Ball Corp (BALL) 2003 Q4 法說會逐字稿

Ladies and gentlemen, welcome to the Ball Corporation fourth quarter earnings conference call. [OPERATOR INSTRUCTIONS].

I would now like to turn the conference over to Dave Hoover, Chairman, President and Chief Executive Officer.

Please go ahead, sir.

Thank you, Operator and good morning, everybody.

This is Ball Corporations conference call, regarding the company's fourth quarter and full year 2003 results.

Joining me today is Ray Seabrook, our CFO who will comment on our financial performance and Leon Midgett, Chief Operating Officer, Packaging, he'll talk about our packaging operations.

We announced last November that Leon planned to retire early in 2004 and that John Friedery would become Chief Operating Officer of North American Packaging.

John's with us today, will join in during Leon's packaging section.

Before we begin, I need to state that the information provided during this morning's call will contain forward-looking statements.

Actual results or outcomes may differ materially from those that may be expressed or implied.

Some factors that could cause the results or outcomes to differ are set forth in the company's 10-Q filed on November 10th, 2003 and in other company SEC filings, as well as company news releases.

If you don't already have our earnings release, it's available on our Web site at ball.com.

Information regarding the use of non-GAAP financial measures may also be found on our Web site.

Ball today reported fourth quarter earnings and full year 2003 results that were significantly higher than the previous year.

The company had record full year earnings attributable to common shareholders of almost $230 million, or $4.02 per share, which includes a net charge of 13 cents per diluted share for debt refinancing and business consolidation items.

Sales for the year increased by more than a billion dollars, just short of $5 billion.

In 2002, Ball had set, had net earnings of 156.1 million or 271 per diluted share, and that 271 included a net charge of five cents per diluted share for debt refinancing and business consolidation items.

Fourth quarter 2003 earnings attributable to common shareholders were 55.3 million, or 97 cents per diluted share, including an after-tax business consolidation gain of approximately $1 million, or two cents per share.

That compared to 28.7 million, or 50 cents per diluted share, which includes a net charge of 5 cents per diluted share for debt refinancing and business consolidation items in the quarter.

Sales in the fourth quarter were of 2003 were 1.19 billion, compared to 910.2 million in the fourth quarter of 2002.

Now, for further explanation of the debt refinancing and business consolidation items, please see note 2 to the consolidated financial statements in the press release.

I'll have a little more to say at the end of our opening remarks here about our strong performance and the outlook for 2004.

Now, I'm going to ask Ray Seabrook to go over some of the other numbers that we have for the quarter and the year.

Thanks, Dave.

Let me start by saying that rarely are we surprised by the results when we close a quarter, but frankly we were surprised a bit by how strong the fourth quarter finished.

Beverage Can sales finished the year in both Europe and North America very strong.

Fourth quarter North American beverage sales were up by 5.5% compared to last year, and Beverage Can sales in Europe were stronger than expected.

In addition, fourth quarter aerospace revenues were up by more than 26%.

Our strong top line performance along with a significant strengthening of the Euro late in the year fell better than expected fourth quarter free cash flow and earnings performance.

Operating margins for the quarter and full year were up 1% over last year.

Improved operating margins and aerospace and China, along with a full year of fall Europe that we acquired in December of 2002 were the primary contributors to this improvement.

Full year interest cost of 126 million excluding 15 million of subordinated debt refinancing cost were right on target.

We expect 2004 interest expense will be more than $8 million as a result of the 2003 debt reductions offset somewhat by a higher Euro expected throughout 2004.

As we have said on previous conference calls, the 2003 consolidated tax rate, decreased due to lower profits earned in Germany caused by the German deposit situation.

Looking ahead to 2004, we expect our consolidated tax rate to increase by around 100 basis points or so, as a result of new European tax changes that happened at the very end of December.

Turning to cash flow, we have been expecting 2003 full year free cash flow in the $275 million range to 275 to 300, excluding the (inaudible) relating to the Ball packaging Europe acquisition.

In fact, the business generates 365 million of free cash flow in 2003, of which 79% occurred in the fourth quarter.

Most of the unanticipated free cash flow came late in the fourth quarter, as more customers were taking advantage of cash discounts for early payment of receivables, aerospace December AR question was far ahead of plan.

Fixed asset spending was lower than we have projected, and strong year-end sales coupled with plan production curtailments meaningfully reduced year-end inventory levels.

As we look to 2004, we expect free cash flow levels in the $275 to $300 million range, and Capex spending in the $175 to $200 million range.

The majority of the 2004 increase in Capex spending versus 2003 pertains to the construction of a new Beverage Can plant in Belgrade, Serbia.

We did an outstanding job in 2003 of de leveraging the balance sheet.

The Euro strengthened against the dollar by more than 20% in 2003, and despite a foreign exchange increase of approximately 100 million in our European debt, we bettered our targeted debt levels.

Net debt at December 2003 was at 1.65 billion, lower than our target level of 1.675 billion.

While the increase in Euro made it more difficult to achieve our 2003 targeted debt levels, it was a positive factor in our increase in our book equity levels.

Book equity increased by more than 60% in 2003 from 493 million to 800 million.

Looking ahead to 2004.

We plan to increase stock repurchases to $60 million or more, and debt reduction is still forecasted in the $150 to $200 million range.

Finally, a few words on credit quality.

The 2003 EBIT interest coverage ratio is at 3.7 times, and debt to EBITDA is down to 2.5 times.

Now I'll hand it to Leon and John to review the packaging operations.

OK.

Thanks, Ray.

As this is my last earnings call, I plan to be fairly brief.

North American beverage can sales volumes for the industry were up 2/10 in the fourth quarter, and down 7/10 for the year compared to 2002.

At Ball, our fourth quarter North American volumes were up about 2.5%, and were down .1% for the year.

Financial results were considerably better, as we continued to meet our pricing, we continue to sell greater quantities of custom cans, and John will expand on that a bit.

We kept our operations and engineering people incredibly busy this year with a variety of larger projects, which makes the beverage organization performance even more impressive.

Results from the food business in 2003 as we discussed were impacted by pricing, and with the start up of our new line in Milwaukee.

That startup costs us is over $11 million, and we should see the impact of that swing from negative to positive in 2004.

We made final major engineering modifications during December and as to pricing in food, the environment seems to be better in 2004, and I'm cautiously optimistic that we will also see improvement there.

Food can volumes were down some 3% in the fourth quarter of 2003 versus 2002.

As an early October (inaudible) a bit prematurely, certainly earlier than it did in 2002.

For the year, we were up roughly 3/10%.

Volumes in this industry are pretty stable.

In PET, our volumes for the fourth quarter were up over 13%, and were up over 8% for the year.

We continue to see improvement in our China operations, with results nearly 2.5 times better than 2002, and 2002 was an improvement over 2001.

Certainly exceeding our expectations once again, our European beverage can business continued to roll on strongly in the fourth quarter, as they have all year.

The group of people we have in Europe has functioned very effectively in the face of some really difficult circumstances.

They've had an outstanding year considering all they've been faced with.

I remain optimistic about the opportunities there regardless of the outcome of the German legislation.

Certainly life and business there would be simpler should that deposit be positively resolved, but either way, I believe that organization is going to continue to grow and to improve.

All in all, we obviously had a great quarter and a fine year.

It's always very easy to look back and know where things could have gone differently, or could have been done differently.

That would have made things even better.

As you look at those things, it's a source of disappointment, and also a reason for optimism.

We worked very hard to overcome the items we could control, and to influence those that we don't.

All in all, I think we did a good job in 2003, and with the group of people at all levels in this company, I am confident that good things are going to continue to happen here.

John has been a path of 15 years, and he and I were very closely over the last 10 of those years.

He has been a stellar performer, always showing great judgment, excellent people skills, and I know he's going to do an outstanding job in his new role, and I'm pleased to turn over both this discussion and operation management to him now.

Well Thanks.

Leon.

I greatly appreciate and value our professional relationship and personal friendship over the years.

I'm looking forward to the challenges of this new position within Ball.

As Chairman of our metal beverage container operations, I've had the chance to meet some of you listening to this call, and I look forward to meeting more of you in my new role.

As Leon said we had a good year and our Metal Beverage container operations in 2003.

We had several projects, which required quite a bit of our attention, and yet we still remained focused on improving performance.

And in addition, we were helped by the increase in volumes in our existing facilities with the result of the acquisition of MPI in the first quarter of last year, and the subsequent closure of that MPI production facility.

Like everyone else here, I am upbeat on 2004.

Part of the reason is that I don't expect some negatives that hit us in 2003 to happen again this year, and I also believe we have some opportunities before us to do better.

Weather is hard to predict, especially this far in advance, but the odds are against a repeat of last year's poor spring where throughout a large portion of the US into Canada.

We have addressed the challenges that came up in our Milwaukee food line start-up, and in the line conversion in Finley.

They are largely behind us and we shifted forum to expectations on those lines in 2004.

I also believe we will improve our operating rates in our PET group.

We are looking at introducing some new products this year, and I can't talk about that right now, but stay tuned.

We continue to growth and demand for our custom camp as our customers look to our packaging as a way to help differentiate their products.

We have dedicated more resources to our extensive custom can business in the past year, and we are added additional custom can capacity as demand grows.

We also have quite a few other small projects here and there, which I believe will become positives in 2004.

So all in all I'll, we start the year with a lot of prom this our packaging operations, and I'm ready to hit the ground running and keep the momentum growing that Leon started.

Dave?

Well, thanks John.

Leon, and Ray, for those comments.

Echoing what John Friedery said, Ball really has benefited greatly from Leon Midgett's leadership, management skills, and just personal presence around here over the years, and we all appreciate all that you have done me all the help improve this company so much in the last few years in particular, and we're also very happy to have John Friedery here who is experienced and ready to step in, and I'm sure will do a great job.

This is the way that succession and changes in management are supposed to occur, and we take a lot of pride in trying to be ready and be able to do these kind of things in an orderly way.

So this is will, well I'm sure, go very smoothly, and we're expecting continued improvement in the future.

I guess to wrap up, I have a few comments about our aerospace segment and our outlook for 2004, and then we'll take your questions.

Ball's Aerospace segment sales rose to a record nearly $535 million in 2003, up from the previous record of just over 491 million a year earlier.

Operating earnings were a record $49.5 million, compared to $38.9 million 2002.

That's a margin that is well over 8%.

Year-end backlog rose from $497 million at the end of last year to 644 at the end of 2002 rather to 644 million at the end of 2003, which is a good indicator of the ability to continue to grow, we hope.

In this fourth quarter, aerospace had operating earnings of 11.8 million on sales of $151.9 million compared to 7.8 million on sales of 120.1 million in the fourth quarter of 2002.

Ball aerospace turned in an outstanding year in 2003.

We won some large strategic contracts, delivered a great deal of sophisticated space and defenses permutation and know how, and continue to sharpen our market focus.

I'm really pleased with the job that the management in that part of our company is doing right now.

Our products continue to perform well.

Some of you may know that we provided four components to each of the Mars Landers and Rovers, including an high gained antenna that is sending images back to earth.

Our Rover elements that provided excellent performance in extreme conditions.

Customer analysis to date does not indicate, by the way, that any connection between our elements and the anomalies experience that was Spirit Rover, but I believe that's likely to get corrected here in the next short period of time.

Anyway, some exciting time for our aerospace business, and with the amount of work already in the pipeline we expect another strong year from that segment in 2004.

Generally, our outlook for Ball in the future is that -- well, put another way, we performed well, as Leon said in 2003, with record sales earnings and cash flow, far and away the best year we've were had in the company.

At the same tile, 2003 was a very difficult year, presented many challenges and management challenges.

But the good news again, as Leon mentioned, his comments is that last year's problems really can become this year's opportunities, and we know there's room to do even better.

Last year, we had some positives, like record setting hot weather in Europe, and some negatives such as the sole Milwaukee food can line start-up and the poor weather in North America.

I suppose you always have pluses and minuses.

We think last year we probably had more minuses than would be normal.

We also expect lower interest expense and fewer shares outstanding going back to some comments that Ray Seabrook made.

You know, really, our goal has been stated publicly numerous times, is to grow first share earnings 10% to 15% a year over time.

If you take a look back, I think what you're going to mind is we've been beating that.

I think really compounded earnings per share growth over the last five years or so is about 25% per year.

As we enter 2004, you know, we expect improvement again.

Though it's much too earlier you predict how much.

And we're not trying to do that here.

So if you're hearing that, you're not hearing the right thing.

But what we are is we're a company organized to perform, and we'll do our best to have a very solid performance again in 2004.

So with that, operator, I think we're ready to take questions.

Thank you. [OPERATOR INSTRUCTIONS].

Your first question comes from the line of George Staphos from Banc of America Securities.

Proceed with your question.

Thanks.

Good morning everybody.

Hi, George.

I guess before we begin, congratulations both to you, Leon, and John, and great work with you, and look forward to going forward.

First in terms of the questions, Dave, as you were trying to give guidance for '04, you said there's some things we shouldn't be hearing, and the some things we should be hearing.

I just want to make sure you're expecting '04 to be more or less to be in line with your normal growth rate as you see it, 10% to 15% is that correct?

No, that's not what I said.

OK.

I said over the long term, we have an objective of trying to grow earnings per share 10% to 15% a year, that we have been beating that, hope you know, if you integrate the last five years' performance, doing more like 25%, but I'm not trying to really tell you what we're going to make in this year, I'm telling you that I think we're going to improve, and just how much, I think we're going to wait and see how the year comes out.

Some of this, George, is related to the environment that you will have to work in, and that we do, and our company chooses not to give specific guidance but what we are saying is we're going to be improved, and I think when you integrate all the comments that you hear in the questions, you will find that we will be improving this year.

OK.

Fair enough before we get into some other questions, I just want to understand the volume in beverage cans in the fourth quarter, Leon what did you say that was for you guys?

Ah, for the -- 2.5%.

What caused the acceleration?

We had a - we had the customer that seems to have found their feet in terms of marketing, and we've seen a major pick up there.

Are they located close to where your prompt food can plant was this year?

They're in that region.

OK, OK.

So this volume progress should arguably continue, if they've now found their marketing feet?

We would hope so, yes.

OK.

Can you comment on how or what price initiatives have looked in Europe, and for that matter, even in the US, in terms of beverage cans?

I'll let John talk about the US.

Yeah, obviously, you know, as we've said before, we are -- we've metered in some pricing as we've moved forward over the past few years, that combined with adjustments for inflation indicators, is indicating that we are getting some pricing improvement this year, in '04.

John, how would you see it exploit, if you could comment, Europe versus U.S.?

Are you getting--I will pick a number to 3% in Europe, and 1% in the US, or however you would help us try to quantify it?

I would say that they are in the range with each other.

I think we're seeing similar ranges in both continents, and I would say they're a little bit better than the 1% you're talking about.

OK.

But you would prefer not to be any more specific at this juncture on that?

Yes.

You want to add anything, Leon?

It's probably still a little early for Europe as well to find out what the final outcome will be.

When you would you expect to be finalized or have a little better view on what pricing would look like?

We'll probably have a better view by the end of the first quarter, but I won't be here to tell you what it was.

What track you down, Leon.

Good luck.

What makes you more optimistic about food can pricing?

Give us some of the (inaudible) perhaps you been hearing about within the market

Essentially we've gone out with increase letters, and to date, we've not gotten the kind of reaction from the market place that we saw last year.

I mean last year we also went out with a price increase letter, and it took about 15 minutes for that thing to crumble.

It seems to be holding up much, much better this year.

What was in your letter?

You know, it varies by customer.

We have some that are long-term accounts that have pricing structures but again the way we are looking at new business or extensions of existing business, we're looking at price increases in the 4% range.

That's not a whole plot of our stood business, but you know, the stuff that would be new or extended this year, but that does seem to be holding.

I'll turn it over to the other guys, and I will be back.

Thanks guys.

The next question comes from the line of Amanda Tepper, JP Morgan.

Please proceed with your question.

It's Tepper actually.

Good morning.

Good morning

Can we talk about the possibility of pricing in U.S. beverage cans over the next 12 to 24 months?

Seems like with a customer of yours doing well and increasing volumes, and it has been a couple of years since the last one that the time might be right, and you could be in a position to lead or do something, and I didn't hear any talk about that in your opening remarks.

Can you comment on that?

Well, I guess I would just say excuse me, Amanda, that we obviously are operating in an environment where our costs are rising, utility costs, labor and benefit costs, all of those things and need to recover those, and recover them that you combination of improved operating results within our plants, as well as trying to get some pricing in the marketplace, and we're going to be looking at that, but we are also in an industry that's got flat volumes right now, so we eight good balancing act, and we would anticipate trying to get some price, but it's way too early to say how that would fall out.

OK.

And then sticking with U.S. beverage cans for a moment, you were saying that some of the cash flow increase and perhaps also some of the earnings increase in the quarter was because you had customers who took advantage of well, I'm not sure if it's discounts on payment, or were they actually ordering extra volume as well in the fourth.

I'm wondering if some of the fourth quarter volume was borrowing from Q1 '04.

It's kind of like the moon and stars and everything lined up in the force in the fourth quarter.

What happened was we had some plant curtailments planned in the fourth quarter, because we obviously don't want to build inventory, so with the plant curtailments, we weren't breaking product, but were actually selling a lot more than we anticipated, so the inventory levels went down quite a bit.

In addition to that, we had a lot of long term customers in certain sectors of our business that normally don't take cash discounts that did, so again that reduced our receivables from what we had anticipated going.

So between those two things, and of course we put Europe on an EBA incentive plan right after we bought them, and what that does is for them to really concentrate on vested capital, and they did a great jock over there.

And those who (inaudible) appointment letter, so between all of that stuff, we probably took $50 million out of our working capital levels, and in this year's plans, we're trying to keep it out, not trying to put it back there.

I think a little may come back, but our goal is to not let too much of that creep back in.

OK.

Great.

Then switching gears, on the air row space side, the backlog of I guess 644 million, is that including now the Digital Global contract, or not, and what is the status did you build that into the free cash flow guidance you gave?

the backlog does not include that contract.

We're nearing the signing or completion of it.

It has been awarded.

We're actually working on the program with a smaller letter contract at the moment, and I would anticipate that in the next few weeks, we'll get the contract finalized, so we do include in you know, in -- our think about next year that we're going to be conducting that business but it did not include in the backlog the year end.

but it is in your free cash flow guidance.

That would be in Seabrook's cash flow balance,

So well, using the royal view.

That doesn't work around here.

One last question for Ray On the $60 million buy back, is your intent to actually spend at least $60 million in buyback over the year, and is that something you would be doing over the course of the year opportunistically?

Well, we have share purchase for examples in the company.

We have some company programs that, you know, we encourage employee's ownership of stocks.

In reality, what happens is we usually issue between 35 and 40 million of stock with our employee internal programs, so when I say at least 60, we probably will have about 90 million of stock in the open market, so when I'm talking about that 60 be it's a net number.

And yes we are very opportunistic of (inaudible) when we buy the stock.

You know, we when we think it's a good time to buy, we buy, and so that's what we've been doing in the past, and that's the way we will continue to do it.

OK.

Great.

Thank you.

Your next comes from the line of Ghansham Panjabi with Lehman Brothers.

Please proceed with your question.

Good morning

Can you talk about the outlook for your commodity costs in '04 in the aluminum?

Well, aluminum has been up, and we anticipate that it will stay up through '04.

Part of it is due to the weakness in the dollar, because we don't see underlying demand being so significant, but it is up in I believe the mid-15 to high $1500 a ton range right now on the MLE, and the steel is I believe looking at about 4% increase for 2004.

And the price increases you have outstanding in food more than offsets the move and steel prices?

It would do that, Ghansham, and hopefully get us back to where we were last year.

OK great.

And what about the volume outlook for '04 -- cross the major businesses?

We anticipate in beverage in North American beverage cans that volumes will be relatively stable, where they've been, is how we're looking at it.

On the food side, we anticipate maybe slightly better, due to the Milwaukee line coming up to speed, and PET growth kind of in line with the industry, which in '03, our volume growth in PET was around 8%, which was in line with the industry.

OK.

Europe, I think

Yeah, I think they are planning on upwards of something like $500 million this year.

Our food business could also benefit issues from adding (inaudible) continuing to work that project e thought it was out the door, but it appear be to be back, ate least for the time being.

Trying to bring that home.

OK.

And then Ray did you give us a Capex guidance for '04?

Yeah, we said that we planned to spend more than this year.

No, what we said is somewhere between 175 and 200, which is up from this year, and the and the many reason it's up is we're going to build a new camp land in Belgrade

OK great thank you very much, and Leon, best wishes in the future.

Thanks Ghansham, same to you.

Your next question comes from the line of Edings Thibault with Morgan Stanley.

Please proceed your question.

Thanks, and let me start by echoing those comments to Leon as well.

Best wishes, and congratulations on coming up with a strong quarter to end it and a strong year.

Thanks so much.

A couple of questions I wanted to folk ace little more on North American beverage can pricing to start.

And the implication, looking at your fourth quarter revenues, volumes up 2.5%, there's about 3% of pricing in there.

Looking at can stock pricing as a proxy for your costs, that's up 2%, so it sounds as if you're get something marginally higher price increases on top of just the underlying aluminum.

Is that a fair characterization?

Leon Midgett Yes.

And would you expect it sounds as if based on some of the pricing talk that you've been giving that you would hopefully given somewhere where some of your costs have gone, be able to widen that price range, that 1% real price increase.

Is that also an accurate characterization?

Yes.

All right.

And then focusing on how pricing works at Ball, both in the United States and Europe, I was hoping we could, perhaps, think about the sensitivity of the company's margins or lack thereof to higher raw material costs, and I was hoping you could contrast how your prices spread if you will of camp price versus underlying metal price is set up in the United States versus Europe, and how should we think about the impact of higher raw material costs, certainly the potential for that in both of those businesses and the beverage can businesses in both U.S. and Europe.

Well, I'll talk about Europe, and let John talk about North America.

The European business is done somewhat differently than here.

We have the majority of our business in North America on long-term contracts.

There, they have a greater preponderance of their business on an annual basis, general fixed prices for the year fourth quarter cans.

We negotiate pricing or take positions on aluminum for the year, as well, that matches up with that can pricing.

They do have some business that is an a longer term basis, and those contracts, it's very similar to what we see here, pricing just gets passed through on raw material, the best of our abilities, at any rate.

John, you want to talk about the -

Well, just to continue on Leon's comments, the U.S., the difference is most of our business is on long-term agreements with provisions for pass-through of raw materials movements up or down.

OK.

Is that correct that the preponderance is based on the can stock place?

Yes.

Great.

And Leon, perhaps you can talk about how the company manages -- it sounds like in the bulk of the contracts in you were are on a short term or annualized basis where you negotiate an annual price, and one of the things we've seen in Europe has ban falling aluminum cost, at least in Euro terms, can you kind of can tie fee for us how that falling price may have benefitted some of the European margins in 2003, and what you might think of as kind of a base rate, so as we, you know, think about how -- where currencies can go over the course of 2004, what the impact on margins might be, all other thing is being equal

OK.

Rather than I try to walk through the financials, I think it would be better for Ray Seabrook to address that.

Well as you might expect that's a very complicated question, because in Europe, we also have a big piece of our business in pound sterling, so it's not all Euro, so primarily, your right, what Leon said is for this time of year, we negotiate more or less a fixed price, and we then -- all through the year, we take positions on currency and aluminum somewhat to try to limit some of the volatility this has, so to -- I don't have a -- I can't give you a number, but fundamentally, we sell at basically a fixed price, once we determine what that price is, and all through the year, we're trying to sort of, if you will, eliminate some of the volatility of exposure on aluminum and the currencies.

But it's pound sterling, Euros, not just Euros.

Right.

Can you talk about where those hedges set looking into for 2004?

What we try to do is kind of -- since we're not smarter than anyone else about this stuff, we don't know where it's going up or down, we sort of try to take a 50% neutral business on most things.

We try to eliminate the volatility by having a position that is sort of in the middle somewhere, being sort of fixed versus floating, and really you don't know whether it's going to go up or down, but we know that no matter which way it goes we're not going to get killed or significantly harmed, or we're not going to sort of print money either, so that's kind of how we like to play it.

OK.

The other thing to remember Edings, this is Dave, that a chunk of the cans we sell in Europe are steel, so they're local currency, and that's a different sort of game, if you will, or different outcome.

But in terms of -- absolutely In terms of the pricing, though, the contract terms are the same, in other words bulk of the steel conditions are short term, some are long term?

We do it the same way, but you're not looking at aluminum, which is out traded in dollars and it's just different and more I guess there's less opportunity for volatility around the steel price.

We have more certainty when we sell our steel cans as to what we're going to pay for the steel for the year.

Understood.

And I just want some final comment no just a plans to build a beverage can plant in Egypt.

That's kind of a new area for Ball or Ball Europe for that matter.

Can you talk about may be the time frame now what you see there, and the competitive environment there, as well?

Well, I think it's an area that we've been shipping into, and hope to see future growth in demand, and the partners that we have identified, and we are assessing just when to construct the plant, and I don't think we've made an announcement about that yet and so I can't tell you that until we actually do that, but the reason is, you know, it's -- it's driven by our perspective on the market demand.

Great.

And would be it safe to say that you wouldn't build it unless you had the contracts there to fulfill most or all of it?

Yeah, typically, we are not building prospect or green field operations.

Great.

Thanks very much.

Good luck for the quarter.

Thanks.

Your next question comes from the line of Don Hicks, Private Investor.

Please proceed with your question.

Hi, guys how are you doing.

Great Don How are you.

Congratulations and Leon, welcome to the realm of the unemployed.

It's great.

Thank you.

I congrats for it.

My question was answered.

I was curious about aluminum pricing, but great year, great team.

You succeed in spite of the all of us.

Well, thank you, Don.

It's good to hear from you.

Well, we'll get together and have lunch one of these days, but have a great time and enjoy the success.

Great Thank you and bye.

For those of you who don't know, Mr. Hicks is an exalted retiree of our company around the out space person now so long ago.

Yeah, we've got Leon's future calls blocked.

Your next question comes from the line of Andrew Fineman from Aridian Management (ph).

Please proceed with your question.

Thank you.

You said that defense margins were over 8%, but weren't they also over 9%?

Yes.

Oh, I just wanted to make sure I did the math right.

Approaching 10, I suppose we could call that too, Andy, but we did have a couple of things early in the year, if you recall, that were payments received on -- at the end of contracts.

One, I believe was I sat the satellite, and we tend to be pretty conservative of the we really do our percentage completion, so we aren't accruing fees until we're sure that we get them, so we had a lilt bump in the margin as a result of that, but also I think there are two other factors pushing our margin one is that we are growing actually three factors.

We're growing, and in a business like this as you're growing, you tend to -- thinks like overhead and G&A rates and so on are moving in the right direction, versus the top line.

Secondly, the mix of our business is slightly moving in the direction of more fixed price versus cost type work, and that also is contributing to better margins.

And thirdly, Dave Taylor and the entire management team down there are what I would describe running with a harder edge.

That's what Dave likes to say, and I think we're very focused on making sure we're doing the work the best way we can, so these are reasons for that, and we hope to -- I don't know that we've achieved a level that we have this year, but we hope to be up versus say the historic averages are in the future.

OK.

Thanks for that.

The -- how much will -- do you think depreciation and amortization will be next year?

I don't think you mentioned that.

You gave capital spending.

Andy, this is Ray.

It doesn't change enough from this year.

It actually It's pretty flat year over year, quite frankly.

A little over 200

Yeah, it's a over 200.

You tell me what the Euro is going to, as well, because you remember some of that is now you're write based, so if the Euro starting moving around, the Euro can move a little bit one but it's pretty flat year over year.

Thanks.

Can you tell me, Ray, what the off-balance sheet securities as at the end of the year?

Yeah, at the end 2002, it was 157 million, the end of 2002 it was 122.5 million.

OK.

And then -- well, that's good news at the end of the year it was the same as it was at the end of the third quarter, you are did pay off of all of this debt.

But the point is that you're free cash flow was real; it was you know, because that number didn't go up.

And I guess the only other thing was to say good luck to Leon, because it has really been helpful to work with you.

There have been times where, you know, for one reason or another there were things to worry about, with hindsight, of course, there weren't, but when I thought there were, you've always, you know, been help.

At calling me town and taking my calls, and I really appreciate what you've done running the company, and I really wish you the best of luck.

Thanks, Andy it's been a pleasure.

So Andy, should we get Leon some kind of consulting agreement to keep you calm?

Well, if you could give me his cellphone number, then I'll be all right.

OK.

Thanks.

Your next question comes from the line of Sam McGovern from Credit Suisse First Boston.

Please proceed with your question.

I was wondering if you could talk about the impact of currencies on the quarter, and you don't expect receivables to sort of fall back to more historical levels.

It's a big business.

This is Ray.

You can it's a big business.

So that can get some body move around a little bit, but we're not expecting any major jumps in receivables year-over-year.

Again when they said, We're an EBIT company, and the idea is to run these things tough and hard, so that's what we plan to do.

As far as the currency exposure, I can tell you that the average rate that to was sort of in for the Euro in our 2003 results was about 113, OK?

And in the last sort of 15 or 20 days of December, it went from like 113 or 115 and changed.

We closed the year at 125 and changed, so obviously in the month of December was at a much higher rate.

If you know the business, you know the European business is much more seasonal than the North American business, so they make the most is made the middle two quarters, not so much in the first and fourth, and I don't have a number?

Front of the, but -embarrassed as what I would guessed.

Agreed.

Thank you.

[OPERATOR INSTRUCTIONS].

Your next question comes from George Staphos, Banc of America Securities.

Please proceed with your question.

Ray.

As you think about normal free cash flow, if it is possible to identify that, we know next year-over-year spending on bell grade, what do you think the normal free cash yield should be on Ball Corp.

Say two, three years out?

We met with some people the fall in Saratoga, and I said I expected these assets to generate in excess of 300 million of free cash flow as we move forward.

As Dave pointed out, our management steam is work real hard to keep making it better and better and better.

A critical part of free cash flows net earnings.

So, you know, I would expect these assets to continue to improve.

Now, I say that to, but $365 million is a bit of an anomaly as I pointed out.

Everything that could have went right did go right, but as I would tell you is that, you know, we work real hard around here to continue to improve and generate free cash flow.

You know, I normalize -- George, I'm not sure I can give you a normalized number, but from my $3 Monday million number I'm expecting, I'm expecting those numbers to continue to improve.

What do you think an average capital spending number would look like against most of bell grade over the next three years?

What level of spending would you need to, you know, keep the business going, but without any expanse of capacity with no capacity

With no capacity, I think it's 150 million on a normal run rate.

I mean, net income we've been demonstrating, that we would tell you that it's probably closer to 100.

We're not doing anything to improve capacity or, you know, improve the operations, it's probably, and you know it's probably not much more than a hundred.

John?

I would agree, but I would say the 150 numbers allows us to add some new products here and there, and still maintain the assets, and drive our business.

Where do you think you need to add capacity, aside from the obvious where you've announced?

Well, you know, I would start Europe, and I think including Eastern Europe, and even possibly into Russia or places that we're interested in.

We've seen a business over there perform exceedingly well the first year that we owned it, in part we didn't over pay what it was, about and we think it has the opportunity to bounce back both in terms of performance, and the market is growing, and so we would hope to do a combination of plant construction and speed ups, and other kinds of things when you're in that kind of market, to kind of get our fair share of that growth in that part of the world, and then I would say another aspect, and I'll turn this over to John Friedery to talk about the U.S. here, but in general, also, you know, we have this cash, and the -- we're entrusted with this --this wonderful asset, so we've got to take great care in what we do with it.

I'm talk about the extra cash.

We're not going to get out of debt.

You know, we certainly will return some to the shareholders to both dividends and stock buybacks, which will increase over time, if we don't find better opportunities to invest in, and those opportunities are going to be in the existing business.

They'll be continued opportunities to accelerate.

You know, as I was describing in certain areas, and also to buy businesses.

Hopefully those will be right on top of what we're doing, when they're not, might be a little bit beside, but rest assured we'll be disciplined in doing that.

OK Last question on cash.

Are you -- let me rephrase it.

How would you look at your dividend currently relative to your existing cash flow and earnings power?

Is there room over time for that dividend to perhaps even increase from where it's at?

Well, certainly there would be room over time for it to increase, given the track that we see and what, we're laying out.

I think with the tax law change, we've sort of equalized the effect of share buyback versus receiving the dividend.

I think you pay both a 15% capital gain rate if you sill stock, and you pay 15% on your dividends, so there's not a bias to a stock buyback for that reason, nor is there bias to a dividend.

We're paying a dividend.

We've raised it price, I guess, in the last two or three years.

We -- we did not raise it yesterday.

You know, we had that opportunity.

But I think we try to look at what is the total capital being returned, and what you heard Ray talk about is last year we did under 30 million, with our net stock buyback, and this you're we expect to do over 60.

So if you take that, plus the dividend, which this year was around $30 million, so we're talking about going from 60 to over 90 in terms of return capital next year, and I think you'll see that continue to go higher and whether it will be in the form of dividend or stock by back is to be determined.

Last quick question.

What do you think Germany cost you this year?

Costs U.S. a couple of billion cans.

What was the -- amount of rephrased lost profitability.

Do you think from that having those 2 to 2.5 billion cans.

Fair amount.

60 cents, 50 cents, 25 cents?

25 cents related to what, per share?

Oh, I was thinking you were talk about a quarter.

It was more than a quarter.

I don't think we can exactly quantify it, but you might try to think about what you think we made, and divide the those 2.1 billion cans by, you know, the total cans that we would have had we made them, and that's a percentage, and then convert that into a number.

But it was substantial, George.

OK.

All right guys, good luck.

Thanks.

The next question comes from the line of Keyian Marden from UBS.

Please proceed with your question.

Hello gentlemen.

Apologies gentlemen for making you recover ground you already talked about.

I came on the call late.

Could you reiterate which part of the business you were referring to in the earlier part of the call when you mention about price increases in the range of 1 to 2%.

We were talking about beverage cans overall, U.S. cans and our North America and Europe.

Just wanted to make sure that I was referring to the correct part of your business.

Thanks very much, and congratulations on a great quarter.

Thank you.

We do have a question from the line of Karl Glean from BKW.

Please proceed with your question.

Yes.

Good morning guys.

Just coming back for the issue of pricing in Europe.

You mentioned a period of five per how is pounds.

Would you say what portion of that would to be cover the higher raw material costs, and what portion would be perhaps real price increases for you guys?

Well, I think -- I'll ask Leon to chip in, tie too but some of the reason that we needed a price increase was we operated at a lower rate in Germany.

That was one factor that entered into our thinking, and in terms of raw material, that's going to have an impact.

As we mentioned earlier, that's very different depending on whether it's steel or aluminum, and there's no currency impact related to the you're row versus the dollar on the steel that we use in Europe.

It could be related to the pound or that sort of thing.

So you've really put all of these things in a hopper, look at where the costs are, your volumes are, and determine what a needed price increase is.

And I don't think that we yet are in a position, at least we weren't yesterday when (inaudible) Fiedler was here at the board meeting to finally say what our increase is going to be, we think it should be an excess of 1% year I think overall, which would mean some people probably would get nothing some would get more than that.

OK.

Thanks

Your next question comes from the line of John Fisher from Barl Associates.

First of all, I want to congratulate you and your team out there in on another great year.

Well, thank you very much, John.

I think your presentation reflects the old say we go used to have, nothing laps unless we have a sale.

That exactly right

on top of that, remember on those quarterly meetings and those review meetings, we used to say you've got to be the lowest cost producer and have the best service, and I think you're providing that.

All of that, I want to congratulate you, Leon, and the rest of the time out there for a great job.

Well, thanks John.

We appreciate that very much.

Good to hear you.

Thanks John.

Mr. Hoover, there are no further questions at this time.

I will turn the call back to you.

Well, thank you very much, Monica, and thank you all for participating in our conference call.

I think you can tell that we're pumped about the prospects of 2004 and beyond.

We had really, as Mr. Fisher just commented, far and away the best year this company has ever had, but we all know we can do a whole hell of a lot better, so that's what we're going to try to do, is so we'll talk to you again.