10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on November 5, 2021
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number
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State of (State or other jurisdiction of incorporation or |
(I.R.S. Employer Identification No.) |
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(Address of registrant’s principal executive office) |
(Zip Code) |
Registrant’s telephone number, including area code:
Securities registered pursuant to section 12(b) of the Act:
Class |
Trading Symbol |
Name of Exchange |
Outstanding at October 31, 2021 |
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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.
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).
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.
Accelerated filer ◻ |
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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
Ball Corporation
QUARTERLY REPORT ON FORM 10-Q
For the period ended September 30, 2021
INDEX
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
BALL CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
Three Months Ended September 30, |
Nine Months Ended September 30, |
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($ in millions, except per share amounts) |
2021 |
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2020 |
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2021 |
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2020 |
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Net sales |
$ |
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$ |
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$ |
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$ |
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Costs and expenses |
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Cost of sales (excluding depreciation and amortization) |
( |
( |
( |
( |
||||||||
Depreciation and amortization |
( |
( |
( |
( |
||||||||
Selling, general and administrative |
( |
( |
( |
( |
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Business consolidation and other activities |
( |
( |
( |
( |
||||||||
( |
( |
( |
( |
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Earnings before interest and taxes |
|
|
|
|
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Interest expense |
( |
( |
( |
( |
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Debt refinancing and other costs |
( |
( |
( |
( |
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Total interest expense |
( |
( |
( |
( |
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Earnings before taxes |
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|
|
|
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Tax (provision) benefit |
|
( |
( |
( |
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Equity in results of affiliates, net of tax |
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|
|
( |
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Net earnings |
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|
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Net (earnings) loss attributable to noncontrolling interests |
— |
|
— |
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Net earnings attributable to Ball Corporation |
$ |
|
$ |
|
$ |
|
$ |
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||||
Earnings per share: |
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Basic |
$ |
|
$ |
|
$ |
|
$ |
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Diluted |
$ |
|
$ |
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$ |
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$ |
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Weighted average shares outstanding: (000s) |
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Basic |
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Diluted |
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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)
Three Months Ended September 30, |
Nine Months Ended September 30, |
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($ in millions) |
|
2021 |
|
2020 |
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2021 |
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2020 |
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Net earnings |
$ |
|
$ |
|
$ |
|
$ |
|
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Other comprehensive earnings (loss): |
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Currency translation adjustment |
( |
( |
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( |
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Pension and other postretirement benefits |
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|
( |
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Derivatives designated as hedges |
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Total other comprehensive earnings (loss) |
|
( |
|
( |
|||||||||
Income tax (provision) benefit |
( |
( |
( |
( |
|||||||||
Total other comprehensive earnings (loss), net of tax |
|
( |
|
( |
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Total comprehensive earnings (loss) |
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|
|
|
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Comprehensive (earnings) loss attributable to noncontrolling interests |
— |
|
— |
|
|||||||||
Comprehensive earnings (loss) attributable to Ball Corporation |
$ |
|
$ |
|
$ |
|
$ |
|
|||||
See accompanying notes to the unaudited condensed consolidated financial statements.
2
BALL CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, |
December 31, |
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($ in millions) |
|
2021 |
|
2020 |
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Assets |
||||||
Current assets |
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Cash and cash equivalents |
$ |
|
$ |
|
||
Receivables, net |
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Inventories, net |
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Other current assets |
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Total current assets |
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Noncurrent assets |
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Property, plant and equipment, net |
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Goodwill |
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Intangible assets, net |
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||||
Other assets |
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Total assets |
$ |
|
$ |
|
||
Liabilities and Equity |
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Current liabilities |
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Short-term debt and current portion of long-term debt |
$ |
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$ |
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Accounts payable |
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Accrued employee costs |
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Other current liabilities |
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Total current liabilities |
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Noncurrent liabilities |
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Long-term debt |
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Employee benefit obligations |
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Deferred taxes |
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Other liabilities |
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Total liabilities |
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Equity |
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Common stock ( |
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Retained earnings |
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Accumulated other comprehensive earnings (loss) |
( |
( |
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Treasury stock, at cost ( |
( |
( |
||||
Total Ball Corporation shareholders' equity |
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Noncontrolling interests |
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||||
Total equity |
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||||
Total liabilities and equity |
$ |
|
$ |
|
||
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, |
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($ in millions) |
|
2021 |
|
2020 |
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Cash Flows from Operating Activities |
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Net earnings |
$ |
|
$ |
|
||
Adjustments to reconcile net earnings to cash provided by (used in) operating activities: |
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Depreciation and amortization |
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Business consolidation and other activities |
|
|
||||
Deferred tax provision (benefit) |
|
( |
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Other, net |
( |
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||||
Changes in working capital components, net of dispositions |
( |
( |
||||
Cash provided by (used in) operating activities |
|
|
||||
Cash Flows from Investing Activities |
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Capital expenditures |
( |
( |
||||
Business acquisitions, net of cash acquired |
— |
( |
||||
Business dispositions, net of cash sold |
|
( |
||||
Other, net |
( |
|
||||
Cash provided by (used in) investing activities |
( |
( |
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Cash Flows from Financing Activities |
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Long-term borrowings |
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Repayments of long-term borrowings |
( |
( |
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Net change in short-term borrowings |
|
( |
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Proceeds (payments) from issuances of common stock, net of shares used for taxes |
|
( |
||||
Acquisitions of treasury stock |
( |
( |
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Common stock dividends |
( |
( |
||||
Other, net |
( |
( |
||||
Cash provided by (used in) financing activities |
|
( |
||||
Effect of exchange rate changes on cash |
( |
( |
||||
Change in cash, cash equivalents and restricted cash |
|
( |
||||
Cash, cash equivalents and restricted cash - beginning of period |
|
|
||||
Cash, cash equivalents and restricted cash - end of period |
$ |
|
$ |
|
||
See accompanying notes to the unaudited condensed consolidated financial statements.
4
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements (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 consolidated 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 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 2020 Annual Report on Form 10-K filed on February 17, 2021, pursuant to the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2020 (annual report).
The preparation of consolidated 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 consolidated 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 consolidated financial statements reflect all adjustments that are of a normal recurring nature and are 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.
Risks and Uncertainties – Novel Coronavirus (COVID-19)
The preparation of consolidated 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 continues to be impacted directly and indirectly by the effects of the ongoing novel coronavirus (COVID-19) pandemic, and it is not possible to accurately estimate the impacts of COVID-19 and its emerging variants. However, Ball management has reviewed the estimates used in preparing the company’s consolidated 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 company’s 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 positions at September 30, 2021, which could impact the company’s ability to satisfy hedge accounting requirements and result in the recognition of income and/or expenses. |
5
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
In addition to the above potential impacts on the estimates used in preparing consolidated 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.
2. Accounting Pronouncements
Recently Adopted Accounting Standards
Income Tax Simplification
In December 2019, new guidance was issued to simplify the accounting for income taxes. Ball adopted this guidance and all related amendments on January 1, 2021, applying either the retrospective basis, the modified retrospective method, or the prospective method where appropriate. The adoption of this guidance had no impact on the company’s 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
Beverage packaging, North and Central America: Consists of operations in the U.S., Canada and Mexico that manufacture and sell aluminum 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 aluminum beverage containers throughout those regions.
Beverage packaging, South America: Consists of operations in Brazil, Argentina, Paraguay and Chile that manufacture and sell aluminum 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.
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) throughout North America, South America, Europe, and Asia; 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 used in the company’s consolidated financial statements as discussed in Note 1. The company also has investments in operations in Guatemala, Panama, 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. In the third quarter of 2021, Ball sold its minority-owned investment in South Korea. Refer to Note 4 for additional details.
6
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) |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
||||
Net sales |
|||||||||||||
Beverage packaging, North and Central America |
$ |
|
$ |
|
$ |
|
$ |
|
|||||
Beverage packaging, EMEA |
|
|
|
|
|||||||||
Beverage packaging, South America |
|
|
|
|
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Aerospace |
|
|
|
|
|||||||||
Reportable segment sales |
|
|
|
|
|||||||||
Other |
|
|
|
|
|||||||||
Net sales |
$ |
|
$ |
|
$ |
|
$ |
|
|||||
Comparable operating earnings |
|||||||||||||
Beverage packaging, North and Central America |
$ |
|
$ |
|
$ |
|
$ |
|
|||||
Beverage packaging, EMEA |
|
|
|
|
|||||||||
Beverage packaging, South America |
|
|
|
|
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Aerospace |
|
|
|
|
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Reportable segment comparable operating earnings |
|
|
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|
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Reconciling items |
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Other (a) |
( |
( |
( |
( |
|||||||||
Business consolidation and other activities |
( |
( |
( |
( |
|||||||||
Amortization of acquired intangibles |
( |
( |
( |
( |
|||||||||
Earnings before interest and taxes |
|
|
|
|
|||||||||
Interest expense |
( |
( |
( |
( |
|||||||||
Debt refinancing and other costs |
( |
( |
( |
( |
|||||||||
Total interest expense |
( |
( |
( |
( |
|||||||||
Earnings before taxes |
$ |
|
$ |
|
$ |
|
$ |
|
|||||
| (a) |
Includes undistributed corporate expenses, net, of $ |
The company does not disclose total assets by segment as such information is not provided to the chief operating decision maker.
7
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
4. Acquisitions and Dispositions
South Korea Investment
In the third quarter of 2021, Ball sold its minority-owned investment in South Korea. Consideration for the transaction was cash of $
Brazil Aluminum Aerosol Packaging Business
In the third quarter of 2020, the company acquired the entire share capital of Tubex Industria E Comercio de Embalagens Ltda, an aluminum aerosol packaging business with a plant in Itupeva, Brazil, for the purchase price of $
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.
The following table disaggregates the company’s net sales based on the timing of transfer of control:
Three Months Ended September 30, |
Nine Months Ended September 30, |
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($ in millions) |
Point in Time |
Over Time |
Total |
|
Point in Time |
Over Time |
Total |
|||||||||||
2021 |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||
2020 |
|
|
|
|
|
|
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Contract Balances
The company did not have any contract assets at either , or . 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:
Contract |
Contract |
|||||
Liabilities |
Liabilities |
|||||
($ in millions) |
|
(Current) |
(Noncurrent) |
|||
Balance at December 31, 2020 |
$ |
|
$ |
|
||
Increase (decrease) |
|
|
||||
Balance at September 30, 2021 |
$ |
|
$ |
|
||
8
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
During the nine months ended September 30, 2021, total contract liabilities increased by $
The company also recognized net sales of $
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.
($ in millions) |
|
Next Twelve Months |
Thereafter |
Total |
|||||
Sales expected to be recognized on multi-year contracts in place as of September 30, 2021 |
$ |
|
$ |
|
$ |
|
|||
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 September 30, |
Nine Months Ended September 30, |
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($ in millions) |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
||||
Beverage packaging, North and Central America |
$ |
— |
$ |
— |
$ |
( |
$ |
( |
||||
Beverage packaging, EMEA |
( |
( |
( |
( |
||||||||
Beverage packaging, South America |
( |
|
|
( |
||||||||
Other |
( |
( |
( |
( |
||||||||
$ |
( |
$ |
( |
$ |
( |
$ |
( |
|||||
2021
Beverage Packaging, North and Central America
During the nine months ended September 30, 2021, the company recorded net charges of $
Beverage Packaging, EMEA
During the three and nine months ended September 30, 2021, the company recorded charges of $
9
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
Beverage Packaging, South America
During the nine months ended September 30, 2021, the company recorded a $
Other
During the three months ended September 30, 2021, the company recorded the following amounts:
| ● |
A non-cash settlement loss of $ |
During the nine months ended September 30, 2021, the company recorded the following amounts:
| ● |
A non-cash settlement loss of $ |
| ● |
A loss of $ |
| ● |
Charges of $ |
2020
Beverage Packaging, North and Central America
During the nine months ended September 30, 2020, the company recorded charges of $
Beverage Packaging, EMEA
During the three and nine months ended September 30, 2020, the company recorded charges of $
Beverage Packaging, South America
During the three and nine months ended September 30, 2020, the company recorded credits of $
Other
During the three months ended September 30, 2020, the company recorded the following amounts:
| ● |
Settlement charges of $ |
| ● |
Charges of $ |
10
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
During the nine months ended September 30, 2020, the company recorded the following amounts:
| ● |
A non-cash settlement loss of $ |
| ● |
A non-cash impairment charge of $ |
| ● |
A non-cash charge of $ |
| ● |
Charges of $ |
| ● |
A credit of $ |
| ● |
Charges of $ |
| ● |
Charges of $ |
7. |
Supplemental Cash Flow Statement Disclosures |
September 30, |
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($ in millions) |
2021 |
|
2020 |
|||
|
||||||
Beginning of period: |
|
|||||
Cash and cash equivalents |
$ |
|
|
$ |
|
|
|
|
|
||||
Total cash, cash equivalents and restricted cash |
$ |
|
|
$ |
|
|
|
||||||
End of period: |
|
|||||
Cash and cash equivalents |
$ |
|
|
$ |
|
|
|
|
|
||||
Total cash, cash equivalents and restricted cash |
$ |
|
|
$ |
|
|
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 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 approximately $
8. Receivables, Net
September 30, |
December 31, |
|||||
($ in millions) |
2021 |
|
2020 |
|||
Trade accounts receivable |
$ |
|
$ |
|
||
Unbilled receivables |
|
|
||||
Less: Allowance for doubtful accounts |
( |
( |
||||
Net trade accounts receivable |
|
|
||||
Other receivables |
|
|
||||
$ |
|
$ |
|
|||
11
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
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 $
Other receivables include income and sales tax receivables and other miscellaneous receivables.
9. Inventories, Net
September 30, |
December 31, |
||||
($ in millions) |
2021 |
|
2020 |
||
Raw materials and supplies |
$ |
|
$ |
|
|
Work-in-process and finished goods |
|
|
|||
Less: Inventory reserves |
( |
( |
|||
$ |
|
$ |
|
||
10. Property, Plant and Equipment, Net
September 30, |
December 31, |
|||||
($ in millions) |
|
2021 |
|
2020 |
||
Land |
$ |
|
$ |
|
||
Buildings |
|
|
||||
Machinery and equipment |
|
|
||||
Construction-in-progress |
|
|
||||
|
|
|||||
Accumulated depreciation |
( |
( |
||||
$ |
|
$ |
|
|||
Depreciation expense amounted to $
11. Goodwill
($ in millions) |
|
|
|
|
|
|
|
|
|
Other |
|
Total |
||||||
Balance at December 31, 2020 |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||
Effects of currency exchange |
— |
( |
— |
— |
( |
( |
||||||||||||
Balance at September 30, 2021 |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||
Goodwill in the above table is presented net of accumulated impairment losses of $
In the first quarter of 2020, Ball recorded a non-cash impairment charge of $
12
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
12. Intangible Assets, Net
September 30, |
December 31, |
|||||
($ in millions) |
|
2021 |
|
2020 |
||
Acquired customer relationships and other intangibles (net of accumulated amortization of $ |
$ |
|
$ |
|
||
Capitalized software (net of accumulated amortization of $ |
|
|
||||
Other intangibles (net of accumulated amortization of $ |
|
|
||||
$ |
|
$ |
|
|||
Total amortization expense of intangible assets amounted to $
13. Other Assets
September 30, |
December 31, |
|||||
($ in millions) |
|
2021 |
|
2020 |
||
Long-term pension assets |
$ |
|
$ |
|
||
Investments in affiliates |
|
|
||||
Right-of-use operating lease assets |
|
|
||||
Long-term deferred tax assets |
|
|
||||
Other |
|
|
||||
$ |
|
$ |
|
|||
In the third quarter of 2021, Ball sold its minority-owned investment in South Korea for total proceeds of $
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.
13
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
Supplemental balance sheet information related to the company’s leases follows:
September 30, |
December 31, |
||||||
($ in millions) |
Balance Sheet Location |
2021 |
2020 |
||||
Operating leases: |
|||||||
Operating lease ROU asset |
$ |
|
$ |
|
|||
Current operating lease liabilities |
|
|
|||||
Noncurrent operating lease liabilities |
|
|
|||||
Finance leases: |
|||||||
Finance lease ROU assets, net |
Property, plant and equipment, net |
$ |
|
$ |
|
||
Current finance lease liabilities |
Short-term debt and current portion of long-term debt |
|
|
||||
Noncurrent finance lease liabilities |
Long-term debt |
|
|
||||
15. Debt
Long-term debt consisted of the following:
September 30, |
December 31, |
|||||
($ in millions) |
|
2021 |
|
2020 |
||
Senior Notes |
||||||
$ |
|
$ |
|
|||
|
|
|||||
|
|
|||||
|
|
|||||
|
|
|||||
|
|
|||||
|
|
|||||
|
|
|||||
|
— |
|||||
Senior Credit Facility (at variable rates) |
||||||
Term A loan due March 2024 |
|
|
||||
Finance lease obligations |
|
|
||||
Other (including debt issuance costs) |
( |
( |
||||
|
|
|||||
Less: Current portion |
( |
( |
||||
$ |
|
$ |
|
|||
The company’s senior credit facilities include long-term multi-currency revolving facilities that mature in March 2024, which provide the company with up to the U.S. dollar equivalent of $
In the third quarter of 2021, Ball issued $
The fair value of long-term debt was estimated to be $
14
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
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 company’s most restrictive debt covenant requires the company to maintain a leverage ratio (as defined) of no greater than
16. Taxes on Income
The company’s effective tax rate was negative
The company’s effective tax rate was
17. Employee Benefit Obligations
September 30, |
December 31, |
|||||
($ in millions) |
2021 |
|
2020 |
|||
Underfunded defined benefit pension liabilities |
$ |
|
$ |
|
||
Less: Current portion |
( |
( |
||||
Long-term defined benefit pension liabilities |
|
|
||||
Long-term retiree medical liabilities |
|
|
||||
Deferred compensation plans |
|
|
||||
Other |
|
|
||||
$ |
|
$ |
|
|||
15
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
Components of net periodic benefit cost associated with the company’s defined benefit pension plans were as follows:
Three Months Ended September 30, |
||||||||||||||||||
2021 |
2020 |
|||||||||||||||||
($ in millions) |
|
U.S. |
|
Non-U.S. |
|
Total |
|
U.S. |
|
Non-U.S. |
|
Total |
||||||
Ball-sponsored plans: |
||||||||||||||||||
Service cost |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||
Interest cost |
|
|
|
|
|
|
||||||||||||
Expected return on plan assets |
( |
( |
( |
( |
( |
( |
||||||||||||
Amortization of prior service cost |
— |
|
|
— |
|
|
||||||||||||
Recognized net actuarial loss |
|
|
|
|
|
|
||||||||||||
Settlement losses (a) |
|
— |
|
|
— |
|
||||||||||||
Total net periodic benefit cost |
$ |
|
$ |
( |
$ |
|
$ |
|
$ |
( |
$ |
|
||||||
| (a) | Includes settlement losses related to the purchase of non-participating annuities and lump-sum payments which were recorded in business consolidation and other activities. See Note 6 for further details. |
Nine Months Ended September 30, |
||||||||||||||||||
2021 |
2020 |
|||||||||||||||||
($ in millions) |
|
U.S. |
|
Non-U.S. |
|
Total |
|
U.S. |
|
Non-U.S. |
|
Total |
||||||
Ball-sponsored plans: |
||||||||||||||||||
Service cost |
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||
Interest cost |
|
|
|
|
|
|
||||||||||||
Expected return on plan assets |
( |
( |
( |
( |
( |
( |
||||||||||||
Amortization of prior service cost |
|
|
|
|
|
|
||||||||||||
Recognized net actuarial loss |
|
|
|
|
|
|
||||||||||||
|
— |
|
|
— |
|
|||||||||||||
Total net periodic benefit cost |
$ |
|
$ |
( |
$ |
|
$ |
|
$ |
( |
$ |
|
||||||
| (a) | Includes settlement losses related to the purchase of non-participating annuities and lump-sum payments which were recorded in business consolidation and other activities. See Note 6 for further details. |
Non-service pension income of $
Contributions to the company’s defined benefit pension plans were $
Ball completed the purchase of non-participating group annuity contracts totaling approximately $
16
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 |
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, 2021 |
|
$ |
|
( |
$ |
( |
$ |
|
$ |
( |
$ |
|
$ |
|
||||||||
Net earnings |
— |
— |
— |
— |
|
— |
— |
|
||||||||||||||
Other comprehensive earnings (loss), net of tax |
— |
— |
— |
— |
— |
|
— |
|
||||||||||||||
Common dividends |
— |
— |
— |
— |
( |
— |
— |
( |
||||||||||||||
Treasury stock purchases |
— |
— |
( |
( |
— |
— |
— |
( |
||||||||||||||
Treasury shares reissued |
— |
— |
|
|
— |
— |
— |
|
||||||||||||||
Shares issued and stock compensation for stock options and other stock plans, net of shares exchanged |
|
|
— |
— |
— |
— |
— |
|
||||||||||||||
Other activity |
— |
— |
— |
|
|
— |
( |
|
||||||||||||||
Balance at September 30, 2021 |
|
$ |
|
( |
$ |
( |
$ |
|
$ |
( |
$ |
|
$ |
|
||||||||
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, 2020 |
|
$ |
|
( |
$ |
( |
$ |
|
$ |
( |
$ |
|
$ |
|
||||||||
Net earnings |
— |
— |
— |
— |
|
— |
( |
|
||||||||||||||
Other comprehensive earnings (loss), net of tax |
— |
— |
— |
— |
— |
( |
— |
( |
||||||||||||||
Common dividends |
— |
— |
— |
— |
( |
— |
— |
( |
||||||||||||||
Treasury shares reissued |
— |
— |
|
|
— |
— |
— |
|
||||||||||||||
Shares issued and stock compensation for stock options and other stock plans, net of shares exchanged |
|
|
— |
— |
— |
— |
— |
|
||||||||||||||
Other activity |
— |
— |
— |
|
— |
— |
— |
|
||||||||||||||
Balance at September 30, 2020 |
|
$ |
|
( |
$ |
( |
$ |
|
$ |
( |
$ |
|
$ |
|
||||||||
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, 2020 |
|
$ |
|
( |
$ |
( |
$ |
|
$ |
( |
$ |
|
$ |
|
||||||||
Net earnings |
— |
— |
— |
— |
|
— |
— |
|
||||||||||||||
Other comprehensive earnings (loss), net of tax |
— |
— |
— |
— |
— |
|
— |
|
||||||||||||||
Common dividends |
— |
— |
— |
— |
( |
— |
— |
( |
||||||||||||||
Treasury stock purchases |
— |
— |
( |
( |
— |
— |
— |
( |
||||||||||||||
Treasury shares reissued |
— |
— |
|
|
— |
— |
— |
|
||||||||||||||
Shares issued and stock compensation for stock options and other stock plans, net of shares exchanged |
|
|
— |
— |
— |
— |
— |
|
||||||||||||||
Other activity |
— |
— |
— |
|
|
— |
( |
|
||||||||||||||
Balance at September 30, 2021 |
|
$ |
|
( |
$ |
( |
$ |
|
$ |
( |
$ |
|
$ |
|
||||||||
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, 2019 |
|
$ |
|
( |
$ |
( |
$ |
|
$ |
( |
$ |
|
$ |
|
||||||||
Net earnings |
— |
— |
— |
— |
|
— |
( |
|
||||||||||||||
Other comprehensive earnings (loss), net of tax |
— |
— |
— |
— |
— |
( |
— |
( |
||||||||||||||
Common dividends |
— |
— |
— |
— |
( |
— |
— |
( |
||||||||||||||
Treasury stock purchases |
— |
— |
( |
( |
— |
— |
— |
( |
||||||||||||||
Treasury shares reissued |
— |
— |
|
|
— |
— |
— |
|
||||||||||||||
Shares issued and stock compensation for stock options and other stock plans, net of shares exchanged |
|
( |
— |
— |
— |
— |
— |
( |
||||||||||||||
Other activity |
— |
— |
— |
|
|
— |
— |
|
||||||||||||||
Balance at September 30, 2020 |
|
$ |
|
( |
$ |
( |
$ |
|
$ |
( |
$ |
|
$ |
|
||||||||
17
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
Accumulated Other Comprehensive Earnings (Loss)
The activity related to accumulated other comprehensive earnings (loss) was as follows:
($ in millions) |
|
|
|
Pension and Other Postretirement Benefits (Net of Tax) |
|
Derivatives Designated as Hedges |
|
Accumulated Other Comprehensive Earnings (Loss) |
||||
|
||||||||||||
Balance at December 31, 2020 |
( |
( |
|
( |
||||||||
Other comprehensive earnings (loss) before reclassifications |
|
|
|
|
||||||||
Reclassification of net deferred (gains) losses into earnings |
— |
|
( |
|
||||||||
Balance at September 30, 2021 |
$ |
( |
$ |
( |
$ |
|
$ |
( |
||||
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) |
|
2021 |
2020 |
2021 |
2020 |
|||||||
Gains (losses) on cash flow hedges: |
||||||||||||
Commodity contracts recorded in net sales |
$ |
( |
$ |
( |
$ |
( |
$ |
|
||||
Commodity contracts recorded in cost of sales |
|
( |
|
( |
||||||||
Currency exchange contracts recorded in selling, general and administrative |
|
( |
|
( |
||||||||
Cross-currency swaps recorded in selling, general and administrative |
— |
— |
— |
( |
||||||||
Interest rate contracts recorded in interest expense |
— |
( |
— |
( |
||||||||
Total before tax effect |
|
( |
|
( |
||||||||
Tax benefit (expense) on amounts reclassified into earnings |
( |
|
( |
|
||||||||
Recognized gain (loss), net of tax |
$ |
|
$ |
( |
$ |
|
$ |
( |
||||
Amortization of pension and other postretirement benefits: (a) |
||||||||||||
Actuarial gains (losses) |
$ |
( |
$ |
( |
$ |
( |
$ |
( |
||||
Prior service income (expense) |
( |
— |
( |
( |
||||||||
Effect of pension settlements |
( |
( |
( |
( |
||||||||
Total before tax effect |
( |
( |
( |
( |
||||||||
Tax benefit (expense) on amounts reclassified into earnings |
|
|
|
|
||||||||
Recognized gain (loss), net of tax |
$ |
( |
$ |
( |
$ |
( |
$ |
( |
||||
| (a) | These components are included in the computation of net periodic benefit cost detailed in Note 17. |
18
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
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) |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
||||
Net earnings attributable to Ball Corporation |
$ |
|
$ |
|
$ |
|
$ |
|
||||
Basic weighted average common shares |
|
|
|
|
||||||||
Effect of dilutive securities |
|
|
|
|
||||||||
Weighted average shares applicable to diluted earnings per share |
|
|
|
|
||||||||
Per basic share |
$ |
|
$ |
|
$ |
|
$ |
|
||||
Per diluted share |
$ |
|
$ |
|
$ |
|
$ |
|
||||
Certain outstanding options are excluded from the diluted earnings per share calculation because they are anti-dilutive (i.e., their assumed conversion into common stock would increase rather than decrease earnings per share). The options excluded totaled one million for the three and nine months ended September 30, 2021 and 2020.
The company declared and paid dividends of $
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 - The company manages commodity price risk in connection with market price fluctuations of aluminum through
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 its overall borrowing costs. To achieve these objectives, the company may use a variety of interest rate swaps, collars and options to manage its mix of floating and fixed-rate debt.
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.
19
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
The following table provides additional information related to the commercial risk management instruments described above:
($ in millions) |
September 30, 2021 |
|||||||
Commercial risk area |
Commodity |
|
Currency |
|
Interest Rate |
|||
Notional amount of contracts |
$ |
|
(a) |
$ |
|
$ |
|
|
Net gain (loss) included in AOCI, after-tax |
|
(b) |
|
— |
||||
Net gain (loss) included in AOCI, after-tax, expected to be recognized in net earnings within the next 12 months |
|
(b) |
|
— |
||||
Longest duration of forecasted cash flow hedge transactions in years |
||||||||
| (a) | Substantially all aluminum contracts received hedge accounting treatment as of September 30, 2021. |
| (b) | Substantially all of this gain (loss) will be offset by pricing changes in sales and purchase contracts. |
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 March 2022 and have a combined notional value of
Collateral Calls
The company’s agreements with its financial counterparties require the company to post 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, 2021, and December 31, 2020, the aggregate fair value of all derivative instruments with credit-risk-related contingent features was a net liability position of $
20
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
Fair Value Measurements
Ball has classified all applicable financial derivative assets and liabilities as Level 2 within the fair value hierarchy as of September 30, 2021, and December 31, 2020, and presented those values in the tables below. The 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, 2021 |
||||||||||
($ in millions) |
Balance Sheet Location |
|
Derivatives |
|
Derivatives not |
|
Total |
|||
Assets: |
||||||||||
Commodity contracts |
$ |
|
$ |
— |
$ |
|
||||
Currency contracts |
|
|
|
|||||||
Other contracts |
— |
|
|
|||||||
Total current derivative contracts |
Other current assets |
$ |
|
$ |
|
$ |
|
|||
Commodity contracts |
$ |
|
$ |
— |
$ |
|
||||
Currency contracts |
|
— |
|
|||||||
Total noncurrent derivative contracts |
Other noncurrent assets |
$ |
|
$ |
— |
$ |
|
|||
|
||||||||||
Liabilities: |
||||||||||
Commodity contracts |
$ |
|
$ |
— |
$ |
|
||||
Currency contracts |
— |
|
|
|||||||
Other contracts |
— |
|
|
|||||||
Total current derivative contracts |
Other current liabilities |
$ |
|
$ |
|
$ |
|
|||
Currency contracts |
$ |
— |
$ |
|
$ |
|
||||
Total noncurrent derivative contracts |
Other noncurrent liabilities |
$ |
— |
$ |
|
$ |
|
|||
21
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
December 31, 2020 |
||||||||||
Derivatives |
|
Derivatives not |
|
Total |
||||||
Assets: |
||||||||||
Commodity contracts |
$ |
|
$ |
— |
$ |
|
||||
Currency contracts |
|
|
|
|||||||
Other contracts |
— |
|
|
|||||||
Total current derivative contracts |
Other current assets |
$ |
|
$ |
|
$ |
|
|||
Commodity contracts |
$ |
|
$ |
— |
$ |
|
||||
Total noncurrent derivative contracts |
Other noncurrent assets |
$ |
|
$ |
— |
$ |
|
|||
|
||||||||||
Liabilities: |
||||||||||
Commodity contracts |
$ |
|
$ |
— |
$ |
|
||||
Currency contracts |
— |
|
|
|||||||
Other contracts |
— |
|
|
|||||||
Total current derivative contracts |
Other current liabilities |
$ |
|
$ |
|
$ |
|
|||
Currency contracts |
$ |
|
$ |
|
$ |
|
||||
Total noncurrent derivative contracts |
Other noncurrent liabilities |
$ |
|
$ |
|
$ |
|
|||
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. The company values each of its financial instruments either internally using a single valuation technique, from a reliable observable market source, or from the use of third-party software. 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. The present value discounting factor is based on the comparable time period LIBOR rate or 12-month LIBOR. Ball performs validations of the company’s internally derived fair values reported for the company’s financial instruments on a quarterly basis utilizing counterparty valuation statements. The company additionally evaluates counterparty creditworthiness and, as of September 30, 2021, has not identified any circumstances requiring the reported values of the company’s financial instruments be adjusted.
22
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, |
|||||||||||||||
2021 |
2020 |
||||||||||||||
($ 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 |
$ |
( |
$ |
— |
$ |
( |
$ |
— |
||||||
Commodity contracts - manage exposure to supplier pricing |
Cost of sales |
|
|
( |
( |
||||||||||
Interest rate contracts - manage exposure for outstanding debt |
Interest expense |
— |
— |
( |
— |
||||||||||
Currency contracts - manage currency exposure |
Selling, general and administrative |
|
|
( |
( |
||||||||||
Equity contracts |
Selling, general and administrative |
— |
|
— |
|
||||||||||
Total |
$ |
|
$ |
|
$ |
( |
$ |
( |
|||||||
Nine Months Ended September 30, |
|||||||||||||||
2021 |
2020 |
||||||||||||||
($ 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 |
$ |
( |
$ |
— |
$ |
|
$ |
|
||||||
Commodity contracts - manage exposure to supplier pricing |
Cost of sales |
|
|
( |
|
||||||||||
Interest rate contracts - manage exposure for outstanding debt |
Interest expense |
— |
— |
( |
— |
||||||||||
Currency contracts - manage currency exposure |
Selling, general and administrative |
|
|
( |
( |
||||||||||
Cross-currency swaps - manage intercompany currency exposure |
Selling, general and administrative |
— |
— |
( |
— |
||||||||||
Equity contracts |
Selling, general and administrative |
— |
( |
— |
|
||||||||||
Total |
$ |
|
$ |
|
$ |
( |
$ |
|
|||||||
23
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
The changes in accumulated other comprehensive earnings (loss) for derivatives designated as hedges were as follows:
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||
($ in millions) |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
||||
Amounts reclassified into earnings: |
||||||||||||
Commodity contracts |
$ |
( |
$ |
|
$ |
( |
$ |
|
||||
Cross-currency swap contracts |
— |
— |
— |
|
||||||||
Interest rate contracts |
— |
|
— |
|
||||||||
Currency exchange contracts |
( |
|
( |
|
||||||||
Change in fair value of cash flow hedges: |
||||||||||||
Commodity contracts |
|
|
|
( |
||||||||
Interest rate contracts |
( |
|
( |
( |
||||||||
Cross-currency swap contracts |
— |
( |
— |
— |
||||||||
Currency exchange contracts |
|
( |
|
|
||||||||
Currency and tax impacts |
( |
( |
( |
( |
||||||||
$ |
|
$ |
|
$ |
|
$ |
|
|||||
21. 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 non-U.S. 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, the company has 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 $
24
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 Beverage Can Company (RBCC). Such discovery began during the first half of 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 continued as scheduled. 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. On June 21, 2019, the District Court issued an order sustaining the BMBCC/RBCC motion as to invalidity, declining to rule on the other 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 Appeal of the decision of the Court to the Court of Appeals for the Federal Circuit. On December 31, 2020, the Court of Appeals vacated the decision of the District Court and remanded the case for further proceedings. The District Court held a telephonic hearing with counsel for the parties in March 2021 to discuss the scope of the proceedings on remand and initial position statement regarding remand which was submitted by each party. The District Court also directed each party to submit a document in response to the initial position statement of the other party in April 2021. The parties submitted their position statements to the District Court on April 21, 2021, and are currently waiting on the District Court to advise regarding further proceedings. Based on the information available at the present time, the company does not believe that this matter will have a material adverse effect upon its liquidity, results of operations or financial condition.
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 was proposed to the French Environmental Authorities (DREAL) during 2018 and is the subject of ongoing discussions ahead of a final plan for the site being addressed. Based on the information available at this time, the company does not believe that this matter will have a material adverse effect upon its liquidity, results of operations or financial condition.
The company’s operations in Brazil are involved in various governmental assessments, which have historically mainly related to claims for taxes on the internal transfer of inventory, gross revenue taxes, and indirect tax incentives and deductibility of goodwill. In addition,
25
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
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.” 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 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 to challenge the legality of these tax on tax amounts. Pursuant to these lawsuits, the 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 also noted that other Brazilian companies, including customers of its Brazilian subsidiaries, which had timely filed equivalent lawsuits, were recording income based on the applicable ICMS amounts retained. During 2020 and 2019, the company received additional favorable court rulings and completed its analysis of certain prior year overpayments related to ICMS. As these gain contingency amounts were determined to be estimable and realizable, the company recorded $
22. Indemnifications and Guarantees
General Guarantees
The company or its appropriate consolidated direct or indirect subsidiaries, have made certain indemnities, commitments and guarantees under which the specified entity may be required to make payments in relation to certain transactions. 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, construction contract, renewable energy purchase contract or other commitment; guarantees in respect of certain non-U.S. 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.
26
Ball Corporation
Notes to the Unaudited Condensed Consolidated Financial Statements
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 certain claims arising from these indemnifications, commitments and guarantees.
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 non-U.S. subsidiaries under the senior credit facilities, the obligations of non-U.S. 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. 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. 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 non-U.S. subsidiaries under the senior credit facilities, the obligations of non-U.S. credit parties only), with certain exceptions. All obligations under the guarantees of the senior credit facilities are secured, with certain exceptions, by a valid first priority perfected lien or pledge on (i)
27
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 (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 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 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 aluminum packaging suppliers. 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 aluminum 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 aluminum 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 aluminum beverage and aerosol container industries are growing and are expected to continue to grow in the medium to long 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 aluminum through the inclusion of provisions in contracts covering the majority of our volumes to pass through aluminum 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.
28
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 expanding container production across our global plant network to meet current demand and improving efficiencies in our beverage container and end facilities in North America, South America and Europe; leveraging plant floor and integrated planning systems to reduce costs and manage contractual provisions across our diverse customer base; successfully acquiring and integrating a large global aluminum beverage business and regional aluminum aerosol facility while also divesting underperforming steel food and steel aerosol packaging assets in North and South America and four beverage packaging facilities in China; and in the remaining aluminum 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 our new lightweight, infinitely recyclable aluminum cup and providing next-generation extruded aluminum aerosol packaging that utilizes proprietary technology to significantly lightweight the can; and successfully introducing new specialty beverage cans and 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 45 percent of our global beverage packaging mix; aligning with spiked seltzer and craft brewers, sparkling and still water fillers, wine producers and other new beverage producers who continue to use aluminum beverage containers to grow their business; and in our new aluminum cup business, utilizing online platforms and North American retailers to provide infinitely recyclable aluminum cups directly to consumers; |
| ● | Broadening our geographic reach with our acquisition of Rexam and our new investments in beverage manufacturing facilities in the United States, Brazil, Paraguay, Spain, Mexico, Myanmar and Panama, as well as an extruded aluminum aerosol manufacturing facility in India and successful start-up of a dedicated aluminum cup manufacturing facility in the U.S.; and |
| ● | Leveraging our technological expertise in packaging innovation, including the introduction of our new proprietary, brandable lightweight aluminum cup and providing 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 up to 20 percent over a standard aluminum aerosol can, as well as our investment in cyber, data analytics methane monitoring, 5G and LIDAR capabilities to further enhance our aerospace technical expertise across a broader customer portfolio. |
These ongoing business developments 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. In order to successfully execute our strategy and reach our goals, we realize the importance of excelling in the following areas: customer focus, operational excellence, innovation and business development, people and culture focus and sustainability.
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.
29
Novel Coronavirus (COVID-19)
The ongoing novel coronavirus (COVID-19) pandemic had a material effect upon the global business environment during the three and nine months ended September 30, 2021 and the year ended December 31, 2020. Ball provides key products and services to the consumer beverage and household markets and the U.S. aerospace markets and, consequently, the operations of Ball and of its principal customers and suppliers have been designated as essential across our key markets. This designation allowed Ball to operate its manufacturing facilities throughout the nine months ended September 30, 2021 and the year ended December 31, 2020, and it is expected that Ball will continue to operate its facilities without disruption in the foreseeable future. However, jurisdictions around the globe have issued stay-at-home orders, mandated operational closures of non-essential businesses and other restrictions, which has impacted certain of our customers by constraining some supply of products to certain consumers. The risks that COVID-19 and its emerging variants continue to present to Ball’s business have been outlined in Note 1 of these consolidated financial statements and within Item 1. Risk Factors in the company’s 2020 Annual Report on Form 10-K filed on February 17, 2021.
Consolidated Sales and Earnings
Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||||||||
($ in millions) |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|||||
Net sales |
$ |
3,553 |
$ |
3,093 |
$ |
10,137 |
$ |
8,679 |
|||||
Net earnings attributable to Ball Corporation |
179 |
241 |
581 |
358 |
|||||||||
Net earnings attributable to Ball Corporation as a % of net sales |
5 |
% |
8 |
% |
6 |
% |
4 |
% |
|||||
Sales in the three months ended September 30, 2021, increased compared to the same periods in 2020 primarily due to increased sales volumes, pass through of higher aluminum prices, improved price/mix in our beverage packaging segments and favorable exchange rates in our beverage packaging, EMEA, segment. Sales in the nine months ended September 30, 2021, increased compared to the same periods in 2020 primarily due to increased sales volumes, pass through of higher aluminum prices, improved price/mix in our beverage packaging segments and favorable exchange rates in our beverage packaging, EMEA, segment.
Net earnings for the three months ended September 30, 2021, decreased compared to the same periods in 2020 primarily due to higher business consolidation and other activities, higher personnel, startup, and other costs to support growth investments, and the timing of contractual non-aluminum input cost recovery, partially offset by increased sales volumes in our beverage packaging, North and Central America, and beverage packaging, EMEA, segments, favorable price/mix in our beverage packaging segments, and a lower effective tax rate.
Net earnings for the nine months ended September 30, 2021, increased compared to the same periods in 2020 primarily due to increased sales volumes and favorable price/mix in our beverage packaging segments, lower business consolidation and other activities, lower total interest expense, and higher earnings from equity in results of affiliates, partially offset by the tax effect of higher earnings and higher personnel, startup, and other costs to support growth investments, and the timing of contractual non-aluminum input cost recovery.
Cost of Sales (Excluding Depreciation and Amortization)
Cost of sales, excluding depreciation and amortization, was $2,851 million and $2,430 million for the three months ended September 30, 2021 and 2020, respectively, and $8,104 million and $6,875 million for the nine months ended September 30, 2021 and 2020, respectively. These amounts represented 80 percent of consolidated net sales for the three and nine months ended September 30, 2021, and 79 percent of consolidated net sales for the three and nine months ended September 30, 2020.
Depreciation and Amortization
Depreciation and amortization expense was $175 million and $160 million for the three months ended September 30, 2021 and 2020, respectively, and $515 million and $499 million for the nine months ended September 30, 2021 and 2020, respectively. These amounts represented 5 percent of consolidated net sales for the three and nine months ended September 30, 2021, and 5 percent and 6 percent of consolidated net sales for the three and nine months ended September 30, 2020, respectively.
30
Selling, General and Administrative
Selling, general and administrative (SG&A) expenses were $148 million and $121 million for the three months ended September 30, 2021 and 2020, respectively, and $471 million and $363 million for the nine months ended September 30, 2021 and 2020, respectively. These amounts represented 4 percent and 5 percent of consolidated net sales for the three and nine months ended September 30, 2021, respectively, and 4 percent of consolidated net sales for the three and nine months ended September 30, 2020. The increase in SG&A expenses was primarily due to higher personnel and other costs to support growth investments.
Business Consolidation Costs and Other Activities
Business consolidation and other activities were charges of $141 million and $8 million for the three months ended September 30, 2021 and 2020, respectively, and $136 million and $235 million for the nine months ended September 30, 2021 and 2020, respectively. The amounts in 2021 are primarily the result of a non-cash pension settlement charge of $130 million, partially offset by gains resulting from Brazilian indirect tax rulings of $22 million. The charges in 2020 included a non-cash pension settlement charge of $102 million, a non-cash impairment charge of $62 million related to the goodwill of the beverage packaging, other, reporting unit, an adjustment to the selling price of the company’s former steel food and steel aerosol business and a full write-off of the potential future consideration related to the 2019 sale of the company’s former China beverage packaging business.
Interest Expense
Total interest expense was $69 million and $69 million for the three months ended September 30, 2021 and 2020, respectively, and $202 million and $247 million for the nine months ended September 30, 2021 and 2020, respectively. Interest expense, excluding the effect of debt refinancing and other costs, as a percentage of average borrowings decreased 10 basis points from 3.5 percent for the three months ended September 30, 2020, to 3.4 percent for the three months ended September 30, 2021, and decreased 20 basis points from 3.6 percent for the nine months ended September 30, 2020, to 3.4 percent for the nine months ended September 30, 2021, due to the drop in global interest rates.
Income Taxes
The effective tax rate for the three and nine months ended September 30, 2021, was negative 1.2 percent and 20.6 percent, respectively, compared to 23.9 percent and 20 percent for the same periods in 2020.
The decrease of 25.1 percentage points for the three months ended September 30, 2021, was primarily due to an increase in federal tax credits, non-U.S. rate differences net of withholding tax, and the revaluation of deferred tax balances in the U.K. due to a tax rate change occurring in 2020. Similar impacts may occur in future periods, but given their inherent uncertainty, the company is unable to reasonably estimate their potential future impacts.
The increase of 0.6 percentage points for the nine months ended September 30, 2021 was primarily due to the decreased tax benefits for share-based compensation, and increased tax expense related to the revaluation of deferred tax balances in the U.K. due to tax rate changes, which were partially offset by non-U.S. rate differences net of withholding tax. Similar impacts may occur in future periods, but given their inherent uncertainty, the company is unable to reasonably estimate their potential future impacts. For 2020, tax expense was increased by a charge for the impairment of non tax-deductible goodwill within the beverage packaging, other, operating segment which is not expected to impact tax expense in future periods.
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.
31
Beverage Packaging, North and Central America
Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||||||||
($ in millions) |
2021 |
|
2020 |
|
2021 |
|
2020 |
|
|||||
Net sales |
$ |
1,519 |
$ |
1,327 |
$ |
4,339 |
$ |
3,775 |
|||||
Comparable operating earnings |
186 |
209 |
519 |
544 |
|||||||||
Comparable operating earnings as a % of segment net sales |
12 |
% |
16 |
% |
12 |
% |
14 |
% |
|||||
| (a) | Further details of these items are included in Note 6 to the consolidated financial statements within Item 1 of this report. |
Segment sales for the three and nine months ended September 30, 2021, were $192 million and $564 million higher, respectively, compared to the same periods in 2020. The increase for the three and nine months ended September 30, 2021, was primarily due to higher volumes, the pass through of higher aluminum prices and improved mix.
Comparable operating earnings for the three and nine months ended September 30, 2021, were $23 million and $25 million lower, respectively, compared to the same periods in 2020. The decrease for the three and nine months ended September 30, 2021, was primarily due to the impact of low finished goods inventory throughout the quarter, startup and labor costs associated with three new manufacturing plants and timing of contractual non-aluminum input cost recovery, partially offset by higher specialty volumes and improved customer contractual terms.
Beverage Packaging, EMEA
Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||||||||
($ in millions) |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
||||
Net sales |
$ |
937 |
$ |
809 |
$ |
2,639 |
$ |
2,177 |
|||||
Comparable operating earnings |
125 |
117 |
349 |
248 |
|||||||||
Comparable operating earnings as a % of segment net sales |
13 |
% |
14 |
% |
13 |
% |
11 |
% |
|||||
| (a) | Further details of these items are included in Note 6 to the consolidated financial statements within Item 1 of this report. |
Segment sales for the three and nine months ended September 30, 2021, were $128 million and $462 million higher, respectively, compared to the same periods in 2020. The increase in sales for the three and nine months ended September 30, 2021, was primarily related to increased sales volumes, favorable currency exchange effects and the pass through of higher aluminum prices.
Comparable operating earnings for the three and nine months ended September 30, 2021, were $8 million and $101 million higher, respectively, compared to the same periods in 2020. The increase in comparable operating earnings for the three and nine months ended September 30, 2021, was primarily due to higher sales volumes.
Beverage Packaging, South America
Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||||||||
($ in millions) |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
||||
Net sales |
$ |
462 |
$ |
432 |
$ |
1,401 |
$ |
1,166 |
|||||
Comparable operating earnings |
74 |
64 |
245 |
173 |
|||||||||
Comparable operating earnings as a % of segment net sales |
16 |
% |
15 |
% |
17 |
% |
15 |
% |
|||||
| (a) | Further details of these items are included in Note 6 to the consolidated financial statements within Item 1 of this report. |
32
Segment sales for the three and nine months ended September 30, 2021, were $30 million and $235 million higher compared to the same periods in 2020. The increase in sales for the three months ended September 30, 2021, was primarily related to the pass through of higher aluminum prices and improved mix, partially offset by decreased sales volumes following unfavorable weather conditions in July and August across South America. The increase in sales for the nine months ended September 30, 2021, was primarily due to higher sales volumes and the pass through of higher aluminum prices.
Comparable operating earnings for the three and nine months ended September 30, 2021, were $10 million and $72 million higher, respectively, compared to the same periods in 2020. The increase in comparable operating earnings for the three months ended September 30, 2021, was primarily due to improved mix, partially offset by lower volumes. The increase in comparable operating earnings for the nine months ended September 30, 2021, was primarily due to increased sales volumes and favorable mix.
Aerospace
Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||||||||
($ in millions) |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
||||
Net sales |
$ |
498 |
$ |
451 |
$ |
1,381 |
$ |
1,321 |
|||||
Comparable operating earnings |
46 |
44 |
115 |
114 |
|||||||||
Comparable operating earnings as a % of segment net sales |
9 |
% |
10 |
% |
8 |
% |
9 |
% |
|||||
Segment sales for the three and nine months ended September 30, 2021, were $47 million and $60 million higher, respectively, compared to the same periods in 2020, and comparable operating earnings for the three and nine months ended September 30, 2021, were $2 million and $1 million higher, respectively, compared to the same periods in 2020. The higher sales and earnings for the three months ended September 30, 2021, were primarily due to the company’s new program wins and backlog growth.
The aerospace sales contract mix for the nine months ended September 30, 2021, consisted of 48 percent cost-type contracts, which are billed at our costs plus an agreed upon and/or earned profit component, and 49 percent fixed-price contracts. The remaining sales were for time and materials contracts. Contracted backlog was $2.8 billion and $2.4 billion at September 30, 2021, and December 31, 2020, respectively. The backlog at September 30, 2021, consisted of 40 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, timing variances in program funding and the uncertain timing of future contract awards.
Management Performance Measures
Management internally uses various financial 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, including business consolidation costs and gains or losses on acquisitions and dispositions.
Nonfinancial measures used 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 revenue realization, award and incentive fees realized, proposal win rates and backlog (including awarded, contracted and funded backlog).
33
The following financial measurements are presented on a non-U.S. GAAP basis and should be considered in connection with the consolidated financial statements included 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.
Based on the above definitions, our calculation of comparable operating earnings is summarized below:
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||
($ in millions) |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
||||
Net earnings attributable to Ball Corporation |
$ |
179 |
$ |
241 |
$ |
581 |
$ |
358 |
||||
Net earnings (loss) attributable to noncontrolling interests, net of tax |
— |
(1) |
— |
(3) |
||||||||
Net earnings |
179 |
240 |
581 |
355 |
||||||||
Equity in results of affiliates, net of tax |
(8) |
(8) |
(18) |
13 |
||||||||
Tax provision (benefit) |
(2) |
73 |
146 |
92 |
||||||||
Earnings before taxes |
169 |
305 |
709 |
460 |
||||||||
Total interest expense |
69 |
69 |
202 |
247 |
||||||||
Earnings before interest and taxes |
238 |
374 |
911 |
707 |
||||||||
Business consolidation and other activities |
141 |
8 |
136 |
235 |
||||||||
Amortization of acquired intangibles |
38 |
37 |
114 |
111 |
||||||||
Comparable operating earnings |
$ |
417 |
$ |
419 |
$ |
1,161 |
$ |
1,053 |
||||
Our calculation of comparable net earnings and the related earnings per share are summarized below:
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||
($ in millions, except per share amounts) |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
||||
Net earnings attributable to Ball Corporation |
$ |
179 |
$ |
241 |
$ |
581 |
$ |
358 |
||||
Business consolidation and other activities |
141 |
8 |
136 |
235 |
||||||||
Amortization of acquired intangibles |
38 |
37 |
114 |
111 |
||||||||
Share of equity method affiliate non-comparable costs, net of tax |
(3) |
1 |
3 |
31 |
||||||||
Debt refinancing and other costs |
1 |
1 |
1 |
41 |
||||||||
Noncontrolling interest share of non-comparable costs, net of tax |
— |
— |
— |
1 |
||||||||
Non-comparable taxes |
(43) |
9 |
5 |
(62) |
||||||||
Comparable net earnings |
$ |
313 |
$ |
297 |
$ |
840 |
$ |
715 |
||||
Diluted earnings per share |
$ |
0.54 |
$ |
0.72 |
$ |
1.75 |
$ |
1.08 |
||||
Comparable diluted earnings per share |
$ |
0.94 |
$ |
0.89 |
$ |
2.52 |
$ |
2.15 |
||||
34
NEW ACCOUNTING PRONOUNCEMENTS
For information regarding recent accounting pronouncements, see Note 2 to the consolidated financial statements included within Item 1 of this report on Form 10-Q.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash Flows and Capital Expenditures
The following summarizes our cash flows:
Nine Months Ended September 30, |
||||||
($ in millions) |
|
2021 |
|
2020 |
||
Cash flows provided by (used in) operating activities |
$ |
876 |
$ |
345 |
||
Cash flows provided by (used in) investing activities |
(1,104) |
(751) |
||||
Cash flows provided by (used in) financing activities |
327 |
(521) |
||||
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, dividend payments, anticipated share repurchases and anticipated capital expenditures.
Cash flows provided by operating activities were $876 million in 2021, primarily driven by net earnings before depreciation and amortization of $1.1 billion, being partially offset by pension contributions of $203 million and working capital outflows of $248 million, which reflected an increase in days sales outstanding from 42 days in 2020 to 54 days in 2021 and an increase in days payable outstanding from 128 days in 2020 to 136 days in 2021.
Cash flows used in investing activities were $1.1 billion in 2021 primarily driven by $1.2 billion of capital expenditures for large growth projects, partially offset by $110 million received in 2021 for the sale of our minority-owned investment in South Korea.
Cash flows provided by financing activities were $327 million in 2021 driven primarily by the issuance of $850 million of 3.125% senior notes, partially offset by net share purchases of $325 million and common stock dividends of $164 million.
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 $1.7 billion at September 30, 2021, and $1.6 billion at December 31, 2020. A total of $430 million and $232 million were available for sale under such programs as of September 30, 2021, and December 31, 2020, respectively.
Contributions to the company’s defined benefit pension plans were $203 million in the first nine months of 2021 compared to $92 million in the first nine months of 2020, and such contributions are expected to be approximately $215 million for the full year of 2021. This estimate may change based on changes to the U.S. Pension Protection Act, the effects of the CARES Act and ARPA Act and the actual returns achieved on plan assets, among other factors.
The company has approximately $1.7 billion of capital expenditures for property, plant and equipment contractually committed as of September 30, 2021.
35
As of September 30, 2021, approximately $427 million of our cash was held outside of the U.S. In the event we need to utilize any of the cash held outside 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. Management believes the company’s U.S. operating cash flows and cash on hand, together with its availability under 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 non-U.S. 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 non-U.S. locations where the company has previously asserted indefinite reinvestment of funds outside the U.S.
Based on its indefinite reinvestment assertion, the company has not provided deferred taxes on earnings in certain non-U.S. subsidiaries because such earnings are intended to be indefinitely reinvested in its international operations. It is not practical to estimate the additional taxes that may become payable if these earnings were remitted to the U.S.
Share Repurchases
The company’s share repurchases, net of issuances, totaled $325 million during the nine months ended September 30, 2021, compared to $69 million of repurchases, net of issuances, during the same period of 2020. The company’s share repurchases are completed using cash on hand, cash provided by operating activities and available borrowings.
Debt Facilities and Refinancing
Given our cash flow projections and unused credit facilities that are available until March 2024, our liquidity is strong and is expected to meet our ongoing cash and debt service requirements. Total interest-bearing debt of $8.5 billion and $7.8 billion was outstanding at September 30, 2021, and December 31, 2020, respectively.
At September 30, 2021, taking into account our outstanding letters of credit, approximately $1.7 billion was available under existing long-term, multi-currency committed revolving credit facilities, which are available until March 2024. In addition to these facilities, the company had approximately $1 billion of short-term uncommitted credit facilities available as of September 30, 2021, of which $24 million was outstanding and due on demand.
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, 2021, 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 of our debt covenants requires us to maintain a leverage ratio (as defined) of no greater than 5.0 times, which will change to 4.5 times as of December 31, 2022. As of September 30, 2021, the company could borrow up to its limits available under the company’s long-term multi-currency committed revolving facilities and short-term uncommitted credit facilities without violating our existing debt covenants. Additional details regarding our debt are available in Note 15 accompanying the 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 Note 21 and Note 22 accompanying the consolidated financial statements included within Item 1 of this report. The company is routinely subject to litigation incidental 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 former Rexam subsidiaries. The company believes the matters identified will not have a material adverse effect upon its liquidity, results of operations or financial condition.
36
Guaranteed Securities
The company’s senior notes are guaranteed on a full and unconditional, joint and several bases by the issuer of the company’s senior notes and the subsidiaries that guarantee the notes (the obligor group). The entities that comprise the obligor group are 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 summarized financial information relates to the obligor group as of September 30, 2021, and December 31, 2020, and for the nine months ended September 30, 2021, and the year ended December 31, 2020. Intercompany transactions, equity investments and other intercompany activity between obligor group subsidiaries have been eliminated from the summarized financial information. Investments in subsidiaries not forming part of the obligor group have also been eliminated.
Nine Months Ended |
Year Ended |
|||||
($ in millions) |
September 30, 2021 |
|
December 31, 2020 |
|||
Net sales |
$ |
5,885 |
$ |
7,115 |
||
Gross profit (a) |
673 |
935 |
||||
Net earnings (loss) |
266 |
528 |
||||
Net earnings (loss) attributable to Ball Corporation |
266 |
528 |
||||
| (a) | Gross profit is shown after depreciation and amortization related to cost of sales of $148 million for the nine months ended September 30, 2021, and $167 million for the year ended December 31, 2020. |
September 30, |
December 31, |
|||||
($ in millions) |
|
2021 |
|
2020 |
||
Current assets |
$ |
3,218 |
$ |
2,211 |
||
Noncurrent assets |
14,396 |
13,701 |
||||
Current liabilities |
5,181 |
3,704 |
||||
Noncurrent liabilities |
11,075 |
10,854 |
||||
Included in the amounts disclosed in the tables above, at September 30, 2021, and December 31, 2020, the obligor group held receivables due from other subsidiary companies of $435 million and $221 million, respectively, long-term notes receivable due from other subsidiary companies of $9.1 billion and $9.2 billion, respectively, payables due to other subsidiary companies of $1.8 billion and $1.7 billion, respectively, and long-term notes payable due to other subsidiary companies of $1.9 billion and $1.5 billion, respectively.
For the nine months ended September 30, 2021, and the year ended December 31, 2020, the obligor group recorded the following transactions with other subsidiary companies: sales to them of $583 million and $804 million, respectively, net credits from them of $25 million and $24 million, respectively, and net interest income from them of $253 million and $393 million, respectively. During the year ended December 31, 2020, the obligor group received dividends from other subsidiary companies of $56 million.
A description of the terms and conditions of the company’s debt guarantees is located in Note 22 of Item 1 of this report.
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 are available in Item 7A within Ball’s 2020 Annual Report on Form 10-K filed on February 17, 2021, and in Note 20 accompanying the consolidated financial statements included within Item 1 of this report.
37
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 changes to internal controls during the company’s third quarter of 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
FORWARD-LOOKING STATEMENTS
This report contains "forward-looking" statements concerning future events and financial performance. Words such as "expects," "anticipates," "estimates," "believes," 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. You should therefore not place undue reliance upon any forward-looking statements and any 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. Additional factors that might affect: a) our packaging segments include product capacity, supply, and demand constraints and fluctuations and changes in consumption patterns; availability/cost of raw materials, equipment, and logistics; competitive packaging, pricing and substitution; changes in climate and weather; footprint adjustments and other manufacturing changes, including the startup of new facilities and lines; failure to achieve synergies, productivity improvements or cost reductions; unfavorable mandatory deposit or packaging laws; customer and supplier consolidation; power and supply chain interruptions; changes in major customer or supplier contracts or loss of a major customer or supplier; political instability and sanctions; currency controls; changes in currency exchange or tax rates; and tariffs, trade actions, or other governmental actions, including business restrictions and shelter-in-place orders in any country or jurisdiction affecting goods produced by us or in our supply chain, including imported raw materials; b) our aerospace segment include funding, authorization, availability and returns of government and commercial contracts; and delays, extensions and technical uncertainties affecting segment contracts; c) the Company as a whole include those listed above plus: the extent to which sustainability-related opportunities arise and can be capitalized upon; changes in senior management, succession, and the ability to attract and retain skilled labor; regulatory actions or issues including those related to tax, ESG reporting, competition, 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; the ability to manage cyber threats; litigation; strikes; disease; pandemic; 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 policies, orders, and actions related to COVID-19; reduced cash flow; interest rates affecting our debt; and successful or unsuccessful joint ventures, acquisitions and divestitures, and their effects on our 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 three months ended September 30, 2021, except as discussed in Note 21 to the consolidated financial statements included within Part I, Item 1 of this report.
38
Item 2. Changes in Securities
The following table summarizes the company’s repurchases of its common stock during the third quarter of 2021.
Purchases of Securities | |||||||||
($ in millions) |
|
Total Number of Shares Purchased (a) |
|
Average |
|
Total Number of |
|
Maximum Number of |
|
July 1 to July 31, 2021 |
257,897 |
$ |
82.24 |
257,897 |
34,518,266 |
||||
August 1 to August 31, 2021 |
1,392,218 |
90.41 |
1,392,218 |
33,126,048 |
|||||
September 1 to September 30, 2021 |
779,311 |
92.71 |
779,311 |
32,346,737 |
|||||
Total |
2,429,426 |
90.28 |
2,429,426 |
||||||
| (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 50 million shares were authorized for repurchase by Ball’s Board of Directors. |
Item 3. Defaults Upon Senior Securities
There were no events required to be reported under Item 3 for the three months ended September 30, 2021.
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, 2021.
39
Item 6. Exhibits
12 |
||
31.1 |
|
|
31.2 |
||
32.1 |
||
32.2 |
||
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 cover page of the company’s quarterly report on Form 10-Q for the quarter ended September 30, 2021, formatted in Inline XBRL (contained in Exhibit 101), the: (i) Unaudited Condensed Consolidated Statement of Earnings, (ii) Unaudited Statement of Comprehensive Earnings, (iii) Unaudited Condensed Consolidated Balance Sheet, (iv) Unaudited Condensed Consolidated Statement of Cash Flows and (v) Notes to the Unaudited Condensed Consolidated Financial Statements. |
40
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 |
||
Executive Vice President and Chief Financial Officer |
||
Date: |
November 5, 2021 |
|
41