May 8, 2020 - 10-Q: Quarterly report pursuant to Section 13 or 15(d)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2020


☐	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
organization)

35-0160610

(I.R.S. Employer Identification No.)

10 Longs Peak Drive, P.O. Box 5000

Broomfield, CO 80021-2510

(Address of registrant’s principal executive office)

80021-2510

(Zip Code)

Registrant’s telephone number, including area code: 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 April 30, 2020
Common Stock, without par value		BLL		NYSE		326,001,768 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 company◻
	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 ⌧

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Ball Corporation

QUARTERLY REPORT ON FORM 10-Q

For the period ended March 31, 2020

INDEX

		Page Number

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Unaudited Condensed Consolidated Statements of Earnings for the Three Months Ended March 31, 2020 and 2019	1

	Unaudited Condensed Consolidated Statements of Comprehensive Earnings (Loss) for the Three Months Ended March 31, 2020 and 2019	2

	Unaudited Condensed Consolidated Balance Sheets at March 31, 2020, and December 31, 2019	3

	Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019	4

	Notes to the Unaudited Condensed Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37

Item 4.	Controls and Procedures	38

PART II.	OTHER INFORMATION	38

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PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

BALL CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS


	Three Months Ended March 31,
($ in millions, except per share amounts)	2020		2019

Net sales	$	2,785	$	2,785

Costs and expenses
Cost of sales (excluding depreciation and amortization)		(2,215)		(2,253)
Depreciation and amortization		(169)		(170)
Selling, general and administrative		(131)		(127)
Business consolidation and other activities		(115)		(14)
		(2,630)		(2,564)

Earnings before interest and taxes		155		221

Interest expense		(71)		(77)
Debt refinancing and other costs		(40)		(4)
Total interest expense		(111)		(81)

Earnings before taxes		44		140
Tax (provision) benefit		4		(10)
Equity in results of affiliates, net of tax		(25)		(13)
Net earnings		23		117
Net (earnings) loss attributable to noncontrolling interests		—		—
Net earnings attributable to Ball Corporation	$	23	$	117


Earnings per share:
Basic	$	0.07	$	0.35
Diluted	$	0.07	$	0.34


Weighted average shares outstanding: (000s)
Basic		325,346		334,239
Diluted		332,326		342,676

See accompanying notes to the unaudited condensed consolidated financial statements.

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BALL CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)


	Three Months Ended March 31,
($ in millions)	2020		2019

Net earnings	$	23	$	117

Other comprehensive earnings (loss):
Foreign currency translation adjustment		(224)		79
Pension and other postretirement benefits		(8)		24
Derivatives designated as hedges		8		30
Total other comprehensive earnings (loss)		(224)		133
Income tax (provision) benefit		(5)		(8)
Total other comprehensive earnings (loss), net of tax		(229)		125

Total comprehensive earnings (loss)		(206)		242
Comprehensive (earnings) loss attributable to noncontrolling interests		—		—
Comprehensive earnings (loss) attributable to Ball Corporation	$	(206)	$	242

See accompanying notes to the unaudited condensed consolidated financial statements.

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BALL CORPORATION

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS


	March 31,		December 31,
($ in millions)	2020		2019

Assets
Current assets
Cash and cash equivalents	$	801	$	1,798
Receivables, net		1,862		1,631
Inventories, net		1,354		1,274
Other current assets		224		181
Total current assets		4,241		4,884
Noncurrent assets
Property, plant and equipment, net		4,499		4,470
Goodwill		4,270		4,419
Intangible assets, net		1,914		2,002
Other assets		1,621		1,585
Total assets	$	16,545	$	17,360

Liabilities and Equity
Current liabilities
Short-term debt and current portion of long-term debt	$	522	$	1,480
Accounts payable		2,613		3,136
Accrued employee costs		236		285
Other current liabilities		632		676
Total current liabilities		4,003		5,577
Noncurrent liabilities
Long-term debt		7,476		6,337
Employee benefit obligations		1,435		1,486
Deferred taxes		547		561
Other liabilities		384		380
Total liabilities		13,845		14,341

Equity
Common stock (678,128,063 shares issued - 2020; 676,302,319 shares issued - 2019)		1,151		1,178
Retained earnings		5,777		5,803
Accumulated other comprehensive earnings (loss)		(1,139)		(910)
Treasury stock, at cost (352,208,959 shares - 2020; 351,667,322 shares - 2019)		(3,159)		(3,122)
Total Ball Corporation shareholders' equity		2,630		2,949
Noncontrolling interests		70		70
Total equity		2,700		3,019
Total liabilities and equity	$	16,545	$	17,360

See accompanying notes to the unaudited condensed consolidated financial statements.

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BALL CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Three Months Ended March 31,
($ in millions)	2020		2019

Cash Flows from Operating Activities
Net earnings	$	23	$	117
Adjustments to reconcile net earnings to cash provided by (used in) operating activities:
Depreciation and amortization		169		170
Business consolidation and other activities		115		14
Deferred tax provision (benefit)		(36)		10
Other, net		58		47
Changes in working capital components, net of dispositions		(1,037)		(487)
Cash provided by (used in) operating activities		(708)		(129)
Cash Flows from Investing Activities
Capital expenditures		(213)		(154)
Business dispositions, net of cash sold		(17)		—
Other, net		(4)		(9)
Cash provided by (used in) investing activities		(234)		(163)
Cash Flows from Financing Activities
Long-term borrowings		1,252		671
Repayments of long-term borrowings		(1,547)		(412)
Net change in short-term borrowings		493		160
Proceeds (payments) from issuances of common stock, net of shares used for taxes		(31)		(4)
Acquisitions of treasury stock		(57)		(146)
Common stock dividends		(51)		(34)
Other, net		(34)		(10)
Cash provided by (used in) financing activities		25		225

Effect of exchange rate changes on cash		(78)		11

Change in cash, cash equivalents and restricted cash		(995)		(56)
Cash, cash equivalents and restricted cash - beginning of period		1,806		728
Cash, cash equivalents and restricted cash - end of period	$	811	$	672

See accompanying notes to the unaudited condensed consolidated financial statements.

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Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

1. Basis of Presentation

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 2019 Annual Report on Form 10-K filed on February 19, 2020, pursuant to the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2019 (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 that are of a normal recurring nature and are necessary to fairly state the results of the periods presented.

Risks and Uncertainties – Novel Coronavirus (COVID-19)

The preparation of financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the reporting date and revenues and expenses during the reporting periods. These estimates represent management’s judgement about the outcome of future events. The current global business environment is being impacted directly and indirectly by the effects of the novel coronavirus (COVID-19), and it is not possible to accurately predict the future impact of COVID-19. However, Ball management has reviewed the estimates used in preparing the financial statements and the following have a reasonably possible likelihood of being affected, to a material extent, by the direct and indirect impacts of COVID-19 in the near term.

●

Estimates regarding the future financial performance of the business used in the impairment tests for goodwill, long-lived assets, equity method investments, recoverability of deferred tax assets and estimates regarding cash needs and associated indefinite reinvestment assertions;

●

Estimates of recoverability for customer receivables;

●

Estimates of net realizable value for inventory;

●

Estimates regarding the likelihood of forecasted transactions associated with hedge accounting at March 31, 2020, could cease to meet the hedge accounting requirements and result in the recognition of income and/or expenses.

In addition to the above potential impacts on the estimates used in preparing financial statements, COVID-19 has the potential to increase Ball’s vulnerabilities to near-term severe impacts related to certain concentrations in its business. In line with other companies in the packaging and aerospace industries, Ball makes the majority of its sales and significant purchases to or from a relatively small number of global, or large regional, customers and suppliers. Furthermore, Ball makes the majority of its sales from a small number of product lines. The potential of COVID-19 to affect a significant customer or supplier, or to affect demand for certain products to a significant degree, heightens the vulnerability of Ball to these concentrations.

Certain prior year amounts have been reclassified in order to conform to the current year presentation.

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Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

2. Accounting Pronouncements

Recently Adopted Accounting Standards

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 was applied prospectively on January 1, 2020, and did not have a material effect on the company’s unaudited condensed consolidated financial statements.

Financial Assets

Amendments 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 is 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. Ball adopted this guidance and all related amendments on January 1, 2020, applying the modified retrospective method, and this adoption did not have a material effect on the company’s unaudited condensed consolidated financial statements.

New Accounting Guidance

Income Tax Simplification

In December 2019, accounting guidance was issued to simplify the accounting for income taxes. The guidance is effective for Ball on January 1, 2021, and the company is currently assessing the impact that the adoption of this new guidance will have on its consolidated 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 four reportable segments outlined below. Effective January 1, 2020, the company implemented changes to its management and internal reporting structure for cost reduction and operational efficiency purposes. As a result of these changes, the company’s plants in Cairo, Egypt, and Manisa, Turkey, are now included in the beverage packaging, Europe, Middle East and Africa (beverage packaging, EMEA), segment. The company’s operations in India and Saudi Arabia are now combined with the former non-reportable beverage packaging, Asia Pacific, operating segment as a new non-reportable beverage packaging, other, operating segment. The company’s segment results and disclosures for the three months ended March 31, 2019, have been retrospectively adjusted to conform to the current year presentation.

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, EMEA: Consists of operations in numerous countries throughout Europe, including Russia, as well as Egypt and Turkey, that manufacture and sell metal beverage containers throughout those regions.

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

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.

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Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

As presented in the table below, Other consists of a non-reportable operating segment (beverage packaging, other), that manufactures and sells aluminum beverage containers in India, Saudi Arabia and throughout the Asia Pacific region; a non-reportable operating segment that manufactures and sells extruded aluminum aerosol containers and aluminum slugs (aerosol packaging); a non-reportable operating segment that manufactures and sells aluminum cups (aluminum cups); 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 as 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.

Summary of Business by Segment


	Three Months Ended March 31,
($ in millions)	2020		2019

Net sales
Beverage packaging, North and Central America	$	1,181	$	1,131
Beverage packaging, EMEA		669		684
Beverage packaging, South America		405		441
Aerospace		432		328
Reportable segment sales		2,687		2,584
Other		98		201
Net sales	$	2,785	$	2,785

Comparable operating earnings
Beverage packaging, North and Central America	$	146	$	118
Beverage packaging, EMEA		68		74
Beverage packaging, South America		63		68
Aerospace		40		30
Reportable segment comparable operating earnings		317		290
Reconciling items
Other (a)		(10)		(15)
Business consolidation and other activities		(115)		(14)
Amortization of acquired Rexam intangibles		(37)		(40)
Earnings before interest and taxes		155		221
Interest expense		(71)		(77)
Debt refinancing and other costs		(40)		(4)
Total interest expense		(111)		(81)
Earnings before taxes	$	44	$	140

(a)	Includes undistributed corporate expenses, net, of $14 million and $23 million for the three months ended March 31, 2020 and 2019, respectively.

The company does not disclose total assets by segment as it is not provided to the chief operating decision maker.

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Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

4. Acquisitions and Dispositions

Brazil Aluminum Aerosol Packaging Business

In March 2020, the company agreed to acquire the entire share capital of Tubex Industria E Comercio de Embalagens Ltda, an aluminum aerosol packaging business with a plant near Sao Paolo, Brazil, for initial cash consideration of $80 million, subject to customary closing adjustments, and potential additional consideration not to exceed $30 million over the three years following the transaction close date. The business will be part of Ball’s aerosol packaging operating segment. The transaction is expected to close in the third quarter of 2020 and will broaden the geographic reach of Ball’s aluminum aerosol packaging business, serving the growing Brazilian personal care market.

Argentina Steel Aerosol Business

In October 2019, the company sold its Argentine steel aerosol packaging business, which included facilities in Garin and San Luis, Argentina, and recorded a loss on disposal of $52 million, which included the write-off of cumulative translation adjustments of $45 million related to the Argentina business that had been previously recorded in accumulated other comprehensive income. The loss on disposal was presented in business consolidation and other activities in the company’s unaudited condensed consolidated statements of earnings.

Beverage Packaging China

In September 2019, the company completed the sale of 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 value of which has been reduced to zero dollars, as described in Note 6. The upfront proceeds from this sale were received in the fourth quarter of 2019. The potential additional consideration was written off during the first quarter of 2020. This charge, along with the loss on disposal of $45 million recorded in the third quarter of 2019, was recorded in business consolidation and other activities in the unaudited condensed consolidated statement of earnings.

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. As disclosed in Note 3, the company’s business consists of four reportable segments, which encompass disaggregated product lines and geographical areas: (1) beverage packaging, North and Central America; (2) beverage packaging, EMEA; (3) beverage packaging, South America; and (4) aerospace.

The following table disaggregates the company’s net sales based on the timing of transfer of control:


	Three Months Ended March 31, 2020						Three Months Ended March 31, 2019
($ in millions)	Point in Time		Over Time		Total		Point in Time		Over Time		Total

Total net sales	$	503	$	2,282	$	2,785	$	557	$	2,228	$	2,785

Contract Balances

The company enters into contracts to sell beverage packaging, aerosol packaging, and aerospace products and services. The company did not have any contract assets at either March 31, 2020, or December 31, 2019. 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.

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Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

The opening and closing balances of the company’s current and noncurrent contract liabilities are as follows:


	Contract		Contract
	Liabilities		Liabilities
($ in millions)	(Current)		(Noncurrent)

Balance at December 31, 2019		87		9
Increase (decrease)		1		(1)
Balance at March 31, 2020	$	88	$	8

During the three months ended March 31, 2020, total contract liabilities remained flat, which is net of cash received of $121 million and amounts recognized as sales of $121 million, all of which related to current contract liabilities. The amount of sales recognized in the three months ended March 31, 2020, which were included in the opening contract liabilities balances, was $87 million, all of which related to current contract liabilities. 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 $9 million and $6 million in the three months ended March 31, 2020 and 2019, 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.

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 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 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.


($ in millions)	Next Twelve Months		Thereafter		Total

Sales expected to be recognized on multi-year contracts in place as of March 31, 2020	$	1,371	$	909	$	2,280

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.

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Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

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:


	Three Months Ended March 31,
($ in millions)	2020		2019

Beverage packaging, North and Central America	$	(3)	$	(1)
Beverage packaging, EMEA		(3)		1
Beverage packaging, South America		(1)		(1)
Other		(108)		(13)
	$	(115)	$	(14)

2020

Beverage Packaging, North and Central America

During the three months ended March 31, 2020, the company recorded charges of $3 million for individually insignificant activities in connection with previously announced closures in 2018 of certain beverage can and end manufacturing facilities and other activities.

Beverage Packaging, EMEA

During the three months ended March 31, 2020, the company recorded charges of $3 million for individually insignificant activities in connection with previously announced plant closures, restructuring and other activities.

Beverage Packaging, South America

Charges in the three months ended March 31, 2020, included $1 million of expense for individually insignificant activities.

Other

During 2020, the company recorded the following amounts:

●

A non-cash impairment charge of $62 million related to the goodwill of the new beverage packaging, other, operating segment.

●

Charges of $23 million resulting from the current deterioration in the real estate market in China, which led to the company reducing the value of potential future consideration due as part of the sale of the company’s China beverage packaging business.

●

Charges of $15 million resulting from an adjustment to the selling price of the company’s steel food and aerosol business.

●

Credits of $11 million related to the reversal of reserves against working capital recorded in the fourth quarter of 2019 in the new beverage packaging, other, segment as previously at-risk balances were subsequently collected in the first quarter of 2020.

●

Charges of $6 million for long-term incentive and other compensation arrangements associated with the Rexam acquisition.

●

Charges of $13 million for individually insignificant activities.

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Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

2019

Beverage Packaging, North and Central America

Charges in the three months ended March 31, 2019, included $1 million of expense for individually insignificant activities.

Beverage Packaging, EMEA

During the three months ended March 31, 2019, the company recorded credits of $2 million resulting from updated estimates for employee severance and benefits and facility shutdown costs in connection with the closures of its Recklinghausen, Germany, and San Martino, Italy, plants, which ceased production during the third quarter of 2017 and the fourth quarter of 2018, respectively.

Other charges in the three months ended March 31, 2019, included $1 million of expense for individually insignificant activities.

Beverage Packaging, South America

Charges in the three months ended March 31, 2019, included $1 million of expense for individually insignificant activities.

Other

During the three months ended March 31, 2019, the company recorded charges of $13 million for estimated employee severance costs and professional services associated with the planned sale of the company’s former China beverage packaging business, which closed in September 2019.

7.	Supplemental Cash Flow Statement Disclosures


	March 31,
($ in millions)	2020		2019

Beginning of period:
Cash and cash equivalents	$	1,798	$	721
Current restricted cash (included in other current assets)		8		7
Total cash, cash equivalents and restricted cash	$	1,806	$	728

End of period:
Cash and cash equivalents	$	801	$	603
Current restricted cash (included in other current assets)		10		6
Cash in assets held for sale (included in other current assets)		—		63
Total cash, cash equivalents and restricted cash	$	811	$	672

The company’s restricted cash is primarily related to receivables factoring programs and represents amounts collected from customers that 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 yet been made or obtained through finance leases. These noncash capital expenditures are excluded from the statement of cash flows and totaled approximately $235 million at March 31, 2020, and $224 million at December 31, 2019.

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Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

8. Receivables, Net


	March 31,		December 31,
($ in millions)	2020		2019

Trade accounts receivable	$	865	$	647
Unbilled receivables		558		556
Less allowance for doubtful accounts		(6)		(17)
Net trade accounts receivable		1,417		1,186
Other receivables		445		445
	$	1,862	$	1,631

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 $1.3 billion at March 31, 2020, and $1.4 billion at December 31, 2019. A total of $202 million and $230 million were available for sale under these programs as of March 31, 2020, and December 31, 2019, respectively.

Other receivables include income and sales tax receivables, related party receivables and other miscellaneous receivables.

9. Inventories, Net


	March 31,		December 31,
($ in millions)	2020		2019

Raw materials and supplies	$	827	$	808
Work-in-process and finished goods		613		548
Less: Inventory reserves		(86)		(82)
	$	1,354	$	1,274

10. Property, Plant and Equipment, Net


	March 31,		December 31,
($ in millions)	2020		2019

Land	$	151	$	153
Buildings		1,425		1,433
Machinery and equipment		5,467		5,513
Construction-in-progress		591		434
		7,634		7,533
Accumulated depreciation		(3,135)		(3,063)
	$	4,499	$	4,470

Depreciation expense amounted to $124 million and $122 million for the three months ended March 31, 2020 and 2019, respectively.

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Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

11. Goodwill


($ in millions)	Beverage Packaging, North & Central America		Beverage Packaging, EMEA		Beverage Packaging, South America		Aerospace		Other		Total

Balance at December 31, 2019	$	1,275	$	1,500	$	1,298	$	40	$	306	$	4,419
Goodwill impairment		—		—		—		—		(62)		(62)
Effects of currency exchange		—		(67)		—		—		(20)		(87)
Balance at March 31, 2020	$	1,275	$	1,433	$	1,298	$	40	$	224	$	4,270

Goodwill in the above table is presented net of accumulated impairment losses of $62 million as of March 31, 2020.

As discussed in Note 3, effective January 1, 2020, Ball changed how its former operating segments composed of beverage packaging operations located in Africa, Middle East and Asia (beverage packaging, AMEA), and beverage packaging, Asia Pacific, are being managed and reported. These operating segments had goodwill balances of $102 million and $27 million, respectively, as of December 31, 2019. As shown in the table above, goodwill by segment has been retrospectively adjusted to conform to the current year presentation. Using a relative fair value allocation approach, goodwill of $67 million was allocated to the beverage packaging, EMEA, reportable segment and $62 million of goodwill was allocated to the beverage packaging, other, operating segment.

In the first quarter of 2020, the company recorded a non-cash impairment charge of $62 million related to the goodwill associated with the new beverage packaging, other, reporting unit as the carrying amount of this reporting unit exceeded its fair value. The impairment review was triggered by the restructuring of the company’s reporting units as part of the aforementioned changes in segment management and internal reporting structure.

12. Intangible Assets, Net


	March 31,		December 31,
($ in millions)	2020		2019

Acquired Rexam customer relationships and other Rexam intangibles (net of accumulated amortization of $591 million at March 31, 2020, and $567 million at December 31, 2019)	$	1,829	$	1,909
Capitalized software (net of accumulated amortization of $175 million at March 31, 2020, and $170 million at December 31, 2019)		64		69
Other intangibles (net of accumulated amortization of $115 million at March 31, 2020, and $116 million at December 31, 2019)		21		24
	$	1,914	$	2,002

Total amortization expense of intangible assets amounted to $45 million and $48 million for the three months ended March 31, 2020 and 2019, respectively.

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Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

13. Other Assets


	March 31,		December 31,
($ in millions)	2020		2019

Long-term deferred tax assets	$	264	$	241
Long-term pension assets		414		437
Investments in affiliates		289		291
Right-of-use operating lease assets		261		239
Other		393		377
	$	1,621	$	1,585

In the first quarter of 2020, the shareholders of Ball Metalpack provided additional equity contributions and loans to Ball Metalpack, of which Ball's share was $30 million, which resulted in Ball recognizing previously unrecorded equity method losses associated with prior periods. These losses are presented in equity in results of affiliates, net of tax, in the company’s unaudited condensed consolidated statement of earnings. Ball is under no obligation to provide additional equity contributions or loans to Ball Metalpack.

14. Leases

The company enters into operating leases for buildings, warehouses, office equipment, production equipment, aircraft, land and other types of equipment. The company also enters into finance leases for certain plant equipment.

Supplemental balance sheet information related to the company’s leases follows:


($ in millions)	Balance Sheet Location	March 31, 2020		December 31, 2019

Operating leases:
Operating lease ROU asset	Other assets	$	261	$	239
Current operating lease liabilities	Other current liabilities		59		58
Noncurrent operating lease liabilities	Other liabilities		194		181
Finance leases:
Finance lease ROU assets, net	Property, plant and equipment, net	$	8		—
Current finance lease liabilities	Short-term debt and current portion of long-term debt		1		—
Noncurrent finance lease liabilities	Long-term debt		7		—

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Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

15. Debt

Long-term debt consisted of the following:


	March 31,		December 31,
($ in millions)	2020		2019

Senior Notes
4.375% due December 2020	$	—	$	1,000
3.50%, euro denominated, due December 2020		—		449
5.00% due March 2022		750		750
4.00% due November 2023		1,000		1,000
4.375%, euro denominated, due December 2023		772		785
0.875%, euro denominated, due March 2024		827		841
5.25% due July 2025		1,000		1,000
4.875% due March 2026		750		750
1.50%, euro denominated, due March 2027		607		617
Senior Credit Facility (at variable rates)
Multi-currency revolver due March 2024		780		—
Term A loan, due March 2024		653		653
U.S. dollar revolver due March 2024		381		—
Other (including debt issuance costs)		(39)		(54)
		7,481		7,791
Less: Current portion of long-term debt		(5)		(1,454)
	$	7,476	$	6,337

The company’s senior credit facilities include long-term multi-currency revolving facilities that mature in March 2024. The revolving facilities provide the company with up to the U.S. dollar equivalent of $1.75 billion. At March 31, 2020, taking into account outstanding letters of credit, approximately $555 million was available under the company’s existing long-term, revolving credit facilities. In addition to these facilities, the company had approximately $1.1 billion of short-term uncommitted credit facilities available at March 31, 2020, of which $517 million was outstanding and due on demand. At December 31, 2019, the company had $26 million outstanding under short-term uncommitted credit facilities.

In January 2020, Ball redeemed the outstanding euro-denominated 3.50% senior notes due in 2020 in the amount of €400 million and the outstanding 4.375% senior notes due in 2020 in the amount of $1 billion. The company recorded debt extinguishment costs of $40 million related to this redemption during the three months ended March 31, 2020.

The fair value of long-term debt was estimated to be $7.6 billion at March 31, 2020, and $8.3 billion at December 31, 2019. 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.

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 of the company’s debt covenants requires the company to maintain a leverage ratio (as defined) of no greater than 4.5 times. The company was in compliance with all loan agreements and debt covenants at March 31, 2020, and December 31, 2019, and has met all debt payment obligations.

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Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

16. Taxes on Income

The company’s effective tax rate was negative 9.1 percent and 7.1 percent for the three months ended March 31, 2020 and 2019, respectively. As compared to the statutory U.S. tax rate, the effective tax rate for the three months ended March 31, 2020, was reduced by 51 percentage points for the benefit of share-based compensation, reduced by 13.8 percentage points for the benefit of losses in equity in results of affiliates, reduced by 8.9 percentage points for foreign rate differences net of foreign withholding tax, increased by 35.3 percentage points for the impact of the beverage packaging, other goodwill impairment, and increased by 11.1 percentage points for the impact of revaluing certain deferred tax assets due to fluctuations in foreign currency exchange rates. Also, as compared to the statutory tax rate, the effective tax rate for the three months ended March 31, 2019, was reduced by 11.3 percentage points for the benefit of share-based compensation, reduced by 2.7 percentage points for the benefit of losses in equity in results of affiliates and increased by 1.1 percentage points for the impact of global intangible low-taxed income (GILTI) net of foreign derived intangible income (FDII).

17. Employee Benefit Obligations


	March 31,		December 31,
($ in millions)	2020		2019

Underfunded defined benefit pension liabilities	$	929	$	918
Less: Current portion		(24)		(24)
Long-term defined benefit pension liabilities		905		894
Long-term retiree medical liabilities		164		156
Deferred compensation plans		333		362
Other		33		74
	$	1,435	$	1,486

Components of net periodic benefit cost associated with the company’s defined benefit pension plans were as follows:


	Three Months Ended March 31,
	2020						2019
($ in millions)	U.S.		Foreign		Total		U.S.		Foreign		Total

Ball-sponsored plans:
Service cost	$	16	$	4	$	20	$	12	$	3	$	15
Interest cost		20		14		34		25		18		43
Expected return on plan assets		(31)		(21)		(52)		(28)		(28)		(56)
Amortization of prior service cost		—		1		1		—		1		1
Recognized net actuarial loss		10		1		11		6		1		7
Total net periodic benefit cost	$	15	$	(1)	$	14	$	15	$	(5)	$	10

Non-service pension income of $6 million for the three months ended March 31, 2020 and 2019, is included in selling, general, and administrative (SG&A) expenses.

Contributions to the company’s defined benefit pension plans were $11 million for the first three months of 2020 compared to $6 million for the first three months of 2019, and such contributions are expected to be approximately $90 million for the full year of 2020. This estimate may change based on changes to the U.S. Pension Protection Act, effects of the Coronavirus Aid, Relief, and Economic Security (CARES) Act and the return achieved on actual plan assets, among other factors.

In April 2020, Ball completed the purchase of non-participating group annuity contracts that were transferred to an insurance company for benefit obligations related to the certain of the company’s U.S. pension plans. The purchase will trigger settlement accounting and result in the recognition of settlement losses recorded in business consolidation and other activities that are expected to be approximately $100 million.

Table of Contents

Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

18. Equity and Accumulated Other Comprehensive Earnings

The following tables provide additional details of the company’s equity activity:

Common Stock

Treasury Stock

Accumulated Other

Number of

Retained

Form: 10-Q

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