Ball Corp (BALL) 2005 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first-quarter 2005 review and management briefing. My name is Jen, and I will be your coordinator for today. At this time, all --

Excuse me, if everyone could take their seats.

-- listen-only mode. We will be conducting a question-and-answer session towards the end of this conference. If at any time during the call you require assistance, please press star followed by zero and a coordinator will be happy to assist you. As a reminder, this conference is be recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Mr. R. David Hoover, Chairman, President and Chief Executive Officer of Ball Corporation .

Well, good afternoon, everybody. Nice to have you here with us today. This is Ball Corporation's conference call and webcast management briefing regarding the Company's first-quarter 2005 results. As many of you are aware, 2005 marks the 125th anniversary of Ball's business operations. Due to a $200 loan from an uncle to his nephews back in the year 1880, Ball Corporation, as we know it today, exists. It was born then and exists today.

So on behalf of our management team, a substantial part of which is with us today, I want to thank profoundly the founding Ball family and the thousands of employees, retirees, customers and suppliers that have enabled Ball to become the successful company that it is today. We've -- we've spent a little time in New York this week. We yesterday had our annual meeting here in the city, as well as our board of directors meeting; and so since we were going to be here to do this, we thought this was a good opportunity to give everyone a broader look at Ball's management. You get to hear from me and usually Ray and John Friedery quarterly, so we've got -- we do have other folks who actually do a lot of good things for the company.

So you're going to hear a lot from them today and not much from me. Prior to the formal presentation, we need to say that the information provided in this presentation will contain forward-looking statements. Actual results or outcomes may different 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-K report filed on February 23rd, 2005, and in other company SEC filings as well as company news releases and in Appendix A to this presentation.

As I mentioned previously, today's event is a conference call and webcast, and we also have an audience here before us in the hotel. So we'll hold all questions until the end of formal presentations, which are going to be given by my colleagues, and I'll identify them for those of you who are not in the room. First is Ray Seabrook, who's Ball's Chief Financial Officer, then Dave Taylor, President of the Aerospace and Technologies Corporation; Hanno Fiedler, who's a Director and Executive Vice President of Ball Corporation and runs our operations in Europe; John Friedery, Senior Vice President and Chief Operating Officer of North American packaging, and John also has responsibility for China and Brazil as part of that; Brian Cardno, President of our Food Business; Larry Green, President of our Plastics Operation; and Mike Herdman, President of our Metal Beverage Container Operations in North America.

With us also is Scott Morrison, who's going to be the innerlocker and keep us under control during the Q&A, and Dan Scott, our Director of Investor Relations. So with that, I think that we're ready to get rolling. As I promised, I'm not going to say much, and our first speaker is Ray Seabrook. Ray?

Thanks, Dave I'm here to review the numbers, as always. [AUDIO MISSING] hard look at them. What I thought I'd do rather than just going through the P&L, if you look at slide 1, what I really thought I'd do is talk about our earnings based on the -- the impact it had on earnings per share. So as the slide indicates, we're off to a good start this year, earnings per share up 24% compared to the first quarter last year. So for those of you who know the company and follow the business, you know that the first and fourth quarter are our two slowest quarters, and the middle two are the big ones. So while it's good to be off to a good start, it's -- it's also -- some of that, as we said in the press release, is due to timing.

So as I talk a little bit about the numbers, I'm going to tell you what I think is sustainable as far as the strong performance and what part is probably due more to timing. So when you -- when I look at those numbers, the first thing that I see is I know sometimes we get talked about, where did you generate the earnings from? And if you look down that slide, you can see that all the earnings increase was generated by the operations. So it wasn't to do with the share buyback, it wasn't to do with lower interest expense; it was really to do with running the business.

So when you look at where the $0.10 was generated, you can see it's really from running the business. You can see that the majority of the increase -- the $0.08 was in North America and $0.03 is international. When you look at North America, most of the increase was generated in our three -- in three businesses. Aerospace had a very strong quarter, except for a writedown on investment -- I'll talk about that in a minute. Food had an outstanding first quarter, with 20 -- in the mid-20s. Sales increases, as far as volume goes, they were in the mid to high teens in our Food Can business.

Plastics was the same way, the sales increases were in the mid 20s, and the volume increases were in the low teens. So off to a very good start in those businesses. As I -- as I said in the press release, we made an acquisition last year in the first quarter. In the last two weeks, we bought a plant in Oakdale, California. About half of the sales increase in Food Cans was due to that acquisition. The other half was primarily to do with, we've had a big increase in metal prices; as most of you know, in the Food Cans business, those prices -- and Brian will talk about it when we get to -- in more detail -- those prices have been passed along for the most part to customers. And customers, of course, wanted to prebuy some products.

So there was a lot of prebuying in the Food Can business we believe in the first quarter, which helped the performance. I would tell you that as we stand here today, we expect that strong performance in Plastics and Aerospace to continue throughout the year. And I did mention Beverage Cans, but Beverage Cans were pretty much flat year-over-year. When you look at international, again, off to a very strong start. International consists of our operations in Brazil -- which we equity count and it's in that earnings per share number -- Europe and China. Brazil counts for $0.01 of that $0.03. So Brazil had an excellent [AUDIO MISSING] -- both Europe and China were up year-over-year.

Europe, we also had the strong impact in Euro -- it was about $0.06 quarter to quarter on the translation of the Euro gain. We also priced some derivative contracts in Europe to [inaudible] ourselves against the declining Euro, and we had some gains on that. I think the volumes in China are up double-digit, and probably John will talk a little bit about that. So all in all, we're very pleased with the way we started the year. When you look at interest expense, as all you know, we delevered the company last year by about $100 million; and of course, that impacts the fact that we have less interest. When we look at year-over-year -- the full year interest expense -- we think it's somewhere around $100 million.

Just before we leave the operations, I get the tax -- I'll talk about tax in just a second. We did have two writedowns in the quarter. About several years ago, we made an equity investment in Aerospace. Our plan was to try to integrate that in our business strategically. It didn't happen so we decided to exit that equity investment. We wrote it down to what we believe is net realizable value, expect to sell it sometime this year. We expect to generate in the neighborhood of $14 million of cash on the sale of that business. We -- we had some trouble in one of our joint ventures in China at the very end of last year.

That business continues to have trouble, so we wrote the rest of that business off again in the -- in the first quarter. One other thing I should say before I -- before I talk about taxes is as a result of the large increase in raw-material prices in the Food, we probably got in the neighborhood of a 9 to $10 million LIFO reserve [inaudible]. You know, that our inventories are on LIFO, so that's going to impact the earnings. It shouldn't impact the evaluation, but that's going to hit us this year somewhere in the neighborhood of 9 to $10 million. Turning to taxes, just before I leave this slide, the effective tax rate is 35% in the first quarter. The reason that's higher than it has been in the previous quarters and higher than last year is those write-downs are not tax effective. Those are capital losses and can't be assured of having capital gains. Therefore they're not tax effective.

When you look at the full year, we do expect the tax rate to be in the 30 to 32% range. One of the things in taxes, you've heard us talk last year about the American Jobs Creation Act and repatriation of foreign earnings. We are waiting for some final legislation to be finalized on that, but we still intend to do that. Maybe we should be bringing back in the neighborhood of 350 to $400 million, in that range. And that'll probably generate a one-time tax in the $10 million range, when we actually -- that -- we need that legislation to get finished and passed, and once that happens, we'll make the final decision at that point in time.

This is -- this is our cash flow for the quarter. Again, those that follow the company know that in fact it's a seasonal business. The normal seasonal working capital is in this number. We do have -- if those of you remember, we did have an announcement at the end of January and said we're going to buy back 3 million shares, of which we're in the process of doing. That number you see on there for the 108 million of prepared common share repurchase, it turns out that we can't actually take that into a share reduction until we take delivery of all the shares. So we expect that to happen sometime in the next two weeks and that prepaid -- and also, there's a number in our balance sheet that's prepaid. That'll move into a share repurchase.

So we've also said in our press release we thought we'd be buying in the neighborhood of $150 million of stock this year in the beginning. We've now looked at our cash flows, at our business, and we believe that that number is probably at least 175 million. So we intend to increase our stock buyback. So if you look at that statement, that $108 million of prepaid common share repurchase will just move down and be -- and will actually be a cash outflow under share repurchase. I've said capital spending will be at least 300 million, I am still tracking the case. We've also said free cash flow in the neighborhood of 225. And again, we still believe that's kind of tracking about where I said before.

Turning to the next slide, on our balance sheet. Again, the increase in receivables and inventories is primarily a result of the strong -- the sales -- and you've got to remember, the Euro has increased as well as the -- that reflects the increase of the Euro. As I said, we -- in the next two weeks, we plan to take delivery of that 3 million shares, so that will -- that prepaid will move down in reduction of equity, as we take delivery of that stock. As we currently speak, probably our debt is about 40% -- or 40% fixed and 60% floating. As we look at repatriation of that cash from Europe, we're probably looking at extending our maturities and moving probably to a ratio closer to 60/40 fixed versus floating.

So we're going to try to extend the maturities out a little bit. The maturities -- average maturity right now is just a little bit over four years. We're going to try to extend the maturities and put a little bit more fixed debt in our -- in our mix. Finally, I'd like to finish up with our credit statistics. You can see that when we bought -- when we made the Schmalbach acquisition at the end of 2000, we said we really were planning on deleveraging the business substantially to improve our credit. We think we've done that.

We just were upgraded by Moody's in the first quarter again to a Ba1 rating So we believe our credit -- our position is good. We believe we have a lot of dry powder on our balance sheet to make acquisitions if we can find some good businesses to buy at reasonable prices. So if we can do that, look for us to do those kinds of things. With that, I'd like to turn it over to Dave Taylor, the CEO of our Aerospace Division.

Thanks, Ray. I'm Dave Taylor, President and CEO of Ball Aerospace. I'd like to give you an overview of Aerospace at Ball. Before I do that, a couple words about me, if you don't know me, my background. I've been in aerospace 28 years, worked at a number of aerospace companies, but 20 of the 28 years have been at -- at Ball. I have worked up through the ranks -- engineer, design engineer, started and ran a P&L within the company and been there a long time. Became COO in January of '01 and CEO in June of '02. So it's been about the past four years .

Our business purports national security, scientific discovery and environmental monitoring. And we are a leading supplier of space sensors and instruments, highly capable spacecraft, RF and microwave systems and specialty space components. We work in various mission areas. A few of those are intelligent surveillance, surveillance and reconnaissance -- known as ISR in the defence community. We work with the Weather and Environment Mission area, Space, Science and Exploration Mission area. And our customer community is most of the aerospace industry that you could think of -- areas of the Department of Defence, competitors, team mates, Lockheed, Boeing, North [inaudible] and those kind of people, NASA, NOAA, which is the National Oceanic and Atmospheric Administration.

So we've pretty much covered the waterfront in terms of our customer base. A couple of notes: We've just completed our fourth consecutive year of record growth at Aerospace. And our sales, earnings and backlog are dramatically higher since the year 2000. And we think that's due to a couple factors I'd like to point out. Beginning in '01, we started focusing on our core capabilities and core markets, number one. Number two, we got into the marketplace more aggressively. We work the market, work the customers, get to know our customers better. And we're running the business with a harder business focus.

And we're also working a lot, teaming with the prime contractor -- teaming or partnering with people like Boeing, Lockheed Martin, those people in the community. And what we find is that we think there's a large engine from our growth rate. '05 is a big year for us in terms of deliveries and launches. And I'm sure you've heard about Deep Impact. Deep Impact was launched in January of this year and on July 4th, it will encounter the Comet Temple 1. It'll impact this Comet and it will eject the interior components of the Comet out into space and will analyze what those elements are to figure out what the beginnings of the solar system were.

We've also delivered an instrument we call Ralph, the -- the name for an instrument that's going to go to Pluto. It's the first highest resolution imaging that will be done of Pluto. That'll be launched in July -- January of '06. We've also delivered a satellite called CloudSat, a weather satellite, and that'll be launched later this year. And we're finishing up another instrument called HiRISE, which will be launched on the Mars Reconnaissance orbitar spacecraft in about August of this year, and that also will be the highest resolution images ever taken of the Martian planet. So a big year for us in terms of launches. We're currently looking at other programs in-house.

You're certainly aware we're working on the James Webb Space Telescope, a follow-on to the Hubble Space Telescope. We're working on a program called Kepler, which is for jet propulsion labs. It's a very interesting mission. It will look for habitable planets around stars in space. And another one we're working on is the next-generation commercial submeter imager platform for commercial sensing called WorldView. We continue to pursue [inaudible] programs. We've just won the Global Microwave Imager Program for -- from Goddard Space Flight Center. That's to help with weather predictions.

And we're also pursuing other large programs, one of which is the next-generation geosynchronous weather and environment instruments for that weather system of the U.S. government. We're also in the process of expansion. We have grown, we want to continue to grow; and to do that, we need more facilities. And we're currently looking at a major expansion, partly in our Boulder campus and partly in our Westminster campus -- 70,000 square feet in Westminster we're adding and 100,000 square feet in the Boulder facility. And these are for manufacturing, test and integration functioning.

As we go forward, we're focusing on certain key areas. And those are improving our business execution in terms of our program execution. All our money we make is done in a program project environment. We're looking at improving that performance. We're continuing to build backlog. Backlog to us is a good thing. It's contracted work yet to be performed. You can see from the numbers that number continues to grow, which we're very pleased with. I like that as a leading indicator of the market season for new customers to be in. And as I mentioned, we're looking at successfully managing the growth we've experienced and keeping a healthy business in place. And we're looking for a continued bright future.

If you look at our numbers, since 2000, the top line is up about 80%. The EBIT is up almost 70% during those four years. And the year in backlog is approaching 100% increase. So pretty happy about that. We continue to make those numbers better. So that's a quick overview, thank you. And I'd like to introduce Hanno Fiedler; and as you know, he's the Ball Corporation Executive Vice President Chairman, Ball Packaging Europe. Hanno?

Thank you, Dave, and good afternoon, ladies and gentlemen. So you heard my name is Hanno Fiedler, and I'm Chairman and CEO of Ball Packaging in Europe, and I'm also working in this corporation as an Executive Vice President. Prior to that, I was working for more than two decades within TRW -- some of you know this U.S. technology group. I was appointed then in 1996 as a Chairman and CEO of Schmalbach-Lubeca, which was a forerunner -- a packaging group to the present European subsidiary of Ball Corporation. Now to the more-interesting stuff. Ball Packaging Europe was formed, as we said, in 2002, with the purchase of Ball Corporation of the Schmalbach-Lubeca beverage can business.

And as a result of this acquisition, Ball Corporation not only succeeded entering the European market, but also rose to become one of the leading international beverage can producers. Ball Europe produces exclusively beverage cans, and it's a strong number two in Europe, with a market share of 29%. Market leader is Rexam, with a market share of 42%. In 2004, the total sales volume in Europe rose to just over 40 billion cans. Ball Europe has 12 production plants in six European countries. Our research and development center, the technical center, as well as the company headquarters, are located in Germany: The beer and carbonated soft drinks are amongst our major market segments. 60% of all sales volume relate to beer.

For the year 2005, we anticipate a substantial increase in our volume. The sales volume is probably approximately 12 billion beverage cans, which means an increase of more than 8% compared to the previous year, or an additional sales volume of approximately 1 billion beverage cans. In the first quarter of this year, our can sales amounted to 2.5 billion in spite of converting one production line to aluminum. In the course of 2005, our business therefore, and due to other reasons, will develop very positive. We expect to at least achieve, as we have done in the preceding years, our budget targets and the forecasted sales volume for the rest of the year.

Our new beverage can center in Belgrade will start production as scheduled in May of this year and supply the first cans to the market. The extremely short construction period of just 10 months, due to that, we have been able to react quickly to the dynamic demand trends in this area. [inaudible] is part of our strategy to follow our globally operating customers such as Coca-Cola, Heineken, and SAB Miller into many promising growth markets. Having a production facility locally also means that we can now supply the regional fillers who have recently increased their investment in filling systems for beverage cans.

As our plant has commissioned, beverage containers will be available locally and this will stimulate growth at regional filling companies from which we, too, will ultimately benefit. Concentration amongst the fillers continues, in particular in the brewing industry. In 2005, brewers are continuing to advance and to move sales markets in Eastern Europe, predominantly by acquiring local breweries. Ball Packaging Europe continues to pursue its strategy of consolidating supply relationships by -- with international key players in the beverage sector through geographic expansion and by setting up sites in the vicinity of customers. We are therefore actively monitoring the eastern market, which is marked by particularly high growth rates.

In addition, brewers are increasingly focusing on differentiating their brands from those and then continually growing low price retail brands of discounters. Soft drink producers are concentrating on developing beverage innovation, aside from the stagnating plastic products which meet the growing consumer demand for low-calorie beverage. Ball Packaging Europe has developed the so-called "sleek can" as an innovative packaging solution which helps our customers to optimally differentiate their brands and reposition their products. The sleek can definitely distinguishes the brand from other products with it's unique shape, and at the same time visualizing the trend towards low-calorie beverage.

This month, the sleek can is being launched in the French market, and we expect the new can form to continue experiencing a very positive trend. Further sleek can market launches are, for example, being planned in Spain and Portugal this summer. During 2005, raw material prices have risen drastically. On the metal exchange, the price for aluminum has reached an all-time high; beer prices are also record levels due to strong international demand, and particularly in China. Price increases are also reported in the inks and varnishes sector and in the energy sector. In order to limit the effect on our margins, we have initiated ambitious cost effectiveness project in all European locations.

In addition, our production lines are better utilized, due the significantly higher production volumes in 2005. Through continuous R&D efforts, we will also broaden our range of customized cans compared to commodity products. This year, we are planning to launch some innovative packaging solutions which offer our customers added value and which therefore will generate higher returns. The resealable can, digital printing and aseptic filling technology for beverage cans are three examples of new developments which can no longer be positioned in the commodity segment due to the added value for the use of highly sophisticated technology.

We are confident that we will be able to present prototypes, for instance, of the resealable can during the course of this year. The European market shows sustained rising demand. In 2004, sales in Europe totalled more than 40 billion beverage cans, representing over 4% growth compared to the previous year, sales volume of 42 billion cans forecasted for this year. Growth rates of some 4 to 5% annually are also expected for the coming years. And in 2007, the sales volume will be -- probably exceed 47 billion cans. Markets with promising growth prospects include Southern Europe, Spain, Portugal, France, Turkey, as well as Central and Eastern European countries.

Rising per capita income and increased demand for one-way containers are resulting in market growth rate. For example, the growth rates reported in 2004 compared to those for the previous years were 22.4% in Hungary, 18% in Russia and the Ukraine and nearly 10% in the countries of Southeast Europe -- Romania, Slovenia, Croatia, Bosnia and Macedonia. With targeted investment, such as that in our new plant in Belgrade, we are optimally prepared to participate in this growth. Following a legislative procedure introduced in December of the last year, Germany will permanently impose a deposit on one-way containers for mineral water, beer, soft drinks and [inaudible].

Despite some amendments to this legislation, the deposit requires new systems for industry and retailers. However, it is now anticipated that the deposit will remain in force in the longer term, and this has created greater planning certainty for market participants. Industry and retailers are therefore actively working to set up a nation-wide redemption system, which will be operational by the spring of the next year. Against this background, we predict a slow but continuous revival of the beverage can market in Germany. And by the end of this year, the European can market is expected to report sales totaling some 42 billion units, the level of 2002, the year in which the deposit was imposed on Germany; thus the market should continue to grow from there.

The proportion of steel to aluminum cans in Europe has moved towards aluminum, with a ratio of 65 to 35% as a result of market growth in Eastern Europe and the decline in sales in Germany. Ball Packaging Europe has reacted in good time to this trend by expanding its production capacity for aluminum cans. The plant in Belgrade creates an additional capacity for 650 million cans. Further aluminum capacity for 700 million cans was created at the beginning of 2004 by converting a plant in Germany. And in addition, one production line for slimline cans in the Netherlands was converted to aluminum at the beginning of this year in order to benefit from the market growth in the energy-drink segment.

And in the future, Ball Packaging in Europe will continue to supply both steel and also aluminum containers in Europe. By converting the production lines, we have demonstrated that we are able to react flexibly to these market requirements. Convenience, health and enjoyment in premium quality are the three megatrends in the beverage sector. Beverage industry is increasingly faced with a need to develop new products, to position them in the market and to distinguish their brands in the competitive environment. By designing new can formats such as the sleek can, we assist our customers to differentiate their brands.

For example, French brewery is now completely switching its premier brand from the standard 330 milliliters to the sleek can in order to position this brand more strongly in the premium segment. The unique shape of the sleek can also helps to draw the attention of consumers to new products. Ball Packaging in Europe is actually working on transferring the concept of the slender can to new filling sizes, the 300 milliliter and 350 milliliter sleek can. Those prototypes are now available also for jumbo can, a well-rounded 500 milliliter can design which is ideal for strong beers.

In summary, we think we are well-positioned and well-equipped for a dynamic growing market. And with that, I am welcoming our John Friedery, Senior VP and Chief Operating Officer for North American Packaging. Thank you.

Thank you, Hanno. Good afternoon. I am Chief Operating Officer of our North American packaging businesses, which include our Plastic Container Operations, Metal Food Can Operation, and Metal Beverage Container Operations in North America. And by a quirk of geographic oddity, I also have responsibility for Brazil and China. And since Brian Cardno, Larry Green and Mike Herdman are here to speak to you about their respective operations, I will limit my comments to brief remarks about Brazil and China.

First a little bit about me. I've been with Ball for over 17 years. I came out of our North American Beverage Can Operations up through manufacturing. I have been in my current position since January of 2004, having previously run the North American Beverage Can Operations. And that kind of sums it up on me. As Hanno said, we'll move on to more interesting things. For Brazil: Ball owns 50% of Latapack-Ball, which is a can and [inaudible] making joint venture down in Brazil. Our local partners -- Brazilian partners -- with whom we have worked since 1995 own the remaining 50%. And we are very pleased with that relationship. It has been a great relationship over the 10 years we've been down there.

We operate a can plant in Jacarei, which is Northeast of Sao Paulo, an [inaudible] in Salvador which is in the sate of Bahia in Northeast Brazil, and run a small general office in Sao Paulo. The Brazilian market is right around 10 billion units in size. And matter of fact, Ball supplies approximately 16% of the market. Our customers there include AmBev, [inaudible], Petropolis [ph] and Malta [ph]. And this market is solid and it's growing on the strength of -- on the strength of a strong and relatively stable Brazilian economy at the time -- at the current time.

First-quarter volume for Ball -- Latapack Ball is showing growth -- it's a little tough to say exactly what the numbers are, due to the high seasonality down there and the impact of Carnival and when it falls But we are believing that we are going to see about 4 to 5% growth in that market in 2005. We -- we continue to run good operations down there. We are in the -- in the process of making a management change at Latapack Ball. Bill Garter has been down in Brazil for the past four years running that operation, and he will be locating back to the States a little later this year. Replacing him will be Glen Opp [ph], who is a long time Ball employee and most recently has served as a General Manager of Rocky Mountain Metal Container, our joint venture with Coors in Golden, Colorado. So we welcome Bill back home after a nice run and we look forward to Glen stepping into his new responsibilities down there.

In China, it seems today like no business presentation is complete without a section on China, so we'll move on to our portion in today's session. The can market there is approximately 8.5 billion units annually. The market has seen strong growth over the past 18 months, kind of the post-SARS period, driven primarily by local brewers on the beer side and by Coke and Pepsi on the PSD side. Again, it's a little tough to compare trends early in the year because of the high seasonality in the Chinese New Year, but growth in the market there was in the double digits, low to mid-teens last year, and we expect to see good growth -- probably high single digits -- this year; again, a little early to tell, but that's what our feeling is at this point in time.

Ball, through its subsidiary, Ball Asia Pacific Limited, operates three wholly owned can and end plants and two can and end joint ventures in China. These plants in aggregate supply about 33% of the market. In addition, Ball Asia Pacific Limited operates two joint venture plastic -- or manufacturers plastic oil containers in two joint ventures operations, part of a joint venture with Exxon Mobile. And these plastic plants are located in the Shanghai area. The Ball Asia Pacific can plants are located in Beijing, in the center -- central province of Hubei in Wuhan, and in Shenzen in the south.

These joint venture can plants are -- I'm sorry, the joint venture can plants are located in [inaudible] on the east central coast, and in [inaudible] in the south. This set of plants, as you can see from the map, gives us very good geographic coverage of this growing Chinese market. We sell to a variety of customers, including Coca-Cola, Pepsi, and Anheuser Busch, Qingdao Beer, Wahaha, [inaudible] Ice Tea and Watson's. It is worth noting that in China, cans are purchased on shorter term contracts and metal is priced more on an annual basis. These are differences as compared to the North American market as we know it here. In addition to the changes I talked about in Brazil, we recently completed a management change in China as well.

Al Slesinger [ph], who many of you know from his years of the controller of Ball Corporation, has just completed a three-year stint running Ball Asia Pacific. Al has returned to the U.S. and is retiring in the next month. Replacing Al at the helm in Hong Kong is Terry Voss [ph]. Terry is a can industry veteran who came to Ball through the Schmalbach-Lubeca acquisition in 2002. Terry brings a wealth of manufacturing and general management experience with him to his new job. With that, as I said, I'm going to turn the podium over to the gentlemen who run the North American businesses.

And without further adieu, it's my pleasure to introduce Brian Cardno, President of Ball Metal Food Container Operations.

Thank you, John. I'm Brian Cardno, responsible for Ball's food business. I have been involved in the industry since the mid- '60s, having spent 20 years with American Can Company, some of it just up the road from here, as a matter of fact, in their corporate headquarters in Greenwich, Connecticut. I joined Ball in 1988 when they acquired 50% interest of what originally was American Can of Canada.

Prior to taking my current position in mid-2002, I was the Chairman and CEO of Ball Asia Pacific, and previous to that had been the President of Latipack-Ball, our joint venture in Brazil. An overview of our North American Food Business. Our business was formed in December 1988 with the establishment of a 50/50 joint venture between Ball Corp. and Onex Corporation of Toronto, Canada, which was formerly American Can, and which was purchased by American Can U.S. in '84 by Onex Corp. and the senior Canadian management. The Canadian company became a wholly owned subsidiary of Ball Corp. in 1991. The business was comprised of both food and beverage plants stretched across Canada.

In early 1993, Ball Corporation acquired Heekin Can Company of Cincinnati, which when combined with the food business in Canada, basically formed what we now call Ball Corporation Food Business. Over the years, we have significantly restructured the fixed asset base by consolidating three-piece operations, purchased some self-manufacturing operations, and installing state-of-the-art two-piece food-can making operations in two of Ball's beverage facilities. The division employs 16 -- roughly 1600 people spread over 12 facilities, of which six are represented by unions. Last year, we enjoyed an approximate 20% share of a roughly 33 billion unit North American market.

We enjoy long-standing relationships with several of the major food processors in the United States and Canada, having served many of them for more than half a century. Let me talk just a little bit about the first quarter. Our first-quarter food volumes were up around 6% versus 2004, if we include Ball Western Can, which was, of course, still a joint venture until late March of 2004. Excluding Ball Western Can for the last year, volumes improved roughly 18%. On an apples-to-apples basis, the roughly 6% increase versus last year was significantly impacted by customer prebuying in advance of contractor price increases, driven to a great extent by escalating steel prices.

I would expect some volume correction in the second quarter. Over the years, the food can has become probably the most cost-efficient medium for the industry to deliver processed products to the consumer. Even as steel costs have escalated recently, it is still our belief we have a container that delivers superior value through the system, which of course concludes not only the cost of the container itself, but also the system costs at the processor and the logistics that are required to bring it to market. We do, however, recognize changing consumer behavior and the desire for convenience in, among other things, opening features and the potential for microwavability.

To this end, we are investing significant effort and resources at Ball to add value to the current package and yet maintain the ability of the processing community to utilize its current asset base. Since our existing package reflects, as I mentioned, the lowest delivery cost, our challenge is to maintain the fundamental features inherent in today's package and yet provide additional features that minimize the cost increases into a market which is exceptionally competitive. As most of you are aware, we acquired -- we acquired ConAgra's 50% ownership in Ball Western Can in March 2004. The facility is in Oakdale, California. The purchase exceeded our first-year financial expectation and continues to deliver in accordance with our strategic objectives through the first quarter of this year.

We continue to invest in the plant in terms of capital, training, and systems upgrades. As we embark upon the second year of our long-term supply agreement with ConAgra, I believe the conclusion of this transaction has and will continue to be satisfactory to both parties. For those of you who have listened to our prior comments regarding our two-piece food can installation in Milwaukee, I can report that that line is performing well and is now meeting or exceeding our original expectations. Talk about areas of focus for this year: Our industry is faced to a much greater extent than in the recent past with significant inflationary increases in virtually all of the major components of our manufacturing costs.

Steel, of course, you have read and heard about; but compounding this is unprecedented escalation in coating material costs, energy, and health care costs, just to name a few. In an attempt to ameliorate the update of these upward cost pressures, we have embarked upon a more vigorous campaign to address each of these elements of our cost structure, utilizing a broad section of our own internal functional groups, and where appropriate, external -- external expertise. Past groups are currently exploring and implementing programs to minimize metal usage through downgauging programs and improvements in double seaming technology. We are actively examining the potential for substitution of both internal and external coating applications.

We are focusing on energy conservation programs with the help of selective capital investment and the sharing of best-practices, not only within our food location, but also across all the plants within the Ball system. We have accelerated our investment in state-of-the-art quality systems, which monitor our individual processes, allow for the achievement of tighter operating parameters, and deliver both reductions in process spoilage and enhancements in our line outputs. A couple of points on asset utilization: As you think about our Metal Food Can business, I believe it is important for you to recognize that while we make cans, the logistics and asset infrastructure involved in the process is very different from making beverage cans. They are both called cans, but that is where the similarity ends.

For example, and with all due respect to our beverage friends, we currently produce roughly 100 different sizes with approximately 6,000 different specifications. In effect, food can making is much more of a batch manufacturing approach, where beverage can making is more of a continuous process. The reason for me describing the difference is because it leads us to a significantly different approach in the structuring of our fixed asset base. For example, we have several food plants that are fully integrated, meaning that they receive coils from the steel mills, they cut sheets, they coat sheets, they make cans and ends.

Several of our plants, on the other hand, only fabricate cans, having received all of the components from our integrated facilities. In order to maximize our cost structure, we must ensure that we geographically match the various submanufacturing processes to the can-making location which is the best logistical fit for the customer supply point. This can often be a moving target, as customer container mix changes and/or we have a change in our customer portfolio or geographic locations. As most of you are already aware, we are an EVA driven company, so we are always looking for ways to improve our deployment of both fixed assets and working capital to enhance returns.

As I mentioned earlier, we have over the years restructured our three-piece asset base in response to our changing environment. We will continue to utilize this approach as business conditions dictate and/or as the industry moves in the direction that suggests that alternative asset structure would deliver enhanced overall returns. It is my pleasure to introduce to you Larry Green, who's the President of our Plastics Business.

Thank you, Brian. Again, my name is Larry Green. I've been in the PET business for about 25 years. Some of those with Ball, [inaudible] President Division and I came to Ball as President Division when we began it. I'm going to talk to you basically today about three different things -- one, I'm going to review the North American market with you and kind of show you how we fit into that market.

And number two, I want to talk a little bit about the first quarter and what our near-term initiatives are; and then I'm going to really kind of look at the long-term focus for us and give you an idea of what we're working on. So with that -- although consolidation has occurred in our PET business, with the most recent being the OI gram consolidation, you can see that it's still a very fragmented market. We entered the business in 1995. We're a Greenfield company, basically. We have five plants, four of them have been built since 1995. And we have one plant in Watertown, Wisconsin that was purchased during the Wizpac [ph] acquisition a couple years ago. We primarily used the two-step process for manufacturing PET bottles in our business; i.e., we use injection machines to make preforms and then we move over and blow bottles.

We have relatively large plants for our industry. We serve a 250-mile radius from each location. We are, as you -- most of you know, primarily in the carbonated soft drink and water business. You can see a list of our customers there, but Pepsi is certainly our largest customer. And over the past several years, we've been growing with the market and maintaining about an 8% market share. A little bit about volume trends for the first quarter and what I think for 2005. As you all know, volume trends have slowed in the carbonated soft drink area, and we believe that they're now at the low single-digit levels. We expect water growth to continue in excess of 10%.

We also expect to see continued growth in the juice and isotonic markets of around 7 to 8% a year. Whether it be carbonated soft drinks or juices, promotional trends tend to be for smaller sizes, of which many require some form of barrier, whether it be a multilayer and/or various type of coating. We believe the industry is running at a relatively high utilization rate. Investment in economics and the non-custom segment -- what we call non-custom segment, everything that's CSD and water is still unfavorable -- or excuse me, CSD and water is unfavorable. As we have stated several times, we will not invest in these markets until we can accept a rate of return on our investment.

That being said, we have every intention of maintaining our position in these markets. Price [inaudible], although improved as capacity tightens, continues to have downward pressure, as some competitors continue to reward long-term contracts with price concessions. As we have stated for the last two years, our design and engineering focus has been in the areas of heat set; i.e., our Heat-Tek package and barrier development. With the success of this development effort have come opportunities for new product introductions. During 2005, we will be providing a rollout of both 12 and 16-ounce packages for the beer industry, as well as new 12-ounce single serve and multipack packages for the carbonated soft drink business. We are also preparing to introduce -- into C stores some new private-label packages and designs.

As far as our area of focus, as we move forward out of 2005 and 2006, we continue to focus on the growth in the hot-fill custom markets, particularly in 20-ounce undersizes. Although we do have the advantage of being able to invest in the latest, quote, off the shelf technology for preform and blow molding, we continue to focus our development efforts on our Heat-Tek patented designs, which we believe provide our customers superior performance in the marketplace. Technological advancements in barrier continue to provide new market-growth opportunities as well. We continue to pursue many barrier opportunities for our customers. Whether the barrier being a multilayer form or coatings, we will continue to focus our development efforts on providing our customers with competitive options for their products.

Not only is our focus to enter these markets for margin improvement, it is also essential that we continue to pay attention to every detail of cost control in our daily routines. Whether it be rising costs of energy, raw materials or transportation, we must remain focused on cost control. It is essential that whether it be preventive maintenance or store room control, that we take advantage of the best practices of each of our divisions and continue to drive costs out of our business. While controlling costs, it is also very important and essential that we stay focused on continuing improvements of our current asset base. As many of you know, and Brian mentioned, we are an EVB-based company; and with that the return on our invested capital is very important to each of us.

Although it is always nice to have the latest and greatest, it's equally important to ensure that our installed base of equipment remains competitive with new technology, providing us the opportunity to maintain, if not reduce, our invested capital base. Last but not least, we continue to leverage our relationships with both our food and beverage customers to help grow our business. In that regard, I have had the opportunity over the last year to work very closely with the newest member of our management team, Mr. Michael Herdman, on many exciting new projects; and with that I would like to introduce Mike to update you on Ball's Metal Beverage business.

Thanks, Larry. As Larry said, my name's Mike Herdman. Just a little background on myself. I joined National Can, which is -- over several different changes has became Rexam in the year 2000. I joined back in 1972. In 1984, I had the opportunity to move to Spain as President of National [inaudible]. I basically spent the next 20 years living and working in Europe, with the exception of two years when I worked on business development and got to see everything but North America. So I'm now reintroducing myself to North America. I retired from Rexam in 2003.

And it took me about six months to decide my golf game wasn't going to get better enough for me to stay retired, so I thought about what things I could do, and then I had the opportunity of getting to know Dave and John and several members of the Ball management team and found that this was the place where I wanted to be. So my wife wrote me a note. She got this fax off the machine. She wrote me a note and said my wife was making [inaudible]. So there was a bit of that in there, too. This slide represents a brief overview of our North American Metal Beverage Operation. The acquisition of the rentals facilities in 1998 gave Ball the geographic coverage that allows us to be a major supplier to all the major can users in the United States and Canada.

It also brought us into the specialty, non-12-ounce business in a big way. This part of our business grew in double digits in 2004 and this trend continues through the first quarter of 2005. We have a very strong asset base with large, high-speed, multiline plants officially operated by top-notch employees. One example is our Finley,Ohio plant has just completed 2.2 million man hours without a lost time accident. You know, those things don't happen by -- without a lot of focus. Our spoilage on cans is below 2.5% and it's below half a percent. We enjoy a strong and diversified customer base, as you can see at the bottom of this slide. We do service all of these customers in a big way.

Business is conducted with many of these customers under long-term contracts, some of which stretch to up to 10 years. We also developed some new ways of doing business, such as our joint venture with the [inaudible] Coors Brewing Company, or Rocky Mountain Metal Container that John referred to earlier. As a competitor, I saw Ball as an excellent manufacturing company who invested well in its facilities. I underestimated just how good the team and the facilities are. The other thing I underestimated was how good the quality and service are that Ball delivers to the customers. Today, we largely sell to large buying groups.

And because of the quality and service demonstrated by the facilities that Ball has, it's very easy for our customers, the buying groups, to install Ball as a supplier to their customers, the filling operations. First quarter and last year: 2004 finished with a relatively flat market overall. But our position in specialty 9 and 12-ounce allowed us to offset some decline in the 12-ounce sector with growth in other sizes. In 2005, the CMI numbers indicate an overall market performance of about a little over 1% growth. And we're below the industry average through March. To take advantage of the continued growth in custom cans, our Golden conversion of 1 line from 12-ounce to 24-ounce is proceeding on schedule and will be -- we should be making cans within the next week.

This will offset some of our lag to the market, as we have had to pass on some business as we await for this new capacity. In addition to this project, we will take the line that previously manufactured 24-ounce cans for us in Kansas City and make it capable of producing 16-ounce cans, allowing us to grow in that section of the market as well. The balance of the custom can market continues to perform well, both here and in Europe. This is giving us opportunities with both new customers and new products, which are growing at a healthy rate.

We're major suppliers to a broad range of customers and benefit from the use of 12-ounce cans to move volume in the non-12-ounce size to open new channels of distribution. And the question of 12-ounce PET, Larry saw me looking a little tired in my office one day early in my -- my tenure with Ball, and brought me a 12-ounce PET bottle just to keep me awake. It's an area that we don't feel is going to have a tremendous impact on cans. Our customers tell us that they're going to try and use that to pursue new growth channels and is a value package that they plan to continue to use cans as more of the commodity side of their business where they -- the largely multipackage is selling in great quantities.

Moving forward, we are investing in value creating projects that will reduce our costs and improve our quality. We are not talking about adding capacity to the market. You need to think of Ball enhancing production efficiencies on existing products. We, like all industries, are experiencing oil-related cost increases which are driving up our coatings costs; and everyone is aware of what is happening on the energy front.

Some of our cost improvement projects will be used to offset these costs as we enter the busy season of our operations -- at least we thought it was the busy season until I called the office today in Denver, and it's snowing -- as we enter good, warm summer and our customers are successful in reigniting growth in their products. Thanks for joining us today; and with that, I'll turn it back over to Dave, who will make some closing remarks .

Thanks a lot, Mike. We're glad that you decided to not be retired anymore and that you joined us. And thanks to everyone who's made comments here today. A real good group of people. Well, we are really happy with these first-quarter results that we turned in. As we -- as we said a year ago, you know, we talked a lot about five extra days in the first quarter and so many fewer days in the fourth, and it was Leap Year, and it was just really hard to get straightened out. But we beat that year-ago quarter even though we had some fewer days -- and I'm not going to get into that, but I'm pretty sure we did.

So -- but as Ray said, the biggest part of the sales and income that we make occur in the next two quarters, the one that we're in and the quarter that begins in July. So -- as it is the case every year, it depends kind of on how warm it is, what happens, who promotes what, and how the fish swim and all sorts of things -- the vegetables grow. But we are in a year that I fully expect to be a very good year for Ball. We don't give specific guidance around earnings, and so on over time we try to grow earnings per share 10 to 15% a year. As we've said, we've been handily beating that in the last few years. I don't know what's going to happen this year. As I said earlier, it's a little early. But we're off to a good start.

I think that the -- the comments of folks have made relative to -- and as you all know, large increases in -- in commodity prices generally -- steel, oil, aluminum -- well, aluminum's fallen back some lately, and I was at a National Association Manufacturers' meeting a couple weeks ago, and a senior person from Exxon was asked -- this was the day that you said oil was going $105 a barrel -- someone asked him, after the Secretary -- new Secretary of Commerce, the former Head of [inaudible], what do you think about that? What do you think about oil prices? And he said, well, right now we're in a situation, and I take this to be the case in other places as well where supply and demand are in pretty close balance. Take steel, maybe there's an excess of demand.

But when you get there, things other than simply the market sometimes determine the short-term moves, up or down in commodity prices; but over time, he said, the price of oil's going to come down because it is a commodity. More will be discovered, more will be produced and the price will come down. So in the very short term, we have had challenges, as our competitors do, as our customers and their customers and the whole economy in dealing with this. However, we are seeing some inflation get back into the economy; and in my working life that's usually not bad for our industry over time. So we're dealing with it, and I think as a company and as an industry dealing with it, reasonably effectively, given the magnitude of some of these changes.

Well, the near-term focus at Ball and over the next few years is that we found within our company, happily, things to spend some capital on that are high-return opportunities. So we're doing that, and you've heard people describe some of what that's about. The -- we're also looking continuously to buy -- to add things to the company. We -- back in October -- had a session with this group and some more people that we call around the office the BLT, the Ball Leadership Team, and thinking about the future and who we are, where we are and what we need to do to continue to do better and to perform and to add value. We've had a nice four or five years here, and we don't want to see that stop. The good thing is that we've got a wonderful business model right now.

We are -- we are well financed, we've got our debt down about as low as we want it. Our CFO demonstrates to us, a couple weeks ago when that same group got together to assess our collective future, the capacity to borrow, we think, lots of money -- probably more than we should -- if we could find acquisitions that were valuable. But we're also very disciplined, and a big part of the reason that we are is that we have a compensation scheme that's designed, really, to motivate both short-and long-term performance. The group of us here and other senior management in our company are substantial shareholders, and we're not going to sell a lot of that stock until we retire. Most of us have deferred substantial amounts of it. So we can't have a short view if we really care about, you know, what happens in the longer term.

At the same time, we have this EVA-based incentive plan which drives us continuously to always improve performance because it's -- it's a never-ending saga. If we perform well, as we really did last year, then next year we raise the bar. The target for next year's performance will be half the difference between last year's actual and last year's target. So if you beat the target, then, you know, next year the target goes up. And it's -- seems simple. We've worked really hard on it in the early '90s to try to get some of these things put in place, and they are fundamental to our good performance. We've got it all the way to the factory floor and -- in our non-union operations.

So I think that really drives us in the same way. So I think that, you know, we are -- we are at a very good place. This is a challenging year, it has some challenges with it; but we are actually dealing with them, I think, very well. As we look out beyond this year, we see good things happening. You've heard about some of them today, both here and in Europe. And I think that -- that we're going to do really well. As you see here, you know, the one thing that we do do is generate a lot of cash, and the trick -- and it's not a trick, but the answer to how we continue to perform well is that we take very good care of that cash.

We deploy it in the right places if it's to expand or acquire businesses and we buy ourselves, as we are right now and return that capital when it is in excess to our shareholders. So with that, I'm going to ask Scott Morrison to take over here and run a Q&A session for us all .

Thanks, Dave. I'm Scott Morrison, and briefly, been with the company four and a half years. Prior to that, I spent my career in banking. We've got both people, obviously, live here in the audience and on the phone; and we're going to alternate questions back and forth, and if you would please state your name -- [AUDIO MISSING].

Ladies and gentlemen, if you wish to ask a question, please press star followed by one on your touch-tone telephone. [OPERATOR INSTRUCTIONS] .

As I mentioned to you on an apples-to-apples basis, our volume was up roughly 6% last -- last year's quarter. We've taken a long look at the numbers, and my guess is that somewhere around 4% of the year-over-year change is attributable to pre-buy. But that's a good a number as I can get you right now. Obviously, we're going to see some of that dissipate in the second quarter [inaudible]. [AUDIO MISSING] We have lots of different contract dates, so some January the 1st, some February the 1st, and March the 1st, and on and on it goes, so it depends.

Operator, do you think we have a call on the line/

Sir, you have no questions from the -- from lines now.

Go to the audience.

Capital spending longer term, can you talk about both the CapEx moving above your old $300 million target? Are there new projects? And then in the acquisition pipeline, you could borrow a lot of money. Is there anything big enough for you to spend it on and what would it take?

Okay, the second part of your question, I'll let Ray Seabrook. This is Dave Hoover. I'll let Ray Seabrook speak to our capital budget. We couldn't say, if we knew, what we might buy. Not making -- I guess we could say that if it were [AUDIO CUTTING OUT]. The General Counsel just shook his ahead and said I'm right. [inaudible]. But I think what I would say is that there's -- someone once told me, there's always a deal, you know. And we look at lots and lots of things and have things that we're thinking about. So I don't think we're -- I don't think we're opportunity limited in that regard, it's just we're taking great care that whatever we do, we're as certain as we can be that it's going to be value added. So we're not in distress, we don't have to buy something, but if we think we can -- and in that process we probably will look to do some things that we don't necessarily exactly do today.

This shouldn't scare anybody. We're not going to go wild. But we are, after all, in the aerospace business and in the packaging business, so it's pretty dull -- [inaudible]. Not that we're going to try to fill it all in. I think, you know, we could do things around either of the [inaudible] maybe with some new customers, some new markets and so on. But that's what I would say about that. It's very fulfilling. Assume that we're looking all the time. And Ray, do you want to talk about the capital budget?

You can appreciate that when -- forecast -- we reforecast the business every quarter. And a lot of times, when it comes to capital spending, it's a placeholder for things. So someone says, yeah I want to make sure I get my placeholder in here so when it comes on later on in the year I can actually spend the money if I so choose to. So when we look at our reforecast in capital spending, a lot of times, it just feels like it's probably too high; and in fact, if you go back and look at other years, what we've said -- it's generally tends to run a little higher, okay, i.e, our forecast versus the actuals. This year, though, I sense -- as we've looked at our reforecast, I sense that probably -- that we're going to spend a little bit more -- in other words, the demand is in the pipeline. In fact, we will probably spend closer to what we think we -- that reforecast says than -- than other years. And it's a little higher than 300 million. I'm hesitant to tell you exactly what it is, because capital spending is one of those things that you can't -- you can't nail it down for the customer. Little higher. But the good news is, of course, when we looked at our free cash flow, is that the change in working capital is also a little bit better. So that's why I can tell you that I'm still pretty confident we're going to at least do 225 million in free cash flow.

Question from the audience.

Thanks. Edings Thibault of Morgan Stanley. And Ray, if you care to name names on that CapEx budget while you've got it on that period? It would be helpful in terms of who's actually spending. But I was wondering if you could walk through the economics of some of the reinvestments you're doing in the U.S. Metal Can Beverage, in particular as you begin to reposition some of your traditional 12-ounce assets to more of these specialty assets. I know you guys are EVA focused. Can you talk about the kind of marginal pickup -- either margin pickup and then returns you expect by investing in the specialty cans?

Eddings, I'll take that question. I think I've said this before, but if we're talking about the metal beverage business, the capital spending that we're doing this year and some of that's going to continue to carry on over to next year, we'd expect to earn double-digit returns on that money [inaudible]. We also -- I can also tell you that we have a payback -- we expect a payback on investments to be within five years. That's -- that's what we expect. And of course, as you know, we think our after-tax costs of capital is probably just trending just a tad higher than 6%. So that we believe every single one of those investments will be EVA-positive, otherwise it wouldn't be making them.

We have a question on the phone.

Yes, sir, you have a question from Timothy Burns from Cranial Capital. Please proceed, Mr. Burns.

Good afternoon, everybody. Nice to get an update on this excellent company. Dave, I had a question for you. Is it crazy to think that it -- that the quality of the assets in the packaging industry that are available for purchase, you know, it -- you know, with the wall of money and sponsors throwing it at things that probably shouldn't be thrown at it at certain prices. I guess what I'm trying to say is this -- the aerospace business is an excellent business. A lot of people don't understand it or just don't want to take the time to understand it, but could the opportunities for aerospace truly outweigh, you know, a mediocre opportunity in packaging?

Question?

That's the question.

That -- let me see if I can -- you are saying that are there more opportunities in aerospace than in packaging?

Yes, I guess what I'm saying is, you guys have a fabulous business in aerospace, there's already consolidated marketplace, and I think government contractors, whether it's DOD, NASA or what have you, are looking for additional sources.

Right.

Are there more and better opportunities for investment in the future in aerospace than there is in packaging?

I -- in an absolute sense, I don't know. You know, aerospace is around about 12% of our sales, but a chunk of the capital that we've committed this year and notionally for the next two to three years is in the aerospace business. We are -- as Dave Taylor said, you know, expanding facilities and test chambers and other things and we think -- I think this is right, Dave, that we can darn near double our -- ourselves by spending what we're spending. So you should assume that we are doing that. Now, if you think it's expensive to buy packaging assets, go check out what you have to pay for aerospace assets; and the trouble with it is, often what you do is you buy some existing contracts and then when they bleed off, the dynamic changes and you end up with nothing.

Got you.

So we think the right way to build our aerospace business is to grow it and build it , and that's what Dave and his folks are doing. Dave, do you want to say anything more about that?

I agree with what Dave Hoover said, in that if you look at the multiples on the aerospace things that are out there, and we look. Not that we don't look, but we look all the time. But we think that given our historical organic growth rate, that you can do the arithmetic -- I talked about it earlier -- if you were to improve the capacity of the current asset base, which we're doing with this capital expansion, you can grow at a pretty good clip and have a very nice EVA return without paying the goodwill and the multiples that we'd have to buy in an acquisition sense. So we're pretty happy to grow with where we are.

Got you. But I mean, who can take this massive cash flow that Seabrook's generating and put it to work and higher value added products? That's the big question, I guess. The -- the development of the aluminum bottle seems to be interesting in that you can take an old technology, and all of a sudden it's really got some legs, Dave. But it's a small market. I mean, is there something like that that could happen with your food or beverage can businesses?

Yes. Actually, and I might asked John Friedery, you to talk a little about it, or anybody else in the packaging side too, on -- you know, on the efforts at marketing and innovation that we have. But we've got a lot of things in the pipeline; and also Hanno Fiedler, you know, the folks in the European business, had a -- a number of development projects underway -- have a number underway -- some that are nearer term. I mean, the whole of growth in the specialty can business is some of that, but I don't know if a couple of you would like to make comments around our innovation efforts?

Sure, Dave, this is John Friedery. I would just agree with what, Tim, what you said about the fact that there's certainly some life around this old technology and it's impact [inaudible] bottle, but it is at this point, you know, questionable how big it gets because of the cost of the product. And certainly what we're all trying to solve for as we look at packaging innovation is delivering value and utility to the customer and consumer greater than the incremental cost of whatever the package is. And we do have a variety of things in the pipeline, and some of them Hanno spoke of in his brief on Ball Packaging Europe. We have some other ones going on here. We continue to proliferate new sizes and new uses for our metal aluminum cans here. I have some interesting projects going on with our food cans; and certainly Larry and his team continue to work on innovative plastics solutions. But as I said, they all are a matter of getting value and utility in excess of the income -- whatever the incremental costs may be.

Larry, I'm sorry. John, if you could put a neck and a resealable closure on a traditional 12-ounce can, I mean would it be a cost penalty? I guess it's what the customer would pay for it, right?

When you say traditional closure, you're talking about a screw cap?

Probably an aluminum screw cap, yeah.

Right. Well, there are packages out there -- certainly there's a couple of different style packages like that in the Japanese market that are being looked at both in the European and North American markets. But they do add cost.

Yes. That's -- that's the whole thing. Okay. Well, good luck, guys .

George Staphos, B of A. Two questions: Generally, one for food, one for PET. Brian, you've [inaudible] from a volume standpoint. Are there any additional business wins that you think perhaps you have, or business losses that you have over the course of the year? And when we're done, could we expect volumes are still relatively flat for the food business, pretty much in line with expectations?

Brian Cardno speaking. The food can market is roughly 33 billion units across North America and Canada. And each and every year I would tell you it's probably five or six or seven hundred million change hands just in the normal process, the competitive bidding and so on and so forth. We've lost some business recently, but I can also tell you we've gained it. And so I guess what I would say is my expectation for this year, given that the crops grow and the fish swim, etc., etc., we have normal weather patterns, which one can never tell, my guess would be that our volumes this year would be up slightly over last year.

Even though, although as I perhaps didn't mention earlier and should have, we actually had some prebuying activity in December of last year also, which probably impacted us somewhat in the first quarter of this year as well.

And Larry, a question for you. Obviously, Ball PET has done better over the years. You've certainly done better than your peers. One of the challenges in PET has always been it's been an arms race. Everyone comes out with the latest, greatest and at the end of the day, the margin returns don't necessarily get to where you'd like to be. Going forward, why should we expect that your latest and greatest new products actually lead to better cash returns for the company over the next several years? Thanks.

Larry Green here. I would say, George, that certainly we've not been in anything other than water and carbonated soft drink for the first ten years of our history, and we're trying to move into more custom products today; and I think that the custom products and the Heat-Tek technologies and the multilayer technologies that we're involved in are going to lead us to some better margins as we move forward, and that would be our expectation. That, along with continuing to focus on driving our costs that I talked to you about in our current facility.

What they've done is sweating the assets. And he talks about as the volume grows, they've been able to increase capacity and increase throughput on existing equipment without having to necessarily go and put another complete line in. So there's some very good things going on there; and Brian mentioned it earlier, we have a manufacturing counsel across all three of our North American groups that are looking at common areas of opportunity and benchmarking and passing best practices back and forth, and these are certainly paying dividends in that business.

Chris Manuel from KeyBanc Capital Markets. Two questions, one a follow up for you Larry and then a second for you, Dave. Larry, in the PET business right now, how would you define your mix between the Heat-Tek bottles versus your consolidated water, A? And then, does it require a great deal of capital to switch over to provide these two, three, four layer bottles?

First of all, it does require some capital when you give it the multilayer side of the business, although we have been first -- as we've been buying injection equipment recently, we've been buying it so it was capable of running the -- the multilayer injections. So we have some asset base already in place to do that. Secondly, most of the bottling equipment that we've purchased over the past three or four years is either currently capable of running the Heat-Tek technology, and/or for very little capital being able to be converted to do that.

And the question I had for you, Dave, was -- you've alluded to that as interest rates move up the -- your costs of capital and your EVA spread, the bottom line of that moves up. With a lot of this new capital that needs to be deposited and chosen to be deployed here over the next year or two, and some of the payback on these projects potentially taking three, four or five years, is there -- how do you feel with that spread of EVA? Could it potentially decline or stay flat over the next -- in the short term, or the next few years?

If we had it here, we have a chart that shows that development over time and how the cost of capital came down. A chunk of our cost of capital coming down is getting the mix of debt and equity different [inaudible] for debt. So that as a factor will continue, I believe. The -- you know, I don't know what -- what your view or what the real view of interest rates is going to be. You know, we are still borrowing at rates lower than -- I mean, if we were going out for financing today, say ten-year money, it would be substantially lower than during most of my 35-year career. And to the extent that we do do some financing this year, as Ray alluded to, I think we're likely going to capture for the next decade or so some very good rates that would keep that cost of capital not necessarily exactly where it is, but in that realm, for quite some time.

The -- you know, we're in the process now of doing some things with our bank financing, starting to take cost out of it. The bank market is very competitive. [inaudible]. We can do that this week -- and have some flexibility. We've got some debt outstanding, you know, that's a higher rate than the current rate. That gives us an opportunity to do some things there. So -- and then finally, I would just say that when we -- we started with this EVA program, we were looking for 11% after-tax always because that was sort of -- we modified that three or four years ago, but only for 9, so we -- in order to qualify at all, you have to be at 9%, and that's well above the real cost of capital. The way EVA works, if you earn more than -- you ought to add value. So when Ray's talking about double-digit returns, [inaudible] any kind of factual increase in the cost will be small in comparison to what I think the opportunity [inaudible] that we're looking at. Do you want to add anything to that?

The only thing I would add is that when we look at -- when we do our EVA calculations, sort of, if you will, capital in progress or you know, if we're building a plant, we obviously can't make a return on it. So as we're spending some of this capital, you know, it doesn't start making return until we put it in place. So when we put it in place, you should expect to see the returns.

Amanda Tepper, JP Morgan. Two quick follow-ups. One for Hanno. In Europe, both on the Belgrade plant and as you're looking at new plants, do you already have a contract for the volumes you're going to be producing there? And is that how you're finding other facilities and other locations to grow?

The answer's yes, we have volume for this plant, otherwise we wouldn't have built it. And we do not see only volume enough for this plant, but we also have to think about how to adjust the capacity and -- for these -- you know, large international customers, which I was talking about, and the growth rate, which we do have in these areas and Europe. So we are not at all concerned about the utilization of these assets. The second question was what?

As you're -- are you working with these same customers, so is that how you're picking other locations in Europe to build? Presumably you have another pipeline of other facilities you'll be building to meet demand.

Yes, we do; and sometimes it's not that you're going out to look out for customers, but you are going to be approached and asked [inaudible] follow him into those beautiful areas like Serbia. So this is [inaudible].

You mean the longer term contracts?

Pardon me?

Are these longer term contracts?

Yes. We have -- I cannot give you any specifics, but the record was -- which we signed -- was a 10-year contract.

Okay. Great. And then back on the PET business. Can you explain why, if it's not returning your cost of capital -- I understand why you're trying to grow in higher margins -- higher value-add areas. But I think you mentioned in your presentation that you're trying to maintain your share. The volume is growing, but everybody's returns seems to be declining. Why wouldn't you just decide to shrink your share in the commodity portion of the market and simply shift assets toward the higher margin where maybe the [inaudible] was.

I think that if -- this is Larry Green, by the way. If -- if margins continue to decline in the commodity business, that we could not make a return, we would certainly do that. But I think currently our -- from a plant utilization perspective, it would be our intent to keep our plants full and running; and if the margins were to drop and we could make a switch, we would do that.

As you look at the market, do you see anything encouraging you that maybe it'll turn around? Are you looking at consolidation among other players [inaudible] pricing will start moving the other way?

I think that the consolidation that has occurred has helped with the stabilization of price, and I would hope that that would continue.

Thanks.

Another question ?

Thanks. Two quick follow-ups. One, Ray, on the quarter, the SG&A expense is lower year-over-year. I'm wondering if you could shed some light on what the step functions were, and then a question to Dave. I know you're obviously reluctant to talk about the M&A environment. But I wonder if you could address the context of sort of domestic versus international. As you've investigated the opportunities and obviously turned several of them down, do you feel like -- you're nodding -- you're shaking your head. So maybe or maybe not. But do you feel as if you've seen better opportunities overseas that would fit better with addressing potentially growing markets? Or in general, have you seen -- have the opportunities been better here at home?

I'll answer first because Ray's got -- he's got a good answer to that G&A thing. I know, because I heard about [inaudible]. I think there are ample opportunities, both domestically and internationally. In some of the international opportunities where you're going into the developing market and so forth, you definitely should want a higher return. I learned a long time ago, though, that, you know, if you play the game of just -- just saying, I need a higher return, that's only one plan. That's still a binary thing, it only works for [inaudible]. So, trying to say, well, I'm going to get a 12% return instead of 10 at home is not a bad idea, but you know, you're not doing a lot of it.

So you really have to know the opportunity, get the contract, count on the customer. And again, there's a little more risk. But we're looking all over Europe, in some other interesting places, and here at home. And, you know, we -- as we -- if we wrote down on a sheet of paper as we did with the board yesterday, the things that we see that are out there and probably either available or going to come up or that we might have an interest in, it's a lot of work to do just to figure out if you think you're interested. Then of course it's like a -- to commit a crime, you have to have motive and opportunity. So, you know, you can want to do something, but if the other guy doesn't or it costs too much or whatever, you just wait.

As to the -- somebody made a comment earlier about the market and people overpaying. I forget who did that. You know, there is a lot of LBO money. The credit market wax and wane. Right now, I think they're on the wane a little bit. So we tend to watch that as well. And sometimes, you know, not just everything that's available is going to be nearly as attractive to the financial buyer as it would to us. You know, we find a situation where management maybe is wanting to leave instead of double down and drive, and we think we can run this thing, for example. That's where we've got a leg up. And people like [inaudible] in our company, you know? But -- it's a nice place, nice place to work, and we have a lot of fun. So -- although most of us are just [inaudible]. So I'd say we're looking everywhere that we are and some places that we aren't. Ray, do you want to --

Yes. I think to answer -- the answer to your question, first of all is -- it's not just in the U.S., just so everybody's aware of that. Those -- lower SG&A costs are coming out of Europe and China , and coming out of the U.S. Things -- it's a myriad of things, but some of the big numbers in there. And I would also tell you that probably 70% of that's sustainable. You should expect -- you should expect to see that lower. And probably 30%, 30, 35% of it is sort of a first-quarter type item.

We've got things in there -- I told you we had currency hedges that we make against various things, which we've got some gains on that. We have lower costs for our deposit-share program the last few years. That's been very expensive, and those costs are lower, our employee costs are lower. Professional fees are down. We spent a lot of money last year on Sarbanes-Oxley. We had a lot of one-time costs associated with that that we don't expect to incur this year. And that's primarily the idea .

As it relates to the German beverage can deposit, Hanno, you seemed a little more optimistic [inaudible]. There have been various degrees of optimism the past three years, most of it has been -- I was wondering what the difference [inaudible].

This is Hanno Fiedler talking. I think each time I've talked to you about it, I always was honest and I am honest right now. I think we have a tremendous change since, I would say, 4 to 5 months. And this is because the industry in Germany is realizing that this German disease, what you might call, is also going to affect the other European countries. And we once heard that the can is dead, especially in the beer industry, and now you see a completely different trend. We are going to spend lots -- lots of time and effort in preparing the other European countries for equivalent systems. It might not be a deposit system, but this is a very fine system with regard to recollection system, how to use the material, how to keep the countries clean. And we are very much advanced in that.

So you name Holland and you name Belgium and, you know, France. This is why we are pretty optimistic as far as Germany alone is concerned. The industry, which means the fillers, basically, they are using their energy now not to fight against the system, which now finally has been -- has been decided upon, at least by the highest German court. And we do not spend too much time and effort of fighting against it, but we are using these efforts in order to set up workable systems. And Ball is very much included in the work or in the design work on the various working groups and I'm personally sitting on the executive committee to assess this. I am pretty sure that we are going to have this done by the end of the first quarter 2006.

And the other big element is that the retailers, who have basically tried to go away from the so-called one-way containers, have learned that just living with a refill system is not going to give them enough of the economic and financial returns. So they are massively coming back to one-way system, and this is certainly going to be a profit also for the PET industry, but also for the can industry. So we are thinking right now that the can is going to be back on the -- on the shelf, and pretty clearly in the year 2006, while the old numbers of 2002 when we did sell something like 8 billion cans in the industry and now it's only 250 million, we are going to see this back to between 70 and 80% in two years from now into the old system. And then we are having these other growth rates in the other European countries which are coming on top of it. So this is why, you know, we are rather optimistic. And the know-how is much better.

This is Andrew Gumlant from Artemis. [ph] Thank you for the presentation, thank you for doing it in New York. I have two questions and one comment. On the question is on the cost pressures in the industry. If this is or is close to the peak of the difficult comps, if not absolute peaks in raw-material prices, how do you see your business working over the next few years? In other words, on the sales side, will you -- you feel that you're going to have to give back on price? And on the cost side, we've been all watching the aluminum price closely -- you're probably locked in for the year -- but how do you feel about the mid-west band? Now that you're more or less at the mid-west band, would you like to see Ball go back to the old way the industry did business 15 years ago where you took price risk on your balance sheet the way it's done in Europe, or do you kind of like the band and how it works?

The second question is with respect to demographics, and you're spending a lot of CapEx and I'm sure you're thinking 10 years out. But are demographics your friend here, certainly in the western world, where birth rates are low and cans per head are probably at its peak, and are you not creating the situation of overcapacity a few years out? My comment is with respect to buying other assets and leveraging of your business, you know, you're -- we've spoken about this before, Dave -- your European assets are unleveraged, you pay cash taxes, the debt markets are choppy. You can issue all the debt you want and buy back stock until you figure out what to buy.

The last part is -- yes, we're -- we agree. We're -- you know, watch us through the rest of the year and moves that we're making financially, and we just announced that we're going to buy more of our stock, we think, and we're well-financed with plenty of capacity. So, you know, we don't really see ourselves wanting to reduce debt much below where it is now. As to -- maybe, you know, John or Mike or Hanno or anybody.

I'll make a comment on excess capacity. Generally, we really don't run that we don't want to run this business with excess capacity. I in fact the demand isn't there, look for us to take capacity out and apart that -- a lot of people don't realize, when we take capacity out, it's usually cash flow positive. You know, by the time we sell the building and, you know, get -- look at the tax impact of it, in most cases if we -- and look at the working capital implications to the business -- in most cases, we take capacity, out it's actually -- actually cash flow positive. So don't look for us to run the business [AUDIO CUTTING OUT] at capacity. If demand isn't there we'll take capacity out.

Yes, just follow-up. This is John Friedery. Follow up on a question on CapEx. In terms of the CapEx that we will be spending, we have been and will continue to convert -- as we grow our custom can business -- convert 12-ounce capacity to these non-standard sizes. So that's a portion of where our CapEx is going in Mike's business.

The other part of it is we will be spending money to continue to improve the cost structure of our assets. We're not spending -- I think Mike said we're not spending to create capacity. We'll continue to improve the cost structure. And certainly as Ray just said, if the demand isn't there, we'll begin taking the highest cost capacity out. But we do not expect to create -- or that these CapEx projects that we have and that we're alluding to going forward over the next couple years -- are going to create additional capacity above and beyond what we have, and it will actually improve our cost structure.

The specialty cans, a lot of the prices of the 12 or 16 [AUDIO CUTTING OUT] Products that didn't -- just two years ago, three years ago. The energy drinks -- we were just talking earlier. You know, the 16 to 26 year old doesn't have three cups of coffee in the morning, and two 16-ounce cans, something called an energy drink, which I think is still sugar and caffeine; but you know, the same result is gotten in a whole different way. So, you know, that's kind of an exciting thing that's different. It's gotten to be a really neat part of our business. And typically, more higher value added kinds of products moving, you know, maybe the price pressure isn't quite as great.

Just a little bit as well. But in terms of -- you know, the industry operated on one model for pricing aluminum and pricing product for a long time; and then in the mid '90s, that switched over to what we've existed with probably for the last 10 years. We are, with the recent run up over the last 12 months on the LME, at kind of a cap level. And we're starting to see some easing on the LME over the last couple of weeks -- no telling where that will go. But I think as we move forward, I don't know that we can predict what the model is going to look like for the next 10 years. But I am sure that the -- between the customers, the can industry and the suppliers, there will be an adaption where everything settles out and everybody moves forward, just as we did in the mid '90s when we had a change in this business.

Mike Herdman. I'll just comment a little further. Our customers have put in pretty complex organizations to get involved in [inaudible]. I don't see them [inaudible] the way we do business in North America to more like the European model. In the European model, just because the -- there's two [AUDIO MISSING]. Most of the customers buy on a backward averaging basis, so their price will go down as a function; but it doesn't come from our margin, we don't believe so.

We've got time for just a couple more questions.

Hi, Dan Kashaba, KSA Capital. Absent an attractive acquisition opportunity in the market, have you guys considered potentially a -- kind of a partial recapitalization with interest rates as low as they are today, stock price having come back [inaudible] significant [inaudible]. I believe it's actually accretive from what we've looked at to borrow money at current rates. And that's options for the stock. Have you looked at that as an option? Do you think about that at all?

I think about it all the time, but you know, we couldn't say that we were or weren't going to do such a thing. We look at all alternatives. I think that, you know, the discipline and [inaudible] you have to think about, what -- what happens if this happens or that happens, whatever. You know, heretofore, we have not done a Dutch auction, but we have been buying stock consistently; and I think you could -- as we've said -- expect us to continue [inaudible] and in -- you know, in somewhat opportunistic, but -- so hopefully, we're ready for whatever -- anything we need to do.

A couple questions for you. Obviously, you can't predict what kind of a Memorial Day or July 4th you're going to have. But assuming it's a normal season, are you feeling more comfortable that your larger customers in beverage in North America are going to come up with some innovative marketing plans or some other promotions, such that you'll see maybe a touch better growth in the beverage can this year than perhaps you've seen in the last couple of years? The second question, could you give us some feel for -- versus 2004. If we look to 2006, how your mix of [inaudible] versus custom will look and how it will change over that couple-year period? Thanks.

The first question, George. I tend to be optimistic and so I'm looking for -- if you want a weather forecast, 95 degrees on Memorial Day and 102 on the 4th of July. But seriously, after -- you know, assuming normal weather patterns, I don't know what to tell you as far as what our customers are thinking and how they will promote. I do know that if you listen to what they've said over the past months, they talk about getting the -- the price volume equation correct, you know, and figuring out how to continue to move volumes. And that's been a challenge and we certainly hope that that will mean that there will be some promotional activities around multipacks as we get into those seasonal events. But I don't know how to call it.

On the second -- I wrote the first one down and didn't write the second one down. Oh, custom mix, thank you. On the custom mix, I believe that, you know, we'll continue to shift to a higher percentage of our total mix being -- being -- if you'd asked me three years ago, I would have said the growth is all in the small sizes. We've seen a lot of growth there. But very strong growth in 16, 24-ounce packages, as well. So I continue to see that -- both of those growing, not only for different sizes and different shapes for existing products, but also getting into new products. We've got a group in our sales organization who is working very hard, knocking on a lot of doors and getting a lot of customer interest in the products that haven't historically been factored in these packages. So -- [AUDIO MISSING]. Rough word of magnitude, probably 15 to -- you know, 15 to 20. I don't know. That's a -- kind of looking ahead and taking a guess. But I think it'll be in that range.

The other encouraging thing, George, is -- this is Mike Herdman speaking. The other encouraging thing is we have many customers both here on the soft drink side who are launching new products and starting to look at cans as possible launches. That's pretty encouraging.

Okay. Well, thank you all of you for coming, both attending on the phone and in person. And we'll be back to our regular format next quarter and we'll talk to you then. Thank you.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a nice afternoon