Ball Corp (BALL) 2012 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Ball Corporation fourth-quarter and full-year 2012 earnings conference call.

During the presentation, all participants 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, January 31, 2013.

I would now like to turn the conference over to John Hayes, President and Chief Executive Officer.

You may begin, sir.

Good morning everyone, and thank you, France.

This is Ball Corporation's conference call regarding the Company's fourth-quarter and full-year 2012 results.

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

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

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

If you do not already have our earning release, it is available on our website at Ball.com.

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

Joining me on the call today is Scott Morrison, Senior Vice President and Chief Financial Officer.

You will recall that in November, the Company announced Ray Seabrook, our Chief Operating Officer of Global Packaging, would retire at the end of 2012.

Ray had a very long and very successful career at Ball, and we wish him all the best going forward.

I'll provide a brief overview of our Company's performance, and then Scott will discuss financial and global packaging metrics.

We'll finish up with comments on our aerospace business and the outlook for 2013.

Ball reported very good 2012 results in a challenging economic environment.

This performance is a tribute to our employees and their dedication to controlling our own future and embracing our Drive for 10 vision.

Drive for 10 progress in 2012 included, maximizing value in our North American packaging beverage container business by increasing our manufacturing flexibility through the expansion of specialty can production and reduction of standard 12-ounce capacity.

Broadening our geographic reach and growing with the right customers and markets in Brazil by installing a second line capable of making multiple sizes in our new Alagoinhas facility.

The line will service multiple customers under long-term contracts and will be operational in the second half of 2013.

We also completed the startup of our new facilities in Quingdao, China and Ho Chi Minh City, Vietnam.

We completed our new aerospace clean room facility expansion in Colorado, which leverages our technology expertise and will help service more than $1 billion of contracted backlog.

And, we completed the acquisition in mid-December of an extruded aluminum manufacturing facility in Mexico which broadens our geographic reach and brings new capabilities to our global metal, food, and household segment.

2012 was a busy, yet rewarding, year.

Our disciplined market leadership, focus on profitable growth, and system upgrades in our existing businesses have strengthened Ball for the long term.

Yesterday, in recognition of the Company's strong performance, our Board of Directors approved a 30% increase in the dividend.

That action is aligned with our focus of returning value to our shareholders.

We do face some headwinds going into 2013 like we do in most years, but at this time, I'm comfortable that we have the right mix of experience and conviction to ensure another successful year going forward.

Before I talk about aerospace and what we see going into 2013, I'll turn it over to Scott for a review of our 2012 numbers.

Scott?

Thanks, John.

Ball's comparable diluted earnings per share from continuing operations for 2012 were $3.06 versus last year's $2.73, an increase of 12%.

And, in the fourth quarter, comparable diluted earnings per share were $0.64 versus last year's $0.48, a 33% increase.

Also in the quarter, the Company recorded after-tax charges totaling approximately $38 million, related mainly to the previously announced closeout of a Canadian pension plan and costs associated with plant closures and a voluntary separation program tied to optimal staffing in our North American businesses and shared services.

For the full year, the following factors contributed to improved results.

Global metal beverage packaging volume growth of 3%, higher comparable operating earnings, solid program performance in our aerospace business, lower corporate undistributed costs, and a lower share count.

FX translation negatively impacted full-year 2012 earnings per share by $0.09, and in the fourth quarter by $0.01.

Turning to free cash flow, Ball generated $548 million in 2012.

Again, we returned every free cash flow dollar to shareholders via a net share buyback program of $494 million and dividends of $62 million.

Net balance sheet debt at the end of the year was approximately $3.1 billion, only $153 million increase over 2011, despite our acquisitions in Mexico and [Tubidaficio], and acquiring nearly $500 million of stock.

Credit quality and liquidity of the Company remains solid with the 2012 comparable EBIT to interest coverage at 5 times and net debt to comparable EBITDA at 2.7 times.

Committed credit and available liquidity at the end of the year was in excess of $1 billion.

For a complete summary of the fourth quarter results on a GAAP and non-GAAP basis, please refer to the notes section of today's earnings release.

Recapping segment performance, metal beverage Americas and Asia's segment comparable earnings were up both in the quarter and full year due to slightly better volumes in North America for both the quarter and full year, as well as mix shifting to specialty cans.

Our specialty cans volume grew nearly 25% in 2012.

Volumes in Brazil were up over 30% in the quarter and 20% in 2012.

China volumes were down mid-single digits in the quarter on difficult comps, and up 11% for the year.

European segment profit declined both in the quarter and full year due mainly to unfavorable foreign exchange translation.

Beverage can volumes in the quarter were down low single digits and full-year volumes up mid-single digits.

Extruded aluminum aerosol volumes grew over 10% in the quarter and full year.

In food and household, segment earnings were up nicely in the quarter and almost flat on a full-year basis.

Segment volumes were down approximately 2% in the quarter and nearly 7% for the full year, truly excellent performance given 2012's difficult harvest and lack of inventory holding gains last year.

Finally, a few financial metrics and housekeeping items for 2013.

Full-year interest expense, retirement benefit costs, and the effective tax rate on comparable earnings will be roughly flat with 2012.

Given $100 million-plus of carry in capital, full-year 2013 CapEx is expected to be in the range of $400 million.

Therefore, we expect 2013 free cash flow to be in the range of $450 million.

We will continue to return the majority of our free cash flow to shareholders via share repurchases and dividends versus debt paydown in 2013.

Effective in 2013, Ball will close its quarters on a calendar month basis.

This means the first quarter of 2013 will have two fewer days, and as we alluded to in our management succession release in November, the global metal food and household segment will also include the results of our European extruded aluminum packaging business as well as the recently acquired facility in Mexico.

With that, I'll turn it back to you, John.

Thank you, Scott.

Our aerospace business continued to perform well with solid execution on existing programs and contracted backlog still above $1 billion.

Being cost-competitive has allowed Ball to win our fair share of government, aerospace, and defense projects.

Despite the ongoing lingering ambiguity about the US government's finances and the threat of defense cuts, we remain bullish on this segment.

As we transition to 2013 and looking out across the operations today, keeping in mind it is only January, a few observations to share.

First, we expect the Americas/Asia segment earnings to be relatively flat in 2013.

Due to the over-capacity situation that exists in China, we face pricing pressures there, and as you know, the loss of 12-ounce business in North America creates a trough from which to build.

However, current specialty can demand trends in Brazil and North America have warranted additional capital investments and provide good growth opportunities in 2013 and beyond.

In Europe, given lackluster economic conditions, we do not anticipate any near-term capital investments for beverage cans expansion.

Instead, we have a strong focus on cost optimization initiatives across the region.

Our global food and household products segment is busy integrating our new plant in Mexico, investing capital to meet the increased demand for aluminum aerosol containers, and we anticipate a more normal seasonal vegetable harvest here in the United States.

In our aerospace business, while uncertainty still remains around the US government plans on sequestration, Ball's strong track record should keep us well positioned for the long term, although depending on the outcome of sequestration, it could be a bit more lumpy than usual.

All across Ball, we have a management team that understands how to generate incremental EVA dollars.

Our Company's cash flow is strong, and we are actively managing our businesses to align assets and cost structures to respond to dynamic market -- global markets.

All in all, 2013 will be a year where we have many levers to improve our financial results, and more importantly, sets us up even better for 2014 and beyond.

We have our hands on what we need to do -- to execute upon, and barring further deterioration in global markets or economic conditions, we continue to strive to reach our long-term 10% to 15% diluted earnings per share growth goal.

And with that, France, we're ready for questions.

Thank you, Mr. Hayes.

(Operator Instructions)

Our first question from the line of Anthony Pettinari from Citibank.

You may begin, sir.

Good morning.

Good morning.

You referenced pricing pressure in Asia.

And, I'm just wondering, is that -- did that pressure accelerate over the three months of the quarter?

And then, as we've moved into January, have you seen it -- have you seen that pressure abate?

Or, how is the beginning of the year?

Well, as we said, I think, on the third quarter, that we anticipated pricing pressures in China.

And, that's exactly what's happened.

The negotiation season was the fourth quarter, and we did see pricing pressure there.

Most of those negotiations are over now, and so as we go into '13, it's about execution.

Okay.

A couple years ago, I think, you disclosed that your market share in China was 31%.

I'm wondering, given that you've been a little bit more disciplined regarding capacity than some of your competitors and maybe you've walked away from some business, has your market share meaningfully changed from that 31%?

Or, can you provide any kind of quantification around that?

What I'd tell you, in 2012, we grew roughly in line with what the market grew.

Our market share was relatively the same.

We have delayed capital and have chosen not to add any significant capital in China going into '13.

So, we see our volume growth in '13 to be at, or slightly below, what the market is doing.

So we could lose a little bit of market share, but what we're trying to do is make sure our business is as healthy as possible from a pricing perspective.

Okay, that's helpful.

I'll turn it over.

Thank you.

Our next question from the line of George Staphos, Bank of America Merrill Lynch.

Go ahead, sir.

Good morning.

How you doing?

I wanted to go back to the Americas/Asia beverage can segment.

As you look out to '13 now versus where you were, say, three months ago, has anything changed markedly?

Would it be pricing in China?

Or, is the aggregate of profit performance and the complexion that drives that more or less as you anticipated back in September or October?

It really hasn't changed markedly, George.

There's definitely some headwinds that John talked about, the pricing pressure, the loss of volume in North America.

But, our guys have done a great job responding to those issues.

And, growth in specialty capacity we're still seeing, growth in Brazil, we're still seeing.

It hasn't changed markedly.

Some of the levers may have changed a little bit, but in general, we're still -- the same kind of outlook.

Scott, considering that last quarter you were talking about how -- apparently, anyway -- good the growth in specialty can demand and opportunities was for you.

And, that seems like it's the case again this quarter.

If I more or less hold that constant -- maybe that's not the right assumption -- it seems if there has been anything that's changed, it sounds like it's changed for the negative.

It would be, again, the pricing in China.

Would that be a fair statement?

Yes.

I think it's a fair statement.

Okay.

Now, in term of guidance, in terms of striving for the long-term goal of 10% to 15%, does that suggest something more aspirational longer term?

Or, is that something you think is within your sights for 2013?

Remembering the Company's old phrase you'd rather be heroes in December than in January.

You can give Hoover credit for that.

Yes, I remember on the third quarter, I said that our long-term range is 10% to 15%.

It's going to be quite challenging to get to the upper end of the range.

But we're going to strive to get to the lower end of the range.

That's where we are right now.

You know, it is only January.

Various things have to happen.

But, as we sit here right now, that we have some challenges on our hands, but we think that we can push -- if we push and are successful in many of the initiatives we have, we might be able to get to that 10% -- to the lower end of the 10% to 15% in earnings per share growth.

Okay.

Thanks for that, John.

Last question, I'll turn it over.

Can you provide a bit more color commentary on the consolidation activities that you have ongoing in metal packaging in the Americas?

You obviously have some charges in the fourth quarter in beverage which have been well discussed and telegraphed.

But, also in food you have some things going on.

Is that mostly the integration of Mexico?

What else is in there?

Thanks.

Yes.

On the beverage side, everything is on schedule.

We closed the Columbus facility at the end of the year.

Gainesville, we will close in the first half of this year.

All that's on track to what we expected.

On the food side, that was the closeout of a Canadian pension plan.

Where we annuitized it, and we had talked about that on the third-quarter call.

Then, we're real excited about the acquisition that we made down in Mexico and the opportunities there going forward in 2013.

Thank you.

Our next question from the line of Scott Gaffner with Buckingham Research.

You may begin.

Good morning.

Still at Barclays.

On the Asia business, can you just sort of parse that for us?

I know you have got a large position in China, but what are the other regions there?

And, what are you seeing as far as price pressure outside of China?

The only other places we really operate outside of China is our joint venture in Vietnam, and we have a small interest in Thailand.

I think generally speaking, we are seeing some pricing pressures, but it's not terrible.

But, it -- if I commented on any other region, I don't think it would be fair because we don't sell into those regions.

Okay.

And then, are you seeing any bifurcation between alcoholic versus nonalcoholic cans?

Is that anything that you're seeing in the market?

And, then also, the impact of the Chinese New Year, how much is that impacting both the fourth quarter and the first quarter?

I think your question is from a volume perspective.

And, you're right, the Chinese New Year is a bit later this year.

So, as we sit here towards the end of January, we've seen some reasonably strong growth in the month of January in our business over in China.

I think it has to do with the Chinese New Year.

It has been extremely cold in China.

So, I know beer has been soft.

I think the overall market was a bit soft in the fourth quarter.

But, I think it's more weather-related if you have followed the weather.

Northern China, in particular, was extremely cold and extremely snowy.

So, that had some impact in the fourth quarter.

Okay.

And then, just lastly, on North American specialty can mix, where did we end the year on mix of specialty as far as the total can mix in North America?

And, what's the outlook for 2013 as you bring more specialty cans into the mix?

Yes.

I think our percent was in the 17%, 18% range for 2012.

And, as we looked at 2013, we have some exciting things going on in the specialty business.

We expect to see some continued growth in that, whether it's on the smaller sizes, 7.5-ounce, whether it's on the sleek, which is a 12-ounce but a different shaped container, or on some of the larger sizes.

We see good growth there.

And, I think part of it has to do with new housing starts are beginning, and that's a good middle class jobs that are the big consumers of those types of packages, as well as unemployment in the 21- to 34-year-old range, year-over-year, went from over 9% to about 7.7%, 7.8%.

So, we've seen a pickup in the core beer consumer, as well.

Thank you.

Thanks for the color, and good luck in the quarter.

Thank you.

Our next question is from Ghansham Panjabi from Robert W. Baird.

Good morning, it's Matt Wooten sitting in for Ghansham today.

How are you?

Good.

I was hoping -- on a longer term basis, what do you anticipate is a sustainable number for growth CapEx?

As I recall, maintenance CapEx is about $200 million a year?

Yes, that's a good number to use for maintenance CapEx.

Growth CapEx depends on the opportunities that are there.

We really look to deploy capital wherever we think can make attractive returns and how fast that comes -- changes over time.

If you look back last year, our capital spend declined throughout the year.

That's why we had so much pushed into 2013.

We're always adjusting our capital plans based on what the world looks like.

It's hard to predict long term -- three, four years from now what that might look like because it really depends on global growth.

Okay.

Thanks.

Then, from your customer base, 2012 seemed like a year that was a little light in terms of promotional activity.

Have you received any indications that promotional activity will pick up in 2013, either from soda producers or beer producers?

I think it's too early for them to have a strong view of what they're going to be doing in the summer of 2013.

That's probably better asked at the end of the first quarter just because it's January, and they still have four to six months to when their big selling season really begins.

Understood.

Thank you.

Thanks.

Our next question is from the line of Chris Manuel from Wells Fargo.

Good morning, gentlemen.

Congratulations on a very strong 2012.

Thank you.

Thanks.

A couple questions for you.

First, if we could talk a little bit about where you feel your utilization rates are in beverage.

If you were to kind of walk around the globe and talk about China, Vietnam, Brazil, Europe, North America, et cetera.

I know you talked about maybe seeing a little bit of growth in some of those regions.

But, you're not putting a lot of capacity in.

So just trying to get a sense of where your utilization rates are?

Yes, well, you often hear us talk about trying to make sure that our supply matches our demand, and that's exactly what we do.

In North America, I think we even said this on the third quarter -- in 2013, we're real tight with the closure of the Columbus facility.

And so, I think we're -- our utilization rates are very high there.

In China, they also are very high.

And, that's the reason why I said in 2013, while the market is probably going to grow a little bit stronger than we are because where the pricing is we want to make sure the pricing is right relative to the cans that we sell.

And so, we do have a little bit of line speedups here and there that's part of that carry in capital Scott was mentioning.

But, nothing significant.

And, we're keeping a very close eye because there is a fair amount of over-capacity from an industry perspective.

But, you don't see it in the Ball system.

Brazil, obviously we're adding a new line there.

So, we're running full out there.

And then, in Europe, I said on the third quarter that longer term we would expect to look at some capacity there, but in the short term, we're focusing on costs.

And, that's exactly where we are going into 2013.

The market grew mid-single digits in 2012.

We expect about the same in 2013.

That's going to make us very tight in Europe, as well.

I guess my follow-up with this is, you're going to be spending -- my follow-up to Matt's question.

You're going to be spending about $200 million in return-oriented, growth-oriented capital this year.

Can you maybe -- I know it's going to be a long list of projects, but could you maybe bucket maybe a few categories or maybe by segments where a lot of that capital is going?

Is most of it targeted to beverage?

Is most of it targeted to speedups?

Or, is it aerosol capacity?

Or, other different pieces like that?

Well, it's where the growth is, Chris.

It is specialty cans in North America and in Brazil.

John mentioned that additional line down in Brazil.

We're finishing up some things from last year.

Some speedups that we were doing in different places.

We're seeing nice growth in aluminum aerosol.

We think there's opportunities with the Mexico acquisition to add capacity there.

So, it's in a variety of places.

Yes, the only thing I'd add on to that in North America, we are adding specialty capability in some of our standout -- standard 12-ounce facilities, and that's one of the reasons why that carry in capital is large.

But, most -- actually of all that volume is contracted already.

And so, it's good return projects.

Thank you.

Thanks.

Our next question is from the line of Phil Gresh with JPMorgan.

You may begin.

Hi, good morning.

Good morning.

First question, just getting to the guidance around Americas/Asia being flat for this year, could you give us a sense just between North America, China, Brazil how to think about that?

Is it fair to say North America down, China flat, Brazil up?

Or, just give us a rough sense of how you're thinking about it?

We normally don't break that out, but I think your intuition is generally correct.

Okay.

The reason I'm driving at this question is, it kind of comes back toward this long-term guidance goal of the 10% to 15%.

Clearly there's some transitional elements to 2013 related to the business lost in North America.

I'm just trying to get a sense of hypothetically if we have 8% EPS growth this year, there's a certain element to that that should come back just as we lap that.

I'm trying to just kind of calibrate how to think about that.

Maybe from a contextual perspective we can help create some sort of bridge here.

We talked about Americas and Asias being relatively flat.

Europe, depending on what happens there, there ought to be a little bit of upside in Europe.

But obviously, with the economic conditions there, it's premature to bank on that.

Our food and household products business ought to be up.

We had a very difficult 2012, and our folks performed very well there.

How much up is a question of what the harvest looks like.

And then, we have the new Mexican facility on the impact extruded business that contributes to that, and the European impact extruded business -- we continue to do reasonably well there.

Then, on Aerospace, we don't expect much upside at all in that business, particularly in light of the uncertainty around sequestration.

Then, the corporate, I don't -- Scott said it was going to be relatively flat.

So that provides coordinated income of up in the low single-digit range, and it's through the use of our cash flow.

It gets up to the -- that's where we think we have a shot towards the lower end of our long-term goals.

Got you.

Okay.

That's very helpful.

And then, just on China.

You did make the comment -- I believe Ray did on the last call that volume would be up, and you'd be clawing back the negative price in 2013.

So, do you think China specifically will grow earnings this year?

Or, how do you think about that?

I think it's going to be challenging too.

As we said, we've retarded any meaningful growth capital in that area.

We expect our volumes to be at or slightly below what the market's going to be doing.

I think given the pricing challenges, it is going to be a bit difficult.

Having said that, let's put this in context.

You know, there's over-capacity of 20% to 25% in Asia.

It is growing in the mid-teens.

And so, that's 18, maybe 24 months of excess capacity.

And so, as we're looking into 2014, it's about getting our pricing in a position as we go into 2014 where we have a lot of operational leverage.

Okay.

Great.

I guess -- the last question is just around the volume growth outlook for China.

I think at some point this year the growth rate had been slowing to something below mid-teens.

Could you give us a sense of where that re-acceleration may be occurring?

What end markets specifically?

Yes, I do think it's across most of the end markets in China.

I think the slowdown was largely weather-related.

As I mentioned, it was extremely cold.

But we have a pretty good handle on where can filling capacity is going in on the beer side, on the CSD side, on the tea side, on the energy side.

And, as a result of that, we continue to see the overall market being -- growing in the double-digit range.

Okay, thanks a lot.

I appreciate it.

Thanks.

Our next question from the line of Philip Ng from Jefferies & Co.

Europe -- at least actually on the bev can side actually grew at a mid-single-digit rate which is pretty healthy.

But your comments for 2013 sounds like you're generally a little more cautious.

So, you are expecting a little slower growth on the bev can side due to tougher comps?

Or, just the macro?

No, not particularly.

I think you're parsing our words a little bit more than we intended.

As we said, we grew mid-single digits for the year in that.

Now remember, it was an even-numbered year.

So, there's some special summer things going on in terms of European Cup, the Olympics, that we're not going to have in 2013.

But, where we see the -- we still see, low to mid-single digit growth in the European market.

Okay.

So, from a pricing standpoint, things were -- you've seen some erosion, but it sounds like the market's tightened up a bit.

How should we think about pricing in Europe for 2013?

I think we've hit the trough.

We've talked about price -- some of the price pressure, but that's why we're focused on internally on the things we can control on the cost side.

And, not adding capacity until we get the price equation a little bit better.

Okay.

But, you guys haven't settled out your contract on pricing?

Because I thought you guys typically settled out year-end of 2012?

Yes.

We've largely settled out.

And then what I would say is relative to three months ago when we were on the call, the pricing environment is a touch more healthy in Europe than it was.

Okay.

And then, I know it's early in the year, but you guys were commenting on the [Pack].

You're expecting a more normalized Pack.

What about demand for aerosol?

Go ahead, Scott.

Demand for aluminum aerosol is very strong.

Sure.

For tinplate aerosol last year, it was -- it was kind of bounced around.

The fourth quarter was very good.

Overall, we feel pretty good about the aerosol business.

Yes.

I think long-term, the steel -- the tinplate aerosol business here in North America at least is probably 0% to 2% growth-type of market, GDP-type growth.

We don't expect any meaningful changes in that.

Okay.

And then, on the steel tinplate side, anything to think about for 2013, withholding gains and all that stuff?

No.

It should be relatively flat.

There's not much going around -- on either way.

Okay.

Thanks.

Our next question is from the line of Adam Josephson from KeyBanc.

You may begin.

Thanks, good morning, everyone.

Are there any regulatory developments that particularly concern you?

For instance, the potential for minimum pricing in Britain, the tax increase on beer in France, or otherwise?

We're always facing regulatory issues, not only for Ball Corporation, but I think business at large.

I think on a global scale, regulation is only increasing, not decreasing.

So, as we sit there, the things that you mentioned -- those things don't concern us of anything in materiality -- from a materiality point of view.

So, I would say, based on the things that you mentioned, no.

And then just, John, on the acquisition pipeline.

How would you compare it to what it has looked like in previous quarters?

And, what areas might you be looking at most closely?

Yes.

I don't think it's all that different than over the past -- certainly, past six, 12 months.

We continue to see opportunities in metal packaging, whether it's on the aluminum impact extruded business, the beverage can business.

Just think, last year, we did something in the beverage can business.

We did something in the aluminum impact extruded business, as well.

I think those types of things, whether they're small or a bit larger, are still out there, and we keep our nose to the grindstone in making sure that we have a good understanding of what's going on and what, candidly, we're willing to pay for some of those assets.

Right.

John, thanks for that.

I appreciate it.

Yes.

Our next question from the line of Chip Dillon with Vertical Research.

You may begin.

Yes, thank you, and good morning.

First question has to do with the specialty can business, which obviously is really carrying the day in terms of growth in North America.

And yet, it seems like from just what I've heard that in Europe, the specialty can business, where it has been more of a presence for a longer period of time, doesn't really share the same margin and growth spreads to standard cans like we see here.

I just want to know if that's what you all see?

And secondly, do you see a time where the specialty segment here in North America might slow down?

Or, we might see some margin compression versus the 12- ounce?

Yes.

I think in Europe you are right.

It has been around longer.

But, we still had good growth in 2012.

I don't have the number off the top of my head, but I know at the end of the third quarter, it was around 8% or so.

So it was above the market growth and certainly, not what we've seen in North America.

I do think that when you have line changeovers and other things, it adds a bit of complexity into the system.

And, we need to get paid for that complexity.

So I don't think that necessarily changes.

To your point, in North America around the slowdown on the specialty growth -- yes, obviously at some point in time, the base gets bigger and the growth slows down.

But many of the fast-moving consumer goods companies, whether it's on the beer side, whether it's on the CSD side, or even some other categories -- energy, those types of things.

They're continuing to look for ways to add value into the products that they sell.

And, they are finding good value in terms of the specialty cans that we produce.

And that's why we've been seeing the growth.

Got you.

And then, sort of as a follow-on.

Sort of looking beyond the very near term in China -- that's sort of been discussed quite a bit already.

But, if we go back to, say, 15 months ago when we were out in Colorado, and we were talking about the long term for Ball and for the business.

One thing that really struck -- jumped out was -- at least to me was how beer, only about 5% is -- was at that time in cans in China whereas it was 38% in Brazil and, I think, over 50% here in North America.

And, it would seem -- do you think that there is a -- if you will -- a slower adoption rate than you thought?

Or, do you think -- do you continue to see a reason why you wouldn't see the can in beer adopted in China in increasing measure like we've seen in all these other places?

Yes.

Nothing fundamentally has changed there.

It really gets into as new capacity is brought on, are they putting bottle capacity or can capacity?

And, we see a fair amount of can capacity coming on.

Remember, it's -- the China beer market is such a large market that I know even now as we sit here a year later, it's up to 6%, 6.5%, which isn't a huge number, percentage terms.

But, in terms of volume, that's where a lot of the growth is coming from.

Will it ever get to the 50% that we see in North America?

That's a stretch, obviously.

But, I do think based on the conversations we have with our customers and seeing where they're putting their capital that we expect to see over the long term a continued increase in the penetrations of cans into the beer market.

Okay.

And then lastly, it's -- your CapEx number is a bit elevated for '13.

Where do you think that would trend in '14 and '15?

Let's say, if you do get the kind of year you're planning for right now?

And, of course, we know things can change.

But, if it turns out to be net income up in the low single digits, and EPS up close to 10%, do you think that CapEx number would likely rise?

Or, still trail off?

Or, could it stay where it is, or rise?

We always think that it will get closer back toward depreciation because you don't have as good a visibility on some of the growth opportunities.

It's really dependent on how fast those growth opportunities materialize and how many there are.

The world is slowing down.

And frankly, if you asked us that same question last year, we thought it would come down this year.

But we had so much carry in capital that you really got to look at the two years in total versus just one year.

So, over time, we think it would come down a bit because when you're going through bigger growth spurts when we were building plants, that takes a lot more capital.

When you can add new lines like we're doing in Alagoinhas, the incremental capital isn't as much.

Got you.

Thank you.

(Operator Instructions)

Our next question is from the line of Alex Ovshey with Goldman Sachs.

You may begin.

Thanks, good morning.

The planned cost reductions that you have for North America from the capacity closures, how do you see that flowing through the business through the -- for the year?

Well, we said that the Columbus facility was closed at the end of the year, and the Gainesville facility is going to continue to operate for a little bit into this -- into 2013.

So you'll start to get those benefits as we move later into the year.

So, some of the cost reduction is going flow into '14?

No, the cost reduction -- all of this will be -- you're going to start seeing all of the benefit here as we move into the year.

Okay.

Thanks, Scott.

And then just on the pension.

Did you guys update us on where the pension plan ended up?

And, what you see your pension expense contribution to be for '13?

Yes, we ended up funding quite a bit more than expense in '12, about $60 million more than expense in '12, just because the cash flow was so strong.

In 2013, we think we'll fund about $20 million more in funding versus expense.

Okay.

Thank you.

Our next question is a follow-up question from the line of George Staphos, Bank of America Merrill Lynch.

Thanks.

I wanted to peer in a little bit more to the extent possible on the Americas profitability, and the progressions you expect there.

If you consider the cost reductions that should help you this year, and also the additional volume in specialty cans, is there a way to ballpark how much that might help you this year relative to the ultimate volume loss that you suffered going into 2013?

George, you're getting to a level of granularity that I wish we could be as specific as possible.

But, the reality is, when you think about it, let's take a step back.

For that segment going into 2013, we've closed the Columbus facility as Scott just said.

We expect to get the fixed cost benefits from that that offset a lot of the variable margin that we had from the lost business.

As we go into the second quarter and with the final close-down of Gainesville, we'll start to reap all of that.

And then, in the second half of the year, we are going to have the second line in Alagoinhas come up.

So, when you think about all those things, I think that we're going to have -- as the year goes on, we're going to have more momentum going into that segment.

All things being equal.

Is it possible that within North America, if there was a way to parse that, that your EBIT might actually be flat considering the incremental margin from specialty and the cost reductions which you've said are more or less offsetting the variable margin on the volume loss?

Or, is that a heroic expectation at this juncture given where you sit?

Well, that's the trough that we're facing.

In my prepared remarks, that's why I said it's a trough.

But, we're clawing out of it.

It's only January, George.

So, let's talk later in the year to see how specialty goes.

But, we have a reasonable shot, and that's what we said on the third quarter.

And, as Scott said, our outlook on that really hasn't changed materially.

I understand.

No, I appreciate your patience.

Just wanted to get a little bit more color, or granularity as you said.

The last question I had is, if we are having this conference call three years from now, and we can project forward the aerosol business for Ball Corporation.

Do you see it being as meaningful a business as -- it's not going to ever be as large as your beverage can business.

But, will we be talking about it in almost the same tones as a significant driver of your growth and future profitability?

Is it that strategic to you?

And, how do you see that evolving?

Sorry for the broad question there.

But, I think it's an interesting element to your story, longer term.

Yes, it's obviously from -- let's talk about from an overall market size perspective.

It is significantly smaller than the 270 billion-odd beverage cans around the world.

We're talking in the range of upper single-digit billions of units.

So obviously, it's not going to have that.

But, the business model is quite different because the capital output ratios are quite different than the beverage can business.

I would not expect three years from now to be talking it in the same size and tone of the beverage can business for Ball Corporation.

But, I will tell you that we continue to have good growth opportunities.

Some of that carrying capital Scott was mentioning is in the impact extruded business.

So, as that market continues to grow, we're going to be focused on it.

Last one on this.

John, do you see that business broadly offering different types of metal packages than what it's doing right now, which is aluminum extruded aerosol cans?

Or, are there opportunities to take that technology as it's used to some degree already in beverage, into food applications, into other end markets?

How would you have us consider that?

Well, I do think -- I think over the next several years, George, the greater opportunity is not so much in food but probably beverage.

Just think about what we've done with Alumi-Tek.

It's been here in North America, and it has been quite successful.

We have a whole suite of bottles now ranging from a DWI bottle, the Alumi-Tek all the way to the impact extruded and everything in between.

Impact extruded is more relevant when you have smaller runs, and you have more differentiation -- you can shape it.

And, the sizes of it you can make a bit different than you can on the -- like the Alumi-Tek.

But, there are continued opportunities on the Alumi-Tek side as well.

Does that answer your question?

Yes.

That was great.

I appreciate it.

All right.

Thanks.

Our next question is another follow-up from Chris Manuel from Wells Fargo.

You may begin.

Good morning.

I just wanted to focus on the aerospace business if I could for a second.

As you look at the mix of business there, and I know you've told us this or disclosed this in the past, and I just don't remember.

The mix of business between, let's call it Department -- DOD or different elements in there?

Can you remind us of that?

Yes.

More than 50% of it is in the DOD business.

And, when you parcel that out, the preponderance of it are in the big -- I would call it strategic programs -- satellites and thing like that.

We do have a couple of other businesses in terms of the tactical products, antennas and other things for -- everything from the Joint Strike Fighter to other applications like that.

And then, we also have a services business that takes all of that information and turns it into usable data.

But, like I said, 50% -- probably 50%, 60% of our aerospace business is directly DOD.

Okay.

And, as you think about full-year 2013 versus 2012, and I appreciate there's some -- a little issue that might come up in mid-year here that could impact things.

How would you anticipate '13 might look versus '12?

You had some -- it looked like some pretty good payments come in in 4Q that may or may not repeat next year.

But could you maybe give us a sense of can it be a flat year for EBIT?

Or, do you think you could still have a little improvement?

Or, is it just too difficult to look at right now?

It really is too difficult to look at right now just because with the potential for sequestration out there.

I will point out that at this time last year, our backlog was upper $800 millions -- $890 million or so.

We're well over $1 billion right now.

So, that just goes to show why we keep saying long term we feel pretty good about this business.

But as I said in my prepared remarks, because of the sequestration, it could be a bit more lumpy than we're used to.

But, we just don't have visibility into that yet.

Okay.

Thank you.

Good luck.

Yes.

We have another follow-up question from the line of Phil Gresh from JPMorgan.

You may begin.

Hi, there.

Just on the working capital front, you guys have done a really solid job here for two years in a row.

And I'm just curious, Scott, how you're planning for that in that guidance for 2013 free cash flow?

Yes.

The -- really all the guys have done a great job on the working capital front.

Whether it's managing inventories better, collecting receivables better, extending payable terms.

It has been a really broad effort that a lot of people have been involved in.

And it's worked pretty well.

We think there's still a little more to go on the working capital front in '13.

We're still not where we think we need to be longer term.

So we think there's still a little bit more upside in that.

It should be a source in '13.

How big (multiple speakers).

Got it.

Okay.

And then, just on the pension, you said it's $20 million contribution in excess of the expense.

Is that just for the US plan?

Or, is that the total?

Like what's the absolute dollar there?

That's total.

That's total.

Okay.

All right.

Thanks a lot.

Mr. Hayes, we have no further questions at this time, sir.

I'll be turning the call back to you.

Okay.

Great.

Thank you all, and thank you all for participating.

And we look forward to what will hopefully be a challenging but productive 2013.

And, we'll talk to you all on the April call.

Thanks.

Ladies and gentlemen, this does conclude the conference call for today.

Have a great day, everyone.