BALL CORPORATION Management's discussion and analysis should be read in conjunction with the
consolidated financial statements and accompanying notes included in Item 8
of this Annual Report on Form 10-K (annual report), 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
OVERVIEW
Business Overview and Industry Trends
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
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; however, there may be timing differences of when the costs are passed through. 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 our aerospace business involves work under contracts, generally
from one to five years in duration, as a prime contractor or subcontractor for
various
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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 leveraging our aluminum
container production capabilities across our global plant network to meet
global demand, improving efficiencies and amplifying our sustainability
credentials through Aluminum Stewardship Initiative certification across our
global aluminum container and end facilities in
and
? 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 assets; and in the 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 delivering the
broadest aluminum beverage and bottle portfolio, commercializing our
? lightweight, infinitely recyclable aluminum cup and providing next-generation
extruded aluminum aerosol packaging that utilizes proprietary technology to
significantly lightweight our products; and successfully introducing new
specialty beverage cans and aluminum bottle-shaping technology;
Aligning ourselves with the right customers and markets by prudently investing
capital to meet continued growth for specialty beverage containers throughout
our global network, which represent approximately 50 percent of our global
beverage packaging mix; aligning with growing beverage customers and brand
? categories and other new beverage producers who continue to use aluminum
beverage containers to grow their business; and in our aluminum cup business,
establishing partnerships with food service providers, fast casual restaurants
and event venues and 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 in
our new investments in beverage manufacturing facilities in
?
America,
business in the
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 for new
categories, occasions and refillable offerings through the increased production
of lightweight ReAl® containers and which utilize technology that increases the
strength of aluminum used in the manufacturing process while lightweighting the
? can by up to 30 percent over a standard aluminum aerosol can, as well as
leveraging our aerospace technologies and competencies to deliver exquisite
space-based environmental, weather and defense monitoring solutions such as
methane monitoring, weather prediction, LIDAR capabilities and hypersonics to
preserve and protect our planet through enabling our aerospace customers with
actionable ecosystem-related and intelligence data and resilient national
security architectures.
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.
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RESULTS OF 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.
Refer to Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations of the company's Annual Report on Form 10-K for the year
ended
Global Economic Environment
In 2022 data indicated a sharp rise in inflation in the regions where we
operate. Current and future inflationary effects may continue to be impacted by,
among other things, supply chain disruptions, governmental stimulus or fiscal
policies, changes in interest rates, and changing demand for certain goods and
services as recovery from the COVID-19 pandemic continues. We cannot predict
with any certainty the impact that rising interest rates, a global or any
regional recession, or higher inflation may have on our customers or
suppliers. Additionally, we are unable to predict the potential effects that any
resurgence of COVID-19, its variants or any future pandemic, or the continuation
or escalation of the military conflict between
Consolidated Sales and Earnings
Years Ended December 31,
($ in millions) 2022 2021 2020
Net sales $ 15,349 $ 13,811 $ 11,781
Net earnings attributable to Ball Corporation 719 878 585
Net earnings attributable to
5 % 6 % 5 %
Sales in 2022 were
Net earnings attributable to
Cost of Sales (Excluding Depreciation and Amortization)
Cost of sales, excluding depreciation and amortization, was
Depreciation and Amortization
Depreciation and amortization expense was
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the impairment and ultimate sale of the
Effective
Selling, General and Administrative
Selling, general and administrative (SG&A) expenses were
Business Consolidation Costs and Other Activities
Business consolidation costs and other activities were
Interest Expense
Total interest expense was
Tax Provision
The company's effective tax rate is affected by recurring items such as income
earned in non-
The 2022 effective income tax rate was 18.0 percent compared to 15.5 percent for
2021. As compared with the statutory
Further details of taxes on income, including impacts of the
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RESULTS OF BUSINESS SEGMENTS
Segment Results
Ball's operations are organized and reviewed by management along its product lines and geographical areas, and its operating results are presented in the four reportable segments discussed below.
Years Ended December 31,
($ in millions) 2022 2021 2020
Net sales $ 6,696 $ 5,856 $ 5,076
Comparable operating earnings 642 681 683
Comparable operating earnings as a % of
segment net sales 10 % 12 % 13 %
In the third quarter of 2022, Ball announced the permanent closure of its
aluminum beverage can manufacturing facilities in
Segment sales in 2022 were
Comparable operating earnings in 2022 were
Beverage Packaging , EMEA Years Ended December 31, ($ in millions) 2022 2021 2020 Net sales$ 3,854 $ 3,509 $ 2,945 Comparable operating earnings 358 452 354 Comparable operating earnings as a % of segment net sales 9 % 13 % 12 %
Segment sales in 2022 were
Comparable operating earnings in 2022 were
During the third quarter of 2022, and further to the Russian invasion of
A summary of the results of the Russian aluminum packaging business and the
non-Russian components of the beverage packaging, EMEA, segment, for the years
ended
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Year Ended December 31,
($ in millions) 2022 2021
Net sales
Russia $ 554 $ 594
Non-Russia 3,300 2,915
Beverage packaging, EMEA, segment
Comparable operating earnings Russia $ 86$ 129 Non-Russia 272 323
Beverage packaging, EMEA, segment
The Russian sales and comparable operating earnings figures in the above table
include historical support by
Years Ended December 31,
($ in millions) 2022 2021 2020
Net sales $ 2,108 $ 2,016 $ 1,695
Comparable operating earnings 275 348 280
Comparable operating earnings as a % of
segment net sales 13 % 17 % 17 %
To ensure supply/demand balance and optimize low-cost production, the company
ceased operations at its
Segment sales in 2022 were
Comparable operating earnings in 2022 were
Aerospace
Years Ended December 31,
($ in millions) 2022 2021 2020
Net sales $ 1,977 $ 1,911 $ 1,741
Comparable operating earnings 170 169 153
Comparable operating earnings as a % of
segment net sales 9 % 9 % 9 %
Segment sales in 2022 were
Sales to the
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Backlog for the aerospace segment at
Management Performance Measures
Management internally uses various measures to evaluate company performance such as comparable operating earnings (earnings before interest, taxes and business consolidation and other non-comparable costs); comparable net earnings (earnings before business consolidation costs and other non-comparable costs after tax); comparable diluted earnings per share (comparable net earnings divided by diluted weighted average shares outstanding); return on average invested capital (net operating earnings after tax over the relevant performance period divided by average invested capital over the same period); economic value added (EVA®) dollars (net operating earnings after tax less a capital charge on average invested capital employed); earnings before interest and taxes (EBIT); earnings before interest, taxes, depreciation and amortization (EBITDA); and diluted earnings per share. In addition, management uses operating cash flows 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 that 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 other non-comparable items.
Nonfinancial measures used in the packaging businesses include production efficiency and spoilage rates; quality control figures; environmental, health and safety statistics; production and sales volume data; 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. References to sales volume data represent units shipped.
Many of the above noted financial measurements are presented on a non-
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
For information regarding the company's critical and significant accounting policies, as well as recent accounting pronouncements, see Note 1 and Note 2 to the consolidated financial statements within Item 8 of this annual report.
The company considers certain accounting estimates to be critical, as their application is made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and have had, or are reasonably likely to have, a material impact on the financial condition or results of operations. Detailed below is a discussion of why, to the extent the estimate is material, these estimates are subject to uncertainty and the sensitivity of the reported amounts to the methods, assumptions, and estimates underlying the estimate's calculation.
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Revenue Recognition in the Aerospace Segment
Sales under fixed-price long-term contracts in the aerospace segment are primarily recognized using percentage-of-completion accounting under the cost-to-cost method. The company believes the accounting estimates related to revenue recognition in its aerospace segment are critical accounting estimates because they are highly reliant upon estimation throughout the segment's contracts with its customers. The recognition of revenue requires significant estimation on the part of management, including estimating techniques to project revenues and costs at completion and various assumptions and projections related to the outcome of future events, and evaluation of estimates of total contract revenue, total contract cost, and extent of progress toward completion. Aside from estimation of total contract cost and progress towards completion, total revenues in our aerospace segment are subject to uncertainty due to the total amount that will be paid by the customer giving rise to variable consideration. The primary types of variable consideration present in the company's contracts are cost reimbursements, performance award fees, incremental funding and finalization of government rates. The company's accounting policy around revenue recognition in its aerospace segment and further details of estimates used in revenue recognition in its aerospace segment can be found in Note 1 and
Note 5 , respectively, to the consolidated financial statements within Item 8 of this annual report.
Defined Benefit Pension Plans
The company has defined benefit plans which require management to make assumptions relating to the long-term rate of return on plan assets, discount rates used to determine the present value of future obligations and expenses, salary inflation rates, mortality rates and other assumptions. The company believes the accounting estimates related to its pension plans are critical accounting estimates because several of the company's defined benefit plans have significant asset and liability balances, and because the assumptions used are highly susceptible to change from period to period based on the performance of plan assets, actuarial valuations, market conditions and contracted benefit changes. These assumptions do not change during the company's fiscal year unless a remeasurement event occurs in one of the plans, such as a significant settlement. The assumptions used in accounting for the company's defined benefit plans and how they have changed over time, as well as the sensitivity of the plans to changes in their related assumptions, can be found in Note 17 to the consolidated financial statements within Item 8 of this annual report.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash Flows and Capital Expenditures
Our primary sources of liquidity are cash provided by operating activities and external borrowings. We believe that cash flows from operating activities 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. The following table summarizes our cash flows:
Years Ended December 31,
($ in millions) 2022 2021 2020
Cash flows provided by (used in) operating activities
Cash flows provided by operating activities were
Cash outflows from investing activities were
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Cash inflows from financing activities were
We have entered into several regional committed and uncommitted accounts
receivable factoring programs with various financial institutions for certain of
our accounts receivable. Programs accounted for as true sales of the
receivables, without recourse to Ball, had combined limits of approximately
As of
Based on its indefinite reinvestment assertion, the company has not provided
deferred taxes on earnings in certain non-
Share Repurchases
The company's share repurchases totaled
In the second quarter of 2022, in a privately negotiated transaction, Ball
entered into an accelerated share repurchase agreement to buy
Debt Facilities and Refinancing
Given our cash flow projections and unused credit facilities that are available
until
During 2022, Ball issued
At
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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.
Some of Ball's loan agreements use the London Inter-Bank Offered Rate (LIBOR) in determining interest rates. The company is continually evaluating the impact that the transition from its LIBOR-based interest rate loan agreements to Secured Overnight Financing Rate (SOFR) based interest rate agreements will have on its consolidated financial statements. Based on our most current understanding, the LIBOR to SOFR transition is not expected to have a material impact on our financial condition, results of operations or cash flows.
We were in compliance with all loan agreements at
Defined Benefit Pension Plans
The company closed its pension plans to all non-unionized new entrants in
Other Liquidity Measures
Given the on-going growth projects in our businesses being undertaken to support
EVA-enchancing contacted volumes, in 2023, we expect capital expenditures to be
in the range of
We have committed contracts to purchase raw materials and we align these purchase commitments with long-term sales contracts with our customers such that any commitment to purchase aluminum and other direct materials corresponds to a contractual sale. These aluminum purchase commitments include pass-through provisions which generally result in proportional changes in both sales and costs of sales; however, there may be timing differences of when the costs are passed through.
The company's growth and asset maintenance plans require capital expenditures
over the next years, which will be funded by operating cash flows and external
borrowings. Approximately
CONTINGENCIES, INDEMNIFICATIONS AND GUARANTEES
Details of the company's contingencies, legal proceedings, indemnifications and guarantees are available in Note 22 and Note 23 to the consolidated financial statements within Item 8 of this annual 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.
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Guaranteed Securities The company's senior notes are guaranteed on a full and unconditional, joint and several basis 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 and for the years endedDecember 31, 2022 and 2021. 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. Year Ended Year Ended ($ in millions) December 31, 2022 December 31, 2021 Net sales $ 9,975 $ 8,083 Gross profit (a) 996 910 Net earnings 635 432 Net earnings attributable to Ball Corporation 635 432
Gross profit is shown after depreciation and amortization related to cost of
(a) sales of
and 2021, respectively.
December 31, December 31,
($ in millions) 2022 2021
Current assets $ 2,478 $ 2,575
Noncurrent assets 15,764 14,818
Current liabilities 6,032 5,067
Noncurrent liabilities 10,790 10,989
Included in the amounts disclosed in the tables above, at
For the years ended
A description of the terms and conditions of the company's debt guarantees is located in Note 23 to the consolidated financial statements within Item 8 of this annual report.
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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 they should be read in conjunction with, and qualified in their entirety by,
the cautionary statements referenced below. Ball 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
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