Ball Corp (BALL) 2009 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Ball Corporation fourth quarter 2009 earnings conference call.

During the presentation all participants will will be in a listen-only mode.

Afterwards, we will conduct a question-and-answer session.

(Operator Instructions).

As a reminder, this conference is being recorded Thursday, 28, 2010.

I would now like to turn the conference over to Mr.

Dave Hoover, Chief Executive Officer.

Please go ahead, sir.

Thank you, Shawn and good morning, everyone.

This is Ball Corporation's conference call regarding the company's fourth quarter and full year 2009 results.

The information provided during this call will contain forward looking statements.

Actual result or out comes may differ materially from those that may be expressed or implied.

Some factors that could cause the results or out comes to differ are in the company's latest 10-Q and in other company SEC filings as well as company news releases.

And if you don't have our earnings release, it's available on our website at ball.com.

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

Ball finished 2009 on a strong note.

Fourth quarter comparable earnings per share of $0.84 versus $0.56 last year increased by 50%.

Also on a comparable basis, our diluted earnings per share were $4.05 in 2009 versus $3.61 in 2008.

A 12% improvement.

Our businesses are performing well.

Nearly every segment saw month on month volume improvement during 2009.

We're executing on our strategy to grow our global beverage can business and our strong free cash flow long-term relationships with customers and sound balance sheet position us to build on our momentum in 2010 and beyond.

2010 marks Ball's 130th year in business and we're going to work hard to make sure it's our best year ever.

With me, on today's call are John Hayes, President and Chief Operating Officer and Scott Morrison, Senior Vice President and Chief Financial Officer.

And also joining us is Ray Seabrook.

In November, we announced that John, Scott and Ray were being promoted.

While Ray's been our CFO for a decade, he's always had an infinity for our operations.

And now as his new role as Executive Vice President Global Packaging, he has operating responsibility for 90% of Ball's businesses.

While today and in the future Scott will interpret our numbers, we thought the investor community should not be cut off cold turkey from Ray.

So we invited Ray to be on the call today.

And before Scott and John discuss the quarter, Ray would you you like to greet the group?

Absolutely.

A decade sounds like a long time.

I'm excited about my new position with the company and getting more involved with the day-to-day operations.

John, Scott and I have worked closely with over the last ten years and from my prospective, the transition to our new jobs has gone smoothly.

Scott, Dave and I the past two CFOs of the company turn over the conference call reigns to you.

And I might add, we turn it over to you with record 2009 results and a plan for at least a $0.5 billion dollars of free cash flow for 2010.

So with that, take it away Scott.

Thanks Ray.

With that kind of lead in what can I say other than I have big shoes to fill, but I'm confident our finance team is up to the challenge.

Ray has been a great example of what a CFO should be.

And I'm excited about the opportunity to follow him and get to know all of out the call better.

In the fourth quarter, Ball's comparable diluted earnings per share were up $0.84, well ahead of last year's $0.56.

Overall the fourth quarter numbers were very strong due to excellence performance in metal beverage packaging in America and Asia.

A better than expected contribution from the newly acquired metal container plant.

A stronger Euro and excellent fixed cost controls in European beverage and an overall lower effective tax rate.

Turning to the operating segments, metal beverage Americas and Asia had improved earnings for the quarter and the year.

A better than expected contribution from the metal container plant, cost savings resulting from prior plant rationalization and lower fixed costs, all provided good earnings momentum in the quarter.

Metal beverage Europe's' earnings were up considerably for the the quarter, due to the impact of a higher Euro and lower fixed costs.

Full year lower earnings were primarily related to the full year exchange impact and product mix.

Metal food and household product earnings in the quarter were down due to lower volume.

And the favorable resolution of a $6.8 million claim recorded in the fourth quarter of 2008.

For the year, earnings were up considerably due to inventory holding gains, improved margins and benefits from prior plant rationalization efforts, which more than offset the double digit volume declines in the segment.

Plastics was profitable in the fourth quarter versus break even results last year.

Full year EBIT improved slightly despite an 11% reduction in volume.

Aerospace and technologies posted near double digit EBIT margins in the quarter despite lower sales.

The absence of large, fixed price hardware contract was the primary reason for the decline in year-over-year revenue and earnings.

A higher Euro in the quarter, compared to last year increased diluted share earnings by $0.04 and for the year the impact of a lower Euro was a negative impact of a diluted $0.03 per share compared to 2008.

Turning to full year free cash flow, Ball generated $373 million which was on target with our expectations.

That included an incremental $14 million pension contribution and an investment in working capital totaling $82 million, which was slightly larger than our earlier estimate of $70 million as we took advantage of early payment discounts.

The working capital build is expected to largely reverse in 2010.

As Ray indicated would to be with the case, the cash collateral the company was required to post with counter parties in 2008 was returned by the end of 2009.

Net balance sheet debt at the end of the year was approximately $2.4 billion, only $100 million higher than the net balance sheet debt at the end of 2008, despite making a nearly $600 million acquisition during 2009.

Credit quality and liquidity of the company remains solid with the 2009 rolling four quarters EBIT to interest coverage of 5.6 times and net debt to EBITDA at 2.5 times.

Committed credit and available liquidity at year-end was in excess of $800 million.

As we look to full year 2010 earnings and cash flow, we anticipate capital spending in the range of $235 million.

CapEx will remain at these disciplined levels until we see growth opportunities returning.

Free cash flow should be in excess of $.5 billion, excluding the impact of a change in how we account for our AR securitization program, which I will cover in a minute.

Pension expense is projected to be about $6 million higher in 2010 while after tax pension funding is expected to be approximately $25 million lower.

The full year effective tax rate will likely increase to around 33% due to projected higher U.S.

earnings as a result of the full year impact of our metal beverage acquisition as the U.S.

is our highest tax jurisdiction.

With the full year impact of the additional debt for our acquisition, we expect 2010 interest expense in the range of $140 million.

We also expect to improve our already strong balance sheet in 2010 while having plenty of flexibilities to create values for our shareholders.

Also, I want to get ahead of the curve and address an item before we get to our first quarter earnings announcement.

Due to the issuance of revised guidance on the accounting for AR securitization programs, effective in the first quarter of 2010, the aspects of how free cash flow will look in 2010 needs to be addressed.

The accounting change will result in our securitization being placed on the balance sheet.

We've had a securitization since the 1990s and have consistently reported the outstanding amounts during conference call and financial statement foot notes.

Ball's 2009 year end AR securitization balance was $250 million, the maximum level of the plan.

The change will be reflect in the first quarter 10-Q and subsequent period for any outstanding securitization balance.

And in the first year the effect will be to increase accounts receivable and debt on the balance sheet.

While the net balance sheet and cash flow effect is zero, the change will create a one-time reduction in operating cash flow for the amount of receivable securitize and in offsetting increase in cash inflows from financing activities.

We will break out the impact so you will be able to see the net change and comparability between periods.

It's purely an accounting change but wanted to point it out now so you'll be aware of the change.

And it with that I'll turn it over to John.

Thank you Scott.

As Ray mentioned, all of us have been working together for a number of years.

And like every good team.

we're able to feed off each other.

We have complementary skill sets a talented bench of people across the organization and a wonderful base from which to continue building.

Needless to say all of us are geared to go here at Ball Corporation.

We did have a strong year in 2009 and we are keyed up for a better 2010 and beyond.

Better supply demand balance, good focus on cost management, a disciplined approach to our commercial activities and continued focus on market leadership and sustainability and innovation helped drive our 2009 performance.

Now turning to the various businesses, profitability for the quarter in our metal beverage packaging Americas and Asia segment was slightly above our expectations and notably improved over 2008.

This was driven largely by improving volume dynamics late in the fourth quarter.

Cost containment in this business remains excellent and continued cost savings from plant rationalization contributed to improved results.

Excluding the newly acquired facility, our fourth quarter volume in North America was down approximately 3% versus a decline of 1% for the industry.

However, our volumes improved month by month in the quarter and our December results were some of the strongest that we've seen in a while.

Driving this was stronger promotional activity for our customers on the CSD side as they balance the value to volume equation and continued pact and share increases on the beer side of the business.

Volumes in our newly-acquired facilities also experienced similar demand trends.

At year-end, Ball also successful concluded negotiations on all of our significant metal beverage contracts.

Our customer conversations were constructive and we are satisfied with the results of these negotiations.

With the acquisition of the former metal container plants in North America, we had the opportunity to take a fresh look at our customer mix and we used this opportunity to balance our customer concentration.

Given the size of our business, this often can take a couple of years to accomplish and as a result, we may step back slightly in 2010 in terms of overall volume while recovering it in 2011 and beyond.

In Asia, Ball announced in November its intention to acquire the remaining 65% interest in JFP San Choi facility.

Once completed this facility will provide Ball an opportunity to better serve our customer base in southern China and provide a low-cost way of increasing our capacity without growing overall industry capacity.

In summary, we expect 2010 profitability in the Americas-Asia segment to be improved driven by the contribution of three additional quarters of the two acquisitions, continued cost savings resulting from the previously announced capacity closures, continued focus on our cost optimization initiatives and continued growth from new innovative product launches like Alumi-Tek and the 7.5 ounce 90 calorie soft drink can.

This will be slightly offset by planned lower volumes in North America.

In our European operations, volumes improved slightly with volumes roughly flat year-over-year in the fourth quarter.

A stronger Euro and cost saving initiatives implemented in the plants offset continued negative product mix with 0.33 CSD growth offsetting lower $0.50-cent liter beer sales.

We have seen eastern Europa excluding Russia stabilization and western Europe holds up well particularly in France and the Netherlands.

As we look towards 2010 the overall pricing dynamics in Europe are a bit more challenging than in prior years due to the supply/demand balance.

However, our European management team continues to monitor the demand trends by region and stands ready to adjust to any deviations to our expectations.

A continued FX tail wind and mitigating cost inputs will help to offset weaker price mix.

As in the Americas and Asia segment, we expect earnings improvement in 2010 and this segment as well.

Our food and household product group performed very well in 2009.

Excellent execution on a rationalization program, tight discipline around our pricing and cost recovery initiatives and overall attention to detail and focused execution contributed to strong performance.

Fourth quarter year-over-year performance was off mainly due to a favorable resolution of a $6.8 million claim collected in fourth quarter of 2008 and difficult volume comps from a prior year.

Recall, fourth quarter 2008 volumes were up 4% due to a pre buy of food and aerosol packaging that impacted the entire industry.

Aerosol volumes continued to improve at year-end but still finished the year down more than 10%.

As Scott mentioned, first quarter 2010 comparisons in the segment will be negative as a result of the first quarter 2009 inventory holding gains.

Plastic packaging Americas had a challenging fourth quarter driven primarily by lower volumes in the CSD and water segments.

Overall volumes were down in the low teens and we took additional downtime in the fourth quarter to manage inventory targets.

However, our food plastic customer base experienced improved trends, especially in the small category of nutraceuticals.

Our aerospace business had a strong fourth quarter with sales in EBIT both exceeding our internal expectations.

Our Antana components and service businesses are maintaining good growth protectory.

And management is a waiting word on a number of bids to enhance the backlog and position the business for growth going forward.

We're pleased with the operational perform of our Company but we're not content.

2010 will be a year where we continue to make further progress on the initiatives underway while focusing on best practice sharing and plant efficiencies across our worldwide system and the continued execution of our overall strategy.

And with that, I'll turn it back to Dave.

Thanks, John and thank you, Scott and you Ray for your comments.

Ball Corporation's performing very well.

Our strategy is clear, the balance sheet is strong and our strong free cash flow provides flexibility to generate value creation for our shareholders.

I'm optimistic about 2010 in the longer term prospects for our business.

The company certainly expects full year 2010 results to improve over those of last year.

And with that, Shawn, I believe we're ready for questions.

(Operator Instructions).

Our first question comes from the line of George Staphos with Bank of America Merrill Lynch.

Please proceed with your question.

Thanks, hi, guys, good morning.

A couple of questions.

It's encouraging to see that you've seen a bit of a pickup in your beverage Americas volumes.

Dave or John or Ray, if you could comment at all, how the tone of dialog has changed perhaps with your customers regarding promotion into the new year.

What sorts of trends they expect and how that varies with what you were seeing last year at this time?

And then similarity in food cans can you comment on, it's early in the year particularly for food cans but what the tone of dialog is with your customers about their expectations for volumes and promotion?

And had one or two follows, quick ones, thanks.

This is John.

I'll try to cover both of those.

On the CSD side if you go back 12 months Good evening, ago, the overall CSD segment was really focusing on pricing over volume.

And you could clearly see it in all of of the IRI numbers.

As you got to the fourth quarter of last year you started to see those trends reverse and you saw a lot of promotional activity.

And they were really focusing on trying to get the volume going through price promotions.

And again if you look at the IRI data over the last four weeks or eight weeks of the quarter you're clearly able to see that.

As you go into 2010, I think the customer base is still trying to figure out this value versus volume equation and while we don't have very strong expectations that they are going to push real hard, it's too early in the year to tell.

We do have the winter olympics coming up.

We have the the World Cup over in Europe.

I think some of the promotional activity around that will be telling.

Turning to the food side, I think the tone overall is relatively constructive.

There was a destocking in first half of the year last year and that's why we believe volumes were a bit soft.

They started to improve in the fourth quarter and as we go into 2010 we're starting to see some volume trends that are much more constructive than they certainly were 12 months ago.

Okay, the two follow-ons.

One, within your key products, beverage cans or food cans, are you seeing any increased level of threat from substitution?

And if there is, how would it vary by geography?

And then on the pricing and supply dynamic in Europe, can you give us an update in terms of how that trend has evolved?

And what sort of operating rate do you think you might be at.

I realize it's hard to say in January in 2010 in Europe?

Thanks very much.

On the substitution issue, you go around the world actually the beverage can is doing reasonably well.

I mentioned in North America on the beer side it's been gaining share on the package mix.

I think in 2010, when the financial crisis hit in late 2008 you did see in eastern Europe for example, a decline of the can on a relative basis to overall beer volumes.

We're starting to see a little bit of recovery.

In fact I believe in the fourth quarter, generally speaking, as I said eastern Europe you exclude Russia and there was actually a little bit of growth in some of those major market there's.

So, I think overall the can is holing up pretty well in this overall environment.

And we have expectations that these trends will continue because of the convenience of the can and the wonderful sustainability aspects of it.

With respect to your question about efficiencies and supply/demand in Europe, we're running pretty tight.

As you recall we had plans to get going on our Lubelin holding facility and we've put those on a definite hold because we don't need to be making cans for practice.

We expect to be pretty tight in 2010 from an efficiency point of view.

But there's been other capacity additions in the industry and I think that's what I was alluding to.

Okay.

Thanks, I'll turn it over.

Our next question comes from the line of Ghansham Panjabi with Robert W.

Baird.

Please proceed with your question.

Hey guys.

Good morning.

The courtesy benefit for European business was that purely translation or was there transaction benefit as well.

Transaction benefit?

Yes, was it just purely translation?

Translation, that's just improved performance, lower fixed costs.

All right, and did you see any reason to take on, was there any extra down time taken across your regions sort of around the quarter for cash, more so than normal?

There was some curtailment in North America.

All of our businesses in North America, we took down time that was greater than we have in past years because as we've said we're going to be running the business for cash.

And we don't need to throw a bunch of excess inventory on our balance sheets.

Right.

And just, John, on the promotional activity, was that very specific to cans or did you see any sort of spillover, like maybe in the quarter on the plastic business as well?

Thanks.

No.

I think generally speaking it was across the segment and it wasn't specific to a particular package.

Okay.

Thanks.

Our next question comes from the line of Claudia Heuston with JPMorgan.

Please proceed with your question.

Thanks very much.

Good morning.

Good morning.

You commented that metal container was better than expected in terms of its contribution in the quarter.

I was just hoping you could elaborate on that and talk about where the upside was versus your expectations.

And if you've got any comments how that integration is progressing.

This is Scott.

It improved in each of the months and if you look at it on a net from add the debt we had for finance it was modestly accretive in the quarter.

And I think the integration is going fantastic.

Both ways.

John may want to add more to that.

We have a lot of activities to share best practices across the facilities.

They're wonderful facilities as are ours and we can be learning from each other.

And so we have very detailed plans on how to make sure we're maximizing the most out of both systems.

Okay.

Thanks.

That's helpful.

And then you had commented on the fixed costs in Europe being quite good and they certainly were better than we had expected.

Was there anything specific that drove the good cost performance there?

Simply put, it was our management team getting all over controlling those things that they have the ability to control.

Okay.

Thanks.

Our next question comes from the line of Joe Naya with UBS.

Please proceed with your question.

Good morning.

There have been a couple of companies out there that mention they'd saw some customers may be push some volume back from the fourth quarter into the first quarter.

I was wondering if you saw anything like that?

If you saw customers deferring volume to manage cash?

I don't think so.

I don't know, guys.

I certainly haven't heard that.

No.

We've not heard more seen them.

Okay and I'm just curious, kind of broadly speaking, what's the tone of your customers like.

Do they seem to be expecting some improvement here in the near term or what's the outlook from their prospective?

Well the people I've been around or talked with, I'm thinking in food cans, some in the beer and beverage business, I think it can vary customer to customer but generally more optimistic.

We're all looking for green shoots or whatever it is for the economy but if you think about our business it doesn't fluctuate as many do.

And the best side we have is how we performed in the fourth quarter, I think.

We're a reflection of what our customers are doing, but certainly, John mentioned earlier, for example, the destocking in food.

People lived out of the their pantries for a period of time.

And one of our good food customers told me that they're absolutely certain that's what happened.

You might have seen, I think it was in yesterday's "Wall Street Journal" he talked about the bull whip effect.

And they were mentioning I think Caterpillar specifically who's ordering a lot for from their customers and so on and so forth because they've run their inventories down so far.

Even if they don't expect sales improvements, they've got to start building and the lead times and so forth.

If that does begin to happen, that ought to improve economic activity and it ought to improve the sales of our customers.

I may add if you go outside of the United States, in fourth quarter in Europe our volumes actually were up in the quarter if you exclude the export sales.

Our export sales were down a little bit having to do with various issues but our fourth quarter in what we would describe western and eastern Europe excluding Russia, they were up.

You go down into Brazil where we're seeing strong growth down there.

And you go into China and you see beverage growth still in the strong in double digits.

So, if there was destocking I think we're starting to get some of it back.

And just out of curiosity, now that you've had a little bit of time with the assets woven into the mix, do you have any update in terms of synergy expectations from the plants you are hired?

I don't think that we do.

I think certainly we feel that we ought to be able to achieve over the time of the amounts that we indicated.

Hopefully it will be better.

Pretty fast though it gets hard to really track that.

We are going to operate as one system and as John said earlier though, I think we are optimistic that there's may be more to do than we estimated.

Thanks.

Our next question comes from the line of Chris Manuel with KeyBanc Capital Markets.

Please proceed with your question.

Good morning, gentlemen and congratulations on a terrific way to finish up the year.

Thank you.

Thanks.

A couple of questions for you.

First of all, let's start in Europe.

Since we're kind of talking around that area, as you look into 2010, you're starting to see some improved volume trajectory sounds like out of your core Europe, eastern, western.

Do you think it's reasonables we look out into the next 12 months, to anticipate kind of mid single digit volume growth over there again?

To be quite honest, Chris, it's too early to tell.

We do have tail wind in terms of the destocking we mentioned that was a global issue as well as the World Cup which is generally in the same time zone as Europe and that's a big deal over there.

But to be honest, I just think it's too early to say what the volume expectations are.

We can tell you ta CSD has been performing better than beer.

But I think with the World Cup as I said they're going to see a lot of beer promotional activity all through western and eastern Europe.

So as I look at maybe this gets more detail than you would like.

When I look at operating performance over there at EBIT dollars, you were off a little bit this year.

And I think most of that throughout the year was probably currency related.

But even in an environment you sounds you did very well and got some costs out of the system at the end of the year.

Would there be any reason to expect that you wouldn't continued to see some growth at least in the profit side Europe next year?

As we sit here today that's what our expectations are.

What we've been trying to do only in Europe but across our businesses as you all know we're a fixed cost business.

And We get a lot of operating leverage as volumes start to return.

So, We've been trying to position ourselves for the worst.

And if volume expectations come back, we've got a lot of leverage there.

Okay.

So last question I had was, use of the cash in 2010, with your credit stats back to essentially predeal, you still have nine months of that to roll through your numbers yet and it will look even better.

How would you prioritize use of the free cash?

Do you think about dividends do you think about more share repurchase?

Are there areas out to acquire that look attractive to you?

How do you think about that balance, John?

I think we look at -- this is Scott -- I think we look at all of those things.

The focus is on generating free cash flow.

We think this year it's in excess of half a billion dollars.

We have $250 million of term loan payments to make this year.

So that leaves quite a bit of extra and we look at share repurchase and dividends and we look at acquisitions.

So whatever the opportunity that present its self.

Okay.

Thank you.

Our next question comes from the line of Mark Wilde with Deutsche Bank.

Please proceed with your question.

Good morning.

I wonder if there's any way to help us get a little clearer on what that volume adjustment in North America and bev can may look like in 2010, assuming that sort of overall industry volumes are flattish?

Yes, it will be down a little bit.

It's too early to tell.

You said assuming volumes have flattish.

It's going to be down a little bit.

But not wholesale.

So don't read into that.

It's just that we said, there's a balancing effect going on.

You have to do it over multi years.

We'll take a slight step back in 2010 and make it up in 2011.

So Well, yes

All right, and then if I could, the plastics business.

Just any more thoughts kind of further initiatives you could take there beyond the closures that you've announced?

Improve the performance in that business?

Well, we're, it's been a challenging time when volumes are off.

I give our folks a lot of credit with volumes off as much as they were and have flat earning year-over-year.

It's gotten to the point where it really depends on what is going on in the market place.

And on some of the specialty stuff we've seen some good growth not only in the nutraceuticals but just generally on the heat set.

We do some wine business and other things like.

We've had good growth and profitable growth to profit the cold side of the business.

But we're spending a lot of time looking at how we can play that in a way that we can make money.

Meanwhile, in reducing the investment in the businesses as you've pointed out and I think we're about $350 million down to $100 million or $150 million from the peak.

OK.

And the last question I had.

The bouts that we have seen in Asia in the second half of the year is really kind of underscored the potential in that region over time.

I would like to get your thoughts about sort of expansion plans in the region.

How you would grow, whether it's to go in with existing partners or whether green field things and how important that to you over the next five to 10 years?

Well, I think you're right.

Is one of the areas where we see lots of people and not many cans.

We've been in China for a long time and we're doing very well there now.

We stepped up and bought our, buying our partner out there in one of the plants as we've talked about earlier.

John, you might comment.

We are at the present time formulating a strategy for Asia.

And it could include those things that you mentioned.

Working with existing partners on our own, I think if you can find existing assets, particularly in new markets that are operating and you feel that that's a good way to enter that.

That might be the best way.

Why don't you comment too, John?

We've been spending a lot of time in that region for competitive and other purposes.

I wouldn't go into great detail but we do see a lot of opportunity.

Our strategy today has really been focused on China.

And we're looking at now non-China/Asia.

And as Dave mentioned when we've had a lot of success it's typically not by building it and it will come.

It's working with customers, it's potentially acquiring other parties, and doing some things like had on a small scale.

Those are the types of things we're focusing on as priority number one.

Ok.

That's helpful.

Thank you.

Our next question comes from the line of Chip Dillon from Credit Suisse.

Please proceed with your question.

Yes, good morning.

When you all bought metal container, I think Ray had mentioned, you saw the first year at free cash flow at $50 million.

Sounds like you might be a little bit ahead of that.

And I know it may be tough to measure as you're putting things together.

Would a $55 million or $60 million kind of number be more realistic given what you've experienced so far?

No, we think we're on track with our original projections.

Even though you said earlier that you thought you were doing better than expected with that?

Earnings start showing up quicker than what we initially anticipated but I think we're on track for where we had hoped we would be.

And the full year run rate looks to be where we thought it would be when we acquired the business.

The only thing I'll add into that is as part of the $50 million in cash flow we had certain expectations for capital expenditures.

As we've gotten into these plant and realize how terrific they were from an overall upkeep prospective, we may have a little bit of upside on the CapEx but again it's not wholesale.

Got you.

And thinking your flexibility or what you chose to do with your free cash.

Obviously you took on a little bit more with the Chinese investment later in the year.

And I guess looking with an eye on the ratings agencies.

Does that mean it's likely you'll go beyond the 250 in payments you owe this year and try to pay off a little more debt and therefore wait until next year before you would look to do something like a buyback or should we not read that into your situation?

No, I think we'll have the 250 in payments and we have a lot of flexibility with the other cash we're going to generate.

I don't think, by the end of 2010 our credit stats will be better than they are right now.

And I think we have plenty of flexibility to start repurchasing shares and dividends and the normal things that we do with the cash.

During 2010?

Right.

Got you.

And then lastly, when you look at the food can business and on obviously last year was a great year because of some of the inventory situations, but as you look at beyond that, and you look at industry pricing, and volumes, what, I guess we can't count on a pack like we had in 2009 but does the pricing dynamic seem to be similar when you ex out the inventory gain and the margin dynamics?

Do you see any deterioration or improvement in 2010 versus 2009?

Stripping that out we don't see a lot of deviation in terms of price cost.

Think about 12 months ago and what we were going through in interprets of having to push through these extraordinary costs.

The costs have abated and so it's a much more, I'll call it normalized situation.

But we don't see any significant issues up or down.

Got you.

We're doing our best to hold the line with our suppliers and to not be in that position that we've been in the last couple years as far as our pricing actions.

Got you.

Thank you.

Our next question comes from the line of Alton Stump with Longbow Research.

Please proceed with your question.

Yes, thank you.

Good morning.

Good morning.

Just looking at eastern European Bev can market you mentioned that you saw overall demand conditions stabilize in the fourth quarter.

Is there any signs of an actual recovery there yet or are we still a quarter or two away from that?

I think it's pretty torrent to talk about significant recovery.

We have indefinitely put on hold our Lublin plant because a couple of percent increase doesn't really create the need to start up a new plant.

And until we see meaningful, sustainable recovery, you should expect that's what we'll do.

Okay.

Good.

That's all I had, thanks, guys.

Thanks.

Our next question comes from the line of Peter Ruschmeier are Barclays.

Please proceed with your question.

Thanks, good morning.

And congratulations on a strong, strong quarter.

Thanks.

I was surprised by your aerospace revenues and I was curious if you could elaborate on the backlog you're seeing, you mentioned the antenna business.

How big is your backlog and what kind of visibilities might you have for 2010?

Let me answer that qualitatively.

12 months ago or 14 months ago as we with going into 2009, we knew it would be very difficult and part of the reason why is a number of bids we had outstanding was literally in one of, in hardware side of our business, literally in the tens of millions of dollars.

As we sit here right now it's approaching $1 billion.

So as a result, the tone and (indiscernible)is much good.

Now, we haven't won any of that.

And that's why we've said, if we have a lot of bids outstanding.

We expect to win during the course of 2010, that should set us up nicely for growth as we go into the back half of 2010 and 2011, even if, on a probablyistic basis we win our normal share.

Okay.

That's helpful.

Want to clarify in the metal beverage Europe I thought the results were quite strong.

You mention fixed cost removal.

What was the the fixed cost removal you were able to achieve and how much more might you have on the docket?

As we were going through down time, we were just putting a particular emphasis on where we were spending our money in the plants.

The plants did a very good job, as we all know the trends of volumes got better over time and when you get better over time you even get better efficiencies through the plant.

And I think that's what we saw.

Recall the year-over-year comparison in the fourth quarter 2008 was quite a challenging one.

That's when the economics crisis hit.

And we had a lot of extra down time as a result of that.

So I think it's as much as a comparable basis year-over-year than anything else.

Okay.

That's helpful.

Maybe lastly for Scott, I was curious if maybe Scott you could remind us on as we think about debt translation effects for currency, can you remind us the composition of debt you have roughly by FX exposure?

Yes, the impact year-over-year from a currency translation impact was not significant.

In terms of the total debt, we've got $320 million of it is in Euros.

Canada $78 million, and the rest is in the U.S.

Okay.

Very good.

Thanks, guys.

Thank you.

And our next question comes from the line of Al Kabili with MacQuarie.

Please proceed with your question.

Thanks.

Wanted to hear if you could give us an update on the progress of the new Brazil account line.

How that startup is going and when you see a full contribution?

We actually -- some of us traveled to Brazil early in December and had a chance to go see the plant.

It's north of Rio in Tres Rio's vicinity, and it's an excellent facility.

It's large, it could accommodate three lines when it's fully utilized.

But right now the new line that was installed had the best startup that we've ever had in any can plant.

And the date after we were there they made 2 million cans and they made money, in the first, second month, I guess of operation.

So it's just doing very, very well.

Sold out and customers just up the road.

Good situation.

John, you were there and Ray too.

From an earning contribution, as we all know David mentioned it has been built for three lines and when you get the operating leverage is when the second line goes in.

So I think, yes we are in the black which is good news.

But I think of the trajectory of the earnings as we sell that line out and begin to think about additional capacity I think that's where the leverage really comes in.

Okay.

And just given the current growth rate of the market, can you give us any kind of flavor prediction when you might be able to get that second line.

Second line going there?

We're looking actively because we believe with the growth of the market as we sit here right now market will be very tight in terms of cans.

Soon.

Okay.

All right.

Okay.

Good and then lastly if you could just give us an update on the acquisition of Chinese JV that you were looking at in terms of any updates in terms of timing or what you're hearing?

We're going through the process.

The anti-trust process, and we're hopeful we can close sometime early in the second quarter.

Okay.

Thank you.

Our next question comes from the line of Richard Skidmore with Goldman Sachs.

Please proceed with your question.

Thank you.

Good morning.

Just wanted to follow-up, John on your comments regarding the renegotiation of contracts in North America.

In the past there was I think Ray had mentioned something about making 12 ounce cans fun again at some point.

Can you just talk to what you've seen with regards to pricing in the North American bev can market?

I would prefer not to go into any detail because these if nothing else we're bound by confidentiality.

But as I reiterated in my prepared remarks, we were, the conversations were constructive, and we were able to have good discussions with our customers and we're satisfied with the result.

Okay.

Shifting then just to your commentary about North American volume.

Will there be any foot print rationalization that comes out of the down volume in 2010?

No long-term.

As you know we've gone through the last couple of years of taking a real hard look at our capacity foot print.

We've taken a fair number out unfortunately but it was the right thing to do long term for the business.

As we sit here today we have no expectations for doing anything else in the near term.

Just one last question, the Kent plant closure that you did last year, I know that you had mentioned shipping some volumes.

Is that contract done and you're not longer shipping the volumes to the northwest from California, I believe, and such that you'll see the benefits of those cost savings coming through in 2010?

That's correct.

Great.

Thank you.

Thanks.

Our next question comes from the line of Janet Rogers with WFMJ.

Please proceed with your question.

From what I understand the Hubbard plant or facility in Hubbard, Ohio is calling back some workers.

I was trying to find out what your bottom line in order open marines for job retention in the U.S., Ohio or Mahoney valley?

Well, I think what you may be referring to is a temporary phenomenon.

We have a very seasonal business in our Hubbard plant.

Experience.

We've been doing some things that actually will hopefully make Hubbard a better facility as we go forward on that but other than that there's no other specific comments.

Ok.

Can you tell me a little bit about the upgrades or things you're doing to make the plant better?

Well, we're looking at having some additional business in there.

And relooking about where we do business and we have some opportunities that we're pursuing.

And if they happen and that would be helpful.

Okay.

And who am I speaking with?

Can I get your name and title.

My name is John Hayes.

Thank you.

Our next question comes from the line of Andy Feinman with Meridian.

Can you tell me how much the pension expense was and the pension funding this year.

Last year it was $80 million and $73 million.

Last, the expense last year was about $74 million.

This year it will be about $79 million.

On the funding side, as I made my comments earlier, we prefunded some payments or made some additional payments in 2009.

So our total worldwide pension funding was just under $120 million and it will drop in 2010 to under $80 million.

Okay.

And thanks for that.

And the more than $500 million of free cash flow that you're expecting in 2010, does that include the reversal of the working capital what was that $80 million?

Most of that largely reverses back.

That's correct.

So that's in the $500 million number?

That's in the $500 million number.

And there's a IPO right now for grand packaging going on.

And so I guess that's going to change the landscape a little bit in the plastics business.

And so are there any ramifications of that for Ball Corp that you can think of?

No, we're not a shareholder.

Okay, well I guess the question is whether that might help you to in some way give you an opportunity to favorably resolve the question of your plastics business.

I mean whether it might change the landscape in a way that will help you guys.

Well, I would like to think that anything that happens in the world helps us, but possibly I suppose, Andy.

All right.

And that's it.

Thank you very much.

Thank you.

And we have a follow-up question from the line of George Staphos with Bank of America-Merrill Lynch.

Please proceed with your question.

Thanks, hi guys.

Dave, John, I just want to come back to Europe.

It sounds like in answering Chris' question you expected European EBIT to be up in 2010 due to costs and currency.

I just wanted to confirm that.

And to the point of may be some price compression or margin compression I wanted to extend possible in this forum dig into that.

Obviously you have contracts with some form of passer.

You said you were relatively tight in terms of supply/demand.

I was wondering why it could be you would see compression in 2010 and I had some follow-ons.

This is John.

Maybe I'll take a first step.

First your question, do we expect the year-over-year earning improvement in Europe?

Yes, we do.

Two in terms of price-cost compression.

It's a very competitive world out there and as we were going in 2010 we didn't have much business up for renewal but we did have some business.

And when you have a supply/demand situation that's a little bit more challenging than in the past.

Economics 101 holds true.

But we wanted to be very close to our customers.

And we're certainly not in the business of gaining share at all, but we haven't been putting capacity in so we just are keeping our capacity running.

But we did experience a little bit more pricing issues I think as a result of this supply/demand issue.

Thanks for that, John.

Second question, if you do hit the $500 million or greater for free cash flow in 2010 obviously a great achievement for the company in terms of history.

As you think about the future and putting growth aside, what areas might you need to reinvest in 2011 and 2012.

How sustainable do you think a free cash flow level in the $400 million to $500 million level is the first portion of this decade?

I think the cash flow stays and until we see growth, I mentioned that CapEx would stay at fairly controlled levels until we see growth returning.

So I would see our free cash flow would be pretty strong out the next few years absent growth opportunities.

Okay, so there's nothing else whether it's systems or what have you that would require additional investment.

Just purely matching demand with your own ability to supply it.

I can we're in pretty good shape from an infrastructure standpoint that we don't see any large programs out there that we can do.

George if you go back a couple of years we closed and/or moved things in North America eight different facilities.

And we're in the midst of capturing about $88 million of cost savings as a result but as John mentioned earlier, we've got that foot print in pretty good shape for the foreseeable future.

Some of the adjustments that we made the new lines in Europe and so forth we put the clutch in on that for now.

And frankly two the markets that are growing well are Brazil and China.

Brazil because it's currently 50% owned.

Doesn't show up in our numbers except as a line.

Equity and earnings but there is investment going on there, but --

It's also financing.

It's also financing.

I think just to echo what Scott said, particularly with the metal container plants now and the $50 million or $50 plus million of extra cash and operating at a different level we should have this be sustainable.

Okay.

Dave, I appreciate that.

The last question I had.

Assuming normal weather.

Whatever that might be.

Obviously you can't control that.

What is, in your view, the one thing you need to get right in 2010 for it to be the year that you expect it to be at this juncture.

Thanks, guys, good luck in the quarter?

The one thing, Gee, I don't know.

I think we've got to continue to execute as we are.

I don't feel that there's much threatening us.

I would say a better economy and the return of some volume.

We're really leveraged in our business.

And so if we begin to see and can't sustain itself here, Europe, that would be upside but we're pretty focused.

Feel like we've got the business in hand.

Not a lot of discussions about contracts may be up or this or that.

We're pretty much loaded and ready to roll.

I do think the biggest risk if you want to think about that as complacency.

With Ray in his role and ours in our new role, I don't think you should expect any complacency.

We got the whip out.

A follow-up question from Andrew Feinman.

Please proceed with your question.

I don't know if Ray is going to be on these calls.

Sounds like the beginning the way you introduced him the he won't be.

I wanted to let hem know that I have high expectations of him in his new role.

And I think that we'll all be surprised at how much value you create.

I mean that.

I actually mean that.

Yes, these things, I expect these operations to perform real well.

I'm chomping at the bit to see what you're going to do, Ray.

And I also just want to mention one thing to Scott.

I think that Ray always told us in this call annually how much stock he thought he might be buying back during the year, didn't he?

Didn't he used to always give us that this time of year?

He has the capacity to do a lot.

And I don't want to get Scott underwater right off the bat, but I would expect, based on operating as we think we will, that we will be in the market.

That it will be a sizeable amount.

I think that's right.

We haven't finalized the plans yet but I would expect to be buying back some shares this year.

Great.

Thank you very much, guys.

You bet, thank you, Andy.

Gentlemen, there are no further questions at this time.

I'll turn the call back to you.

Please continue your presentation or closing remarks.

Great, thank you, Shawn, and thank you, everybody, for being on the call.

We'll look forward to speaking with you again in April and we'll be seeing you on the road from time to time.

So thanks for your attention and let's all get back to work.

Ladies and gentlemen, that does concluded today's conference