John A. Hayes - Chief Executive Officer, President and Director Raymond J.

Seabrook - Executive Vice President and Chief Operating Officer of Global Packaging Operations Scott C. Morrison - Chief Financial Officer and Senior Vice President

George L. Staphos - BofA Merrill Lynch, Research Division Chip A.

Dillon - Vertical Research Partners Inc. Philip Ng - Jefferies & Company, Inc., Research Division Alton K.

Stump - Longbow Research LLC Phil M. Gresh - JP Morgan Chase & Co, Research Division Ghansham Panjabi - Robert W.

Baird & Co. Incorporated, Research Division

Good morning, everyone, and thank you, Edison. This is Ball Corporation's conference call regarding the company's third quarter 2011 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 the results or outcomes to differ are in the company's latest 10-K and in other company SEC filings, as well as the company news releases. If you don't already 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. Now joining me on the call today are Scott Morrison, Senior Vice President and Chief Financial Officer; and Ray Seabrook, Executive Vice President and Chief Operating Officer of Global Packaging.

In a moment, Scott will discuss our results and Ray will follow-up with details about our packaging operations. I'll close with comments on Aerospace and the outlook for the balance of the year and beyond.

As mentioned in our press release, Ball reported improved third quarter results despite a difficult economic environment in most of our key markets. After starting slow, global demand for beverage cans accelerated towards the end of the quarter and it improved throughout the quarter in every market or nearly every market.

The numerous CapEx projects in Packaging and Aerospace are proceeding nicely and are on budget and on time. Recent M&A investments continue to perform very well and are above expectations.

As many of you know, we held an Investor Conference out here in Colorado 2 weeks ago. Over 40 investors and analysts participated and we certainly appreciate all of you who came.

At our conference, we discussed our Drive for 10 vision for the company in the areas in which we are providing increased emphasis. And as we look to the future, we know and are focused on those things that have made us successful in the past, including prudent risk management and disciplined capital deployment.

I will not go into all that we discussed on today's call, but if you'd like a transcript, please feel free to reach out to Ann Scott, our Director of Investor Relations, and she can provide you with the transcript and background materials that were reviewed. Our global employee team continues to do a great job of executing on our strategy, including maximizing the value of our existing businesses while capitalizing on growth in emerging markets and offering our customers a variety of new products from which they can grow and win in the marketplace.

These efforts are providing Ball with opportunities to finish up the year strong and to grow in 2012 and beyond. With that, I'll turn it over to Scott.

Thanks, John. Ball's comparable diluted earnings per share in the second quarter were $0.81 versus last year's $0.70, 16% year-over-year improvement.

The following factors contributed to improved results: the consolidation of our majority-owned Brazilian JV; the acquisition of the Extruded Aluminum business in Europe; volume improvements in North America, Brazil and China; exceptional program performance in our Aerospace business; benefits of share repurchases; a lower effective tax rate largely driven by tax benefits from foreign exchange on a local currency basis in Brazil; and a $0.02 FX translation benefit in the quarter. These positive factors were partially offset by a year-over-year increase in net interest expense due to our recent acquisition and the consolidation of Brazil.

As a reminder, the first 9 months of performance was favorably impacted by 6 additional accounting days in the first quarter compared to the first quarter of 2010. The fourth quarter will include 6 fewer accounting days than the prior-year.

So when we talk about comparable volumes, we are adjusting first 9 months' volumes to reflect the extra days. For a complete summary of the third quarter results on a GAAP and non-GAAP basis, please refer to the Notes section of today's earnings release.

Turning to full-year financial metrics, we expect CapEx will approach $500 million. We also expect 2011 free cash flow to be at least $400 million.

We plan to repurchase at least $450 million of our shares and through the first 9 months of 2011 we acquired a net $381 million of stock. At current exchange rates, year-end net debt is expected to be a little over $3 billion.

And the full-year effective tax rate will run under 31%. Our solid balance sheet and highly competitive capital structure allowed the company to operate from a position of strength.

We will continue executing our long-standing value-creation model of balanced capital deployment and consistently returning value to our shareholders through share repurchases and dividends. With that, I'll turn it over to Ray to talk more about the Packaging operations.

Thanks, Scott. Beverage can volumes were up in the quarter in the Americas and the Asia segment, and are up through the first 9 months.

In the quarter, U.S. volumes were up slightly, Brazil volumes were up in the mid-single digits and China volumes were up in the mid-teens.

Segment operating earnings were hurt in the quarter due to out-of-pattern freight incurred while supporting our manufacturing realignment projects, as well as unfavorable sales mix in Brazil. Out-of-pattern freight should now subside with the completion of these projects in the U.S.

The North American capital spending projects are virtually complete. The new Whitby and Fort Worth can lines have been installed and are running well.

Then new Alumi-Tek bottle can line being installed in our Golden, Colorado, plant will be making commercial cans in early November. The new can lines being built in Brazil and Vietnam are on schedule and on budget.

Our new China can plant being built in Qingdao is now expected to be online in January 2012. We look forward to continuing strong volume growth in China in 2012, and expect to be able to sell every can we make in China again next year.

The cool, wet summer in Northern Europe negatively impacted our beverage can volumes in the quarter, but had little impact on the Aluminum Aerosol volumes. Beverage can volumes were down high-single digits in the quarter, but continued to be up slightly through the first 9 months, while Aerocan's aluminum aerosol volumes were up 20% compared to last year in the quarter and year-to-date.

Weather conditions also impacted volumes in the U.S., the Metal Food and Household Products segment. The South was too hot and dry and the Midwest too wet.

Overall our volumes in the quarter were off mid-single digits and manufacturing costs were a little higher due to production curtailments. As we start the fourth quarter, the weather has been much better in North America and Europe and so far beverage can sales are ahead of expectations.

Our plants are performing very well, and we look forward to finishing this year with a positive traction as we get set for another very busy year in 2012. With that, I'll turn it back to John.

Thanks Ray. A few comments on Aerospace and then the outlook.

Our Aerospace and Technology business posted double-digit EBIT margins in the third quarter. Earnings increased primarily due to the continued excellent program performance.

Backlog ended the quarter at $986 million versus backlog at the end of the second quarter of $903 million. Ball Aerospace's capabilities are strategically important to our customers, and our focus on delivering best cost, best value solutions is allowing our backlog to continue to grow.

From a funding perspective, most of the 2012 projects are in good shape. In terms of program highlights, NPP is scheduled for launch tomorrow from Vandenberg Air Force Base.

NPP is a new generation of earth-observing satellites that will have the ability to measure a wide variety of atmospheric issues, including ozone and other climate-related items. Also during the quarter, we delivered software that is key to the James Webb Space Telescope program.

During our recent investor field trip, guests viewed 1 of the 18-mirror segments that will perform in space as a single monolithic mirror. So in summary for the corporation, we overcame a pretty tough economic environment during the third quarter and feel good about the rest of the year.

July and August were pretty challenging and by September, things started bouncing back. Despite the 7% fewer accounting days in the fourth quarter, we anticipated a strong close to 2011 and certainly momentum headed into 2012.

So with that, Edison, we're ready to take questions.

A couple of questions. I guess, John, maybe I'll start with the final question, usually.

In terms of the outlook, you said you expect to close strongly despite the fewer shipping days. Should we take that as an increase in earnings year-on-year versus the fourth quarter?

And just for the record, what was the fourth quarter 2010 from an EPS standpoint from your vantage point?

Yes. It was -- I believe it was $0.53 last year, George, and that was, I know, up over -- well over 20% from the year-prior.

We do have 6 fewer days in the fourth quarter, but despite this, we feel good going into the fourth quarter. Volumes have appeared to stabilize and are now growing again in most of our businesses which provide the momentum that I talked about.

The tough comp that we have in the fewer days create a hole from which we need to overcome, but at this time we think we can accomplish that, and we could do a little better, but we'll see.

Okay. I appreciate the color.

With Aerospace, we're pleased to see the backlog pick up. To the extent that you can comment on these sorts of things, where did you see the backlog pick up in terms of types of programs or markets?

Well, George, I think it was a little bit more of a timing issue. If you recall in the second quarter, that's when the U.S.

deficit issue was ongoing in Congress, and so a lot of the funding for those programs had stalled. And once we got past at least that short-term hurdle we were able to see some of the funding come back.

Okay. Now you mentioned that you feel pretty good about the funding through '12.

Should we read into that, that you are less certain, I guess that would be obvious, but maybe more than we would want you to feel, less certain about the outlook for '13 funding?

Nothing abnormal, George. We're not aware of anything.

Just, as we all know, the U.S. government is going through some difficult challenges, but we know nothing that says anything is at risk more than it typically would be.

I've talked in the past about a lot of what we do are very strategic to what we do as a country, and some of these are replacement-type things. And so we believe the funding should be good, but again, we're dealing with Washington, so one never knows.

Last one. What are your customers telling you about Europe and the outlook for next year in terms of Beverage Cans in particular?

Where do you see operating rates? One of your packaging peers, although in a different substrate, today was talking about perhaps taking prices up for 2012.

How do you think that all flushes out as you think about the year next year?

Yes. George, this is Ray.

I think that -- we were -- without this volume shortfall that happened to us in July and August, we were thinking of adding capacity because we were fundamentally sold out. We're going to try to run next year with not adding capacity, but we're going to be tight.

So we're not thinking about reducing prices, that's for sure.

Ray, can you just clarify what volumes in Beverage were down for Europe in the third quarter? Was it high-single digits, is that what you said?

Yes, Europe was down 8%, Ghansham.

Down 8%. And can you parse that between the different regions, and maybe beer versus soft drinks too?

Well since we're heavily -- more heavily weighted to beer, it was more beer than soft drinks. And we're much more -- we're really not -- we're not located so much in the South, most of our business is in the North.

And so I think that was -- I think the South was actually a little bit better. I think when you get into Spain and some of those countries, I don't think the volumes were down quite as bad.

But when you talk about England and Northern Europe, they had a -- just a terrible July and August for weather, and it really impacted us.

Okay. And just as a follow-up to George's question on promotional activity, you sort of touched on Europe.

But what are your major customers saying about North America? Because it seems like you and your peers are just mirroring what your customers are seeing in terms of volume weakness, maybe there's a little bit of inventory correction, but in terms of promotional activity looking out to 2012, is there a reason to be a little bit more optimistic in North America?

Yes, I think it depends on the customer. Some of our customers are actually quite optimistic and some of them are not as optimistic.

So you'd almost have to go through it piece by piece. But I think we're looking for flat to maybe slightly down.

The market was down close to 3.5% this year or 3.8% year-to-date. We're not looking for any kind of decline anywhere near that next year.

It could be down 1% or flat, but that's -- it depends on the customer, quite frankly, Ghansham.

Just -- with the Bev Can volumes in Europe, just to clarify, I think you mentioned that they are trending ahead of expectations so far in the fourth quarter. Does that mean that you think you'll see core growth or had the decline lessened versus 3Q?

I think, the weather in July and August in Northern Europe was -- talking to people that were there, which I wasn't, but it was the worst they had seen in a long, long time. And I think it really did, it really impacted.

By the week -- every time it got to a weekend it was cold and rainy, and it really impacted our volumes. Remember, the -- our European business is our most seasonal business.

70% of what we do is in the middle 2 quarters. So it had an impact on us.

In the fourth quarter, the weather seemed to get better. We were over there in September and the weather seemed to break.

So, ever since September and October, the volume has been much stronger than we otherwise would have expected to see. So we're expecting to finish up good this year, and get back to more of a normal year next year.

You guys have made a lot of investments in Asia and Brazil in the theory it's a faster growing market and nicer margins in general. When should we expect some of those returns flowing through and improved margins in that segment?

And is this more of a low-teen, mid-teen type of business going forward?

Yes. I would -- again, this is Ray.

I think the -- I don't think you're going to see it so much in margins, what I think where you're going to see it is in the top line. I mean fundamentally, we're growing the business.

I mean our margins are -- we think our margins are okay where they're at. And what you're going to see, you're going to see it at the top line.

Top line as well as EBIT growth. I think what Ray is saying is we don't expect to see a significant amount of margin expansion.

Okay. That's helpful.

Ant then can you talk about trends in Brazil. Certainly in Q2 it was a little soft, it sounds like things have picked up a bit in 3Q.

I just want to get your thoughts heading into the peak summer season.

Yes, as a matter of fact, I was talking to somebody from Brazil yesterday and they said that the weather has started to get a lot better. Our volumes certainly picked up near the end of the quarter.

We were up high-single digits and we're expecting to be up. And year-to-date, we're not up as much because we had a very slow second quarter, but we're expecting to pick a lot of that up in the fourth quarter.

Could you -- first question is, could you talk a little bit about what you think has changed with your customers, especially beer? Is it just you think the debt crisis and the macro discussions that were going on in August or is there something else going on that would've explained sort of the weak July, August and then the much stronger September.

I know the weather was a factor, but normally I think your customers tend to let their inventories go down, especially in Europe, this time of year.

Yes. This is John.

I'll take that, then maybe turn it over to Ray. It really was the weather -- I presume you're talking about Europe, so I'll focus my comments on Europe.

Yes, primarily.

It really was a weather issue. It's a -- the way that the beer gets sold throughout the summer, people were not having their barbecues on the weekends, people were not out in the pubs.

It literally was, in Fahrenheit terms, 55 degrees, 65 degrees and raining the whole time. And that is just not conducive to beer drinking.

And so when we talked to our customers and you look at some of the public comments of many of our customers that operate in Western and Northwestern Europe, you see exactly what we're talking about.

Got you. And as you -- you gave us a good roadmap in Colorado, a couple of weeks ago.

And could you just update us on the specific timing, I believe in addition to China which you mentioned first quarter -- and this may be more for Ray -- when you expect the Brazil plant and the Vietnam plant to start up? And maybe it's early days, but what sort of comes behind this?

You suggested that, given your market share, you could justify doing 3 plants a year.

Well, Brazil -- actually, Brazil plant comes up in March and the Vietnam plant comes up in March. And we saw, again some numbers yesterday, and when our board ran we -- Vietnam is sold out as we speak.

And Brazil, we have our long-term contract and we expect that to be sold out as well. And so, when we turn to China, and we look at our -- remember, one of our strategies is to keep our capacity utilization in balance.

And I could see potentially relocating another line from the U.S. into China next year, and we do have to continue to expand China.

I think I said when you were out here, expect 1.4 billion cans to be additional volume next year for us. And then, the year after that we've got the same thing going on, so we've got to get capacity in to meet it.

And do you expect as you do this that most of what you're building is actually taking share from other substrates or --

No, no, not at all.

-- is all of it growth? Or is all of it just market growth?

It's -- well, it's a combination of both, right? It's can penetration and it's also market growth.

I wonder if you could just elaborate on the out-of-pattern freight that you talked about. How much did that impact the quarter?

It was probably in the mid-single digits in terms of cost, millions of bucks. There's a -- we have a little bit of inflation.

Remember, in a lot of our contracts we have a lag in terms of pass-through of inflation. So there's a little of bit of that too, but nothing out of -- really out of the ordinary.

The out-of-pattern shipping and warehousing should -- it's pretty much done now.

Okay. And then in the America's Food side, could you talk about the trends in Food versus Aerosol?

You said down mid-single for the whole business, but maybe just parse that out?

Yes, what we said was down 4% in the quarter. For Food, that wasn't the whole business.

Our Aerosol business is down a little bit more than that and the reason is that we had lost some business in the first quarter to a competitor. Now I know that the CMI numbers, it looks like the market's down more than it really is because the competitor that we lost that business to, their numbers are not in the CMI numbers.

So the market's not -- the Aerosol market's not down that much. The business that -- and the fortunate part for us is the business that we lost was pretty low-margin business for us.

Got it. Okay.

And then how are you thinking about fourth quarter trends on the Food side?

Well, the Food business -- remember, we're more heavily weighted to veggies and the seasonal than probably some of our competitors are. So when we finish the third quarter, it's -- Aerosol is not that way, but when you go talk about the Food side, there's not a lot to be done.

So we've obviously got some shipping and some things to do, but the Food business is fundamentally done for us at the end of the third quarter. Not -- that's not the case with Aerosol.

So we expect the fourth quarter to kind of be a little -- be less than last year, but we would still expect to make more in our Food Can business in this -- in 2011 than we did in '10.

It was great going down in Golden again and seeing the facility, and it's amazing how efficient that plant is even though it dates back to the '60s. I was wondering directionally, can you comment -- is there further room to improve within North America on things like skeleton, metal usage and line speeds; in other words, how do you keep improving returns within an existing base of investment that's been around for a number of years?

And how would you size that for us right now?

I'll start then I'll pass it over to John, George. But one of the things that I'm always amazed at, remember, my -- if you go back, I'm kind of a financial guy in my background.

But the strength of our company really rests on our plant floor. When you go into those plants and those guys that work there, I'm always amazed at the quality of people and the expertise of our people.

So the law of diminishing returns is obviously it gets harder and harder all the time, but I guarantee you, every year we put together our plans and operating plan, and there's always performance improvements that those plants have generated. So if there's one thing I can tell you is that the one thing I have all the confidence in the world in, it's our people that work in the plants and they just do a tremendous job.

Yes, they really do. And in fact, if you look over the past couple of years since we've acquired the former Metal Container plant, some of those efficiencies have actually accelerated.

We've put some new systems in place to help provide the data in a more predictive way and our guys are just doing a fantastic job. And so we expect as we go forward to be able to continue to get more efficiency out of these plants.

And it's -- people always think that there has to be a curve that starts to slow down, and I'm sure there is one, but our guys have proven that we haven't seen the end yet.

John, could you size the improvement in productivity one way or another? Either output can grow a percent a year or you can keep the output the same, but reduce the investment by a percent a year?

How would you, if you would, have us think about that?

Here's what happens, George. As we make improvements and the output improves, that means that -- if the market's not growing, that means we -- that means that we free up assets.

And I just said that, fundamentally, I probably expect to relocate another can line probably to an emerging market this year, and the reason I expect to do that is the efficiencies we're talking about.

A fair point, Ray. I guess the other question I had, maybe to wrap up from our side, what are the imperatives that you're seeing for 2012 and are there going to be any changes in incentive comp, or how are you going to align incentive comp around those imperatives as you look at it?

I realize it's not January yet, but if you have an early read on that, we'd appreciate it.

George, as you know, our incentive comp, from our level all the way down to the plant floor in many cases, is based on return on investment. And we've been investing a lot this year and so next year is about getting the returns from those investments.

So a lot of next year is about execution on the projects that have gone in. Whether it is the Alumi-Tek line in Golden that's up later this month or early in November, whether it's about Whitby and Fort Worth that Ray talked about, whether it's about Brazil, whether it's about Qingdao, whether it's about Vietnam, it's time to start generating the return from those investments that are just getting in and put on the ground.

When you go back and look over the last 2 years, and what's kind of interesting is 2 years ago was just after you closed on Metal Container or were about to. You basically have used all your free cash flow and maybe you've even then some to buy back stock, and I guess just as you think about it fundamentally next year, is that something that we would expect to see continue?

And said differently, let's say you don't find a -- obviously if you find a major acquisition that makes sense, you don't want to push the envelope too far. But barring that, is there any reason why you wouldn't continue to use all your free cash flow essentially to buy back stock?

No, this is Scott. Actually if you look back over the last 24 months, by the end of this year, I think we'll bought -- we'll have bought back about $1 billion of stock, we've made a $0.5 billion of acquisitions, and $0.5 billion of investments in growth capital.

So when I talked before about balanced capital deployment, you can do a lot of things at the same time. And the cash machine has been growing.

If you recall back when you were here at the Investor Conference, I showed how the cash -- free cash flow had been growing over the last decade or so. And with the investments that we're making, we expect that to continue to grow, and so it gives us even more capability to continue to do a variety of things at the same time and so orienting a lot of our free cash flow to buying back our stock.

We don't have much in the way of debt maturities, our balance sheet's in good shape, we have a lot of liquidity. So I would expect the vast majority of our free cash flow, if not all of it or more, to be going back to be buying back our stock.

While still investing in a lot of growth projects.

Okay, great. Thank you, Edison, and I appreciate it.

We appreciate all of your support and it was good to see all of you a couple of weeks ago, and we look forward to talking to you on our January call. Everyone, have a good fourth quarter.