Ball Announces 2006 Results
BROOMFIELD, Colo., Jan. 25 /PRNewswire-FirstCall/ -- Ball Corporation (NYSE: BLL) today reported full-year 2006 net earnings of $329.6 million, or $3.14 per diluted share, on sales of $6.62 billion, compared to $272.1 million, or $2.48 per diluted share, on sales of $5.75 billion in 2005.
Fourth quarter 2006 net earnings were $48.3 million, or 46 cents per diluted share, on sales of $1.59 billion, compared to $47.4 million, or 45 cents per diluted share, on sales of $1.29 billion in the fourth quarter of 2005.
In the fourth quarter of 2006, Ball Corporation changed from the last-in, first-out (LIFO) inventory accounting method to the first-in, first out (FIFO) method for its metal beverage packaging, Americas, and metal food and household products packaging, Americas, segments. All results have been presented on a FIFO basis as if the accounting change occurred as of Jan. 1, 2005.
Fourth quarter 2006 results included net after-tax costs of approximately $20 million, or 19 cents per diluted share, from business consolidation, reduced by a one-time tax gain. Full-year 2006 results included property insurance proceeds resulting from a fire at a plant in Germany, offset by business consolidation costs, for a net after-tax gain of $25.6 million, or 24 cents per diluted share. The fourth quarter of 2005 included an after-tax net cost of $7.3 million, or seven cents per diluted share, for business consolidation gains and debt refinancing costs. For the full-year 2005, the net effect of debt refinancing and business consolidation costs was $25.7 million, or 23 cents per diluted share, after tax. Details of the business consolidation activities, property insurance gain and other items can be found in Note 4 to the consolidated financial statements that accompany this news release.
R. David Hoover, chairman, president and chief executive officer, said he was generally pleased with 2006 results and particularly with the corporation's strong fourth quarter.
"On a comparable basis our diluted earnings per share grew to $2.90 in 2006 from $2.71 in 2005 and to 65 cents from 52 cents in the fourth quarter," Hoover said.
"That was a solid accomplishment in the inflationary and competitive environments in which we compete," Hoover added. "We are particularly pleased with how our results improved during the second half of 2006 as we made progress with important initiatives to reduce costs, improve efficiencies and build margins and returns to more acceptable levels heading into 2007."
Metal Beverage Packaging, Americas
Metal Beverage Packaging, Americas, segment operating earnings were $269.4 million in 2006 on sales of $2.60 billion, compared to $234.8 million on sales of $2.39 billion in 2005. The 2005 results included business consolidation costs of $19.3 million. For the fourth quarter, earnings were $75.9 million on sales of $611.9 million in 2006, compared to $51.8 million on sales of $545.7 million in the fourth quarter of 2005.
"Fourth quarter shipments of beverage cans in North America remained strong as warm weather dominated many regions," Hoover said. "For the year our beverage can shipments were up more than 4 percent. Our capital project to update and streamline the manufacture of beverage can ends is progressing nicely and we are beginning to see the positive results expected from that investment."
Metal Beverage Packaging, Europe/Asia
Metal Beverage Packaging, Europe/Asia, segment results in 2006 were operating earnings of $268.7 million on sales of $1.51 billion, compared to $180.5 million on sales of $1.35 billion in 2005. The 2006 results included the pre-tax property insurance gain of $75.5 million related to a fire in a German plant. For the quarter, operating earnings in 2006 were $33 million on sales of $352.6 million, compared to $35.5 million on sales of $296.1 million in the fourth quarter of 2005. The 2005 fourth quarter and full-year results included a $9.3 million gain related to tax matters on prior restructuring activities in China.
"The rebuilding necessary following the fire in Germany is well underway. Because of the fire and strong demand for beverage cans, the supply situation throughout Europe has been very tight in 2006 and we finished the year with inventories below 2005 year end levels," Hoover said. "Demand for beverage cans has been strong in Europe and China. Our can sales in 2006 grew more than 8 percent in Europe and by double digits in China over 2005 levels. Our fourth quarter results also were affected positively by the strength of the euro."
Metal Food & Household Products Packaging, Americas
Metal Food & Household Products Packaging, Americas, segment results for the year were operating earnings of $6 million on sales of $1.19 billion, compared to $19.1 million on sales of $824 million in 2005. The 2006 results included business consolidation costs of $35.5 million, largely related to closing a metal food can plant in Ontario. The 2005 full-year results included business consolidation costs of $11.2 million related to closure of a metal food can plant in Quebec. For the fourth quarter of 2006, segment results were a loss of $20.9 million, largely related to the Ontario plant closure, on sales of $302.1 million, compared to a loss of $4.8 million on sales of $168.5 million in the fourth quarter of 2005.
"Strong seasonal shipments to certain food can customers and a later than normal tomato harvest in certain parts of the country helped fourth quarter and full-year results in the food and household products packaging segment. However, a pre-tax purchase accounting adjustment of $6.1 million for inventory valuations associated with the U.S. Can acquisition reduced segment earnings in 2006," Hoover said.
Plastic Packaging, Americas
Plastic Packaging, Americas, segment results for 2006 were operating earnings of $24.7 million on sales of $645.4 million, compared to $16.7 million on sales of $487.5 million in 2005. For the fourth quarter, earnings were $7.7 million on sales of $158.6 million in 2006, compared to $4.5 million on sales of $113.6 million in 2005.
"We are beginning to produce and sell greater numbers of higher margin, heat set bottles, and the plastic container assets we acquired at the end of the first quarter of 2006 are performing well," Hoover said. "We continue to explore ways to drive down costs and improve results from the higher-volume, lower-margin commodity bottles for water and carbonated soft drinks, where returns do not currently meet our cost of capital."
Aerospace and Technologies
Aerospace and Technologies segment results were operating earnings of $50 million on sales of $672.3 million in 2006, compared to $54.7 million on sales of $694.8 million in 2005. For the fourth quarter, earnings were $16.7 million on sales of $166.6 million in 2006, compared to $15.7 million on sales of $167.3 million in the fourth quarter of 2005.
"The Aerospace and Technologies segment had a strong fourth quarter. Several key contracts were won during the quarter, including one to build the next generation WorldView 2 satellite for DigitalGlobe," Hoover said. "That helped build year end contracted backlog to a record $886 million."
Outlook
Raymond J. Seabrook, executive vice president and chief financial officer, said free cash flow in 2006 was below previously anticipated levels primarily due to higher packaging raw material inventories in North America.
"We did not draw down our elevated North American raw material inventories as projected, but those higher inventories will be eliminated through the first half of 2007," Seabrook said. "The result in 2006 was free cash flow of $183 million instead of the $250 million we had projected, but the shortfall is timing-related and in 2007 we expect at least $350 million of free cash flow.
"We expect to use the cash generated in 2007 to buy back approximately $175 million in stock and reduce debt levels by more than $125 million," Seabrook said.
Hoover said Ball finished 2006 in strong fashion and that he expects that momentum to carry into 2007.
"We look forward to getting back the manufacturing capacity in Europe that was lost to the fire, but since that will not happen until the second quarter, we expect the supply picture to remain very tight for beverage cans in Europe in 2007," Hoover said. "We expect demand for beverage cans in China to remain strong in 2007, leading up to the 2008 Beijing Olympics, and we believe the cost squeeze we experienced there in 2006 due largely to the cost of aluminum is under control. In metal beverage packaging, Americas we expect the benefits we began to see late in 2006 from our project to update our end-making capabilities will continue and increase in 2007.
"Results from our metal food and household products packaging and plastic packaging segments should be improved in 2007 over 2006, in part due to having a full year's results from the acquisitions we made at the end of the first quarter of 2006 and in part from the synergies realized as a result of those acquisitions," Hoover said. "That said, our plastic packaging and metal food and household packaging results have not been acceptable. We still have work to do to properly complete the integration of our acquisitions, balance our manufacturing capabilities following capacity reductions and generally improve returns in these segments.
"The outlook for aerospace and technologies for 2007 is much improved over where we were at the beginning of 2006," Hoover said. "The management and employees in that segment did a tremendous job of working through a difficult 2006, controlling costs and capital spending while winning significant new business."
Ball Corporation is a supplier of high-quality metal and plastic packaging products and owns Ball Aerospace & Technologies Corp., which develops sensors, spacecraft, systems and components for government and commercial customers. The company employs more than 15,500 people worldwide.
Conference Call Details
Ball Corporation will hold its regular quarterly conference call on the company's results and performance today at 9 a.m. Mountain Time (11 a.m. Eastern). The North American toll-free number for the call is 888-391-0236. International callers should dial 212-676-5387. For those unable to listen to the live call, a taped rebroadcast will be available until 11 a.m. Mountain Time on Feb. 1, 2007. To access the rebroadcast, dial 800-633-8284 (domestic callers) or +1-402-977-9140 (international callers) and enter 21313862 as the reservation number.
Please use the following URL for a Web cast of the live call and for the replay:
http://phx.corporate-ir.net/phoenix.zhtml?p=irol-
eventDetails&c=115234&eventID=1438470
A written transcript of the call will be posted within 48 hours of the call's conclusion to Ball's Web site at www.ball.com in the investor relations section under "presentations."
Forward-Looking Statements
This release contains "forward-looking" statements concerning future events and financial performance. Words such as "expects," "anticipates," "estimates" and similar expressions are intended to identify forward-looking statements. Such statements are subject to risks and uncertainties which could cause actual results to differ materially from those expressed or implied. 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 risks and uncertainties are summarized in filings with the Securities and Exchange Commission, including Exhibit 99.2 in our Form 10-K, which are available at our Web site and at www.sec.gov. Factors that might affect our packaging segments include fluctuation in consumer and customer demand and preferences; availability and cost of raw materials, including recent significant increases in resin, steel, aluminum and energy costs, and the ability to pass such increases on to customers; competitive packaging availability, pricing and substitution; changes in climate and weather; crop yields; industry productive capacity and competitive activity; failure to achieve anticipated productivity improvements or production cost reductions, including those associated with our beverage can end project; the German mandatory deposit or other restrictive packaging laws; changes in major customer or supplier contracts or loss of a major customer or supplier; changes in foreign exchange rates, tax rates and activities of foreign subsidiaries; the effect of LIFO accounting and any changes to such accounting. Factors that might affect our aerospace segment include: funding, authorization, availability and returns of government and commercial contracts; and delays, extensions and technical uncertainties affecting segment contracts. Factors that might affect the company as a whole include those listed plus: accounting changes; successful or unsuccessful acquisitions, joint ventures or divestitures; integration of recently acquired businesses; regulatory action or laws including tax, environmental and workplace safety; governmental investigations; technological developments and innovations; goodwill impairment; antitrust, patent and other litigation; strikes; labor cost changes; rates of return projected and earned on assets of the company's defined benefit retirement plans; pension changes; reduced cash flow; interest rates affecting our debt; and changes to unaudited results due to statutory audits or other effects.
Condensed Financials (December 2006)
Unaudited Statements of Consolidated Earnings
Three months ended Year ended
($ in millions, except December 31, December 31,
per share amounts) 2006 2005 2006 2005
Net sales (Note 2) $1,591.8 $1,291.2 $6,621.5 $5,751.2
Costs and expenses
Cost of sales (excluding
depreciation and
amortization) 1,312.2 1,089.0 5,540.4 4,802.7
Business consolidation
costs (Note 4) 33.8 (6.9) 35.5 21.2
Depreciation and amortization 68.6 52.7 252.6 213.5
Selling, general and
administrative 76.9 60.1 287.2 233.8
Property insurance
gain (Note 4) 1.4 -- (75.5) --
1,492.9 1,194.9 6,040.2 5,271.2
Earnings before interest
and taxes (Note 2) 98.9 96.3 581.3 480.0
Interest expense (36.3) (22.6) (134.4) (97.1)
Debt refinancing
costs (Note 4) -- (18.0) -- (19.3)
Total interest expense (36.3) (40.6) (134.4) (116.4)
Tax provision (17.4) (11.9) (131.6) (106.2)
Minority interests 0.1 (0.1) (0.4) (0.8)
Equity in results of affiliates 3.0 3.7 14.7 15.5
Net earnings $48.3 $47.4 $329.6 $272.1
Earnings per share (Note 4):
Basic $0.47 $0.46 $3.19 $2.52
Diluted $0.46 $0.45 $3.14 $2.48
Weighted average shares
outstanding (000s):
Basic 103,160 103,046 103,338 107,758
Diluted 104,814 104,892 104,951 109,732
Condensed Financials (December 2006)
Unaudited Statements of Consolidated Cash Flows
Three months ended Year ended
December 31, December 31,
($ in millions) 2006 2005 2006 2005
Cash Flows From Operating
Activities:
Net earnings $48.3 $47.4 $329.6 $272.1
Depreciation and amortization 68.6 52.7 252.6 213.5
Property insurance
gain (Note 4) 1.4 -- (75.5) --
Business consolidation
costs (Note 4) 34.2 (9.1) 35.9 19.0
Debt refinancing costs (Note 4) -- 18.0 -- 19.3
Income taxes (27.6) (22.7) (24.2) (0.4)
Pension funding and
expense, net 0.5 8.2 (6.7) 27.7
Other changes in working
capital 152.0 181.0 (119.1) (2.5)
Other 7.9 (1.5) 8.8 10.1
285.3 274.0 401.4 558.8
Cash Flows From Investing
Activities:
Additions to property, plant
and equipment (92.0) (97.5) (279.6) (291.7)
Acquisitions (Note 3) (0.1) -- (786.5) --
Property insurance
proceeds (Note 4) 28.9 -- 61.3 --
Other 1.7 10.9 11.4 1.7
(61.5) (86.6) (993.4) (290.0)
Cash Flows From Financing
Activities:
Net change in borrowings (122.8) (153.4) 767.4 1.5
Dividends (10.3) (10.2) (41.0) (42.5)
Purchase of common stock, net (1.0) (47.7) (45.7) (358.1)
Other 1.6 (11.6) (0.5) (11.6)
(132.5) (222.9) 680.2 (410.7)
Effect of exchange rate changes
on cash 1.1 6.1 2.3 4.2
Change in cash 92.4 (29.4) 90.5 (137.7)
Cash-beginning of period 59.1 90.4 61.0 198.7
Cash-end of period $151.5 $61.0 $151.5 $61.0
Condensed Financials (December 2006)
Unaudited Consolidated Balance Sheets
December 31, December 31,
($ in millions) 2006 2005
Assets
Current assets
Cash and cash equivalents $151.5 $61.0
Receivables, net 579.5 376.6
Inventories, net 935.4 699.9
Deferred taxes and other current assets 94.9 106.4
Total current assets 1,761.3 1,243.9
Property, plant and equipment, net 1,876.0 1,556.6
Goodwill 1,773.7 1,258.6
Other assets 429.9 302.4
Total assets $5,840.9 $4,361.5
Liabilities and Shareholders' Equity
Current liabilities
Short-term debt and current portion
of long-term debt $181.3 $116.4
Payables and accrued liabilities 1,248.9 1,059.6
Total current liabilities 1,430.2 1,176.0
Long-term debt 2,270.4 1,473.3
Other liabilities and minority interests 974.9 858.8
Shareholders' equity 1,165.4 853.4
Total liabilities and shareholders'
equity $5,840.9 $4,361.5
Notes to Condensed Financials (December 2006)
1. Accounting Policy Change
In the fourth quarter, management made an assessment that the first-in,
first-out (FIFO) method of inventory accounting was preferable to the
last-in, first-out (LIFO) method used in the metal beverage packaging,
Americas, and the metal food and household products packaging, Americas,
business segments. The FIFO method of inventory accounting better matches
revenues and expenses in accordance with sales contract payment terms.
All periods presented have been retrospectively adjusted on a FIFO basis
in accordance with Statement of Financial Accounting Standards No. 154
(see Note 6).
2. Business Segment Information
Three months ended Year ended
December 31, December 31,
($ in millions) 2006 2005 2006 2005
Sales-
Metal beverage packaging,
Americas $611.9 $545.7 $2,604.4 $2,390.4
Metal beverage packaging,
Europe/Asia 352.6 296.1 1,512.5 1,354.5
Metal food & household
products packaging,
Americas (Note 3) 302.1 168.5 1,186.9 824.0
Plastic packaging,
Americas (Note 3) 158.6 113.6 645.4 487.5
Aerospace and technologies 166.6 167.3 672.3 694.8
Consolidated net sales $1,591.8 $1,291.2 $6,621.5 $5,751.2
Earnings before interest
and taxes (A) -
Metal beverage packaging,
Americas $75.9 $51.8 $269.4 $254.1
Business consolidation
costs (Note 4) -- -- -- (19.3)
Total metal beverage packaging,
Americas 75.9 51.8 269.4 234.8
Metal beverage packaging,
Europe/Asia 34.4 26.2 193.2 171.2
Business consolidation
activities (Note 4) -- 9.3 -- 9.3
Property insurance
gain (Note 4) (1.4) -- 75.5 --
Total metal beverage packaging,
Europe/Asia 33.0 35.5 268.7 180.5
Metal food & household products
packaging, Americas (Note 3) 12.9 (2.4) 41.5 30.3
Business consolidation
costs (Note 4) (33.8) (2.4) (35.5) (11.2)
Total metal food & household
products packaging, Americas (20.9) (4.8) 6.0 19.1
Plastic packaging,
Americas (Note 3) 7.7 4.5 24.7 16.7
Aerospace and technologies 16.7 15.7 50.0 54.7
Segment earnings before
interest and taxes 112.4 102.7 618.8 505.8
Undistributed corporate
costs (13.5) (6.4) (37.5) (25.8)
Earnings before interest
and taxes $98.9 $96.3 $581.3 $480.0
(A) Certain reclassifications were made to prior year figures to conform
to the current year presentation (see Note 1).
3. Acquisitions
On March 27, 2006, Ball Corporation acquired all the issued and
outstanding shares of U.S. Can Corporation (U.S. Can) for consideration of
444,756 Ball common shares, together with the repayment of $598 million of
existing U.S. Can debt, including $27 million of bond redemption premiums
and fees. The acquisition has been accounted for as a purchase, and,
accordingly, its results have been included in our consolidated financial
statements in the metal food and household products packaging, Americas,
segment from March 27, 2006.
The acquired business manufactures and sells aerosol cans, paint cans,
plastic containers and custom and specialty containers in 10 plants in the
U.S. and is the largest manufacturer of aerosol cans in North America. In
addition, the company manufactures and sells aerosol cans in two plants in
Argentina. The acquired operations employ 2,300 people and have annual
sales of approximately $600 million.
On March 28, 2006, Ball Corporation acquired certain North American
plastic container net assets from Alcan Packaging for a total cash
consideration of $185 million. Ball acquired plastic container
manufacturing plants in Batavia, Illinois; Bellevue, Ohio; and Brampton,
Ontario; as well as certain equipment and other assets at an Alcan
research facility in Neenah, Wisconsin, and at a plant in Newark,
California. The acquisition has been accounted for as a purchase, and,
accordingly, its results have been included in our consolidated financial
statements in the plastic packaging, Americas, segment from March 28,
2006.
The acquired business primarily manufactures and sells barrier
polypropylene plastic bottles used in food packaging and, to a lesser
extent, manufactures and sells barrier PET plastic bottles used for
beverages and foods. The acquired operations employ 470 people and have
annual sales of approximately $150 million.
4. Business Consolidation Activities, Property Insurance Gain and Other
Items
2006
In the fourth quarter, the company announced the closure of a metal food
can manufacturing facility in Burlington, Ontario, as part of the
realignment of the metal food and household products packaging, Americas,
segment following the acquisition earlier this year of U.S. Can. Also in
December the company closed a leased facility in Alliance, Ohio, acquired
from U.S. Can, which has been treated as an opening balance sheet
adjustment related to the U.S. Can acquisition. A charge of $33.8 million
($27.5 million after tax) was recorded in the fourth quarter related to
the Burlington closure for equipment disposal, employee termination,
pension and other closure costs. Additionally in the fourth quarter, a
one-time tax benefit of $8.1 million was recorded due to a change in the
functional currency of a European subsidiary in its statutory accounts.
In the second quarter, there was a fire in the metal beverage can plant in
Hassloch, Germany, which damaged a significant portion of the building and
machinery and equipment. A property insurance gain of $75.5 million
($46.1 million after tax) was recorded in 2006. A reduction to the
insurance gain of $1.4 million ($0.8 million after tax) was recorded in
the fourth quarter. The accounting gain is due to asset replacement costs
being higher than the asset book values at the time of the fire. Property
insurance proceeds of $61.3 million were received in 2006. The damaged
plant is expected to be operational in the second quarter of 2007.
In the first and second quarters, a net $1.7 million charge ($1.1 million
after tax) was recorded in the metal food and household products
packaging, Americas, segment to shut down a food can line in a Canadian
plant and to reflect the recovery of business consolidation costs expensed
in 2005.
2005
In the fourth quarter, Ball recognized $9.3 million of earnings
($5.8 million after tax) primarily related to the final resolution of tax
matters on prior restructuring activities completed in China. The company
also recorded a net charge of $2.4 million ($1.6 million after tax) for
employee severance and pension costs for a reduction in work force in a
metal food can plant in Canada and to reflect the recovery of business
consolidation costs previously expensed.
In the third quarter, Ball commenced a project to upgrade and streamline
its North American beverage can end manufacturing capabilities, a project
that is expected to result in productivity gains and cost reductions. In
connection with these activities, the company recorded a $19.3 million
charge ($11.7 million after tax) primarily for the write off of obsolete
equipment spare parts and employee termination costs.
During the third and fourth quarters, Ball redeemed its 7.75% Senior Notes
due in August 2006. The $300 million redemption resulted in debt
refinancing costs of $19.3 million ($12.3 million after tax).
In the second quarter, a charge of $8.8 million ($5.9 million after tax)
was recorded to close a metal food container plant in Quebec, Canada.
A summary of the effects of the above transactions on after-tax earnings
follows:
Three months ended Year ended
($ in millions, except December 31, December 31,
per share amounts) 2006 2005 2006 2005
Net earnings as reported $48.3 $47.4 $329.6 $272.1
Adjustments:
Insurance gain, net of tax 0.8 -- (46.1) --
Business consolidation
costs & tax, net 19.4 (4.2) 20.5 13.4
Debt refinancing costs,
net of tax -- 11.5 -- 12.3
Net earnings before the above
items $68.5 $54.7 $304.0 $297.8
Diluted earnings per share
before the above items $0.65 $0.52 $2.90 $2.71
Ball's management segregates the above items related to closed facilities,
a one-time insurance gain and other nonrecurring items to evaluate the
company's performance of current operations. The above is presented on a
non-U.S. GAAP basis and should be considered in connection with the
unaudited statements of consolidated earnings. Non-U.S. GAAP measures
should not be considered in isolation.
5. Free Cash Flow
Management internally uses a free cash flow measure (1) to evaluate the
company's operating results, (2) for planning purposes, (3) to evaluate
strategic investments and (4) to evaluate the company's ability to incur
and service debt. Free cash flow is not a defined term under U.S.
generally accepted accounting principles (a non-U.S. GAAP measure).
Non-U.S. GAAP measures should not be considered in isolation or as a
substitute for net earnings or cash flow data prepared in accordance with
U.S. GAAP and may not be comparable to similarly titled measures of other
companies.
Free cash flow is typically derived directly from the company's cash flow
statements and defined as cash flows from operating activities less
additions to property, plant and equipment; however it may be adjusted for
items that affect comparability between periods. In 2006 capital
expenditures include spending to replace assets destroyed by fire (see
Note 4). This capital spending is being reimbursed by property insurance
proceeds which has also been included in the 2006 free cash flow
calculation.
Free cash flow in 2006 amounted to $183 million.
6. Unaudited Quarterly Results of Operations
Quarterly results have been restated due to a change in accounting policy
impacting the metal beverage packaging, Americas, and the metal food and
household products packaging, Americas, business segments (see Note 1).
The restated quarterly results and revised diluted earnings per share are
as follows:
($ in millions, except First Second Third Fourth
per share amounts) Quarter Quarter Quarter Quarter Total
2006
Metal beverage packaging,
Americas $53.5 $67.0 $73.0 $75.9 $269.4
Metal food & household
products packaging,
Americas 1.1 6.4 19.4 (20.9) 6.0
Diluted earnings per share $0.42 $1.23 $1.02 $0.46 $3.14
2005
Metal beverage packaging,
Americas $60.7 $70.1 $52.2 $51.8 $234.8
Metal food & household
products packaging,
Americas 16.0 (4.4) 12.3 (4.8) 19.1
Diluted earnings per share $0.53 $0.73 $0.76 $0.45 $2.48
SOURCE Ball Corporation
Released January 25, 2007