Item 8. Financial Statements and Supplementary Data

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Item 8. Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Ball Corporation

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Ball Corporation and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of earnings, of comprehensive earnings (loss), of shareholders' equity and of cash flows for each of the three years in the period ended December 31, 2020, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Changes in Accounting Principles

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019 and the manner in which it accounts for revenues from contracts with customers in 2018.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue Recognition - Estimated Costs at Completion for Aerospace Fixed-Price Contracts

As described in Notes 1, 3 and 5 to the consolidated financial statements, sales for the aerospace segment were $1.7 billion for the year ended December 31, 2020, including sales under long-term fixed-price contracts, which are primarily recognized using percentage-of-completion accounting under the cost-to-cost method. The percentage-of-completion method of accounting involves the use of various estimating techniques to project revenues and costs at completion and various assumptions and projections relative to the outcome of future events, including the quantity and timing of product deliveries, future labor performance and rates, and material and overhead costs. Throughout the period of contract performance, management regularly evaluates and, if necessary, revises its estimates of total contract revenue, total contract cost, and extent of progress toward completion.

The principal considerations for our determination that performing procedures relating to revenue recognition - estimated costs at completion for aerospace fixed-price contracts is a critical audit matter are the significant judgment by management when determining the estimated costs at completion for such contracts. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures, and in evaluating the related audit evidence, over management’s assumptions of estimated costs at completion for fixed-price contracts, including the nature and technical complexity of the work to be performed, the availability and cost volatility of materials, subcontractor and vendor performance, and schedule and performance delays.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the accuracy of estimated costs at completion for aerospace fixed-price contracts. These procedures also included, among others, evaluating and testing management’s process for determining the estimated revenue and cost at completion for aerospace fixed-price contracts, including the specific factors considered by management for each contract. Evaluating management’s assumptions for reasonableness involved assessing the nature and status of fixed-price contracts, performing retrospective reviews of fixed-price contract estimates and changes in estimates over time, obtaining evidence to support estimated costs to complete, and assessing the reasonableness of factors considered and significant assumptions made by management in determining the estimated revenue and costs at completion used to recognize revenue.

/s/ PricewaterhouseCoopers LLP

Denver, Colorado

February 17, 2021

We have served as the Company’s auditor since at least 1962. We have not been able to determine the specific year we began serving as auditor of the Company.

Consolidated Statements of Earnings

Ball Corporation


	Years Ended December 31,
($ in millions, except per share amounts)	2020		2019		2018

Net sales	$	11,781	$	11,474	$	11,635

Costs and expenses
Cost of sales (excluding depreciation and amortization)		(9,323)		(9,203)		(9,329)
Depreciation and amortization		(668)		(678)		(702)
Selling, general and administrative		(525)		(417)		(478)
Business consolidation and other activities		(262)		(244)		(191)
		(10,778)		(10,542)		(10,700)

Earnings before interest and taxes		1,003		932		935

Interest expense		(275)		(317)		(301)
Debt refinancing and other costs		(41)		(7)		(1)
Total interest expense		(316)		(324)		(302)

Earnings before taxes		687		608		633
Tax (provision) benefit		(99)		(71)		(185)
Equity in results of affiliates, net of tax		(6)		(1)		5
Net earnings		582		536		453
Net (earnings) loss attributable to noncontrolling interests		3		30		1
Net earnings attributable to Ball Corporation	$	585	$	566	$	454


Earnings per share:
Basic	$	1.79	$	1.71	$	1.32
Diluted	$	1.76	$	1.66	$	1.29


Weighted average shares outstanding: (000s)
Basic		326,260		331,102		344,796
Diluted		332,815		340,121		352,321

The accompanying notes are an integral part of the consolidated financial statements.

Consolidated Statements of Comprehensive Earnings (Loss)

Ball Corporation


	Years Ended December 31,
($ in millions)	2020		2019		2018

Net earnings	$	582	$	536	$	453

Other comprehensive earnings (loss):
Foreign currency translation adjustment		(215)		166		(197)
Pension and other postretirement benefits		118		(270)		122
Derivatives designated as hedges		102		58		(86)
Total other comprehensive earnings (loss)		5		(46)		(161)
Income tax (provision) benefit		(49)		50		(18)
Total other comprehensive earnings (loss), net of tax		(44)		4		(179)

Total comprehensive earnings (loss)		538		540		274
Comprehensive (earnings) loss attributable to noncontrolling interests		3		30		1
Comprehensive earnings (loss) attributable to Ball Corporation	$	541	$	570	$	275

The accompanying notes are an integral part of the consolidated financial statements.

Consolidated Balance Sheets

Ball Corporation


	December 31,
($ in millions)	2020		2019

Assets
Current assets
Cash and cash equivalents	$	1,366	$	1,798
Receivables, net		1,738		1,631
Inventories, net		1,353		1,274
Other current assets		218		181
Total current assets		4,675		4,884
Noncurrent assets
Property, plant and equipment, net		5,351		4,470
Goodwill		4,484		4,419
Intangible assets, net		1,883		2,002
Other assets		1,859		1,585
Total assets	$	18,252	$	17,360

Liabilities and Equity
Current liabilities
Short-term debt and current portion of long-term debt	$	17	$	1,480
Accounts payable		3,430		3,136
Accrued employee costs		347		285
Other current liabilities		650		676
Total current liabilities		4,444		5,577
Noncurrent liabilities
Long-term debt		7,783		6,337
Employee benefit obligations		1,613		1,486
Deferred taxes		634		561
Other liabilities		441		380
Total liabilities		14,915		14,341

Equity
Common stock (679,524,325 shares issued - 2020; 676,302,319 shares issued - 2019)		1,167		1,178
Retained earnings		6,192		5,803
Accumulated other comprehensive earnings (loss)		(954)		(910)
Treasury stock, at cost (351,938,709 shares - 2020; 351,667,322 shares - 2019)		(3,130)		(3,122)
Total Ball Corporation shareholders' equity		3,275		2,949
Noncontrolling interests		62		70
Total equity		3,337		3,019
Total liabilities and equity	$	18,252	$	17,360

The accompanying notes are an integral part of the consolidated financial statements.

Consolidated Statements of Cash Flows

Ball Corporation


	Years Ended December 31,
($ in millions)	2020		2019		2018

Cash Flows from Operating Activities
Net earnings	$	582	$	536	$	453
Adjustments to reconcile net earnings to cash provided by
(used in) continuing operating activities:
Depreciation and amortization		668		678		702
Business consolidation and other activities		262		244		191
Deferred tax provision (benefit)		17		(45)		35
Other, net		9		(101)		95
Working capital changes, excluding effects of acquisitions and dispositions:
Receivables		(135)		49		(17)
Inventories		(64)		(45)		(248)
Other current assets		5		(18)		(47)
Accounts payable		66		72		592
Accrued employee costs		84		(1)		(77)
Other current liabilities		(35)		175		(140)
Other, net		(27)		4		27
Cash provided by (used in) operating activities		1,432		1,548		1,566
Cash Flows from Investing Activities
Capital expenditures		(1,113)		(598)		(816)
Business acquisitions, net of cash acquired		(69)		—		—
Proceeds from business dispositions, net of cash sold		(17)		160		539
Other, net		18		16		71
Cash provided by (used in) investing activities		(1,181)		(422)		(206)
Cash Flows from Financing Activities
Long-term borrowings		2,552		2,819		1,475
Repayments of long-term borrowings		(2,794)		(1,524)		(1,533)
Net change in short-term borrowings		(20)		(183)		(120)
Proceeds from issuances of common stock		(18)		19		28
Acquisitions of treasury stock		(57)		(964)		(739)
Common dividends		(198)		(182)		(137)
Other, net		(67)		(31)		(14)
Cash provided by (used in) financing activities		(602)		(46)		(1,040)

Effect of exchange rate changes on cash		(74)		(2)		(51)

Change in cash, cash equivalents and restricted cash		(425)		1,078		269
Cash, cash equivalents and restricted cash – beginning of year		1,806		728		459
Cash, cash equivalents and restricted cash – end of year	$	1,381	$	1,806	$	728

The accompanying notes are an integral part of the consolidated financial statements.

Consolidated Statements of Shareholders’ Equity

Ball Corporation


	Ball Corporation and Subsidiaries
	Common Stock			Treasury Stock					Accumulated Other				Total
	Number of			Number of			Retained		Comprehensive		Noncontrolling		Shareholders'
($ in millions; share amounts in thousands)	Shares	Amount		Shares	Amount		Earnings		Earnings (Loss)		Interest		Equity

Balance at December 31, 2017	670,576	$	1,084	(320,695)	$	(1,474)	$	4,987	$	(656)	$	105	$	4,046
Impact of adopting revenue recognition accounting standard	—		—	—		—		37		1		—		38
Balance at December 31, 2017	670,576		1,084	(320,695)		(1,474)		5,024		(655)		105		4,084
Net earnings	—		—	—		—		454		—		(1)		453
Other comprehensive earnings (loss), net of tax	—		—	—		—		—		(179)		—		(179)
Common dividends, net of tax benefits	—		—	—		—		(138)		—		—		(138)
Treasury stock purchases	—		—	(18,021)		(755)		—		—		—		(755)
Treasury shares reissued	—		—	737		23		—		—		—		23
Shares issued and stock compensation for stock options and other stock plans, net of shares exchanged	2,661		73	—		—		—		—		—		73
Other activity	—		—	—		1		1		(1)		—		1
Balance at December 31, 2018	673,237		1,157	(337,979)		(2,205)		5,341		(835)		104		3,562
Net earnings	—		—	—		—		566		—		(30)		536
Other comprehensive earnings (loss), net of tax	—		—	—		—		—		(41)		—		(41)
Currency translation recognized in earnings from the sale of the Argentina steel aerosol business	—		—	—		—		—		45		—		45
Reclassification of stranded tax effects	—		—	—		—		79		(79)		—		—
Common dividends, net of tax benefits	—		—	—		—		(181)		—		—		(181)
Treasury stock purchases	—		—	(14,383)		(950)		—		—		—		(950)
Treasury shares reissued	—		—	695		25		—		—		—		25
Shares issued and stock compensation for stock options and other stock plans, net of shares exchanged	3,065		21	—		—		—		—		—		21
Other activity	—		—	—		8		(2)		—		(4)		2
Balance at December 31, 2019	676,302		1,178	(351,667)		(3,122)		5,803		(910)		70		3,019
Net earnings	—		—	—		—		585		—		(3)		582
Other comprehensive earnings (loss), net of tax	—		—	—		—		—		(44)		—		(44)
Common dividends, net of tax benefits	—		—	—		—		(197)		—		—		(197)
Treasury stock purchases	—		—	(775)		(54)		—		—		—		(54)
Treasury shares reissued	—		—	503		28		—		—		—		28
Shares issued and stock compensation for stock options and other stock plans, net of shares exchanged	3,222		(11)	—		—		—		—		—		(11)
Dividends paid to noncontrolling interest	—		—	—		—		—		—		(5)		(5)
Other activity	—		—	—		18		1		—		—		19
Balance at December 31, 2020	679,524	$	1,167	(351,939)	$	(3,130)	$	6,192	$	(954)	$	62	$	3,337

The accompanying notes are an integral part of the consolidated financial statements.

Ball Corporation

Notes to the Consolidated Financial Statements

1. Critical and Significant Accounting Policies

The preparation of Ball Corporation’s (collectively, Ball, the company, we or our) consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires Ball’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and reported amounts of revenues 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 present the results of the periods presented.

Critical Accounting Policies

The company considers certain accounting policies to be critical, as their application requires management’s judgment about the impacts of matters that are inherently uncertain. Detailed below is a discussion of the accounting policies that management considers to be critical to the company’s consolidated financial statements.

Acquisitions

The company records acquisitions resulting in the consolidation of an enterprise using the purchase method of accounting. Under this method, the acquiring company records the assets acquired, including intangible assets that can be identified and named, and liabilities assumed based on their estimated fair values at the date of acquisition. The purchase price in excess of the fair value of the assets acquired and liabilities assumed is recorded as goodwill. If the assets acquired, net of liabilities assumed, are greater than the purchase price paid, then a bargain purchase has occurred and the company will recognize the gain immediately in earnings. Among other sources of relevant information, the company uses independent appraisals and actuarial or other valuations to assist in determining the estimated fair values of the assets and liabilities. Various assumptions are used in the determination of these estimated fair values including discount rates, market and volume growth rates, product selling prices, production costs and other prospective financial information. Transaction costs associated with acquisitions are expensed as incurred and included in the business consolidation and other activities line of the consolidated statement of earnings.

For acquisitions where the company already owns an equity investment in the acquired company, the company will recognize in earnings, upon the completion of the acquisition, a gain or loss related to the company’s existing equity investment. This gain or loss is calculated based on the fair value of the equity investment as compared to the carrying value of the existing equity investment on the date of acquisition.

When the company purchases additional interests of consolidated subsidiaries that does not result in a change in control, the difference between the fair value and carrying value of the noncontrolling interests acquired is accounted for in the common stock line within shareholders' equity.

Ball Corporation

Notes to the Consolidated Financial Statements

Exit and Other Closure Costs (Business Consolidation Costs)

The company estimates its liabilities for business closure activities by accumulating detailed estimates of costs and asset sale proceeds, if any, for each business consolidation initiative. This includes the estimated costs of employee severance, pension and related benefits; impairment of property and equipment and other assets, including estimates of net realizable value; accelerated depreciation; termination payments for contracts and leases; contractual obligations; and any other qualifying costs related to the exit plan. These estimated costs are grouped by specific projects within the overall exit plan and are then monitored on a monthly basis. Such charges represent management’s best estimates, however, they require assumptions about the plans that may change over time. Changes in estimates for individual locations and other matters are evaluated periodically to determine if a change in estimate is required for the overall restructuring plan. Subsequent changes to the original estimates are included in current earnings and identified as business consolidation gains or losses.

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 elected to apply the modified retrospective method to all contracts that were not completed as of January 1, 2018. The cumulative effect of initially applying the new revenue standard was recognized as an adjustment to the company’s retained earnings balance as of January 1, 2018.

At contract inception, the company assesses the goods and services promised in its contracts with customers and identifies a performance obligation for each promise to transfer goods or services to the customer. The performance obligation may be represented by a good or service (or a series of goods or services) that is distinct, or by a series of distinct goods or services that are substantially the same and have the same pattern of transfer to the customer. In each of these scenarios, the company treats the promise to transfer the customer goods or services as a single performance obligation.

To identify its performance obligations, the company considers all of the goods or services promised in the contract, regardless of whether they are explicitly stated or are implied by customary business practices.

The company has determined that the following distinct goods and services represent separate performance obligations:

	●	Manufacture and delivery of distinct spacecraft and/or hardware components;

	●	Research reports, for contracts where such reports are the sole or primary deliverable;

	●	Design, add-on or special studies for contracts where such studies have stand-alone value or a material right exists due to discounted pricing; and

	●	Warranty and performance guarantees beyond standard repair/replacement.

Performance obligations with no alternative use are recognized over time, when the company has an enforceable right to payment for efforts completed to-date. Because of sales contract payment schedules, limitations on funding, and contract terms, the company’s sales and accounts receivable generally include amounts that have been earned but not yet billed. The company’s payment terms vary by the type and location of the company’s customer and the products or services offered. All payment terms are less than one year.

Ball Corporation

Notes to the Consolidated Financial Statements

Contracts are often modified to account for changes in contract specifications and requirements. The company considers contract modifications to exist when the modification either creates new or revised enforceable rights and obligations. Most of the company’s contract modifications are for goods or services that are not distinct from the existing contract due to the significant integration service provided in the context of the contract, and such contract modifications are accounted for as if they were part of that existing contract. The effect of a contract modification on the transaction price, and the company’s measure of progress for the performance obligation to which it relates, is recognized as an adjustment to sales (either as an increase or reduction of sales) on a cumulative catch-up basis.

Within the aerospace segment, performance obligations are recognized over time. Aerospace contracts involve specialized and unique products that are tailored to the specific needs of the customer, such as a spacecraft or other hardware conforming to the specifications required by the customer, and as such, no alternative use exists. When there is an enforceable right to payment at cost plus reasonable margin for performance completed to date, the sales are recorded over time as the goods are manufactured or services are performed. Determining a measure of progress requires management to make judgments that affect the timing of recording sales. Sales under long-term contracts in the aerospace segment are primarily recognized using percentage-of-completion accounting under the cost-to-cost method, which is an input method. Under this method, the extent of progress towards completion is measured based on the ratio of costs incurred to date versus the total estimated costs upon completion of the performance obligation. The cost-to-cost method best depicts the transfer of assets to the customer as the company incurs costs on the company’s contracts. The percentage-of-completion method of accounting involves the use of various estimating techniques to project revenues and costs at completion and various assumptions and projections relative to the outcome of future events, including the quantity and timing of product deliveries, future labor performance and rates, and material and overhead costs. Throughout the period of contract performance, the company regularly evaluates and, if necessary, revises estimates of total contract revenue, total contract cost, and extent of progress toward completion.

The two primary types of long-term sales contracts utilized are cost-type contracts, which are agreements to perform for cost plus an agreed-upon profit component, and fixed price sales contracts, which are completed for a fixed price. Cost-type sales contracts can have different types of fee arrangements, including fixed-fee, cost, milestone and performance incentive fees, award fees or a combination thereof. At the inception of contract performance, the company estimates sales associated with base, incentive and other fees exclusive of any constraint. In other words, the company estimates sales to the extent that it is not probable a significant reversal will occur over the period of contract performance. The company has determined that the above provides a faithful depiction of the transfer of goods to the customer and is the best measure of depicting the company’s performance as control is transferred to customers.

Due to the unique and customized nature of deliverables within aerospace contracts, a readily observable selling price for a similar good is not typically available; therefore, in making its determination of stand-alone selling price, the company generally applies the “expected cost plus a margin” approach (whereby the transaction price is allocated based on the relative amount of costs plus an appropriate margin). Use of the expected cost plus a margin approach requires Ball to determine the expected costs for each performance obligation, as well as an appropriate margin (i.e., cost-to-cost percentage of completion). The calculation is made at contract inception to determine the allocation of consideration.

Uncertainty as to the total amount that will be paid by the customer (such as the exact amount of costs that will be incurred and fees that will be earned by us to satisfy the contractual requirements) gives rise to variable consideration. To estimate variable consideration, the company applies the “most likely amount” method or the “expected value” method depending on the nature of the variable consideration. In certain cases, both methods may be used within a single contract if multiple forms of variable consideration exist. However, once a method has been applied to one form of variable consideration, it is applied consistently throughout the contract term.

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. These types of arrangements are most commonly (though not exclusively) estimated based on the “most likely” method. Once variable consideration has been estimated, it will be constrained if a significant reversal of the cumulative amount of sales is probable in the context of the contract.

Ball Corporation

Notes to the Consolidated Financial Statements

Defined Benefit Pension Plans and Other Employee Benefits

The company has defined benefit plans and postretirement plans that provide certain medical benefits and life insurance for retirees and eligible dependents and, to a lesser extent, participates in multi-employer defined benefit plans for which Ball is not the sponsor. For the company-sponsored plans, the relevant accounting guidance requires that management make certain 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, health care cost trend rates, mortality rates and other assumptions. The company believes the accounting estimates related to the company’s pension and postretirement plans are critical accounting estimates because they are highly susceptible to change from period to period based on the performance of plan assets, actuarial valuations, market conditions and contracted benefit changes. The selection of assumptions is based on historical trends and known economic and market conditions at the time of valuation, as well as independent studies of trends performed by the company’s actuaries. However, actual results may differ substantially from the estimates that were based on the critical assumptions.

The company recognizes the funded status of each defined benefit pension plan and other postretirement benefit plans in the consolidated balance sheet. Each overfunded plan is recognized as an asset, and each underfunded plan is recognized as a liability. Pension plan obligations are revalued annually, or when an event occurs that requires remeasurement, based on updated assumptions and information about the individuals covered by the plan. For pension plans, accumulated actuarial gains and losses in excess of a 10 percent corridor and the prior service cost are amortized on a straight-line basis from the date recognized over the average remaining service period of active participants or the average life expectancy for plans with significant inactive participants. For other postemployment benefits, the 10 percent corridor is not used. Costs related to defined benefit and other postretirement plans are included in cost of sales and selling, general and administrative expenses, while settlement and curtailment expenses are included in business consolidation expenses.

Income Taxes

Deferred income taxes reflect the future tax consequences of differences between the tax bases of assets and liabilities and their financial reporting amounts at each balance sheet date, based upon enacted income tax laws and tax rates. Income tax expense or benefit is provided based on earnings reported in the financial statements. The provision for income tax expense or benefit differs from the amounts of income taxes currently payable because certain items of income and expense included in the consolidated financial statements are recognized in different time periods by taxing authorities.

Deferred tax assets, including operating loss, capital loss and tax credit carryforwards, are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that any portion of these tax attributes will not be realized. In addition, from time to time, management must assess the need to accrue or disclose uncertain tax positions for proposed adjustments from various federal, state and foreign tax authorities who regularly audit the company in the normal course of business. In making these assessments, management must often analyze complex tax laws of multiple jurisdictions, including many foreign jurisdictions. The accounting guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The company records the related interest expense and penalties, if any, as tax expense in the tax provision.

Stranded taxes in accumulated other comprehensive income are reclassified to the consolidated statement of earnings when the activity that generated the deferred gains and losses has fully ceased.

Ball Corporation

Notes to the Consolidated Financial Statements

Derivative Financial Instruments

The company uses derivative financial instruments for the purpose of hedging commercial risk exposures to fluctuations in interest rates, currency exchange rates, raw material costs and common share prices. The company’s derivative instruments are recorded in the consolidated balance sheets at fair value. The company values each derivative financial instrument either by using a single valuation technique based on observable market inputs performed internally or by obtaining valuation information from a reliable and observable market source. For a derivative designated as a cash flow hedge, the derivative's mark to fair value is initially recorded as a component of accumulated other comprehensive earnings and subsequently reclassified into earnings when the hedged item affects earnings, unless it is probable that the forecasted transaction will not occur. Derivatives that do not qualify for hedge accounting are marked to fair value with gains and losses immediately recorded in earnings. In the consolidated statements of cash flows, derivative activities are classified based on the cash flows of the items being hedged, except for those activities that are hedging the effect of exchange rate changes on cash, which are presented in investing activities.

Realized gains and losses from hedges are classified in the consolidated statements of earnings consistent with the accounting treatment of the items being hedged. Upon the dedesignation of an effective derivative contract, the gains or losses are deferred in accumulated other comprehensive earnings until the originally hedged item affects earnings unless it is probable the hedged item will not occur at which time it is recognized immediately. Any gains or losses incurred after the dedesignation date are recorded in earnings immediately.

Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of Ball, its consolidated subsidiaries, and variable interest entities in which the company is considered to be the primary beneficiary. Equity investments in which the company exercises significant influence but does not control and is not the primary beneficiary are accounted for using the equity method of accounting. Investments in which the company neither exercises significant influence over the investee, nor is the primary beneficiary of the investment, are accounted for using the cost method of accounting. Intercompany transactions are eliminated in consolidation.

Reclassifications

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

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand and highly liquid investments with original maturities of three months or less.

Inventories

Inventories are stated at the lower of cost or net realizable value using either the first-in, first-out (FIFO) cost method of accounting or the average cost method. Inventory cost is calculated for each inventory component taking into consideration the appropriate cost factors, including fixed and variable overhead, material price volatility and production levels.

Ball Corporation

Notes to the Consolidated Financial Statements

Recoverability of Goodwill

On an annual basis and at interim periods as circumstances require, the company performs a qualitative analysis to determine whether it is more likely than not that the fair value of a reporting unit exceeds its carrying amount, which includes an evaluation as to whether there have been significant changes to macro-economic factors related to the reporting unit that could materially impact fair value. If the qualitative analysis concludes that fair value could be materially impacted, the company performs a quantitative impairment test to determine the fair value of the reporting unit and recognizes an impairment charge for the amount by which the carrying value exceeds the fair value.

When performing a quantitative analysis, the company estimates fair value for each reporting unit primarily using the income approach. Under the income approach, fair value is estimated as the present value of estimated future cash flows of each reporting unit. The projected cash flows incorporate various assumptions related to weighted average cost of capital (WACC) and growth rates that are specific to each reporting unit, including assumptions relating to net sales growth rates, terminal growth rates and EBITDA (a non-U.S. GAAP measure defined by the company as earnings before interest, taxes, depreciation and amortization) margin. The company corroborates the results of its income approach using the market approach. Under the market approach, the company uses available information regarding multiples used in any recent market transactions involving transfer of controlling interests as well as publicly available trading multiples based upon the enterprise value of companies in either the packaging or aerospace and defense industries. The appropriate multiple is applied to forecasted EBITDA of each reporting unit to estimate fair value.

Impairment of Long-Lived Assets

We review long-lived assets for impairment when circumstances indicate the carrying amount of an asset or asset group may not be recoverable based on the undiscounted future cash flows of the asset. The company reviews long-lived assets for impairment at the individual asset or the asset group level for which the lowest level of independent cash flows can be identified. If the carrying amount of the asset or asset group is determined not to be recoverable, a write-down to fair value is recorded. Fair values are determined based on quoted market values, discounted cash flows or with the assistance of external appraisals, as applicable.

Depreciation and Amortization

Property, plant and equipment are carried at the cost of acquisition or construction. Repairs and maintenance costs, including labor and material costs for major improvements such as annual production line overhauls, are expensed as incurred, unless those costs substantially increase the useful lives or capacity of the existing assets. Assets are depreciated and amortized using the straight-line method over their estimated useful lives, generally 5 to 40 years for buildings and improvements and 2 to 20 years for machinery and equipment. Finite-lived intangible assets, excluding capitalized software costs, are generally amortized over their estimated useful lives of 3 to 18 years. Capitalized software is generally amortized over estimated useful lives of 3 to 7 years. The company periodically reviews these estimated useful lives and when appropriate, changes are made prospectively.

For certain business consolidation activities, accelerated depreciation may be required for the revised remaining useful life for assets designated to be scrapped or abandoned. The accelerated depreciation related to such activities is disclosed as part of business consolidation and other activities in the appropriate period.

Environmental Reserves

The company estimates its liability for environmental matters based on, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. The company records the best estimate of a loss when the loss is considered probable. As additional information becomes available, the company reassesses the potential liability related to pending matters and revises the estimates.

Ball Corporation

Notes to the Consolidated Financial Statements

Revenue Recognition in the Beverage and Aerosol Packaging Segments

The company recognizes sales of products in its packaging segments when a customer obtains control of promised goods or services, which occurs either over time or at a point in time. The company elected to apply the modified retrospective method to all contracts that were not completed as of January 1, 2018. The cumulative effect of initially applying the new revenue standard was recognized as an adjustment to the company’s retained earnings balance as of January 1, 2018.

At contract inception, the company assesses the goods and services promised in its contracts with customers and identifies a performance obligation for each promise to transfer goods or services to the customer. The performance obligation may be represented by a good or service (or a series of goods or services) that is distinct, or by a series of distinct goods or services that are substantially the same and have the same pattern of transfer to the customer. In each instance, the company treats the promise to transfer the customer goods or services as a single performance obligation.

The company has determined that the following distinct goods and services represent separate performance obligations:

	●	Manufacture of beverage containers, which may be generic or unique;

	●	Manufacture of aerosol containers, which may be generic or unique; and

	●	Manufacture of beverage and aerosol lids and ends, which may be generic or unique.

Performance obligations for products with no alternative use are recognized over time when the company has manufactured a unique item and has an enforceable right to payment. Conversely, generic products with alternative use are recognized at a point in time. Contracts may be short-term or long-term, with varying payment terms. Ball’s payment terms vary by the type and location of the customer and the products or services offered. Customers pay in accordance with negotiated terms, which are typically triggered upon ownership transfer. All payment terms are less than one year. For all contracts, the transaction price is determined upon establishment of the contract that contains the final terms of the sale, including the description, quantity, and price of each product or service purchased.

Ball typically enters into master agreements with customers, which establish the terms and conditions for subsequent orders of goods. 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 evidence) is in place and Ball produces under the contract. Within Ball’s packaging segments, these enforceable contracts 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 nature of the remaining performance obligations within these contracts, as well as the nature of the variability and how it will be resolved, are described in the section below.

Ball Corporation

Notes to the Consolidated Financial Statements

Within the company’s beverage and aerosol operations, performance obligations are recognized both over time and at a point in time. The determination that sales should be recognized at a point in time most often results from the existence of an alternative use for the product. Cans and ends that are not customized for a customer prior to delivery are considered to have an alternative use, and sales are recognized at the point of control transfer. Determining when control transfer occurs requires management to make judgments that affect the timing of when sales are recognized. The current revenue accounting standard provides five indicators that a customer has obtained control of an asset: 1) present right to payment; 2) transfer of legal title; 3) physical possession; 4) significant risks and rewards of ownership; and 5) customer acceptance. The company considers control to have transferred for these products upon shipment or delivery, depending on the legal terms of the contract, because the company has a present right to payment at that time, the customer has legal title to the asset, the company has transferred physical possession of the asset and/or the customer has significant risks and rewards of ownership of the asset. The company determines that control transfers to a customer as described above and provides a faithful depiction of the transfer of goods.

For performance obligations related to products that are specialized with no alternative use (e.g., specialized sizes or customer-specific materials, or labeled with customer-specific artwork), the company transfers control and records sales over time. The recognition of sales occurs over time as goods are manufactured and Ball has an enforceable right to payment for those goods, which is an output method. Determining a measure of progress requires management to make judgments that impact the timing of when sales are recognized. The company has determined the above provides a faithful depiction of the transfer of goods to the customer. The number of units manufactured that have an enforceable right to payment is the best measure of depicting the company’s performance as control is transferred. The customer obtains value as each unit is produced against a binding contract.

The enforceable right to payment may be explicit or implied in the contract. If the enforceable right to payment is not explicit in the contract, Ball must consider if there is an implied right based on customer relationships or previous business practices and applicable law. Typically, Ball has an enforceable right to payment of costs plus a reasonable margin once a binding forecast or purchase order (or similar evidence) is in place and Ball produces under the contract.

In making its determination of stand-alone selling price, Ball maximizes its use of observable inputs. Stand-alone selling price is then used to allocate total consideration proportionally to the various performance obligations within a contract.

To estimate variable consideration, the company may apply both the “expected value” method and “most likely amount” method based on the form of variable consideration, after considering which method would provide the best prediction of consideration to be received from the company’s customers. The expected value method involves a probability-weighted determination of the expected amount, whereas the most likely amount method identifies the single most likely outcome in a range of possible amounts. In certain cases, both methods may be used within a single contract if multiple forms of variable consideration exist. However, once a method has been applied to one form of variable consideration, it is applied consistently throughout the contract term.

The primary types of variable consideration present in the company’s contracts are per-unit price changes, volume discounts and rebates. Once variable consideration has been estimated, it will be constrained if a significant reversal of the cumulative amounts of sales is probable in the context of the contract.

Revenue Contract Costs

The company has determined there are no material costs that meet the capitalization criteria for costs to obtain or fulfill a contract.

Ball Corporation

Notes to the Consolidated Financial Statements

Revenue Recognition Practical Expedients

For contracts that have an original duration of one year or less, the company has elected the practical expedient applicable to such contracts and has not disclosed the transaction price for future performance obligations as of the end of each reporting period or when the company expects to recognize sales.

The company has also elected the sales tax practical expedient; therefore, sales and other taxes assessed by a governmental authority that are collected concurrent with revenue-producing activities are excluded from the transaction price.

For shipping and handling activities performed after a customer obtains control of the goods, the company has elected to account for these costs as activities to fulfill the promise to transfer the goods; therefore, these activities are not assessed as separate performance obligations.

The company has also elected the significant financing component practical expedient which allows management to not assess whether the contract has a significant financing component in circumstances where, at contract inception, the expected contract duration is less than one year.

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 disclosed in Note 5. The transfer of control for goods and services may occur at a point in time or over time; in other words, sales may be recognized over the course of the underlying contract, or they may occur at a single point in time based upon the transfer of control. The company determined that disaggregating sales into these categories achieves the disclosure objective to depict how the nature, amount, timing, and uncertainty of sales and cash flows are affected by economic factors. As disclosed in Note 3, the company’s business consists of four reportable segments, which encompass disaggregated product lines and geographical areas: (1) beverage packaging, North and Central America; (2) beverage packaging, EMEA; (3) beverage packaging, South America; and (4) aerospace.

Revenue Contract Balances

The company enters into contracts to sell beverage packaging, aerosol packaging, and aerospace products. The payment terms and conditions in customer contracts vary. Those customers that prepay are represented by the contract liabilities shown in Note 5, until the company’s performance obligations are satisfied. Contract assets would exist when sales have been recorded (i.e., control of the goods or services has been transferred to the customer) but customer payment is contingent on a future event beyond the passage of time (i.e., satisfaction of additional performance obligations). 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.

Leases

On January 1, 2019, Ball adopted new accounting guidance and all related amendments (the new lease standard), that, 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. Ball applied 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.

Ball Corporation

Notes to the Consolidated Financial Statements

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.

Fair Value Measurements

Generally accepted accounting principles define fair value as the price that would be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price) and such principles also establish a fair value hierarchy that prioritizes the inputs used to measure fair value using the following definitions (from highest to lowest priority):

	●	Level 1–Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

	●	Level 2–Observable inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data by correlation or other means.

	●	Level 3–Prices or valuation techniques requiring inputs that are both significant to the fair value measurement and unobservable.

Stock-Based Compensation

Ball has a variety of restricted stock, stock option, and stock-settled appreciation rights (SSARs) plans, and the related stock-based compensation is primarily reported as part of selling, general and administrative expenses in the consolidated statements of earnings. The compensation expense associated with restricted stock grants is calculated using the fair value at the date of grant (closing stock price) and is amortized over the restriction period. For stock options and SSARs, the company has elected to use the Black-Scholes valuation model and amortizes the estimated fair value, determined at the date of grant, on a straight-line basis over the requisite service period (generally the vesting period). The company’s deferred compensation stock program is subject to variable plan accounting and, accordingly, is valued at the closing price of the company’s common stock at the end of each reporting period.

Ball Corporation

Notes to the Consolidated Financial Statements

Research and Development Costs

Research and development costs are expensed as incurred in connection with the company’s programs for the development of products and processes. Costs incurred in connection with these programs, the majority of which are included in cost of sales, amounted to $47 million, $44 million and $32 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Currency Translation

Assets and liabilities of foreign operations with a functional currency other than the U.S. dollar are translated using period-end exchange rates, and revenues and expenses are translated using average exchange rates during each period. Translation gains and losses are reported in accumulated other comprehensive earnings (loss) as a component of shareholders’ equity.

Contingencies

The company is subject to various legal proceedings and claims, including those that arise in the ordinary course of business. The company records loss contingencies when it determines the outcome of the future event is probable of occurring and the amount of the loss can be reasonably estimated. Gain contingencies are recognized in the financial statements when they are realized or realizable.

The determination of a reserve for a loss contingency is based on management’s judgment of probability and estimates with respect to the likelihood of an outcome and valuation of the future event. Liabilities are recorded or adjusted when events or circumstances cause these judgments or estimates to change. In assessing whether a loss is probable, Ball may consider the following factors, among others: the nature of the litigation, claim or assessment; available information, opinions or views of legal counsel and other advisors; and the experience gained from similar cases by the company and others. The company provides disclosures for material contingencies when there is a reasonable possibility that a loss or an additional loss may be incurred. Actual amounts realized upon settlement of contingencies may be different than amounts recorded and disclosed, and such adjustments could have a significant impact on the company's consolidated financial statements.

Risks and Uncertainties – Novel Coronavirus (COVID-19)

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

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

	●	Estimates of recoverability for customer receivables;

	●	Estimates of net realizable value for inventory;

	●	Estimates regarding the likelihood of forecasted transactions associated with hedge accounting positions at December 31, 2020, which could impact the company’s ability to satisfy hedge accounting requirements and result in the recognition of income and/or expenses.

Ball Corporation

Notes to the Consolidated Financial Statements

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

2. Accounting Pronouncements

Recently Adopted Accounting Standards

Cloud Computing Arrangements

In August 2018, amendments to existing accounting guidance were issued to clarify the accounting for implementation costs related to cloud computing arrangements. The amendments specify that existing guidance for capitalizing implementation costs incurred to develop or obtain internal-use software also applies to capitalizing implementation costs incurred in a hosting arrangement that is a service contract. The guidance was applied prospectively on January 1, 2020, and did not have a material effect on the company’s consolidated financial statements.

Financial Assets

Amendments to existing guidance were issued in June 2016, followed by improvements and transition relief in 2018 and 2019, requiring financial assets or a group of financial assets measured at amortized cost basis to be presented at the net amount expected to be collected when finalized. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset to present the net carrying value at the amount expected to be collected on the financial asset. Ball adopted this guidance and all related amendments on January 1, 2020, applying the modified retrospective method, and this adoption did not have a material effect on the company’s consolidated financial statements.

Pension and Fair Value Measurement Disclosures

In August 2018, amendments to existing disclosure requirements were issued to clarify the disclosures around defined benefit plans and fair value measurements. Ball adopted this guidance on January 1, 2020, and this adoption did not have a material effect on the company’s consolidated financial statements.

New Accounting Guidance

Income Tax Simplification

In December 2019, accounting guidance was issued to simplify the accounting for income taxes. The guidance is effective for Ball on January 1, 2021, and it will not have a material effect on the company’s consolidated financial statements.

Ball Corporation

Notes to the Consolidated Financial Statements

3. Business Segment Information

Ball’s operations are organized and reviewed by management along its product lines and geographical areas and presented in the four reportable segments outlined below. Effective January 1, 2020, the company implemented changes to its management and internal reporting structure for cost reduction and operational efficiency purposes. As a result of these changes, the company’s plants in Cairo, Egypt, and Manisa, Turkey, are now included in the beverage packaging, Europe, Middle East and Africa (beverage packaging, EMEA), segment. 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 comparative, historical periods have been retrospectively adjusted to conform to the current year presentation.

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

Beverage packaging, EMEA_:_ Consists of operations in numerous countries throughout Europe, including Russia, as well as Egypt and Turkey, that manufacture and sell aluminum beverage containers throughout those regions.

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

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

As presented in the tables below, Other consists of a non-reportable operating segment (beverage packaging, other) that manufactures and sells aluminum beverage containers in India, Saudi Arabia and throughout the Asia Pacific region; a non-reportable operating segment that manufactures and sells extruded aluminum aerosol containers and aluminum slugs (aerosol packaging); a non-reportable operating segment that manufactures and sells aluminum cups (aluminum cups); undistributed corporate expenses; intercompany eliminations and other business activities.

The accounting policies of the segments are the same as those used in the 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.

Major Customers

Net sales to major customers, as a percentage of consolidated net sales, were as follows:


	2020		2019		2018

U.S. Government	14	%	13	%	10	%
Anheuser-Busch InBev and affiliates	13	%	12	%	13	%
Coca-Cola Bottlers' Sales & Services Company LLC and affiliates	9	%	9	%	12	%

Ball Corporation

Notes to the Consolidated Financial Statements

Summary of Net Sales by Geographic Area (a)


($ in millions)	U.S.		Brazil		Other		Consolidated

2020	$	6,317	$	1,295	$	4,169	$	11,781
2019		5,747		1,351		4,376		11,474
2018		5,783		1,380		4,472		11,635

(a)	Revenue is attributed based on origin of sale and includes intercompany eliminations.

Summary of Net Long-Lived Assets by Geographic Area (a)


($ in millions)	U.S.		Brazil		U.K.		Other		Consolidated

As of December 31, 2020	$	2,819	$	839	$	766	$	2,786	$	7,210
As of December 31, 2019		2,024		750		626		2,655		6,055

(a)	Long-lived assets exclude goodwill and intangible assets.

Summary of Business by Segment


	Years Ended December 31,
($ in millions)	2020		2019		2018

Net sales
Beverage packaging, North and Central America	$	5,076	$	4,758	$	4,626
Beverage packaging, EMEA		2,945		2,857		2,809
Beverage packaging, South America		1,695		1,670		1,701
Aerospace		1,741		1,479		1,196
Reportable segment sales		11,457		10,764		10,332
Other		324		710		1,303
Net sales	$	11,781	$	11,474	$	11,635

Comparable operating earnings
Beverage packaging, North and Central America	$	683	$	555	$	551
Beverage packaging, EMEA		354		351		328
Beverage packaging, South America		280		288		313
Aerospace		153		140		113
Reportable segment comparable operating earnings		1,470		1,334		1,305
Reconciling items
Other (a)		(55)		(3)		(15)
Business consolidation and other activities		(262)		(244)		(191)
Amortization of acquired Rexam intangibles		(150)		(155)		(164)
Earnings before interest and taxes		1,003		932		935
Interest expense		(275)		(317)		(301)
Debt refinancing and other costs		(41)		(7)		(1)
Total interest expense		(316)		(324)		(302)
Earnings before taxes	$	687	$	608	$	633

(a)	Includes undistributed corporate expenses, net, of $58 million, $50 million and $84 million for the years ended December 2020, 2019 and 2018, respectively.

Ball Corporation

Notes to the Consolidated Financial Statements


	Years Ended December 31,
($ in millions)	2020		2019		2018

Depreciation and amortization (a)
Beverage packaging, North and Central America	$	184	$	190	$	184
Beverage packaging, EMEA		230		246		252
Beverage packaging, South America		142		136		131
Aerospace		53		43		33
Reportable segment depreciation and amortization		609		615		600
Other		59		63		102
Depreciation and amortization	$	668	$	678	$	702

Capital expenditures
Beverage packaging, North and Central America	$	367	$	139	$	322
Beverage packaging, EMEA		262		147		200
Beverage packaging, South America		159		150		106
Aerospace		174		96		130
Reportable segment capital expenditures		962		532		758
Other		151		66		58
Capital expenditures	$	1,113	$	598	$	816

(a)	Includes amortization of acquired Rexam intangibles.

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

4. Acquisitions and Dispositions

Brazil Aluminum Aerosol Packaging Business

In August 2020, the company acquired the entire share capital of Tubex Industria E Comercio de Embalagens Ltda, an aluminum aerosol packaging business with a plant in Itupeva, Brazil, for the purchase price of $80 million, subject to customary closing adjustments, including initial cash consideration of $69 million plus potential additional consideration not to exceed $30 million in total over the next three years. The business is part of Ball’s aerosol packaging operating segment. The transaction broadens the geographic reach of Ball’s aluminum aerosol packaging business, serving the growing Brazilian personal care market.

Argentina Steel Aerosol Business

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

Ball Corporation

Notes to the Consolidated Financial Statements

Beverage Packaging China

In September 2019, the company completed the sale of its metal beverage packaging business in China for upfront consideration of approximately $213 million, subject to customary closing adjustments, plus potential additional consideration related to the relocation of an existing facility in China in the coming years, the value of which was fully impaired in the first quarter of 2020, as described in Note 6. The upfront proceeds from this sale were received in the fourth quarter of 2019. The loss on disposal of $45 million was recorded in 2019 within business consolidation and other activities in the company’s consolidated statement of earnings.

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 on the company’s consolidated balance sheet.

Ball recorded a loss of $41 million upon completion of the sale. This loss was recorded in business consolidation and other activities in the company’s consolidated statement of earnings. In the first quarter of 2020, the shareholders of Ball Metalpack provided additional equity contributions and loans to Ball Metalpack, of which Ball's share was $30 million, which resulted in Ball recognizing previously unrecorded equity method losses associated with prior periods. Ball is under no obligation to provide additional equity contributions or loans to Ball Metalpack. Also in the first quarter of 2020, an additional loss on the sale of the business of $15 million was recognized in connection with a final adjustment to the selling price, which was recorded in business consolidation and other activities in the company’s consolidated statement of earnings.

5. Revenue from Contracts with Customers

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


($ in millions)	Point in Time		Over Time		Total

2020	$	2,223	$	9,558	$	11,781
2019		2,220		9,254		11,474
2018		2,634		9,001		11,635

The company did not have any contract assets at December 31, 2020, 2019, or 2018. The opening and closing balances of the company’s current and noncurrent contract liabilities are as follows:


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

Balance at December 31, 2018	$	45	$	8
Increase		42		1
Balance at December 31, 2019		87		9
Increase (decrease)		21		20
Balance at December 31, 2020	$	108	$	29

Ball Corporation

Notes to the Consolidated Financial Statements

During the year ended December 31, 2020, contract liabilities increased by $41 million, which is net of cash received of $489 million and amounts recognized as sales of $530 million, all of which related to current contract liabilities. The amount of sales recognized during the year ended December 31, 2020, that was included in the company’s opening contract liabilities balance was $87 million, all of which related to current contract liabilities. The difference between the opening and closing balances of the company’s contract liabilities primarily results from timing differences between the company’s performance and the customer’s payment. Current contract liabilities are classified within other current liabilities on the consolidated balance sheet and noncurrent contract liabilities are classified within other liabilities.

The company also recognized sales of $20 million and $15 million during the years ended December 31, 2020 and 2019, respectively, from performance obligations satisfied (or partially satisfied) in prior periods. These sales amounts are the result of changes in the transaction price of the company’s contracts with customers.

Transaction Price Allocated to Remaining Performance Obligations

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 those contracts with an original duration of at least 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 December 31, 2020	$	1,353	$	921	$	2,274

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. The nature of the remaining performance obligations within these contracts, as well as the nature of the variability and how it will be resolved, are described in Note 1.

6. Business Consolidation and Other Activities

Following is a summary of business consolidation and other activity (charges) income included in the consolidated statements of earnings:


	Years Ended December 31,
($ in millions)	2020		2019		2018

Beverage packaging, North and Central America	$	(5)	$	(14)	$	(6)
Beverage packaging, EMEA		(10)		(39)		(49)
Beverage packaging, South America		1		15		11
Other		(248)		(206)		(147)
	$	(262)	$	(244)	$	(191)

2020

Beverage Packaging, North and Central America

During 2020, the company recorded charges of $5 million for individually insignificant activities in connection with previously announced closures of certain beverage can and end manufacturing facilities and other activities.

Ball Corporation

Notes to the Consolidated Financial Statements

Beverage Packaging, EMEA

During 2020, the company recorded charges of $10 million for individually insignificant activities in connection with previously announced plant closures, restructuring and other activities.

Beverage Packaging, South America

During 2020, the company recorded credits of $1 million for individually insignificant activities.

Other

During 2020, the company recorded the following amounts:

	●	Non-cash settlement losses of $120 million related to the purchase of non-participating group annuity contracts and lump-sum payments to settle the projected pension benefit obligations for certain of Ball’s U.S. defined pension plans, which triggered settlement accounting. The settlement losses primarily reflect the recognition of aggregated unamortized actuarial losses in these U.S. pension plans.

	●	A non-cash impairment charge of $62 million related to the goodwill of the new beverage packaging, other, operating segment. See Note 11 for further details.

	●	A non-cash charge of $23 million resulting from the recent deterioration of China’s real estate market, which led the company to reduce the value of potential future consideration due as part of the sale of its China beverage packaging business. See Note 4 for further details.

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

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

	●	Charges of $6 million for long-term incentive and other compensation arrangements associated with the 2016 Rexam acquisition.

	●	Charges of $33 million for individually insignificant activities.

2019

Beverage Packaging, North and Central America

During 2019, the company recorded charges of $8 million for revised estimates of charges recorded in prior periods in connection with the 2018 closures of its beverage can manufacturing facilities in Chatsworth, California, and Longview, Texas, and its beverage end manufacturing facility in Birmingham, Alabama.

Other income and charges in 2019 included $6 million of expense for individually insignificant activities.

Beverage Packaging, EMEA

During 2019, the company recorded charges of $26 million for asset impairments, accelerated depreciation and inventory impairments related to previously announced plant closures and restructuring activities.

Other charges in 2019 included $13 million of expense for individually insignificant activities.

Ball Corporation

Notes to the Consolidated Financial Statements

Beverage Packaging, South America

During 2019, the company recorded a $57 million gain related to indirect tax gain contingencies in Brazil as these amounts were determined to be 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 22 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.

The company recorded charges of $29 million in 2019 related to asset impairments, accelerated depreciation and inventory impairments related to plant closures and restructuring activities.

Other charges in 2019 included $13 million of expense for individually insignificant activities.

Other

During 2019, the company recorded the following amounts:

	●	A $45 million loss on the sale of the metal beverage packaging business in China and charges of $18 million for estimated employee severance costs and professional services associated with the sale.

	●	A loss of $52 million related to the sale of the Argentina steel aerosol packaging business, including $45 million related to cumulative translation adjustments previously recorded in accumulated other comprehensive earnings.

	●	A $64 million impairment charge related to certain property, plant and equipment, intangible assets and other assets of the company’s Saudi Arabian beverage packaging business (of which Ball owns 51 percent). See Note 10 for further details.

	●	A settlement loss of $8 million primarily related to the purchase of non-participating group annuity contracts to settle the projected pension benefit obligations in Ball’s Canadian defined benefit pension plan, which triggered settlement accounting. The settlement loss primarily represents the aggregate unamortized actuarial loss in this pension plan.

	●	Charges of $19 million for individually insignificant activities.

2018

Beverage Packaging, North and Central America

During 2018, the company recorded $12 million of expense for employee severance and benefits, facility shutdown costs, asset impairment, accelerated depreciation and other costs 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 and recorded a gain of $18 million.

Other income and charges in 2018 included $12 million of expense for individually insignificant activities.

Beverage Packaging, EMEA

During 2018, the company recorded charges of $44 million for asset impairments, accelerated depreciation and inventory impairments related to previously announced plant closures and restructuring activities.

Other charges in 2018 included $5 million of expense for individually insignificant activities.

Ball Corporation

Notes to the Consolidated Financial Statements

Beverage Packaging, South America

During 2018, the company recorded an $18 million gain related to indirect tax contingencies in Brazil as these amounts were determined to have been realized. As referenced above, 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 as a result of a tax on a tax being charged.

Other charges in 2018 included $7 million of expense for individually insignificant activities.

Other

During 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.

	●	A pension settlement loss of $36 million primarily related to the purchase of non-participating group annuity contracts to settle a portion of the projected pension benefit obligations in certain Ball U.S. defined benefit pension plans and to lump sums paid to certain retirees.

	●	Charges of $23 million for long-term incentive and other compensation arrangements associated with the Rexam acquisition.

	●	Charges of $15 million for professional services and other costs associated with the sale of the U.S. steel food and steel aerosol packaging business and the proposed sale of the beverage packaging China business.

	●	Charges of $32 million for individually insignificant activities.

7. Supplemental Cash Flow Statement Disclosures


	December 31,
($ in millions)	2020		2019

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

End of period:
Cash and cash equivalents	$	1,366	$	1,798
Current restricted cash (included in other current assets)		15		8
Total cash, cash equivalents and restricted cash	$	1,381	$	1,806

The company’s restricted cash is primarily related to receivables factoring programs and represents amounts collected from customers but not yet 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 $409 million and $224 million at December 31, 2020 and 2019, respectively.

In connection with the sale of a business associated with the June 2016 acquisition of Rexam, the company provided indemnifications for uncertain tax positions associated with the business. During 2018, the company made payments of $45 million in relation to these liabilities and reported them within investing activities in the consolidated statement of cash flows.

Ball Corporation

Notes to the Consolidated Financial Statements

8. Receivables, Net


	December 31,
($ in millions)	2020		2019

Trade accounts receivable	$	825	$	647
Unbilled receivables		528		556
Less: allowance for doubtful accounts		(9)		(17)
Net trade accounts receivable		1,344		1,186
Other receivables		394		445
	$	1,738	$	1,631

Net accounts receivable under long-term contracts, due primarily from agencies of the U.S. government and their prime contractors, were $232 million and $247 million at December 31, 2020 and 2019, respectively, and included $157 million and $164 million at December 31, 2020 and 2019, respectively, representing the recognized sales value of performance that was not yet billable to customers. The average length of the long-term contracts is approximately 3 years, and the average length remaining on those contracts at December 31, 2020, was one year. At December 31, 2020, $218 million of net accounts receivables is expected to be collected within the next year and is related to customary fees and cost withholdings that will be paid upon milestone or contract completions, as well as final overhead rate settlements.

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

The company has entered into several regional uncommitted and committed accounts receivable factoring programs with various financial institutions for certain receivables of the company. 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 2019, respectively. A total of $232 million and $230 million were available for sale under these programs as of December 31, 2020 and 2019, respectively.

9. Inventories, Net


	December 31,
($ in millions)	2020		2019

Raw materials and supplies	$	889	$	808
Work-in-process and finished goods		557		548
Less: inventory reserves		(93)		(82)
	$	1,353	$	1,274

Ball Corporation

Notes to the Consolidated Financial Statements

10. Property, Plant and Equipment, Net


	December 31,
($ in millions)	2020		2019

Land	$	163	$	153
Buildings		1,653		1,433
Machinery and equipment		6,214		5,513
Construction-in-progress		883		434
		8,913		7,533
Accumulated depreciation		(3,562)		(3,063)
	$	5,351	$	4,470

Property, plant and equipment are stated at historical or acquired cost. Depreciation expense amounted to $488 million, $491 million and $498 million for the years ended December 31, 2020, 2019 and 2018, respectively.

As discussed in Note 6, Ball recorded an impairment charge in 2019 related to its Saudi Arabian beverage packaging business (of which Ball owns 51 percent). The impairment charge was recorded in the fourth quarter of 2019 and was triggered by the loss of a major customer for this business in December 2019. The loss of volumes led management to perform impairment tests for long-lived assets and goodwill for the former reporting unit consisting of beverage packaging operations located in Africa, Middle East and Asia (beverage packaging, AMEA). The impairment reviews led to the recognition of non-cash impairment charges totaling $64 million, which primarily related to property, plant and equipment and intangible assets. This impairment charge was recorded in business consolidation and other activities in the company’s consolidated statement of earnings. The fair value of the impacted long-lived assets was estimated using an income approach.

11. Goodwill


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

Balance at December 31, 2018	$	1,275	$	1,499	$	1,299	$	40	$	362	$	4,475
Opening balance sheet adjustments		—		—		(1)		—		—		(1)
Business dispositions		—		—		—		—		(52)		(52)
Effects of currency exchange		—		1		—		—		(4)		(3)
Balance at December 31, 2019	$	1,275	$	1,500	$	1,298	$	40	$	306	$	4,419
Additions		—		—		—		—		49		49
Goodwill impairment		—		—		—		—		(62)		(62)
Effects of currency exchange		—		73		—		—		5		78
Balance at December 31, 2020	$	1,275	$	1,573	$	1,298	$	40	$	298	$	4,484

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

As discussed in Note 4, Ball acquired the share capital of Tubex Industria E Comercio Embalagens Ltda, an aluminum aerosol packaging business in Brazil, in the third quarter of 2020 and recorded $49 million to goodwill based on preliminary estimates of the fair values of assets and liabilities acquired with the business.

Ball Corporation

Notes to the Consolidated Financial Statements

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

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

During 2019, the company completed the sales of its China beverage packaging and Argentina steel aerosol businesses, which included $51 million and $1 million of goodwill, respectively, related to these businesses.

12. Intangible Assets, Net


	December 31,
($ in millions)	2020		2019

Acquired Rexam customer relationships and other Rexam intangibles (net of accumulated amortization of $729 million at December 31, 2020, and $567 million at December 31, 2019)	$	1,785	$	1,909
Capitalized software (net of accumulated amortization of $196 million at December 31, 2020, and $170 million at December 31, 2019)		69		69
Other intangibles (net of accumulated amortization of $124 million at December 31, 2020, and $116 million at December 31, 2019)		29		24
	$	1,883	$	2,002

Total amortization expense of intangible assets amounted to $180 million, $187 million and $204 million for the years ended December 31, 2020, 2019 and 2018, respectively, including $150 million in 2020, $155 million in 2019 and $164 million in 2018 of amortization expense related to the acquired intangible assets from Rexam. Based on intangible asset values and currency exchange rates as of December 31, 2020, total annual intangible asset amortization expense is expected to be $182 million, $177 million, $169 million, $164 million and $161 million for the years ending December 31, 2021 through 2025, respectively, and approximately $1 billion combined for all years thereafter.

Ball recorded an impairment charge in 2019 related to certain intangible assets of its Saudi Arabian beverage packaging business. See Notes 6 and 10 for further details.

Ball Corporation

Notes to the Consolidated Financial Statements

13. Other Assets


	December 31,
($ in millions)	2020		2019

Long-term pension assets	$	562	$	437
Investments in affiliates		321		291
Right-of-use operating lease assets		302		239
Long-term deferred tax assets		227		241
Other		447		377
	$	1,859	$	1,585

Investments in affiliates primarily includes the company’s 40 percent ownership interest in an entity in South Korea, a 50 percent ownership interest in an entity in Guatemala, a 50 percent ownership interest in an entity in Panama, a 50 percent ownership interest in an entity in Vietnam and ownership interests of 50 percent and 49 percent in entities in the U.S.

As disclosed in Note 4, in the first quarter of 2020, the shareholders of Ball Metalpack provided additional equity contributions and loans to Ball Metalpack, of which Ball's share was $30 million, which resulted in Ball recognizing this same level of previously unrecorded equity method losses associated with prior periods. These losses are presented in equity in results of affiliates, net of tax, in the company’s consolidated statement of earnings. Ball is under no obligation to provide additional equity contributions or loans to Ball Metalpack.

See Notes 14, 16 and 17 for further details related to the company’s long-term right-of-use operating lease assets, deferred tax assets and pension assets, respectively.

14. Leases

The components of lease expense were as follows:


	December 31,
($ in millions)	2020		2019

Operating lease expense	$	(75)	$	(67)
Financing lease expense		(1)		—
Variable lease expense		(16)		(10)
Sublease income		2		3
Net lease expense	$	(90)	$	(74)

Supplemental cash flow information related to leases was as follows:


	December 31,
($ in millions)	2020		2019

Cash paid for amounts included in the measurements of lease liabilities:
Operating cash outflows for operating leases	$	(71)	$	(62)
Financing cash outflows for finance leases		(1)		—

ROU assets obtained in exchange for:
Operating lease obligations		97		35

Ball Corporation

Notes to the Consolidated Financial Statements

Finance lease obligations		12			—

Supplemental balance sheet information related to leases was as follows:


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

Operating leases:
Operating lease ROU asset	Other assets	$	302	$	239
Current operating lease liabilities	Other current liabilities		63		58
Noncurrent operating lease liabilities	Other liabilities		232		181
Finance leases:
Finance lease ROU assets, net	Property, plant and equipment, net	$	11	$	—
Current finance lease liabilities	Short-term debt and current portion of long-term debt		2		—
Noncurrent finance lease liabilities	Long-term debt		10		—

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


	December 31,
	2020		2019

Weighted average remaining lease term in years:
Operating leases	11		10
Finance leases	7		—
Weighted average discount rate:
Operating leases	4.0	%	4.3	%
Finance leases	3.0	%	—	%

Maturities of lease liabilities are as follows:


($ in millions)	Operating Leases		Finance Leases

2021	$	64	$	2
2022		55		2
2023		45		2
2024		34		2
2025		25		2
Thereafter		134		3
Future value of lease liabilities		357		13
Less: Imputed interest		(62)		(1)
Present value of lease liabilities	$	295	$	12

As of December 31, 2020, the company has leases for manufacturing equipment and a warehouse that have not yet commenced. The leases will commence in early 2021 with lease terms of 10 years.

Ball Corporation

Notes to the Consolidated Financial Statements

15. Debt and Interest Costs

Long-term debt and interest rates in effect consisted of the following:


	December 31,
($ in millions)	2020		2019

Senior Notes
4.375% due December 2020	$	—	$	1,000
3.50%, euro denominated, due December 2020		—		449
5.00% due March 2022		748		750
4.00% due November 2023		1,000		1,000
4.375%, euro denominated, due December 2023		855		785
0.875%, euro denominated, due March 2024		916		841
5.25% due July 2025		1,000		1,000
4.875% due March 2026		750		750
1.50%, euro denominated, due March 2027		672		617
2.875%, due August 2030		1,300		—
Senior Credit Facility (at variable rates)
Term A loan, due March 2024 (1.40% - 2020; 3.94% - 2019)		593		653
Finance lease obligations		12		—
Other (including debt issuance costs)		(60)		(54)
		7,786		7,791
Less: Current portion		(3)		(1,454)
	$	7,783	$	6,337

The company’s senior credit facilities include long-term multi-currency revolving facilities that mature in March 2024. The revolving facilities provide the company with up to the U.S. dollar equivalent of $1.75 billion. At December 31, 2020, taking into account outstanding letters of credit, $1.7 billion was available under these revolving credit facilities. 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. At December 31, 2019, the company had $26 million outstanding under short-term uncommitted credit facilities. The weighted average interest rate of the outstanding short-term facilities was 5.45 percent at December 31, 2020, and 5.99 percent at December 31, 2019.

In the third quarter of 2020, Ball issued $1.3 billion of 2.875% senior notes due August 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 in 2020 in the amount of $1 billion. The company recorded debt refinancing and other costs of $41 million in 2020.

The fair value of Ball’s long-term debt was estimated to be $8.3 billion at both December 31, 2020 and 2019, compared to its carrying value of $7.8 billion in both years. The fair value reflects the market rates at each period end for debt with credit ratings similar to the company’s ratings and is classified as Level 2 within the fair value hierarchy. Rates currently available to the company for loans with similar terms and maturities are used to estimate the fair value of long-term debt, based on discounted cash flows.

Long-term debt obligations outstanding at December 31, 2020, have maturities (excluding unamortized debt issuance costs of $67 million) of $3 million, $751 million, $1.86 billion, $1.5 billion and $1 billion in the years ending 2021 through 2025, respectively, and $2.7 billion thereafter.

Letters of credit outstanding at December 31, 2020 and 2019, were $43 million and $37 million, respectively.

Interest payments were $332 million, $331 million and $304 million in 2020, 2019 and 2018, respectively.

Ball Corporation

Notes to the Consolidated Financial Statements

The company’s senior notes and senior credit facilities are guaranteed on a full, unconditional and joint and several basis by certain of its material subsidiaries. Each of the guarantor subsidiaries is 100 percent owned by Ball Corporation. These guarantees are required in support of these notes and credit facilities, are coterminous with the terms of the respective note indentures and would require performance upon certain events of default referenced in the respective guarantees. Note 23 provides further details about the company’s debt guarantees of the company’s senior notes and the subsidiaries that guarantee the notes (the obligor group).

The U.S. note agreements and bank credit agreement contain certain restrictions relating to dividend payments, share repurchases, investments, financial ratios, guarantees and the incurrence of additional indebtedness. In August 2020, Ball amended certain of its credit agreements which, among other things, modified the most restrictive of the company’s debt covenants. The most restrictive of the company’s debt covenants requires the company to maintain a leverage ratio (as defined) of no greater than 5.0 times at December 31, 2020, which will change to 4.5 times as of December 31, 2022. The company was in compliance with all loan agreements and debt covenants at December 31, 2020 and 2019, and it has met all debt payment obligations.

16. Taxes on Income

The amount of earnings (loss) before income taxes is:


	Years Ended December 31,
($ in millions)	2020		2019		2018

U.S.	$	196	$	224	$	193
Foreign		491		384		440
	$	687	$	608	$	633

The provision (benefit) for income tax expense is:


	Years Ended December 31,
($ in millions)	2020		2019		2018

Current
U.S.	$	(33)	$	(1)	$	30
State and local		3		7		5
Foreign		112		110		115
Total current		82		116		150

Deferred
U.S.		(44)		(26)		21
State and local		(5)		(1)		9
Foreign		66		(18)		5
Total deferred		17		(45)		35
Tax provision (benefit)	$	99	$	71	$	185

Ball Corporation

Notes to the Consolidated Financial Statements

The income tax provision recorded within the consolidated statements of earnings differs from the provision determined by applying the U.S. statutory tax rate to pretax earnings as a result of the following:


	Years Ended December 31,
($ in millions)	2020			2019			2018

Statutory U.S. federal income tax	$	144		$	128		$	133
Increase (decrease) due to:
Foreign tax rate differences including tax holidays		2			(11)			(11)
Foreign tax law and rate changes		18			—			—
U.S. tax reform (a)		(9)			—			(45)
Foreign exchange loss on revaluation of Brazilian deferred tax balances		23			4			26
Global intangible low-taxed income (GILTI)		2			12			15
Permanent differences on business dispositions or impairments		20			(3)			56
U.S. state and local taxes, net		(2)			4			13
U.S. taxes on foreign earnings, net of tax deductions and credits		5			(6)			(9)
U.S. research and development tax credits		(39)			(10)			(7)
Uncertain tax positions, including interest		(14)			(19)			(1)
Change in valuation allowances		17			24			31
Equity compensation related impacts		(47)			(43)			(14)
U.S. CARES Act		(16)			—			—
Other, net		(5)			(9)			(2)
Provision (benefit) for taxes	$	99		$	71		$	185
Effective tax rate expressed as a percentage of pretax earnings		14.4	%		11.7	%		29.2	%

(a)	Includes adjustments required to record the final impact of the implications of the U.S. Tax Cuts and Jobs Act signed into law in 2017.

On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the Act) was signed into law. The Act significantly changed U.S. income tax law by, among other things, reducing the U.S. federal income tax rate from 35 percent to 21 percent, transitioning from a global tax system to a modified territorial tax system, eliminating the domestic manufacturing deduction, providing for immediate expensing of certain qualified capital expenditures and limiting the tax deductions for interest expense and executive compensation. During 2018, tax expense was decreased by $45 million for the required final adjustments related to the Act. During 2020, tax expense was decreased by $9 million for the impact of regulatory guidance issued during 2020 related to the Act.

The company generally intends to limit distributions from non-U.S. subsidiaries to earnings previously taxed in the U.S., primarily as a result of the transition tax or tax on GILTI incurred pursuant to the Act. As of December 31, 2020, the company has $2.1 billion of adjusted retained earnings in non-U.S. subsidiaries. Of these undistributed earnings, $379 million were previously subjected to U.S. federal income tax. The company has accrued approximately $64 million for estimated foreign withholding taxes on portions of the foreign earnings that are not indefinitely reinvested. The company has not provided deferred taxes on any other outside basis differences in our investments in other non-U.S. subsidiaries as these other outside basis differences are indefinitely reinvested. A determination of the unrecognized deferred taxes related to any of these other outside basis differences is not practicable.

Ball Corporation

Notes to the Consolidated Financial Statements

Ball’s Serbian subsidiary was granted tax relief equal to 80 percent of local investments over a ten-year period that will expire in 2022. The tax relief may be used to offset tax on earnings and has $6 million remaining as of December 31, 2020. Ball’s Polish subsidiary was granted a tax holiday in 2014 based on new capital investment. The holiday provides up to $34 million of tax relief over a ten-year period of which $28 million remained as of December 31, 2020. Several of Ball’s Brazilian subsidiaries benefit from various tax holidays with expiration dates ranging from 2022 to 2030. These tax holidays reduced income tax by $72 million or $0.22 per share, $62 million or $0.19 per share and $63 million or $0.18 per share for 2020, 2019 and 2018, respectively.

Net income tax payments were $157 million, $128 million and $143 million in 2020, 2019 and 2018, respectively.

The significant components of deferred tax assets and liabilities are as follows:


	December 31,
($ in millions)	2020		2019

Deferred tax assets:
Deferred compensation	$	109	$	90
Accrued employee benefits		84		93
Accrued pensions		201		190
Net operating losses, foreign tax credits and other tax attributes		440		408
Deferred interest		83		54
Other		212		216
Total deferred tax assets		1,129		1,051
Valuation allowance		(264)		(244)
Net deferred tax assets		865		807
Deferred tax liabilities:
Property, plant and equipment		(399)		(330)
Goodwill and other intangible assets		(570)		(586)
Pension assets		(106)		(74)
Tax on undistributed foreign earnings		(64)		(44)
Other		(133)		(93)
Total deferred tax liabilities		(1,272)		(1,127)
Net deferred tax asset (liability)	$	(407)	$	(320)

The net deferred tax asset (liability) was included in the consolidated balance sheets as follows:


	December 31,
($ in millions)	2020		2019

Other assets	$	227	$	241
Deferred taxes		(634)		(561)
Net deferred tax asset (liability)	$	(407)	$	(320)

At December 31, 2020, Ball has recorded deferred tax assets related to foreign net operating and capital loss carryforwards of $218 million, U.S. foreign tax and research and development tax credit carryforwards of $177 million and state net operating loss, capital loss and tax credit carryforwards of $45 million. These attributes are spread across the regions in which the company operates, including Europe, North and Central America, Asia and South America, and generally have expiration periods beginning in 2021 to indefinite, with the largest portion carried forward indefinitely. Each has been assessed for realization as of December 31, 2020.

Ball Corporation

Notes to the Consolidated Financial Statements

In 2020, the company’s overall valuation allowances increased by a net $20 million. The increase to the valuation allowance was primarily due to nondeductible U.K. interest expense and operating losses incurred primarily in various U.S. state and foreign jurisdictions, none of which are expected to be utilized in future periods. Ball’s 2020 effective tax rate was impacted by $17 million of the net change in the valuation allowance.

In 2019, the company’s overall valuation allowances increased by a net $20 million. The increase to the valuation allowance was primarily due to nondeductible U.K. interest expense and operating losses incurred primarily in various U.S. state and foreign jurisdictions, none of which are expected to be utilized in future periods. This increase was partially offset by a reduction due to the disposition of certain Asian subsidiaries. Ball’s 2019 effective tax rate was impacted by $24 million of the net change in the valuation allowance.

In 2018, the company’s overall valuation allowances increased by a net $59 million. The increase to the valuation allowance was primarily due to nondeductible U.K. interest expense and operating losses incurred primarily in various foreign jurisdictions, neither of which are expected to be utilized in future periods. Ball’s 2018 effective tax rate was impacted by $31 million of the net change in the valuation allowance.

A roll forward of the company’s unrecognized tax benefits, as included in other noncurrent liabilities, related to uncertain income tax positions at December 31 follows:


($ in millions)	2020		2019		2018

Balance at January 1	$	63	$	80	$	84
Additions based on tax positions related to the current year		1		—		14
Reductions for tax positions from prior years		—		—		(4)
Reductions due to lapse of statute of limitations		(12)		(16)		(10)
Effect of foreign currency exchange rates		3		(1)		(4)
Balance at December 31	$	55	$	63	$	80

The annual provisions for income taxes included a tax benefit related to uncertain tax positions, including interest and penalties, of $14 million in 2020, $19 million in 2019 and $1 million in 2018.

At December 31, 2020, the amounts of unrecognized tax benefits that, if recognized, would reduce tax expense were $64 million, inclusive of interest, penalties and the federal impact of U.S. state items. The company and its subsidiaries file income tax returns in the U.S. federal, various state, local and foreign jurisdictions. The U.S. federal statute of limitations is closed for years prior to 2014. With a few exceptions, the company is no longer subject to examination by state and local tax authorities for years prior to 2014. The company’s significant non-U.S. filings are in Germany, France, the U.K., Spain, the Netherlands, Poland, Serbia, Switzerland, Sweden, Russia, Turkey, Egypt, Saudi Arabia, Canada, Brazil, the Czech Republic, Mexico, Chile and Argentina. The company’s foreign statutes of limitations are generally open for years after 2013. At December 31, 2020, the company is either under examination or has been notified of a pending examination by tax authorities in the U.S., Austria, Brazil, Germany, the U.K., the Netherlands, France, Ireland, Hong Kong, Saudi Arabia, Serbia, Switzerland, India, Egypt, Brazil and various U.S. states.

Due primarily to potential expiration of certain statutes of limitations, it is reasonably possible that a decrease in the range of $17 million to $23 million in the total amount of unrecognized tax benefits may occur within the coming year, all of which would reduce income tax expense.

Ball Corporation

Notes to the Consolidated Financial Statements

The company recognizes the accrual of interest and penalties related to unrecognized tax benefits in income tax expense. Ball recognized $2 million of tax benefit, $3 million of tax benefit and $1 million of tax benefit in 2020, 2019 and 2018, respectively, for potential interest on these items. At December 31, 2020, 2019 and 2018, the accrual for uncertain tax positions included potential interest expense of $6 million for each year. The company has accrued penalties of $4 million in 2020, $6 million in 2019 and $9 million in 2018.

17. Employee Benefit Obligations


	December 31,
($ in millions)	2020		2019

Underfunded defined benefit pension liabilities	$	955	$	918
Less: Current portion		(24)		(24)
Long-term defined benefit pension liabilities		931		894
Long-term retiree medical liabilities		156		156
Deferred compensation plans		439		362
Other		87		74
	$	1,613	$	1,486

The company’s defined benefit plans for salaried employees, as well as those for hourly employees in Sweden, Switzerland, the U.K. and Ireland, provide pension benefits based on employee compensation and years of service. Plans for North American hourly employees provide benefits based on fixed rates for each year of service. While the German, Swedish and certain U.S. plans are not funded, the company maintains liabilities, and annual additions to such liabilities are generally tax-deductible. With the exception of the unfunded German, Swedish and certain U.S. plans, the company’s policy is to fund the defined benefit plans in amounts at least sufficient to satisfy statutory funding requirements, taking into consideration deductibility under existing tax laws and regulations.

In October 2018, the U.K. High Court passed a judgment that certain pension calculations needed to be adjusted to comply with gender discrimination legislation. The Ball U.K. Pension Plan was affected by this judgment, the effect of which was an increase in the pension obligation, which reduced the over-funded position by $52 million. An additional ruling was made by the U.K. High Court in 2020 that extended the 2018 judgment to cover certain former employees who had transferred out of pension plans. This latest ruling increased the Ball U.K. Pension Plan obligation by $5 million, reducing the over-funded position of the plan by the same amount. These adjustments were accounted for as prior service costs and were initially recorded in accumulated other comprehensive earnings (loss), to be amortized to the consolidated statement of earnings over the average life expectancy of plan participants.

Ball Corporation

Notes to the Consolidated Financial Statements

Defined Benefit Pension Plans

Amounts recognized in the consolidated balance sheets for the funded status of the company’s defined benefit pension plans consisted of:


	December 31,
	2020						2019
($ in millions)	U.S.		Foreign		Total		U.S.		Foreign		Total

Long-term pension asset	$	—	$	562	$	562	$	—	$	437	$	437
Defined benefit pension liabilities (a)		(667)		(288)		(955)		(647)		(271)		(918)
Funded status	$	(667)	$	274	$	(393)	$	(647)	$	166	$	(481)

(a)

Included is an unfunded, non-qualified U.S. plan obligation of $34 million at December 31, 2020, that has been annuitized with a corresponding asset of $28 million (__$3 million in other current assets and $25 million in other assets). At December 31, 2019, the unfunded non-qualified U.S. plan obligation of $32 million was annuitized with a corresponding asset of $27 million ($3 million in other current assets and $24 million in other assets).

Ball Corporation

Notes to the Consolidated Financial Statements

An analysis of the change in benefit accounts for 2020 and 2019 follows:


	December 31,
	2020							2019
($ in millions)	U.S.			Foreign		Total		U.S.		Foreign			Total

Change in projected benefit obligation:
Benefit obligation at prior year end	$	2,849		$	3,348	$	6,197	$	2,579	$	2,991		$	5,570
Service cost		64			13		77		50		11			61
Interest cost		72			56		128		101		72			173
Benefits paid		(163)			(263)		(426)		(205)		(191)			(396)
Net actuarial (gains) losses		320			194		514		324		391			715
Curtailments and settlements including special termination benefits		(392)	(a)		—		(392)		—		(34)	(a)		(34)
Plan amendments		1			5		6		—		—			—
Other		1			1		2		—		1			1
Effect of exchange rates		—			125		125		—		107			107
Benefit obligation at year end		2,752			3,479		6,231		2,849		3,348			6,197
Change in plan assets:
Fair value of assets at prior year end		2,202			3,514		5,716		1,901		3,274			5,175
Actual return on plan assets		322			360		682		313		311			624
Employer contributions		77			2		79		188		4			192
Contributions to unfunded plans		6			18		24		6		18			24
Benefits paid		(163)			(263)		(426)		(205)		(191)			(396)
Curtailments and settlements including special termination benefits		(359)	(a)		—		(359)		—		(34)	(a)		(34)
Other		—			1		1		(1)		1			—
Effect of exchange rates		—			121		121		—		131			131
Fair value of assets at end of year		2,085			3,753		5,838		2,202		3,514			5,716
Funded status	$	(667)		$	274	$	(393)	$	(647)	$	166		$	(481)

	(a)	Includes the purchase of non-participating group annuity contracts and term-vested lump sum payments discussed below.

The company’s German, Swedish and certain U.S. plans are unfunded and the liabilities are included in the company’s consolidated balance sheets. Benefits are paid directly by the company to the participants.

Amounts recognized in accumulated other comprehensive earnings (loss), including other postemployment benefits, consisted of:


	December 31,
	2020						2019
($ in millions)	U.S.		Foreign		Total		U.S.		Foreign		Total

Net actuarial (loss) gain	$	(625)	$	57	$	(568)	$	(683)	$	(31)	$	(714)
Net prior service (cost) credit		15		(54)		(39)		15		(49)		(34)
Tax effect and currency exchange rates		162		(21)		141		174		16		190
	$	(448)	$	(18)	$	(466)	$	(494)	$	(64)	$	(558)

Ball Corporation

Notes to the Consolidated Financial Statements

Net actuarial losses decreased by $146 million during 2020, principally resulting from the effects of settlement accounting in the U.S., wherein deferred losses were released into the consolidated statement of earnings, and higher-than-expected returns on pension plan assets, as fixed income investments performed strongly and equity values rose during the year. These factors were partially offset by higher pension liabilities as discount rates decreased significantly in the U.K. and U.S.

The accumulated benefit obligation for all U.S. defined benefit pension plans was $2,643 million and $2,769 million at December 31, 2020 and 2019, respectively. The accumulated benefit obligation for all foreign defined benefit pension plans was $3,476 million and $3,345 million at December 31, 2020 and 2019, respectively. Following is the information for defined benefit plans with a projected benefit obligation, or an accumulated benefit obligation, in excess of plan assets:


	December 31,
	2020						2019
($ in millions)	U.S.		Foreign		Total		U.S.		Foreign		Total

Projected benefit obligation	$	2,752	$	356	$	3,108	$	2,849	$	328	$	3,177
Accumulated benefit obligation		2,643		353		2,996		2,769		324		3,093
Fair value of plan assets (a)		2,085		68		2,153		2,202		57		2,259

(a)	The German, Swedish and certain U.S. plans are unfunded and, therefore, there is no fair value of plan assets associated with these plans.

Components of net periodic benefit cost were as follows:


	Years Ended December 31,
	2020						2019						2018
($ in millions)	U.S.		Foreign		Total		U.S.		Foreign		Total		U.S.		Foreign		Total

Ball-sponsored plans:
Service cost	$	64	$	13	$	77	$	50	$	11	$	61	$	51	$	14	$	65
Interest cost		72		56		128		101		72		173		99		72		171
Expected return on plan assets		(119)		(85)		(204)		(116)		(109)		(225)		(108)		(108)		(216)
Amortization of prior service cost		2		2		4		1		3		4		2		—		2
Recognized net actuarial loss		40		5		45		22		4		26		33		5		38
Settlement losses		120		—		120		—		8		8		36		—		36
Net periodic benefit cost for Ball sponsored plans		179		(9)		170		58		(11)		47		113		(17)		96
Net periodic benefit cost for multi-employer plans		1		—		1		1		—		1		2		—		2
Total net periodic benefit cost	$	180	$	(9)	$	171	$	59	$	(11)	$	48	$	115	$	(17)	$	98

Ball completed the purchase of non-participating group annuity contracts that were transferred to an insurance company for a portion of the company’s U.S. pension benefit obligations in 2020 and 2018 and for the entirety of the company’s Canadian pension benefit obligations in 2019, totaling approximately $245 million in 2020, $32 million in 2019 and $176 million in 2018. The purchase of the annuity contracts triggered settlement accounting in each year. In addition to regular lump sum payments made each year, Ball also undertook a terminated vested buy-out exercise in 2020 for a portion of the company’s U.S. pension obligations, reducing the obligations by $147 million. These transactions resulted in the recognition of settlement losses recorded in business consolidation and other activities of $120 million in 2020, $8 million in 2019 and $36 million in 2018. The company’s pension obligations were remeasured during 2020 and 2018 for the impacted U.S. plans.

Ball Corporation

Notes to the Consolidated Financial Statements

Non-service pension income of $27 million in 2020, $22 million in 2019 and $5 million in 2018, is included in selling, general, and administrative (SG&A) expenses.

Contributions to the company’s defined benefit pension plans 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 in total for the years ending December 31, 2026 through 2030.

Weighted average assumptions used to determine benefit obligations for the company’s significant U.S. plans at December 31 were as follows:


	U.S.
	2020		2019		2018
Discount rate	2.49	%	3.35	%	4.41	%
Rate of compensation increase	4.05	%	4.03	%	4.02	%

Weighted average assumptions used to determine benefit obligations for the company’s significant European plans at December 31 were as follows:


	U.K.						Germany
	2020		2019		2018		2020		2019		2018
Discount rate	1.39	%	2.07	%	2.90	%	0.80	%	1.11	%	1.74	%
Rate of compensation increase	3.50	%	3.50	%	3.50	%	2.50	%	2.50	%	2.50	%
Pension increase	3.19	%	3.22	%	3.45	%	1.50	%	1.50	%	1.50	%

Weighted average assumptions used to determine net periodic benefit cost for the company’s significant U.S. plans for the years ended December 31 were as follows:


	U.S.
	2020		2019		2018
Discount rate	3.35	%	4.41	%	3.72	%
Rate of compensation increase	4.03	%	4.02	%	4.15	%
Expected long-term rate of return on assets	6.00	%	5.58	%	5.14	%

Weighted average assumptions used to determine net periodic benefit cost for the company’s significant European plans for the years ended December 31 were as follows:


	U.K.						Germany
	2020		2019		2018		2020		2019		2018
Discount rate	2.07	%	2.90	%	2.55	%	1.11	%	1.74	%	1.68	%
Rate of compensation increase	3.50	%	3.50	%	4.41	%	2.50	%	2.50	%	2.50	%
Pension increase	3.22	%	3.45	%	3.41	%	1.50	%	1.50	%	1.50	%
Expected long-term rate of return on assets	2.57	%	3.40	%	3.05	%	N/A		N/A		N/A

The discount and compensation increase rates used above to determine the December 31, 2020, benefit obligations will be used to determine net periodic benefit cost for 2021. A reduction of the expected return on pension assets assumption by one quarter of a percentage point would result in an approximate $14 million increase in 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 change to pension expense in 2021.

Ball Corporation

Notes to the Consolidated Financial Statements

Accounting for pensions and postretirement benefit plans requires that the benefit obligation be discounted to reflect the time value of money at the measurement date and the rates of return currently available on high-quality, fixed-income securities whose cash flows (via coupons and maturities) match the timing and amount of future benefit plan payments. Other factors used in measuring the obligation include compensation increases, health care cost increases, future rates of inflation, mortality and employee turnover.

Actual results may differ from the company’s actuarial assumptions, which may have an impact on the amount of reported expense or liability for pensions or postretirement benefits. In 2020, the company recorded pension expense of $170 million for Ball-sponsored plans, including $120 million of settlement charges, and the company currently expects its 2021 pension expense to be $54 million, using foreign currency exchange rates in effect at December 31, 2020. The expected increase in pension expense, excluding settlement charges, is primarily the result of increased service cost from growth in employee numbers and higher amortization of actuarial losses.

The assumption related to the expected long-term rate of return on plan assets reflects the average rate of earnings expected on the funds invested to provide for pension benefits over the life of the plans. The assumption was based upon Ball’s pension plan asset allocations, investment strategies and the views of its investment managers, consultants and other large pension plan sponsors. Some reliance was placed on the historical and expected asset returns of the company’s plans. An asset-allocation optimization model was used to project future asset returns using simulation and asset class correlation. The analysis included expected future risk premiums, forward-looking return expectations derived from the yield on long-term bonds and the price earnings ratios of major stock market indexes, expected inflation levels and real risk-free interest rate assumptions and the fund’s expected asset allocation.

The expected long-term rates of return on assets were calculated by applying the expected rate of return to a market-related value of plan assets at the beginning of the year, adjusted for the weighted average expected contributions and benefit payments. The market-related value of plan assets used to calculate the expected return was $5,573 million for 2020, $5,375 million for 2019 and $6,052 million for 2018.

Defined Benefit Pension Plan Assets

Policies and Allocation Information

Pension investment committees or scheme trustees of the company and its relevant subsidiaries establish investment policies and strategies for the company’s pension plan assets. The investment policies and strategies include the following common themes to: (1) provide for long-term growth of principal without undue exposure to risk, (2) minimize contributions to the plans, (3) minimize and stabilize pension expense and (4) achieve a rate of return above the market average for each asset class over the long term. The pension investment committees are required to regularly, but no less frequently than annually, review asset mix and asset performance, as well as the performance of the investment managers. Based on their reviews, which are generally conducted quarterly, investment policies and strategies are revised as appropriate.

Target asset allocations are set using a minimum and maximum range for each asset category as a percent of the total funds’ market value. Following are the target asset allocations established as of December 31, 2020:


	U.S.		U.K.

Cash and cash equivalents	—	%	60-100	%(a)
Equity securities	26-54	%	0-15	%
Fixed income securities	24-58	%	60-100	%(a)
Alternative investments	5-19	%	0-5	%

	(a)	The combined target allocation for fixed income securities and cash and cash equivalents is 60 to 100 percent.

Ball Corporation

Notes to the Consolidated Financial Statements

The actual weighted average asset allocations for Ball’s defined benefit pension plans, which individually were within the established targets for each country for that year, were as follows at December 31:


	2020		2019
Cash and cash equivalents	1	%	2	%
Equity securities	17	%	17	%
Fixed income securities	79	%	79	%
Alternative investments	3	%	2	%
	100	%	100	%

Fair Value Measurements of Pension Plan Assets

Following is a description of the valuation methodologies used for pension assets measured at fair value:

Cash and cash equivalents: Consist of cash on deposit with brokers and short-term U.S. Treasury money market funds with a maturity of less than 90 days, and such amounts are shown net of receivables and payables for securities traded at period end but not yet settled. All cash and cash equivalents are stated at cost, which approximates fair value.

Corporate equity securities: Valued at the closing price reported on the active market on which the individual security is traded.

U.S. government and agency securities: Valued using the pricing of similar agency issues, live trading feeds from several vendors and benchmark yields.

Corporate bonds and notes: Valued using market inputs including benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers and reference data including market research publications. Inputs may be prioritized differently at certain times based on market conditions.

Commingled funds: The shares held are valued at their net asset value (NAV) at year end.

NAV practical expedient: Includes certain commingled fixed income and equity funds as well as limited partnership and other funds. Certain of the partnership investments receive fair market valuations on a quarterly basis. Certain other commingled funds and partnerships invest in market-traded securities, both on a long and short basis. These investments are valued using quoted market prices.

The preceding methods described may produce a fair value calculation that is not indicative of net realizable value or reflective of future fair values. Furthermore, although the company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

Ball Corporation

Notes to the Consolidated Financial Statements

The company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of pension assets and liabilities and their placement within the fair value hierarchy levels. The fair value hierarchy levels assigned to the company’s defined benefit plan assets are summarized in the tables below:


	December 31, 2020
($ in millions)	Level 1		Level 2		Total

U.S. pension assets, at fair value:
Cash and cash equivalents	$	—	$	23	$	23
U.S. government, agency and asset-backed securities:
Municipal bonds		—		24		24
Treasury bonds		53		—		53
Other		—		6		6
Foreign government bonds		—		19		19
Corporate bonds and notes:
Basic materials		—		17		17
Communications		—		113		113
Consumer discretionary		—		88		88
Consumer staples		—		53		53
Energy		—		114		114
Financials		—		145		145
Healthcare		—		30		30
Industrials		—		41		41
Information technology		—		25		25
Private placement		—		1		1
Utilities		—		56		56
Other		—		51		51
Total level 1 and level 2	$	53	$	806		859
Other investments measured at net asset value (a)						1,226
Total assets					$	2,085

(a)	Certain investments measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified within the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the change in plan assets reconciliation.

Ball Corporation

Notes to the Consolidated Financial Statements


	December 31, 2019
($ in millions)	Level 1		Level 2		Total

U.S. pension assets, at fair value:
Cash and cash equivalents	$	—	$	99	$	99
Corporate equity securities:
Consumer discretionary		83		—		83
Financials		64		—		64
Healthcare		63		—		63
Industrials		76		—		76
Information technology		111		—		111
Utilities		48		—		48
Other		18		—		18
U.S. government, agency and asset-backed securities:
FHLMC mortgage backed securities		—		42		42
FNMA mortgage backed securities		—		73		73
Municipal bonds		—		27		27
Treasury bonds		69		—		69
Other		—		45		45
Corporate bonds and notes:
Communications		—		79		79
Consumer discretionary		—		99		99
Consumer staples		—		100		100
Financials		—		261		261
Healthcare		—		91		91
Industrials		—		101		101
Information technology		—		78		78
Oil and gas		—		91		91
Private placement		—		62		62
Utilities		—		101		101
Other		—		50		50
Commingled funds		22		81		103
Total level 1 and level 2	$	554	$	1,480		2,034
Other investments measured at net asset value (a)						168
Total assets					$	2,202

(a)	Certain investments measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented within this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the change in plan assets reconciliation.

Ball Corporation

Notes to the Consolidated Financial Statements


	December 31,
($ in millions)	2020		2019

U.K. pension assets, at fair value:
Cash and cash equivalents	$	44	$	40
Equity commingled funds		24		162
U.K. government bonds		2,572		2,576
Other		39		28
Total level 1		2,679		2,806
Level 2: Investment funds - corporate bonds		904		478
Other investments measured at net asset value (a)		102		173
Total assets	$	3,685	$	3,457

(a)	Certain investments measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified within the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the change in plan assets reconciliation.

Other Postretirement Benefits

The company sponsors postretirement health care and life insurance plans for certain U.S. and Canadian employees. Employees may also qualify for long-term disability, medical and life insurance continuation and other postemployment benefits upon termination of active employment prior to retirement. All of the Ball-sponsored postretirement health care and life insurance plans are unfunded and, with the exception of life insurance benefits, are self-insured. The benefit obligation associated with these plans was $170 million and $171 million as of December 31, 2020 and 2019, respectively, including current portions of $14 million and $15 million, respectively. Net periodic cost associated with these plans was income of $3 million, $3 million and $2 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Weighted average assumptions used to determine benefit obligations for the other postretirement benefit plans at December 31 were as follows:


	U.S.						Canada
	2020		2019		2018		2020		2019		2018
Discount rate	2.39	%	3.24	%	4.35	%	2.25	%	3.00	%	3.50	%
Rate of compensation increase (a)	4.50	%	4.50	%	4.50	%	N/A		N/A		N/A

(a)	The rate of compensation increase is not applicable for certain U.S. other postretirement benefit plans.

Weighted average assumptions used to determine net periodic benefit cost for the other postretirement benefit plans at December 31 were as follows:


	U.S.						Canada
	2020		2019		2018		2020		2019		2018
Discount rate	3.24	%	4.35	%	3.64	%	3.00	%	3.50	%	3.25	%
Rate of compensation increase (a)	4.50	%	4.50	%	4.50	%	N/A		N/A		N/A

(a)	The rate of compensation increase is not applicable for certain U.S. other postretirement benefit plans.

Ball Corporation

Notes to the Consolidated Financial Statements

Deferred Compensation Plans

Certain management employees may elect to defer the payment of all or a portion of their annual incentive compensation into the company’s deferred compensation plan and/or the company’s deferred compensation stock plan. The employee becomes a general unsecured creditor of the company with respect to any amounts deferred.

18. Shareholders’ Equity

At December 31, 2020, the company had 1.1 billion shares of common stock and 15 million shares of preferred stock authorized, both without par value. Preferred stock includes 550,000 authorized but unissued shares designated as Series A Junior Participating Preferred Stock.

Under its ongoing share repurchase program, the company repurchased $75 million, $945 million and $711 million of its shares, net of issuances, during the years ended December 31, 2020, 2019, and 2018, respectively. The 2019 amount included shares repurchased under accelerated share repurchase agreements with third-party financial institutions. On January 23, 2019, the Board authorized the repurchase by the company of up to a total of 50 million shares. This repurchase authorization replaced all previous authorizations.

In April 2019, the company’s Board of Directors increased the quarterly cash dividend by 50 percent to 15 cents per share.

Accumulated Other Comprehensive Earnings (Loss)

The activity related to accumulated other comprehensive earnings (loss) was as follows:


($ in millions)	Foreign Currency Translation (Net of Tax)		Pension and Other Postretirement Benefits (Net of Tax)		Derivatives Designated as Hedges (Net of Tax)		Accumulated Other Comprehensive Earnings (Loss)

Balance at December 31, 2018	$	(504)	$	(277)	$	(54)	$	(835)
Other comprehensive earnings (loss) before reclassifications		119		(223)		67		(37)
Amounts reclassified from accumulated other comprehensive earnings (loss) into earnings		—		18		(22)		(4)
Currency translation recognized in earnings from the sale of the Argentina steel aerosol business		45		—		—		45
Stranded tax effects reclassified into retained earnings		—		(76)		(3)		(79)
Balance at December 31, 2019		(340)		(558)		(12)		(910)
Other comprehensive earnings (loss) before reclassifications		(215)		(29)		(4)		(248)
Amounts reclassified from accumulated other comprehensive earnings (loss) into earnings		—		121		83		204
Balance at December 31, 2020	$	(555)	$	(466)	$	67	$	(954)

Ball Corporation

Notes to the Consolidated Financial Statements

The following table provides additional details of the amounts reclassified into net earnings from accumulated other comprehensive earnings (loss):


	Years Ended December 31,
($ in millions)	2020		2019		2018

Gains (losses) on cash flow hedges:
Commodity contracts recorded in net sales	$	22	$	18	$	1
Commodity contracts recorded in cost of sales		(65)		(45)		54
Currency exchange contracts recorded in selling, general and administrative		(54)		7		1
Cross-currency swaps recorded in selling, general and administrative		(2)		35		49
Interest rate contracts recorded in interest expense		(8)		13		14
Total before tax effect		(107)		28		119
Tax benefit (expense) on amounts reclassified into earnings		24		(6)		(27)
Recognized gain (loss), net of tax	$	(83)	$	22	$	92

Amortization of pension and other postretirement benefits: (a)
Prior service income (expense)	$	(2)	$	(2)	$	(1)
Actuarial gains (losses)		(39)		(14)		(32)
Effect of pension settlements		(120)		(8)		(36)
Total before tax effect		(161)		(24)		(69)
Tax benefit (expense) on amounts reclassified into earnings		40		6		17
Recognized gain (loss), net of tax	$	(121)	$	(18)	$	(52)

(a)	These components include the computation of net periodic benefit cost detailed in Note 17.

19. Stock-Based Compensation Programs

The company has shareholder-approved stock plans under which options and stock-settled appreciation rights (SSARs) have been granted to employees at the market value of the company’s stock on the date of grant. In the case of stock options, payment must be made by the employee at the time of exercise in cash or with shares of stock owned by the employee, which are valued at fair market value on the date exercised. For SSARs, the employee receives the share equivalent of the difference between the fair market value on the date exercised and the exercise price of the SSARs exercised. In general, options and SSARs are exercisable in four equal installments commencing one year from the date of grant and terminating 10 years from the date of grant. A summary of outstanding stock option and SSAR activity for the year ended December 31, 2020, follows:



	Number of	Weighted Average
	Shares	Exercise Price
Beginning of year	12,385,460	$	32.41
Granted	1,314,262		72.59
Exercised	(3,491,317)		23.93
Canceled/forfeited	(95,009)		49.47
End of period	10,113,396		40.40

Vested and exercisable, end of year	6,302,299	$	32.22
Reserved for future grants	17,054,077

Ball Corporation

Notes to the Consolidated Financial Statements

The weighted average remaining contractual term for all options and SSARs outstanding at December 31, 2020, was 5.8 years and the aggregate intrinsic value (difference in exercise price and closing price at that date) was $534 million. The weighted average remaining contractual term for options and SSARs vested and exercisable at December 31, 2020, was 4.6 years and the aggregate intrinsic value was $384 million. The company received $38 million, $41 million and $29 million from options exercised during 2020, 2019 and 2018, respectively, and the intrinsic value associated with these exercises was $230 million, $61 million and $30 million for the same periods, respectively. The excess tax benefit associated with the company’s stock compensation programs was $46 million for 2020, and was reported as a discrete item in the consolidated tax provision. The total fair value of options and SSARs vested during 2020, 2019 and 2018 was $17 million, $16 million and $16 million, respectively.

These options and SSARs cannot be traded in any equity market. However, based on the Black-Scholes option pricing model, options and SSARs granted in 2020, 2019 and 2018 have estimated weighted average fair values at the date of grant of $15.36 per share, $12.26 per share and $9.07 per share, respectively. The actual value that an employee may realize will depend on the excess of the stock price over the exercise price on the date the option or SSAR is exercised. Consequently, there is no assurance that the value realized by an employee will equal the fair value estimated at the grant date. The fair values were estimated using the following weighted average assumptions:


	2020 Grants		2019 Grants		2018 Grants

Expected dividend yield	0.83	%	0.79	%	1.03	%
Expected stock price volatility	20.84	%	20.36	%	21.98	%
Risk-free interest rate	1.47	%	2.59	%	2.47	%
Expected life of options (in years)	6.40	years	6.40	years	6.10	years

In addition to stock options and SSARs, the company issues to certain employees restricted shares and restricted stock units, which vest over various periods. Other than the performance-contingent grants discussed below, such restricted shares and restricted stock units generally vest in equal installments over five years. Compensation cost is recorded based upon the fair value of the shares at the grant date.

Following is a summary of restricted stock activity for the year ended December 31, 2020:


		Weighted
	Number of	Average
	Shares/Units	Grant Price

Beginning of year	2,438,736	$	37.73
Granted	531,908		51.46
Vested	(1,619,312)		38.22
Canceled/forfeited	(83,380)		39.17
End of year	1,267,952	$	42.78

The company’s Board of Directors has granted performance contingent restricted stock units (PC-RSUs) to key employees. These PC-RSUs vest three years from the date of grant, and the number of shares available at the vesting date is based on the company’s increase in economic valued added (EVA®) dollars compared to the EVA® dollars generated in the calendar year prior to the grant, ranging from zero to 200 percent of each participant’s assigned award opportunity. If the minimum performance goals are not met, the shares will be forfeited. Grants under the plan are being accounted for as equity awards and compensation expense is recorded based upon the most probable outcome using the closing market price of the shares at the grant date. On a quarterly basis, the company reassesses the probability of the goals being met and adjusts compensation expense as appropriate. The expense associated with these performance-contingent grants recognized in selling, general and administrative expenses totaled $12 million in 2020, $5 million in 2019, and $21 million in 2018.

Ball Corporation

Notes to the Consolidated Financial Statements

During 2017, the company’s Board of Directors granted 1.1 million PC-RSUs (on a post-stock split basis) to employees related to the Special Acquisition-Related Incentive Plan (SAIP). These awards vested in January 2020 based on the company’s achievement of cumulative EVA® and cash flow performance goals. The expense associated with these performance-contingent grants, as recognized in business consolidation and other activities, totaled $6 million in 2020, $6 million in 2019 and $23 million in 2018.

For the years ended December 31, 2020, 2019 and 2018, the company recognized pretax expense of $43 million ($37 million after tax), $37 million ($33 million after tax) and $75 million ($61 million after tax), respectively, for all of its share-based compensation arrangements. At December 31, 2020, there was $49 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements. This cost is expected to be recognized in earnings over a weighted average period of 2.3 years.

20. Earnings Per Share


	Years Ended December 31,
($ in millions, except per share amounts; shares in thousands)	2020		2019		2018

Net earnings attributable to Ball Corporation	$	585	$	566	$	454

Basic weighted average common shares		326,260		331,102		344,796
Effect of dilutive securities		6,555		9,019		7,525
Weighted average shares applicable to diluted earnings per share		332,815		340,121		352,321

Per basic share	$	1.79	$	1.71	$	1.32
Per diluted share	$	1.76	$	1.66	$	1.29

Certain outstanding options and SSARs were excluded from the diluted earnings per share calculation because they were anti-dilutive (i.e., the sum of the proceeds, including the unrecognized compensation, exceeded the average closing stock price for the period). The excluded options and SSARs totaled approximately 1 million and 4 million for the years ended December 31, 2020 and 2018, respectively. There were no anti-dilutive options for the year ended December 31, 2019.

The company declared and paid dividends of $0.60 per share in 2020, $0.55 per share in 2019 and $0.40 in 2018.

21. Financial Instruments and Risk Management

Policies and Procedures

The company employs established risk management policies and procedures, which seek to reduce its commercial risk exposure to fluctuations in commodity prices, interest rates, currency exchange rates and prices of the company’s common stock (with regard to common share repurchases and the company’s deferred compensation stock plan). However, there can be no assurance that these policies and procedures will be successful. Although the instruments utilized involve varying degrees of credit, market and interest risk, the counterparties to the agreements are expected to perform fully under the terms of the agreements. The company monitors counterparty credit risk, including lenders, on a regular basis, but Ball cannot be certain that all risks will be discerned or that its risk management policies and procedures will always be effective. Additionally, in the event of default under the company’s master derivative agreements, the non-defaulting party has the option to set-off any amounts owed with regard to open derivative positions.

Ball Corporation

Notes to the Consolidated Financial Statements

Commodity Price Risk

Aluminum

The company manages commodity price risk in connection with market price fluctuations of aluminum through two different methods. First, the company enters into container sales contracts that include aluminum based pricing terms which generally reflect the same price fluctuations that exist under its commercial purchase contracts for aluminum sheet. The terms include fixed, floating or pass-through aluminum component pricing. Second, the company uses certain derivative instruments such as option and forward contracts as economic and cash flow hedges of commodity price risk where there are material differences between sales and purchase contracted pricing and volume.

At December 31, 2020, the company had aluminum contracts limiting its aluminum exposure with notional amounts of approximately $1.3 billion, substantially all of which received hedge accounting treatment. Cash flow hedges relate to forecasted sales and purchase transactions and expire within the next three years. Included in shareholders’ equity at December 31, 2020, within accumulated other comprehensive earnings (loss), is a net after-tax gain of $35 million associated with these contracts. A net gain of $29 million is expected to be recognized in the consolidated statement of earnings during the next 12 months, the majority of which will be offset by pricing changes in sales and purchase contracts, thus resulting in little or no earnings impact to Ball.

Interest Rate Risk

The company’s objective in managing exposure to interest rate changes is to minimize the impact of interest rate changes on earnings and cash flows and to lower the company’s overall borrowing costs. To achieve these objectives, the company may use a variety of interest rate swaps, collars and options to manage the company’s mix of floating and fixed-rate debt. At December 31, 2020, the company had outstanding interest rate swap and option contracts with notional amounts of approximately $608 million paying fixed rates expiring within the next year. The amount recorded in accumulated other comprehensive earnings (loss) at December 31, 2020, is insignificant.

Currency Exchange Rate Risk

The company’s objective in managing exposure to currency fluctuations is to limit the exposure of cash flows and earnings from changes associated with currency exchange rate changes through the use of various derivative contracts. In addition, at times the company manages earnings translation volatility through the use of currency option strategies, and the change in the fair value of those options is recorded in the company’s net earnings. At December 31, 2020, the company had outstanding exchange forward contracts and option contracts with notional amounts totaling approximately $3.7 billion. Approximately $32 million of net after-tax gain related to foreign exchange contracts is included in accumulated other comprehensive earnings at December 31, 2020, of which a $20 million net gain is expected to be recognized in the consolidated statement of earnings during the next 12 months. The contracts outstanding at December 31, 2020, expire within four years.

Common Stock Price Risk

The company’s deferred compensation stock program is subject to variable plan accounting and, accordingly, is marked to fair value using the company’s closing stock price at the end of the related reporting period. The company entered into total return swaps to reduce the company’s earnings exposure to these fair value fluctuations that will be outstanding through November 2021, and which have a combined notional value of 2.8 million shares. Based on the current number of shares in the program, each $1 change in the company’s stock price would have an insignificant impact on pretax earnings, net of the impact of related derivatives.

Ball Corporation

Notes to the Consolidated Financial Statements

Collateral Calls

The company’s agreements with its financial counterparties require the company to post collateral in certain circumstances when the negative mark to fair value of the contracts exceeds specified levels. Additionally, the company has collateral posting arrangements with certain customers on these derivative contracts. The cash flows of the margin calls are shown within the investing section of the company’s consolidated statements of cash flows. As of December 31, 2020 and 2019, the aggregate fair value of all derivative instruments with credit-risk-related contingent features was a net liability of $52 million and $35 million, respectively, and no collateral was required to be posted.

Fair Value Measurements

Ball has classified all applicable financial derivative assets and liabilities as Level 2 within the fair value hierarchy as of December 31, 2020 and 2019, and presented those values in the table below. The company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.


		December 31, 2020
($ in millions)	Balance Sheet Location	Derivatives Designated as Hedging Instruments		Derivatives not Designated as Hedging Instruments		Total

Assets:
Commodity contracts		$	50	$	—	$	50
Foreign currency contracts			3		27		30
Other contracts			—		2		2
Total current derivative contracts	Other current assets	$	53	$	29	$	82

Commodity contracts		$	8	$	—	$	8
Total noncurrent derivative contracts	Other noncurrent assets	$	8	$	—	$	8

Liabilities:
Commodity contracts		$	17	$	—	$	17
Foreign currency contracts			—		63		63
Other contracts			—		4		4
Total current derivative contracts	Other current liabilities	$	17	$	67	$	84

Foreign currency contracts		$	8	$	2	$	10
Total noncurrent derivative contracts	Other noncurrent liabilities	$	8	$	2	$	10

Ball Corporation

Notes to the Consolidated Financial Statements


		December 31, 2019
		Derivatives Designated as Hedging Instruments		Derivatives not Designated as Hedging Instruments		Total

Assets:
Commodity contracts		$	7	$	1	$	8
Foreign currency contracts			4		43		47
Other contracts			2		—		2
Total current derivative contracts	Other current assets	$	13	$	44	$	57

Commodity contracts		$	15	$	—	$	15
Other contracts			1		—		1
Total noncurrent derivative contracts	Other noncurrent assets	$	16	$	—	$	16

Liabilities:
Commodity contracts		$	26	$	1	$	27
Foreign currency contracts			—		18		18
Other contracts			—		19		19
Total current derivative contracts	Other current liabilities	$	26	$	38	$	64

Commodity contracts		$	1	$	—	$	1
Total noncurrent derivative contracts	Other noncurrent liabilities	$	1	$	—	$	1

The company uses closing spot and forward market prices as published by the London Metal Exchange, the Chicago Mercantile Exchange, Reuters and Bloomberg to determine the fair value of any outstanding aluminum, currency, energy, inflation and interest rate spot and forward contracts. Option contracts are valued using a Black-Scholes model with observable market inputs for aluminum, currency and interest rates. The company values each of its financial instruments either internally using a single valuation technique, from a reliable observable market source or from third-party software. The company does not adjust the value of its financial instruments except in determining the fair value of a trade that settles in the future. The present value discounting factor is based on the comparable time period LIBOR rate or 12-month LIBOR. Ball performs validations of the company’s internally derived fair values reported for the company’s financial instruments on a quarterly basis utilizing counterparty valuation statements. The company additionally evaluates counterparty creditworthiness and, as of December 31, 2020, has not identified any circumstances requiring the reported values of the company’s financial instruments be adjusted.

Ball Corporation

Notes to the Consolidated Financial Statements

The following tables provide the effects of derivative instruments in the consolidated statement of earnings and on accumulated other comprehensive earnings (loss):



		Year Ended December 31, 2020
($ in millions)	Location of Gain (Loss) Recognized in Earnings on Derivatives	Cash Flow Hedge - Reclassified Amount from Accumulated Other Comprehensive Earnings (Loss)		Gain (Loss) on Derivatives not Designated as Hedge Instruments

Commodity contracts - manage exposure to customer pricing	Net sales	$	22	$	1
Commodity contracts - manage exposure to supplier pricing	Cost of sales		(65)		(1)
Interest rate contracts - manage exposure for outstanding debt	Interest expense		(8)		—
Foreign currency contracts - manage currency exposure	Selling, general and administrative		(54)		(17)
Cross-currency swaps - manage intercompany currency exposure	Selling, general and administrative		(2)		—
Equity contracts	Selling, general and administrative		—		76
Total		$	(107)	$	59


		Year Ended December 31, 2019
($ in millions)	Location of Gain (Loss) Recognized in Earnings on Derivatives	Cash Flow Hedge - Reclassified Amount from Accumulated Other Comprehensive Earnings (Loss)		Gain (Loss) on Derivatives not Designated as Hedge Instruments

Commodity contracts - manage exposure to customer pricing	Net sales	$	18	$	—
Commodity contracts - manage exposure to supplier pricing	Cost of sales		(45)		2
Interest rate contracts - manage exposure for outstanding debt	Interest expense		13		—
Foreign currency contracts - manage currency exposure	Selling, general and administrative		7		111
Cross-currency swaps - manage intercompany currency exposure	Selling, general and administrative		35		—
Equity contracts	Selling, general and administrative		—		46
Total		$	28	$	159

Ball Corporation

Notes to the Consolidated Financial Statements


		Year Ended December 31, 2018
($ in millions)	Location of Gain (Loss) Recognized in Earnings on Derivatives	Cash Flow Hedge - Reclassified Amount from Accumulated Other Comprehensive Earnings (Loss)		Gain (Loss) on Derivatives not Designated as Hedge Instruments

Commodity contracts - manage exposure to customer pricing	Net sales	$	1	$	1
Commodity contracts - manage exposure to supplier pricing	Cost of sales		54		8
Interest rate contracts - manage exposure for outstanding debt	Interest expense		14		—
Foreign currency contracts - manage general exposure with the business	Selling, general and administrative		1		70
Cross-currency swaps - manage intercompany currency exposure within the business	Selling, general and administrative		49		—
Equity contracts	Selling, general and administrative		—		19
Total		$	119	$	98

The changes in accumulated other comprehensive earnings (loss) for effective derivatives were as follows:


	Years Ended December 31,
($ in millions)	2020		2019		2018

Amounts reclassified into earnings:
Commodity contracts	$	43	$	27	$	(55)
Cross-currency swap contracts		2		(35)		(49)
Interest rate contracts		8		(13)		(14)
Currency exchange contracts		54		(7)		(1)
Change in fair value of cash flow hedges:
Commodity contracts		21		(10)		(31)
Interest rate contracts		(5)		1		—
Cross-currency swap contracts		1		78		69
Currency exchange contracts		(22)		17		(5)
Foreign currency and tax impacts		(23)		(13)		19
Stranded tax effects reclassified into retained earnings:
Commodity contracts		—		2		—
Cross-currency swap contracts		—		(5)		—
	$	79	$	42	$	(67)

Ball Corporation

Notes to the Consolidated Financial Statements

22. Contingencies

Ball is subject to numerous lawsuits, claims or proceedings arising out of the ordinary course of business, including actions related to product liability; personal injury; the use and performance of company products; warranty matters; patent, trademark or other intellectual property infringement; contractual liability; the conduct of the company’s business; tax reporting in domestic and foreign jurisdictions; workplace safety and environmental and other matters. The company has also been identified as a potentially responsible party (PRP) at several waste disposal sites under U.S. federal and related state environmental statutes and regulations and may have joint and several liability for any investigation and remediation costs incurred with respect to such sites. In addition, the company has received claims alleging that employees in certain plants have suffered damages due to exposure to alleged workplace hazards. Some of these lawsuits, claims and proceedings involve substantial amounts, including as described below, and some of the environmental proceedings involve potential monetary costs or sanctions that may be material. Ball has denied liability with respect to many of these lawsuits, claims and proceedings and is vigorously defending such lawsuits, claims and proceedings. The company carries various forms of commercial, property and casualty, and other forms of insurance; however, such insurance may not be applicable or adequate to cover the costs associated with a judgment against Ball with respect to these lawsuits, claims and proceedings. The company estimates that potential liabilities for all currently known and estimable environmental matters are approximately $28 million in the aggregate, and such amounts have been included in other current liabilities and other noncurrent liabilities at December 31, 2020.

In November 2012, the USEPA wrote to the company asserting that it is one of at least 50 PRPs with respect to the Lower Duwamish site located in Seattle, Washington, based on the company’s ownership of a glass container plant prior to 1995, and notifying the company of a proposed remediation action plan. A site was selected to begin data review on over 30 industrial companies and government entities and at least two PRP groups have been discussing various allocation proposals. The USEPA issued the site Record of Decision (ROD) in December 2014. Ball submitted its initial responses to the allocator’s questionnaire in March 2015, and after reviewing submissions from the PRPs alleging deficiencies in certain of Ball’s responses, the allocator denied certain of the allegations and directed the company to answer others, to which Ball responded during the fourth quarter of 2016. A group of de minimis PRPs, including Ball, retained a technical consultant to assist with their positions vis-à-vis larger PRPs, and further presentations were made to the site allocator during the fourth quarter of 2017 and the first quarter of 2018. Total site remediation costs of $342 million, to cover remediation of approximately 200 acres of river bottom, are expected according to the proposed remediation action plan, which does not include $100 million that has already been spent, and which will be allocated among the numerous PRPs in due course. Based on the information available at this time, the company does not believe that this matter will have a material adverse effect upon its liquidity, results of operations or financial condition.

Ball Corporation

Notes to the Consolidated Financial Statements

In February 2012, Ball Metal Beverage Container Corp. (BMBCC) filed an action against Crown Packaging Technology, Inc. (Crown) in the U.S. District Court for the Southern District of Ohio (the Court) seeking a declaratory judgment that the manufacture, sale and use of certain ends by BMBCC and its customers do not infringe certain claims of Crown’s U.S. patents. Crown subsequently filed a counterclaim alleging infringement of certain claims in these patents seeking unspecified monetary damages, fees and declaratory and injunctive relief. The District Court issued a claim construction order at the end of December 2015 and held a scheduling conference on February 10, 2016, to determine the timeline for future steps in the litigation. The case was stayed by mutual agreement of the parties into the third quarter of 2016, during which Crown made preparations for its discovery with respect to certain ends previously produced by Rexam’s U.S. subsidiary, Rexam Beverage Can Company (RBCC). Such discovery began during the first half of 2017 and concluded in the fourth quarter of 2018. The parties attempted to mediate the case on August 1, 2017, but no progress was made, and the case continued as scheduled. In December, 2018, BMBCC and RBCC filed a motion for summary judgment that the Crown patents at issue are invalid and that the applicable ends supplied by BMBCC and RBCC did not infringe the patents. Crown did not file a motion for summary judgment. Oral argument on the motion filed by BMBCC and RBCC was completed in January 2019. On June 21, 2019, the District Court issued an order sustaining the BMBCC/RBCC motion as to invalidity, declining to rule on the other grounds as moot, and indicating that an expanded opinion and an appealable order would be forthcoming. The expanded opinion was docketed on July 22, 2019. The final, appealable order was issued by the Court on September 25, 2019, and the expanded opinion was unsealed. On October 22, 2019, Crown filed a Notice of Appeal of the decision of the Court to the Court of Appeals for the Federal Circuit. On December 31, 2020, the Court of Appeals vacated the decision of the District Court and remanded the case for further proceedings. Based on the information available at the present time, the company does not believe that this matter will have a material adverse effect upon its liquidity, results of operations or financial condition.

A former Rexam Personal Care site in Annecy, France, was found in 2003 to be contaminated following a leak of chlorinated solvents (TCE) from an underground feedline. The site underwent extensive investigation and an active remediation treatment system was put in place in 2006. The business operating from the site was sold to Albea in 2013 and in turn to a French company CATIDOM (operating as Reboul). Reboul vacated the site in September 2014, and the site reverted back to Rexam during the first quarter of 2015. As part of the site closure regulatory requirements, a new regulatory permit (Prefectoral Order) was issued in June 2016, which includes requirements to undertake a cost-benefit analysis and pilot studies of further treatment for the known residual solvent contamination following the shutdown of the current on-site treatment system. A new management plan was proposed to the French Environmental Authorities (DREAL) during 2018 and is the subject of ongoing discussions ahead of a final plan for the site being addressed. Based on the information available at this time, the company does not believe that this matter will have a material adverse effect upon its liquidity, results of operations or financial condition.

The company’s operations in Brazil are involved in various governmental assessments, which have historically mainly related to claims for taxes on the internal transfer of inventory, gross revenue taxes, indirect tax incentives and deductibility of goodwill. In addition, one of our Brazilian subsidiaries recently received an income tax assessment focused on the disallowance of deductions associated with the acquisition price paid to a third party for a portion of its operations. The company does not believe that the ultimate resolution of these matters will materially impact its results of operations, financial position or cash flows. Under customary local regulations, the company’s Brazilian subsidiaries may need to post cash or other collateral if the process to challenge any administrative assessment proceeds to the Brazilian court system; however, the level of any potential cash or collateral required would not significantly impact the liquidity of those subsidiaries or Ball Corporation.

Ball Corporation

Notes to the Consolidated Financial Statements

During the first quarter of 2017, the Brazilian Supreme Court (the Court) ruled against the Brazilian tax authorities in a leading case related to the computation of certain indirect taxes. The Court ruled that the indirect tax base should not include a value-added tax known as “ICMS.” By removing the ICMS from the tax base, the Court effectively eliminated a “tax on tax.” The Court decision, in principle, affects all applicable judicial proceedings in progress. However, after publication of the decision in October 2017, the Brazilian tax authorities filed an appeal seeking clarification of certain matters, including the amount of ICMS to which taxpayers would be entitled in order to reduce their indirect tax base (i.e., the gross rate or net rate). The appeal also requested a modulation of the decision’s effects, which may limit its impact on taxpayers.

The company’s Brazilian subsidiaries paid to the Brazilian tax authorities the gross amounts of certain indirect taxes (which included ICMS in their tax base) and filed lawsuits in 2014 and 2015 to challenge the legality of these tax on tax amounts. Pursuant to these lawsuits, the company requested reimbursement of prior excess tax payments and entitlement to retain amounts not remitted. During the third quarter of 2018, the company learned of a further decision of the Court indicating that lawsuits filed prior to the trial resulting in its 2017 decision, such as those filed by the company, would likely be upheld. The company also noted that other Brazilian companies, including customers of its Brazilian subsidiaries, which had timely filed equivalent lawsuits, were recording income based on the applicable ICMS amounts retained. During 2020 and 2019, the company received additional favorable court rulings and completed its analysis of certain prior year overpayments related to ICMS. As these gain contingency amounts were determined to be estimable and realizable, the company recorded $4 million and $57 million of prior year collections in business consolidation and other activities within the company’s respective 2020 and 2019 condensed consolidated statements of earnings. The company is currently seeking reimbursement for additional ICMS-related amounts previously paid to the Brazilian government; however, such amounts cannot be estimated at this time. 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.

23. Indemnifications and Guarantees

General Guarantees

The company or its appropriate consolidated direct or indirect subsidiaries have made certain indemnities, commitments and guarantees under which the specified entity may be required to make payments in relation to certain transactions. These indemnities, commitments and guarantees include indemnities to the customers of the subsidiaries in connection with the sales of their packaging and aerospace products and services; guarantees to suppliers of subsidiaries of the company guaranteeing the performance of the respective entity under a purchase agreement, construction contract, renewable energy purchase contract or other commitment; guarantees in respect of certain foreign subsidiaries’ pension plans; indemnities for liabilities associated with the infringement of third-party patents, trademarks or copyrights under various types of agreements; indemnities to various lessors in connection with facility, equipment, furniture and other personal property leases for certain claims arising from such leases; indemnities to governmental agencies in connection with the issuance of a permit or license to the company or a subsidiary; indemnities pursuant to agreements relating to certain joint ventures; indemnities in connection with the sale of businesses or substantially all of the assets and specified liabilities of businesses; and indemnities to directors, officers and employees of the company to the extent permitted under the laws of the State of Indiana and the United States of America. The duration of these indemnities, commitments and guarantees varies and, in certain cases, is indefinite.

In addition, many of these indemnities, commitments and guarantees do not provide for any limitation on the maximum potential future payments the company could be obligated to make. As such, the company is unable to reasonably estimate its potential exposure under these items.

Ball Corporation

Notes to the Consolidated Financial Statements

The company has not recorded any material liabilities for these indemnities, commitments and guarantees in the accompanying consolidated balance sheets. The company does, however, accrue for payments under promissory notes and other evidences of incurred indebtedness and for losses for any known contingent liability, including those that may arise from indemnifications, commitments and guarantees, when future payment is both reasonably estimable and probable. Finally, the company carries specific and general liability insurance policies and has obtained indemnities, commitments and guarantees from third-party purchasers, sellers and other contracting parties, which the company believes would, in certain circumstances, provide recourse to certain claims arising from these indemnifications, commitments and guarantees.

Debt Guarantees

The company’s and its subsidiaries’ obligations under the senior notes and senior credit facilities (or, in the case of U.S. domiciled foreign subsidiaries under the senior credit facilities, the obligations of foreign credit parties only) are guaranteed on a full, unconditional and joint and several basis by certain of the company’s domestic subsidiaries and the domestic subsidiary borrowers, and obligations of other guarantors and the subsidiary borrowers under the senior credit facilities are guaranteed by the company, in each case with certain exceptions. These guarantees are required in support of the senior notes and senior credit facilities referred to above, are coterminous with the terms of the respective note indentures, senior notes and credit agreement, and they could be enforced by the holders of the obligations thereunder during the continuation of an event of default under the note indentures, the senior notes and/or the credit agreement. The maximum potential amounts which could be required to be paid under such guarantees are essentially equal to the then outstanding obligations under the respective senior notes or the credit agreement (or, in the case of U.S. domiciled foreign subsidiaries under the senior credit facilities, the obligations of foreign credit parties only), with certain exceptions. All obligations under the guarantees of the senior credit facilities are secured, with certain exceptions, by a valid first priority perfected lien or pledge on (i) 100 percent of the capital stock of each of the company's material wholly owned domestic subsidiaries directly owned by the company or any of its wholly owned domestic subsidiaries and (ii) 65 percent of the capital stock of each of the company's material wholly owned first-tier foreign subsidiaries directly owned by the company or any of its wholly owned domestic subsidiaries. In addition, the obligations of certain foreign borrowers and foreign pledgors under the loan documents will be secured, with certain exceptions, by a valid first priority perfected lien or pledge on 100 percent of the capital stock of certain of the company's material wholly owned foreign subsidiaries and material wholly owned U.S. domiciled foreign subsidiaries directly owned by the company or any of its wholly owned material subsidiaries. The company is not in default under the above senior notes or senior credit facilities.

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