Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

​

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 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

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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.

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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 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.

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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 expanding specialty 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;

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	●	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.

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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

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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.

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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 December 31, 2019, filed on February 19, 2020, for a comparison of our 2019 results of operations to the 2018 results. Prior Forms 10-K have not been restated to reflect changes to Ball’s internal reporting structure that were effective January 1, 2020.

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Novel Coronavirus (COVID-19)

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The novel coronavirus (COVID-19) had a material effect upon the global business environment during 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 2020, and it is expected that Ball will continue to operate its facilities without disruption in the foreseeable future. However, countries around the globe have issued stay-at-home orders and mandated operational closures of non-essential businesses, which has impacted certain of our customers by constraining some supply of products to certain consumers. The risks that COVID-19 continues to present to Ball’s business have been outlined in Item 1. Risk Factors and Note 1 to the consolidated financial statements within Item 8 of this annual report.

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Consolidated Sales and Earnings

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​	​	​	​	​	​	​	​	​	​	​
​	​	Years Ended December 31,								​
($ in millions)		2020			2019			2018
​	​	​	​	​	​	​	​	​	​	​
Net sales	​	$	11,781	​	$	11,474	​	$	11,635	​
Net earnings attributable to Ball Corporation	​	​	585	​	​	566	​	​	454	​
Net earnings attributable to Ball Corporation as a % of net sales	​	​	5	%	​	5	%	​	4	%

​

Sales in 2020 were $307 million higher compared to 2019 primarily as a result of increased sales volumes in our beverage packaging segments and increased sales in our aerospace segment, partially offset by the pass through of lower aluminum prices, the sale of the China beverage packaging can business in the third quarter of 2019 and the sale of the Argentine steel aerosol business in the fourth quarter of 2019.

​

Net earnings attributable to Ball Corporation in 2020 were $19 million higher than 2019 primarily due to higher comparable operating earnings for reportable segments and lower interest expense, partially offset by higher business consolidation and debt refinancing costs and a higher effective tax rate.

​

Cost of Sales (Excluding Depreciation and Amortization)

​

Cost of sales, excluding depreciation and amortization, was $9,323 million in 2020 compared to $9,203 million in 2019. These amounts represented 79 percent and 80 percent of consolidated net sales for the years ended 2020 and 2019, respectively.

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Depreciation and Amortization

​

Depreciation and amortization expense was $668 million in 2020 compared to $678 million in 2019. These amounts represented 6 percent of consolidated net sales for the years ended 2020 and 2019. Amortization expense in 2020 and 2019 included $150 million and $155 million, respectively, for the amortization of acquired Rexam intangibles.

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Selling, General and Administrative

​

Selling, general and administrative (SG&A) expenses were $525 million in 2020 compared to $417 million in 2019. These amounts represented 4 percent of consolidated net sales for both years. Personnel and other costs increased year over year to support growth investments.

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Business Consolidation Costs and Other Activities

​

Business consolidation costs and other activities were $262 million in 2020 compared to $244 million in 2019. These amounts represented 2 percent of consolidated net sales for both years.

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Interest Expense

​

Total interest expense was $316 million in 2020 compared to $324 million in 2019. Interest expense, excluding the effect of debt refinancing and other costs, as a percentage of average borrowings decreased by approximately 85 basis points from 4.4 percent in 2019 to 3.5 percent in 2020 due to the drop in global interest rates.

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Tax Provision

​

The company’s effective tax rate is affected by recurring items such as income earned in foreign jurisdictions with tax rates that differ from the U.S. tax rate and by discrete items that may occur in any given year but are not consistent from year to year.

​

The 2020 effective income tax rate was 14.4 percent compared to 11.7 percent for 2019. As compared with the statutory U.S. federal income tax rate of 21 percent, the 2020 effective rate was reduced by 6.8 percent for equity compensation benefits, by 5.7 percent for the impact of the U.S. R&D credit and by 2 percent for various uncertain tax positions. These reductions were partially offset by an increase of 3.4 percent for the impact of foreign exchange fluctuations on certain deferred tax assets. While these items are expected to recur, the potential magnitude of each item is uncertain.

​

The 2020 effective income tax rate was also increased by 2.6 percent for enacted changes to tax rates in the UK and by 2.3 percent for the impact of non-deductible goodwill. These items are not expected to recur.

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Further details of taxes on income are included in Note 16 to the consolidated financial statements within Item 8 of this annual report.

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RESULTS OF BUSINESS SEGMENTS

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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. Effective January 1, 2020, Ball implemented changes to its management and internal reporting structure for cost reduction and operational efficiency purposes. As a result of these changes, the company’s plants in Cairo, Egypt, and Manisa, Turkey, are now included in the beverage packaging, Europe, Middle East and Africa (beverage packaging, EMEA), segment. In addition, the company’s operations in India and Saudi Arabia are now combined with the former non-reportable beverage packaging, Asia Pacific, operating segment as a new non-reportable beverage packaging, other, operating segment. The company’s segment results and disclosures for the years ended December 31, 2019 and 2018, have been retrospectively adjusted to conform to the current year presentation.

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Beverage Packaging, North and Central America

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​	​	​	​	​	​	​	​	​	​	​
​	​	Years Ended December 31,								​
($ in millions)	​	2020			2019			2018
​	​	​	​	​	​	​	​	​	​	​
Net sales	​	$	5,076	​	$	4,758	​	$	4,626	​
​	​	​	​	​	​	​	​	​	​	​
Comparable operating earnings	​	​	683	​	​	555	​	​	551	​
Business consolidation and other activities (a)	​	​	(5)	​	​	(14)	​	​	(6)	​
Amortization of acquired Rexam intangibles	​	​	(27)	​	​	(29)	​	​	(31)	​
Total segment earnings	​	$	651	​	$	512	​	$	514	​
Comparable operating earnings as a % of segment net sales	​	​	13	%	​	12	%	​	12	%

(a)	Further details of these items are included in Note 6 to the consolidated financial statements within Item 8 of this annual report.

​

Segment sales in 2020 were $318 million higher compared to 2019. The increase in 2020 was primarily due to higher volumes, higher specialty mix and improved customer contractual terms, partially offset by lower aluminum prices. We cannot predict the impact on sales that will result from future changes in aluminum input prices.

​

Comparable operating earnings in 2020 were $128 million higher compared to 2019 primarily due to higher sales volumes, higher specialty mix, benefits from improved customer contractual terms and improved operating performance, partially offset by increased capacity expansion and labor costs.

​

Beverage Packaging, EMEA

​

​	​	​	​	​	​	​	​	​	​
​	Years Ended December 31,								​
($ in millions)	2020			2019			2018
​	​	​	​	​	​	​	​	​	​
Net sales	$	2,945	​	$	2,857	​	$	2,809	​
​	​	​	​	​	​	​	​	​	​
Comparable operating earnings	​	354	​	​	351	​	​	328	​
Business consolidation and other activities (a)	​	(10)	​	​	(39)	​	​	(49)	​
Amortization of acquired Rexam intangibles	​	(64)	​	​	(67)	​	​	(73)	​
Total segment earnings	$	280	​	$	245	​	$	206	​
Comparable operating earnings as a % of segment net sales	​	12	%	​	12	%	​	12	%

(a)	Further details of these items are included in Note 6 to the consolidated financial statements within Item 8 of this annual report.

​

Segment sales in 2020 were $88 million higher compared to 2019. The increase in 2020 was primarily due to higher sales volumes and improved customer and specialty mix, partially offset by the pass through of lower aluminum prices.

​

Comparable operating earnings in 2020 were $3 million higher compared to 2019 primarily due to higher sales volumes and improved customer and specialty mix, partially offset by higher labor and warehousing costs and intermittent production line downtime during the second quarter of 2020.

​

​

Beverage Packaging, South America

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​	​	​	​	​	​	​	​	​	​	​
​	​	Years Ended December 31,								​
($ in millions)	​	2020			2019			2018
​	​	​	​	​	​	​	​	​	​	​
Net sales	​	$	1,695	​	$	1,670	​	$	1,701	​
​	​	​	​	​	​	​	​	​	​	​
Comparable operating earnings	​	​	280	​	​	288	​	​	313	​
Business consolidation and other activities (a)	​	​	1	​	​	15	​	​	11	​
Amortization of acquired Rexam intangibles	​	​	(55)	​	​	(56)	​	​	(56)	​
Total segment earnings	​	$	226	​	$	247	​	$	268	​
Comparable operating earnings as a % of segment net sales	​	​	17	%	​	17	%	​	18	%

(a)	Further details of these items are included in Note 6 to the consolidated financial statements within Item 8 of this annual report.

​

Segment sales in 2020 were $25 million higher compared to 2019. The increase in 2020 was primarily related to higher volumes, partially offset by regional pricing and the pass through of lower aluminum prices.

​

Comparable operating earnings in 2020 were $8 million lower compared to 2019 primarily related to adverse cost absorption due to intermittent production line downtime in the second quarter of 2020 and regional pricing, partially offset by increased sales volumes.

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Aerospace

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​	​	​	​	​	​	​	​	​	​
​	Years Ended December 31,								​
($ in millions)	2020			2019			2018
​	​	​	​	​	​	​	​	​	​
Net sales	$	1,741	​	$	1,479	​	$	1,196	​
Comparable operating earnings	​	153	​	​	140	​	​	113	​
Comparable operating earnings as a % of segment net sales	​	9	%	​	9	%	​	9	%

​

Segment sales in 2020 were $262 million higher compared to 2019, and comparable operating earnings were $13 million higher. The increase in sales and operating earnings for 2020 was primarily the result of increases from significant U.S. national defense contracts.

​

Sales to the U.S. government, either directly as a prime contractor or indirectly as a subcontractor, represented 97 percent of segment sales in 2020 compared to 98 percent of segment sales in 2019. The aerospace contract mix in 2020 consisted of 49 percent cost-type contracts, which are billed at our costs plus an agreed-upon and/or earned profit component, and 48 percent fixed-price contracts. The remaining sales were for time and materials contracts.

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Contracted backlog for the aerospace segment at December 31, 2020 and 2019, was $2.4 billion and $2.5 billion, respectively. The segment has numerous outstanding bids for future contract awards. The backlog at December 31, 2020, consisted of 42 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, funding of programs and the uncertainty of timing of future contract awards.

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Management Performance Measures

​

Management internally uses various measures to evaluate company performance, including 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 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 that management uses to make strategic decisions. These financial measures may be adjusted at times for items that affect comparability between periods such as business consolidation costs and gains or losses on acquisitions and dispositions.

​

Nonfinancial measures 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).

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Many of the above noted financial measurements are presented on a non-U.S. GAAP basis and should be considered in connection with the consolidated financial statements within Item 8 of this annual report. Non-U.S. GAAP measures should not be considered in isolation, nor should they 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 8 of this annual report.

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Based on the above definitions, our calculations of comparable operating earnings, comparable net earnings, comparable diluted earnings per share and free cash flow are summarized as follows:

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​	​	​	​	​	​	​	​	​
​	Years Ended December 31,
($ in millions)	2020			2019			2018
​	​	​	​	​	​	​	​	​
Net earnings attributable to Ball Corporation	$	585	​	$	566	​	$	454
Net earnings (loss) attributable to noncontrolling interests, net of tax	​	(3)	​	​	(30)	​	​	(1)
Net earnings	​	582	​	​	536	​	​	453
Equity in results of affiliates, net of tax	​	6	​	​	1	​	​	(5)
Tax provision (benefit)	​	99	​	​	71	​	​	185
Earnings before taxes, as reported	​	687	​	​	608	​	​	633
Total interest expense	​	316	​	​	324	​	​	302
Earnings before interest and taxes	​	1,003	​	​	932	​	​	935
Business consolidation and other activities	​	262	​	​	244	​	​	191
Amortization of acquired Rexam intangibles	​	150	​	​	155	​	​	164
Comparable operating earnings	$	1,415	​	$	1,331	​	$	1,290

​

​

​	​	​	​	​	​	​	​	​	​
​	​	Years Ended December 31,
($ in millions, except per share amounts)		2020			2019			2018
​	​	​	​	​	​	​	​	​	​
Net earnings attributable to Ball Corporation	​	$	585	​	$	566	​	$	454
Business consolidation and other activities	​	​	262	​	​	244	​	​	191
Amortization of acquired Rexam intangibles	​	​	150	​	​	155	​	​	164
Share of equity method affiliate non-comparable costs, net of tax	​	​	31	​	​	16	​	​	8
Debt refinancing and other costs	​	​	41	​	​	7	​	​	1
Impact of U.S. tax reform	​	​	—	​	​	—	​	​	(45)
Non-controlling interest share of non-comparable costs, net of tax	​	​	1	​	​	(32)	​	​	—
Noncomparable taxes	​	​	(83)	​	​	(95)	​	​	2
Net earnings attributable to Ball Corporation before above transactions (Comparable Net Earnings)	​	$	987	​	$	861	​	$	775
​	​	​	​	​	​	​	​	​	​
Diluted earnings per share	​	$	1.76	​	$	1.66	​	$	1.29
Comparable diluted earnings per share	​	$	2.97	​	$	2.53	​	$	2.20

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CRITICAL AND SIGNIFICANT ACCOUNTING POLICIES AND NEW ACCOUNTING PRONOUNCEMENTS

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For information regarding the company’s critical and significant accounting policies, as well as recent accounting pronouncements, see Notes 1 and 2 to the consolidated financial statements within Item 8 of this annual report.

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FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

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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. We have no debt maturities until 2022, our senior credit facilities are in place until 2024 and we are focused in the near term on maintaining liquidity and flexibility in the current economic environment. The following table summarizes our cash flows:

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​	​	​	​	​	​	​	​	​
​	Years Ended December 31,
($ in millions)	2020			2019			2018
​	​	​	​	​	​	​	​	​
Cash flows provided by (used in) operating activities	$	1,432	​	$	1,548	​	$	1,566
Cash flows provided by (used in) investing activities	​	(1,181)	​	​	(422)	​	​	(206)
Cash flows provided by (used in) financing activities	​	(602)	​	​	(46)	​	​	(1,040)

​

Cash flows provided by operating activities were $116 million lower in 2020 compared to 2019, primarily due to higher working capital outflows of $106 million in 2020 compared to inflows of $236 million in 2019, partially offset by lower pension contributions. The higher working capital outflows in 2020 resulted from seasonal working capital build which was more sizeable than typical due largely to the timing of aluminum payments in the first quarter, increased personnel costs to support growth and a proportionally larger increase in days sales outstanding as compared to days payable outstanding. In comparison to the same period of 2019, our working capital movements reflect an increase of days sales outstanding from 38 days in 2019 to 42 days in 2020 and an increase of inventory days on hand from 48 days in 2019 to 50 days in 2020, partially offset by an increase of days payable outstanding from 118 days in 2019 to 128 days in 2020.

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Cash outflows from investing activities increased by $759 million from $422 million in 2019 to $1,181 million in 2020. This predominantly reflected a $515 million increase in capital expenditures for large growth projects, a $160 million inflow from the 2019 sale of the steel food and steel aerosol business and a $69 million outflow for the 2020 acquisition of the Brazil aluminum aerosol packaging business.

​

Cash outflows from financing activities increased by $556 million from $46 million in 2019 to $602 million in 2020, primarily related to total debt activity changing from net borrowings of $1.1 billion in 2019 to net repayments of $262 million in 2020, partially offset by a reduction in net share repurchases from $945 million in 2019 to $75 million in 2020.

​

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 $1.6 billion and $1.4 billion at December 31, 2020, and December 31, 2019, respectively. A total of $232 million and $230 million were available for sale under these programs at December 31, 2020 and 2019, respectively.

​

As of December 31, 2020, approximately $684 million of our cash was held outside of the U.S. In the event we need to utilize any of the cash held outside of 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. The company believes its U.S. operating cash flows, cash on hand, as well as availability under its 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 foreign 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 foreign 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 might become payable if these earnings were remitted to the U.S.

​

Share Repurchases

​

The company’s share repurchases, net of issuances, totaled $75 million in 2020 and $945 million in 2019. The repurchases were completed using cash on hand, cash provided by operating activities, proceeds from the sale of businesses 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 was $7.8 billion at both December 31, 2020 and 2019.

​

In the third quarter of 2020, Ball issued $1.3 billion of 2.875% senior notes due in 2030. In the first quarter of 2020, Ball redeemed the outstanding euro-denominated 3.50% senior notes due in 2020 in the amount of €400 million and the outstanding 4.375% senior notes due 2020 in the amount of $1 billion. We recorded debt refinancing and other costs of $41 million in 2020.

​

In November 2019, Ball issued €1.3 billion in aggregate principal amount of 1.50% and 0.875% euro-denominated senior notes for general corporate purposes. In March 2019, the company refinanced its existing credit facilities with a U.S. dollar term loan facility, a U.S. dollar revolving facility and a multi-currency revolving facility that mature in March 2024. The revolving facilities provide the company with up to the U.S. dollar equivalent of $1.75 billion.

​

At December 31, 2020, taking into account outstanding letters of credit, approximately $1.7 billion was available under the company’s long-term, multi-currency committed revolving credit facilities, which are available until March 2024. In addition to these facilities, the company had $1 billion of short-term uncommitted credit facilities available at December 31, 2020, of which $14 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 December 31, 2020, 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. In August 2020, we amended certain of our credit agreements, which among other things, modified the most restrictive of our debt covenants. This covenant 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 December 31, 2020, 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 about our debt are available in Note 15 to the consolidated financial statements within Item 8 of this annual report.

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Other Liquidity Measures

​

Free Cash Flow

​

Management internally uses a free cash flow measure to: (1) evaluate the company’s liquidity, (2) evaluate strategic investments, (3) plan share repurchase and dividend levels and (4) evaluate the company’s ability to incur and service debt. Free cash flow is not a defined term under U.S. GAAP, and it should not be inferred that the entire free cash flow amount is available for discretionary expenditures. The company defines free cash flow as cash flow from operating activities less capital expenditures. Free cash flow is typically derived directly from the company’s consolidated statement of cash flows; however, it may be adjusted for items that affect comparability between periods.

​

Based on the above definition, our consolidated free cash flow is summarized as follows:

​

​	​	​	​	​	​	​	​	​	​
​	​	​	Years Ended December 31,
($ in millions)		2020			2019			2018
​	​	​	​	​	​	​	​	​	​
Total cash provided by operating activities	​	$	1,432	​	$	1,548	​	$	1,566
Capital expenditures	​	​	(1,113)	​	​	(598)	​	​	(816)
Free cash flow	​	$	319	​	$	950	​	$	750

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Based on information currently available, we estimate that cash flows from operating activities for 2021 will exceed 2020 levels and capital expenditures will exceed $1.5 billion. In 2021, we intend to utilize our operating cash flow to fund our growth capital projects, dividend payments, share repurchases, debt service requirements and, to the extent available, acquisitions that meet our rate of return criteria. Approximately $1.1 billion of capital expenditures was contractually committed as of December 31, 2020.

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Commitments

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Cash payments required for long-term debt maturities and interest payments, rental payments under noncancellable operating leases and purchase obligations in effect at December 31, 2020, are summarized in the following table:

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​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Payments Due By Year (a)
($ in millions)		Total			2021			2022-2023			2024-2025			2026 and Thereafter
​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
Long-term debt (b)	​	$	7,853	​	$	3	​	$	2,610	​	$	2,515	​	$	2,725
Interest payments on long-term debt (c)	​	​	1,172	​	​	268	​	​	462	​	​	250	​	​	192
Purchase obligations (d)	​	​	15,448	​	​	4,871	​	​	6,377	​	​	3,718	​	​	482
Lease liabilities	​	​	370	​	​	66	​	​	104	​	​	63	​	​	137
Total payments on contractual obligations	​	$	24,843	​	$	5,208	​	$	9,553	​	$	6,546	​	$	3,536

(a)	Amounts reported in local currencies have been translated at year-end 2020 exchange rates.

(b)	Amounts represent future cash payments due and exclude future amortization of debt issuance costs of $67 million at December 31, 2020.

(c)	For variable rate facilities, amounts are based on interest rates in effect at year end and do not contemplate the effects of any hedging instruments utilized by the company.

(d)

The company’s purchase obligations include capital expenditures and contracted amounts for aluminum and other direct materials. Also included are commitments for purchases of natural gas and electricity, expenses related to aerospace and technologies contracts and other less significant items. In cases where variable prices and/or usage are involved, management’s best estimates have been used. Depending on the circumstances, early termination of the contracts may or may not result in penalties and, therefore, actual payments could vary significantly.

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The table above excludes $55 million of uncertain tax positions, as the ultimate timing of resolution for these matters is unknown at this time.

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Also excluded from the table above are contributions to the company’s defined benefit pension plans, which are expected to be approximately $185 million in 2021 of which $157 million was paid in January 2021. This estimate may change based on changes in the Pension Protection Act, actual plan asset performance and available company cash flow, among other factors. Benefit payments related to the plans are expected to be approximately $337 million, $336 million, $339 million, $344 million and $347 million for the years ending December 31, 2021 through 2025, respectively, and approximately $1.8 billion for the years ending December 31, 2026 through 2030.

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Based on changes in return on asset and discount rate assumptions, as well as revisions based on plan experience studies, total pension expense in 2021, is expected to be approximately $4 million higher than in 2020, excluding settlement charges. A reduction of the expected return on pension assets assumption by one quarter of a percentage point would result in an increase of approximately $14 million in total 2021 pension expense, while a quarter of a percentage point reduction in the discount rate applied to the pension liability would result in a negligible increase to pension expense in 2021. Additional details about our defined benefit pension plans are available in Note 17 to the consolidated financial statements within Item 8 of this annual report.

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CONTINGENCIES, INDEMNIFICATIONS AND GUARANTEES

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Details of the company’s contingencies, legal proceedings, indemnifications and guarantees are available in Notes 22 and 23 to the consolidated financial statements within Item 8 of this annual report. The company is routinely subject to litigation incident 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

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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.

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The following summarized financial information relates to the obligor group as of and for the years ended December 31, 2020 and 2019. 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.

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​	​	​	​	​	​
​	Years Ended December 31,
($ in millions)	2020			2019
​	​	​	​	​	​
Net sales	$	7,115	​	$	6,540
Gross profit (a)	​	935	​	​	789
Net earnings (loss)	​	528	​	​	211
Net earnings (loss) attributable to Ball	​	528	​	​	211

(a)	Gross profit is shown after depreciation and amortization related to cost of sales of $167 million and $160 million for the years ended December 31, 2020 and 2019, respectively.

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​	​	​	​	​	​	​
​	​	December 31,
($ in millions)		2020			2019
​	​	​	​	​	​	​
Current assets	​	$	2,211	​	$	2,310
Noncurrent assets	​	​	13,701	​	​	13,073
Current liabilities	​	​	3,704	​	​	5,073
Noncurrent liabilities	​	​	10,854	​	​	9,953

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Included in the amounts disclosed in the tables above, at December 31, 2020 and 2019, the obligor group held receivables due from other subsidiary companies of $221 million and $299 million, respectively, long-term notes receivable due from other subsidiary companies of $9.2 billion and $9.3 billion, respectively, payables due to other subsidiary companies of $1.7 billion and $1.9 billion, respectively, and long-term notes payable due to other subsidiary companies of $1.5 billion and $2.2 billion, respectively.

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For the years ended December 31, 2020 and 2019, the obligor group recorded the following transactions with other subsidiary companies: sales to them of $804 million and $792 million, respectively, net credits from them of $24 million and net charges to them of $21 million, respectively, and net interest income from them of $393 million and $127 million, respectively. During the years ended December 31, 2020 and 2019, the obligor group received dividends from other subsidiary companies of $56 million and $775 million, respectively.

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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

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This report contains "forward-looking" statements concerning future events and financial performance. Words such as "expects," "anticipates," "estimates," "believes," "targets," "likely," "positions" 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, including due to virus and disease outbreaks and responses thereto; 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; potential delays and tariffs related to the U.K’s departure from the EU; changes in major customer or supplier contracts or a loss of a major customer or supplier; political instability and sanctions; currency controls; changes in foreign 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 action or issues including tax, 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, the U.S. government elections, stimulus package(s), budget, sequestration and debt limit; 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.

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