commitments and guarantees in the accompanying consolidated balance sheets. The company does, however, accrue for payments under promissory notes and other evidences of incurred indebtedness and for losses for any known contingent liability, including those that may arise from indemnifications, commitments and guarantees, when future payment is both reasonably estimable and probable. Finally, the company carries specific and general liability insurance policies and has obtained indemnities, commitments and guarantees from third-party purchasers, sellers and other contracting parties, which the company believes would, in certain circumstances, provide recourse to anycertain claims arising from these indemnifications, commitments and guarantees.
39
33
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
Debt Guarantees
The company’s and its subsidiaries’ obligations under the senior notes and senior credit facilities (or, in the case of U.S. domiciled foreign subsidiaries under the senior credit facilities, the obligations of foreign credit parties only) are guaranteed on a full, unconditional and joint and several basis by certain of the company’s domestic subsidiaries and the domestic subsidiary borrowers, and obligations of other guarantors and the subsidiary borrowers under the senior credit facilities are guaranteed by the company, in each case with certain exceptions and subject to grace periods.exceptions. These guarantees are required in support of the senior notes and senior credit facilities referred to above, are coterminous with the terms of the respective note indentures, senior notes and credit agreement and could be enforced by the holders of the obligations thereunder during the continuation of an event of default under the note indentures, the senior notes and/or the credit agreement or any other loan document in respect thereof.agreement. The maximum potential amounts which could be required to be paid under such guarantees are essentially equal to the then outstanding obligations under the respective senior notes or the credit agreement (or, in the case of U.S. domiciled foreign subsidiaries under the senior credit facilities, the obligations of foreign credit parties only), with certain exceptions. All obligations under the guarantees of the senior credit facilities are secured, with certain exceptions, and subject to certain grace periods, by a valid first priority perfected lien or pledge on (i) 100 percent of the capital stock of each of the company's material wholly owned domestic subsidiaries directly owned by the company or any of its wholly owned domestic subsidiaries and (ii) 65 percent of the capital stock of each of the company's material wholly owned first-tier foreign subsidiaries directly owned by the company or any of its wholly owned domestic subsidiaries. In addition, the obligations of certain foreign borrowers and foreign pledgors under the loan documents will be secured, with certain exceptions, and subject to certain grace periods, by a valid first priority perfected lien or pledge on 100 percent of the capital stock of certain of the company's material wholly owned foreign subsidiaries and material wholly owned U.S. domiciled foreign subsidiaries directly owned by the company or any of its wholly owned material subsidiaries. The company is not in default under the above senior notes or senior credit facilities. The required condensed consolidating financial information for the guarantor and non-guarantor subsidiaries is presented in Note 22.23. Separate financial statements for the guarantor subsidiaries and the non-guarantor subsidiaries are not presented because management has determined that such financial statements are not required under the Securities and Exchange Commission (SEC) regulations.
22.23. Subsidiary Guarantees of Debt
The following unaudited condensed consolidating financial information is presented in accordance with SEC Regulations S‑XS-X Rule 3-10, Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered. For purposes of the presentation of unaudited condensed consolidating financial information, the subsidiaries of the company providing the guarantees are referred to as the guarantor subsidiaries, and subsidiaries of the company other than the guarantor subsidiaries are referred to as the non-guarantor subsidiaries. The eliminating adjustments substantively consist of intercompany transactions and the elimination of equity investments and earnings of subsidiaries. Separate financial statements for the guarantor subsidiaries and the non-guarantor subsidiaries are not presented because management has determined that such financial statements are not required under SEC regulations.
The company’s senior notes are guaranteed on a full and unconditional, guarantee joint and several basis by certain domestic subsidiaries of the company. Each of the guarantor subsidiaries is 100 percent owned by the company. As described in the supplemental indentures governing the company’s existing senior notes, the senior notes are guaranteed by any of the company’s domestic subsidiaries that guarantee any other indebtedness of the company. The following is unaudited condensed consolidating financial information for the company, segregating the guarantor subsidiaries and non-guarantor subsidiaries, as of September 30, 2018,2019, and December 31, 2017,2018, and for the three and nine months ended September 30, 20182019 and 2017. The information for the three and nine months ended September 30, 2017, has been retrospectively adjusted to reflect the addition of three new subsidiary guarantors of the company’s debt obligations in March 2018, and for ownership transfers of group companies from a non-guarantor subsidiary to the parent. In addition, as a result of the July 31, 2018, sale of the U.S. steel food and steel aerosol business, certain guarantor subsidiaries ceased to be guarantors of Ball’s debt obligations.2018. The unaudited condensed consolidating financial information presented below is not necessarily indicative of the financial position, results of operations, earnings or cash flows of the company or any of the company’s subsidiaries on a stand-alone basis.
40
34
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
| | | | | | | | | | | | | | | | |
| | Unaudited Condensed Consolidating Statement of Earnings | | |||||||||||||
| | Three Months Ended September 30, 2019 | | |||||||||||||
($ in millions) |
| Ball |
| Guarantor |
| Non-Guarantor |
| Eliminating |
| Consolidated |
| |||||
| | | | | | | | | | | | | | | | |
Net sales |
| $ | — | | $ | 1,680 | | $ | 1,480 | | $ | (207) | | $ | 2,953 | |
| | | | | | | | | | | | | | | | |
Cost and expenses | | | | | | | | | | | | | | | | |
Cost of sales (excluding depreciation and amortization) | | | — | | | (1,443) | | | (1,127) | | | 207 | | | (2,363) | |
Depreciation and amortization | | | (2) | | | (51) | | | (116) | | | — | | | (169) | |
Selling, general and administrative | | | 41 | | | (84) | | | (47) | | | — | | | (90) | |
Business consolidation and other activities | | | (7) | | | (2) | | | (124) | | | — | | | (133) | |
Equity in results of subsidiaries | | | 80 | | | (37) | | | — | | | (43) | | | — | |
Intercompany | | | 49 | | | (24) | | | (25) | | | — | | | — | |
| | | 161 | | | (1,641) | | | (1,439) | | | 164 | | | (2,755) | |
| | | | | | | | | | | | | | | | |
Earnings (loss) before interest and taxes | | | 161 | | | 39 | | | 41 | | | (43) | | | 198 | |
Interest expense | | | (80) | | | 1 | | | — | | | — | | | (79) | |
Debt refinancing and other costs | | | — | | | — | | | — | | | — | | | — | |
Total interest expense | | | (80) | | | 1 | | | — | | | — | | | (79) | |
Earnings (loss) before taxes | | | 81 | | | 40 | | | 41 | | | (43) | | | 119 | |
Tax (provision) benefit | | | 11 | | | (13) | | | (30) | | | — | | | (32) | |
Equity in results of affiliates, net of tax | | | — | | | 1 | | | 4 | | | — | | | 5 | |
Net earnings (loss) | | | 92 | | | 28 | | | 15 | | | (43) | | | 92 | |
Less net earnings attributable to noncontrolling interests | | | — | | | — | | | — | | | — | | | — | |
Net earnings (loss) attributable to Ball Corporation | | $ | 92 | | $ | 28 | | $ | 15 | | $ | (43) | | $ | 92 | |
| | | | | | | | | | | | | | | | |
Comprehensive earnings (loss) attributable to Ball Corporation | | $ | 173 | | $ | 84 | | $ | 89 | | $ | (173) | | $ | 173 | |
35
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| Unaudited Condensed Consolidating Statement of Earnings |
| |||||||||||||
|
| Three Months Ended September 30, 2018 |
| |||||||||||||
($ in millions) |
| Ball |
| Guarantor |
| Non-Guarantor |
| Eliminating |
| Consolidated |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | — |
| $ | 1,666 |
| $ | 1,481 |
| $ | (201) |
| $ | 2,946 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (excluding depreciation and amortization) |
|
| — |
|
| (1,405) |
|
| (1,158) |
|
| 201 |
|
| (2,362) |
|
Depreciation and amortization |
|
| (1) |
|
| (49) |
|
| (121) |
|
| — |
|
| (171) |
|
Selling, general and administrative |
|
| (244) |
|
| 179 |
|
| (48) |
|
| — |
|
| (113) |
|
Business consolidation and other activities |
|
| (53) |
|
| 13 |
|
| 8 |
|
| — |
|
| (32) |
|
Equity in results of subsidiaries |
|
| 369 |
|
| 8 |
|
| — |
|
| (377) |
|
| — |
|
Intercompany |
|
| 52 |
|
| (6) |
|
| (46) |
|
| — |
|
| — |
|
|
|
| 123 |
|
| (1,260) |
|
| (1,365) |
|
| (176) |
|
| (2,678) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before interest and taxes |
|
| 123 |
|
| 406 |
|
| 116 |
|
| (377) |
|
| 268 |
|
Interest expense |
|
| (79) |
|
| 3 |
|
| — |
|
| — |
|
| (76) |
|
Debt refinancing and other costs |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
Total interest expense |
|
| (79) |
|
| 3 |
|
| — |
|
| — |
|
| (76) |
|
Earnings (loss) before taxes |
|
| 44 |
|
| 409 |
|
| 116 |
|
| (377) |
|
| 192 |
|
Tax (provision) benefit |
|
| 15 |
|
| (103) |
|
| (52) |
|
| — |
|
| (140) |
|
Equity in results of affiliates, net of tax |
|
| — |
|
| 3 |
|
| 4 |
|
| — |
|
| 7 |
|
Net earnings (loss) |
|
| 59 |
|
| 309 |
|
| 68 |
|
| (377) |
|
| 59 |
|
Less net earnings attributable to noncontrolling interests |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
Net earnings (loss) attributable to Ball Corporation |
| $ | 59 |
| $ | 309 |
| $ | 68 |
| $ | (377) |
| $ | 59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive earnings (loss) attributable to Ball Corporation |
| $ | 26 |
| $ | 313 |
| $ | 8 |
| $ | (321) |
| $ | 26 |
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Unaudited Condensed Consolidating Statement of Earnings |
| |||||||||||||
|
| Three Months Ended September 30, 2017 |
| |||||||||||||
($ in millions) |
| Ball |
| Guarantor |
| Non-Guarantor |
| Eliminating |
| Consolidated |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | — |
| $ | 1,448 |
| $ | 1,480 |
| $ | (20) |
| $ | 2,908 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (excluding depreciation and amortization) |
|
| — |
|
| (1,198) |
|
| (1,160) |
|
| 20 |
|
| (2,338) |
|
Depreciation and amortization |
|
| (1) |
|
| (52) |
|
| (109) |
|
| — |
|
| (162) |
|
Selling, general and administrative |
|
| (41) |
|
| (39) |
|
| (47) |
|
| — |
|
| (127) |
|
Business consolidation and other activities |
|
| (18) |
|
| (70) |
|
| (69) |
|
| — |
|
| (157) |
|
Equity in results of subsidiaries |
|
| 72 |
|
| (30) |
|
| — |
|
| (42) |
|
| — |
|
Intercompany |
|
| 79 |
|
| (41) |
|
| (38) |
|
| — |
|
| — |
|
|
|
| 91 |
|
| (1,430) |
|
| (1,423) |
|
| (22) |
|
| (2,784) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before interest and taxes |
|
| 91 |
|
| 18 |
|
| 57 |
|
| (42) |
|
| 124 |
|
Interest expense |
|
| (71) |
|
| 2 |
|
| (5) |
|
| — |
|
| (74) |
|
Debt refinancing and other costs |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
Total interest expense |
|
| (71) |
|
| 2 |
|
| (5) |
|
| — |
|
| (74) |
|
Earnings (loss) before taxes |
|
| 20 |
|
| 20 |
|
| 52 |
|
| (42) |
|
| 50 |
|
Tax (provision) benefit |
|
| 28 |
|
| (9) |
|
| (23) |
|
| — |
|
| (4) |
|
Equity in results of affiliates, net of tax |
|
| — |
|
| 2 |
|
| 3 |
|
| — |
|
| 5 |
|
Net earnings (loss) |
|
| 48 |
|
| 13 |
|
| 32 |
|
| (42) |
|
| 51 |
|
Less net earnings attributable to noncontrolling interests |
|
| — |
|
| — |
|
| (3) |
|
| — |
|
| (3) |
|
Net earnings (loss) attributable to Ball Corporation |
| $ | 48 |
| $ | 13 |
| $ | 29 |
| $ | (42) |
| $ | 48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive earnings (loss) attributable to Ball Corporation |
| $ | 42 |
| $ | 12 |
| $ | 21 |
| $ | (33) |
| $ | 42 |
|
| | | | | | | | | | | | | | | | |
| | Unaudited Condensed Consolidating Statement of Earnings | | |||||||||||||
| | Three Months Ended September 30, 2018 | | |||||||||||||
($ in millions) |
| Ball |
| Guarantor |
| Non-Guarantor |
| Eliminating |
| Consolidated |
| |||||
| | | | | | | | | | | | | | | | |
Net sales |
| $ | — | | $ | 1,666 | | $ | 1,481 | | $ | (201) | | $ | 2,946 | |
| | | | | | | | | | | | | | | | |
Cost and expenses | | | | | | | | | | | | | | | | |
Cost of sales (excluding depreciation and amortization) | | | — | | | (1,405) | | | (1,158) | | | 201 | | | (2,362) | |
Depreciation and amortization | | | (1) | | | (49) | | | (121) | | | — | | | (171) | |
Selling, general and administrative | | | (244) | | | 179 | | | (48) | | | — | | | (113) | |
Business consolidation and other activities | | | (53) | | | 13 | | | 8 | | | — | | | (32) | |
Equity in results of subsidiaries | | | 369 | | | 8 | | | — | | | (377) | | | — | |
Intercompany | | | 52 | | | (6) | | | (46) | | | — | | | — | |
| | | 123 | | | (1,260) | | | (1,365) | | | (176) | | | (2,678) | |
| | | | | | | | | | | | | | | | |
Earnings (loss) before interest and taxes | | | 123 | | | 406 | | | 116 | | | (377) | | | 268 | |
Interest expense | | | (79) | | | 3 | | | — | | | — | | | (76) | |
Debt refinancing and other costs | | | — | | | — | | | — | | | — | | | — | |
Total interest expense | | | (79) | | | 3 | | | — | | | — | | | (76) | |
Earnings (loss) before taxes | | | 44 | | | 409 | | | 116 | | | (377) | | | 192 | |
Tax (provision) benefit | | | 15 | | | (103) | | | (52) | | | — | | | (140) | |
Equity in results of affiliates, net of tax | | | — | | | 3 | | | 4 | | | — | | | 7 | |
Net earnings (loss) | | | 59 | | | 309 | | | 68 | | | (377) | | | 59 | |
Less net earnings attributable to noncontrolling interests | | | — | | | — | | | — | | | — | | | — | |
Net earnings (loss) attributable to Ball Corporation | | $ | 59 | | $ | 309 | | $ | 68 | | $ | (377) | | $ | 59 | |
| | | | | | | | | | | | | | | | |
Comprehensive earnings (loss) attributable to Ball Corporation | | $ | 26 | | $ | 313 | | $ | 8 | | $ | (321) | | $ | 26 | |
36
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
| | | | | | | | | | | | | | | | |
| | Unaudited Condensed Consolidating Statement of Earnings | | |||||||||||||
| | For the Nine Months Ended September 30, 2019 | | |||||||||||||
($ in millions) |
| Ball |
| Guarantor |
| Non-Guarantor Subsidiaries |
| Eliminating |
| Consolidated |
| |||||
| | | | | | | | | | | | | | | | |
Net sales |
| $ | — | | $ | 4,966 | | $ | 4,408 | | $ | (619) |
| $ | 8,755 | |
| | | | | | | | | | | | | | | | |
Cost and expenses | | | | | | | | | | | | | | | | |
Cost of sales (excluding depreciation and amortization) | | | — | | | (4,295) | | | (3,368) | | | 619 | | | (7,044) | |
Depreciation and amortization | | | (4) | | | (150) | | | (356) | | | — | | | (510) | |
Selling, general and administrative | | | (20) | | | (172) | | | (136) | | | — | | | (328) | |
Business consolidation and other activities | | | (23) | | | (9) | | | (115) | | | — | | | (147) | |
Equity in results of subsidiaries | | | 467 | | | 108 | | | — | | | (575) | | | — | |
Intercompany | | | 176 | | | (88) | | | (88) | | | — | | | — | |
| | | 596 | | | (4,606) | | | (4,063) | | | 44 | | | (8,029) | |
| | | | | | | | | | | | | | | | |
Earnings (loss) before interest and taxes | | | 596 | | | 360 | | | 345 | | | (575) | | | 726 | |
Interest expense | | | (240) | | | 4 | | | (1) | | | — | | | (237) | |
Debt refinancing and other costs | | | (4) | | | — | | | — | | | — | | | (4) | |
Total interest expense | | | (244) | | | 4 | | | (1) | | | — | | | (241) | |
Earnings (loss) before taxes | | | 352 | | | 364 | | | 344 | | | (575) | | | 485 | |
Tax (provision) benefit | | | 54 | | | (52) | | | (75) | | | — | | | (73) | |
Equity in results of affiliates, net of tax | | | — | | | (12) | | | 6 | | | — | | | (6) | |
Net earnings | | | 406 | | | 300 | | | 275 | | | (575) | | | 406 | |
Less net earnings attributable to noncontrolling interests | | | — | | | — | | | — | | | — | | | — | |
Net earnings attributable to Ball Corporation | | $ | 406 | | $ | 300 | | $ | 275 | | $ | (575) | | $ | 406 | |
| | | | | | | | | | | | | | | | |
Comprehensive earnings (loss) attributable to Ball Corporation | | $ | 604 | | $ | 506 | | $ | 442 | | $ | (948) | | $ | 604 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Condensed Consolidating Statement of Earnings |
| |||||||||||||
|
| For the Nine Months Ended September 30, 2018 |
| |||||||||||||
($ in millions) |
| Ball |
| Guarantor |
| Non-Guarantor Subsidiaries |
| Eliminating |
| Consolidated |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | — |
| $ | 5,003 |
| $ | 4,428 |
| $ | (599) |
| $ | 8,832 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (excluding depreciation and amortization) |
|
| — |
|
| (4,235) |
|
| (3,447) |
|
| 599 |
|
| (7,083) |
|
Depreciation and amortization |
|
| (4) |
|
| (153) |
|
| (372) |
|
| — |
|
| (529) |
|
Selling, general and administrative |
|
| (278) |
|
| 65 |
|
| (139) |
|
| — |
|
| (352) |
|
Business consolidation and other activities |
|
| (70) |
|
| (41) |
|
| (20) |
|
| — |
|
| (131) |
|
Equity in results of subsidiaries |
|
| 634 |
|
| 61 |
|
| — |
|
| (695) |
|
| — |
|
Intercompany |
|
| 228 |
|
| (158) |
|
| (70) |
|
| — |
|
| — |
|
|
|
| 510 |
|
| (4,461) |
|
| (4,048) |
|
| (96) |
|
| (8,095) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before interest and taxes |
|
| 510 |
|
| 542 |
|
| 380 |
|
| (695) |
|
| 737 |
|
Interest expense |
|
| (235) |
|
| 10 |
|
| (1) |
|
| — |
|
| (226) |
|
Debt refinancing and other costs |
|
| (1) |
|
| — |
|
| — |
|
| — |
|
| (1) |
|
Total interest expense |
|
| (236) |
|
| 10 |
|
| (1) |
|
| — |
|
| (227) |
|
Earnings (loss) before taxes |
|
| 274 |
|
| 552 |
|
| 379 |
|
| (695) |
|
| 510 |
|
Tax (provision) benefit |
|
| 29 |
|
| (135) |
|
| (114) |
|
| — |
|
| (220) |
|
Equity in results of affiliates, net of tax |
|
| — |
|
| 1 |
|
| 13 |
|
| — |
|
| 14 |
|
Net earnings |
|
| 303 |
|
| 418 |
|
| 278 |
|
| (695) |
|
| 304 |
|
Less net earnings attributable to noncontrolling interests |
|
| — |
|
| — |
|
| (1) |
|
| — |
|
| (1) |
|
Net earnings attributable to Ball Corporation |
| $ | 303 |
| $ | 418 |
| $ | 277 |
| $ | (695) |
| $ | 303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive earnings (loss) attributable to Ball Corporation |
| $ | 159 |
| $ | 309 |
| $ | 105 |
| $ | (414) |
| $ | 159 |
|
43
37
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Condensed Consolidating Statement of Earnings |
| |||||||||||||
|
| For the Nine Months Ended September 30, 2017 | ||||||||||||||
($ in millions) |
| Ball |
| Guarantor |
| Non-Guarantor Subsidiaries |
| Eliminating |
| Consolidated |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | — |
| $ | 4,227 |
| $ | 4,099 |
| $ | (90) |
| $ | 8,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (excluding depreciation and amortization) |
|
| — |
|
| (3,514) |
|
| (3,159) |
|
| 90 |
|
| (6,583) |
|
Depreciation and amortization |
|
| (5) |
|
| (153) |
|
| (381) |
|
| — |
|
| (539) |
|
Selling, general and administrative |
|
| (141) |
|
| (115) |
|
| (142) |
|
| — |
|
| (398) |
|
Business consolidation and other activities |
|
| (82) |
|
| (76) |
|
| (95) |
|
| — |
|
| (253) |
|
Equity in results of subsidiaries |
|
| 343 |
|
| (19) |
|
| — |
|
| (324) |
|
| — |
|
Intercompany |
|
| 241 |
|
| (124) |
|
| (117) |
|
| — |
|
| — |
|
|
|
| 356 |
|
| (4,001) |
|
| (3,894) |
|
| (234) |
|
| (7,773) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before interest and taxes |
|
| 356 |
|
| 226 |
|
| 205 |
|
| (324) |
|
| 463 |
|
Interest expense |
|
| (205) |
|
| 4 |
|
| (15) |
|
| — |
|
| (216) |
|
Debt refinancing and other costs |
|
| — |
|
| — |
|
| (1) |
|
| — |
|
| (1) |
|
Total interest expense |
|
| (205) |
|
| 4 |
|
| (16) |
|
| — |
|
| (217) |
|
Earnings (loss) before taxes |
|
| 151 |
|
| 230 |
|
| 189 |
|
| (324) |
|
| 246 |
|
Tax (provision) benefit |
|
| 64 |
|
| (72) |
|
| (40) |
|
| — |
|
| (48) |
|
Equity in results of affiliates, net of tax |
|
| — |
|
| 11 |
|
| 12 |
|
| — |
|
| 23 |
|
Net earnings |
|
| 215 |
|
| 169 |
|
| 161 |
|
| (324) |
|
| 221 |
|
Less net earnings attributable to noncontrolling interests |
|
| — |
|
| — |
|
| (6) |
|
| — |
|
| (6) |
|
Net earnings attributable to Ball Corporation |
| $ | 215 |
| $ | 169 |
| $ | 155 |
| $ | (324) |
| $ | 215 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive earnings (loss) attributable to Ball Corporation |
| $ | 231 |
| $ | 165 |
| $ | 122 |
| $ | (287) |
| $ | 231 |
|
| | | | | | | | | | | | | | | | |
| | Unaudited Condensed Consolidating Statement of Earnings | | |||||||||||||
| | For the Nine Months Ended September 30, 2018 | ||||||||||||||
($ in millions) |
| Ball |
| Guarantor |
| Non-Guarantor Subsidiaries |
| Eliminating |
| Consolidated |
| |||||
| | | | | | | | | | | | | | | | |
Net sales |
| $ | — | | $ | 5,003 | | $ | 4,428 | | $ | (599) |
| $ | 8,832 |
|
| | | | | | | | | | | | | | | | |
Cost and expenses | | | | | | | | | | | | | | | | |
Cost of sales (excluding depreciation and amortization) | | | — | | | (4,235) | | | (3,447) | | | 599 | | | (7,083) | |
Depreciation and amortization | | | (4) | | | (153) | | | (372) | | | — | | | (529) | |
Selling, general and administrative | | | (278) | | | 65 | | | (139) | | | — | | | (352) | |
Business consolidation and other activities | | | (70) | | | (41) | | | (20) | | | — | | | (131) | |
Equity in results of subsidiaries | | | 634 | | | 61 | | | — | | | (695) | | | — | |
Intercompany | | | 228 | | | (158) | | | (70) | | | — | | | — | |
| | | 510 | | | (4,461) | | | (4,048) | | | (96) | | | (8,095) | |
| | | | | | | | | | | | | | | | |
Earnings (loss) before interest and taxes | | | 510 | | | 542 | | | 380 | | | (695) | | | 737 | |
Interest expense | | | (235) | | | 10 | | | (1) | | | — | | | (226) | |
Debt refinancing and other costs | | | (1) | | | — | | | — | | | — | | | (1) | |
Total interest expense | | | (236) | | | 10 | | | (1) | | | — | | | (227) | |
Earnings (loss) before taxes | | | 274 | | | 552 | | | 379 | | | (695) | | | 510 | |
Tax (provision) benefit | | | 29 | | | (135) | | | (114) | | | — | | | (220) | |
Equity in results of affiliates, net of tax | | | — | | | 1 | | | 13 | | | — | | | 14 | |
Net earnings | | | 303 | | | 418 | | | 278 | | | (695) | | | 304 | |
Less net earnings attributable to noncontrolling interests | | | — | | | — | | | (1) | | | — | | | (1) | |
Net earnings attributable to Ball Corporation | | $ | 303 | | $ | 418 | | $ | 277 | | $ | (695) | | $ | 303 | |
| | | | | | | | | | | | | | | | |
Comprehensive earnings (loss) attributable to Ball Corporation | | $ | 159 | | $ | 309 | | $ | 105 | | $ | (414) | | $ | 159 | |
44
38
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Condensed Consolidating Balance Sheet |
| |||||||||||||
|
| September 30, 2018 |
| |||||||||||||
($ in millions) |
| Ball |
| Guarantor |
| Non-Guarantor |
| Eliminating |
| Consolidated |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 5 |
| $ | — |
| $ | 593 |
| $ | — |
| $ | 598 |
|
Receivables, net |
|
| 23 |
|
| 522 |
|
| 1,327 |
|
| — |
|
| 1,872 |
|
Intercompany receivables |
|
| 71 |
|
| 529 |
|
| 1,690 |
|
| (2,290) |
|
| — |
|
Inventories, net |
|
| — |
|
| 469 |
|
| 774 |
|
| — |
|
| 1,243 |
|
Other current assets |
|
| 33 |
|
| 32 |
|
| 82 |
|
| — |
|
| 147 |
|
Total current assets |
|
| 132 |
|
| 1,552 |
|
| 4,466 |
|
| (2,290) |
|
| 3,860 |
|
Noncurrent assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
| 19 |
|
| 1,358 |
|
| 3,131 |
|
| — |
|
| 4,508 |
|
Investment in subsidiaries |
|
| 10,917 |
|
| 3,772 |
|
| (100) |
|
| (14,589) |
|
| — |
|
Goodwill |
|
| — |
|
| 1,190 |
|
| 3,307 |
|
| — |
|
| 4,497 |
|
Intangible assets, net |
|
| 17 |
|
| 417 |
|
| 1,813 |
|
| — |
|
| 2,247 |
|
Other assets |
|
| 186 |
|
| 216 |
|
| 956 |
|
| — |
|
| 1,358 |
|
Total assets |
| $ | 11,271 |
| $ | 8,505 |
| $ | 13,573 |
| $ | (16,879) |
| $ | 16,470 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders' Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt and current portion of long-term debt |
| $ | 108 |
| $ | — |
| $ | 42 |
| $ | — |
| $ | 150 |
|
Accounts payable |
|
| 48 |
|
| 1,000 |
|
| 1,905 |
|
| — |
|
| 2,953 |
|
Intercompany payables |
|
| 2,314 |
|
| 86 |
|
| 495 |
|
| (2,895) |
|
| — |
|
Accrued employee costs |
|
| 21 |
|
| 139 |
|
| 100 |
|
| — |
|
| 260 |
|
Other current liabilities |
|
| 95 |
|
| 126 |
|
| 229 |
|
| — |
|
| 450 |
|
Total current liabilities |
|
| 2,586 |
|
| 1,351 |
|
| 2,771 |
|
| (2,895) |
|
| 3,813 |
|
Noncurrent liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
| 6,515 |
|
| — |
|
| 8 |
|
| — |
|
| 6,523 |
|
Employee benefit obligations |
|
| 654 |
|
| 468 |
|
| 299 |
|
| — |
|
| 1,421 |
|
Intercompany long-term notes |
|
| (2,128) |
|
| 41 |
|
| 1,481 |
|
| 606 |
|
| — |
|
Deferred taxes |
|
| (106) |
|
| 108 |
|
| 670 |
|
| — |
|
| 672 |
|
Other liabilities |
|
| 110 |
|
| 47 |
|
| 139 |
|
| — |
|
| 296 |
|
Total liabilities |
|
| 7,631 |
|
| 2,015 |
|
| 5,368 |
|
| (2,289) |
|
| 12,725 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
| 1,142 |
|
| 2,523 |
|
| 5,310 |
|
| (7,833) |
|
| 1,142 |
|
Preferred stock |
|
| — |
|
| — |
|
| 5 |
|
| (5) |
|
| — |
|
Retained earnings |
|
| 5,224 |
|
| 4,651 |
|
| 3,231 |
|
| (7,882) |
|
| 5,224 |
|
Accumulated other comprehensive earnings (loss) |
|
| (800) |
|
| (684) |
|
| (446) |
|
| 1,130 |
|
| (800) |
|
Treasury stock, at cost |
|
| (1,926) |
|
| — |
|
| — |
|
| — |
|
| (1,926) |
|
Total Ball Corporation shareholders' equity |
|
| 3,640 |
|
| 6,490 |
|
| 8,100 |
|
| (14,590) |
|
| 3,640 |
|
Noncontrolling interests |
|
| — |
|
| — |
|
| 105 |
|
| — |
|
| 105 |
|
Total shareholders' equity |
|
| 3,640 |
|
| 6,490 |
|
| 8,205 |
|
| (14,590) |
|
| 3,745 |
|
Total liabilities and shareholders' equity |
| $ | 11,271 |
| $ | 8,505 |
| $ | 13,573 |
| $ | (16,879) |
| $ | 16,470 |
|
| | | | | | | | | | | | | | | | |
| | Unaudited Condensed Consolidating Balance Sheet | | |||||||||||||
| | September 30, 2019 | | |||||||||||||
($ in millions) |
| Ball |
| Guarantor |
| Non-Guarantor |
| Eliminating |
| Consolidated |
| |||||
| | | | | | | | | | | | | | | | |
Assets | | | | | | | | | | | | | | | | |
Current assets | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 7 | | $ | — | | $ | 476 | | $ | — | | $ | 483 | |
Receivables, net | | | 9 | | | 594 | | | 1,354 | | | — | | | 1,957 | |
Intercompany receivables | | | 103 | | | 237 | | | 1,711 | | | (2,051) | | | — | |
Inventories, net | | | — | | | 506 | | | 674 | | | — | | | 1,180 | |
Other current assets | | | 37 | | | 39 | | | 133 | | | — | | | 209 | |
Total current assets | | | 156 | | | 1,376 | | | 4,348 | | | (2,051) | | | 3,829 | |
Noncurrent assets | | | | | | | | | | | | | | | | |
Property, plant and equipment, net | | | 34 | | | 1,403 | | | 2,883 | | | — | | | 4,320 | |
Investment in subsidiaries | | | 11,678 | | | 2,589 | | | (99) | | | (14,168) | | | — | |
Goodwill | | | — | | | 1,191 | | | 3,180 | | | — | | | 4,371 | |
Intangible assets, net | | | 18 | | | 383 | | | 1,626 | | | — | | | 2,027 | |
Other assets | | | 315 | | | 299 | | | 1,076 | | | — | | | 1,690 | |
Total assets | | $ | 12,201 | | $ | 7,241 | | $ | 13,014 | | $ | (16,219) | | $ | 16,237 | |
| | | | | | | | | | | | | | | | |
Liabilities and Equity | | | | | | | | | | | | | | | | |
Current liabilities | | | | | | | | | | | | | | | | |
Short-term debt and current portion of long-term debt | | $ | 239 | | $ | — | | $ | 122 | | $ | — | | $ | 361 | |
Accounts payable | | | 17 | | | 949 | | | 1,692 | | | — | | | 2,658 | |
Intercompany payables | | | 2,379 | | | 123 | | | 156 | | | (2,658) | | | — | |
Accrued employee costs | | | 49 | | | 119 | | | 88 | | | — | | | 256 | |
Other current liabilities | | | 136 | | | 142 | | | 220 | | | — | | | 498 | |
Total current liabilities | | | 2,820 | | | 1,333 | | | 2,278 | | | (2,658) | | | 3,773 | |
Noncurrent liabilities | | | | | | | | | | | | | | | | |
Long-term debt | | | 6,620 | | | — | | | 3 | | | — | | | 6,623 | |
Employee benefit obligations | | | 822 | | | 293 | | | 268 | | | — | | | 1,383 | |
Intercompany long-term notes | | | (1,263) | | | (1,764) | | | 2,420 | | | 607 | | | — | |
Deferred taxes | | | (247) | | | 247 | | | 602 | | | — | | | 602 | |
Long-term deferred tax and other liabilities | | | 84 | | | 128 | | | 179 | | | — | | | 391 | |
Total liabilities | | | 8,836 | | | 237 | | | 5,750 | | | (2,051) | | | 12,772 | |
| | | | | | | | | | | | | | | | |
Common stock | | | 1,177 | | | 2,523 | | | 3,900 | | | (6,423) | | | 1,177 | |
Preferred stock | | | — | | | — | | | 5 | | | (5) | | | — | |
Retained earnings | | | 5,694 | | | 4,939 | | | 3,553 | | | (8,492) | | | 5,694 | |
Accumulated other comprehensive earnings (loss) | | | (716) | | | (458) | | | (294) | | | 752 | | | (716) | |
Treasury stock, at cost | | | (2,790) | | | — | | | — | | | — | | | (2,790) | |
Total Ball Corporation equity | | | 3,365 | | | 7,004 | | | 7,164 | | | (14,168) | | | 3,365 | |
Noncontrolling interests | | | — | | | — | | | 100 | | | — | | | 100 | |
Total equity | | | 3,365 | | | 7,004 | | | 7,264 | | | (14,168) | | | 3,465 | |
Total liabilities and equity | | $ | 12,201 | | $ | 7,241 | | $ | 13,014 | | $ | (16,219) | | $ | 16,237 | |
45
39
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Condensed Consolidating Balance Sheet |
| |||||||||||||
|
| December 31, 2017 |
| |||||||||||||
($ in millions) |
| Ball |
| Guarantor |
| Non-Guarantor |
| Eliminating |
| Consolidated |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 5 |
| $ | — |
| $ | 443 |
| $ | — |
| $ | 448 |
|
Receivables, net |
|
| 3 |
|
| 260 |
|
| 1,371 |
|
| — |
|
| 1,634 |
|
Intercompany receivables |
|
| 39 |
|
| 1,285 |
|
| 102 |
|
| (1,426) |
|
| — |
|
Inventories, net |
|
| — |
|
| 673 |
|
| 853 |
|
| — |
|
| 1,526 |
|
Other current assets |
|
| 9 |
|
| 52 |
|
| 89 |
|
| — |
|
| 150 |
|
Total current assets |
|
| 56 |
|
| 2,270 |
|
| 2,858 |
|
| (1,426) |
|
| 3,758 |
|
Noncurrent assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
| 20 |
|
| 1,364 |
|
| 3,226 |
|
| — |
|
| 4,610 |
|
Investment in subsidiaries |
|
| 8,639 |
|
| 3,885 |
|
| 470 |
|
| (12,994) |
|
| — |
|
Goodwill |
|
| — |
|
| 1,545 |
|
| 3,388 |
|
| — |
|
| 4,933 |
|
Intangible assets, net |
|
| 15 |
|
| 470 |
|
| 1,977 |
|
| — |
|
| 2,462 |
|
Other assets |
|
| 185 |
|
| 282 |
|
| 939 |
|
| — |
|
| 1,406 |
|
Total assets |
| $ | 8,915 |
| $ | 9,816 |
| $ | 12,858 |
| $ | (14,420) |
| $ | 17,169 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders' Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt and current portion of long-term debt |
| $ | 351 |
| $ | — |
| $ | 102 |
| $ | — |
| $ | 453 |
|
Accounts payable |
|
| 14 |
|
| 1,084 |
|
| 1,664 |
|
| — |
|
| 2,762 |
|
Intercompany payables |
|
| 705 |
|
| 82 |
|
| 639 |
|
| (1,426) |
|
| — |
|
Accrued employee costs |
|
| 28 |
|
| 182 |
|
| 142 |
|
| — |
|
| 352 |
|
Other current liabilities |
|
| 170 |
|
| 111 |
|
| 259 |
|
| — |
|
| 540 |
|
Total current liabilities |
|
| 1,268 |
|
| 1,459 |
|
| 2,806 |
|
| (1,426) |
|
| 4,107 |
|
Noncurrent liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
| 6,504 |
|
| — |
|
| 14 |
|
| — |
|
| 6,518 |
|
Employee benefit obligations |
|
| 333 |
|
| 811 |
|
| 319 |
|
| — |
|
| 1,463 |
|
Intercompany long-term notes |
|
| (3,172) |
|
| 1,305 |
|
| 1,867 |
|
| — |
|
| — |
|
Deferred taxes |
|
| (109) |
|
| 107 |
|
| 697 |
|
| — |
|
| 695 |
|
Other liabilities |
|
| 150 |
|
| 50 |
|
| 140 |
|
| — |
|
| 340 |
|
Total liabilities |
|
| 4,974 |
|
| 3,732 |
|
| 5,843 |
|
| (1,426) |
|
| 13,123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
| 1,084 |
|
| 2,463 |
|
| 4,286 |
|
| (6,749) |
|
| 1,084 |
|
Preferred stock |
|
| — |
|
| — |
|
| 5 |
|
| (5) |
|
| — |
|
Retained earnings |
|
| 4,987 |
|
| 4,196 |
|
| 2,893 |
|
| (7,089) |
|
| 4,987 |
|
Accumulated other comprehensive earnings (loss) |
|
| (656) |
|
| (575) |
|
| (274) |
|
| 849 |
|
| (656) |
|
Treasury stock, at cost |
|
| (1,474) |
|
| — |
|
| — |
|
| — |
|
| (1,474) |
|
Total Ball Corporation shareholders' equity |
|
| 3,941 |
|
| 6,084 |
|
| 6,910 |
|
| (12,994) |
|
| 3,941 |
|
Noncontrolling interests |
|
| — |
|
| — |
|
| 105 |
|
| — |
|
| 105 |
|
Total shareholders' equity |
|
| 3,941 |
|
| 6,084 |
|
| 7,015 |
|
| (12,994) |
|
| 4,046 |
|
Total liabilities and shareholders' equity |
| $ | 8,915 |
| $ | 9,816 |
| $ | 12,858 |
| $ | (14,420) |
| $ | 17,169 |
|
| | | | | | | | | | | | | | | | |
| | Unaudited Condensed Consolidating Balance Sheet | | |||||||||||||
| | December 31, 2018 | | |||||||||||||
($ in millions) |
| Ball |
| Guarantor |
| Non-Guarantor |
| Eliminating |
| Consolidated |
| |||||
| | | | | | | | | | | | | | | | |
Assets | | | | | | | | | | | | | | | | |
Current assets | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 4 | | $ | — | | $ | 717 | | $ | — | | $ | 721 | |
Receivables, net | | | 21 | | | 613 | | | 1,168 | | | — | | | 1,802 | |
Intercompany receivables | | | 66 | | | 495 | | | 1,657 | | | (2,218) | | | — | |
Inventories, net | | | — | | | 527 | | | 744 | | | — | | | 1,271 | |
Other current assets | | | 32 | | | 35 | | | 79 | | | — | | | 146 | |
Total current assets | | | 123 | | | 1,670 | | | 4,365 | | | (2,218) | | | 3,940 | |
Noncurrent assets | | | | | | | | | | | | | | | | |
Property, plant and equipment, net | | | 24 | | | 1,378 | | | 3,140 | | | — | | | 4,542 | |
Investment in subsidiaries | | | 11,145 | | | 3,779 | | | (99) | | | (14,825) | | | — | |
Goodwill | | | — | | | 1,191 | | | 3,284 | | | — | | | 4,475 | |
Intangible assets, net | | | 18 | | | 409 | | | 1,761 | | | — | | | 2,188 | |
Other assets | | | 213 | | | 215 | | | 981 | | | — | | | 1,409 | |
Total assets | | $ | 11,523 | | $ | 8,642 | | $ | 13,432 | | $ | (17,043) | | $ | 16,554 | |
| | | | | | | | | | | | | | | | |
Liabilities and Equity | | | | | | | | | | | | | | | | |
Current liabilities | | | | | | | | | | | | | | | | |
Short-term debt and current portion of long-term debt | | $ | 173 | | $ | — | | $ | 46 | | $ | — | | $ | 219 | |
Accounts payable | | | 50 | | | 1,178 | | | 1,867 | | | — | | | 3,095 | |
Intercompany payables | | | 2,310 | | | 49 | | | 466 | | | (2,825) | | | — | |
Accrued employee costs | | | 39 | | | 144 | | | 106 | | | — | | | 289 | |
Other current liabilities | | | 153 | | | 119 | | | 220 | | | — | | | 492 | |
Total current liabilities | | | 2,725 | | | 1,490 | | | 2,705 | | | (2,825) | | | 4,095 | |
Noncurrent liabilities | | | | | | | | | | | | | | | | |
Long-term debt | | | 6,504 | | | — | | | 6 | | | — | | | 6,510 | |
Employee benefit obligations | | | 871 | | | 286 | | | 298 | | | — | | | 1,455 | |
Intercompany long-term notes | | | (1,977) | | | 3 | | | 1,368 | | | 606 | | | — | |
Deferred taxes | | | (172) | | | 169 | | | 648 | | | — | | | 645 | |
Other liabilities | | | 114 | | | 45 | | | 128 | | | — | | | 287 | |
Total liabilities | | | 8,065 | | | 1,993 | | | 5,153 | | | (2,219) | | | 12,992 | |
| | | | | | | | | | | | | | | | |
Common stock | | | 1,157 | | | 2,523 | | | 5,314 | | | (7,837) | | | 1,157 | |
Preferred stock | | | — | | | — | | | 5 | | | (5) | | | — | |
Retained earnings | | | 5,341 | | | 4,712 | | | 3,316 | | | (8,028) | | | 5,341 | |
Accumulated other comprehensive earnings (loss) | | | (835) | | | (586) | | | (460) | | | 1,046 | | | (835) | |
Treasury stock, at cost | | | (2,205) | | | — | | | — | | | — | | | (2,205) | |
Total Ball Corporation equity | | | 3,458 | | | 6,649 | | | 8,175 | | | (14,824) | | | 3,458 | |
Noncontrolling interests | | | — | | | — | | | 104 | | | — | | | 104 | |
Total equity | | | 3,458 | | | 6,649 | | | 8,279 | | | (14,824) | | | 3,562 | |
Total liabilities and equity | | $ | 11,523 | | $ | 8,642 | | $ | 13,432 | | $ | (17,043) | | $ | 16,554 | |
46
40
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Condensed Consolidating Statement of Cash Flows |
| ||||||||||
|
| For the Nine Months Ended September 30, 2018 |
| ||||||||||
($ in millions) |
| Ball |
| Guarantor |
| Non-Guarantor |
| Consolidated |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) operating activities |
| $ | (103) |
| $ | 148 |
| $ | 982 |
| $ | 1,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
| (5) |
|
| (356) |
|
| (255) |
|
| (616) |
|
Business dispositions, net of cash sold |
|
| (53) |
|
| 604 |
|
| — |
|
| 551 |
|
Other, net |
|
| (1) |
|
| 18 |
|
| 33 |
|
| 50 |
|
Cash provided by (used in) investing activities |
|
| (59) |
|
| 266 |
|
| (222) |
|
| (15) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term borrowings |
|
| 1,475 |
|
| — |
|
| — |
|
| 1,475 |
|
Repayments of long-term borrowings |
|
| (1,525) |
|
| — |
|
| (6) |
|
| (1,531) |
|
Net change in short-term borrowings |
|
| (138) |
|
| — |
|
| (51) |
|
| (189) |
|
Proceeds from issuances of common stock, net of shares used for taxes |
|
| 25 |
|
| — |
|
| — |
|
| 25 |
|
Acquisitions of treasury stock |
|
| (464) |
|
| — |
|
| — |
|
| (464) |
|
Common stock dividends |
|
| (104) |
|
| — |
|
| — |
|
| (104) |
|
Intercompany |
|
| 905 |
|
| (413) |
|
| (492) |
|
| — |
|
Other, net |
|
| (12) |
|
| (1) |
|
| — |
|
| (13) |
|
Cash provided by (used in) financing activities |
|
| 162 |
|
| (414) |
|
| (549) |
|
| (801) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
| — |
|
| — |
|
| (59) |
|
| (59) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash, cash equivalents and restricted cash |
|
| — |
|
| — |
|
| 152 |
|
| 152 |
|
Cash, cash equivalents and restricted cash – beginning of period |
|
| 5 |
|
| — |
|
| 454 |
|
| 459 |
|
Cash, cash equivalents and restricted cash – end of period |
| $ | 5 |
| $ | — |
| $ | 606 |
| $ | 611 |
|
| | | | | | | | | | | | | |
| | Unaudited Condensed Consolidating Statement of Cash Flows | | ||||||||||
| | For the Nine Months Ended September 30, 2019 | | ||||||||||
($ in millions) |
| Ball |
| Guarantor |
| Non-Guarantor |
| Consolidated |
| ||||
| | | | | | | | | | | | | |
Cash provided by (used in) operating activities |
| $ | (332) | | $ | 256 | | $ | 732 | | $ | 656 | |
| | | | | | | | | | | | | |
Cash flows from investing activities | | | | | | | | | | | | | |
Capital expenditures | | | (12) | | | (186) | | | (227) | | | (425) | |
Proceeds from dispositions, net of cash sold | | | — | | | — | | | (50) | | | (50) | |
Other, net | | | (2) | | | 10 | | | 18 | | | 26 | |
Cash provided by (used in) investing activities | | | (14) | | | (176) | | | (259) | | | (449) | |
| | | | | | | | | | | | | |
Cash flows from financing activities | | | | | | | | | | | | | |
Long-term borrowings | | | 1,095 | | | — | | | 3 | | | 1,098 | |
Repayments of long-term borrowings | | | (900) | | | — | | | (6) | | | (906) | |
Net change in short-term borrowings | | | 47 | | | — | | | 84 | | | 131 | |
Proceeds from issuances of common stock, net of shares used for taxes | | | 16 | | | — | | | — | | | 16 | |
Acquisitions of treasury stock | | | (614) | | | — | | | — | | | (614) | |
Common stock dividends | | | (133) | | | — | | | — | | | (133) | |
Intercompany | | | 849 | | | (80) | | | (769) | | | — | |
Other, net | | | (10) | | | — | | | — | | | (10) | |
Cash provided by (used in) financing activities | | | 350 | | | (80) | | | (688) | | | (418) | |
| | | | | | | | | | | | | |
Effect of exchange rate changes on cash | | | — | | | — | | | (20) | | | (20) | |
| | | | | | | | | | | | | |
Change in cash, cash equivalents and restricted cash | | | 4 | | | — | | | (235) | | | (231) | |
Cash, cash equivalents and restricted cash – beginning of period | | | 3 | | | — | | | 725 | | | 728 | |
Cash, cash equivalents and restricted cash – end of period | | $ | 7 | | $ | — | | $ | 490 | | $ | 497 | |
47
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Condensed Consolidating Statement of Cash Flows |
| ||||||||||
|
| For the Nine Months Ended September 30, 2017 |
| ||||||||||
($ in millions) |
| Ball |
| Guarantor |
| Non-Guarantor |
| Consolidated |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in) operating activities |
| $ | 266 |
| $ | 368 |
| $ | 110 |
| $ | 744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
| (5) |
|
| (234) |
|
| (165) |
|
| (404) |
|
Business dispositions, net of cash sold |
|
| — |
|
| 31 |
|
| — |
|
| 31 |
|
Other, net |
|
| 1 |
|
| 18 |
|
| (16) |
|
| 3 |
|
Cash provided by (used in) investing activities |
|
| (4) |
|
| (185) |
|
| (181) |
|
| (370) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term borrowings |
|
| 440 |
|
| — |
|
| — |
|
| 440 |
|
Repayments of long-term borrowings |
|
| (433) |
|
| — |
|
| (476) |
|
| (909) |
|
Net change in short-term borrowings |
|
| 151 |
|
| 1 |
|
| 68 |
|
| 220 |
|
Proceeds from issuances of common stock, net of shares used for taxes |
|
| 18 |
|
| — |
|
| — |
|
| 18 |
|
Acquisitions of treasury stock |
|
| (103) |
|
| — |
|
| — |
|
| (103) |
|
Common stock dividends |
|
| (93) |
|
| — |
|
| — |
|
| (93) |
|
Intercompany |
|
| (231) |
|
| (170) |
|
| 401 |
|
| — |
|
Other, net |
|
| — |
|
| (2) |
|
| — |
|
| (2) |
|
Cash provided by (used in) financing activities |
|
| (251) |
|
| (171) |
|
| (7) |
|
| (429) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
| (8) |
|
| — |
|
| 19 |
|
| 11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash, cash equivalents and restricted cash |
|
| 3 |
|
| 12 |
|
| (59) |
|
| (44) |
|
Cash, cash equivalents and restricted cash – beginning of period |
|
| 1 |
|
| (10) |
|
| 616 |
|
| 607 |
|
Cash, cash equivalents and restricted cash – end of period |
| $ | 4 |
| $ | 2 |
| $ | 557 |
| $ | 563 |
|
23. Subsequent Event
In October 2018, the company announced that it intends to cease production at the beverage packaging plant located in San Martino, Italy, in December 2018. An estimate of the impact on the consolidated financial statements cannot be made at this time.
| | | | | | | | | | | | | |
| | Unaudited Condensed Consolidating Statement of Cash Flows | | ||||||||||
| | For the Nine Months Ended September 30, 2018 | | ||||||||||
($ in millions) |
| Ball |
| Guarantor |
| Non-Guarantor |
| Consolidated |
| ||||
| | | | | | | | | | | | | |
Cash provided by (used in) operating activities |
| $ | (103) | | $ | 148 | | $ | 982 | | $ | 1,027 | |
| | | | | | | | | | | | | |
Cash flows from investing activities | | | | | | | | | | | | | |
Capital expenditures | | | (5) | | | (356) | | | (255) | | | (616) | |
Proceeds from dispositions, net of cash sold | | | (53) | | | 604 | | | — | | | 551 | |
Other, net | | | (1) | | | 18 | | | 33 | | | 50 | |
Cash provided by (used in) investing activities | | | (59) | | | 266 | | | (222) | | | (15) | |
| | | | | | | | | | | | | |
Cash flows from financing activities | | | | | | | | | | | | | |
Long-term borrowings | | | 1,475 | | | — | | | — | | | 1,475 | |
Repayments of long-term borrowings | | | (1,525) | | | — | | | (6) | | | (1,531) | |
Net change in short-term borrowings | | | (138) | | | — | | | (51) | | | (189) | |
Proceeds from issuances of common stock, net of shares used for taxes | | | 25 | | | — | | | — | | | 25 | |
Acquisitions of treasury stock | | | (464) | | | — | | | — | | | (464) | |
Common stock dividends | | | (104) | | | — | | | — | | | (104) | |
Intercompany | | | 905 | | | (413) | | | (492) | | | — | |
Other, net | | | (12) | | | (1) | | | — | | | (13) | |
Cash provided by (used in) financing activities | | | 162 | | | (414) | | | (549) | | | (801) | |
| | | | | | | | | | | | | |
Effect of exchange rate changes on cash | | | — | | | — | | | (59) | | | (59) | |
| | | | | | | | | | | | | |
Change in cash, cash equivalents and restricted cash | | | — | | | — | | | 152 | | | 152 | |
Cash, cash equivalents and restricted cash – beginning of period | | | 5 | | | — | | | 454 | | | 459 | |
Cash, cash equivalents and restricted cash – end of period | | $ | 5 | | $ | — | | $ | 606 | | $ | 611 | |
48
42
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and accompanying notes included in Item 1 of this Quarterly Report on Form 10-Q, which include additional information about our accounting policies, practices and the transactions underlying our financial results. The preparation of our unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires us to make estimates and assumptions that affect the reported amounts in our unaudited condensed 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 Corporation,” “Ball,” “the company,” “we” or “our” in the following discussion and analysis.
OVERVIEW
Business Overview and Industry Trends
Ball Corporation is one of the world’s leading suppliers of metal packaging to the beverage, personal care and household products industries. Our packaging products are produced for a variety of end uses, are manufactured in facilities around the world and are competitive with other substrates, such as plastics and glass. In the rigid packaging industry, sales and earnings can be increased by reducing costs, increasing prices, developing new products, expanding volumes and making strategic acquisitions. We also provide aerospace and other technologies and services to governmental and commercial customers, including national defense hardware, antenna and video tactical solutions, civil and operational space hardware and system engineering services.
We sell our packaging products mainly to large, multinational beverage, personal care and household products companies with which we have developed long-term 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 significant portion of our packaging products to major companies and brands, as well as to numerous regional customers. The overall global beverage and aerosol metal container industry isindustries are growing globally and isare expected to continue to grow in the medium to long term despite the North American industry having seen recent declines in standard-sized aluminum beverage packaging.term. The primary customers for the products and services provided by our aerospace segment are U.S. government agencies or their prime contractors.
We purchase our raw materials from relatively few suppliers. We also have exposure to inflation, in particular the rising costs of raw materials, as well as other direct cost inputs. We mitigate our exposure to the changes in the costs of metal through the inclusion of provisions in contracts covering the majority of our volumes to pass through metal price changes, as well as through the use of derivative instruments. The pass-through provisions generally result in proportional increases or decreases in sales and costs with a greatly reduced impact, if any, on net earnings. 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 contract provisions generally mitigate the risk of customer loss, and our long-term relationships represent a known, stable customer base.
The majority of the aerospace business involves work under contracts, generally from one to five years in duration, as a prime contractor or subcontractor for various U.S. government agencies. Intense competition and long operating cycles are key characteristics of the company’s aerospace and defense industry where it is common for work on major programs to be shared among a number of companies. A company competing to be a prime contractor may, upon ultimate award of the contract to a competitor, become a subcontractor for the ultimate prime contracting company.
49
43
Corporate Strategy
Our Drive for 10 vision encompasses five strategic levers that are key to growing our business and achieving long-term success. Since launching Drive for 10 in 2011, we have made progress on each of the levers as follows:
| Maximizing value in our existing businesses by rationalizing standard beverage container and end capacity in North America, South America and Europe, and expanding specialty container production to meet current demand; leveraging plant floor systems in our beverage facilities to improve efficiencies and reduce costs; consolidating and/or closing multiple beverage packaging facilities to gain efficiencies; and in the aerosol business, installing new extruded aluminum aerosol lines in our European, Mexican and Indian facilities while also implementing cost-out and value-in initiatives across all of our businesses; |
| Expanding further into new products and capabilities through commercializing extruded aluminum aerosol packaging that utilizes proprietary technology to significantly lightweight the can; and successfully commercializing the next-generation aluminum bottle-shaping technology; |
| Aligning ourselves with the right customers and markets by investing capital to meet continued growth for specialty beverage containers throughout our global network, which represent approximately 40 percent of our global beverage packaging mix; aligning with craft brewers, sparkling water fillers, wine producers and other new beverage producers who continue to use |
| Broadening our geographic reach with our acquisition of Rexam and our new investments in |
| Leveraging our technological expertise in packaging innovation, including the introduction of next-generation aluminum bottle-shaping technologies and the increased production of lightweight ReAl® containers, which utilize technology that increases the strength of aluminum used in the manufacturing process while lightweighting the can by |
These ongoing business developments and the successful acquisition of Rexam in 2016 help us stay close to our customers while expanding and/or sustaining our industry positions and global reach with major beverage, personal care, household products and aerospace customers.
RESULTS OF CONSOLIDATED OPERATIONS
Management’s discussion and analysis for our results of operations on a consolidated and segment basis include a quantification of factors that had a material impact. Other factors that did not have a material impact, but that are significant to understand the results, are qualitatively described.
Consolidated Sales and Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, |
|
| |||||||||||||||||||||
| | | | | | | | | | | | | | ||||||||||||||
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | ||||||||||||||||||||||
($ in millions) |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
|
|
| 2019 |
| 2018 |
| 2019 |
| 2018 | | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
| | | | | | | | | | | | | | ||||||||||||||
Net sales |
| $ | 2,946 |
| $ | 2,908 |
| $ | 8,832 |
| $ | 8,236 |
|
| | $ | 2,953 | | $ | 2,946 | | $ | 8,755 | | $ | 8,832 | |
Net earnings attributable to Ball Corporation |
|
| 59 |
|
| 48 |
|
| 303 |
|
| 215 |
|
| | | 92 | | | 59 | | | 406 | | | 303 | |
Net earnings attributable to Ball Corporation as a % of consolidated net sales |
|
| 2 | % |
| 2 | % |
| 3 | % |
| 3 | % |
| | | 3 | % | | 2 | % | | 5 | % | | 3 | % |
50
44
Sales in the three months ended September 30, Sales in the nine months ended September 30, 2019, decreased compared to the same period in 2018 primarily due to the pass through of lower aluminum prices, the loss of sales from our former U.S. steel food and steel aerosol business, the conclusion of the South America segment’s end sales associated with the Rexam acquisition and unfavorable exchange rates for our Europe segment, partially offset by higher beverage can unit volumes and higher pricing2018,2019, increased compared to the same period in 20172018 primarily as a resultdue to higher volumes in our beverage packaging segments and increased sales in our aerospace segment, partially offset by the pass through of lower aluminum prices, the loss of sales from our former U.S. steel food and steel aerosol business, which was divested in the third quarter of 2018, the conclusion of the South America segment’s end sales associated with the Rexam acquisition and unfavorable exchange rates for our Europe segment. Net earnings for the three months ended September 30, 2019, increased metal inputcompared to the same period in 2018 primarily due to higher volumes in our beverage packaging segments and lower income tax expense, partially offset by the conclusion of our South America segment’s end sales agreement associated with the Rexam acquisition, unfavorable U.S. aluminum scrap rates, manufacturing inefficiencies experienced in our North and Central America segment and increased business consolidation costs. higher volumes for our Europe and North and Central America segments and increased sales in the aerospace segment. Net earnings for the threenine months ended September 30, 2018,2019, increased compared to the same period in 20172018 primarily due to higher beverage can unit volumes, increased earnings related to higher volumes, higher pricing, favorable manufacturing performance, lower business consolidation and other costs and the absence of catch-up depreciation and amortization recordedsales in the prior year,aerospace segment and lower income tax expense, partially offset by higher freightthe conclusion of our South America segment’s end sales agreement associated with the Rexam acquisition, unfavorable U.S. aluminum scrap rates and income tax expense.
Salesmanufacturing inefficiencies experienced in the nine months ended September 30, 2018, increased compared to the same period in 2017 primarily as a result of increased sales volumes for our North and Central America South America and Europe segments, higher pricing and favorable product mix for our North and Central America segment, favorable foreign exchange rate changes and increased sales in the aerospace segment. Net earnings for the nine months ended September 30, 2018, increased compared to the same period in 2017 due to higher sales volumes in our Europe, North and Central America and South America segments, favorable manufacturing performance and lower business consolidation and other costs, partially offset by higher tax expense, freight costs and interest expense.
Sales and operating earnings for the three and nine months ended September 30, 2018, were unfavorably impacted by the loss of sales resulting from the July 31, 2018, sale of the U.S. steel food and steel aerosol business when compared to the same periods in 2017.
Cost of Sales (Excluding Depreciation and Amortization)
Cost of sales, excluding depreciation and amortization, was $2,362$2,363 million and $7,083$7,044 million for the three and nine months ended September 30, 2018,2019, respectively, compared to $2,338$2,362 million and $6,583$7,083 million for the same periods in 2017.2018. These amounts represented 80 percent of consolidated net sales for the three and nine months ended September 30, 20182019 and 2017.2018.
Depreciation and Amortization
Depreciation and amortization expense was $171$169 million and $529$510 million for the three and nine months ended September 30, 2018, respectively,2019 compared to $162$171 million and $539$529 million for the same periods in 2017.2018. These amounts represented 6 percent of consolidated net sales for both the three and nine months ended September 30, 2018,2019 and 6 percent and 7 percent for the same periods in 2017. During the second quarter of 2017, the company finalized the fair values of assets acquired in the Rexam acquisition resulting in higher depreciation and amortization. As a result, depreciation and amortization for the nine months ended September 30, 2017, included a cumulative catch-up adjustment of $34 million, all of which related to the last six months of 2016. 2018.
Selling, General and Administrative
Selling, general and administrative (SG&A) expenses were $113$90 million and $352$328 million for the three and nine months ended September 30, 2018,2019, respectively, compared to $127$113 million and $398$352 million for the same periods in 2017. 2018. These amounts represented 3 percent and 4 percent of consolidated net sales for each of the three and nine months ended September 30, 2018,2019, respectively, and 4 percent and 5 percentof consolidated net sales for the same periods in each of 2017. Contributing to the lower SG&A expenses in 2018 were reduced employee compensation costs, favorable currency exchange rate effects, lower costs due to office closuresthree and other cost-out initiatives implemented by the company in relation to the acquired Rexam business.nine months ended September 30, 2018.
Business Consolidation Costs and Other Activities
Business consolidation and other activities were $133 million and $147 million for the three and nine months ended September 30, 2019, respectively, and $32 million and $131 million for the three and nine months ended September 30, 2018, respectively, compared to $157 million and $253 million for the same period in 2017.2018. These amounts represented 15 percent and 2 percent of consolidated net sales for each of the three and nine months ended September 30, 2018, and 5 percent and 3 percent for the same periods in 2017, respectively. The decrease for the three and nine months ended September 30, 2018,2019, respectively, and 1 percent for the three and nine months ended September 30, 2018. The increase for the three and nine months ended September 30, 2019, was primarily due to lower severance and facility shut down costs, lower costscharges related to special incentive plansthe sale of the China beverage packaging business and the transfer of the Argentina steel aerosol business to held for sale, partially offset by a gain on Brazilian indirect taxes partially offset by the loss on sale of the U.S. steel food and steel aerosol business.in Brazil.
51
Interest Expense
Total interest expense was $76$79 million and $227$241 million for the three and nine months ended September 30, 2018,2019, respectively, compared to $74$76 million and $217$227 million for the same periods in 2017.2018. Interest expense as a percentage of average monthly borrowings was 4 percent for the three and nine months ended September 30 20182019 and 2017.2018.
45
Income Taxes
The company’s effective tax rate is affected by recurring items such as income earned in foreign jurisdictions with tax rates that differ from the U.S. tax rate and by discrete items that may occur in any given year but are not consistent from year to year. The effective income tax rate for the three and nine months ended September 30, 2018,2019, was 26.9 percent and 15.1 percent, respectively, wascompared to 72.9 percent and 43.1 percent compared to 8.0 percent and 19.5 percent for the same periods in 2017.2018. The increasedecrease of 64.946 percentage points and 23.628 percentage points for the three and nine months ended September 30, 2018,2019, respectively, was primarily due to the tax impact from the July 31, 2018 sale of the U.S. steel food and steel aerosol business sale in 2018, the impact of excess tax benefits for share-based compensation in 2019, and the impact of tax planning in 2019, partially offset by the tax impact of the sale of the China metal beverage packaging business, presentation of the Argentina steel aerosol business as well asheld for sale and the revaluationsettlement of certain defined benefit pension plans in 2018 of deferred tax assets in Brazil due to fluctuations in foreign currency exchange rates.2019.
As compared to the statutory U.S. tax rate, the effective tax rate for the three and nine months ended September 30, 2018,2019, was increased by 37.78.5 percentage points and 14.22.1 percentage points, respectively, for the taximpact of the settlement of certain defined benefit pension plans, reduced by 6.3 percentage points and 6.4 percentage points, respectively, for the impact of share-based compensation, increased by 5.5 percentage points and 1.4 percentage points, respectively, for the impact of the sale of the U.S. steel food and steel aerosolChina metal beverage packaging business and was increased by 4.1 percentage points and 2.9 percentage points, respectively,presentation of the Argentina steel aerosol business as held for the revaluation of deferred tax assets in Brazil due to fluctuations in foreign currency exchange rates. Also as compared to the statutory tax rate, the effective tax rate for the three and the nine months ended September 30, 2018, wassale, reduced by 1.1 percentage points and 2.2 percentage points, respectively, for the discrete impact of share-based compensation payments, increased by 1.04.7 percentage points and 2.0 percentage points, respectively, for the effect of certain non-taxable income in the U.S., increased by 4.5 percentage points and 1.9 percentage points, respectively, for the impact of GILTIglobal intangible low-taxed income (GILTI) net of foreign derived intangible income (FDII), and FDII, increasedreduced by 2.0 percentage points and 1.81.2 percentage points, respectively, for foreign withholdingfederal tax and, after taking into account the recently reduced U.S. tax rate, an increase of 5.1 percentage points and 3.4 percentage points, respectively, for the foreign tax rate differential versus the U.S. tax rate.credits.
RESULTS OF BUSINESS SEGMENTS
Segment Results
Ball’s operations are organized and reviewed by management along its product lines and geographical areas and presented in the four reportable segments discussed below.
On July 31, 2018, Ball sold its U.S. steel food and steel aerosol packaging business and formed a joint venture, Ball Metalpack. See Note 4 accompanying the unaudited condensed consolidated financial statements included within Item 1 of this report for further information. As a result of the sale, the remaining global aluminum aerosol and Argentine steel aerosol businesses of the legacy food and aerosol packaging segment are now a non-reportable segment. For comparative periods, the entire former food and aerosol packaging segment is now presented as a non-reportable segment.
52
Beverage Packaging, North and Central America
| | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | ||||||||
($ in millions) |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||
| | | | | | | | | | | | | |
Net sales | | $ | 1,230 | | $ | 1,237 | | $ | 3,647 | | $ | 3,513 | |
| | | | | | | | | | | | | |
Comparable operating earnings | | $ | 157 | | $ | 153 | | $ | 416 | | $ | 423 | |
Business consolidation and other activities (a) | | | (2) | | | (14) | | | (8) | | | (16) | |
Amortization of acquired Rexam intangibles | | | (7) | | | (7) | | | (22) | | | (23) | |
Total segment earnings | | $ | 148 | | $ | 132 | | $ | 386 | | $ | 384 | |
Comparable operating earnings as a % of segment net sales | | | 13 | % | | 12 | % | | 11 | % | | 12 | % |
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| |
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, |
|
| |||||||||
($ in millions) |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
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| |||||
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| |
Net sales |
| $ | 1,237 |
| $ | 1,080 |
| $ | 3,513 |
| $ | 3,180 |
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| |
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|
| |
Comparable operating earnings |
| $ | 153 |
| $ | 121 |
| $ | 423 |
| $ | 400 |
|
| |
Business consolidation and other activities (a) |
|
| (14) |
|
| (34) |
|
| (16) |
|
| (45) |
|
| |
Amortization of acquired Rexam intangibles |
|
| (7) |
|
| (7) |
|
| (23) |
|
| (23) |
|
| |
Catch-up depreciation and amortization for 2016 from finalization of Rexam valuation (b) |
|
| — |
|
| — |
|
| — |
|
| (6) |
|
| |
Total segment earnings |
| $ | 132 |
| $ | 80 |
| $ | 384 |
| $ | 326 |
|
| |
Comparable operating earnings as a % of segment net sales |
|
| 12 | % |
| 11 | % |
| 12 | % |
| 13 | % |
|
(a) |
| Further details of these items are included in Note 6 to the unaudited condensed consolidated financial statements within Item 1 of this report. |
|
|
The beverage packaging, North and Central America, segment consists of operations located in the U.S., Canada and Mexico that manufacture aluminum containers used in beverage packaging in those countries. Our beverage can manufacturing facility in Reidsville, North Carolina, ceased production at the end of June 2017, the Birmingham, Alabama, plant ceased production during the second quarter of 2018 and the Chatsworth, California, and Longview, Texas, plantsfacilities ceased production during the third quarter of 2018. In order to serve growing customer demand for specialty cans in the southwestern U.S., the company constructed a multi-linefour-line beverage packaging facility in Goodyear, Arizona, which began production in the second quarter of 2018.
46
Segment sales for the three and nine months ended September 30, 2018,2019, respectively, were $157$7 million lower and $333$134 million higher compared to the same periods in 2017.2018. The increasedecrease for the three months ended September 30, 2018,2019, was primarily due to higher metal inputthe pass through of lower aluminum prices, of $86 million,partially offset by higher volumes partially driven by the absence of hurricane-related disruptions during 2017, higher pricing and favorablecustomer sales mix. The increase for the nine months ended September 30, 2018,2019, was primarily due to higher metal input pricesvolumes of $227$159 million and higher pricing, favorable sales mix, and other pass-through items, partially offset by the pass through of lower volumes. We cannot predict the impact on sales that will result from future changes in metal inputaluminum prices.
Comparable operating earnings for the three and nine months ended September 30, 2018,2019, respectively, were $32$4 million higher and $23$7 million higherlower compared to the same periods in 2017.2018. The increase for the three months ended September 30, 2018,2019, was primarily due to higher sales volumes, higher pricing, favorable sales mix and savings from the 2017 Reidsville plant closure, partially offset by higher freightunfavorable U.S. aluminum scrap rates and other costs associated with our multi-plant network optimization program and plant start-up costs.manufacturing inefficiencies experienced during peak season. The increasedecrease for the nine months ended September 30, 2018,2019, was primarily due to favorable sales mix, higher pricingunfavorable U.S. aluminum scrap rates and savings from the 2017 Reidsville plant closure,increased ramp-up costs at our new Goodyear, Arizona, facility, partially offset by higher freight and other costs associated with our multi-plant network optimization program, plant start-up costs and lowersales volumes.
53
Beverage Packaging, South America
| | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | ||||||||
($ in millions) |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||
| | | | | | | | | | | | | |
Net sales | | $ | 392 | | $ | 391 | | $ | 1,210 | | $ | 1,229 | |
| | | | | | | | | | | | | |
Comparable operating earnings | | $ | 60 | | $ | 71 | | $ | 193 | | $ | 235 | |
Business consolidation and other activities (a) | | | (14) | | | 12 | | | 22 | | | 11 | |
Amortization of acquired Rexam intangibles | | | (14) | | | (14) | | | (42) | | | (42) | |
Total segment earnings | | $ | 32 | | $ | 69 | | $ | 173 | | $ | 204 | |
Comparable operating earnings as a % of segment net sales | | | 15 | % | | 18 | % | | 16 | % | | 19 | % |
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|
| Three Months Ended September 30, |
| Nine Months Ended September 30, |
|
| ||||||||
($ in millions) |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
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| ||||
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Net sales |
| $ | 391 |
| $ | 425 |
| $ | 1,229 |
| $ | 1,145 |
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|
|
Comparable operating earnings |
| $ | 71 |
| $ | 78 |
| $ | 235 |
| $ | 205 |
|
|
Business consolidation and other activities (a) |
|
| 12 |
|
| (4) |
|
| 11 |
|
| (4) |
|
|
Amortization of acquired Rexam intangibles |
|
| (14) |
|
| (13) |
|
| (42) |
|
| (42) |
|
|
Catch-up depreciation and amortization for 2016 from finalization of Rexam valuation (b) |
|
| — |
|
| — |
|
| — |
|
| (14) |
|
|
Total segment earnings |
| $ | 69 |
| $ | 61 |
| $ | 204 |
| $ | 145 |
|
|
Comparable operating earnings as a % of segment net sales |
|
| 18 | % |
| 18 | % |
| 19 | % |
| 18 | % |
|
(a) |
| Further details of these items are included in Note 6 to the unaudited condensed consolidated financial statements within Item 1 of this report. |
|
|
The beverage packaging, South America, segment consists of operations located in Brazil, Argentina and Chile that manufacture aluminum containers used in beverage packaging acrossin most countries in South America. To support contracted volumes for aluminum beverage packaging across Paraguay, Argentina and Bolivia, the company plans to constructconstructed a one-line beverage can and end manufacturing plantfacility in Paraguay which began production in the fourth quarter of 2019, and to addis adding capacity to our Buenos Aires, Argentina, and Santiago, Chile, facilities. The Paraguay plant is expected to begin production in the second half of 2019. The company ceased operations at its Cuiabá, Brazil, beverage packaging plant in July 2018 and has relocated equipment from the Cuiabá plant to other existing facilities in South America.
Segment sales for the three and nine months ended September 30, 2018,2019, respectively, were $34$1 million lowerhigher and $84$19 million higherlower compared to the same periods in 2017.2018. The decreaseincrease for the three months ended September 30, 2018,2019, was primarily due to lowerhigher can and end volumes, partially attributable tooffset by the pass through of lower aluminum prices, the conclusion of the end sales agreement associated with the business divested in 2016, in addition toRexam acquisition and regional pricing pressures.price/mix. The increasedecrease for the nine months ended September 30, 2018,2019, was primarily relateddue to the pass through of lower aluminum prices, the conclusion of the end sales agreement associated with the Rexam acquisition and regional price/mix, partially offset by higher can and end volumes of $90 million and favorable product mix, partially offset by regional pricing pressures and the loss of 11 days of sales resulting from a Brazilian trucking labor strike. volumes.
Comparable operating earnings for the three and nine months ended September 30, 2018,2019, respectively, were $7$11 million lower and $30$42 million higherlower compared to the same periods in 2017.2018. The decreasedecreases for the three months ended September 30, 2018, was primarily due to lower can and end volumes and regional pricing pressures. The increase for the nine months ended September 30, 2018, was2019, were primarily relateddue to the conclusion of the end sales agreement associated with the business divested in 2016, an increase inRexam acquisition, regional price/mix and unfavorable currency exchange rates, partially offset by higher can and end volumes and favorable manufacturing performance, partially offset by regional pricing pressures and the loss of 11 days of sales resulting from a Brazilian trucking labor strike.volumes.
54
47
Beverage Packaging, Europe
| | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | ||||||||
($ in millions) |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||
| | | | | | | | | | | | | |
Net sales | | $ | 699 | | $ | 683 | | $ | 2,052 | | $ | 1,995 | |
| | | | | | | | | | | | | |
Comparable operating earnings | | $ | 90 | | $ | 84 | | $ | 241 | | $ | 219 | |
Business consolidation and other activities (a) | | | (9) | | | (3) | | | (24) | | | (17) | |
Amortization of acquired Rexam intangibles | | | (15) | | | (17) | | | (48) | | | (53) | |
Total segment earnings | | $ | 66 | | $ | 64 | | $ | 169 | | $ | 149 | |
Comparable operating earnings as a % of segment net sales | | | 13 | % | | 12 | % | | 12 | % | | 11 | % |
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|
| Three Months Ended September 30, |
| Nine Months Ended September 30, |
|
| ||||||||
($ in millions) |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
|
| ||||
|
|
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|
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|
Net sales |
| $ | 683 |
| $ | 651 |
| $ | 1,995 |
| $ | 1,824 |
|
|
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|
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|
|
|
|
|
|
|
Comparable operating earnings |
| $ | 84 |
| $ | 74 |
| $ | 219 |
| $ | 184 |
|
|
Business consolidation and other activities (a) |
|
| (3) |
|
| (62) |
|
| (17) |
|
| (69) |
|
|
Amortization of acquired Rexam intangibles |
|
| (17) |
|
| (16) |
|
| (53) |
|
| (50) |
|
|
Catch-up depreciation and amortization for 2016 from finalization of Rexam valuation (b) |
|
| — |
|
| — |
|
| — |
|
| (18) |
|
|
Total segment earnings |
| $ | 64 |
| $ | (4) |
| $ | 149 |
| $ | 47 |
|
|
Comparable operating earnings as a % of segment net sales |
|
| 12 | % |
| 11 | % |
| 11 | % |
| 10 | % |
|
(a) |
| Further details of these items are included in Note 6 to the unaudited condensed consolidated financial statements within Item 1 of this report. |
|
|
The beverage packaging, Europe, segment includes the manufacture and sale of metal beverage containers in facilities located throughout Europe, including Russia. To support growth for beverage cans in the Iberian Peninsula, the company constructed a two-line, aluminum beverage can manufacturing facility near Madrid, Spain, with a majority of the facility’s capacity secured under a long-term customer contract. The facility began initial commercial production on one linebecame fully operational in Julythe fourth quarter of 2018 and will produceproduces multiple can sizes once it is fully operational.utilizing both lines. In the third quarter of 2017,December 2018, we closed our beverage packaging container and end production facilities in Recklinghausen, Germany, ceased production. In October 2018, the company announced that it intends to cease production at the beverage packaging plantfacility located in San Martino, Italy, in December 2018, and intends to invest in its beverage container plant in Nogara, Italy.
Segment sales for the three and nine months ended September 30, 2018,2019, respectively, were $32$16 million and $171$57 million higher compared to the same periods in 2017.2018. The increase in sales for the three months ended September 30, 2018,2019, was primarily related to higher sales volumes of $56 million, partially offset by unfavorable currency exchange rates.rates of $29 million and the pass through of lower aluminum prices. The increase in sales for the nine months ended September 30, 2018,2019, was primarily related to higher sales volumes of $78$192 million, and favorablepartially offset by unfavorable currency exchange rates of approximately $68 million.$135 million and the pass through of lower aluminum prices.
Comparable operating earnings for the three and nine months ended September 30, 2018,2019, respectively, were $10$6 million and $35$22 million higher compared to the same periods in 2017.2018. The increaseincreases for the three and nine months ended September 30, 2018, was2019, were primarily due to increased sales volumes and operational efficiencies from plant network optimization, partially offset by higher costs and unfavorable currency exchange rates. The increase for the nine months ended September 30, 2018, was primarily due to increased sales volumes, favorable currency exchange rates and operational efficiencies from plant network optimization, partially offset by higher costs and a continuation of previously contracted price decreases.
Aerospace
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| ||||||||||||||
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, |
|
| ||||||||||||||||||||||
| | | | | | | | | | | | | | | ||||||||||||||
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | | ||||||||||||||||||||||
($ in millions) |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
|
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| | ||||||||
|
|
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|
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| ||||||||||||||
| | | | | | | | | | | | | | | ||||||||||||||
Net sales |
| $ | 283 |
| $ | 241 |
| $ | 837 |
| $ | 734 |
|
| | $ | 374 | | $ | 283 | | $ | 1,081 | | $ | 837 | | |
Comparable operating earnings |
|
| 26 |
|
| 23 |
|
| 75 |
|
| 70 |
|
| | | 35 | | | 26 | | | 103 | | | 75 | | |
Comparable operating earnings as a % of segment net sales |
|
| 9 | % |
| 10 | % |
| 9 | % |
| 10 | % |
| | | 9 | % | | 9 | % | | 10 | % | | 9 | % | |
The aerospace segment consists of the manufacture and sale of aerospace and other related products and services provided for the defense, civil space and commercial space industries.
55
Segment sales for the three and nine months ended September 30, 2018,2019, respectively, were $42$91 million and $103$244 million higher compared to the same periods in 20172018 and comparable operating earnings were $3 million higher and $5 million higher for the three and nine months ended September 30, 2018,2019, respectively, were $9 million and $28 million higher compared to the same periods in 2017.2018. The higher sales and comparable earnings for the three and nine months ended September 30, 2018, respectively,2019, were primarily the result of an increase in sales from significant U.S. national defense contracts.
48
The aerospace sales contract mix for the nine months ended September 30, 2018,2019, consisted of 6867 percent cost-type contracts, which are billed at our costs plus an agreed upon and/or earned profit component, and 2931 percent fixed-price contracts. The remaining sales were for time and materials contracts. Contracted backlog was $1.76$2.2 billion at September 30, 2018, compared to $1.75 billion at2019, and December 31, 2017.2018. The backlog at September 30, 2018,2019, consisted of 7565 percent cost-type contracts. Comparisons of backlog are not necessarily indicative of the trend of future operations due to the nature of varying delivery and milestone schedules on contracts, funding of programs and the uncertainty of timing of future contract awards.
Additional Segment Information
For additional information regarding our segments, see the business segment information in Note 3 accompanying the unaudited condensed consolidated financial statements included within Item 1 of this report. The charges and income recorded for business consolidation and other activities were based on estimates by management and were developed from information available at the time the amounts were recognized. If actual outcomes vary from these estimates, the differences will be reflected in current period earnings in the statement of earnings and identified as business consolidation gains and losses. Additional details about our business consolidation and other activities, as well as the associated costs, are provided in Note 6 to the unaudited condensed consolidated financial statements included within Item 1 of this report on Form 10-Q.
NEW ACCOUNTING PRONOUNCEMENTS
For information regarding recent accounting pronouncements, see Note 2 to the unaudited condensed consolidated financial statements within Item 1 of this report on Form 10-Q.
Management Performance Measures
Management internally uses various measures to evaluate company performance such as comparable operating earnings (earnings before interest, taxes and business consolidation and other non-comparable costs); comparable net earnings (earnings before business consolidation costs and other non-comparable costs after tax); comparable diluted earnings per share (comparable net earnings divided by diluted weighted average shares outstanding); return on average invested capital (net operating earnings after tax over the relevant performance period divided by average invested capital over the same period); economic value added (EVA®) dollars (net operating earnings after tax less a capital charge on average invested capital employed); earnings before interest and taxes (EBIT); earnings before interest, taxes, depreciation and amortization (EBITDA); and diluted earnings per share. Management also uses free cash flow (generally defined by the company as cash flow from operating activities less capital expenditures) as a measure to evaluate the company’s liquidity. We believe this information is also useful to investors as it provides insight into the earnings and cash flow criteria management uses to make strategic decisions. 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 acquisitions and dispositions.
Nonfinancial measures in the packaging businesses 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 segment include contract salesrevenue realization, award and incentive fees realized, proposal win rates and backlog (including awarded, contracted and funded backlog).
The following financial measurements are presented on a non-U.S. GAAP basis and should be considered in connection with the unaudited condensed consolidated financial statements within Item 1 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 1 of this report.
56
49
Based on the above definitions, our calculation of comparable operating earnings is summarized below:
|
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|
|
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|
|
|
|
|
|
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, |
| ||||||||
($ in millions) |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to Ball Corporation |
| $ | 59 |
| $ | 48 |
| $ | 303 |
| $ | 215 |
|
Add: Net earnings attributable to noncontrolling interests |
|
| — |
|
| 3 |
|
| 1 |
|
| 6 |
|
Net earnings |
|
| 59 |
|
| 51 |
|
| 304 |
|
| 221 |
|
Less: Equity in results of affiliates, net of tax |
|
| (7) |
|
| (5) |
|
| (14) |
|
| (23) |
|
Add: Tax provision (benefit) |
|
| 140 |
|
| 4 |
|
| 220 |
|
| 48 |
|
Earnings before taxes, as reported |
|
| 192 |
|
| 50 |
|
| 510 |
|
| 246 |
|
Add: Total interest expense |
|
| 76 |
|
| 74 |
|
| 227 |
|
| 217 |
|
Earnings before interest and taxes |
|
| 268 |
|
| 124 |
|
| 737 |
|
| 463 |
|
Add: Business consolidation and other activities |
|
| 32 |
|
| 157 |
|
| 131 |
|
| 253 |
|
Add: Amortization of acquired Rexam intangibles |
|
| 40 |
|
| 37 |
|
| 124 |
|
| 120 |
|
Add: Catch-up depreciation and amortization for 2016 from finalization of Rexam valuation (a) |
|
| — |
|
| (5) |
|
| — |
|
| 34 |
|
Comparable operating earnings |
| $ | 340 |
| $ | 313 |
| $ | 992 |
| $ | 870 |
|
|
|
| | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | ||||||||
($ in millions) |
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
| | | | | | | | | | | | |
Net earnings attributable to Ball Corporation | | $ | 92 | | $ | 59 | | $ | 406 | | $ | 303 |
Add: Net earnings attributable to noncontrolling interests | | | — | | | — | | | — | | | 1 |
Net earnings | | | 92 | | | 59 | | | 406 | | | 304 |
Less: Equity in results of affiliates, net of tax | | | (5) | | | (7) | | | 6 | | | (14) |
Add: Tax provision (benefit) | | | 32 | | | 140 | | | 73 | | | 220 |
Earnings before taxes, as reported | | | 119 | | | 192 | | | 485 | | | 510 |
Add: Total interest expense | | | 79 | | | 76 | | | 241 | | | 227 |
Earnings before interest and taxes | | | 198 | | | 268 | | | 726 | | | 737 |
Add: Business consolidation and other activities | | | 133 | | | 32 | | | 147 | | | 131 |
Add: Amortization of acquired Rexam intangibles | | | 38 | | | 40 | | | 118 | | | 124 |
Comparable operating earnings | | $ | 369 | | $ | 340 | | $ | 991 | | $ | 992 |
Our calculation of comparable net earnings is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, |
| ||||||||
($ in millions, except per share amounts) |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to Ball Corporation |
| $ | 59 |
| $ | 48 |
| $ | 303 |
| $ | 215 |
|
Add: Business consolidation and other activities |
|
| 32 |
|
| 157 |
|
| 131 |
|
| 253 |
|
Add: Amortization of acquired Rexam intangibles |
|
| 40 |
|
| 37 |
|
| 124 |
|
| 120 |
|
Add: Catch-up depreciation and amortization for 2016 from finalization of Rexam valuation (a) |
|
| — |
|
| (5) |
|
| — |
|
| 34 |
|
Add: Debt refinancing and other costs |
|
| — |
|
| — |
|
| 1 |
|
| 1 |
|
Less: Noncomparable taxes |
|
| 66 |
|
| (49) |
|
| 25 |
|
| (108) |
|
Comparable net earnings |
| $ | 197 |
| $ | 188 |
| $ | 584 |
| $ | 515 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per diluted share, as reported |
| $ | 0.17 |
| $ | 0.13 |
| $ | 0.86 |
| $ | 0.60 |
|
Per diluted share, comparable basis |
| $ | 0.56 |
| $ | 0.52 |
| $ | 1.65 |
| $ | 1.44 |
|
|
|
| | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | ||||||||
($ in millions, except per share amounts) |
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
| | | | | | | | | | | | |
Net earnings attributable to Ball Corporation | | $ | 92 | | $ | 59 | | $ | 406 | | $ | 303 |
Add: Business consolidation and other activities | | | 133 | | | 32 | | | 147 | | | 131 |
Add: Amortization of acquired Rexam intangibles | | | 38 | | | 40 | | | 118 | | | 124 |
Add: Share of equity method affiliate non-comparable costs | | | — | | | — | | | 16 | | | — |
Add: Debt refinancing and other costs | | | — | | | — | | | 4 | | | 1 |
Less: Noncomparable taxes | | | (26) | | | 66 | | | (68) | | | 25 |
Comparable net earnings | | $ | 237 | | $ | 197 | | $ | 623 | | $ | 584 |
| | | | | | | | | | | | |
Diluted earnings per share, as reported | | $ | 0.27 | | $ | 0.17 | | $ | 1.19 | | $ | 0.86 |
Comparable diluted earnings per share | | $ | 0.70 | | $ | 0.56 | | $ | 1.82 | | $ | 1.65 |
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash Flows and Capital Expenditures
Our primary sources of liquidity are cash provided by operating activities and external borrowings. We believe that cash flows from operations and cash provided by short-term, long-term and committed revolver borrowings, when necessary, will be sufficient to meet our ongoing operating requirements, scheduled principal and interest payments on debt,
57
dividend payments, anticipated share repurchases and anticipated capital expenditures. The following summarizes our cash flows:
| | | | | | |
| | Nine Months Ended September 30, | ||||
($ in millions) |
| 2019 |
| 2018 | ||
| | | | | | |
Cash flows provided by (used in) operating activities | | $ | 656 | | $ | 1,027 |
Cash flows provided by (used in) investing activities | | | (449) | | | (15) |
Cash flows provided by (used in) financing activities | | | (418) | | | (801) |
Cash flows provided by operations were higherlower in 20182019 compared to 2017,2018, primarily due to higher earningsworking capital outflows and lowerhigher pension contributions, partially offset by higher working capital outflows.earnings. The impact of changes in working capital on operating cash flows for the nine months ended September 30, 2018,2019, was a $112$423 million outflow. Excluding the impact of the new revenue recognition standard and the sale of the U.S. steel food and steel aerosol packaging business in 2018, the impactsale of a reductionthe China beverage packaging business and the transfer of the Argentina steel aerosol business assets and liabilities to held for sale in 2019, our working capital movements reflect an increase of days sales outstanding from 4542 days in 2018 to 3849 days in 2019 and an increasea decrease in days payable outstanding from 110112 days in 2018 to 116104 days was offset by increases in taxes and other amounts receivable and decreases in accrued employee costs and other current liabilities. 2019.
We have entered into several regional committed and uncommitted accounts receivable factoring programs with various financial institutions for certain of our receivables. The programs are accounted for as true sales of the receivables, without recourse to Ball, and had combined limits of approximately $1.15$1.3 billion and $1.0$1.2 billion at September 30, 2018,2019, and December 31, 2017, respectively.2018. A total of $208$155 million and $439$178 million were available for sale under such programs as of September 30, 2018,2019, and December 31, 2017,2018, respectively.
Contributions to the company’s defined benefit pension plans were $154 million in the first nine months of 2019 compared to $53 million in the first nine months of 2018 compared to $201 million in the first nine months of 2017 and such contributions are expected to be in the range of $66approximately $168 million for the full year of 2018.2019. This estimate may change based on changes to the U.S. Pension Protection Act and actual plan asset performance, among other factors.
We expect 20182019 capital expenditures for property, plant and equipment to exceed $700$600 million and approximately $327$430 million was contractually committed as of September 30, 2018.2019. Capital expenditures are expected to be funded by cash flows from operations.
As of September 30, 2018,2019, approximately $593$480 million of our cash was held outside of the U.S. In the event we need to utilize any of the cash held outside of the U.S. for purposes within the U.S., there are no material legal or other economic restrictions regarding the repatriation of cash from any of the countries outside the U.S. where we have cash, other than market liquidity constraints that may limit the ability to convert into other currencies Egyptian pounds held by the company in Egypt with a U.S. dollar equivalent value of $37 million.$42 million into other currencies. The company believes its U.S. operating cash flows, as well as availability under its long-term, revolving credit facilities, uncommitted short-term credit facilities and committed and uncommitted accounts receivable factoring programs will be sufficient to meet the cash requirements of the U.S. portion of our ongoing operations, scheduled principal and interest payments on U.S. debt, dividend payments, capital expenditures and other U.S. cash requirements. If foreign funds are needed for our U.S. cash requirements and we are unable to provide the funds through intercompany financing arrangements, we would be required to repatriate funds from foreign locations where the company has previously asserted indefinite reinvestment of funds outside the U.S. With the introduction of a modified territorial tax system in the recently enacted U.S. Tax Cuts and Jobs Act, the company is currently reviewing its previously stated intent to permanently reinvest these foreign amounts outside the U.S. As the company does not believe a reasonable estimate of the impact of the U.S. Tax Cuts and Jobs Act on its indefinite reinvestment assertion can be determined at present, no provisional estimate is recorded in the financial statements for the period ended September 30, 2018. When either a reasonable estimate or the final determination becomes available, the impact will be recorded in that same reporting period. The final determination will be made and the impact will be recorded no later than December 2018.
Based on its previous indefinite reinvestment assertion, the company has not provided deferred taxes on earnings in certain non-U.S. subsidiaries because such earnings wereare intended to be indefinitely reinvested in its international operations. While itIt is not practical to estimate the additional taxes that may become payable if these earnings were remitted to the U.S., as a result of the company’s inclusion of a provisional transition tax estimate, U.S. tax has been accrued with respect to this amount.
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Share Repurchases
The company’s share repurchases, net of issuances, totaled $439$598 million during the nine months ended September 30, 2018,2019, compared to $85$439 million of repurchases, net of issuances, during the same period of 2017.2018. Share repurchases are completed using cash on hand and available borrowingsborrowings. Additional details about our share repurchase activities are provided in Note 18 to the unaudited condensed consolidated financial statements within Item 1 of this quarterly report.
In May 2019, in a privately negotiated transaction, Ball entered into an accelerated share repurchase agreement to buy $250 million of its common shares using cash on hand and are expected to exceed $700available borrowings. The company purchased 3.8 million netshares at an average price paid per share of issuances, for the full year 2018.$65.93.
Debt Facilities and Refinancing
Given our cash flow projections and unused credit facilities that are available until March 2021,2024, our liquidity is strong and is expected to meet our ongoing cash and debt service requirements. Interest-bearing debt of $6.7$7.0 billion and $7.0$6.7 billion was outstanding at September 30, 2018,2019, and December 31, 2017,2018, respectively.
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On March 25, 2019, the company refinanced its existing credit facilities with a U.S. dollar term loan facility, a U.S. dollar revolving facility and a multicurrency revolving facility that mature in March 2024. The revolving facilities provide the company with up to the U.S. dollar equivalent of $1.75 billion. At September 30, 2018,2019, taking into account our outstanding letters of credit, approximately $1.47$1.5 billion was available under existing long-term, revolving credit facilities. In addition to these facilities, the company had approximately $1$978 billion of short-term uncommitted credit facilities available as of September 30, 2018,2019, of which $142$333 million was outstanding and due on demand. At December 31, 2017,2018, the company had $340$211 million outstanding under short-term uncommitted credit facilities.
In March 2018, Ball issued $750 million of 4.875 percent senior notes and used the proceeds to repay $315 million of its Term A loan and outstanding multi-currency revolver and short-term credit facility borrowings.
While ongoing financial and economic conditions in certain areas may raise concerns about credit risk with counterparties to derivative transactions, the company mitigates its exposure by allocating 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.
We were in compliance with all loan agreements at September 30, 2018,2019, and for all prior years presented, and we have met all debt payment obligations. The U.S. note agreements and bank credit agreement contain certain restrictions relating to dividends, investments, financial ratios, guarantees and the incurrence of additional indebtedness. The most restrictive covenant is in the company’s bank credit agreement and requires the company to maintain a leverage ratio (as defined) of no greater than 4.254.5 times at September 30, 2018.2019. As of September 30, 2018,2019, approximately $2.0$1.5 billion of the amounts disclosed as available under the company’s long-term multi-currency committed revolving facilities and short-term uncommitted credit facilities are available without violating our existing debt covenants. Additional details regarding our debt are available in Note 1415 accompanying the unaudited condensed consolidated financial statements within Item 1 of this report.
CONTINGENCIES, INDEMNIFICATIONS AND GUARANTEES
Details about the company’s contingencies, indemnifications and guarantees are available in Notes 2021 and 2122 accompanying the unaudited condensed consolidated financial statements included within Item 1 of this report. The company is routinely subject to litigation incident to operating its businesses, and has been designated by various federal and state environmental agencies as a potentially responsible party, along with numerous other companies, for the clean-up of several hazardous waste sites, including in respect of sites related to alleged activities of certain Rexam subsidiaries. The company believes the matters identified will not have a material adverse effect upon the liquidity, results of operations or financial condition of the company. Details of the company’s legal proceedings are included in Note 20 to the consolidated financial statements within Item 8 of the company’s Current Report on Form 8-K filed on March 6, 2018.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the ordinary course of business, the company employs established risk management policies and procedures, which seek to reduce our exposure to fluctuations in commodity prices, interest rates, exchange currencies and prices of the company’s common stock in regard to common share repurchases and the company’s deferred compensation stock plan, although there can be no assurance that these policies and procedures will be successful. The company mitigates its exposure by spreading the risk among various counterparties, thus limiting exposure with any one party. The company also monitors the credit ratings of its suppliers, customers, lenders and counterparties on a regular basis. Further details
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are available in Item 7A within Ball’s 2017 annual report2018 Annual Report on Form 10-K filed on February 28, 2018,22, 2019, and in Note 20 accompanying the unaudited condensed consolidated financial statements included within Item 1 of this report.
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Item 4. CONTROLS AND PROCEDURES
Our chief executive officer and chief financial officer participated in management’s evaluation of our disclosure controls and procedures, as defined by the Securities and Exchange Commission (SEC), as of the end of the period covered by this report and concluded that our controls and procedures were effective. There were no material changes to internal controls during the company’s third quarter of 20182019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.reporting.
FORWARD-LOOKING STATEMENTS
This report contains “forward-looking”"forward-looking" statements concerning future events and financial performance. Words such as “expects,” “anticipates,” “estimates,” “believes,” “targets,” “likely,” “positions”"expects," "anticipates," "estimates," "believes," "targets," "likely," "positions" and similar expressions typically identify forward-looking statements, which are generally any statements other than statements of historical fact. Such statements are based on current expectations or views of the future and are subject to risks and uncertainties, which could cause actual results or events to differ materially from those expressed or implied. Readers of this reportYou should therefore not place undue reliance upon any forward-looking statements and any of such statements should be read in conjunction with, and, qualified in their entirety by, the cautionary statements referenced below. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Key factors, risks and uncertainties that could cause actual outcomes and results to be different are summarized in filings with the Securities and Exchange Commission, including Exhibit 99 in our Form 10-K, which are available on our website and at www.sec.gov. SomeAdditional factors that could cause the company’s actual results or outcomes to differ materially from those discussed include, but are not limited to the following:might affect: a) in our packaging segments:segments include product demand fluctuations; availability/cost of raw materials and logistics; competitive packaging, pricing and substitution; changes in climate and weather; competitive activity; footprint adjustments and other manufacturing changes;changes, including the startup of new facilities and lines; failure to achieve synergies, productivity improvements or cost reductions; mandatory deposit or other restrictive packaging laws; customer and supplier consolidation,consolidation; power and supply chain influence;interruptions; potential delays and tariffs related to the U.K’s departure from the EU; changes in major customer or supplier contracts or a loss of a major customer or supplier; political instability and sanctions; currency controls; and changes in foreign exchange or tax rates, including due to the effects of the 2017 U.S. Tax Cutsrates; and Jobs Act; and tariffs, trade actions, or other governmental actions in any country affecting goods produced by us or in our supply chain, including imported raw materials, such as pursuant to sectionSection 232 of the U.S. Trade Expansion Act of 1962;1962 or Section 301 of Trade Act of 1974; b) in our aerospace segment:segment include funding, authorization, availability and returns of government and commercial contracts; and delays, extensions and technical uncertainties affecting segment contracts; c) in the company as a whole include those listed plus: the extent to which sustainability-related opportunities arise and can be capitalized upon; changes in senior management; regulatory action or issues including tax, environmental, health and workplace safety, including U.S. FDA and other actions or public concerns affecting products filled in our containers, or chemicals or substances used in raw materials or in the manufacturing process; technological developments and innovations; litigation; strikes; labor cost changes; rates of return on assets of the company's defined benefit retirement plans; pension changes; uncertainties surrounding geopolitical events and governmental policies both in the U.S. and in other countries, including the U.S. government elections, budget, sequestration and debt limit; reduced cash flow; interest rates affecting our debt; and successful or unsuccessful joint ventures, acquisitions and divestitures, including with respect to the Rexam PLC acquisition, and its integration, or the associated divestiture; the effect of the acquisition or the divestiture, and their effects on our business relationships, operating results and business generally.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There were no events required to be reported under Item 1 for the third quarter of 2018,three months ended September 30, 2019, except as discussed in Note 2021 to the unaudited condensed consolidated financial statements within Part I, Item 1 withinof this report.
Item 1A. Risk Factors
Risk factors affecting the company can be found within Item 1A of the company’s Current2018 Annual Report on Form 8-K10-K filed on March 6, 2018,February 22, 2019, for the year ended December 31, 2017.2018.
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Item 2. Changes in Securities
The following table summarizes the company’s repurchases of its common stock during the third quarter of 2018.2019.
| | | | | | | | | |
Purchases of Securities | |||||||||
($ in millions) |
| Total Number of Shares Purchased (a) |
| Average |
| Total Number of |
| Maximum Number of | |
| | | | | | | | | |
July 1 to July 31, 2019 | | — | | $ | — | | — | | 45,531,907 |
August 1 to August 31, 2019 | | 1,335,476 | | | 76.94 | | 1,335,476 | | 44,196,431 |
September 1 to September 30, 2019 | | 1,960,743 | | | 74.92 | | 1,960,743 | | 42,235,688 |
Total | | 3,296,219 | | | 75.74 | | 3,296,219 | | |
|
|
|
|
|
|
|
|
|
|
Purchases of Securities | |||||||||
($ in millions) |
| Total Number of Shares Purchased (a) |
| Average |
| Total Number of |
| Maximum Number of | |
|
|
|
|
|
|
|
|
|
|
July 1 to July 31, 2018 |
| 3,022,303 |
| $ | 37.43 |
| 3,022,303 |
| 18,987,648 |
August 1 to August 31, 2018 |
| 2,002,100 |
|
| 40.69 |
| 2,002,100 |
| 16,985,548 |
September 1 to September 30, 2018 |
| 1,707,084 |
|
| 43.70 |
| 1,707,084 |
| 15,278,464 |
Total |
| 6,731,487 |
|
| 39.99 |
| 6,731,487 |
|
|
(a) |
| Includes open market purchases (on a trade-date basis), share repurchase agreements 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 from time to time by Ball’s Board of Directors. On |
Item 3. Defaults Upon Senior Securities
There were no events required to be reported under Item 3 for the three months ended September 30, 2018.2019.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
There were no events required to be reported under Item 5 for the three months ended September 30, 2018.2019.
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Item 6. Exhibits
10.1 | | Ball Corporation Deposit Share Program for United States Participants, amended and restated as of July 27, 2016 (filed herewith). |
31.1 |
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| | |
31.2 | | |
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32.1 | | |
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32.2 | | |
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99 | | |
| | |
101.INS | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
| | |
101.SCH | | Inline XBRL Taxonomy Extension Schema Document. |
| | |
101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| | |
101.DEF | | Inline XBRL Taxonomy Extension Definitions Linkbase Document |
| | |
101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document |
| | |
101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| | |
104 | | The |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Ball Corporation | ||
(Registrant) | ||
| | |
| | |
By: | /s/ Scott C. Morrison | |
| Scott C. Morrison | |
| Senior Vice President and Chief Financial Officer | |
| | |
| | |
Date: | November | |
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