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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

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

For the Quarterly Period Ended June 30,  2019

or

 

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

Commission file number 001-07349

BALL CORPORATION

State of Indiana

(State or other jurisdiction of incorporation or
organization)

35-0160610

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

10 Longs Peak Drive, P.O. Box 5000

Broomfield, CO 80021-2510

(Address of registrant’s principal executive office)

80021-2510

(Zip Code)

Registrant’s telephone number, including area code: 303/469-3131

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date, and the securities registered pursuant to section 12(b) of the Act:

Class

Trading Symbol

Name of Exchange

Outstanding at July 31, 2019

Common Stock, without par value

BLL

NYSE

332,002,911 shares

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No

Table of Contents

Ball Corporation

QUARTERLY REPORT ON FORM 10-Q

For the period ended June 30, 2019

INDEX

Page
Number

PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements

Unaudited Condensed Consolidated Statements of Earnings for the Three and Six Months Ended June 30, 2019 and 2018

1

Unaudited Condensed Consolidated Statements of Comprehensive Earnings (Loss) for the Three and Six Months Ended June 30, 2019 and 2018

2

Unaudited Condensed Consolidated Balance Sheets at June 30, 2019, and December 31, 2018

3

Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018

4

Notes to the Unaudited Condensed Consolidated Financial Statements

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

42

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

51

Item 4.

Controls and Procedures

52

PART II.

OTHER INFORMATION

52

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PART I. FINANCIAL INFORMATION

Item 1.   FINANCIAL STATEMENTS

BALL CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

Three Months Ended June 30,

Six Months Ended June 30,

($ in millions, except per share amounts)

2019

    

2018

    

2019

    

2018

Net sales

$

3,017

$

3,101

$

5,802

$

5,886

Costs and expenses

Cost of sales (excluding depreciation and amortization)

(2,428)

(2,484)

(4,681)

(4,721)

Depreciation and amortization

(171)

(178)

(341)

(358)

Selling, general and administrative

(111)

(127)

(238)

(239)

Business consolidation and other activities

(69)

(14)

(99)

(2,710)

(2,858)

(5,274)

(5,417)

Earnings before interest and taxes

307

243

528

469

Interest expense

(81)

(77)

(158)

(150)

Debt refinancing and other costs

(4)

(1)

Total interest expense

(81)

(77)

(162)

(151)

Earnings before taxes

226

166

366

318

Tax (provision) benefit

(31)

(46)

(41)

(80)

Equity in results of affiliates, net of tax

2

(11)

7

Net earnings

197

120

314

245

Net (earnings) loss attributable to noncontrolling interests

(1)

(1)

Net earnings attributable to Ball Corporation

$

197

$

119

$

314

$

244

Earnings per share:

Basic

$

0.59

$

0.34

$

0.94

$

0.70

Diluted

$

0.58

$

0.34

$

0.92

$

0.68

Weighted average shares outstanding: (000s)

Basic

332,825

348,221

333,528

349,212

Diluted

341,637

354,904

342,233

356,276

See accompanying notes to the unaudited condensed consolidated financial statements.

1

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BALL CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)

Three Months Ended June 30,

Six Months Ended June 30,

($ in millions)

    

2019

    

2018

    

2019

    

2018

Net earnings

$

197

$

120

$

314

$

245

Other comprehensive earnings (loss):

Foreign currency translation adjustment

7

(121)

86

(110)

Pension and other postretirement benefits

(17)

3

7

19

Derivatives designated as hedges

1

32

31

(20)

Total other comprehensive earnings (loss)

(9)

(86)

124

(111)

Income tax (provision) benefit

1

(8)

(7)

Total other comprehensive earnings (loss), net of tax

(8)

(94)

117

(111)

Total comprehensive earnings (loss)

189

26

431

134

Comprehensive (earnings) loss attributable to noncontrolling interests

(1)

(1)

Comprehensive earnings (loss) attributable to Ball Corporation

$

189

$

25

$

431

$

133

See accompanying notes to the unaudited condensed consolidated financial statements.

2

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BALL CORPORATION

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

June 30,

December 31,

($ in millions)

    

2019

    

2018

Assets

Current assets

Cash and cash equivalents

$

764

$

721

Receivables, net

1,956

1,802

Inventories, net

1,183

1,271

Other current assets

160

140

Assets held for sale

470

6

Total current assets

4,533

3,940

Noncurrent assets

Property, plant and equipment, net

4,385

4,542

Goodwill

4,433

4,475

Intangible assets, net

2,104

2,188

Other assets

1,654

1,409

Total assets

$

17,109

$

16,554

Liabilities and Equity

Current liabilities

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

$

392

$

219

Accounts payable

2,739

3,095

Accrued employee costs

256

289

Other current liabilities

565

492

Liabilities held for sale

182

Total current liabilities

4,134

4,095

Noncurrent liabilities

Long-term debt

6,916

6,510

Employee benefit obligations

1,465

1,455

Deferred taxes

606

645

Other liabilities

424

287

Total liabilities

13,545

12,992

Equity

Common stock (675,463,115 shares issued - 2019; 673,236,720 shares issued - 2018)

1,172

1,157

Retained earnings

5,651

5,341

Accumulated other comprehensive earnings (loss)

(797)

(835)

Treasury stock, at cost (343,622,898 shares - 2019; 337,978,571 shares - 2018)

(2,566)

(2,205)

Total Ball Corporation shareholders' equity

3,460

3,458

Noncontrolling interests

104

104

Total equity

3,564

3,562

Total liabilities and equity

$

17,109

$

16,554

See accompanying notes to the unaudited condensed consolidated financial statements.

3

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BALL CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended June 30,

($ in millions)

    

2019

    

2018

Cash Flows from Operating Activities

Net earnings

$

314

$

245

Adjustments to reconcile net earnings to cash provided by (used in) operating activities:

Depreciation and amortization

341

358

Business consolidation and other activities

14

99

Deferred tax provision (benefit)

(7)

37

Other, net

6

48

Changes in working capital components, net of dispositions

(415)

(353)

Cash provided by (used in) operating activities

253

434

Cash Flows from Investing Activities

Capital expenditures

(275)

(444)

Business dispositions, net of cash sold

(45)

Other, net

11

39

Cash provided by (used in) investing activities

(264)

(450)

Cash Flows from Financing Activities

Long-term borrowings

1,046

1,426

Repayments of long-term borrowings

(609)

(840)

Net change in short-term borrowings

153

(165)

Proceeds from issuances of common stock, net of shares used for taxes

8

9

Acquisitions of treasury stock

(396)

(184)

Common stock dividends

(83)

(70)

Other, net

(12)

(12)

Cash provided by (used in) financing activities

107

164

Effect of exchange rate changes on cash

12

(50)

Change in cash, cash equivalents and restricted cash

108

98

Cash, cash equivalents and restricted cash - beginning of period

728

459

Cash, cash equivalents and restricted cash - end of period

$

836

$

557

See accompanying notes to the unaudited condensed consolidated financial statements.

4

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Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

1.     Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Ball Corporation and its controlled affiliates, including its consolidated variable interest entities (collectively Ball, the company, we or our), and have been prepared by the company. Certain information and footnote disclosures, including critical and significant accounting policies normally included in financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted for this quarterly presentation.

Results of operations for the periods shown are not necessarily indicative of results for the year, particularly in view of the seasonality in the packaging segments and the variability of contract sales in the company’s aerospace segment. These unaudited condensed consolidated financial statements and accompanying notes should be read in conjunction with the consolidated financial statements and the notes thereto included in the company’s 2018 Annual Report on Form 10-K filed on February 22, 2019, pursuant to the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2018 (annual report).

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires Ball’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and reported amounts of sales and expenses during the reporting periods. These estimates are based on historical experience and various assumptions believed to be reasonable under the circumstances. Ball’s management evaluates these estimates on an ongoing basis and adjusts or revises the estimates as circumstances change. As future events and their impacts cannot be determined with precision, actual results may differ from these estimates. In the opinion of management, the financial statements reflect all adjustments necessary to fairly state the results of the periods presented.

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

2.     Accounting Pronouncements

Recently Adopted Accounting Standards

New Lease Accounting Guidance

In February 2016, lease accounting guidance was issued which, for operating leases, requires a lessee to recognize a right-of-use (ROU) asset and a lease liability. The guidance also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, generally on a straight line basis. On January 1, 2019, Ball adopted the new guidance and all related amendments (the new lease standard), applying the modified retrospective method to all contracts that were not completed as of January 1, 2019. As such, comparative information has not been restated and continues to be reported under the accounting standards in effect for those prior periods.

As part of adopting the new lease standard, Ball has made the following elections:

To carry forward the historical lease determination and classification conclusions as established under the old standard, and not reassess initial direct costs for existing leases;
To carry forward its historical accounting treatment for land easements on existing agreements;
Not to apply the balance sheet recognition requirements of the new lease standard to leases with a term of one year or less (short-term leases); and
For all classes of underlying assets, to account for non-lease components of a contract as part of the single lease component to which they are related.

5

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Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

The adoption of the new lease standard resulted in the following impacts on our unaudited consolidated balance sheets:

($ in millions)

Balance at December 31, 2018

Adjustments Due to Adoption

Balance at January 1, 2019

Assets:

Other current assets

$

140

$

(1)

$

139

Operating lease right-of-use assets (a)

244

244

Other assets

1,409

(25)

1,384

Liabilities:

Other current liabilities

$

492

$

(3)

$

489

Current operating lease liabilities (b)

53

53

Other liabilities

287

(14)

273

Noncurrent operating lease liabilities (b)

182

182

(a)Operating lease right-of-use assets are recognized within other assets in Ball’s unaudited condensed consolidated balance sheets.
(b)Current and noncurrent operating lease liabilities are recognized within other current liabilities and other liabilities, respectively, in Ball’s unaudited condensed consolidated balance sheets.

Ball’s adoption of the new lease standard had an immaterial impact on Ball’s results of operations in the unaudited condensed consolidated statements of earnings; an immaterial impact on Ball’s cash flows from operating, financing, and investing activities in the unaudited condensed consolidated statements of cash flows and no impact on Ball’s opening retained earnings balance. Ball’s accounting for finance leases remains substantially unchanged as a result of the adoption. See Note 14 for further details regarding Ball’s leases.

Stranded Tax Effects

In February 2018, accounting guidance was issued to permit the reclassification from accumulated other comprehensive income to retained earnings of stranded tax effects resulting from the U.S. Tax Cuts and Jobs Act signed into law in December 2017. Ball adopted this guidance on January 1, 2019, and an election was made to reclassify on the first day of the period of adoption. The total tax amount reclassified was $79 million. Remaining stranded tax amounts in accumulated other comprehensive income, which are not related to the U.S. Tax Cuts and Jobs Act, are not significant and will be reclassified to the income statement when the activity leading to the deferral of gains and losses has ceased in full.

New Accounting Guidance

Cloud Computing Arrangements

In August 2018, amendments to existing accounting guidance were issued to clarify the accounting for implementation costs related to cloud computing arrangements. The amendments specify that existing guidance for capitalizing implementation costs incurred to develop or obtain internal-use software also applies to capitalizing implementation costs incurred in a hosting arrangement that is a service contract. The guidance is effective for Ball on January 1, 2020, and the company is currently assessing the impact that the adoption of this new guidance will have on its consolidated financial statements.

6

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Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

Financial Assets

Amendments to existing guidance were issued in June 2016, followed by improvements and transition relief in 2018 and 2019, requiring financial assets or a group of financial assets measured at amortized cost basis to be presented at the net amount expected to be collected when finalized. The allowance for credit losses is a valuation account that will be deducted from the amortized cost basis of the financial asset to present the net carrying value at the amount expected to be collected on the financial asset. This guidance is expected to primarily affect Ball’s trade receivables; however, the guidance applies to other financial assets as well. The guidance is effective for Ball on January 1, 2020. The company has established a cross-functional team which is assessing the impact that the adoption of this new guidance will have on its consolidated financial statements.

3.     Business Segment Information

Ball’s operations are organized and reviewed by management along its product lines and geographical areas and presented in the four reportable segments outlined below:

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

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

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

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

As presented in the table below, Other consists of non-reportable segments located in Africa, Middle East and Asia (beverage packaging, AMEA) and Asia Pacific (beverage packaging, Asia Pacific) that manufacture and sell metal beverage containers; a non-reportable segment that manufactures and sells aerosol containers, extruded aluminum aerosol containers and aluminum slugs (aerosol packaging); undistributed corporate expenses; intercompany eliminations and other business activities.

The accounting policies of the segments are the same as those in the company’s consolidated financial statements as discussed in Note 1. The company also has investments in operations in Guatemala, Panama, South Korea, the U.S. and Vietnam that are accounted for under the equity method of accounting and, accordingly, those results are not included in segment sales or earnings.

7

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Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

Summary of Business by Segment

Three Months Ended June 30,

Six Months Ended June 30,

($ in millions)

    

2019

    

2018

    

2019

    

2018

Net sales

Beverage packaging, North and Central America

$

1,286

$

1,241

$

2,417

$

2,276

Beverage packaging, South America

377

379

818

838

Beverage packaging, Europe

715

703

1,353

1,312

Aerospace

379

290

707

554

Reportable segment sales

2,757

2,613

5,295

4,980

Other

260

488

507

906

Net sales

$

3,017

$

3,101

$

5,802

$

5,886

Comparable operating earnings

Beverage packaging, North and Central America

$

141

$

157

$

259

$

270

Beverage packaging, South America

65

66

133

164

Beverage packaging, Europe

87

75

151

135

Aerospace

38

24

68

49

Reportable segment comparable operating earnings

331

322

611

618

Reconciling items

Other (a)

16

30

11

34

Business consolidation and other activities

(69)

(14)

(99)

Amortization of acquired Rexam intangibles

(40)

(40)

(80)

(84)

Earnings before interest and taxes

307

243

528

469

Interest expense

(81)

(77)

(158)

(150)

Debt refinancing and other costs

(4)

(1)

Total interest expense

(81)

(77)

(162)

(151)

Earnings before taxes

$

226

$

166

$

366

$

318

(a)Includes undistributed corporate expenses, net, of $16 million and $21 million for the three months ended June 30, 2019 and 2018, respectively, and $39 million and $43 million for the six months ended June 30, 2019 and 2018, respectively.

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

8

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Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

4.     Acquisitions and Dispositions

Beverage Packaging China

In December 2018, the company announced an agreement to sell its metal beverage packaging business in China for consideration of approximately $225 million, plus potential additional consideration related to the relocation of an existing facility in China in the coming years. The transaction received all necessary antitrust approvals during the first quarter of 2019 and, accordingly, the assets and liabilities of the China beverage packaging business are presented as held for sale as of June 30, 2019. The transaction is expected to close in the second half of 2019.

Prior to the reclassification of the China beverage packaging business assets and liabilities to held for sale, the company assessed the carrying value of certain working capital balances and then conducted an impairment test of the goodwill and other long-lived assets of the China beverage packaging business. Upon reclassification of the assets and liabilities to held for sale, the carrying value of the disposal group as a whole was compared to the fair value of the business less costs to sell. The approach to establish fair value was consistent with that outlined in the critical accounting policy for “Recoverability of Goodwill and Intangible Assets” in Ball’s Form 10-K for the year ended December 31, 2018. No impairment or other adjustments were required as a result of these impairment assessments.

The company has not provided any deferred tax impact in the financial statements for the income tax consequences that may arise when the sale is completed in a future reporting period.

The following table summarizes the assets and liabilities of the China beverage packaging business included within held for sale:

($ in millions)

June 30, 2019

Assets:

Cash

$

63

Receivables

107

Inventories

43

Property, plant and equipment

171

Goodwill

51

Other assets

16

Assets held for sale

$

451

Liabilities:

Accounts payable

$

148

Accrued employee costs

7

Other current liabilities

27

Liabilities held for sale

$

182

9

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Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

U.S. Steel Food and Steel Aerosol Business

On July 31, 2018, Ball sold its U.S. steel food and steel aerosol packaging business and formed a joint venture, Ball Metalpack. In exchange for the sale of this business, Ball received approximately $600 million of cash proceeds, subject to customary closing adjustments completed as of December 31, 2018, as well as a 49 percent ownership interest in Ball Metalpack. This investment is reported in other assets as an equity method investment in Ball’s unaudited condensed consolidated balance sheets.

Ball recorded a loss of $41 million in connection with this sale. This loss was recorded in business consolidation and other activities in the unaudited condensed consolidated statement of earnings.

The assets of the sold business included nine plants that manufacture and sell steel food and steel aerosol containers. The manufacturing plants were located in Canton and Columbus, Ohio; Milwaukee and Deforest, Wisconsin; Chestnut Hill, Tennessee; Horsham, Pennsylvania; Springdale, Arkansas; and Oakdale, California.

In connection with the sale of the U.S. steel food and steel aerosol business, the company entered into an agreement to supply metal to Ball Metalpack, which expired on December 31, 2018, and agreements to provide transition and other services to Ball Metalpack. At June 30, 2019, and December 31, 2018, Ball was owed $33 million and $170 million, respectively, and Ball owed $5 million and $34 million, respectively, related to the above agreements, which are reported in receivables, net, and accounts payable, respectively, in Ball’s unaudited condensed consolidated balance sheets.

5.     Revenue from Contracts with Customers

Disaggregation of Sales

The company disaggregates net sales by reportable segments as disclosed in Note 3, and based on the timing of transfer of control for goods and services as explained below. The transfer of control for goods and services may occur at a point in time or over time. As disclosed in Note 3, the company’s business consists of four reportable segments, which encompass disaggregated product lines and geographical areas: (1) beverage packaging, North and Central America; (2) beverage packaging, South America; (3) beverage packaging, Europe; and (4) aerospace.

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

Three Months Ended June 30, 2019

Six Months Ended June 30, 2019

($ in millions)

Point in Time

Over Time

Total

 

Point in Time

Over Time

Total

Total net sales

$

547

$

2,470

$

3,017

$

1,104

$

4,698

$

5,802

Three Months Ended June 30, 2018

Six Months Ended June 30, 2018

($ in millions)

Point in Time

Over Time

Total

 

Point in Time

Over Time

Total

Total net sales

$

755

$

2,346

$

3,101

$

1,417

$

4,469

$

5,886

Contract Balances

The company enters into contracts to sell beverage packaging, aerosol packaging, and aerospace products and services. The company did not have any contract assets at either June 30, 2019, or December 31, 2018. Unbilled receivables, which are not classified as contract assets, represent arrangements in which sales have been recorded prior to billing and right to payment is unconditional.

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Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

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

Contracts

Contract

Liabilities

Liabilities

($ in millions)

    

(Current)

(Noncurrent)

Balance at December 31, 2017

$

45

$

Increase

8

Balance at December 31, 2018

$

45

$

8

Increase

7

1

Balance at June 30, 2019

$

52

$

9

During the six months ended June 30, 2019, contract liabilities increased by $8 million, which is net of cash received of $113 million and amounts recognized as sales of $105 million, all of which related to current contract liabilities. The amount of sales recognized in the six months ended June 30, 2019, which were included in the opening contract liabilities balances, was $45 million, all of which related to current contract liabilities. Current contract liabilities are classified within other current liabilities on the unaudited condensed consolidated balance sheet and noncurrent contract liabilities are classified within other liabilities.

The company also recognized sales of $6 million in the six months ended June 30, 2019, and $1 million and $5 million for the three and six months ended June 30, 2018, respectively, from performance obligations satisfied (or partially satisfied) in prior periods. These sales amounts are the result of changes in the transaction price of the company’s contracts with customers.

Transaction Price Allocated to Remaining Performance Obligations

In the context of the revenue recognition standard, enforceable contracts are those that have an enforceable right to payment, which Ball typically has once a binding forecast or purchase order (or similar contract) is in place and Ball produces under the contract. Within Ball’s packaging segments, enforceable contracts as defined all have a duration of less than one year. Contracts that have an original duration of less than one year are excluded from the requirement to disclose remaining performance obligations based on the company’s election to use the practical expedient.

The table below discloses: (1) the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) as of the end of the reporting period for contracts with an original duration of greater than one year, and (2) when the company expects to record sales on these multi-year contracts.

($ in millions)

    

Next Twelve Months

Thereafter

Total

Sales expected to be recognized on multi-year contracts in place as of June 30, 2019

$

1,105

$

881

$

1,986

The contracts with an original duration of less than one year, which are excluded from the table above based on the company’s election of the practical expedient, are primarily related to contracts where control will be fully transferred to the customers in less than one year.

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Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

6.     Business Consolidation and Other Activities

The following is a summary of business consolidation and other activity (charges)/income included in the unaudited condensed consolidated statements of earnings:

Three Months Ended June 30,

Six Months Ended June 30,

($ in millions)

    

2019

    

2018

    

2019

    

2018

Beverage packaging, North and Central America

$

(5)

$

1

$

(6)

$

(2)

Beverage packaging, South America

37

(1)

36

(1)

Beverage packaging, Europe

(16)

(4)

(15)

(14)

Other

(16)

(65)

(29)

(82)

$

$

(69)

$

(14)

$

(99)

2019

Beverage Packaging, North and Central America

During the three and six months ended June 30, 2019, the company recorded charges of $5 million and $6 million, respectively, for revised estimates of charges recorded in prior periods in connection with the previously announced closures of its beverage can manufacturing facilities in Chatsworth, California, and Longview, Texas, and its beverage end manufacturing facility in Birmingham, Alabama. The Birmingham facility ceased production during the second quarter of 2018, and the Chatsworth and Longview facilities ceased production during the third quarter of 2018. Ball sold the Chatsworth facility during the fourth quarter of 2018.

Beverage Packaging, South America

During the three and six months ended June 30, 2019, the company recorded a $56 million gain related to indirect tax gain contingencies in Brazil as these amounts are now estimable and realizable. The company’s Brazilian subsidiaries filed lawsuits in 2014 and 2015 to challenge the Brazilian tax authorities regarding the computation of certain indirect taxes, claiming amounts were overpaid to the tax authorities because the tax base included a “tax on tax” component. See Note 21 for further details. The amounts recorded in business consolidation and other activities relate to periods prior to 2019. In the event other comparable cases are resolved and the amounts claimed become estimable and realizable, the company will record gains, which may result in material reimbursements to the company in future periods.

During the three and six months ended June 30, 2019, the company recorded charges of $16 million composed of facility shutdown costs, asset impairment, accelerated depreciation and other costs related to restructuring activities.

Charges in the three and six months ended June 30, 2019, included $3 million and $4 million of expense, respectively, for individually insignificant activities.

Beverage Packaging, Europe

During the three and six months ended June 30, 2019, the company recorded charges of $13 million and $11 million, respectively, for asset impairments, accelerated depreciation and inventory impairments related to previously announced plant closures and restructuring activities.

Other charges in the three and six months ended June 30, 2019, included $3 million and $4 million of expense, respectively, for individually insignificant activities.

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Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

Other

During the three months ended June 30, 2019, the company recorded the following amounts:

Charges of $3 million for estimated employee severance costs and professional services associated with the planned sale of the China beverage packaging business, which is expected to close during the second half of 2019.
Charges of $3 million for long-term incentive and other compensation arrangements associated with the Rexam acquisition and integration.
Charges of $10 million for individually insignificant activities.

During the six months ended June 30, 2019, the company recorded the following amounts:

Charges of $16 million for estimated employee severance costs and professional services associated with the planned sale of the China beverage packaging business.
Charges of $7 million for long-term incentive and other compensation arrangements associated with the Rexam acquisition and integration.
Charges of $6 million for individually insignificant activities.

2018

Beverage Packaging, North and Central America

During the six months ended June 30, 2018, the company recorded income of $5 million for revised estimates of charges recorded in prior periods in connection with the previously announced closures of its beverage can manufacturing facilities in Chatsworth, California, and Longview, Texas, and its beverage end manufacturing facility in Birmingham, Alabama.

During the six months ended June 30, 2018, the company recorded charges of $2 million related to the closure of its Reidsville, North Carolina, plant, which ceased production in 2017.

Other income and charges in the three and six months ended June 30, 2018, included $1 million of income and $5 million of expense, respectively, for individually insignificant activities.

Beverage Packaging, South America

Charges in the three and six months ended June 30, 2018, included $1 million of expense for individually insignificant

activities.

Beverage Packaging, Europe

During the three and six months ended June 30, 2018, the company recorded charges of $2 million and $6 million, respectively, for employee severance and benefits and $1 million and $7 million, respectively, for facility shutdown costs and other costs in connection with the closure of its Recklinghausen, Germany, plant, which ceased production during the third quarter of 2017.

Other charges in the three and six months ended June 30, 2018, included $1 million of expense for individually insignificant activities.

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Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

Other

During the three months ended June 30, 2018, the company recorded the following amounts:

A $41 million loss on the sale of the U.S. steel food and steel aerosol packaging business.
Charges of $2 million for the estimated amount of claims covered by the indemnification for certain tax matters provided to the buyer of the businesses divested in connection with the 2016 Rexam acquisition.
Charges of $4 million for long-term incentive and other compensation arrangements associated with the Rexam acquisition.
Charges of $4 million for professional services and other costs associated with the sale of the U.S. steel food and steel aerosol packaging business.
Charges of $4 million for employee severance and benefits, accelerated depreciation and inventory impairment related to manufacturing cost rationalization.
Charges of $10 million for individually insignificant activities.

During the six months ended June 30, 2018, the company recorded the following amounts:

A $41 million loss on the sale of the U.S. steel food and steel aerosol packaging business.
Charges of $2 million for the estimated amount of claims covered by the indemnification for certain tax matters provided to the buyer of the businesses divested in connection with the 2016 Rexam acquisition.
Charges of $15 million for long-term incentive and other compensation arrangements associated with the Rexam acquisition.
Charges of $4 million for professional services and other costs associated with the sale of the U.S. steel food and steel aerosol packaging business.
Charges of $4 million for employee severance and benefits, accelerated depreciation and inventory impairment related to manufacturing cost rationalization.
Charges of $16 million for individually insignificant activities.

7.

Supplemental Cash Flow Statement Disclosures

June 30,

($ in millions)

2019

2018

Beginning of period:

Cash and cash equivalents

$

721

$

448

Current restricted cash (included in other current assets)

7

10

Noncurrent restricted cash (included in other assets)

1

Total cash, cash equivalents and restricted cash

$

728

$

459

End of period:

Cash and cash equivalents

$

764

$

549

Current restricted cash (included in other current assets)

9

8

Cash reported in assets held for sale

63

Total cash, cash equivalents and restricted cash

$

836

$

557

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 $127 million at June 30, 2019, and December 31, 2018. Financing activities for the six months ended June 30, 2019, include treasury stock repurchases totaling $16 million which were included in the consolidated statement of equity as of December 31, 2018, but not yet settled.

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Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

8.     Receivables, Net

June 30,

December 31,

($ in millions)

    

2019

    

2018

Trade accounts receivable

$

1,017

$

812

Unbilled receivables

503

478

Less allowance for doubtful accounts

(9)

(10)

Net trade accounts receivable

1,511

1,280

Other receivables

445

522

$

1,956

$

1,802

The company has entered into several regional committed and uncommitted accounts receivable factoring programs with various financial institutions for certain of its receivables. The programs are accounted for as true sales of the receivables, without recourse to Ball, and had combined limits of approximately $1.28 billion at June 30, 2019, and $1.2 billion at December 31, 2018. A total of $188 million and $178 million were available for sale under these programs as of June 30, 2019, and December 31, 2018, respectively.

Other receivables include income and sales tax receivables, related party receivables and other miscellaneous receivables. See Note 4 for further details of related party receivables.

9.     Inventories, Net

June 30,

December 31,

($ in millions)

    

2019

    

2018

Raw materials and supplies

$

698

$

727

Work-in-process and finished goods

564

614

Less inventory reserves

(79)

(70)

$

1,183

$

1,271

10.     Property, Plant and Equipment, Net

June 30,

December 31,

($ in millions)

    

2019

    

2018

Land

$

152

$

159

Buildings

1,296

1,359

Machinery and equipment

5,197

5,250

Construction-in-progress

547

509

7,192

7,277

Accumulated depreciation

(2,807)

(2,735)

$

4,385

$

4,542

Depreciation expense amounted to $123 million and $245 million for the three and six months ended June 30, 2019, and $129 and $254 for the three and six months ended June 30, 2018, respectively.

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Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

11.     Goodwill

($ in millions)

    


Beverage
Packaging,
North & Central
America

    


Beverage
Packaging,
South America

    


Beverage
Packaging,
Europe

    


Aerospace

    

Other

    

Total

Balance at December 31, 2018

$

1,275

$

1,299

$

1,435

$

40

$

426

$

4,475

Transfer to assets held for sale

(51)

(51)

Effects of currency exchange

9

9

Balance at June 30, 2019

$

1,275

$

1,299

$

1,444

$

40

$

375

$

4,433

The company’s annual goodwill impairment test completed in the fourth quarter of 2018 indicated the fair value of the metal beverage packaging, Asia Pacific (beverage Asia Pacific), and beverage packaging, AMEA (beverage AMEA), reporting units exceeded their carrying amounts by approximately 11 percent and 15 percent, respectively. The current supply of metal beverage packaging exceeds demand in China, resulting in pricing pressure and negative impacts on the profitability of our beverage Asia Pacific reporting unit. The worsening business climate in Saudi Arabia has resulted in negative impacts to the profitability of our beverage AMEA reporting unit. If it becomes an expectation that these situations will continue for an extended period of time, the company may be required to record noncash impairment charges for some or all of the goodwill associated with the beverage Asia Pacific and beverage AMEA reporting units, the total balances of which were $78 million and $102 million, respectively, at June 30, 2019. Of the goodwill associated with the beverage Asia Pacific reporting unit, $51 million relates to the China beverage packaging business and is reported in assets held for sale at June 30, 2019. The goodwill balance of $27 million within the beverage Asia Pacific reporting unit not reported in assets held for sale relates to the remaining business of beverage Asia Pacific. See Note 4 for further details regarding Ball’s planned sale of its metal beverage packaging business in China.

12.    Intangible Assets, Net

June 30,

December 31,

($ in millions)

    

2019

    

2018

Acquired Rexam intangibles (net of accumulated amortization of $482 million at June 30, 2019, and $399 million at December 31, 2018)

$

2,002

$

2,073

Capitalized software (net of accumulated amortization of $160 million at June 30, 2019, and $148 million at December 31, 2018)

75

82

Other intangibles (net of accumulated amortization of $112 million at June 30, 2019, and $112 million at December 31, 2018)

27

33

$

2,104

$

2,188

Total amortization expense of intangible assets amounted to $48 million and $96 million for the three and six months ended June 30, 2019, respectively, and $49 million and $104 million for the three and six months ended June 30, 2018, respectively.

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Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

13.    Other Assets

June 30,

December 31,

($ in millions)

    

2019

    

2018

Long-term deferred tax assets

$

189

$

237

Long-term pension assets

572

559

Investments in affiliates

284

302

Right-of-use operating lease assets

240

Company and trust-owned life insurance

177

152

Other

192

159

$

1,654

$

1,409

14.    Leases

Under the new lease standard, a contract is a lease or contains one when (1) the contract contains an explicitly or implicitly identified asset and (2) the customer obtains substantially all of the economic benefits from the use of that underlying asset and directs how and for what purpose the asset is used during the term of the contract in exchange for consideration. The company assesses whether an arrangement is a lease, or contains a lease, upon inception of the contract.

The company enters into operating leases for buildings, warehouses, office equipment, production equipment, aircraft, land and other types of equipment. When readily determinable, the discount rate used to calculate the lease liability is the rate implicit in the lease. Otherwise, the company uses its incremental borrowing rate based on the information available at lease commencement. The company’s finance and short-term leases are immaterial.

Many of the company’s leases include one or more renewal and/or termination options at the company’s discretion, which are included in the determination of the lease term if the company is reasonably certain to exercise the option. The company also enters into lease agreements that have variable payments, such as those related to usage or adjustments to certain indexes. Variable lease payments are recognized in the period in which those payments are incurred. Certain leases also include residual value guarantees; however, these amounts are not probable to be owed and are not included in the calculation of the lease liability.

The company subleases all or portions of certain building and warehouse leases to third parties, all of which are classified as operating leases. Some of these arrangements offer the lessee renewal options.

The components of lease expense were as follows:

Three Months Ended

Six Months Ended

($ in millions)

June 30, 2019

    

June 30, 2019

Operating lease expense

$

(16)

$

(33)

Variable lease expense

(8)

(10)

Sublease income

1

2

Net lease expense

$

(23)

$

(41)

Supplemental cash flow information related to leases was as follows:

Three Months Ended

Six Months Ended

($ in millions)

June 30, 2019

June 30, 2019

Cash paid for amounts included in the measurements of lease liabilities - Operating cash flows from operating leases

$

(20)

$

(36)

ROU assets obtained in exchange for operating lease obligations

13

23

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Ball Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

Supplemental balance sheet information related to operating leases was as follows:

($ in millions)

Balance Sheet Location

June 30, 2019

Operating lease ROU asset

Other assets

$

240

Current operating lease liabilities

Other current liabilities

55

Noncurrent operating lease liabilities

Other liabilities

185

Weighted average remaining lease term and weighted average discount rate for the company’s operating leases were as follows:

June 30, 2019

Weighted average remaining lease term in years

10

Weighted average discount rate (%)

4.4

Maturities of lease liabilities are as follows:

($ in millions)

Operating Leases

2019 (excluding the six months ended June 30, 2019)

$

31

2020

53

2021

44

2022

37

2023

29

Thereafter

102

Future value of lease liabilities

296

Less: Imputed interest

(